Medicare: Krugman v. Gingrich, and Krugman v. Ryan
12 February
For background on Medicare fights, please see my post “The Medicare battle begins anew.”
In his column today Dr. Paul Krugman attacks former Speaker Newt Gingrich and think tank chief Dr. John Goodman for the Medicare section of their Wall Street Journal op-ed. He then proceeds to attack Rep. Paul Ryan, ranking Republican on the House Budget Committee.
Krugman v. Gingrich/Goodman
In their op-ed “Ten GOP Health Ideas for Obama,” Newt Gingrich and John Goodman write:
Don’t cut Medicare. The reform bills passed by the House and Senate cut Medicare by approximately $500 billion. This is wrong. There is no question that Medicare is on an unsustainable course; the government has promised far more than it can deliver. But this problem will not be solved by cutting Medicare in order to create new unfunded liabilities for young people.
Dr. Krugman quotes only the first three sentences, losing the context:
“Don’t cut Medicare. The reform bills passed by the House and Senate cut Medicare by approximately $500 billion. This is wrong.” So declared Newt Gingrich, the former speaker of the House, in a recent op-ed article written with John Goodman, the president of the National Center for Policy Analysis.
And irony died.
Now, Mr. Gingrich was just repeating the current party line. Furious denunciations of any effort to seek cost savings in Medicare — death panels! — have been central to Republican efforts to demonize health reform. What’s amazing, however, is that they’re getting away with it.
Speaker Gingrich and Dr. Goodman could have better insulated themselves from Krugman’s attack if their first italicized sentence had read, “Don’t cut Medicare to finance an expensive new entitlement.” I disagree with them in the way they have written it. It is not wrong to “cut” (slow the growth of) Medicare. It is wrong to do so if you are turning right around and spending those savings on a new spending program, leaving our long-term fiscal situation essentially unchanged.
They are doing what some Congressional Republicans did during the health care debate – take the most politically effective elements of a legitimate policy position on Medicare, and use them to attack the pending health care legislation. In doing so they help keep ObamaCare dead, but at the cost of weakening the Republican position on Medicare and undermining our ability to address long-term budget problems.
They cover themselves with their “unsustainable course” sentence, but they make it easy for Dr. Krugman and others to frame their position as one of irresponsible opposition to doing anything to address our the long run fiscal challenge. Many Congressional Republicans did the same thing, falsely wrapping themselves in the cloak of “protecting Medicare” when in fact in a deficit-reduction context they would probably make more significant changes to Medicare than those contained in the pending health care legislation.
I think Speaker Gingrich and Dr. Goodman are right on policy but are trying to be too cute on the politics. While it’s probably effective, they expose themselves unnecessarily to attacks from the left. And the language they used undermines responsible Republicans who want to push for long-term Medicare reforms.
Unsurprisingly, Dr. Krugman is in the vanguard of those attacks, and he is once again over the top.
Krugman v. Ryan
I wish that Speaker Gingrich and Dr. Goodman were not trying to play the senior card against ObamaCare, especially now that it’s dead. Dr. Krugman attacks them for doing so, and then immediately does the same to Rep. Paul Ryan for being responsible. Dr. Krugman is attacking the Medicare component of Mr. Ryan’s “Roadmap for America’s Future.”
In the same column, Dr. Krugman goes way beyond Gingrich/Goodman in his use of inflammatory scare language:
… people would receive vouchers and be told to buy their own insurance … this new, privatized version of Medicare would erode over time … there wouldn’t be much of a Medicare program left … In short, there would be Medicare cuts.
So much for subtlety.
1. The size of changes
Stepping back a bit:
- President Obama and Paul Ryan agree we need to significantly slow the growth of Medicare spending to address our long-term fiscal situation.
- They differ on what should be done with the savings. The President wants to spend the savings on a new entitlement. Mr. Ryan wants to address our long-term deficit spending problem.
- They also have different ways of changing the way Medicare works.
- Dr. Krugman is attacking Mr. Ryan for the structure he proposes for Medicare. I imagine most Democrats would agree with the policy critique if not the inflammatory langauge.
