Politics, Not Policy, Steers Health-Care Spending Debate

By FOXBusiness

On paper it’s relatively easy to balance the bloated U.S. budget and trim the massive deficit simply by requiring the elderly to pay more for their federally guaranteed health insurance.

Continue Reading Below

Congressman Paul Ryan, (R-Wis.) essentially makes that case in his latest belt-tightening budget proposal released on Tuesday.

But laws aren’t passed and enacted on paper in Washington, D.C. They’re debated and voted on by legislators, most of whom who are keen on being re-elected.

The painful irony to the long-running health care debate is that both Democrats and Republicans agree that any realistic plan to rein in spending and reduce the $16.4 trillion deficit must include reforms to such popular programs as Medicare and Social Security. But whenever one side offers a viable solution the other side attacks it for political gain.

Meanwhile, the debate rambles on as heath-care costs and government spending soar.

Given this circular dynamic, some health-care experts believe the key to passing any reforms to Medicare, which provides coverage for nearly 50 million mostly elderly Americans, is to somehow get on board the 45 to 55-year-old demographic for whom any changes to the program will have the most impact the soonest.

"The real question is whether people in that 45 to 55 range are willing to take that hit. They’d have to be, well, patriotic."

Uwe Reinhardt, Princeton University health care economist

Unfortunately, that’s easier said than done, said Princeton University health-care economist Uwe Reinhardt.

Reducing the budget deficit is “very simple,” Reinhardt said. “It could be done by cutting the fraction of the health care costs per each elderly participant that taxpayers pay and shifting those costs onto the budgets of the elderly. That technically is easy to do,” he said, emphasizing the word technically.

The Problem is Political

The problems start when that simple, plausible concept is thrown into the political arena.

Ryan’s idea for cutting Medicare spending by making seniors potentially pay more isn’t new. It’s been included in previous budget plans the former vice-presidential candidate has introduced in recent years, the most recent of which would cut total spending by $4.6 trillion through 2023.

Here’s the part where Republicans and Democrats (those of whom are also serious about reducing the deficit) need to bring on board that 45- to 55-year-old demographic: the crux of Ryan’s plan to cut back total spending depends on Medicare reforms that would provide Americans currently younger than 55 a fixed amount either to spend on private insurance or to pay for traditional Medicare coverage.

At the heart of this proposal is Ryan’s plan to cap the amounts given to each participant as opposed to the open-ended payment system now in place. In other words, under Ryan’s plan if a participant’s coverage costs exceed his or hers fixed benefits the participant will have to pay the rest out of pocket. Ryan’s plan excludes anyone already older than 55.

The proposed benefit caps are where the long-term savings will be seen. That’s because economists – and most politicians – agree almost universally that since health-care costs rise much faster than the rate of inflation Medicare benefits as they are currently paid will have to rise accordingly.

That’s bad news for the budget deficit. According to the Centers for Medicaid and Medicare Services, Medicare spending is expected to nearly double from $522.8 billion in 2010 to $932 billion in 2020. What’s more, the Congressional Budget Office has predicted that by 2050, Medicare spending as a percentage of GDP will rise to 9% of the federal budget, up from about 3% in 2010.

But trying to scale back benefits to elderly Medicare participants could mean bad news for politicians seeking re-election.

A “Hard Political Sell”

“The Democrats can demagogue this forever,” Reinhardt said. “They did it before and they’ll do it again.”

Indeed, before Ryan’s plan was even released, Democratic Congressman Steny Hoyer had dismissed the proposal in an article posted on the political web site Politico.

Ryan’s budget plan, Hoyer wrote, “reneges on the Medicare guarantee and shifts costs onto our seniors. Instead of insisting on a balanced approach to deficit reduction, Ryan’s budget will demand that our middle-class, seniors, veterans, women, children, federal employees, low-income families, and those nearing retirement pick up the tab.”

At least one prominent Republican also slammed Ryan’s plan. In 2011, former Speaker of the House Newt Gingrich, during his failed bid for the Republican presidential nomination, called Ryan’s Medicare reform proposal “right wing social engineering.”

All of this political finger pointing might be alleviated if a powerful group of bipartisan leaders – President Obama, Republican House Speaker John Boehner and Senate Majority Leader Harry Reid -- made it a priority to convince that 45- to 55-year-old demographic to accept the sacrifice of reduced benefits in order to cut the deficit.

“I personally believe that if you’re going to cut spending and lower the deficit you do have to shift some of the costs to the elderly. The real question is whether people in that 45 to 55 range are willing to take that hit. They’d have to be, well, patriotic,” said Reinhardt.

He’s not so sure that will happen.

“It’s different when those cuts are going to hit you. It’s easy to agree to cuts that will impact someone else. It would take a real bipartisan effort to convince them because     you’re taking and hitting them with a two-by-four, saying it’s going to hurt you but it’s good for the country. That’s a hard political sell.”

He’s got that right.

What do you think?

Click the button below to comment on this article.