WHEN “BIG” GOVERNMENT IS EFFICIENT AND SOCIALLY BENEFICIAL

This is election time, and time for Republicans to advocate smaller government, and repeat President Reagan’s claim that “[In this present crisis], government is not the solution to our problem. Government is the problem.”1 This assertion deserves a prominent response. The country has recently emerged from Bush’s war of choice in Iraq, a good example of when the central government was the problem. But here are examples of the opposite, of the federal (hopefully efficient) centralized government’s ability to do great things for our country.2

FDIC and the Volcker Rule:  In 1933, under President Roosevelt, Congress passed the Banking Act of 1933. Although four sections of that Act, which became known as the Glass-Steagall Act,  have been much in the news since 2008, the part that has most protected the financial health of Americans endures without  fanfare. This is the Federal Deposit Insurance Corporation (FDIC) law. This has protected the bank deposits of ordinary people for nearly eighty years. Before this time, a depositor’s only protection was unrealistically difficult research into a bank’s stability. The Glass-Steagall  portions limiting the relations between commercial banks and investment  organizations selling securities, was gradually whittled away starting in the 1960s, and finally repealed in 1998. Fortunately, the Dodd-Frank Wall Street Reform and Consumer Protection Act  (July 21, 2010) has taken over  some of the regulatory duties and instituted new ones. It establishes a Consumer Protection Agency, increases the transparency of derivatives, and mandates the implementation of the Volcker Rule. In the abstract, this Rule aims to outlaw activity in which there is a conflict of interest between a bank and its clients, including doing high risk trading.  It forbids depository banks from trading in securities by using their own (i.e. which might include their customer’s funds) capital.3 The Rule continues to have Republican enemies who hope to eliminate it. They were able to weaken the final form, such that banks can invest 3% of their own capital in equity or for hedging purposes. Mr. Voclker has proposed that investment companies like Goldman Sachs and Morgan Stanley wanted to get banking licenses during the economic crises so as to qualify for federal protection from failing.

MEDICARE:  The passage of Medicare in 1965 has increased the health and well-being of senior Americans. One of its major benefits has been simply to remove the fear of lacking the affordable care they would need. Before that time, some health care and its coverage was tied to employment, and was lost  when seniors became unemployed. Over half of seniors did not have health insurance, because it was too expensive.

The 1965 Medicare innovation was a bi-partisan one. Once again, there are several bi-partisan proposals out there. We need to consider them because: Congress has been unable to develop a long term solution to a reimbursement rate for doctors, which damages confidence in the program.  More doctors are considering dropping out of or limiting Medicare patients. The baby-boomers have already started enrolling in Medicare at the rate of 10,000 each day for the next 20 years. And many of the unemployed no longer pay into the program. The Medicare Trust Fund that pays hospital bills will be empty by 2022-2024, and if nothing is done, would be supported only by yearly payroll tax revenues.

Although one or both of these proposals may be “off-the-table” now as legislation, they are worth considering as examples of what compromise could look like. In a different area, the Simpson-Bowles plan for the federal debt reduction still has a following as a model of bi-partisanship. It had nothing to do with Medicare, but according to the Bipartisan Policy Center, it would have reduced the federal debt down from 73 percent of GDP now to 67 percent in 2022. Representative Paul Ryan of Wisconsin voted against Simpson-Bowles, because he wears two hats. He worked with Senator Wyden on a bipartisan approach to Medicare. However,  as David Brooks has said, he also thinks the Democrats will lose all political power and the Republicans do not need to cooperate with them on debt reduction.

Both Democrats and Republicans agree that changes in Medicare are necessary. They differ in orientation and in the degree to which providers and beneficiaries are impacted. For your information, here is a description by Oregon’s Democratic Senator  Ron Wyden of a draft working paper by him and Republican Representative Ryan.

Wyden-Ryan doesn’t eliminate the traditional Medicare plan, instead it guarantees that seniors who want to enroll in Medicare’s traditional fee for service plan will always have that option.

