Why Bill Clinton is Right on Medicare

Written By Ogenec

Another politician falls victim to the “hot mike.”  This time it’s good ol’ Bill.  Caught, as it were, in fragrante delicto with Paul Ryan.  As all good liberals and progressives know, Paul Ryan is the bete noire of all that is decent in the world, because he had the temerity to put forward a plan to reform Medicare.  Democrats ran on that in NY-26, turning a ho-hum special election in a Republican bastion into a referendum on the Ryan plan.  And the Democrat won!  For the first time in a long time, Democrats have Republicans on the run.  Visions of retaking Congress are dancing around in Democrats’ minds.  Hence the dispatch with which Senate Democrats forced a vote on the Ryan plan.  To the Dems’ delight, all the Republicans voted for it except for the self-avowed centrists and Rand Paul (whose beef is that the Ryan plan is insufficiently draconian).  So why, cry Democrats in anguish, would Bill Clinton choose now to play footsie with the enemy?

Here’s why.  It may be the case that the Ryan plan is a bad idea, on both political and policy grounds.  But that does not negate the fact that Medicare is a serious, and growing, problem.  The NY-26 lesson should not be to abandon efforts to reform Medicare.  Yet that is precisely the lesson Democrats seem intent upon drawing.  They will enjoy a short-term political boost as a result.  But in the medium- to long-term, they — and we — will suffer greatly for the abdication of leadership.

It’s difficult to discern the severity of the problem when one talks about Medicare in abstract terms, as I just have.  So let’s talk numbers.  Fortunately, I have the 2011 Medicare Trustee’s Report, published just this month. It’s a 273-page report, but you don’t have to read all of it. Virtually all the bad news is right up front in the Overview section:

  • The hospital insurance part of Medicare (Part A) is projected to go bankrupt in 13 years (2024).  That’s a full five years earlier than projected last year(!)
  • Part A has not met the Trustees’ test for short-term financial adequacy since 2003.  In 2010, $32.3 billion of trust assets were redeemed to cover the expenditure shortfall.
  • “The difference between Medicare’s total outlays and its ‘dedicated financing sources’ is estimated to reach 45 percent of outlays in fiscal year 2011, the first year of the projection.”  In plain English, Medicare is borrowing from the Federal Government nearly 50% of what it pays out.
  • As dire as the projections detailed above are, the reality is much, much worse.  That’s because the projections assume that the cuts in Medicare spending embodied in current law apply.  But, as everyone should know, the cuts are virtually certain not to apply.  Back in 1997, as part of the Balanced Budget Act, the Clinton White House and Congress agreed on “sustainable growth rate” triggers that would restrict Medicare reimbursements to doctors.  Medicare costs quickly outstripped growth projections in the Act, so the SGR cuts should have kicked in, right?  Well, no.  Each year since 2003, Congress has postponed implementing the cuts, even as the Trust Fund is required to assume that they will come into effect.  The cumulative effect of all the postponements is that in 2012, Medicare reimbursements would have to decline by 29.2% to comply with the Balanced Budget Act.  Never gonna happen.  Which is why the Medicare trustees take a dim view on whether the cost-containment measures contained in the Affordable Care Act will ever materialize.  Given the SGR experience, the Trustees — masters of understatement, they — call the prospect of ACA cost savings “debatable.”
  • If you are not scared by now, this last statistic should leave you slobbering in abject horror: The present value of the Medicare deficit through 2085 is $33.8 TRILLION.  That’s trillion with a T.  And that’s the present value of the deficit, not the aggregate amount in nominal terms.  Moreover, the $33.8 trillion merely represents the difference between Medicare assets and estimated outlays.  In 2085, Medicare assets would be zero.  Lastly, the $33.8 trillion number is based on the same optimistic scenarios discussed above, the same ones the Trustees concede are unlikely to materialize.  As a result, to quote the Trustees again, “actual long-range present values for HI expenditures and SMI expenditures and revenues are likely to exceed the amounts shown in table V.D2 by a substantial margin.”

Ladies and gentlemen, these are the cold, hard, incontrovertible facts.  We need to come up with at least $33.8 trillion in today’s dollars – and probably much more – just to keep Medicare going through 2085.  After which time the Medicare fund will have exactly zip, zero, nada, left.  This is the reality that Bill Clinton is reacting to.  And that is why he is cautioning Democrats not to sacrifice courage on the altar of political expediency.  Yes, the Ryan plan is a bridge too far.  But there is a wide gulf between Ryan’s proposal and doing nothing.  Democrats must do something.  It’s a moral imperative.

