Politics

Republicans are coming for your Medicare in 2019

Voters over 50 turn out to vote in midterms…
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…and they vote for Republicans. In 2018, the GOP plans to reward them with Medicare cuts.

Larry Kudlow, the director of the Trump White House’s National Economic Council, recently said he wants to take aim at “entitlements” as early as “next year.” A few months earlier, House Speaker Paul Ryan said he wants to see policymakers bring the budget closer to balance by cutting “entitlements.” Ohio Rep. Steve Stivers, who currently chairs the National Republican Congressional Committee, made the same argument in August.

McConnell’s myth-making notwithstanding, Uncle Sam’s worsening fiscal health is very much a Republican problem. While America’s aging population does mean that Medicare and Social Security spending will necessarily increase in the coming years (more on this below), the GOP’s budget-busting tax cuts have begun draining the United States Treasury, exactly as Democrats and most economists predicted.

When Donald Trump was sworn in as president of the United States in January 2017, the CBO forecast that federal spending for fiscal year 2018 would reach $4.1 trillion and tax revenue would total $3.6 trillion resulting in an annual budget deficit of $487 billion. Instead, as CBO reported on October 5, the FY 2018 deficit jumped to $782 billion, with spending of $4.11 trillion far outdistancing tax revenue of only $3.33 trillion. That deficit figure, the largest since 2012, was 17 percent larger than just the year before. (Unsurprisingly, as the Fiscal Times reported in September, “Corporate income tax receipts fell 30 percent, due to the lower tax rate and new rules that allow immediate expensing of equipment purchases.”) So much for Mitch McConnell’s comical prediction about the magical national debt reduction powers of the “Tax Cuts and Jobs Act” in December 2017. Then, he declared himself “totally confident” that the GOP’s payday for plutocrats was “going to be a revenue producer.” As McConnell boasted on December 2, 2017:

“I not only don’t think it will increase the deficit, I think it will be beyond revenue neutral. In other words, I think it will produce more than enough to fill that gap.”

(This is hardly the first time McConnell has regurgitated the GOP’s tried-and-untrue talking point that “tax cuts pay for themselves.” In 2010, he proclaimed “there’s no evidence whatsoever that the Bush tax cuts actually diminished revenue,” adding “They increased revenue because of the vibrancy of these tax cuts in the economy.” In reality, the national debt nearly doubled under President George W. Bush in large part due to his tax cuts of 2001 and 2003, which according to the Center on Budget and Policy Priorities accounted for nearly half of the extra deficits during Bush’s tenure.)

Having found themselves in a hole, one would think Republicans would stop digging. (After all, facing catastrophic budget deficits after his 1981 tax cuts, the sainted Ronald Reagan raised taxes 11 times over the remainder of his presidency.) Instead, as they made clear with their roll-out of “Tax Cuts 2.0,” the GOP is doubling down. Passed by the House Republican majority at the end of September, this new round of tax cuts makes permanent the Trump giveaways currently set to expire in 2015. As the Washington Post previously reported, the hemorrhage of red ink the new Republican bill would unleash is staggering:

The GOP’s “tax reform 2.0” would make permanent many of the individual and estate tax provisions in the tax law Republicans passed last fall, which the Congressional Budget Office said would already add about $1.9 trillion to the deficit, factoring for interest costs.

The second round of cuts would cost $631 billion before 2028 and an additional $3.15 trillion in the decade after that, according to the Tax Policy Center.

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The GOP’s “Tax Cuts 2.0” would add up to $3.8 trillion more to the national debt by 2038.

In its “2018 Long-Term Budget Outlook” released on June 26, CBO warned of the dire budget implications of making the Trump/GOP tax cuts permanent. As Keith Hall, the GOP’s hand-picked CBO director put it, what the next Republican Congress would likely do in 2019 is the most fiscally dangerous course the nation could take:

If lawmakers changed current law to maintain certain policies now in place—preventing a significant increase in individual income taxes in 2026, for example—the result would be even larger increases in debt. The prospect of large and growing debt poses substantial risks for the nation and presents policymakers with significant challenges.

To be sure, the United States has very real budget challenges associated with its aging population. As the Census Bureau reported in March, in 2016 America’s population of 323 million included 49.2 million people (or 15 percent) ages 65 and older. With the aging of the Baby Boomers, that percentage will jump to 17 percent by 2020 and 21 percent (or 73.1 million people) by 2030. By 2060, the United States is forecast to have over 400 million people; 94.7 million (23 percent) will be 65 and older.

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The United States is aging quickly.

Over the past 50 years, federal spending has averaged about 21 percent of the nation’s gross domestic product (GDP), while tax revenues have lagged at only around 17 percent. Since 1960, the only times Uncle Sam has produced balanced budgets or surpluses have been when revenues hit 20 percent of GDP. In recent years, polling has consistently shown that the only area where a majority of Americans wants to slash spending is on foreign aid, which happens to be only about 1 percent of all federal spending. Going forward, the U.S. Treasury will still be comparatively deprived of tax revenues even as spending mushrooms to 25 percent of GDP between 2028 and 2038, and 27.9 percent in the decade after.

