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With Medicare, Republicans Need To Lose The Spreadsheets

Hanns Kuttner

Few things put bigger smiles on Democratic campaign strategists than Republicans discussing Medicare’s role in balancing the federal budget.  As soon as Republicans offer Medicare reforms, Democrats, like sharks circling a wounded whale, quickly pounce.  When House Republicans offered their proposed budget, the Democratic Congressional Campaign Committee spread the message, “Paul Ryan is going to try to destroy Medicare again this year.  Don’t let him.”  The Republican counterpunch came across as too complicated to be readily understood.  Clearly, Republicans need to rethink their approach to the tricky issue of Medicare.

One way is to borrow from Republicans’ success with a supply-side fiscal agenda advanced some 30 years ago by Arthur Laffer and Jack Kemp and embraced by Ronald Reagan.  This supply-side revolution lifted Republicans out of a root-canal economic mindset where the only message heard by the public was cut, cut, and cut.  For fiscal policy, supply side means implementing policies that above all encourage robust economic growth.  Likewise, for Medicare, supply side means shaping policies that expand the supply of cures and medical treatments.

Curing disease and new medical treatments embrace an optimism that resonates with the American people and their hopes and dreams for a better future.  Medicare’s role in a spreadsheet that shows a balanced budget can never do that.

Even so, embracing the supply side message has never occurred to spreadsheet Republicans who come at Medicare as a problem to be solved on the way to a balanced budget.  Like some Republicans three decades ago, today’s spreadsheet Republicans only pursue solutions that satisfy CBO’s budget scorekeeping rules.

Supply-side Republicans have long complained about CBO’s skittishness about dynamic scoring.  That concept would allow tax cuts’ impact on economic growth to be part of cost estimates.

This same approach can be applied to the growing cost of Medicare.  In the long run, growth in health care costs reflects the health of the people and the medical treatments they receive.   If another disease like HIV arises, costs will be higher.   If there is a cure for Alzheimer’s disease, costs will be lower.

But medical progress puzzles CBO-minded scorekeepers. Like the effects of tax reform on economic growth, figuring it out seems too hard.  It is far easier to stick to the assumption that health care costs increase at a deterministic pace, similar to the notion that in the long run the economy will grow at a steady rate no matter the tax rates.  A cure for cancer would benefit humanity but have no impact on the budget projections of scorekeepers.

The scorekeeping mindset is ingrained in the circles of the health-policy elite.  This elite, dubbed “Scarcitarians” by former George H.W. Bush White House official Jim Pinkerton, view technology as a problem, not a solution, when it comes to health care.  Scarcitarians tend to see new and expensive forms of technology at the root of escalating costs.  New technology should be obstructed, not encouraged.   The Scarcitarian mindset produces policies that are amazingly unpopular with the American people as the “death panel” controversy demonstrated.

The alternative perspective is to embrace cures as a solution to the health-cost problem.  No one minds health care costs going down because of cures.  After the polio vaccine got introduced, for example, hospital units equipped with iron lungs closed.  No one protested.  More recently, the number of people getting heart-bypass surgery has declined thanks to new medicines and less costly alternative procedures.  No one has said this is evidence of health-care rationing.

In its most recent budget baseline, CBO looked at trends in health-care costs and found the growth in health-care costs slowing.  As a result, CBO cut $373 billion from its baseline estimate of what Medicare and Medicaid will cost over the next ten years.  No one protested.  There was no denunciation from AARP.  Neither Republicans nor Democrats suggested this reduction would threaten the well-being of seniors.  Contrast this to the loud voices heard last summer and fall over how to characterize policy adjustments that CBO said would lead to $650 billion less spending over a decade.

CBO did not pause to reflect about why costs might be lower; they just were.  CBO used the phrase “technical factors” to explain the windfall.

In the scorekeepers’ Manichean view, costs change because of either “policy factors” or “technical factors.“   A policy factor means someone in Washington did something. 

Technical factors lie outside the beltway.  They are the sum of millions of decisions made by doctors, patients, and capital allocators who decide whether to use a treatment on a particular patient, build new hospitals or invest in new drugs, along with the uncertain path of science.  Scorekeepers lack both an interest in how all these factors come together, as well as a sufficiently detailed model of health care spending to see how all these factors add up.

Even if they wanted to devise such a model, the scorekeepers would be hard pressed to identify all the decisions that determine how much Medicare will spend in the future.  Doing so would surely be a deeply flawed process that overplayed our understanding of how uncertainty will play out.  Guessing the year in which an artificial pancreas becomes possible or the next imaging technology emerges would be just that: a guess.  It is far easier to take Medicare’s past growth rate and use that rate to project how fast costs will grow in the future.

This is the approach adopted by Congressional Republicans in the budget process.  If CBO says Medicare’s costs will grow at rate x, we’ll say that we won’t let the program grow any faster than y.  The spread between x and y becomes scoreable savings in the version of premium support proposed by House Republicans.

Though beneficial as a way to generate scorable savings, such an approach is problematic as a political strategy because it can be easily demagogued as “destroying Medicare.”

Republicans have an opportunity to pursue a path of optimism and hope, of cures and improved treatment.  Consider: New therapies that would delay the onset of Alzheimer’s disease by five years could save $50 billion within five years.   These savings could be tomorrow’s version of the savings that resulted from closing iron lung units after the introduction of the polio vaccine.

Politicians’ skills do not include conjuring up new therapies for Alzheimer’s.  The challenge for legislators is to shape a policy environment most conductive to developing new therapies.  Right now the only loud voices out there come from advocates for more spending for biomedical research.   Republicans often recoil from equating more spending with more progress. So far they have not articulated an alternative.  Republicans have to engage more forcefully on these issues.

Republicans need to build up their credibility on cures.  They need to become as friendly with bench scientists and start-up biotech entrepreneurs as they are with small business owners and IT entrepreneurs.   They need to spend time with the vital communities of disease advocates who are creating new collaborations with drug companies to create the treatments and cures they and their loved ones need.   They need to develop an agenda and a set of experiences that allow them to speak to the fear behind the question asked at a town hall meeting.  If I get a diagnosis of Alzheimer’s or cancer, what can be done for me?  They need some substance to back up the assertion, “I don’t want to destroy Medicare; I want to destroy cancer.”

Such a message and supply-side policy approach will put Republicans on the side of hope and offer a rallying point that scoreable savings never will.  In short, Congressional Republicans need to build credibility that demonstrates their strategy for Medicare is about harnessing the power of market forces to accelerate medical innovation, cures, and treatments to improve the quality of life our families, friends, and neighbors.  That’s what it will take to erode the line of attack that Republicans want to “destroy Medicare.”

Hanns Kuttner is a Senior Fellow at Hudson Institute and a contributor to the Institute’s Future of Innovation Initiative.  His previous positions include working for the federal agency which runs the Medicare and Medicaid programs.

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