Medicare and the Usual Suspects

The film Casablanca features one of the greatest moments in movie history. With Humphrey Bogart standing with a smoking pistol over the body of the dead Gestapo major, Claude Rains, in the role of the French colonel tells his troops: “the major has been shot, round up the usual suspects.”

Unfortunately the Washington policy gang is busy following Claude Rains’ instructions. The nation is drowning in endless accounts of how the huge deficit will sink the economy and the country. These accounts invariably feature stories of a Congress addicted to spending and a nation that wants government benefits that it doesn’t want to pay for.

This story has nothing to do with reality as all budget analysts know. The explosion of the budget deficit in the last three years is a response to the plunge in private sector demand following the collapse of the housing bubble. If the budget deficit were smaller, we would simply have less demand and fewer jobs.

Paul Ryan did his best to lay out the long-term story as clearly as possible with his plan to privatize Medicare. The analysis by the non-partisan Congressional Budget Office (CBO) shows that Ryan’s plan would hugely increase the cost of health care to seniors. Under the Ryan plan a Medicare equivalent policy is projected to cost almost half of a median 65-year old retiree’s income by 2030. It would soon exceed the income of most retirees as health care costs outpace income growth.

However most of the additional burden projected for retirees is not the result of cost shifting from the government. The vast majority of the additional burden that the CBO projected for retirees comes from the higher cost of private insurance compared with the government-run Medicare system. The additional cost as a result of adopting Ryan’s privatized system is more than $30 trillion over Medicare’s 75-year planning horizon.

To put this in perspective, CBO’s projected increase in the cost of buying Medicare equivalent insurance policies through the private sector is roughly six times the size of the projected Social Security shortfall. The projected shortfall in Social Security has sent thousands of politicians screaming about devastating burden on our children. How would we describe something that is six times as large as this devastating burden, a sum that is just under $100,000 for every man, woman, and child in the country?

The CBO analysis should have led every budget reporter in the country to point out the enormous cost savings that Medicare provides relative to private insurers. They should have been pointing out that the country will face an enormous burden from exploding health care costs if it does not fix its health care system. And, that the Medicare system is an important part of the solution.

However it seems that no budget reporters ? not a single reporter at the New York Times, Washington Post, Wall Street Journal or any other major news outlet ? picked up on this central point in the analysis from the CBO. Instead they talked about the plan as a question of whether people preferred a government guarantee or would rather have individuals rely on themselves and the market to obtain health care in their old age. The $30 trillion price tag in the form of added waste was altogether missing in the reporting.

Perhaps this should not be surprising. After all, reporters at major news outlets are better known for what they miss than what they catch. The vast majority of them bought President Bush’s nonsense about Saddam Hussein’s weapons of mass destruction in the period leading up to the Iraq War. While the Bush administration’s accounts were presented with due solemnity, the voice of skeptics was rarely heard.

Similarly, there was almost no reporting on the $8 trillion housing bubble, the collapse of which has given us the worst economic downturn since the Great Depression. Instead we were given the assurance from Alan Greenspan, Ben Bernanke and the rest that everything was OK. Instead the news outlets told us to worry about the budget deficit ? back when it was just 1.0 percent of GDP.

Incredible as it may seem, the national press corps is almost completely ignoring a report from the government’s main source of budget projections. Rather than telling people that the Ryan plan to privatize Medicare means transferring tens of trillions of dollars from taxpayers and Medicare beneficiaries to private insurers and the health care industry, they spread drivel about the issue being a matter of whether people like the government or the market.

This fits the usual suspects story. The choices are between those who prefer the government and those who prefer the market. But as every viewer of Casablanca knows, the real choice is between those who want to redistribute tens of trillions of dollars to insurance and health care industry and those who don’t. Preferences for the government or the market have nothing to do with it.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This article originally appeared in The Guardian.

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Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

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