Economics

How Naïve Can Democrats Get?

Beholding David H. Howard’s rendering of the crazy-quilt of financial sources that have been tapped by the designers of the Affordable Care Act of 2010 (hereafter ACA ’10) to finance the new entitlements they put in place – a little nuisance tax here, a little nuisance cut in other federal spending there – reminds me once more of the sincere, indeed touching, naiveté with which Democrats tend to go about enacting new entitlements.

It is a totally counterproductive and inelegant approach. To be sure, none of the added taxes or spending cuts in the bill seriously disrupt anyone; but they do spread a little pain all around. Therefore, it seems almost deliberately designed to maximize opposition to it from many quarters.

It also leads to acute embarrassments, such as having to postpone by a year (and perhaps more years) the unseemly penalty imposed on employers with 50 or more employees each working 40 your or more etc etc, even at the appearance of having broken the law – or so we are told.

When will the Democrats ever learn?

And from whom might they learn?

From the Republicans, of course.

Dream back to the good old days – 2003 – when the Bush Administration and the Republican Congress pushed through, with deft parliamentary maneuvering and some arms twisting, H.R. 1 (2003), the Medicare Prescription Drug, Improvement, and Modernization Act – hereafter the MMA ’03.


This act established what was said to be the then largest new entitlements put on the books since the passage of Medicare and Medicaid in 1965, promising the elderly highly federally subsidized prescription drug benefits from 2006 on to kingdom come.

And how was that expensive new entitlement financed?

Not by annoying added taxes on anyone. Not by annoying cuts in any other federal program – not even on parts of the Medicare program so often decried as “out of control.”

No, the MMA ‘03 was 100 percent debt-financed. The cost of this magnanimous largesse was simply added to the deficit, for our children and theirs to finance with taxes, unless we somehow will manage to melt away that debt through inflation. According to Table III.D.3 of the 2013 Medicare Trustee’s report, the MMA ’03 $850 billion of financing for this entitlement during 2013-22 will come from General Revenues, that is, will be loaded onto the U.S. public debt during those years.

In the meantime, the buyers of the U.S. Treasury bonds represented by that debt – China and Japan prominently among them – hopefully will be kind enough to advance the cash to pay for the drugs. To pay back the debt in future years, our children and theirs may well have to cede ownership of hitherto U.S. assets that should have been part of their inheritance to the children and theirs in Japan and China. Perhaps our children and theirs will draw comfort from the fact that they are paying thus for grandpa’s and grandma’s prescription drugs which their parents – we current American adults — refused to pay for.

Now it is true that former Comptroller General of the United States David Walker, in which capacity he ran the United States Accountability Office (GAO), has said that “the prescription drug bill was probably the most fiscally irresponsible piece of legislation since the 1960s.” That may be so. On the other hand, look at the political elegance of that legislation.

Had the Democrats copied from the Republicans’ playbook on entitlements legislation and just deficit-financed the ACA ‘10, there would not have had to be a 2.3 medical device tax. There would not have been the added taxes on the already overburdened high income Americans. There would not have had to be the troublesome Cadillac tax on insurers. There would not have had to be the penalty on employers with 50 or more employees working at least 40 hours a week, etc. etc.

There would not have had to be those nasty cuts on Medicare Advantage plans, bring their payments down to be on par with what it Medicare beneficiaries in Medicare Advantage would have cost taxpayers, had they stayed in traditional Medicare. There would not have been any need to reduce the growth trajectory of Medicare spending on hospitals and on sundry other providers serving Medicare patients, and so on. It would all have remained business as usual as we, the people, like it.

Like the MMA ’03, the now much maligned ACA ’10 then would have been a giant Xmas tree bestowing many blessings on many (adult) American and asking no sacrifice from anyone (adult) American. Trying to finance it all without burdening future deficits, as the designers of the ACA ’10 have tried to do, is, like, really dumb!

Incidentally, for some home entertainment, I recommend that you examine the roll call for the MMA 03. You will find it here for the Senate and here for the House.

