Think Again: How to Control Health Care Costs, Conservative Style

by Eric Alterman, Mickey Ehrlich

This article was published by the Center for American Progress.

It’s a truism that conservatives support fiscal responsibility. Sure, the last two Republican regimes vastly increased the government’s deficits, though to be perfectly accurate, George W. Bush began with a surplus, rather than a deficit. But never mind that. That was when they were actually in power. Now they’re out of power and everything is back to normal. Take a look, for instance, at current arguments over the health care bill, which President Barack Obama has insisted needs to be revenue neutral to ensure that it will save money over time.

A recent Wall Street Journal editorial criticized the proposed compromise legislation as an expansion of entitlements without surefire cost-control measures in place. They write: “The White House hawked a permanent entitlement expansion on flimsy and speculative theories that its own partisans now admit—albeit when it is nearly too late—aren’t more substantive than the triumph of hope over experience, while simultaneously writing off the one policy that has been effective in the real world."

Ditto The Washington Post and Newsweek’s Robert Samuelson, who terms the bill’s spending reductions “a mirage.” He claims that despite what the language of the bill may suggest, there is no chance of controlling health care spending with the current legislation. He takes issue with two progressive studies on the health care bill at the Center on Budget and Policy Priorities and Center for American Progress. He argues that the studies’ claims of reductions under the bill are actually “smaller future increases.” He fails to point out, however, that expansion of coverage with slower increases in costs still amounts to a more efficient health care delivery system.

Samuelson’s primary argument, however, is not against the facts of the bill or the studies of its costs, but rather that promises of spending cuts in Medicare “may not be real.” He insists that, “to attack costs would be politically challenging.” This ignores the reality that the very idea of enacting health care reform is politically challenging.

Samuelson also claims that spending reductions “would require genuine bipartisanship.” Of course, conservatives insist that cost reduction can only happen with tort reform. On November 27, Charles Krauthammer makes the case:

First, tort reform. This is money—the low-end estimate is about half a trillion per decade—wasted in two ways. Part is simply hemorrhaged into the legal system to benefit a few jackpot lawsuit winners and an army of extravagantly rich malpractice lawyers such as John Edwards. The rest is wasted within the medical system in the millions of unnecessary tests, procedures and referrals undertaken solely to fend off lawsuits—resources wasted on patients who don't need them and that could be redirected to the uninsured who really do.

Writing in The New Yorker, Atul Gawande picks up this point, quoting Senator Mitch McConnell (R-KY): “Two thousand seventy-four pages and trillions of dollars later, this bill still doesn’t even meet the basic goal that the American people had in mind and what they thought this debate was all about: to lower costs.” Gawande explains that the bill offers pilot programs to study possible measures for cost reduction rather than relying on a single silver bullet. Many critics of the bill, including those quoted above, ignore its intended purpose to cover 45 million people who are currently uninsured and to research ways to reduce costs. (They might also note that although there is no mention of tort reform in the bill itself, President Obama did pledge $25 million in September to reduce medical malpractice lawsuits.)

Many in the mass media appear in the meantime to be practicing selective historical amnesia about the relevant facts of the Bush administration’s conduct that helped create the current situation. We are thinking specifically about the 2003 Medicare prescription drug benefit, which created Medicare Advantage. It handed over massive subsidies of literally billions of taxpayer dollars to global corporations while allowing overall medical costs to rise and at the same time shielding Medicare customers from real prices. What’s more, for all of the conservative complaints about the “process” through which the president and congressional leaders have sought to achieve passage of the bill, the Medicare legislation set new records for abusive of minority rights.

I [Eric] describe what took place in my book Why We’re Liberals. And believe me, until I looked into it, I had no idea to what lengths the then-Republican leadership would go to ensure that costs not be controlled and rights not be respected. Here’s what happened:

Beginning with his January 2003 State of the Union address, President Bush pledged to keep the total cost of his proposed Medicare drug benefit to $400 billion over 10 years. But Richard Foster, chief actuary at the Office of the Actuary, Centers for Medicare and Medicaid Services, did his own estimate and put the cost at approximately $540 billion. This figure remained a secret while the bill was being debated, however, because Foster had been warned that he would be fired should the truth leak out. His boss, Medicare chief Mark B. McClellan, was at the time in the process of negotiating a new lobbying job for himself with one of the bill’s beneficiaries.

The White House revised its projection to $534 billion shortly after Bush signed the program into law in December 2003, but refused to offer any details of its calculations. That figure turned out to be wildly inaccurate, as well. The White House released budget figures in February 2005 that put the cost of the 10-year tab for the Medicare prescription drug benefit at more than $1.2 trillion in the coming decade. But even these numbers underestimated the colossal cost of this legislation. When the actuaries presented the cost in present values of the program in the 2004 Medicare trustees report, it came to $21.9 trillion, of which $16.6 trillion remained unfunded. How much is $16.6 trillion?

