Democrats Are Not The Real Threat To Medicare

by Jonathan Cohn | September 9, 2009

Republicans have a message for America’s senior citizens: President Barack Obama and the Democrats want to take away your health care. And if the polls are right, America’s seniors believe it.

For a while now, people over 65 have been skeptical about Democratic reforms. Although the skepticism reflects some broader political feelings--seniors have always been a tough political audience for Obama--it also reflects a seemingly fair judgment about the policies Obama has put forward. In order to help pay for the rest of his reforms, Obama has called for reducing the growth in Medicare expenditures.

The bill that passed three House committees over the summer included some cuts along these lines, with more likely to come later in the legislative process. In all, the government would probably tend up taking a few hundred billion dollars out of the program.

But despite those numbers, the Democrats aren’t the real threat to Medicare. The Republicans are, precisely because they oppose changes in the health care system.

If nothing in the health care system changes--in other words, if the Republicans succeed and reform fails--Medicare will quickly find itself in a world of financial trouble. Medical care is getting more and more expensive. Soon the subsidies and taxes that support the program will not be enough, while simply running even higher deficits probably won’t be an option, given the way the debt picture looks. There will be pressure to cut the program--and really cut it, in ways that will hurt beneficiaries.

How can I be sure? Because it's happened precisely that way before--back in the 1990s, just after Speaker Newt Gingrich and his GOP colleagues took control of Congress.

They swept into power promising a radical transformation of the welfare state, with a transformation of Medicare high on their list. Citing the program's looming financial problems--one not unlike the situation Medicare faces today--the Republicans proposed to slash the program’s funding. Premiums for seniors would go up, while the program’s protection would go down. Since Republicans also planned to open new private insurance options for seniors, many experts believed the net effect would be to see a gradual erosion of the program, as wealthier and healthier seniors left to buy better options on the private market--Medicare would, as Gingrich famously boasted, "wither on the vine."

President Clinton refused to go along, shutting down the government rather than agreeing to a budget with the cuts. (In one famous exchange over the proposed Medicare changes, Clinton told the Republicans that if they wanted to get their way, "you'll have to get someone else to sit in this chair.") But while Clinton prevailed in that fight, two years later the Republicans put together another budget that many Democrats voted for and Clinton signed.

While these reductions helped stabilize Medicare finances, at least for a little while, they still sent a shock through the system--enough that Congress later restored a bit of the funding.

Fine, so the Republicans tried to take advantage of Medicare’s fiscal problems, using them an excuse to gut the program. Isn't Obama doing the same thing?

Actually, no. Here--with apologies--it's important to look at some actual numbers. The House reform bill would, on net, take a little more than $200 billion out of the program over ten years. That may sound like a lot. But when you measure it relative to the current size of the program--and its projected growth--it’s actually far smaller than what the Republicans did in the 1990s.

According to rough calculations by Tricia Neuman, vice president of the Kaiser Family Foundation and director of its Medicare policy project, the 1997 cuts reduced expected Medicare spending by two to three times as much as the House bill now proposes. And, don’t forget, those 1997 cuts were not even as extreme as the ones Republicans tried to pass in 1995 (KHN is a project of the Foundation).

What's more, all cuts to Medicare are not created equal. When Gingrich and the Republicans first proposed their Medicare scheme, they didn’t have overly specific reductions in mind. They simply believed--or hoped--that massive reductions in reimbursements and subsidies would force consumers to shop around for better deals (while forcing providers to give them).

Obama and his supporters, by contrast, have in mind very targeted changes--changes that, they believe, can yield efficiencies so that Medicare ends up delivering more, not less.

A classic example of this is a proposal to reduce the subsidies that go to private insurers who handle Medicare customers through the Medicare Advantage program. Study after study has suggested the subsidies are unwarranted--that private insurers don’t actually deserve the extra money. Or consider proposed changes to the way hospitals are paid. The whole point of these changes is to realign payments, so that the government stops spending money on treatments that are redundant or simply not warranted. If they go well, seniors should end up with medical care that is actually more effective--and a program that is easier to sustain in the future.

To be sure, that’s a big "if." Skeptics will argue that government wouldn't always get the cuts right; that a few of the reductions might trickle down to seniors and impact their care negatively. On the other hand, the sorts of changes both the House and administration have in mind include adding benefits to the program--chiefly, by filling in the "donut hole" that presently exposes seniors to high prescription drug costs. Even if seniors lose something, they’ll be gaining something, as well.

As is so often the case with health care, the choices aren’t exactly as the public perceives them. Seniors don’t have the luxury of picking between the Democrats’ plan and the status quo. Instead, the choice between them is between the Democrats' plan and a steady deterioration in the program’s finances--all but forcing the sort of radical scaling back that Republicans tried to push through in the early 1990s. Of course, that’s not the message Republicans are trying to deliver. But maybe, on Wednesday night, President Obama can.

Jonathan Cohn is a senior editor of The New Republic. This column is a collaboration between TNR and Kaiser Health News. KHN is an editorially independent news service and is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization, which is not affiliated with Kaiser Permanente.

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