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Laurence Kotlikoff: US Squabbles Over Peanuts to Tame Elderly

Wednesday, 13 Apr 2011 08:04 AM

(Laurence Kotlikoff is a professor of economics at Boston University, and is the author of “The Healthcare Fix.” The opinions expressed are his own.)

The time to disagree agreeably is over for healthcare policy in America.

U.S. President Barack Obama and Congress last week approved a measly budget cut of $39 billion and no tax increases. That leaves us with a massive deficit equal to 9 percent of gross domestic product and a debt-to-GDP ratio that will exceed 90 percent within six years.

Our politicians touted this deal as the biggest compromise since 1850 and the largest cut in spending ever. But it really just constituted more fiscal child abuse that will force the young to take on additional debt while the elderly are let off the hook. While our officials crow over peanuts, other countries are getting their fiscal houses in order. The U.K.’s budget cuts and tax increases are 32 times larger when scaled by GDP.

Fortunately, the political euphoria over the budget deal lasted but a day. Whether you like his ideas or not, House Budget Committee Chairman Paul Ryan’s long-term budget plan shifted attention from keeping the government running to keeping it solvent. And Obama, too, will now present his views about spending and taxes.

The single biggest fix — one that can eliminate about 60 percent of our $202 trillion long-term fiscal gap — is keeping government (federal and state) healthcare spending (including tax subsidies) constant at 10 percent of GDP. That’s a lot of GDP for any government to spend on healthcare. Germany’s total healthcare bill (private plus government) is only 11 percent of GDP, and its health outcomes beat ours by a mile.

Lid on Costs

But keeping a lid on government spending is just one of our collective goals. The others are making sure that everyone has a basic health plan, that people aren’t penalized for having bad genes or bad luck, that healthcare provision remains private, that people face strong incentives to improve their health, and that treatment be determined by medical, not legal, concerns.

Whether we are Republican or Democrat, the vast majority of us support these goals. How do I know? The answer is by observing what society values from what it chooses. And what it is choosing — albeit in a slow, piecemeal and costly fashion — is to ensure that everyone has a basic health plan that costs the same, regardless of pre-existing conditions.

‘Quality Healthcare’

Whether we look at the establishment of Medicare Parts A and B and Medicaid under President Lyndon Johnson; the rapid growth or Medicare and Medicaid benefit levels under Jimmy Carter and Ronald Reagan; the introduction of Children’s Medicaid under Bill Clinton; the enactment of Medicare Part D under George W. Bush; or the provision of health exchanges under Obama, we see a policy to guarantee, in the words of Richard Nixon, “that every citizen will be able to get quality healthcare at a reasonable price regardless of income.”

We also read in our policies a desire to maintain private healthcare provision. And today, at long last, we perceive an urgent desire to control costs, part of which, both parties acknowledge, requires changes to malpractice laws.

So if we agree on what is needed, why don’t we go for it?

One answer is that there are too many interests vested in the generational status quo. This is demonstrated by Ryan’s decision to exempt the current elderly from his proposed Medicare overhaul. The last politician to take on the aged over health care was Dan Rostenkowski. In 1989, he was accosted by hundreds of oldsters for daring to propose they help pay for a catastrophic nursing-home insurance benefit.

Bills for Washington

A second answer is that we like to fight. Ryan’s proposals are remarkably similar in structure to Obamacare’s, and leading Democrats immediately said he was out to destroy Medicare. Let’s be clear: Ryan isn’t out to destroy Medicare. Medicare is out to destroy Medicare. Specifically, Medicare’s service-for-government-fee system, also called fee-for-service, is an ongoing invitation for the healthcare system to spend what it wants on the elderly and ship the bills to Washington. Left in place, it will lead the government to limit the fees because it can’t limit the services. This will only force doctors to stop taking Medicare patients.

It’s beyond time for us to agree. Our generational policy is immoral and about to blow up in our faces. In my column last week I offered the Purple Health Plan, which would cap government healthcare costs at 10 percent of GDP. It offers the elderly and everyone else the same basic, but also very generous healthcare plan. It’s the way to go.

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(Laurence Kotlikoff is a professor of economics at Boston University,and is the author of The Healthcare Fix. The opinions expressed arehis own.) The time to disagree agreeably is over for healthcare policy in America.U.S. President Barack Obama and Congress last week...
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