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Contra the Deficit Scolds, We Can Keep Medicare and Medicaid Strong Simply By Keeping Them Intact

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This diatribe bestowed upon Rep. Raul Grijalva on CNBC, which has become Fiscal Cliff TV, is really priceless, with the anchor accusing Grijalva of tanking the market because he refuses to cut benefits for poor people and seniors. The means testing angle is really a joke here, too. Medicare is already means-tested. To means-test it more, in a way that will actually capture enough revenue to matter, you would have to dip into the middle class to make the math work. Similarly, this idea that this is the “wealthiest generation of retirees in history,” when they just suffered a financial crisis and the stripping of their wealth right before their retirements, is ridiculous.

In reality, we cannot be secure enough in the long-term projections about Medicare and Medicaid to take a hacksaw to the benefits today.

Contrary to what conservatives say and even many centrists seem to believe, the high cost of Medicare and Medicaid isn’t a by-product of government inefficiency. On the contrary, Medicare historically has held down costs as well as, if not better than, private insurance on a per capita basis. That’s thanks, in part, to the administrative advantages of a centralized government program and Medicare’s enormous power to set prices. Medicaid is cheaper still, to the point where, honestly, it’s underfunded. The programs keep getting more expensive, relative to inflation, because medical care keeps getting more expensive—and, in the case of Medicare, because of the increase in the number of people coming on the program. That’s due to a variety of factors: paying too much for services and to the people who provide them; delivering a lot of treatments that are unnecessary, unhelpful, or even harmful; focusing too much on acute treatment when we should be focusing on preventative care and other ways of keeping people healthy.

Solving some of these problems is relatively straightforward, at least on paper. If Medicare is paying too much for a health care service or product, the government can simply insist that the program pay less. But imposing these changes too severely or quickly threatens disruptions: If providers don’t get enough money to cover their costs, they’ll perform fewer services or see fewer patients—sometimes, in ways that make it difficult for people to get care they need. The system can tolerate only so much shock at any one time.

And that’s the easy stuff. When it comes to the more complicated causes of health care inflation—focusing on prevention, shifting to treatments that have more proven effectiveness, improving the quality of care—we are still learning how to mitigate those. If Medicare offers doctors incentives to form cooperative groups, for example, will they respond—and will they become more efficient? If malpractice law changes, will the price of health care actually come down—and will quality actually improve? And so on. On these and other issues, doing too little is a danger, but so is doing too much.

Basically, Jon Cohn is saying that we should take the time to actually see the impact of delivery system reforms and payment reforms. We have some early evidence that the cost curve in health care programs has already bent. The Federal Reserve’s budget experts disagreed with the model used by the CBO to project health costs in the future. Without the CBO’s scary model, the long-term budget issue LARGELY GOES AWAY, especially if we start capturing a decent amount more revenue. The CBO didn’t even try to assume savings from the delivery system reforms in the Affordable Care Act.

As Cohn writes, we have time to figure this out. Debt-to-GDP can be stabilized with very minor changes, most of them on the tax side. It’s simply not necessary to club social insurance programs at this time. Health care programs represent the long-term budgetary challenge. In the near- and medium-term, there is virtually no challenge that cannot be solved through economic growth, a reduction of the high unemployment rate and tax levels consistent with the Clinton era. We have the time we need to evaluate the payment reforms and whether or not they bring the cost of health care down. I’m not as optimistic as Cohn, but fortunately, the entire world has road-tested the solution to high health care costs in the form of single payer.

If you’d like a more urgent near-term priority to worry about, how about 7.9% unemployment? How about skyrocketing student debt? How about the continued dominance of the financial sector, which remains Too Big to Fail? How about this enormous inequality problem, and the fact that taxes and transfers have become less effective over time in dealing with it?

There are literally dozens of challenges more pressing on the federal government than actuarial projections 30 years in the future.

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David Dayen

David Dayen