By James Kwak
The politics of Medicare were aptly summed up by Brad DeLong last May:
“The political lesson of the past two years is now that you win elections by denouncing the other party’s plans to control Medicare spending in the long run–whether those plans are smart like the Affordable Care Act or profoundly stupid like the replacement of Medicare by RyanCare for the aged–sitting back, and waiting for the voters to reward you.”
This is one manifestation of an important political dynamic, which is an important theme of White House Burning: the smart political bet is to accuse the other side of fiscal irresponsibility while being as irresponsible as possible yourself.
That’s the context in which to interpret the latest Republican claims that Barack Obama is trying to end Medicare, reported by Sam Stein. Mitt Romney apparently is accusing Obama of both bankrupting Medicare and of reducing Medicare spending, which are patently contradictory accusations. Yet despite its popularity, the program is so poorly understood that he and his advisers apparently think that they can get mileage out of this line of attack.
To be clear, Medicare costs are rising and projected to continue to grow faster than GDP. But Medicare is largely funded out of general revenues, so the only policy that could actually bankrupt the program is one that reduces general revenues—that is, tax cuts. The Affordable Care Act implemented several measures that are intended to reduce Medicare spending without changing its basic fee-for-service benefit structure; the Independent Payment Advisory Board, which Republicans love to demonize (and which I’ve written about before), is prohibited by law from making changes that would reduce benefits. In other words, these provisions should reduce spending while maintaining the current benefit structure.
There is a reasonable debate about how successful those measures will be. But you can’t simultaneously criticize the ACA for bankrupting Medicare and for cutting Medicare spending too much. And you shouldn’t criticize the ACA for bankrupting Medicare when you are pushing huge tax cuts that will undermine the funding for the program.
The Baseline Scenario 
Well lets see now, you can’t end the Fed, and we don’t know why, you can’t even audit the Fed, and we do know why. Now if you try end medicare you are kicking granny out on the street. End entitlements and you can’t get elected, end the bush tax cuts and you can’t stay elected, end the bailouts and we have no money. Any one else see a problem here?
James, your argument does not pass the laugh test.
“To be clear, Medicare costs are rising and projected to continue to grow faster than GDP. But Medicare is largely funded out of general revenues, so the only policy that could actually bankrupt the program is one that reduces general revenues—that is, tax cuts.”
Is your argument that as long as we don’t spend from the general fund on anything else, then Medicare is not bankrupt ? or that Medicare cannot grow faster than GDP, even without tax cuts? your statements are nonsense. thank you for pointing out to us plebeians how we don’t understand medicare.
“But you can’t simultaneously criticize the ACA for bankrupting Medicare and for cutting Medicare spending too much. ”
Actually. You can.
Yeah, I always love it when Republicans and conservatives act like they are the great defenders of Medicare. You know that program that was started by Lyndon Johnson, a liberal Democratic president, which was hated by conservatives when LBJ proposed it.
There are many alternatives better than medicare and some that properly promoted could have wide political appeal. The excessive negativity of many speakers seems to me to be unjustified. Here is an alternative set up in Singapore. For those dedicated to states Singapore is much smaller than most states.
Chapter 4 – Singapore
4.1 Background
4.1.1 Singapore retained a British-style, tax-based, largely publicly-provided health care system amidst its independence in 1965. At that time, health care services were mainly provided free or at a nominal charge to the general public by the public sector and financed through general taxes.
4.1.2 In view of the imminent problem of the escalating health care budget, the former Prime Minister Lee Kuan Yew suggested in 1975 “to set aside part of each person′s monthly Central Provident Fund contribution for co-payment of that person′s medical bills.”
In 1981, the Minister for Health announced that “a cradle-to-grave health system, like that of the British National Health Service and those of other welfare states, is not for Singapore.”
4.1.3 The major health care financing reform started in 1984. Instead of modifying the tax-based financing system, Singapore developed a medical savings account system. According to the National Health Plan announced in 1983, Medisave Accounts under the Central Provident Fund were established in 1984. The Medisave system has been in place since then. Both employees and employers are required to make mandatory contributions to the Medisave Accounts. The accumulated savings in an individual’s Medisave Account may be used for paying his/her own and/or immediate family members’ hospital bills.
4.1.4 Since the establishment of the medical savings account system, the government has developed the following measures to supplement the system.
(a) MediShield: It is a low-cost catastrophic medical insurance scheme set up in 1990 and run by the Central Provident Fund Board to help Singaporeans pay for hospitalization bills at the lower-class wards in public hospitals. Participants of the Central Provident Fund are automatically registered under MediShield once they have started making contributions to the Fund. Nevertheless, they are allowed to opt out of the scheme;
(b) MediFund: It is an endowment fund set up by the government in 1993 to help poor singaporeans pay for their medical care. As a safety net, the MediFund Committee of an approved hospital or medical institution considers each application according to the applicant’s financial circumstances and the size of the bill;
(c) MediShield Plus: It is a high-cost catastrophic medical insurance scheme set up in 1994 to allow Singaporeans to upgrade the MediShield benefits, such as paying hospitalization bills at upper-class wards in public hospitals and private hospitals; and
(d) ElderShield: It is a disability insurance scheme set up in 2002 to provide financial protection for the elderly who are unable to perform basic activities of daily living such as eating, dressing and toileting.