- Dr. Krugman is also attacking Mr. Ryan for the magnitude of the changes he wants to make – how much he wants to slow Medicare spending growth. But in this respect, he is attacking a rough Obama/Ryan agreement. Dr. Krugman is the irresponsible one here, not Obama/Ryan.
The policy reality is that if we are to prevent a massive debt explosion, unprecedented tax increases, and/or the destruction of other federal spending programs, Medicare’s spending growth will have to be dramatically curtailed from its current unsustainable 6.6% average annual growth rate. Medicare’s cost to taxpayers this year will be $25 B larger than last year. The one-year increase in Medicare spending exceeds this year’s spending on any of the following:
- total federal spending for child nutrition ($17 B) and foster care ($7 B);
- agriculture subsidies ($21 B);
- NASA, space science and space flight ($19 B); or
- higher education ($20 B).
Every time Dr. Krugman, Speaker Gingrich, or Dr. Goodman say “cut Medicare” to describe a proposal that would merely slow its growth, they contribute to our long-term deficit problem, the likelihood of future tax increases, and the pressure on other purposes of the federal government. Responsibility policymakers on both sides of the aisle need to elevate the debate and agree that Medicare spending must be slowed, even as we debate how best to do that and whether those changes should be combined with other spending increases.
2. How to change the structure of Medicare
Dr. Krugman also attacks Mr. Ryan’s structural reforms for Medicare. The modern Medicare program consists of two different structures.
and
Dr. Krugman, the Obama Administration, and Congressional Democrats want to move more Medicare beneficiaries into the first structure, fee-for-service Medicare. Were this model applied to everyone, we’d call it a single payer system. The government directly interacts with providers of health care goods and services. It pays those providers and it regulates them. The functions of insurance are contained within the government. This allows the government and policymakers not just to pool risk, but to redistribute the costs of that risk among beneficiaries.
Mr. Ryan and most Congressional Republicans want over time to move Medicare to the second structure, now called Medicare Advantage. This is a parallel to our employer-based health insurance system, in which the payer (in Medicare’s case the government, for working people their employer) pays premiums to a risk-bearing private health insurance plan. The plan then interacts with providers of health care goods and services, negotiating payment rates with them and “regulating” them through contract terms. One huge advantage of this system is that a private firm is much better able to adapt to changes in medical care. The government is slow, bureaucratic, and vulnerable to political pressure.
Today new seniors are enrolled in fee-for-service Medicare and have to choose to switch into a Medicare Advantage plan. The Ryan plan would say that, over time, new senior citizens would be enrolled in Medicare Advantage. I wonder if Dr. Krugman dislikes the “voucher” he gets now from his employer (the New York Times or Princeton), “forcing him to buy his own insurance?”
3. Means-testing
Finally, Dr. Krugman attacks the Ryan plan for increasing the means-testing in Medicare. Mr. Ryan wants to focus whatever amount of money is spent on those who are least able to afford paying. Dr. Krugman instead wants to subsidize everybody.
Dr. Krugman claims “By the time Americans now in their 20s and 30s reached the age of eligibility, there wouldn’t be much of a program left.” This is an absurd claim. Under the Ryan plan, per capita Medicare spending would grow over time. Dr. Krugman further argues that “the value of these vouchers would almost surely lag ever further behind the actual cost of health insurance.” He apparently fails to understand that the “actual cost of health insurance” grows over time in large part because private sector payers follow Medicare’s lead in setting provider payment rates. In addition, both the Medicare benefit and private health insurance benefits improve over time as new, more expensive procedures and technologies are added.
4. The usual Krugman ad hominem conclusion
Dr. Krugman concludes:
The bottom line, then, is that the crusade against health reform has relied, crucially, on utter hypocrisy: Republicans who hate Medicare, tried to slash Medicare in the past, and still aim to dismantle the program over time, have been scoring political points by denouncing proposals for modest cost savings — savings that are substantially smaller than the spending cuts buried in their own proposals.
