Politics & Policy

Medicare Reform Has No Constituency

The GOP’s failure to face the issue illustrates the limits of (small-r) republican politics to govern for the public interest.

If the polls and the experts are to be believed, House Republicans are set to lose their majority in next Tuesday’s midterms. Despite having held the House of Representatives for six straight years, and 20 of the last 24, the GOP has mainly failed in its longstanding promise to reform our entitlement system, especially Medicare, whose long-term trajectory threatens the fiscal solvency of the federal government.

It is easy to dismiss this as a failure of leadership, and to some extent it is. Republicans could have, should have tried harder. But leaving it at that overlooks the more fundamental reality: A virtually insuperable coalition controls the politics of Medicare and can successfully fend off assaults on reforms.

There are two broad groups that oppose fundamental transformations to Medicare: the medical-services industry and senior citizens. While they do not amount to a majority of the population, they nevertheless have incredible political power.

When Medicare was first proposed in the early 1960s, the medical-services industry wanted nothing to do with it. The program was broadly disdained as socialized medicine. But of course it was not. In truth it was a public–private partnership between the government and the medical-services industry, with the government coming to depend on the industry for the provision of care to seniors, and the industry coming to depend on the government for a large portion of its annual revenue.

Over the ensuing half century, the two sides have become so intertwined that it is very difficult to differentiate one from the other. The medical-services industries spends an inordinate sum of money lobbying Washington, D.C., and is a major contributor to both parties, and former government officials often leave public service to go lobby on the industry’s behalf. For all intents and purposes, it is impossible to revise the Medicare contract without the industry’s consent, which will of course be withheld if the industry believes reforms will leave them with less federal funding.

Admittedly, a lot of industries have close ties to the government. And yet reform of other industries is often possible. Last year congressional Republicans, for instance, pulled off tax reform, which left some groups with fewer federal benefits to be gained through the tax code. But the medical-services industry has as its ally senior citizens, who benefit enormously from Medicare.

The conventional wisdom about the program is that it is a social-insurance program, like Social Security. But in truth, beneficiaries receive much more in benefits than they ever pay in taxes. Medicare Part B is actually funded through general revenues, rather than a dedicated fund that is paid for through payroll taxes, like Medicare Part A. This means that it is a transfer of wealth from the young to the old.

Seniors are a formidable force in American electoral politics. They vote at much higher rates than non-seniors. They also are more likely to contact members of Congress and volunteer their time — the sorts of political actions that do not go unnoticed by members of Congress. And while congressional Republicans have written reform legislation that does not directly affect today’s seniors, that is a policy detail easily overlooked, especially when Democrats are arguing vociferously against GOP proposals.

Combined, these two groups have a tremendous amount of power in American politics,  including the Republican party. Like many American economic interests, the medical-services industry plays both sides of the aisle, which means that it can expect an audience with congressional Republicans. And senior citizens now vote disproportionately Republican.

On the flip side, young voters, who stand to benefit the most from reforms that reduce the cost to the public fisc, tend to vote Democratic, and they would not receive the benefits from GOP reforms until many years in the future. Similarly, in the short run, no industry groups would benefit if the government reduced its expected commitment to providing medical care.

Take these factors together — highly mobilized, pro-Republican factions that would experience (real or imagined) harms from reforms, and disorganized, pro-Democratic factions that would experience no immediate benefits — and it is no wonder that the GOP basically failed to reform Medicare. This is not just a failure of party leadership. It is also an illustration of the limits of (small-r) republican politics to govern for the public interest. Sometimes, the hard thing to do is the best thing to do. But that is a very tough sell in a country where the people rule.

In all likelihood, the government will continue to let the Medicare problem linger until it harms the credit rating of the government or requires middle-class tax increases to fix. There are no interests more powerful in the United States than two groups: the owners of the public debt and the broad middle of the tax base. If and when the bondholders begin to lose confidence in the capacity of the government to meet its obligations, I would expect the government to act. And if the choice of action is between reforming Medicare or raising taxes on the middle class, I would expect the government to reform Medicare.

Otherwise, the prognosis for reform is bleak indeed.

Jay Cost is a visiting fellow at the American Enterprise Institute and the Center for Faith and Freedom at Grove City College.


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