You will be amazed who all voted for that elegant new entitlement, given what they pronounce today on deficits and entitlements spending.

In quiet and boring rural New Jersey, I do find that sort of thing entertaining.

Uwe Reinhardt is recognized as one of the nation’s leading authorities on health care economics and the James Madison Professor of Political Economy at Princeton University. He is a regular contributor to The New York Times Economix Blog.

Editor’s Note: Last updated at 10/14/2013, 6:34pm ET.

Livongo’s Post Ad Banner 728*90

41
Leave a Reply

17 Comment threads
24 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
18 Comment authors
how to get pregnant on your periodhow to get pregnant fast after miscarriageSace Maroc 2014maillot foot pas cherMr James Recent comment authors
newest oldest most voted
how to get pregnant on your period
Guest

fantastic issues altogether, you simply gained a logo new
reader. What might you recommend about your post that you simply
made a few days in the past? Any positive?

Uwe Reinhardt
Guest
Uwe Reinhardt

I have tried this all my life but it never worked. My doctor tells me it’s hormonal or stuff like that. If you look at my picture, you can see why.

how to get pregnant fast after miscarriage
Guest

Everything is very open with a clear description of the issues.
It was truly informative. Your site is useful. Thank you for sharing!

Sace Maroc 2014
Guest

This is a appropriate blog for everyone who is wishes to discover out about this subject. You recognize an excellent deal its practically challenging to argue with you (not that I just would want…HaHa). You certainly put a brand new spin on a topic thats been discussed for years. Wonderful stuff, just wonderful!

maillot foot pas cher
Guest

PACK NOEL MAILLOTSHORT BARCELONE EXTERIEUR 2013/2014 maillot de foot

Mr James
Guest
Mr James

It isn’t right to spend money you don’t have if you are a Democrat. It also isn’t right to spend money you don’t have if you are a Republican.

Ok, now that this is settled, all arguments regarding which side spent money they didn’t have under whatever president for whatever old/new entitlement program(s) are moot. They shouldn’t have done it.

Leonard Kish
Guest

Deficits only matter and entitlements are only bad when Democrats are in power.

Concern for paying our debtors only matters when we’re not threatening to shut down the government and go into default.

And having exchanges up and working (hearings!!!) only matters when we’ve given up on shutting them down.

The fact is, very little of this about policy and all about points.

dennis byron
Guest
dennis byron

I understand that the author was just bored and throwing out some “it’s all George Bush’s fault” red meat for the partisans and didn’t mean for any of the mélange of facts in this article to be taken seriously but… 1. it’s worth remembering that the Medicare trustees and/or actuaries and/or Medpac and/or CBO has been overstating the projected cost of Part D since before the five-hour-long five-minute vote referenced above… by a 100% or more 2. any intellectually honest analysis (again, I realize that the author did not intend this article to be one) of Part D would look… Read more »

Al
Guest
Al

“The cost of this magnanimous largesse was simply added to the deficit, for our children and theirs to finance with taxes”

The truth seems to be that both the inelegant plan of the Democrats and the more elegant plan of the Republicans end up taking money out of our children and grandchildren’s pockets and possibly wrecking the economy in the meanwhile.

Thus the only conclusion I can gather is that both programs stink, or one wants to steal from future generations. Do I have that right?

So which side do you wish to take?

Barry Carol
Guest
Barry Carol

I think there is plenty of hypocrisy among American voters as well. We want generous entitlement benefits but we expect someone else to pay for them. We reward politicians who pander and demagogue while we penalize those who thruthfully tell us what we don’t want to hear. We get the government we deserve and the enemy is us.

Bob Hertz
Guest

Just to endorse Jeff’s concern about ACA increasing the deficit…….

I enjoyed rereading an article in Health Affairs, 29 #6, 2010, p 1136.

One of the authors is Douglas Hotlz-Eakin, who is sometimes a hired gun for the right…..but in this article he is down to earth about unachievable savings and uncollectible taxes not really balancing out the cost of the subsidies.