And if Democrats don’t get their act together and push the almost-completed reform across the goal line, this breathtaking act of staggering hypocrisy will succeed.
He apparently fails to realize:
- Democrats are not a unified block. They have different interests and different views on how, and even whether, to enact health reform.
- Health care reform died a few days after Senator Scott Brown won the Kennedy seat.
- Republicans are not a unified block. Yes, some are using senior scare politics to try to kill an already-dead health care bill. I think they should not do this.
- Others like Rep. Paul Ryan are both attacking ObamaCare for fiscal and health policy irresponsibility, and at the same time pushing constructive policy solutions that would address our long-term fiscal challenges.
We need more serious policy debates and fewer spitting matches. Kudos to Mr. Ryan for playing offense and defense. Pushing good policy often involves political risk, but what’s the point of being in office if you don’t actually solve our most important policy problems? I hope more elected Republicans follow Mr. Ryan’s lead.
(photo credit: Wikipedia)
Related Posts
(best matches are listed first)- The Medicare battle begins anew
- Dawn of the Dead: the Krugman remake
- Dr. Krugman telegraphs the Left’s long-term fiscal strategy
- RNC Chair makes the wrong argument on Medicare
- Dynamic Dr. Krugman
- Responding to Dr. Krugman’s column on tax cuts for the rich
- CBO kills the President’s Medicare commission proposal
- ObamaCare vs. the Fiscal Responsibility Commission
Good article Keith. I especially like your concluding statement. Yes, we do need more constructive and collaborative debate.
Keith,
I concur with your criticism of irresponsible rhetoric from both sides, but if I may nitpick re: the word "cut" as it pertains to slowing the growth of Medicare by reducing eligibility (raising retirement age; means testing) and/or reducing coverage (either in black & white in the schedule of benefits and associated coinsurance, co-pays, exclusions, etc., or via more denials of authorizations for treatment on a case by case basis), or even if it would be, in effect, just a reduction in quality or availability of care due to lower provider compensation rates, I'd say that the word "cut" is appropriate.
I recall that 1990s debate over Medicare “cuts”. Republicans/conservatives were pushing for changes in policy that would reduce projected Medicare spending and they strongly objected to (and ridiculed as Washington-speak or liberal-speak) use of the word “cut”, since spending would be increasing, even in real terms. They were technically correct, but neglecting the broader meaning and real-world implication, which was, I presume, that the changes they were advocating would mean that at least some individual beneficiaries would receive less in terms of the value of his/her benefits. The higher spending despite these benefit cuts would result from the increased number of eligible folks due to demographics, and to the excess of the medical inflation rate over general inflation.
To illustrate, if I’m an employer with 100 employees all earning $50,000, and I announce that I’m going to hire another 60 people and that all 160 employees will be earning $40,000, I could say that I’m not cutting salaries on the basis that I’m going to spend more in total on salaries (160 X $40,000 = $6.4 million vs. the previous $5 million), but I’m not so sure the employees would buy it!
All that said, IF all someone is talking about were a policy change that would keep eligibility, the level of coverage and quality of care all steady over time, but would somehow limit the extent to which Medicare beneficiaries had access to improvements in healthcare (new medical technology, procedures, treatments, etc. that drive much of the excess of medical inflation over general inflation) and thus reduce projected Medicare spending, that is arguably not a "cut", but just keeping steady what is being provided to each beneficiary.
But my overall point is that a projected increase in overall spending does not mean that the term "cut" can't apply, as my illustration above of a cut in salaries demonstrates.
I fundamentally agree with this analysis and your view that Medicare spending ought to be restrained, but not for the sake of creating yet another entitlement. Some Republicans seem to be painting themselves into a corner by criticizing the Medicare cuts too shrilly.
Having said that, the Ryan plan does not work because it establishes arbitrary global budgets on Medicare spending that do not necessarily reflect the real costs of health care and cannot anticipate new innovations, changing demographics and unforeseen possible pandemics (e.g. H1N1). It would allow Medicare costs to grow by a combination of CPI and Medical CPI, thereby allowing no growth for volume or intensity. We've seen the results of arbitrary targets that do not reflect the reality — it is called the physician sustainable growth rate, which Congress has over-ridden 7 times in as many years.
