The conservative plan to destroy Medicare and privatize Social Security
Early in the Obama presidency, conservatives and centrists staged a coordinated freakout about the budget deficit. That furor gradually receded as the deficit fell, but thanks to the massive Republican tax cuts for the rich last year, hey presto, the deficit is ballooning once again. Now, preposterously, some conservatives are using that as an excuse to slash the safety net.
In a recent article for the Weekly Standard, conservative intellectuals Yuval Levin and James C. Capretta attempt to rekindle deficit paranoia — and use it as a weapon to gut Medicare and privatize Social Security. Their argument is a stew of tendentiousness, misdirection, bad faith, and egregious errors.
For starters, they present Social Security, Medicare, and Medicaid as more-or-less equal sources of future deficits. "Entitlement spending growth is concentrated in three very large programs: Social Security, Medicare, and Medicaid." In reality, all serious analyses of future budget projections begin by separating Social Security from the other two, because they face very different problems.
Social Security has a moderate future funding shortfall because the population is aging. To keep benefits stable we'd need to scrounge up about 1 percent of GDP in taxes by 2034, at which point the program's trust fund is projected to be depleted. This could be accomplished by bumping the payroll tax level or removing the cap on earnings over $128,400 (or some combination of the two).
Medicare and Medicaid, meanwhile, face a more urgent problem mainly driven by increasing medical prices. An aging population means more spending, of course, but the primary issue is that medical services have been increasing in price far more than the economy's growth rate for decades. Every year that happens, it means those programs gobble up a greater share of the economy. (Those high prices are why Americans already pay enough in taxes to fund a decent Medicare-for-all program — we're just getting such a bad deal that our government programs only cover veterans, the poor, the elderly, and some children.)
To deal with these two programs Levin and Capretta propose solutions which will either make things worse or have nothing at all to do with deficits as such. In the first category is their idea to abolish Medicare and replace it with something akin to ObamaCare, strictly means-tested and with sharply higher premiums than seniors are currently paying. They blame the price problem entirely on Medicare's "vast and arcane system of rules" and overutilization driven by its fee-for-service structure, and assert that an ObamaCare-style private insurance market will keep prices down. They cite Medicare Advantage, in which services are contracted out to private insurers, as a model worthy of emulation.
Incidentally, as Mike Konczal points out, it is pretty rich to see conservatives proposing an ObamaCare-style setup for seniors when their party has been howling for eight years straight that actual ObamaCare is the death knell of American freedom, and doing all they can under Trump to sabotage its operations.
But more importantly, as I carefully explain here, there is no evidence whatsoever that fee-for-service-driven overutilization or Medicare rules are behind wildly excessive health care spending. (If anything, Americans see the doctor less than in peer nations.) Instead, the major drivers are outrageous drug and service prices and administrative bloat.
Those in turn are driven by lack of price controls (used in virtually every other nation) and the complexity of the American billing system (because it has so many different payers). Private markets can compete prices down for ordinary commodities, but as James Kwak explains, in health care they automatically create morally monstrous outcomes — rationing insurance by price, gouging the sick and the uninsured, and so on. That is why ObamaCare has to have so many regulations — and even then it doesn't work very well.
Levin and Capretta do not note that Medicare pays considerably less for the same service than private insurance, nor that Medicare Advantage costs the government considerably more than traditional Medicare — partly because some contractors blatantly rip off the government for profit (hooray for markets!). As for regular private insurance itself, a Health Affairs study recently found that in employer-sponsored plans, per capita spending on health services for enrollees increased by 44 percent from 2007-2016. Not exactly a promising record of cost control.
In reality, Medicare-for-all is a far superior model to contain the skyrocketing costs of American health care — not just in theory but as demonstrated in other countries. The United States has the most expensive health-care system in the world (by 5 points of GDP) because it is already based so heavily on market institutions.
In the irrelevant category is Levin and Capretta's plan to dust off George W. Bush's Social Security privatization scheme. They would preserve a poverty-level Social Security benefit, and gradually shunt the rest of the program into private savings accounts. This is a wretched idea on the merits (except insofar as it would top up the very lowest current benefits) but it also has little or nothing to do with the deficit. Either its funding stream would have to be increased, as I outlined above, or it would cut future account diversions. Nothing whatsoever about the funding shortfall logically implies the program should be privatized — unless you want to sneakily slash benefits under cover of "reform."
All this is just conservative ideology, plain and simple. Conservatives don't like social insurance and want to get rid of it. The budget deficit they created is just a handy pretext.