Dr. Mike
Guest
Dr. Mike

Partisanship, as is on proud display here, is not helping us. You do realize, don’t you, that the same politicians yelling at each other on Cspan are partying together off camera. Their kids go to the same schools, they have adjoining beach houses in some swanky resort community, and they are laughing at all of you who buy into the lies they have carefully spun about how different they are. You may think you are clever, but what you have is childish compared to the sophisticated daily charade in DC. If you have a champion that you worship in the… Read more »

Uwe Reinhardt
Guest
Uwe Reinhardt

I wish what you say were true, Mike; but it describes a bygone era when, yes, members of Congress of both parties would debate fiercely during the day and then go have a drink together at night. I have been on many Congressional retreats over the years where that was so. No more. At those retreats, Republican staffers and Democrat staffers drink at different watering holes, and their principals are not the chummy pals they once were. But in the old days they got stuff done. Tip O’Neill or Dan Rostenkowski worked quite well with Republican presidents. And the political… Read more »

Mr James
Guest
Mr James

Yes, they “got stuff done.” However, was it good stuff? Or, was it pork-barrel politics, backroom deals, vote-buying stuff full of “Bridges to Nowhere” and “Big Digs” and entitlement programs that were destined to go broke.

Would a more partisan Congress have let Tip get to waste all those billions on the Big Dig?

Bobby Gladd
Guest

That is crap.

Gary O.
Guest
Gary O.

I assume Bobby Gladd was referring to Prof. Reinhardt’s reply that …”this [Massachusetts’s law making Meaningful Use compliance a condition of medical licensure] is what happens when governments grant monopoly power.” I have no idea why Bobby is so upset. I suppose it’s because the federal government has been so accommodative to health care industry monopolies, he expects every state to roll over. Doctors in the United States have enormous political power. They have been able to get federal policies that limit the supply of doctors domestically by restricting the number of medical students. (“[T]he number of students accepted into… Read more »

Bobby Gladd
Guest

You can assume anything you wish. You would be wrong. Learn to read more carefully, especially as to who wrote what in comment. “Gary O.” whoever you are.

Uwe Reinhardt
Guest
Uwe Reinhardt

Very insightful. Thank you.

Barry Carol
Guest
Barry Carol

For the record, I’ve said many times that we Americans should be prepared to pay for the services we demand or expect government to provide. Specifically, I think the broad middle class needs to pay for the broad middle class while the rich can largely pay for the poor as well as for themselves. While Republicans were able to pass the prescription drug benefit in 2003 without a funding source, aside from borrowing, I think the world had changed enough after the financial crisis to preclude a similar strategy to fund the ACA. People should understand, though, that the higher… Read more »

Bobby Gladd
Guest

“At some point, more providers will be forced to stop seeing Medicare patients or will stop accepting new patients to their panels if the new lower payments are deemed inadequate.”
__

Look for accepting Medicare genes become a condition of medical licensure. You just watch. Massachusetts recently passed a law making Meaningful Use compliance a condition of medical licensure.

Bobby Gladd
Guest

“benes,” not “genes”. Typo.

Uwe Reinhardt
Guest
Uwe Reinhardt

I was wondering what “Medicare genes” are.

But this is what happens when governments grant monopoly power — as they do with occupational licensure. It comes with conditions.

Al
Guest
Al

Uwe, you are correct and that is one big reason for our federalist system and a reason for the federal government to stay out of these types of affairs.

legacyflyer
Guest
legacyflyer

This is why the Republicans have so little credibility – at least to me.

And to top it off, the Republicans refused to make the Feds buy generic. Think how much cheaper the Medicare drug benefit would be if the drugs were purchased generically from a formulary.

A clear gift to big Pharma

Jeff Goldsmith
Guest
Jeff Goldsmith

Got to update that Bar Mitzvah photo, Uwe.
Your fellow senior citizen, Jeff G.

Uwe Reinhardt
Guest
Uwe Reinhardt

What a carefree life you live, Jeff, to worry about that.

I’ll get a new photo made and will send you the bill.