A better alternative is premium support, which represents a combination of a defined benefit and defined contribution and requires the Medicare FFS plan to compete directly and have its premium affected by private plans. Because government would pay 75% of the weighted average plan, competitive forces would be brought to bear on Medicare costs but resources would be sufficient by definition because beneficiaries would not select plans that could not meet their needs.
Keith,
Does Krugman really matter anymore?
Kudos to Paul Ryan… He stakes his ground and defends it.
I cannot see how Medicare and Social Security can survive restructuring and still solve the debt problem. Any changes to Medicare and SS cannot have a Fannie/Freddie veneeer to them. Private components must be private & public components must be public.
Two questions Keith
1.If the taxpayer anyhow is the ultimate payer (directly or by legislated & pooled health insurance), can it be efficient that the decision about which costs are acceptable and which are not, is given to an intermediary like the insurance company? I think it is a general experience that insurance companies as a group do not focus on cutting damages, but accept as well or still more to get a higher turn over – more damages mean higher fees.
2.Can decisions about which new costly treatments are to be accepted, be left to be taken by competing insurance companies? The one that does not accept everything gets unwanted bad reputation. Isn’t it more realistic that such very serious decisions are taken on a nationwide level ultimately by taxpayers’ representatives (of course they have to be specialists). This means de facto “death panels” but that is life.
Thanks for your good analysis.
I believe both of your comments are not quite correct.
In the current highly regulated pre-paid health care scheme (which we politely call insurance but does not act as such) the ability to innovate on their product offerings is about nil. State regulated individual insurance and group plans are defined by politicians, not by the companies. Otherwise, insurance companies merely administrate self insured corporate plans and default to their provisions. In both cases their only real concerns are in medical errors/drug interactions which can create additional expense and auditing current expenditures to ensure they pass the smell test. The government does a poor job at both. Even in this restricted environment, an insurance company which fails to walk this fine line finds itself with fewer customers, the government does not.
Decisions on treatments are determined through mutliple channels and would be the same if the government were in charge of such, except that cost would be the overriding determinant, since there would exist no counterbalancing of true consumer preferences, only the actions of the political well connected to get thier group or technology preference in exchange for campaign contributions.
Keith,
Mr. Gingrich could indeed take a lesson from Mr. Ryan–though Newt may be too settled in his ways for such a move to be done simply.
I find it helpful to think in terms of Medicare being a bit like a union contract (arrived at by the collective bargaining of the Senate and House, if you will). The current contract is not sustainable in the long term, therefore, it must be renegotiated.
Failure to renegotiate will lead to bankruptcy (well, it would in the case of a General Motors). We may disagree about the particular form which the new contract will take, but one is certainly needed. And, as some have noted, we may well need to consider a private investment component with the contract to make it work.
Keith,
Couldn't Newt's quote can also be rephrased as "Cut Medicare and do not create any new entitlement." The reason Newt chose the words he did is because Republicans have chosen the narrative that they want no cuts in Medicare. He has never taken this position. Ryan's plan also cuts Medicare according to the CBO: http://www.cbo.gov/ftpdocs/108xx/doc10851/01-27-R... .
Without fishing for any true meaning to Newt's words, the left out portion states that the current plan takes money from older people and gives it to the young, which is apparently redefined as anyone under 65. This is nothing but a vague statement that appeals to older voters, who might falsely believe that Medicare will not be cut by any Republican plan.
There is no magic bullet that will save Medicare from cuts while not raising taxes. Newt is simply equivocating to appeal to voters in his statement.
they cut medicare bad. It is sad to see. These people have no other resources and the government is taking away more of what they dont have
I ciuldn't undestand the deabte, we are talking to give a human rigjht to your citizens…if the richer don't like, is their problem, we are talking about a human right: health and life!
multinivel