Part D, revisited

Associated Press did a good report on the trouble Republicans have been having as they try to explain why, if they consider the fully-funded, deficit-reducing Democratic health care reform unaffordable, they voted for the completely unfunded Medicare drug benefit 6 years ago. None of their explanations make a bit of sense.

But the AP dropped the ball, I think, by not pointing out just how irresponsible the bill really was. According to the Medicare trustees, Part D created a $9.4 trillion unfunded liability over the next 75 years. That’s a big number, even for an economy as big as ours.

What were they thinking? Mostly, they probably weren’t thinking at all. To the extent that there was a theory of the case, however, it went something like this: pass whatever legislation was needed to win the next election, then, once total conservative political dominance has been achieved, dismantle the whole welfare state.

The best laid plans …

Comments are no longer being accepted.

Andy December 29, 2009 · 9:47 am

Hey Paul, are you willing to say a few words about the excise tax as policy and as cost control? Bob Herbert makes a good case that it will be useless as a funding mechanism, because of the probably incorrect assumption that the reduced insurance costs will be passed on to employees. Do you have any reason to believe otherwise.

robob18 December 29, 2009 · 9:47 am

What I’m looking forward to in the ‘deficit-focus’ soon to come will be the IMF-style wage reductions for bankers and Congress to get to economic balance ;)

As far as the GOP running on health-care repeal, how can it be bad ? The vaunted indicator of NYSE share price is up for all insurers, AND the CBO numbers are in, the NASDAQ has had it’s best December since 1999, so all the independent measures of the ownership society as well as the non-political CBO agree.

Do the GOP have new metrics suddenly ?

John Anderson December 29, 2009 · 10:00 am

If you think you can stomach it on this wintry, windy day, you might wish to read chapter twelve (“Master of the House”) in my 2007 book “Follow the Money” (Scribner). It’s the tale of Thomas D. DeLay and his role in the passage of the Medicare Prescription Drug Act. Not a pretty picture, even by DeLay standards. The final House vote, normally limited to 15 minutes, was held open for almost three hours (from 3 a.m. until 5:50 am.), while DeLay and his leadership posse buttonholed wayward Republicans. To quote from the book: “Even Republicans were appalled.” Republican Congressman Walter Jones reported seeing “a woman–a member of the House–a lady–crying.” Oh, and the chief strategist for the “Doughnut Hole” legislation: Big Pharma lobbyist–and former DeLay chief of staff–Susan Hirschmann.

Mike@pvl December 29, 2009 · 10:04 am

Right, and Democrats always pass responsible and sound legislation. They never compromise to win an election. Paul, if you seem to be making a career out of pointing out hypocrisy among out leaders. This is great, but please lose the affinity bias and acknowledge that this kind of behavior is how both parties operate.

Also, I’d be curious to see what the health care plan’s liabilities look like over 75 years. The deficit-reducing numbers only work over a ten year window, correct? But again, affinity bias prevents you from comparing apples to apples.

Dennis K. Biby December 29, 2009 · 10:13 am

“created a $9.4 trillion unfunded liability over the next 75 years.”

You’re kidding right? The federal government can’t predict the deficit two years into the future – how can anyone believe a 75 year prediction?

Malcolm December 29, 2009 · 10:16 am

…and if total political dominance isn’t achieved, it’s the Democrats problem anyway, so who cares.

Talk about cynical.

klm December 29, 2009 · 10:18 am

So Paul, what about the Senate plan’s excise tax falling on middle class Americans?

According to the CMS.

In reaction to the tax, many employers would reduce the scope of their health benefits. The resulting reductions in covered services and/or increases in employee cost-sharing requirements would induce workers to use fewer services. Because plan benefit values would generally increase faster than the threshold amounts for defining high-cost plans (which are indexed by the CPI plus 1 percent), over time additional plans would become subject to the excise tax, prompting those employers to scale back coverage.

Doesn’t sound good, does it?

What about those “cost controls”? Is the Senate thinking at all?

Joseph O’Shaughnessy December 29, 2009 · 10:21 am

I think that it is important to underline what you seem to offer as something of a a conjecture. The Neocons definitely want to dismantle the welfare state, such as it is; that is for certain.

Allan Leedy December 29, 2009 · 10:22 am

Another consideration would be that this $9.2 trillion is a nice gift to the pharmaceutical industry in return for the industry’s support of incumbents.

MHD December 29, 2009 · 10:23 am

Percieved requirements for “unique” treatment on the part of all subgroups in a system diminishes and destabelizes the system as a whole.

Tough minded requirements to “handle the truth” and pay for social programs are not applied to wars of choice or tax cuts. Conservatism is appealng only when the status quo is lucrative and confortable. As this inevitably erodes as the world changes and American technological dominance recedes to ‘average levels” conservatism will recede along with “easy dollar” jobs. The american people are NOT conservative:They are takers who simply know a good deal when they see it. When the progressive agenda is realized to be the larger loaf, as seems inevitable, that is how the votes will follow.