But as conservative budget analyst Bruce Bartlett—who was himself fired from his right-wing think tank—points out, if the Medicare drug benefit were repealed, then “Social Security could be funded forever without having to raise taxes or cut benefits, and the federal government would still be able to cut $7.1 trillion off its long-term indebtedness.” What is alarming, Bartlett notes, is that if the history of the program is any guide, these estimates are also much too low and will eventually eat up the equivalent of every single tax dollar the government now receives.

The cost of the package may be staggering beyond imagination, but its benefits proved strikingly modest. The bill did nothing to reduce the spiraling cost of prescription drug prices. And it specifically rejected—and actually outlawed—the technique that Medicaid and the Veterans Affairs Administration employ to restrain drug prices, which is to use the bargaining power of their respective numbers to force companies to hold down costs. This had the effect, according to research by the National Academy of Sciences, of reducing the cost of drugs by 15 percent. But at the behest of the pharmaceutical lobby the bill expressly forbade the government from taking advantage of this cost-saving mechanism.

Congress, at the behest of the insurance industry, which spent $100 million on federal lobbying in 2003, required that recipients contract for private insurance, even in places where it’s not available. As Alan Wolfe pointed out:

To make sure government agencies didn’t administer the benefit, they lured in insurance companies with massive subsidies and imposed almost no rules on what benefits they could and could not offer. The lack of rules led to a frustrating chaos of choices. And the extra costs had to be made up by carving out a so-called "doughnut hole" in which the elderly, after having their drug purchases subsidized up to a certain point, would suddenly find themselves without federal assistance at all, only to have their drugs subsidized once again at a later point. Caught between the market and the state, Republicans picked the worst features of each.

When the more than $1 trillion figure was finally revealed, Bush spokesperson Scott McClellan lied, “Our cost estimates for the drug benefit are the same as they’ve been in the past.”

Objections came from both sides of the aisle during the vote in the House of Representatives on the bill. The bill would have failed to pass under the normal rules of voting, but the conservative leadership—including Billy Tauzin (R-LA), who, like the head of Medicare, was readying himself for a lucrative new career as head of the pharma lobby—chose to hold the longest recorded vote in modern House history in order to twist the necessary arms to win passage. House votes generally take 15 minutes, but this one took three hours. (When Democratic majority leader Jim Wright (R-TX) left voting open for an extra 10 minutes in 1987, his counterpart, a representative from Wyoming by the name of Dick Cheney, termed the action to be “the most arrogant, heavyhanded abuse of power in the 10 years I’ve been here.”

Even so, the bill almost failed. House majority leader and Republican boss Tom DeLay (R-TX)  apparently told Congressman Nick Smith (R-MI), whose son was running for his office, that a switch of his vote from “nay” to “yea” would be worth $100,000 to his son’s campaign from “business interests,” according to Smith’s original recollection. This would be a felony, if true. But after Smith refused the offer, he recanted his story.

This bill was ultimately more fiction than fact. Its combination of mountainous costs and minuscule benefits was due to the fact that it was really just a massive bait-and-switch game designed to fatten the coffers of the drug and insurance industries and reward corporate contributors with massive taxpayer subsidies in the form of government reimbursements for corporate employee obligations to the tune of $660 per retiree per year.

The numbers, once again, were barely believable. As the Wall Street Journal reported, the good news for the party’s funders included $4 billion for General Motors, $1.3 billion for Verizon, and $572 million for BellSouth. Business Week estimated a gross subsidy of $8 billion a year: $6.5 billion for the subsidy itself and $1.5 billion because Congress had made it tax free so that it could be added to the corporate bottom line immediately under accounting rules. If one includes the Bush energy bill, then at least 61 of Bush’s major fundraisers directly benefited in their business enterprises from the passage of this legislation; investments of thousands of dollars yielded payoffs, in some cases, in the tens of millions.

That, ladies and gentlemen, is how conservatives control health costs.

Eric Alterman is a Senior Fellow at the Center for American Progress and a Distinguished Professor of English at Brooklyn College. He is also a Nation columnist and a professor of journalism at the CUNY Graduate School of Journalism. His seventh book, Why We’re Liberals: A Handbook for Restoring America's Most Important Ideals, was recently published in paperback. He occasionally blogs at http://www.thenation.com/blogs/altercation and is a regular contributor to The Daily Beast.

Mickey Ehrlich is a freelance writer based in New York.