Responsible Governing Involves Making Tough Decisions – Here’s a Guide

Last week, I signed a letter to President Trump nominating the great economist Thomas Sowell for a Presidential Medal of Freedom. One of Sowell’s greatest lessons about public policy is summed up in just four words, “No solutions, only tradeoffs.” I often think of Sowell’s words as central planners develop plans and ideas on how to spend other peoples’ money without regard for the tradeoffs or costs.

Over the past nearly two decades of working in health policy, I’ve learned that most of their plans and ideas have failed. Rather than meaningfully improving American well-being, these reforms saddle future generations with debt by spending taxpayer money in order to falsely claim victory on important societal challenges and often enrich entrenched special interest groups that have lobbying power in Washington. And as government regulation and spending in health care has surged, the tradeoffs are becoming clearer: diminished innovation, stagnating health outcomes, high and rising health care prices, and a ballooning federal debt that raises inflation and interest rates.

Two years ago, Paragon issued a key report detailing how the nation’s fiscal challenges were driven by rising health care spending and a follow-up report with a set of recommendations to tackle the problem and put Medicare and Medicaid on a more sustainable trajectory. We have followed with detailed reports on reforming Medicaid by ending the federal discrimination against the most vulnerable while saving more than $500 billion over the next decade, improving Medicare through Medicare Advantage reforms that save more than $250 billion over the next decade, and advancing the bipartisan cause of reducing excessive Medicare payments to hospitals. And we are just getting started, with a forthcoming paper on how to reduce Medicaid money laundering.

Just last week, the Government Accountability Office—the main government watchdog agency—issued yet another fiscal warning. The fiscal year 2024 deficit was a staggering $1.8 trillion and Washington spent more on net interest (the costs of myopic behavior) than either national defense or Medicare. Massive and persistent deficits indicate that too many federal policymakers neglect their responsibilities and fail to grapple with necessary tradeoffs. From the GAO:

Fiscal year 2024 marked the fifth year in a row that the U.S. saw a budget deficit above $1 trillion. If no action is taken, we project that growing deficits will result in federal debt held by the public (federal debt) reaching its historical high of 106% of the U.S economy by 2027—1 year earlier than we projected last year.

To improve the nation’s fiscal outlook, Congress and the administration will need to make difficult budgetary and policy decisions to address the key drivers of federal debt. The longer they wait, the more significant changes will need to be. …

The rising debt burden and associated interest costs may reduce policymakers’ flexibility to respond to future economic downturns and other unexpected events, including natural disasters or public health emergencies.

GAO clearly articulates the tradeoff from Washington’s out-of-control spending to American families, writing that: “Rising federal debt could also adversely impact many Americans who may experience higher borrowing costs, stagnant wages, and more expensive goods and services.”

To his credit, at a February 2010 White House health care summit, then-President Obama acknowledged the specific budgetary problems presented by the rising costs in government health care programs:

Almost all of the long-term deficit and debt that we face relates to the exploding costs of Medicare and Medicaid. Almost all of it. That is the single biggest driver of our federal deficit. And if we don’t get control over that we can’t get control over our federal budget.

Fifteen years later, federal health care programs are still the main fiscal problem. Despite significantly lower per enrollee Medicare spending increases than expected, Medicaid and Obamacare are substantially driving up federal deficits with significant cost increases and Medicare cost growth is still the number one fiscal driver given the aging of the American population. Congress cannot waste the opportunity in 2025 to enact significant reforms to government programs.

We Can Improve Health and Significantly Lower Federal Health Spending

Reform will involve taking on a status quo that has enriched a health care industry that is increasingly reliant on government revenue. Those special interests are busy scheming for how to protect their federal subsidies and preferential treatment.

Here are key factors and principles for federal policymakers to keep in mind as they pursue reforms this year:

• The expansion of government health programs has not improved population health, as discussed in Paragon’s comprehensive review of the literature.
• Obamacare’s expansion of Medicaid to working-age adults has resulted in massive improper payments, discriminates against the traditional enrollees of pregnant women, the disabled, and children, and reduces access to health care services for traditional enrollees. (Earlier this week, Liam Sigaud reviewed the evidence in a Prognosis.)
• All expansions of government programs result in crowd-out of private coverage and private financing. The more crowd-out, the worse overall value from the programs as people spend their own money better than the government spends other peoples’ money.
• Americans benefit from increased options of doctors, hospitals, and insurance plans.
• Americans are better positioned to determine value than are bureaucracies and insurers. Government subsidies should be redirected to put patients in control, as Paragon’s HSA option would do.
• The substantial amounts of fraud, waste, and abuse in Obamacare and Medicaid primarily result from poor incentives—enrollees pay little, if any, of the cost of the coverage; brokers and insurers profit when people misstate income to qualify for higher subsidies.
• There is a massive waste of societal resources if a person will only enroll in a government program if the government pays the full cost—the main story of Obamacare’s recent enrollment growth.
• The open-ended federal reimbursement of an average of at least two-thirds of state Medicaid expenditures severely reduces states incentives to obtain value from the program.
• The federal government permits states to engage in massive amounts of money laundering through the Medicaid program, money laundering that Joe Biden called a “scam” and a Washington Post 2012 editorial recommended eliminating.
• Medicare is plagued by significant waste, fraud, and abuse—issues that can be mitigated without compromising program benefits. Medicare also causes significant distortions in the health sector by using non-market-based methods to determine payments. For example, Medicare site neutral payments would reduce wasteful overpayments to hospitals and would save seniors’ money.

Odds and Ends

• I appeared on KFF’s Wonk Shop on February 10 to discuss the enhanced subsidies for the ACA. To relate this topic to the above, Congress should not make our fiscal problems worse. The ACA subsidies were already quite generous, with taxpayers covering most of the premium for most enrollees. Congress should let the enhanced subsidies expire.
• My colleagues Ryan Long and Elle Kalisz posted a Prognosis yesterday making the case for limiting indirect costs in National Institute of Health grants.
• This week’s Paragon Pic shows that medical facility construction spending has accelerated rapidly over the past few years and is now nearly on par with average annual construction spending on hospitals.
• I am participating in a Cato event, “Think Bigger: Meaningful Health Reform,” this morning with several health policy experts including my former professor, Robin Hanson, who was one of the reasons I ended up pursuing health policy as my career. I am up at 10:45am and you can watch here.

If you made it to the end of the newsletter, Go Birds! What a Superbowl!

All the best,

Brian Blase
President
Paragon Health Institute