4.1.5 In the 2005 reform, MediShield and MediShield Plus have undergone the following changes to strengthen the role of the private sector in the provision of health insurance:
(a) The MediShield Plus schemes have been transferred en bloc from the Central Provident Fund Board to a tendered health insurance companies and renamed IncomeShield; and
(b) The Central Provident Fund Board and health insurance companies have become the joint insurers for an integrated MediShield plan. The insured of an integrated MediShield plan is eligible for the MediShield benefits plus additional benefits, such as upgrading to higher-class hospital wards. While the Central Provident Fund Board is responsible for the provision of MediShield benefits, health insurance companies offer a variety of packages of additional benefits for different levels of premiums.
Source: http://www.legco.gov.hk/yr05-06/english/sec/library/0506rp06e.pdf
So if this alphabet soup of confusion was installed here the repugs would praise the lower-class ward concept while starving them via the voucher route.
There is another side to the Medicare cash flow. One can delay the emptying of the Medicare Plan A trust fund (that is the so called bankruptcy of Medicare) without cutting benefits by raising the Medicare tax … as the ACA did. Romney doesn’t mention that, because the tax increase was popular (because like the tax cuts he wants it was directed at the rich).
Robert:
It is not the depleting if the trust fund that is the problem.
It is the tapping of the trust fund.
As you probably know, the surplus and interest were supposed to be placed in nonmarketable Treasury securities, to be used only for Medicare beneficiaries. Instead, the entire principal and interest of the trust fund was loaned to the Treasury. These real dollars were used to pay real current expenses and to lower our real deficits.
Now, all hat remains of the trust fund is a hollowed artifact of wealth. When the trust fund is depleted, the same process will be used to make up the shortfall: tapping of general revenues.
Don Levit
@robert waldmann: Exactly. In White House Burning we propose raising the Medicare payroll tax by one percentage point. That won’t fully fill the funding gap, but it is a start.
James, wonderful article about one of the US’s greatest fiscal challenges. I am a Medicare recipient, beginning about 10 months ago. I pay about $170 per month for that privilege (most of those not on Medicare aren’t aware of these premiums which must be paid) which is deducted from my Social Security (about 9% of my total benefit after the latest COLA adjustment in January). SS is my only source of funds (I have no pension, retirement benefits otherwise and no savings or other benefits as a financial fall back). I live simply, but comfortably. I have enough, and am generally very frugal, but I was shocked to find that I had this new expense every month, and am not eligible for any other form of aid of which I am aware.
I have come to understand just what this article so cogently and succintly identifies as the problem — that the fiscal issues occasioned by the constant increase in health care costs, and thus the long term issues with Medicare program cost as a Federal Budget outlay, cannot, or will not be solved by either of the major parties, but make a wonderful political football, since the public is largely ignorant of the truth behind the complexity of conditions which are the roots of this fiscal juggernaut. In the age of American Plutocracy where the actions of the elected are controlled by their masters/handlers, the 1%ers and their Super Pacs and lobby machines on K Street, there is virtually no chance that this situation will improve in the foreseeable future.
The solution is obvious, and completely ignored. In fact, during the Senate hearings on the runup to the enactment of ObamaCare, Senator Harkin, committee chairman, refused to even listen to or allow the advocates of Single Payer to speak or be heard, and several times had their advocates forcefully removed from the hearing venue. Understand that most of the advocates were, at that time, medical professionals (doctors and nurses) who are, in the majority, in favor of this schema, and know that the public also favors what has been termed Medicare-For-All. This is the Canadian program, and last year the comparison in health care spending on a per-capita basis was about $4,079 for every Canadian citizen, and about $7,538 for every American Citizen (figures based upon an OECD study — OECD is an international economic organization broadly recognised for its political independence, and of which the US is a member).
Sadly, as I said, in the present political milieu in the US, this idea will not just receive short shrift by our national politicians of both major parties, it will never be brought up to debate. If we remember, President Obama had been an advocate of Single Payer in the runup to the pre-legislative debate, but quickly dropped his position and refused ot provide advocacy to any particular position on anything in the debate until the law passed.
If the US felt it needed to go to war (it often does), it would find the money.
I think it is a mistake to view Medicare as a financial problem, and not as a political problem. You recognise this by proposing a 1% increase in tax to fund the program. You say ” That won’t fully fill the funding gap, but it is a start.”
Why do you propose a policy that you do not think will work?
The program is not financial unsustainable, it is politically unsustainable. You need to find a program that has stronger political support. That might take creative thinking but we can all do that if we try.
