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Home Publications Blogs CEPR Blog Medicare Cost Reductions: Is the Point to Save Money or Inflict Pain?

Medicare Cost Reductions: Is the Point to Save Money or Inflict Pain?

Written by Dean Baker   
Tuesday, 05 March 2013 10:38

Washington budget debates often contain a large element of the absurd. In 2000 there was a major debate among serious people over the year in which we should pay off the national debt (really). Today one of the central stumbling blocks to a budget deal appears to be President Obama's reluctance to make cuts to Medicare that would inflict serious pain on beneficiaries.

The fact that Medicare poses such a stumbling block is striking because we have already seen sharp declines in the projected cost of Medicare over the years in which President Obama and Congress have been fighting over the deficit. The Congressional Budget Office has lowered its projections for Medicare costs over the years 2013-2023 by $400 billion compared with what was projected back when Bowles-Simpson put together their initial budget proposal. That proposal called for a bit more than $300 billion in cuts to Medicare, less than the reductions in projected spending that we have already seen.

Furthermore, CBO has not reduced its projections by as much as cost growth has slowed in the last three years. In a new discussion piece in the Journal of the American Medical Association, Harvard economics professor David Cutler and researcher Nikhil Sahni argue that the trend for slower health care costs is likely to continue. They calculate that if CBO adjusts its projections in line with the slower cost growth that we have seen to date it would imply another $363 billion in savings through 2023.

This is not a reason not to seek further savings, for example by bringing Medicare payments for prescription drugs more in line with payments in other countries. However, it suggests that we have likely already exceeded the targets that even deficit hawks were setting for savings in Medicare.

This raises the obvious question, if we hit our targets for savings in Medicare, why is the Washington policy crew still insisting on further cuts to the program? This demand is coming not just from conservatives and Republicans, but from ostensibly centrist types who say that President Obama must make cuts to Medicare to show that he is serious about dealing with the deficit. It seems as though inflicting pain on low and middle income seniors has become an end in itself in elite Washington circles. As we can see, Washington budget debates often contain a large element of the absurd. 

Comments (1)Add Comment
written by foosion, March 06, 2013 7:27
The point is to increase redistribution to the 1% (or the 0.001%). Medicare is a large part of the budget and the less spent on it the more available for upper income tax cuts.

True, a lot of Medicare spending goes to those with higher than average income, but the 0.001% should be safe. If not, we'll find a way to make it up to them.

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