March 10, 2013


Cuts and Reforms (Yuval Levin, March 9, 2013, National Review)
They are wrong because they assume that Republicans just want to cut entitlement spending. They say so rather plainly. Ezra Klein, for instance, describes the Republicans' goals at this point as: "1) Cut the deficit, 2) Cut entitlement spending, 3) Protect defense spending, and possibly even increase it, 4) Simplify the tax code by cleaning out deductions and loopholes, 5) Lower tax rates." Jonathan Chait says that by proceeding with the sequester rather than Obama's substitute, Republicans are "giving up a chance to cut spending on Medicare and Social Security."
But Republicans are trying to do more than simply cut spending on entitlement programs. They're trying to reform these programs--especially the health entitlements--so that they better serve their purposes and spending on them doesn't keep growing at the sorts of rates that make it totally unsustainable in the coming years. They've proposed a premium-support reform of Medicare and a cap on federal Medicaid spending combined with greater flexibility for the states, in both cases in an effort to drive these programs and the underlying health-care system toward a more economically rational financing model that would help restrain cost growth without undermining quality and access. With the exception of his CPI reform for Social Security, the president's proposals above simply don't meet these goals and do not constitute a step forward on entitlement reform. [...]

So what would real Medicare reforms that the president might accept look like? Let's start from what conservatives want to achieve with Medicare reform. We know Republicans seek to transform Medicare into a premium-support system, but why? They want to do that because that sort of reform would use the leverage of the program's immense spending to drive efficiency improvements in the health system by having insurers (and their affiliated systems of providers) compete for seniors' business and taxpayer dollars. The goal of that kind of reform is to move away from administrative pricing and centralized command and control economics to competitive pricing and a more economically sensible health system--providing the same comprehensive, guaranteed package of benefits but at a much lower cost and with more choices for seniors. Basically, it would turn beneficiaries into consumers and providers into competitors. 
Such a reform is not on the table while Barack Obama is president, unfortunately. And to the extent that it will be possible to take steps in this direction, they will be pretty modest, since Democrats are expressly opposed to both the means and the ends of this approach to Medicare's future. Those modest steps would have the two kinds of goals that the larger reform has, and which would tend to reinforce one another: to encourage providers of care to pursue more efficient business practices and to encourage Medicare beneficiaries to behave more like consumers. A combination of these two forces is what makes markets work, and what could turn Medicare into a sustainable public program that fosters a competitive and productive health-care system rather than a program careening toward fiscal doom and taking American health care with it.

Rather than limiting premium-support to Medicare, make it universal (though means-tested) and give the Obamacare mandate an HSA/catastrophic floor.


Posted by at March 10, 2013 9:12 AM

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