Recently, a blizzard of deficit and federal debt reduction plans has emerged from across the political spectrum. Many of them—especially those coming from the center/right—propose major changes in the benefits and/or financing of Medicare and Medicaid in the name of getting the nation’s “fiscal house in order” and restoring economic growth.

For different reasons and in different contexts, these public insurance programs already have been getting some rough treatment in public debate.

For Medicare, the recent context has included continuing debate over cost containment provisions in the Affordable Care Act—a debate that includes allegations of death panels, rationing, and the forcing of seniors onto “government-controlled” health care. (Note: It doesn’t have to make sense; it’s just a sound bite.)

For Medicaid, the challenge has rested mainly at the state level. Cash-strapped states have struggled to keep up with increased demand for Medicaid amidst falling revenue streams and other realities arising from the recession. Many states have filed suits to block the ACA-mandated expansion of Medicaid eligibility. Some have gone so far as to threaten withdrawal from the Medicaid program.

However, as a new political alignment prepares to take the reins in Washington, new federal level threats are aimed against Medicare and Medicaid, which form the foundation of our nation’s health care safety net, particularly for older adults, people with disabilities and children. The deliberations of the official Deficit Reduction Commission (DRC) appointed by President Obama, along with related policy proposals, such as the one released by the Bipartisan Policy Center (an organization financed by Peter G. Peterson – a long-term proponent of reduced federal spending on entitlement programs), bring these threats into focus.

Putting the Deficit Debate into Context
As Henry Aaron of the Brookings Institution observed in the New York Times, the various official and unofficial “commission” reports aim at three distinct problems: the short-term increase in the national debt, a projected shortfall in Social Security funds, and a projected long-term rise in the national debt. Let’s look at the short- and long-term issues in turn.

It’s the economy, stupid (and the wars and the Bush tax cuts)
Most economists agree that the current short-term increase in public debt is attributable almost entirely to the wars in Afghanistan and Iraq, the Bush tax cuts (mainly benefiting the wealthy) and the recession. Also, lingering effects of the recession, not health spending or the debt, pose the most immediate and serious threat to our health security and general well-being. Persistent high unemployment rates reduce the proportion of people who have employer-sponsored health insurance, and also reduce the revenue to fund Medicare, Medicaid and Social Security while driving Medicaid enrollment up. With enhanced federal support for Medicaid slated to expire in June even while states face continued significant revenue shortfalls, pressures on Medicaid will be greater than ever.

Meanwhile, the actions and words of President Obama’s financial advisors make it clear that they do not regard the possibility of a “double dip” recession as being out of the question, especially without additional fiscal stimulus. By spurring job growth, additional stimulus would support the economic recovery and restore growth, creating the conditions necessary to bring down the short-term debt. Reducing unnecessary military spending and restoring more progressivity to the tax code also would help. However, the type of stimulus that would include additional federal funds for state Medicaid programs appears to be off the table.

Medicare and Medicaid in the crosshairs
Finally, and most significantly for health care advocates, the various commission reports all addressed the issue of long-term projected increases in Medicare and Medicaid spending. The CBO has projected that the growth of federal debt long-term is attributable almost entirely to the growth of health care spending, particularly Medicare and Medicaid. Based on this, various debt-buster report recommendations to reduce health care spending in Medicare and Medicaid vary from the benign (increasing funds for fiscal oversight, reducing fraud and payment errors, and collecting the Medicaid drug rebate for all dual-eligibles) to the alarming (increasing Medicare cost-sharing, setting a global cap on federal health spending equal to GDP growth plus one percent, turning Medicare into a voucher program, and eliminating the federal commitment to matching state Medicaid spending on no less than a dollar for dollar basis).

Beware of GIGO (Garbage In Garbage Out)
Before entertaining any drastic action to cut Medicare and Medicaid, policymakers should subject the assumptions underlying the Deficit Reduction Commission and similar reports to careful scrutiny. First, although you would never know it from any of these reports, there is actually very little evidence to support any particular debt-to-GNP ratio as a target that we must adhere to or risk financial disaster. (See this and this for discussions that call into question the basic premises of the deficit commission. An opposing view is here.)

Policymakers also should closely examine underlying assumptions in the CBO forecast. Projections of explosive debt growth are very sensitive, both to assumptions and to policy change. (See, for example, the difference between the 2009 and 2010 CBO forecasts.) James Galbraith and others have pointed out that the CBO baseline assumes an unlikely combination of circumstances that includes low inflation (except in health care) and, notwithstanding that low inflation rate, significantly higher interest rates. CBO also assumes that there are no long-term cost savings effects from the ACA. While it may be prudent not to assume a continuing cost-containment effect from the ACA, it also would be prudent to give the law a chance to work before performing radical surgery on the core of our health care safety net.

Finally, neither the assumed need for debt reduction nor the use of arbitrary caps to reduce the percentage of our economy devoted to Medicare and Medicaid are helpful lenses through which to consider the question of health care cost containment. On the one hand, reduction of the debt is taken as a primary good, with benefits assumed but not demonstrated. On the other hand, discussion of the impact of proposed cuts on health programs serving older adults and others served by Medicare and Medicaid is nowhere in evidence. It is impossible to judge the reasonableness of proffered recommendations without looking at their costs, as well as any alleged benefits.

A few facts are important to keep in mind:

– Medicare already offers coverage benefits that are less generous than those typically available through employer-sponsored insurance.
– Older adults already devote a substantial share of their income to health care –well above what younger groups spend.
– Medicaid beneficiaries are both the poorest and sickest members of society. A retrenchment in Medicaid is therefore likely to create substantial hardship both for the low-income frail seniors and younger adults and children with chronic illnesses and disabilities on whom most Medicaid dollars are spent.
– The same proposals that envision reducing the value of Medicare also envision reducing Social Security benefits, creating a double whammy for all who do not participate fully in the labor force because of old age, disability or other categorical dependency.

The cost of public programs providing health coverage and services is tied to the overall growth in health care costs. Focusing only on public spending in this equation obscures this link and leads toward draconian solutions that harm vulnerable populations rather than smarter, more system-wide approaches. Arbitrary cuts in public spending for health care would be a cure worse than the disease. What we need is not an arbitrary cap on health spending, but long-term integrated approaches to reducing the rate of growth in health care costs that also improve quality and value. The Affordable Care Act plants the seeds of such a program. More could be done, but that will require less demagoguery and ideological rigidity than was on display during the debate on passage.

Is the threat real?
For now, the debt reduction juggernaut may be temporarily stalled. Even Congress might blush before recommending major cuts to popular programs immediately after voting to increase the deficit by $900 billion, as they are now considering doing. But it is not dead. When the debate turns again to debt reduction, it is critically important for advocates of quality affordable health care for all to block a stampede caused by debt-phobia that would undermine health security for millions of Americans.

– Michael Miller, Policy Director