Tag Archives: entitlement reform

Medicaid.

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In 1965, fresh off a Democratic thrashing of the Republicans in the 1964 elections, President Lyndon B. Johnson had the means to push through his effort to “complete” the New Deal.[1]  This included legislation to provide government-funded medical care to four groups of the “deserving poor”: children, pregnant mothers, the disabled, and geezers who needed long-term care.  So it went from 1965 to 2014, as the one-time “war on poverty” failed to end poverty in a growing population.  By 2014, 57 million Americans were covered.  Still, at that point, one in seven Americans (14.3 percent) had no health insurance.  Then the Affordable Care Act (ACA) of 2010 kicked in, “allowing” states to use Medicaid to pay for the expenses of all able-bodied adults who earned less than 138 percent of the government’s poverty level.  This added 17 million people (about 30 percent of the 2014 total) to the Medicaid rolls. By 2016 the share of Americans without medical insurance had fallen to one in twelve (8.6 percent).  However, the cost of those covered by Medicaid ran to $574 billion a year.[2]

As part of the “repeal and replace” ACA effort, House Republican proposed to reverse the ACA’s expansion of Medicaid by 2020.  That is, they sought to return Medicaid to its original mission.  This would involve dropping 14 million people—those able-bodied people added by the expanded Medicaid of the ACA.  There also is talk of imposing a work requirement on able-bodied recipients of Medicaid.

Another part of the plan is tax cuts.  The ACA imposed $875 billion in new taxes, mostly on high income earners.  The Republicans want to roll back those tax increases.

Another part of the Republican plan would reduce the future growth in Medicaid spending by $834 billion over ten years.  The federal government would provide states with fixed amounts of money, rather than just paying whatever bills come in.  This proposal tries to address an important demographic and financial problem.  Medicaid pays for home health aides and for nursing home care for those who have exhausted their own savings.  A recent report by the World Economic Forum pointed out that the United States has the biggest gap between actual retirement savings and projected needed savings.[3]  U.S. government projections suggest that 70 percent of people will need long-term care.  The vast majority of these will need a home health-care aide, while 18 percent will need nursing home care.  Given the retirement savings gap, a huge financial cost will fall on the Medicaid system.  The Republican plan tries to address that issue.  It may not do that well, but one is surprised to see it done at all.

It is possible to see two distinct moral perspectives in the struggle over Medicaid.  Medicaid is but one front in a fight that involves Medicare, Social Security, defense, education, and taxes.  Broadly, they all touch on different conceptions of social reform and the best society.

Democrats would argue that the national government has a moral duty to its citizens.  It must break down the barriers to individual success.  Where those barriers can’t or can’t yet be destroyed, then the winners from current systems need to compensate the losers.

Republican would argue that such government action corrodes individual responsibility and creates dependency.  It harms the very people it seeks to help.  Government has a moral duty to create the conditions for individual success by fostering a dynamic economy.

It’s wishy-washy to say so, but both could be true.

[1] Julian Zelizer, The Fierce Urgency of Now: Lyndon Johnson, Congress, and the Battle for the Great Society (2015).  Really good book.

[2] “The battle over Medicaid,” The Week, 23 June 2017, p. 11.

[3] See: https://waroftheworldblog.com/2017/06/20/memoirs-of-the-addams-administration-24/

The Social Trampoline.

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In 2012, 46 percent of the US Government’s non-interest spending went to Social Security, Medicare, and Medicaid; by 2030 it was projected to rise to 61 percent.  That is, these safety-net programs either will crowd out spending on other things or force a substantial increase in in government spending over-all.[1]

One driver here is the retirement of the “Baby Boom.”  In 2012 there were 49 million people on Medicare (and presumably s slightly smaller number receiving Social Security).  By 2030, that number is projected to grow to 80 million.

Another driver is high medical costs.  In 2011, Medicare spent $560 billion.  By 2022, Medicare spending is projected to rise to $1.1 trillion.

“Reforming” entitlements really means cutting someone’s income.  Whose ox is going to get gored?

Hoping to avoid this ugly reality, people grasp at straws.  Medicare is already “means-tested” (that is, individuals/couples making more than $85,000/$170,000 a year pay higher premiums).  Raising the Medicare eligibility age from 65 to 67 would cut costs by about 5 percent over the long run because those people are basically still healthy.  Raising the Social Security retirement age to 70 would cut spending by 13 percent by 2060.

Cutting medical costs would involve reducing the incomes of medical personnel, hospitals, and drug manufacturers.[2]  Democrats want to do this through government regulation by bureaucracies subject to pressure from elected representatives.  Yea, right.  Republicans want to do it “through the market:” by giving everyone some miserly sum and making individuals bargain with big corporations.  Yea, right.

Avoiding these fights by just raising taxes on the wealthy could have a certain broad appeal.[3]  However, rich people are adept at defending themselves.  Even if they had to put up with higher taxes for a while, they would eventually get them over-turned.  Democrats are always going on about how high taxes on the rich were commonly accepted for a long time after the Second World War.  Where do they think that the Reagan and Bush II tax cuts came from if not from simmering resentment of high income earners?

The simplest fix for Social Security would be to raise or remove the cap on payroll taxes on incomes over $110,000 a year.  That would solve the problem for 75 years at least.  Additionally, reducing inflation-indexing of Social Security could save a lot of money.  Depending on how far it was pushed, this could save $100 billion over ten years.  Probably one would have to do both to limit the political reaction by high-income earners.

One argument against raising the retirement age is that it would disproportionately penalize lower class and middle class people.  They generally don’t live quite so long as do rich people.  So, it would cut into their retirement “golden years.”  Doctors and nurses aren’t going to want to give up a big chunk of their income.  Rich people aren’t going to want to pay an even more disproportionate share of taxes.  “Baby Boomers” have a notion that they have a bargain with America and that America needs to honor its “promises” to them.  However, the truth is that they promised themselves these benefits and that they promised that a younger generation—which had no voice in the bargain—would pay the costs.  The simple human truth here is that people are selfish.  Not much sign of civic solidarity.

[1] “Fixing the safety net,” The Week, 21 December 2012, p. 9.

[2] See: “Single Payer.”  https://waroftheworldblog.com/2016/05/17/single-payer/

[3] “A poor man with a ballot box can rob you as easily as a rich man with a pen.”—Woody Guthrie.