The other thing the $33.8 Trillion number points out is that the “solutions” proferred by liberals and progressives are anything but.  A surtax on the rich won’t generate anything near the kind of revenue required.  Sen. Sanders has advocated a 5.4% surtax on incomes above $1 million, which he estimates would generate approximately $50 billion in annual revenue.  That’s a mere pittance, given the enormity of the Medicare deficit.  Plus, it’s unlikely to pass.  Sen. Conrad has proposed a far more modest 3% surtax, which would cut nearly in half the expected revenue.  Most importantly, as James Kwak notes at Baseline Scenario, Medicare taxes already are progressive:

In some abstract sense, I would prefer to raise taxes on the rich instead. But I think we should look other places rather than Medicare to make the tax system more progressive. Medicare, like Social Security, is a progressive system even though its taxes on their own are not. Because everyone gets the same benefit, there’s already a large amount of redistribution going on; in addition, that benefit is worth more to poor people, because they are less likely to have other sources of insurance.

Neither will using Medicare to leverage lower drug prices — in fact, the drug portion of Medicare already is indexed to costs.  Per the Trustee’s report:

The SMI trust fund is adequately financed over the next 10 years and beyond because premium and general revenue income forParts B and D are reset each year to match expected costs.

Which makes the solution rather obvious, no?  Increase the payroll tax to reflect the rise in Medicare spending.  And let’s undertake a real effort to reduce healthcare costs.  And by that I mean real reductions, not artificial measures that don’t address costs at the source, but merely shift the increases in healthcare costs to others.  That’s what Congress tried with the SGR, and that’s why it doesn’t work.  And, as a certain someone predicted in 2009, that’s why the ACA putative cost savings won’t materialize either.

So Bill is right on Medicare.  There are any number of compelling reasons for Democrats not to demagogue this issue.  33.8 trillion on them, as it happens.

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8 Comments

Filed under Economy, News, Obama Administration, Politics, Pres. Barack Obama

8 responses to “Why Bill Clinton is Right on Medicare

  1. vermelle

    I think Bill Clinton should be ashamed of himself …here we go again.
    I hope all of the old people in America who thought he was on their side find out he is willing to throw them under the bus. Plotting with the enemy to kill medicare.
    He had his day as President , he should take a page from the former Presidents Bushes. Instead he has allowed us all to see him as the snake , hiding in the bushes. I like President Obama’s work to eliminate waste in medicare. Also ,hope Bill will get caught whispering next time how the GOP might pass a bill to take the tax breaks for the rich back to where he had them.
    Vermelle

  2. it’s a great breakdown of the issue and non-starter positions from either side will not solve anything. I read somewhere though that ending the Bush tax cuts was worth $1 Trillion over 10 years. (FactCheck says $870 Billion) does that put a dent in the problem?

    • ogenec

      Hey man, good to hear from you! The $50 billion number I quoted is per year. That’s just the revenue from those making $1 million and above. The delta between my figure and yours is likely the effect of undoing the Bush tax cuts on those making between $250K and $1 million.

      That makes a dent, to be sure. Every little bit helps. But the Medicare deficit is $33.8 trillion. So it’s wrong to argue, as many have, that higher taxes on the rich will solve the problem. There is no way to fix the Medicare deficit without everybody feeling the pain. That’s the reality, and Democrats are irresponsible not to address it.

      • means testing seems reasonable for Medicare and Social Security… not sure what that does to the cost projections but taking something just because you can is not noble by any measure. Raise the cap on FICA yearly contributions as well…

        • ogenec

          I agree — means testing and raising FICA yearly contributions should be part of the mix.

  3. 33 trillion dollars over the next 74 years divided by 300 million Americans equals about $1500 apiece annually. (Let me know if I made a mistake in arithmetic.) A lot of people pay more than that in health insurance costs every month! So it would seem that an adjustment in payroll taxes would take care of most of this problem. And that is without making any kinds of reforms in the system. But if we tried some real reform, we could probably save a lot of money. Not just slashing the reimbursement rates for doctors, or just slashing overall spending without changing anything, as the Republicans have proposed, but real reforms such as reducing the number of ineffective and unnecessary treatments ordered by doctors, or obtaining better prices for drugs.

    Every other advanced country manages to pay for the equivalent of Medicare for everyone, not just seniors, and most of them spend half as much on health insurance than we do, and many such countries have better health outcomes than we do. So the idea that we can’t afford to do this is just ridiculous.

    • ogenec

      The problem with your math is that $33.8 trillion is the present value of the deficit TODAY. It’s the size of the hole in today’s dollars, not the nominal amount you need over the next 75 years. Your arithmetic using nominal dollars, which means you need much more than $33.8 trillion. And, again, the real number is likely to be substantially more than $33.8 trillion in present value.

      http://en.wikipedia.org/wiki/Present_value

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