Wyden-Ryan doesn’t privatize Medicare because Medicare beneficiaries already have the option of enrolling in private health insurance plans. Wyden-Ryan makes those private plans more robust and accountable by forcing them to—for the first time—compete directly with traditional Medicare.

Wyden-Ryan protects the purchasing power of traditional Medicare and private sector innovation to make both types of Medicare stronger and more senior-friendly. All participating private plans will be required to offer benefits that are at least as comprehensive as traditional Medicare and any plan that is found taking advantage of seniors or providing inadequate care will be kicked out of the system.

Wyden-Ryan would also uphold the Medicare Guarantee by ensuring that seniors will always be able to afford their health benefits…[it would adjust premium support payments each year to reflect the actual cost  of health insurance premiums.

Beyond that, Wyden-Ryan creates a catastrophic benefit that does not exist in traditional Medicare, ensuring that no senior is bankrupted by a major illness.4

Wyden does not agree with all of Ryan’s health related proposals.  He rejects Ryan’s desire to turn over federal support for Medicaid payments to states, via “block-granting.”

There is a bipartisan flavor to another structural change plan. This has been put forth by former Republican Senator Pete Domenici and Clinton’s former OMB director, Alice Rivlin, now a Senior Fellow at Brookings. She is highly regarded by health professionals and by many democrats.  Here is part of what it says:

Our proposal would preserve traditional Medicare as the default option for all seniors permanently. It also would offer seniors the opportunity to choose among comprehensive private health plans offered on a regulated exchange. These plans would be required to cover benefits with at least the same actuarial value as traditional Medicare (including a specified package of services), would have to accept all applicants (absolutely no cherry-picking allowed), and would achieve risk-adjusted annual payments based on the age and health status  of the beneficiaries. The regional exchanges would collect and manage the prices and terms of competing plans within a designated region (a metropolitan area or a rural area) that would include traditional fee-for-service (FFS) Medicare as well as qualified private plans. The government’s contribution would be set by the second-lowest –priced plan in the regions (subject to the two lowest-priced-plans having sufficient capacity). Beneficiaries who chose the lowest-priced plan would get money back and those who chose more expensive plans would have to pay the difference.5

Medicare beneficiaries already can choose among private plans. But the Domenici-Rivlin proposal provides transparent competition and regional exchanges. In other words, the authors believe that effective competition will drive down costs, enhanced by transparent bidding.  The assumption is that there is an incentive for innovation among health plans.

The realist should recognize that in the United States, advocates of market competition will always have a powerful voice. That is capitalism, including the Republican orientation of it. There will also be those who believe strongly in government regulation, a traditional Democratic concern. 6 A recent commentator on private Medicare asks why Democrats say that Ryan would “end Medicare as we know it,” even when private plans have played a role in holding down costs and satisfying most beneficiaries? The commentator’s reply:

One answer, cited by many health policy experts, is that Medicare officials have aggressively regulated insurers to protect consumers and prevent abuses in the marketing and operation of private plans. Republicans who seek a larger role for private plans generally want a market with less regulation. 7

Do the above two bi-partisan suggestions meet both perspectives?

  1. Reagan’s inaugural address, January 20, 1981.
  2. Joseph E. Stiglitz, The Price of Inequality  (New York: Norton, 2012), 175-176.
  3. http:// newsandinsight.thomsonreuters.com/Securities/Insight/2012/05_-_May/As_Volcker  2
  4. Posted in HuffPost Politics, 3/19/12
  5. Alice M. Rivlin, “ A Bipartisan Approach to Reforming Medicare,” in http://www.brookings.edu/research/testimony/2012/04/27-medicare-rivlin
  6. Rivlin, 5
  7. Robert Pear, “Despite Democrats’ Warnings, Private Medicare Plans Find Success,” in New York Times,  8/26/12, 14

DJM 8/19/2012

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