The claim that no one’s doing anything about the costs of social insurance is not correct.

February 16th, 2016 at 2:31 pm

Far be it from me to hone in on my frequent co-author Dean Baker’s takedown of a recent Robert Samuelson column, wherein Samuelson once again bemoans the extent to which “an older population” is “systematically” strangling the rest of the federal budget.

Dean’s main point is one I often make: to fix these social insurance programs that way Samuelson suggests, you’d have to break them.

“While we can get lots of money by taxing the wealthy, we can’t get much money by taking away their Social Security and Medicare. The reason is simple: the rich have much higher incomes than the rest of us; they don’t get much more in Social Security and Medicare benefits than the rest of us.”

Since you wouldn’t achieve enough in terms of extending solvency by just lowering the benefits of the wealthy, you’d have to lower the benefits of middle-income seniors who depend on these programs. You’d have to break Social Security to fix it.

Bad idea.

But I object to a wholly different part of Samuelson’s argument. He complains that we’re not having the debate he’d like us to have over the allocation of government resources. Why not?

“The most obvious reason is that this debate would be highly controversial and unpopular. People regard legislated benefits as an inviolate “right,” never to be withdrawn. The Obama administration, despite the president’s rhetorical skills, has recoiled from challenging these deeply embedded beliefs.”

Having just gone through the President’s latest budget, I was astounded to read this. The budget goes to the mat for Medicare in ways that are completely inconsistent with any recoiling from a challenge. If pundits like Bob S—a guy with whom I occasionally find common ground—won’t acknowledge such efforts, if he just lumps them in with people who actually refuse to do anything about these budgetary pressures, than there’s no reason for anyone to try at all.

The President’s budget proposes to save more than $400 billion over ten years from spending cuts to medical providers and insurance companies, along with lower prices for prescription drugs. It also proposes to raise significant new revenues to support Medicare by closing a couple of tax loopholes benefiting wealthy businesses that would raise $270 billion over 10 years.

OK, those are just proposals. What has team Obama actually done in this space?

In fact, health reform has reduced spending directly by scaling back excessive payments to Medicare providers. It has accelerated the shift to new Medicare payment models that seek to reward quality of care rather than the volume of services. Many analysts believe that health reform has indirectly encouraged structural changes in the health care payment and delivery system that will generate further savings. For example, interventions like “bundled payments” (an overall fee covering all the care related to a procedure), “accountable care” models (providers have monetary incentives to reduce spending below a set level while maintaining quality), and bonuses for reducing re-hospitalizations may be helping to slow cost growth.

As a result, between 2010—i.e., before Obamacare—and 2015, total projected federal health care costs have gone down substantially even while health care coverage has grown substantially. Health analyst Paul Van de Water shows that the 75-year shortfall in Medicare’s HI trust fund fell from 3.88% of taxable payroll before health reform to 0.68% after health reform. I’ll be the first to admit that other factors are also behind these cost savings, as costs began to slow even before the new law was in place. But Obamacare is helping.

I definitely agree with Bob that we need more “straight talk” on the budget. The budget process is in shambles and unless you’re a schooled budget wonk, you’d be hard pressed to break through the fog of complexity and misinformation that gets tossed around in this space.

But a good place to start is for pundits like us to give credit where it’s due. “We’re all guilty because no one’s trying to do anything!” may be a sexier lead than a lot of the above details. But it’s not true.

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2 comments in reply to "The claim that no one’s doing anything about the costs of social insurance is not correct."

  1. Jill SH says:

    Well, RS did get something right: ‘The annual gap between our wants and needed taxes is at least $500 billion and possibly twice that.’ But, of course, he wants to make cuts first (to that Social Security and Medicare that I spent 40 working years paying into), rather than doing sufficient taxing to pay for the big, shiny (and un-audited) Defense Dept, or proper (gas) taxing for funds to rebuild our crumbling infrastructure (let’s talk jobs program here!).

    These deficit/debt hawks (remember our sponsors here in NH- Peterson Foundation?) never talk about getting that extra job needed to help balance the household budget; all the kids have to eat PB&J sandwiches, so Dad can have his evening Chivas.

    Am I being too crass?


  2. Nathanael Nerode says:

    The budget process is a shambles largely because of the black hole which is the Department of Defense (unaudited and unauditable, with “off budget” expenditures, and somewhere between 1/3 and 1/2 of the budget). This seems to have been true since WWII, but accelerated under Reagan’s “magic asterisks”.

    I’m a radical and I say we demobilize the entire army and shut it down, like we did after World War I. It would give us a much more effective army, rather than our current “still fighting the Cold War” army.

    But… I’m a little worried about something you’ve been talking about. Path dependence.

    The military-industrial complex has become *such* a huge institution employing *so* many people I’m not even sure how to shut it down, or even how to shut down a fraction of it (the worst and most useless fraction, for instance, like the CIA which has been of no use for its entire history). This was the fear of our Founders and Eisenhower warned us against it. It’s very bad for the US, but I don’t see how to deal with it.

    People have tried repeatedly to incrementally reform it and totally, utterly failed — see the ‘military reform’ movement. So I figure we should try the radical solution of dismantling it entirely, but I don’t see any way to do that either…


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