Retiredinsobe December 29, 2009 · 10:27 am

Thanks to the republicans, the Medicare Part D bill prevented the government from negotiating drug prices. But the Veterans Administration (VA) does negotiate drug prices in connection with VA drug benefits. So the price paid by the VA for a drug is less than that paid for under Medicare Part D. The current healthcare bill continues this practice. The Senate bill also prohibits the importation of drugs from other countries.

My proposal is simple: for a drug to be approved for sale in the US by the FDA, the drug company must agree to not sell it for more than the 1.05X the lowest price it charges for the same drug in the OECD countries. Simple, but political death to any congressman/senator who would propose it.

Other aspects, are discussed in my blog:
//fredpollack.wordpress.com

Drew December 29, 2009 · 10:43 am

Dr Krugman-

Since you’re reading calculated risk, can you please (PLEASE!!!) comment on the Goldman/AIG/FED scandal? Should we not be holding pitchforks? Should it not be the biggest story of 2010?

Tom Hickey December 29, 2009 · 10:46 am

Orin Hatch answered: “… it was standard practice not to pay for legislation.” Oh, I see.

workaday joe December 29, 2009 · 10:46 am

I think if you talk to most conservatives, they weren’t happy with Medicare Part D either. This is a medium-to-large fissure in the Republican party between the Sarah Palin-Ron Paul wing and the barely-breathing Mitch McConnell-John Boehner wing. Democrats would do well to exploit this. The Palinites are as much a threat to the 1998-2008 Republican Party as they are to the modern Democratic party.

Jim Hansen December 29, 2009 · 10:48 am

It’s a sinister variation of the “starve the beast” theory. You pass huge unfunded benefit legislation, thereby bankrupting the program. Then you “fix” the program by privatizing it.

In actuality, it’s death by obesification, rather than by starvation.

Min December 29, 2009 · 10:59 am

“But the AP dropped the ball, I think, by not pointing out just how irresponsible the bill really was. According to the Medicare trustees, Part D created a $9.4 trillion unfunded liability over the next 75 years. That’s a big number, even for an economy as big as ours.

“What were they thinking? Mostly, they probably weren’t thinking at all.”

Or, more likely, they intended to enlarge the national debt to hamper liberal government spending in the future. There is no inconsistency with their current “we can’t afford it” rhetoric. It’s all part of the same master plan.

DSurber December 29, 2009 · 11:02 am

The real theory was: Our plutocrat friends want us to pass this bill, so pass it. No more thought required. It’s the only theory that explains the past 30 years of Congressional action.

Gary J Moss December 29, 2009 · 11:11 am

They were thinking what a big prize Medicare D would be to big pharma. Don’t misunderstand me, I’m all for covering the cost of seniors’ prescriptions—at fair prices.

Evans December 29, 2009 · 11:15 am

Paul… this is a mistake. Bringing up 75 year unfunded liabilities is GOP chicanery, and I’m disappointed to see you do it.

Or could you run a company projecting the budget 75 years into the future?

David Hughes December 29, 2009 · 11:22 am

I do think that the Republican Party figured it was in for the long term…in fact (get out the butterfly net), I truly believe that had things gone just slightly more in their favor, Mr. Bush and Mr. Cheney, citing FDR, would have “decided” that Bush would be the unelected president for an extended period of time, for which they would have gotten Republican backing (“no switching horses mid-stream during this war on terror) and our wildly partison Supreme Court. But I disagree on the reason for Part D, humbled as I am by the brilliance of the Good Prof Krugman. I think it was just plain ol’ greed and politics (how the AARP went along with Part D, I’ll never know).

kharris December 29, 2009 · 11:43 am

Ah, you are offering the logic of the (neo-)triumphalist GOP, which imagines the end of history that each time it gains power. The “realist” political dirty dogs imagine that Democrats can be forced to clean up the fiscal mess Republicans create when trying to buy votes. That little plan may have run into a problem, what with the Part D deficit legacy and Bush tax cuts and…

Erick December 29, 2009 · 11:58 am

Well said. I can’t stand the hypocrisy sometimes, especially when conservatives turn into defecit maniacs under more progressive administrations.

Douglas Dye CA December 29, 2009 · 11:58 am

“Part D created a $9.4 trillion unfunded liability over the next 75 years.”
How can you trust any cost projection covering 75 years?

saul December 29, 2009 · 12:03 pm

Because those Republicans were cowards.
They thought that the socialist liberal mind set that holds that government can provide medical care had become so deeply embedded in the political culture that they would lose re-election if they did not do something to further nationalize health care.
They therefore did not stand up for sensible health care reform.
Now, with Krugman and the others in the political class about to destroy what remains of our health care system, which has driven innovation for decades, they are finally getting a backbone. Hooray.

AnnS December 29, 2009 · 12:08 pm

The Republicans lecturing about the horrors of unfunded spending and the accumulating deficit is like a whorehouse madame delivering lectures on the virtues of chastity.