Medicare and health care: Where have they been in the budget debate?

Medicare and health care costs were an insignificant part of the budget talks. If health care costs keep growing faster than GDP, can we ever come up with a solid debt deal?

While jogging this morning, I heard an interesting discussion/debate on the “On Point” radio show between Dean Baker and Steve Bell (also, listen to the opening where Major Garrett shares some worthy insights into the debt deal—his first lesson from the deal is dead on: “A new precedent. Debt-ceiling increases are now tied to deficit reduction.”)

One part that interested me was their discussion of health care and its role—or lack thereof—in the budget debate. As long as health care costs keep growing two percent faster than GDP, which has been the trend for years now, there’s no clever debt deal that “gets our fiscal house in order.”

So, if we wanted to have a discussion about actually changing out budget trajectory, we’d have to talk health care (we’d also have to talk revenues, but that’s another discussion). And here, an important concept here is cost-shifting versus cost-saving.

Given all the talk of the budget pressure from health care entitlements—Medicare and Medicaid—it’s easy to forget that our affordability problem is as much a private sector as it is a public sector problem. If anything, costs in the public programs have consistently grown more slowly than those in the private sector (which makes sense when you think about overhead, like advertising and profits).

I stress this because Bell raised the issue of premium support—where the gov’t subsidizes your purchase of a health insurance policy—as a tool for health care reform, citing a plan that gave seniors the option to opt out of Medicare and use vouchers to purchase health insurance on the private market. You will recall that Rep Ryan’s premium-support plan took a lot of heat, but Bell argued his plan is better since it offers a more valuable voucher whose value grows more quickly.

He’s right about the improvement over Ryan, I’m sure, but these voucher programs generally just shift costs around. That is, they get around that GDP+2% problem by force, and only for the public sector. In Rep Ryan’s case, the voucher grows with inflation; in Bell’s, it’s GDP+1%.

Both will lower costs to the government but neither will lower costs to the system, and that makes all the difference. If you don’t do something to slow the pace of health care costs system wide, you’re pretty much shifting around deck chairs.

My CBPP colleague Paul Van De Water will have a piece out soon on premium support—looks excellent from what I’ve seen so far, and I’ll link to it when it’s out.