President Obama’s deficit cutting plan (including its exclusion of a Social Security component) can be interpreted in a number of ways. Let me offer three possible ones here. One interpretation is that the plan is designed to be mainly a starting point for what could be very contentious negotiations with congressional Republicans this fall in a context shaped by the recent debt ceiling negotiations in which the Republicans repeatedly escalated their demands. In that regard, the Republican approach was so tough that you characterized it as terrorism and Steve Arbogast referred to it as brinksmanship (with a fair number of Republicans in the House evidently prepared to go over the brink). Regardless of how one characterizes their approach, the President’s recent experience dealing with the Republicans might reasonably have led him to alter his negotiating strategy this time around. One change might have been to keep at least one big item off the table initially, because there are so many large items to contend with. After all, he could put Social Security on the table at some point if it looked like it would help reach a good agreement from his perspective.
A second way to interpret President Obama’s plan is that it is designed mainly as a political document for next year’s election. As you know, many liberal Democrats were unhappy with reports that the President’s efforts to reach a “grand bargain” in his private debt ceiling negotiations with Speaker Boehner earlier this year included tentative offers to make large cuts in both Social Security and Medicare that evidently would have included raising eligibility ages for each program. Public opinion polls also show considerable opposition among older voters to such changes. By excluding Social Security and not including an increase in the eligibility age for Medicare in his deficit reduction plan, President Obama may be reasoning that he can strengthen his standing with his Democratic base and win points with some elderly independent voters. A variation of this interpretation is that it demonstrates a good faith starting point for the negotiations to his Democratic base.
A third way to interpret the plan is that President Obama wants to maximize the chances of reaching an agreement with Republicans that includes substantial real cuts in the component of domestic spending—Medicare—that is projected to have the largest impact on the deficit in the future. As you know, that is a complicated agenda because our nation needs not only to reduce the growth of Medicare spending over the next 10-20 years, it also needs to slow the growth of our nation’s overall per capita health care spending and (preferably) reduce the percentage of our nation’s GDP spent on health care as well. Raising the age of eligibility for Medicare by, say, 2-to-4 years would reduce the cost of the program. But, without other actions, that might have relatively little impact on the per capita and GDP spending problems. That is because most people who would have to delay enrolling in Medicare would want to get health insurance elsewhere if possible. Assuming that the quasi-universal health insurance legislation passed last year is not repealed and the Supreme Court does not strike down the individual purchase mandate in that law, we would expect that many if not most of the people impacted by a raise in the Medicare eligibility age would be able to get a health insurance policy (or keep a policy that they already have)—and in some cases it would be subsidized by the government.
As you know, with the exception of the United States, all high income democracies have some form of universal health care system while spending much less than the United States in both per capita and percentage of GDP terms. For example, in the years leading up to the Great Recession, the United States was spending about twice as much per capita as Germany and about 50% more as a percentage of GDP even though about one-sixth of our population didn’t have health insurance and another one-sixth was estimated to be significantly underinsured. (Regarding GDP, Germans were spending 10-11% of their GDP while we Americans were spending about 16% of ours. In the most recent year for which I have seen data for the United States, which was for 2009 or 2010, we spent over 17% of our GDP on health care, although some of the increase was related to the slow economic recovery in a context in which health care costs continued to rise.)
As you also know, Germany and other high income democracies with universal health care accomplish these results in large measure by regulating the costs and coverage (therapies, procedures, etc.) of their health care systems much more than is the case in the United States. I doubt that Republicans will be willing to move in the direction of much greater regulation along those lines any time soon, especially since one of their major themes is to cut regulations in almost every area, not just health care. Consequently, they might decide to focus a lot on raising the eligibility age of Medicare in the negotiations this fall. If so, that may make President Obama reluctant to put Social Security on the table because it probably does require an eligibility age increase. Negotiating an increase in the eligibility age for Social Security, while trying to resist such an increase for Medicare as long as European-style cost and coverage regulation approaches are off the table, might be very difficult for President Obama to undertake. Moreover, because making changes in Social Security is not as pressing, he might reserve those negotiations for another day.
By the way, President Obama’s proposal to cut $320 million from Medicare (and Medicaid) includes a lot of things that will probably be challenged by powerful interests, regardless of what Republicans do. For example, the drug companies will undoubtedly strongly oppose the proposal to lower drug costs. Organizations representing senior citizens will be out in force opposing the several ways in which Medicare recipients would pay more of the costs of the program under the President’s plan.
The upcoming deficit negotiations might be much uglier than most of the recent legislative sausage-making on Capitol Hill, which is saying something. It could be much more akin to making hash.
Scott Miller
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