Politics. It was probably the last, best hope to control the spending on health care entitlements. As the story is told. House Speaker Newt Gingrich and President Bill Clinton had privately reached an agreement in 1995 to bring Medicare spending to heel, among other things.
When Clinton’s advisors caught wind of the agreement, they convinced the president to renege, creating a rift with Speaker Gingrich that appears to persist to this day. President Clinton emerged victorious. Since then, reductions in Medicare spending have been nearly untouchable.
The lack of fiscal restraint has been a bi-partisan endeavor ever since. The current House leadership has been loathe to even mention entitlements in their current efforts to reduce federal spending.
Demographics argue for caution. In 1995-96, the post-war generation loomed large as a political force. One of their own was in the White House. While soon to be a spent force, they remain a significant political factor today.
At some point, the political repercussions for a government shutdown will to be retested. After all, the federal workforce went home in the spring of 2020 and still runs in second gear. Unless you need a passport though you may not have noticed.
In 1995, federal politics as the great American pastime was still emerging. CNN was young and interesting and pushing the limits of the 24-hour news cycle. As it turns out, in 2023 your choice of governor and mayor matters more and CNN oscillates between boring and weird.
The White House is not occupied by a saxophone playing baby boomer in the prime of his life. Instead, President Biden serves as a daily reminder of what that generation has become – old.
Government shutdowns are not a good thing. The question is are they as bad a thing as they used to be?
Policy. As Paul Volker would remind us, reducing inflation ultimately rests with fiscal policy. A restrained fiscal policy means but one thing, reductions in the rate of change for Medicare and Medicaid spending.
Social Security, a cash transfer payment that everyone gets, will remain untouchable.
Bringing fiscal policy under control in the 1980s ultimately resulted in significant changes to Medicare. This time around, Medicaid appears to be the focus.
States that expanded their programs under the Affordable Care Act have been a thorn in the side of the program integrity folks. States routinely assign traditionally eligible individuals to the expansion population which has a 90% match from the federal treasury.
Moreover, when reclassification is not the culprit, the higher federal match provides disincentives for enrolling traditional populations like the aged, blind and disabled.
Reimbursement levels are low unless a provider has access to the supplemental pools available in some states. We hear of one major system in the northeast that is threatening to leave the program because reimbursement has failed to keep up with input costs.
The most ardent defenders of the program are states that are bleeding population and tax base, which translates into an erosion of political power.
In short, it is a program that gets its love mostly from MCOs and political people that have notched the win of expansion. It could be the most viable of the entitlement targets when Congress gets serious about inflation.
Power. Before we get to changing the trajectory of entitlement program spending, there is some low-lying fruit thanks to the spend-o-rama since 2020-21. However, the reality right now is that government spending is about the only thing keeping the economy, at least on paper, in growth territory.
Like raising taxes into a slowdown, cutting spending will have a deleterious economic impact that President Biden can pin on Congress and especially House Republicans.
Rep. Matt Gaetz, who is threatening Speaker Kevin McCarthy with a vacate the chair motion, does not care about that. He is demanding more spending cuts, among other things. It is a short game but power plays tend to be that on Capitol Hill.
It is a struggle as old as time.
Have a great rest of your weekend.
Emily Evans
Managing Director – Health Policy
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