WASHINGTON -- Were it not for the provision that Pat Toomey, the Pennsylvania Republican, put into the Senate's proposed health care reform, this legislation would be moderately important but hardly momentous. Toomey's provision, however, makes it this century's most significant domestic policy reform.
It required tenacity by Toomey to insert into the bill a gradually arriving, but meaningful, cap on the rate of growth of per-beneficiary Medicaid spending. It is requiring of Toomey and kindred spirits strenuous efforts to keep it there, which reveals the Republican Party's itch to slouch away from its uncomfortable but indispensable role as custodian of realism about arithmetic.
Toomey notes that in every decade since Medicaid began in 1965, it has grown faster than the economy, and than almost every other program, none of which matched Medicaid as a driver of the deficit. In Medicaid's life, its expenditures have grown more than twice as fast as nominal (unadjusted for inflation) GDP. And although the federal government pays for most of Medicaid, states pay some, and since 1990 the portion of states' budgets devoted to it has risen from 9.5 to 19.7 percent -- almost one in five dollars.
Lawrence Lindsey, formerly a governor of the Federal Reserve System and an assistant to both presidents Bush, puts the matter plainly: "No large component of the federal budget can perpetually grow faster than nominal GDP." In 1970, Medicaid spending was 1.4 percent of federal spending. In 1980, it was 2.4 percent. In 1990, 3.3 percent. By 2000, it had doubled to 6.6 percent. In 2010, it was 7.9 percent. In 2017, it will be 9.8 percent.
Today, Medicaid, an open-ended entitlement, is one reason approximately 50 percent of America's $3.4 trillion annual health care bill is generated by 5 percent of the population: These "platinum patients" include some in long-term care largely funded by Medicaid. In the Senate draft, for eight years the growth of Medicaid spending would equal inflation in the health care sector (somewhat more spending for the elderly and disabled). After eight years, Toomey's measure would lower the growth rate of per-beneficiary spending to meet the normal measure of inflation -- the basic consumer price index.
In 1995, all 46 Democratic senators expressed to President Bill Clinton "strong support for the Medicaid per-capita cap structure." Three of those 46 are still senators -- Vermont's Patrick Leahy, California's Dianne Feinstein and Washington's Patty Murray. What about Medicaid's trajectory since then has changed to justify them changing their minds?
When a military intervention expands beyond its original objective, this is called "mission creep." Domestically, Medicaid demonstrates "mission gallop." In 1965, it was merely medical insurance for poor people eligible for cash assistance. Now it covers, in various states, many cohorts at or near the federal poverty level -- seniors, people with disabilities, families with young children and pregnant women, able-bodied childless adults, and people without adequate resources for long-term residential care. Says Lindsey: "In recent years, in almost half of the United States, a majority of the babies born had their deliveries financed by Medicaid."
In 1983, reforms that extended Social Security's solvency for approximately 50 years included increasing the age of eligibility for Social Security, in tiny increments, from 65 to 67 -- in 2027. Because of Medicaid's accelerating growth, and its impact on the states, Toomey's brisker eight-year phase-in is prudent.
On June 29, with the health care debate raging, the Congressional Budget Office revised $134 billion upward, to $693 billion, its projection for the 2017 budget deficit. And it raised by $686 billion its projection of cumulative deficits over the next decade. The main reason for the revisions is the CBO's expectation of interest-rate increases by the Federal Reserve. These will raise the cost of servicing the national debt, which itself is becoming a major driver of its own expansion. Medicaid, however, is another important driver.
As Lindsey says, Medicaid's unrestrained growth will become economically impossible, then arithmetically impossible. Democrats fancy themselves the "party of science" -- strangely, because they think climate science (unlike astrophysics, neurobiology or any other scientific field) is "settled." Democrats certainly are not the party of arithmetic. Republicans can fill that comparatively mundane but useful role by enacting Toomey's provision, which is, as Lindsey says, "the first serious attempt to limit the unsustainable rise in entitlement spending in our lifetime." Either by preserving or by rejecting Toomey's measure, congressional Republicans will answer an increasingly pertinent question: Is the Republican Party necessary?