Health care costs—Medicare in particular—are the key driver of future federal spending growth.
But as the CBO chart above makes clear, to keep the federal government’s future budget deficits to manageable levels, policymakers must focus on the health care spending that will nearly double as a share of the economy (from 5.2 to 9.2 percent) over the next three decades. Interest payments on the national debt are mandatory, and so must be paid. Discretionary spending (including defense outlays) is only about 30 percent of the budget. Nondefense discretionary spending—that is, things like education funding, transportation, spending, R&D, food stamps, and infrastructure investment—is already at its lowest level as a share of the U.S. economy since 1950. (Defense spending, which won big increases in the current fiscal year, shouldn’t be immune from the scalpel.) That leaves the big mandatory spending programs, like Social Security, Medicare, Medicaid, and Affordable Care Act subsidies.
But among our future financial risks, the solvency of Social Security is among the easiest to address. Even though Social Security benefits will exceed revenue from payroll and other taxes, the system’s trust funds will allow full benefits to paid through 2034. But slashing benefits or raising the retirement age, as Republicans suggest, cannot be the answer to addressing the shortfalls decades from now. After all, while the elderly poverty rate is 9 percent today, that figure jumps to 40 percent without Social Security. The solution is to raise or eliminate the current income cap of $128,000 for payroll taxes. That level is around the 80th percentile for income, well below its traditional 90 percent target. Given the continued disappearance of employer-funded pensions and the erosion of 401k contributions, expanding rather than slicing Social Security benefits will be essential to the living standards of the seniors and children who will depend on the program in the future.

All of which brings us back to health care spending. Or more specifically, Medicare spending. As CBO explained in its last long-term budget outlook:

Medicare spending, net of offsetting receipts, would account for about three-quarters of the increase in spending for the major health care programs over the next 30 years.

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To control Medicare costs, Uncle Sam should set prices, not slash benefits as Republicans promise.

Luckily for us, the world has no shortage of examples of how to bring down national health care costs. As Michael Hiltzik of the Los Angeles Times correctly summed it up when Jeff Bezos, Warren Buffett, and Jamie Dimon announced their much-hyped health care initiative in January:

Reducing healthcare costs doesn’t require Bezos/Buffett/Dimon magic: Every other country already knows how.

The “how” is by having the government (or its proxies) sets the rates. This is the primary reason why the United States spends up to double the percentage of its GDP on health care as its economic competitors, most of whom deliver care as good as or better than ours. As I explained in detail in July (“The budget reform America needs most? Government rate-setting for health care”):

Yes, with all due respect to the Oracle of Omaha, there is already an answer to this problem, one which America’s economic competitors discovered years ago and still share today. Whether in the nationalized system of the U.K., the single-payer systems of Canada’s provinces, the mandated health savings accounts in Singapore, or the universal coverage regimes nevertheless dependent on private insurers in France, Germany, Switzerland, and Japan, the solution for cost control and price transparency is the same. Whether negotiated directly or through a national association of insurers, the government sets the prices for prescription drugs, tests, treatments, hospital stays, and pretty much everything else.

(For more details on “all-payer rate-setting,” visit here.)

Republicans, of course, have a much different strategy. Having already redirected almost $2 trillion over the next decade from the United States Treasury primarily to corporations and wealthy Americans, House Republicans have proposed slashing $2 trillion from health care spending to pay for it. That includes $1.5 trillion in cuts to Medicaid and Affordable Care Act (ACA) premium tax credits and $537 billion in Medicare cuts. Rather than squeezing pharmaceutical companies, medical devices manufacturers insurers, hospitals, clinics, physicians, and drug stores, congressional Republicans would shift more of the costs of Medicare onto American seniors. CBPP explained how Republicans would extract that $537 billion:

The budget would raise Medicare’s eligibility age from 65 to 67, increase overall deductibles, and replace Medicare’s guarantee of health coverage with a flat premium-support payment (or voucher) that beneficiaries would use to help buy either private health insurance or a form of traditional Medicare. Most people remaining in traditional Medicare would pay much higher premiums than under current law, a CBO analysis of similar proposals finds.

Whether you call it a “voucher” or a “premium support” or anything else, the basic GOP approach to privatizing and rationing Medicare has been largely the same for almost a decade. Failing to keep pace with medical inflation, the under-funded voucher becomes more undervalued over time. A look back at the Republicans’ never-ending war on Medicare shows how.

In April 2009, 24 months before all but four House Republicans voted for Paul Ryan’s plan to ration Medicare, the smaller GOP minority said yea on essentially the same plan. As Steve Benen detailed in the Washington Monthly in the fall of 2009:

In April, 137 Republicans voted in support of a GOP alternative budget. It didn’t generate a lot of attention, but the plan, drafted by the House Budget Committee’s Rep. Paul Ryan (R-Wis.) called for “replacing the traditional Medicare program with subsidies to help retirees enroll in private health care plans.”