I can see how Barts like minded people get off so track easily, lets do the math. Of the 118 trillion dollars of UNfunded liabilities, 101 trillion dollars is either medicare or prescription drugs, thats almost a wopping 86% worth of UNSYSTAINABLE financial momentum. And this will be the primary reason why future skyrocketing deficits are projected from now until the cows come home. Which I give a maximum of 6 years before the complete implosion of the U.S. dollar. The only political support will be when the entire world f–ks the strenght of the dollar, for that is all that should be done to it.
@Don – Thanks for the truth of how predatory Vulture Capitalists robbed everything from everybody – I supplied another Bain story link below that connects the dots for WHY no one actually has the data about the real medical needs of real still-alive people, hence all the crazy numbers of how much needs to be *cut*. You wrote,
“Robert:
It is not the depleting if the trust fund that is the problem.
It is the tapping of the trust fund.
As you probably know, the surplus and interest were supposed to be placed in nonmarketable Treasury securities, to be used only for Medicare beneficiaries. Instead, the entire principal and interest of the trust fund was loaned to the Treasury. These real dollars were used to pay real current expenses and to lower our real deficits.
Now, all hat remains of the trust fund is a hollowed artifact of wealth. When the trust fund is depleted, the same process will be used to make up the shortfall: tapping of general revenues.
Don Levit”
http://www.bloomberg.com/news/2012-03-09/bain-s-quintiles-pays-50-premium-to-finance-dividend-corporate-finance.html
We must never take the focus off the FACT that nothing has changed, in fact it’s gotten worse. The 1% are psychotic and sociopathic PREDATORS who continue to extract every cent from every USA born and bred American. They are WORSE than fascists and communists. Their *vision* is to sadistically enjoy watching 5 billion people kill off each other – The Hunger Games for real…
The FILTH young people are exposed to as*education* from Hollowood makes no rational sense, does it?
Oh boy, as someone starting a business to bring down the costs of manufacturing at home, I am in fear that some rogue elites will take the system down before I can help build it up. No on to healthcare:
Isn’t the real problem in healthcare the very low productivity? We still go in to see the medical “priest” on a 1:1 basis. These specialists often know less than you think if you have a condition just a little out of the norm and so you’re on your own with google and herbal quackery.
I would revamp medicine. Most of what ails most of us most of the time could be diagnosed and treated by an online program. If we were to link our DNA and results of every intervention, datamining itself will lead to constantly improving treatments that are specific to you. I’d then move to more catastrophic care and medical market for the easy stuff and heavily subsidize preventive care with taxes.
Does the Whitehouse burning cover this aspect?
Medicare is the best health system in the United States! It has made sure our seniors don’t fall into bankruptcy within a few years after retirement and continue throughout their life to get some of the best health care available here in the US.
It dose have its problems though and we can’t overlook them. First it is not funded out of General Revenues; it is funded through a payroll tax of 1.45 percent for the individual and an additional 1.45 percent paid by the employer. It has a large reserve which is quickly disappearing but could be put back in order by a small increase in withholding to a total of 4.2%. Wouldn’t you be happy if your health insurance premiums only increased by .65% for each person and employer in the last several years in total?
Our Congress and we in general have to get over the idea that Medicare withholdings is a tax it isn’t it is future premiums on our health care plan when we retire. When you retire you will pay NOTHING out of pocket for hospitalization except some co pays and deductibles! We need to rephrase this whole argument and deal with it.
We can cut costs on Medicare by also repurposing our approach to health care under it to having a Standard premium for part B and Supplements and Advantage Programs and discounting those premiums if beneficiaries enroll in “Good Health” programs and follow how to stay healthy instead of paying for unhealthy consequences. Pay for completed nutrition classes and give a discount on premium for those who go and improve their health, pay for exercise classes minus a co pay and discount those who are or get in shape. Do the same for going to, and following chronic illness classes. Make the primary physician responsible for enlisting and engaging those in their care and pay them well for it. In addition make the supplemental carrier a partner in this program.
Use Medicare in refocusing our health care and watch the costs drop beyond belief. Lets not throw the baby out with the bath water lets do what it takes to make us all healthier and to make the system work!
It is good to see that someone actively supports the program. My observation is that such support is rare. This is surely understandable as the public only feel the cost and hear the constant drumbeat of doom and gloom.
The question most often asked and answered is “How best to to fix the problem?” This creates a problem within a problem. At this point most consumers go back to their TV. It is unreasonable and unhelpful to position the debate this way.
James was right to propose a solution. Where he went wrong was in not making his solution rock solid. Nothing succeeds like excess. Few are persuaded to go aboard a ship that only leaks a bit.
The idea that one should almost minimise the cost comes from the PR industry. But solutions that won’t work seldom win broad public support.
If your opponents aren’t accusing you of spending too much then you haven’t got the balance right. There is no sweet spot where everyone loves you.