By Uwe Reinhardt
Beholding David H. Howard’s rendering of the crazy-quilt of financial sources that have been tapped by the designers of the Affordable Care Act of 2010 (hereafter ACA '10) to finance the new entitlements they put in place – a little nuisance tax here, a little nuisance cut in other federal spending there – reminds me once more of the sincere, indeed touching, naiveté with which Democrats tend to go about enacting new entitlements.
It is a totally counterproductive and inelegant approach. To be sure, none of the added taxes or spending cuts in the bill seriously disrupt anyone; but they do spread a little pain all around. Therefore, it seems almost deliberately designed to maximize opposition to it from many quarters.
It also leads to acute embarrassments, such as having to postpone by a year (and perhaps more years) the unseemly penalty imposed on employers with 50 or more employees each working 40 your or more etc etc, even at the appearance of having broken the law – or so we are told.
When will the Democrats ever learn?
And from whom might they learn?
From the Republicans, of course.
Dream back to the good old days – 2003 – when the Bush Administration and the Republican Congress pushed through, with deft parliamentary maneuvering and some arms twisting, H.R. 1 (2003), the Medicare Prescription Drug, Improvement, and Modernization Act – hereafter the MMA '03.
This act established what was said to be the then largest new entitlements put on the books since the passage of Medicare and Medicaid in 1965, promising the elderly highly federally subsidized prescription drug benefits from 2006 on to kingdom come.
And how was that expensive new entitlement financed?
Not by annoying added taxes on anyone. Not by annoying cuts in any other federal program – not even on parts of the Medicare program so often decried as "out of control."
No, the MMA '03 was 100 percent debt-financed. The cost of this magnanimous largesse was simply added to the deficit, for our children and theirs to finance with taxes, unless we somehow will manage to melt away that debt through inflation. According to Table III.D.3 of the 2013 Medicare Trustee's report, the MMA '03 $850 billion of financing for this entitlement during 2013-22 will come from General Revenues, that is, will be loaded onto the U.S. public debt during those years.
In the meantime, the buyers of the U.S. Treasury bonds represented by that debt – China and Japan prominently among them – hopefully will be kind enough to advance the cash to pay for the drugs. To pay back the debt in future years, our children and theirs may well have to cede ownership of hitherto U.S. assets that should have been part of their inheritance to the children and theirs in Japan and China. Perhaps our children and theirs will draw comfort from the fact that they are paying thus for grandpa's and grandma's prescription drugs which their parents – we current American adults — refused to pay for.
Now it is true that former Comptroller General of the United States David Walker, in which capacity he ran the United States Accountability Office (GAO), has said that “the prescription drug bill was probably the most fiscally irresponsible piece of legislation since the 1960s.” That may be so. On the other hand, look at the political elegance of that legislation.
Had the Democrats copied from the Republicans' playbook on entitlements legislation and just deficit-financed the ACA '10, there would not have had to be a 2.3 medical device tax. There would not have been the added taxes on the already overburdened high income Americans. There would not have had to be the troublesome Cadillac tax on insurers. There would not have had to be the penalty on employers with 50 or more employees working at least 40 hours a week, etc. etc.
There would not have had to be those nasty cuts on Medicare Advantage plans, bring their payments down to be on par with what it Medicare beneficiaries in Medicare Advantage would have cost taxpayers, had they stayed in traditional Medicare. There would not have been any need to reduce the growth trajectory of Medicare spending on hospitals and on sundry other providers serving Medicare patients, and so on. It would all have remained business as usual as we, the people, like it.
Like the MMA '03, the now much maligned ACA '10 then would have been a giant Xmas tree bestowing many blessings on many (adult) American and asking no sacrifice from anyone (adult) American. Trying to finance it all without burdening future deficits, as the designers of the ACA '10 have tried to do, is, like, really dumb!
Incidentally, for some home entertainment, I recommend that you examine the roll call for the MMA 03. You will find it here for the Senate and here for the House.
You will be amazed who all voted for that elegant new entitlement, given what they pronounce today on deficits and entitlements spending.
In quiet and boring rural New Jersey, I do find that sort of thing entertaining.
Uwe Reinhardt is recognized as one of the nation's leading authorities on health care economics and the James Madison Professor of Political Economy at Princeton University. He is a regular contributor to The New York Times Economix Blog.
Editor’s Note: Last updated at 10/14/2013, 6:34pm ET.
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