Commentary & Opinion
3:50 pm
Fri October 4, 2013

Michael Meeropool: Crisis Prompts Fringe Groups To Push Medicare Cuts

If this commentary sounds like a broken record, it’s because the folks who are out to gut Medicare  --- the “let’s have a grand bargain and introduce more austerity” crowd --- have returned with a vengeance.   Because of the current stand-off between the President and House Republicans, the two leaders of the failed Simpson-Bowles Commission are back at it again.   Over the summer, the White House has hosted dinners with Senate Republicans in hopes that a new grand bargain can be reached.   Former Senator Alan Simpson and former Clinton Administration Official Erskine Bowles, in a recent OP ED argued again that ”both sides” will have to “give” on what they strongly support.  So Republicans will have to accept higher taxes on high income individuals (still not as high as they were before Reagan took a meat tax to the progressive federal income tax in the 1980s).  In exchange for higher taxes on well off individuals the Democrats are going to have to accept “entitlement reform.”   Entitlement reform, to those who have not listened to me before, is a euphemism for cutting Medicare and even Social Security.

[For some details see  http://www.laprogressive.com/catfood-commission-budget-crisis/]

Simpson and Bowles propose steps that ultimately will lead to a transformation of Medicare from a guarantee to a capped expenditure by the federal government – in short, something very similar to the Ryan Budget’s “premium support” (which I argued was just a voucher system with different language).  In this version, instead of the individual being asked to buy insurance, the government would cut back on Medicare spending and cap increases at the increase in GDP --- in effect solving the issue of medical cost inflation by making people on Medicare take all the risk.

[To read Simpson and Bowles’ approach check out their web site http://www.fixthedebt.org/blog/summarizing-the-new-simpsonbowles-plan_1#.Uk7o_xBh6m8]

On September 16, 2013 they wrote an OP ED in the Christian Science Monitor entitled “Government shutdown?  A lead of trust can seal a budget deal.”

President Obama himself showed willingness to “compromise” by proposing a budget that changed the calculation of the cost of living increases for social security pensions, veterans benefits, tax bracket indexing and some others as well.  This change would amount, of course to cuts in benefits over time and increases in taxes over time.  The White House dinners with Senate Republicans indicate that he and his advisers have not given up on the idea of reaching a “grand bargain” with Republicans which will undoubtedly include cuts to Medicare.

As I have said countless times cutting Medicare is terrible policy.  Such cuts were terrible when Simpson and Bowles first proposed them – which is why the 18 member Commission never got enough members to support their proposal.  Despite the media’s persistence in describing the proposal from the individuals Alan Simpson and Erskine Bowles as the proposal of the entire 18 member Commission, what Simpson and Bowles proposed was never even put to a vote on the Commission because it could not reach the required majority.   Cutting Medicare was equally terrible when Paul Ryan proposed it and the House passed it – twice.   When confronted with the opportunity to register their opinions, the public responded both with negative polling numbers vis a vis the Ryan Budget and with a resounding defeat for Mitt Romney who, we should remember, chose Paul Ryan as his running mate.

Why is cutting Medicare terrible policy?  Because the problem with Medicare actually has nothing to do with Medicare.  The problem is medical cost inflation.  If Medicare were abolished tomorrow, medical cost inflation would remain the number-one problem in terms of cost. It would be a problem for people who buy insurance through their employers and it would be a problem for those who purchase insurance through the just created exchanges under the Affordable Care Act – aka Obamacare.   It is true that there is evidence that medical cost inflation has slowed since the Affordable Care Act was passed but we still are a long way from having medical costs rise at the same rate as the national inflation rate.

There are many reasons why medical care costs more by far in the US than in any other advanced country. One is the existence of government mandated monopolies for newly developed drugs --- patents.   If patents in pharmaceuticals were abolished and a prize system were substituted that would directly reward those who create the new products, prices of drugs could be cut by 70% or more.  Another cause of medical cost inflation is the very existence of a private insurance system for health care with no national (or state wide) system of price controls.

We don’t need to use the Simpson-Bowles-Ryan approach – all we need is to directly control medical cost inflation.  As I’ve said many times, a Canadian style system – expanding Medicare to the entire population – would truly control prices while keeping doctors and hospitals and drug companies private.   The control of prices would be based on the bargaining power of the buyer (in this case the State Government) – just as Walmart bargains down the prices it pays for the items it sells.  There would be no need for bureaucratic price controls such as occurs during wartime.  Instead, it would be good old fashioned bargaining where a big purchases gets a deal from a supplier.  The VA does that when purchasing pharmaceuticals from drug companies and Medicare does that now when deciding how much to pay doctors and hospitals.

Don’t let the austerity crowd who are dying to cut Medicare take advantage of the current political crisis in Washington to create this “grand bargain”.   That so-called bargain is a lemon for us citizens. While putting pressure on Congress to re-open the government and raise the debt ceiling, do not let your guard down.  Insist that the Simpson-Bowles-Ryan approach to resolving the current impasse be firmly rejected.

MICHAEL MEEROPOL is Professor Emeritus of Economics at Western New England University.  He has been a WAMC – FM commentator for 8 years.  His most recent book is (with Howard Sherman) PRINCIPLES OF MACROECONOMICS, Activist vs. Austerity Policies.

The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.

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