Reduce The Deficit By Expanding Medicare, Not Cutting It

Pete G. Peterson will be bringing together a whole flock of like-minded so called deficit hawks to attend a “national fiscal summit.” Don't be surprised when it turns into a push by a group of millionaires to cut Social Security and Medicare in the name of fiscal responsibility. But if as a nation we really want to get a grip on our deficit the best solution is to expand Medicare, not cut it. Switching to a Medicare for all system, or even just providing everyone with an open Medicare buy-in option would reduce the deficit by hundreds of billions of dollars over the next decade.

Private health insurance is incredibly wasteful and simply not a cost effective way to provide people with health insurance. Not only as a nation do we spend almost twice as much per capita on health care, but within this country, we pay way more to private health insurance companies to serve a function that Medicare can do for less.

Based on information from a wide range of sources, including, the CBO, the CMS , and even the UnitedHealth Group-owned Lewin Group, Medicare is roughly 15-30% cheaper than private insurance for providing the same level of coverage. Given that health care costs are roughly 16% of our GDP, and the tax exemption for employer-provided health insurance is the largest tax exemption in the system, really bringing down health care costs would dramatically reduce our deficit.

According to the Joint Committee On Taxation, the exemption for employer-provided health insurance cost the government $246.1 billion in 2007. For the four year time span, FY2009-FY2012, the exemption was projected to cost $1.228 trillion.

From the debate over the excise tax, we learned that the CBO and JCT believe any reduction in the cost of health care from an employer would result in an equal value increase in taxable income for the employees. While I may despise the logic of the finding, we know that is how the CBO officially projects the affect of changes in the cost of health care.

So, based on this, what would happen if we passed a law forcing all employers buy health roughly the same level of insurance from a cheaper Medicare-like public program instead of private insurance companies?

Insurance costs would go down 15-30%, and the CBO would project the government to net roughly $45-90 billion a year in increased tax revenue from higher wages. Since the cost of Medicare has grown at a slower rate than private insurance, those savings should increase moving forward. Of course, some employers, because they are getting cheaper insurance, might choose to offer better coverage, so that might slightly reduce the increased tax revenue. Also, if the new health care law were changed so that people had to buy into Medicare instead of being forced to buy private health insurance on the new exchanges, the amount of tax credits we would need to provide to make health insurance equally as affordable would be reduced by over $150 billion between now and 2019.

Overall, forcing all employers to buy insurance through a Medicare-for-all system and replacing the new health care exchanges with a Medicare buy-in would probably be projected by the CBO to reduce the deficit by close to $1 trillion over the next decade based on some simplified calculations. Improving Medicare cost effectiveness by allowing direct drug price negotiation and drug re-importation would further help reduce the federal deficit by billions more.

Fully open buy-in for a Medicare-like program

If people though forcing people under 65 to switch to Medicare is too dramatic a step to take toward solving our deficit issues, simply providing every individual and business with the option of buying into Medicare would easily reduce the deficit by hundreds of billions over the next decade. I suspect probably no more than a 40% of employers would switch to Medicare, but that would probably be the 40% of employers who were most overpaying private insurance companies and would save the most. Combine that with the over $115 billion a Medicare buy-in-like public option would reduce the cost of the new health care law. A Medicare buy-in open to everyone would probably be projected to reduce the deficit by half-a-trillion or more over the next ten years.

I bet the progressive deficit-reducing solutions--drug re-importation, direct Medicare drug price negotiation, Medicare for all, and/or a fully open Medicare buy-in--would be projected by the CBO to reduce the federal debt more than any set of proposals to cut benefits to senior citizens put forward by Pete Peterson's gang of “deficit hawks.”

What progressives should do is put forward a better deficit reduction plan

The President's deficit commission will probably offer some package of regressive tax increases (think VAT) and cuts to Medicare and Social Security that will make the millionaire deficit hawks in Peterson's gang happy. Progressives should put forward their own (and probably much larger) deficit reduction plan based on Medicare buy-in and reforming Medicare Part D. They should then demand that the progressive solution of Medicare buy-in be part of any deficit reduction plan as prerequisite before even considering cutting any standard senior citizens benefits. Also throw in demanding an end to two incredibly expensive foreign occupations, and cuts to unneeded defense spending programs for good measure.

If millionaires want to go around complaining about deficits, they should first cut the fat off of massively wasteful private health insurance and PhRMA corporate welfare programs before they start trying to take cash out of the pockets of old people on fixed incomes.

Note on calculations: These numbers are not how much I think a well designed single payer system or a Medicare-like buy-in would actually reduce our federal deficit. These are rough estimates of what the all-important CBO scores would likely be, based on what I know about how the CBO calculated health care changes.

Nor would I, if designing a Medicare-for-all system, require employers to buy coverage from Medicare for their employees--that was just a simple way to design it to make it easy to infer the likely CBO score.

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