"Saving our future requires tough choices today" may be a banal sentiment, but it's not an easy one to challenge. That is the headline on the "Fiscal Wake-Up Tour," a slide show created by David M. Walker, formerly head of the Government Accountability Office. In hopes that it will be to the long-term budget deficit what Al Gore's "An Inconvenient Truth" slide show has been to climate change, Pete Peterson has set aside a billion dollars out of his recent windfall from the Blackstone Group to fund Walker's national tour and like endeavors.
Walker, Peterson, and groups like the Concord Coalition solemnly inform audiences that the tough choices are as follows: Taxes raised to unimaginable levels. Economic crisis. Or, reduced spending on "entitlements," also known as "SocialSecurityMedicareMedicaid."
Entitlements are "blank checks," Walker tells audiences, "unfunded promises" to seniors, made unaffordable by the demographic certainties of an aging population. Will Marshall of the Democratic Leadership Council likens entitlements to a "doomsday machine."
Who would vote for blank checks and doomsday? Presenting the options in this way writes its own answer: Create a separate budget for entitlements, as recently proposed by a consortium of think tanks from the center to the far right. The fault is in "the budget decision process," they argue, because "it does not require that Congress and the president conduct a periodic review of how we are committing our limited resources across all of our competing priorities."
John McCain similarly calls for "entitlement reform" (which sounds more palatable than "slash Social Security"). And the idea that aging and demographics force decisions that should not be postponed is the common wisdom of every Tim Russert–wannabe and "sensible" editorial writer in the country.
In a quiet battle of PowerPoints, however, an alternative view has begun to emerge. It doesn't challenge the fact that on current projections the three big entitlement programs, plus interest on the federal debt, will within a few decades consume all federal revenues. But the alternative view argues that the problem is not "entitlements" but one program, Medicare, and to a lesser extent Medicaid. As Henry Aaron of the Brookings Institution asked in the title of a 2007 presentation: "Chronic Deficit: Entitlement Crisis? Or Health Financing Problem?"
"There is no entitlement crisis other than health care," Aaron answered. "There is no practical way to deal with public health-care spending other than by general health-care financing reform." The solution is not "entitlement reform" but health-care reform.
Aaron's conclusion rests on two points: First, while Medicare spending is affected by an aging population, most of the growth in Medicare costs arises from the increase in health-care costs per patient, which is many times more important than the increasing number of Medicare recipients. And second, rising health-care costs are not just a Medicare/Medicaid problem but involve the whole health-care system.
Aaron's argument demolishes the "Fiscal Wake-Up Tour's" obsession with blank checks and doomsday machines, but it doesn't offer a clear solution, either. One answer might be a global budget for health care, with certain services rationed or spending in the last year of life limited. McCain argues for "market-based solutions," claiming that putting people "in charge of their health-care dollars" will empower them to reduce costs, ignoring all evidence that it won't.
But in a third PowerPoint presentation that has been making the rounds in Washington, Peter Orszag of the Congressional Budget Office adds a new dimension to Aaron's argument: "Embedded in the nation's central long-term fiscal challenge," he argues, "appears to be a substantial opportunity: Can we reduce health-care costs without impairing health outcomes?"
Orszag has embraced the research from Dartmouth Medical School, popularized in Shannon Brownlee's recent book Overtreated, which shows that health-care spending, both public and private, varies wildly across the country and is unrelated to outcomes. Geographic variation in health-care spending has more to do with the habits and assumptions of doctors and hospitals in a particular region: In some areas, patients are more likely to be hospitalized or recommended for surgery, with no difference in outcomes. The opportunity Orszag sees is to reduce health-care spending, improve health outcomes, and resolve the long-term fiscal problem.
Of course, one person's wasteful spending is another person's income, so change will hardly be easy. Excess health spending is often the only thing creating jobs in certain regions or cities. But the combination of Aaron's and Orszag's insights is potentially revolutionary. By adding a new variable to the dreary old zero-sum game of the Fiscal Wake-Up Tour, it makes real choices possible.
