Brief Note on PPACA and the Politics of Medicare Reform

by Reihan Salam

President Obama’s coverage expansion law is a delicate latticework that creates a four-tranche universal health system. Its complexity is a legacy of the challenging political circumstances facing the Obama White House in 2009. The president and his allies recognized that the public would be reluctant to embrace a coverage expansion with an inordinately high price tag, and so they felt it was crucially important to characterize health system reform as part of a larger effort to address long-run deficits and debt. This argument rested on the (correct) notion that the long-run debt problem is fueled largely by the growth of health entitlements, which in turn flows from medical cost growth. 

Managing the sticker-price is a big part of why PPACA creates a four-tranche system which introduces or exacerbates a number of horizontal equity problems, e.g., households with employer-sponsored insurance receive a lower subsidy than households that are insured via state-based exchanges at the same levels of income. This presumably flows from the fact that there was and remains intense political resistance to unraveling existing health insurance arrangements for tens of millions of Americans. A more equitable arrangement, e.g., the refundable tax credits proposed by Sen. John McCain during his 2008 presidential campaign or the standard deduction proposed by Wyden-Bennett, may well have proved disruptive, and the 2008 Obama campaign attacked McCain on precisely these grounds. 

A sharp reduction to the growth of Medicare expenditures was also an important part of managing the sticker-price of coverage expansion, as was excluding the cost of the so-called Medicare “doc fix” from the final legislation, though a “doc fix” was essential to making coverage expansion work politically. Reducing Medicare expenditures over the budget window helped yield a CBO score in which the final legislation was deemed deficit-improving, as did CLASS premiums and a number of obscure but significant revenue measures, like the Unearned Income Medicare Contribution.

Yet this diversion of resources from Medicare to coverage expansion created a significant political vulnerability. Republicans claimed that PPACA Medicare cuts endangered the health safety net for older Americans, and that the cuts relied on crude administrative price-setting. This line of attack has contributed to PPACA’s relative unpopularity.

And as Yuval Levin explains, PPACA has also made certain Democratic attacks on the Wyden-Ryan proposal for Medicare reform potentially problematic. The key word is “potentially” — the effectiveness of an attack depends on its plausibility, and it is possible that swing voters simply won’t trust Republicans when they claim (accurately) that the president’s coverage expansion law entails deep administrative cuts to Medicare and that the GOP approach to reform is designed to preserve a defined benefit.