• Timing is everything

    Jonathan Oberlander makes an interesting observation on pages 104-105 of The Political Life of Medicare.

    [T]he timing and consequently the character of Medicare reform would be altered by a different financing system. If there had not been a trust fund and payroll tax, Medicare reforms would not necessarily have come at the same points in the program’s history as those that were proposed when the hospitalization insurance trust fund was running low on reserves. Timing is a critical, and too often overlooked, factor in public policy. […] At two different times, for example, the same policy problem may be viewed as requiring quite different solutions. […]

    As of the writing of Oberlander’s book (published in 2003), the Medicare Part A trust fund was within seven years of exhaustion in three periods, 1969-1972, 1982-1984, and 1993-1995. (It happened again, or nearly so, in the last year or two.) During or soon after each of these periods, significant Medicare policy reform was enacted: professional self-regulation in the early 1970s, hospital prospective payment in the early 1980s, and managed care competition in the late 1990s. (The latest reform plans for ACOs and payment cuts to Medicare Advantage, hospitals, and physicians.)

    However, Oberlander’s point is that each of these particular policy solutions was a product of its time and its time was determined by the financing system. On the one hand, that seems perfectly sensible. Why consider reforms unless and until the dedicated funding stream will soon be insufficient for the program’s expenses? On the other hand, the funding stream under consideration in this case is based on the revenue generated by the Medicare payroll tax, the size of which is driven by factors unrelated to Medicare’s needs. In addition, Medicare expenditure and its rate of change may warrant attention before the trust fund is nearing exhaustion. Expenses and revenue have little to do with one another so the timing of when the former overwhelms the latter is effectively random.

    Nevertheless, the accounting mechanism largely dictates when we perceive Medicare to be in crisis. The timing of reform is, therefore, not of our choosing, but is chosen for us by how Medicare’s finances are structured. Apart from Social Security, there is no other major government program or function that is examined on a schedule so determined. Given the size and growth of federal spending on health care, it’s a bit odd that we seem to wait until a magic number of years until trust fund exhaustion before intensely focusing on Medicare’s hospital insurance and reform of it.

    In essence we’ve committed to a timing of reform equivalent to an attitude of “if we can pay for it, it’s fine,” independent of whether or not we’re getting good value for what we spend. It’s an attitude that can lead to spending $1 on something for which beneficiaries might only be willing to spend 14 cents. Put another way, program solvency is only one measure of program soundness, and not necessarily the most important one. Conceptually, how far is Medicare solvency from the thing for which Medicare funds are spent, namely health? Far indeed.

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