A health insurer with some unusual side ventures like an army and a navy

Recall the CEO of GM who lamented they’d become a pension and health care company that makes cars on the side?  They had to devote so much time&money&effort to managing retirees’ benefits that it crippled their ability to fulfill their core mission?

In an outstanding post at National Review, Yuval Levin makes a similar point about our federal government’s predictament:  it will soon be a “health insurer with some unusual side ventures like an army and a navy.

In the short-term debate we are now engaged in, we are fighting about ways to reduce deficits with lower discretionary spending or higher taxes—basicallyusing non-health spending to offset some of the growth in health spending in the hope of keeping overall deficits and debt under control for a little while longer. But in the medium and long term, there is no hope whatsoever of doing this. It is absolutely impossible to raise taxes fast enough or high enough to keep up with this growth, and while other entitlement and discretionary cuts can buy a little time there is really nothing we could do on that front that would effectively avert disaster, both for the health-entitlement programs and for the economy.

Our debt explosion is a health-entitlement explosion, and to address it we have to fix the fundamental structure of our health entitlements. That means above all replacing the fee for service structure of Medicare, which is the chief driver of inefficiency across our health-care system. In addition, the incentives for overspending in Medicaid (where states design benefits and the federal government pays) and the employer system (where higher premiums mean greater tax savings) need to be redirected. That means repealing Obamacare and transforming the employer tax exclusion, Medicare, and Medicaid into a system of defined-contribution health benefits.

That doesn’t mean a debt-ceiling deal has to address all this. It would be unreasonable to expect that. But it does mean that by failing to address it, such a deal would fail to really touch the debt problem. Any deal that fails to do that (even if it’s called a “grand bargain” and claims to involve trillions in cuts over ten years or is hailed as the epitome of sanity by gang members) is not a meaningful debt reduction plan, and is not worth huge concessions from Republicans, like a multi-trillion dollar tax increase. It would be, rather, a small spending-reduction deal and would be worth small concessions from Republicans, like a less than 1-to-1 relationship between cuts and a debt-ceiling increase, or some similar compromise. The equivalent of a huge tax concession (which would shatter the Republican coalition, but which Democrats consider essential) is a huge health-care concession (which would shatter the Democratic coalition but which Republicans consider essential), but the president has insisted that those are entirely off the table. If that’s the case, then taxes should be too, and it’s time to finalize a smaller deal.

A small deal is worth making, but Republicans are right to keep it in perspective, and they should save their resources and their major cards for doing what it takes to deal with the new and difficult kind of policy challenge the country now faces. And doing what it takes apparently includes helping elect a new president, since the current one insists on doing all he can to avoid meaningful reform of our health-care entitlements…

It can be done. And of course the specific approach of the Ryan budget is by no means the only way to do it. The reforms proposed by the Bipartisan Policy Center last year, or those proposed by the Breaux-Thomas commission back in 1999 offer less aggressive but also perfectly plausible paths to a solution. All of them involve a transformation of Medicare into a premium-support system that would use market forces to improve efficiency and keep costs down. The same logic applied to the individual and small-employer markets would also help cover more of the uninsured and further reduce the growth of health-care costs. That’s the shape of the solution to our health-care problem, and therefore to our debt problem. It is the core of the answer to the unprecedented challenge that we now face, and which our politicians are doing their best to avoid.

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