Medicare

Paul Ryan's budget plan chose to fight the major ideological battle of our time on the battleground of Medicare. This may or may not have been wise, politically - witness the GOP loss in NY-26 last month - but it reflects the importance of Medicare in the budget and the urgency of addressing its insolvency.

David Brooks today asks where wisdom lives (a passing reference to the seven-pillared house of Proverbs). I quote liberally, since the original is gated, and add emphases:

The fee-for-service system is incredibly popular. Recipients don't have to think about the costs of their treatment, and they get lots of free money. The average 56-year-old couple pays about $140,000 into the Medicare system over a lifetime and receives about $430,000 in benefits back.... The Medicare trustees say the program is about a decade from insolvency.

Some Democrats simply want to do nothing as Medicare careens toward bankruptcy... For example, Nancy Pelosi said, "I could never support any arrangement that reduced benefits for Medicare." Fortunately, more responsible Democrats are looking for ways to save the system. This is where the philosophical issues come in. They involve questions like: Who should make the crucial decisions? Where does wisdom reside?

Democrats tend to be skeptical that dispersed consumers can get enough information to make smart decisions. Health care is phenomenally complicated. Providers have much more information than consumers. Insurance companies are rapacious and are not in the business of optimizing care.

Given these limitations, Democrats generally seek to concentrate decision-making and cost-control power in the hands of centralized experts. Under the Obama health care law, a team of 15 officials will be created to discover best practices and come up with cost-cutting measures. There will also be a Center for Medicare and Medicaid Innovation in Washington to organize medical innovation. Centralized officials will decide how to set national reimbursement rates.

Republicans at their best are skeptical about top-down decision-making... In 1967, the House Ways and Means Committee projected that Medicare would cost $12 billion by 1990. It actually cost $110 billion... Medicare’s chief actuary predicted that 400,000 people would sign up for the new health care law’s high-risk pools. In fact, only 18,000 have...

Republicans point out that Medicare has tried to control costs centrally for decades with terrible results. They argue that a decentralized process of trial and error will work better, as long as the underlying incentives are right. They suggest replacing the fee-for-service with a premium support system. Seniors would select from a menu of insurance plans. Their consumer choices would drive a continual, bottom-up process of innovation... In less rigidly ideological times, many Democrats supported variations of this basic approach.

The fact is, there is no dispositive empirical proof about which method is best — the centralized technocratic one or the decentralized market-based one...

I'd only add two things. This basic debate will define the identities of the two parties for decades. In the age of the Internet and open-source technology, the Democrats are mad to define themselves as the party of top-down centralized planning. Moreover, if 15 Washington-based experts really can save a system as vast as Medicare through a process of top-down control, then this will be the only realm of human endeavor where that sort of engineering actually works.

If the current generation of leaders fail to restructure the cost structure of Medicare, the 2020's will likely go into history as a time of major economic upheaval: there just isn't enough money to pay for everybody's dreams. More than defining itself as the party of bottom-up innovation, Republicans need to sell themselves as the party of the Long Run. They need to give tough love to seniors in the name of having enough money to provide opportunities for their grandchildren. They need to rebuke short-run-only types in both parties who see savings and investment as bad economic outcomes. Pivot, Republicans. Don't just advocate against the government - you ARE the government! Advocate for the future, and against those who practice the politics of the mortgage.