The AP noted at the time that Republican leaders were “clearly nervous that votes in favor of the GOP alternative have exposed their members to political danger.”

While Ryan’s subsequent “Roadmaps for America,” GOP budgets, and “Better Way” proposals have changed how overall spending is capped, added a “public option” akin to today’s traditional, government fee-for-service Medicare and altered the formula for calculating the value of the “premium support,” the result is inevitable steeper out-of-pocket health care costs for beneficiaries. A 2011 CBO analysis concluded that “a typical beneficiary would spend more for health care under the proposal.” At $6,500 a year, make that, as then-director Douglas Elmendorf explained, a lot more.

Under the proposal, most elderly people would pay more for their health care than they would pay under the current Medicare system. For a typical 65-year-old with average health spending enrolled in a plan with benefits similar to those currently provided by Medicare, CBO estimated the beneficiary’s spending on premiums and out-of-pocket expenditures as a share of a benchmark: what total health care spending would be if a private insurer covered the beneficiary. By 2030, the beneficiary’s spending would be 68 percent of that benchmark under the proposal, 25 percent under the extended-baseline scenario, and 30 percent under the alternative fiscal scenario.

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The question isn’t whether GOP voucher schemes shift Medicare costs to seniors, but how much.

Looking at the CBO’s March 2012 assessment of the new House GOP budget, ThinkProgress explained why version 2.0 of Ryan’s voucher program was little better than the first:

Beginning in 2023, the guaranteed Medicare benefit would be transformed into a government-financed “premium support” system. Seniors currently under the age of 55 could use their government contribution to purchase insurance from an exchange of private plans or–unlike Ryan’s original budget–traditional fee-for-service Medicare…

But the budget does not take sufficient precautions to prevent insurers from cherry-picking the healthiest beneficiaries from traditional Medicare and leaving sicker applicants to the government. As a result, traditional Medicare costs could skyrocket, forcing even more seniors out of the government program. The budget also adopts a per capita cost cap of GDP growth plus 0.5 percent, without specifying how it would enforce it. This makes it likely that the cap would limit the government contribution provided to beneficiaries and since the proposed growth rate is much slower than the projected growth in health care costs, CBO estimates that new beneficiaries could pay up to $2,200 more by 2030 and up to $8,000 more by 2050. Finally, the budget would also raise Medicare’s age of eligibility to 67.

In 2016, the Republican National Convention made Medicare voucherization a plank of the GOP platform. This is what Donald Trump, Mike Pence, and Republicans nationwide ran on in winning the White House and Congress two years ago:

Medicare’s long-term debt is in the trillions, and it is funded by a workforce that is shrinking relative to the size of future beneficiaries. Obamacare worsened the situation — and imperiled seniors — by imposing hundreds of billions of dollars in cuts to Medicare providers to pay for its new spending. When a vital program is so clearly headed for a train wreck, it’s time to put it on a more secure track. That is why we propose these reforms: Impose no changes for persons 55 or older. Give others the option of traditional Medicare or transition to a premium-support model designed to strengthen patient choice, promote cost-saving competition among providers, and better guard against the fraud and abuse that now diverts billions of dollars every year away from patient care. Guarantee to every enrollee an income-adjusted contribution toward a plan of their choice, with catastrophic protection. Without disadvantaging present retirees or those nearing retirement, set a more realistic age for eligibility in light of today’s longer life span.

If something seems fishy about that plan from the 2016 Republican platform or the similar version contained in the 2018 House GOP budget plan, there is. Donald Trump spent the entire 2016 presidential election promising Americans he would “save Social Security and Medicare without cuts.” As he put it at a December 11, 2015 rally in Iowa:

“So, you’ve been paying into Social Security and Medicare…but we are not going to cut your Social Security and we’re not cutting your Medicare.”

But Donald Trump was lying when he said, “We are not going to cut Social Security. We are not going to cut Medicare.” Trump was lying to America’s current and future seniors in October 2016 when he accused Democrat Hillary Clinton of precisely what the GOP platform called for:

“She wants to knock the hell out of your Social Security. She wants to knock the hell out of your Medicare and Medicaid. And I am going to save them.”

As it turns it, President Donald Trump is still repeating the same disgusting fraud two years later. While some Democrats have proposed extending Medicare “to all,” none have called for cutting benefits for current recipients. On Social Security, Democrats are largely united in expanding benefits. Nevertheless Trump routinely tells his rallies the same slander and lies he spit out in 2016:

“The Democrats will destroy Social Security. We’re saving Medicare. The Democrats want to destroy Medicare. If you look at what they’re doing, they’re going to destroy Medicare. And we will save it. We will keep it going. We’re making it stronger. We’re making Social Security stronger.”

“There’s an old saying,” President George W. Bush famously told an audience in Nashville in 2002, “Fool me once, shame on—shame on you. Fool me—you can’t get fooled again.” In all seriousness, the great GOP Medicare Fraud of 2010 must happen again in 2018. Whether you have gray hair or not, the Republicans are coming for your Medicare in 2019.


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