Robert Foster’s Folly
Posted on March 14, 2017
Shortly after the Medicare Modernization Act was signed into law, it was revealed that an actuary from the Department of Health and Human Services, Robert Foster, had computed that the actual cost of the legislation would be $540 billion, not the $400 billion that Congressional Republicans actually believed it would be.
At the time, that revelation caused a huge stink.
The media attacked the Bush Administration for stifling its own bureaucracy. Conservatives who voted for the bill and those who voted against it took it as a giant breach of faith.
The world was going to end. All because a bureaucrat deep in the bowels of the Deep State had somehow believed that the bill would be a lot more expensive than anybody thought.
Well, it turned out that Mr. Foster and the Congressional Budget Office were both wrong in their assumptions. Over the first ten years of the law, which added a prescription drug benefit to the Medicare Program, came in a lot cheaper than anybody assumed, at $318 billion dollars.
That’s not because the program is not popular. Seniors love to have access to life-saving prescription drugs at a cost much more affordable than it otherwise would have been available. And the program also didn’t socialize medicine in this country, meaning that companies are still allowed to make the proper investments that pave the way for breakthrough innovations in the drug market.
The legislation uses market forces that allows companies to compete for business. By using the market, more drugs are available at cheaper prices. The program is not perfect, obviously, and it has gone through some revisions that might make it more costly in the future, like filling in the infamous donut-hole which made seniors pony up more money when they had reached a certain level of coverage.
Other reforms are also necessary, like a total overhaul of the FDA, to allow more drugs to come on the market in a quicker time frame.
But the lesson here is that the market works when given a chance.
Democrats, by and large, distrust the marketplace. They want and have wanted single-payer socialized Medicine, where the government controls everything, rations care, and decides who get paid and who doesn’t get paid.
They wanted to add a trillion dollar drug benefit in 2003. They wanted to give the government the power to set drug prices, which would have hurt innovation and investment in the market. They wanted to ration care, so that only those who really needed the drugs would get it, according to their own calculations. They wanted a big government bureaucracy to administer it all, because they believed it would maximize efficiencies in the system.
They tried to stop Republicans from passing the MMA in 2003 because they didn’t want them to get political credit for providing a prescription drug benefit, and more importantly, because they didn’t want their philosophy to be proven wrong.
In 2009, Democrats and President Obama created the Affordable Care Act, which was somewhere in between socialized medicine desired by Bernie Sanders and the market-based system designed by the Republicans in 2003.
It was designed to fail.
The exchanges don’t give the health insurance companies enough profit incentives to stay in the markets. It has a lot of sticks, like the individual mandate and a lot of carrots, like free contraception for women. But it doesn’t give a lot of power to consumers to shop around, it doesn’t create much competition or profit incentives for insurance companies and it has too big of a government bureaucracy.
Republicans have to have faith that their approach to fix Obamacare by giving consumers more power will work.
I know that some will get stuck on the idea that the CBO says that the Ryan approach might not achieve all of their objectives. They shouldn’t. CBO is not that great at predictions. They really never have been, mostly because it is really, really hard to predict the future.
If conservatives decide to take a walk and not support their Speaker and their President, they will be making a giant mistake. Obamacare unchanged is not what the American people want right now.
The Ryan approach, based on the Republican experience in 2003, will work. It just has to be given a chance. And that requires all Republicans to get on board.