Jeff Goldsmith
Guest
Jeff Goldsmith

I’m in the “What, me worry?” stage of all of this. Uwe, this is the second post in a row where you’re basically tasking current Republicans with inconsistency/hypocrisy vs. their party’s actions a decade or more earlier. Again, what’s the point? That Republican party of Dole/Packwood/Heinz/Baker/Duerenberger- name some more moderate Republicans- no longer exists. What we’ve got now is an amalgam of throwback country club Republicans from safe suburban districts (with fake tans) and a bunch of bomb throwing, wreck-the-place populists, mostly from the south. There is no common agenda here. The present Congressional Republicans are a big tent alright,… Read more »

Uwe Reinhardt
Guest
Uwe Reinhardt

The point, Jeff, was to point out that most of the nuisance taxes and spending cuts so dolefully enumerated by David Howard, often cited on this or that items to underscore how awful the ACA is, were driven by a desire to finance the ACA. You opine that Congress will not follow through on the cuts called for in the ACA, and that may well be true. But do you know for sure. Would you, in 1992, have predicted that the monetary conversion factor for the RBRVS would have remained virtually constat for the next 20 years? One could say… Read more »

Jeff Goldsmith
Guest
Jeff Goldsmith

Neither of these parties is about “Ideas” for how to govern our country, so consistency with their “ideas” of a decade or more ago has no practical effect on their behavior or agendas going forward. The history lessons are interesting but not particularly useful. The core business of both parties, Congressional and Presidential, is raising money for the next election and arousing their base by appealing to their basest instincts. Neither are fit to govern. I don’t see a lot of virtue here, or comfort that giving them unfettered control over the government is going to advance the public’s interest.

Uwe Reinhardt
Guest
Uwe Reinhardt

Maybe the reason why the folks get away with governing the way they do is that people just throw up their hands in despair over those “bums” and then roll over, rather than calling them on their hypocrisy. I would consider it useful, for example, if at a press confence someone asked Obama how he reconciles his opposition to raising the debt limit during the Bush years with his present posture on that issue. People did call Hillary Clinton on the dissonance bewteen her enthusiastic early support of the war in Iraq and her later posture on it. Similarly, I… Read more »

Jeff Goldsmith
Guest
Jeff Goldsmith

Not despair, but realism. I actually worked in government at the beginning of my career. Wanted to work in the White House (OMB).
Like you, I have well meaning friends in the middle of this morass.

I’m not giving up. I will continue looking for people I have confidence in and will vote for them (and contribute to their campaigns) when I find them.

Like a lot of other people, I am looking for leadership, and eventually, we’ll find it. It’s the parties, particularly the Congressional parties, where the rot is. . . .

Mr James
Guest
Mr James

The irony here is that on the Medicaid side, it can be cheaper to buy name brands. States get big rebates on the name brands and can actually lose money on some generics. it makes no sense, but welcome to the world of health care finance.

Bobby Gladd
Guest

This country is so screwed.

Barry Carol
Guest
Barry Carol

It’s important to note that in 2003, federal debt as a percentage of GDP was far lower than when the ACA was passed in 2010 which made financing a new entitlement program with debt alone less problematic in 2003 than after the 2008 financial crisis. Moreover, the projected cost of the drug benefit in its first 10 years was also significantly lower than the estimated cost of subsidies needed to allow many of the currently uninsured buy health insurance or enroll in Medicaid. The prescription drug program cost also turned out to be significantly lower than the initial ten year… Read more »

Uwe Reinhardt
Guest
Uwe Reinhardt

As Douglas Elmendorf Director of the CBO one summed it up concisely: “The United States faces a disconnect between the services that people expect the government to provide, particularly in the form of benefits to Americans, and the tax revenues that people are willing to send to the government to finance those services.” SOURCE: Congressional Budget Office, http://www.cbo.gov/ftpdocs/110xx/doc11047/05-13-CBO_Presentation_to_AAAS.pdf The question then is whether politicians should exploit this procolivity to their own political advantage. And when you look back, you come to the (for me) startling conclusion that Republicans, once styled as the fiscal conservatives, have exploited that dissonance more than… Read more »