While they were negotiating over the fiscal cliff, President Obama reportedly told House Speaker John Boehner, “We don’t have a spending problem”; we have a “health-care problem.” Right-leaning commentators have zeroed in on the first half of the statement without acknowledging the, well, acknowledgement contained in the second.
But here’s my question: if the president agrees that financing the healthcare costs of an aging population is the No. 1 fiscal problem for the United States, why isn’t he acting more urgently to address it? As Megan McArdle observes, “It’s like saying that I’m rich—except for the money I have to spend on food and mortgage.”
Health care costs are path dependent; you can’t just hit the reset button and decide we’d rather do it West Germany’s way. America does all sorts of things more expensively, from medical education to staffing levels to private hospital rooms instead of wards. Some of those things can’t be undone at all (the hospitals that have been built with private rooms cannot easily be retrofitted for cheaper open wards). Others cannot be undone without brutal political fights: doctors and nurses have planned their whole lives around the higher-than-OECD-average-wages that their services command in the United States, and they will not give in without an ugly fight.
Rather than confronting the problem head-on, David Brooks suggests that Obama’s nomination of former Sen. Chuck Hagel to head the Defense Department is an indication that the president is triaging the process of budget reform, finding in Hagel a useful ally in shrinking the Pentagon:
As the federal government becomes a health care state, there will have to be a generation of defense cuts that overwhelm anything in recent history. Keep in mind how brutal the budget pressure is going to be. According to the Government Accountability Office, if we act on entitlements today, we will still have to cut federal spending by 32 percent and raise taxes by 46 percent over the next 75 years to meet current obligations. If we postpone action for another decade, then we have to cut all non-interest federal spending by 37 percent and raise all taxes by 54 percent.
As this sort of crunch gradually tightens, Medicare will be the last to go. Spending on things like Head Start, scientific research and defense will go quicker.
When pressed, the president typically cites Obamacare as proof that he’s willing to tackle healthcare spending—the $716 billion in cuts to Medicare providers that he was pilloried for in his reelection campaign, for example. But the truth is, Obamacare’s most forthright boosters admit that we can’t honestly know yet how successful the law will be in reining in healthcare spending.
Among the most common criticisms of the law is that it did very little to address the cost of health care. That’s nonsense. It’s arguably the most ambitious effort to reduce the cost of medical care in history. It captured some of the obvious sources of savings, such as overpayments to insurers that offer a private coverage alternative to Medicare beneficiaries, and it launched dozens of pilot programs, testing out schemes to make health care more efficient—everything from reducing payments to hospitals with high rates of inpatient infection to “bundling” payments so that Medicare isn’t simply providing financial incentives to perform more tests and treatments.
Here’s the situation: President Obama believes healthcare spending is The Problem. He doesn’t yet know the best approach to fixing it, but we can be assured that we’ll know it when we see it.
Just have patience.