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America’s welfare system at the core of the debate


When Mitt Romney chose Paul Ryan to be his running mate, the expectation was that a real wonk fest was about to begin, in particular on the issue of entitlements – the three government programs (Medicare and Medicaid for healthcare and Social Security for pensions) that comprise the American welfare system. The Representative from Wisconsin had a reputation in Washington as a data-driven policy geek and his highly ambitious and vastly conservative budget proposal, The Path to Prosperity, had been drawing headlines for more than a year.

But, historically, vice presidential candidates have mattered little in campaigns. After all, voters go to the polls to elect a president and not his deputy. Additionally, the calculation behind having a full-on debate on policies was not favorable to the Republican ticket, whose hard line on entitlements doesn’t necessarily align with a majority of the American electorate.

True enough, as Romney’s selection of Ryan began to inject a degree of wonkiness into the campaign, polls started to slide towards President Barack Obama and the Democrats. So much so that, all the way through the beginning of October, the race for the White House seemed all but a foregone conclusion in favor of the President.

And so it went that, when debate season finally came around, the Romney team made a dramatic u-turn in terms of strategy. Gone was the ultra-conservative candidate who had won the GOP primaries: in his place was, suddenly, the moderate Governor of Massachusetts of old. And also back in fashion was the idea that this election would be a referendum on Obama and not a choice between two different visions for the future of the country.

In the vice-presidential debate, Ryan, who is unquestionably more conservative than Romney, returned on the question of entitlement reform, speaking in harsher terms than his running mate now seems prepared to do. “Medicare and Social Security are going bankrupt, this is a fact,” he said.

But since polls appear to agree more with the sensible version of the Romney/Ryan ticket, we can consider it likely that for the remainder of this campaign, which admittedly has been more policy-oriented than others past, we will be getting increasingly less substance and more unfounded promises.

In the meantime, hunkered down in think tanks across Washington, policy experts from both sides of the political divide continue to discuss entitlement reform while profoundly disagreeing on the actual financial state of Medicare, Medicaid and Social Security and on how to go about making them more fiscally sound and sustainable in the long-term.

“There is this big Medicare, Medicaid, Social Security monster that is going to keep getting bigger and bigger and just crowd out everything else,” says Mike Franc, Vice President for Government Studies at the conservative Heritage Foundation in Washington. “It is the single biggest challenge our country faces because if we don’t get it right, it is going to limit our ability to provide national security, which is the first function of the federal government, put pressure on lawmakers to raise taxes to a level that would really suffocate economic activity, and prevent the government from spending that money on other things.”

According to Franc, all three entitlement programs share, each in its own way, the same weakness: they have become unfunded liabilities, meaning they make their recipients promises, in terms of benefits they are supposed to deliver, much bigger than the money coming into the government’s coffers is capable of financing.

This is, generally, the conservative line on entitlements: that their growth is unsustainable and that, in a context where tax increases are considered anathema, it must be stopped before it engulfs the whole of the federal government. In all three cases, the solution of the American right is less government intervention, more free-market and more consumer choice. “The idea is that if a consumer is in charge of the money, he or she would spend it more intelligently on their own behalf than if they are simply given an open buffet to eat from,” says Franc explaining the notion of “premium support”, which is the thrust of Romney’s plan for Medicare.

“Premium support” is what liberals call a “voucher system,” one in which citizens who become eligible no longer simply gain access to all available healthcare services covered by the government, but get a check from Washington instead and can then spend it on the private insurance market. Conservative proponents of this plan believe that market competition would bring prices down and that giving more responsibility to consumers would simultaneously reduce waste by making them less likely to abuse the system. But critics on the left argue that “premium support” would save the government money by simply shifting costs to recipients, because it would tie the growth of vouchers to certain indexes, for example the consumer price index, that tend to grow at a much slower pace than healthcare costs. Which would be just fine for wealthier Americans, who could easily afford to make up the difference out of their own pocket, but not so for less affluent ones, who might be forced to forego certain treatments because they are too expensive.

Medicare is, by far, the most talked about entitlement program in this campaign season (as a result of the fact that it also is the centerpiece of President Obama’s healthcare reform,) but Medicaid, which provides healthcare coverage for the poor, would undergo a similar transition under a Romney administration. The federal government and the 50 states currently run this program jointly. Washington sends a certain amount of money to each state depending, among other things, on the size of the eligible population and the cost of healthcare, and the states are in charge of delivering Medicaid services according to the terms laid out by the federal government.

“Romney and Ryan are looking at reducing the amount of rules that the federal government demands the states comply with in order to give the states the ability to design a program more suited to their needs,” says Heritage Foundation’s Mike Franc. However, in exchange for more flexibility the states would get a flat amount of money, so-called block grants, whose rate of growth, critics say, would be capped too low to keep up with rising healthcare costs, leading local administrations to drop many of the people who are currently covered.

Although it serves more people than Medicare, Medicaid is a much less understood program and Democrats fear it would be more at risk under a Republican presidency. “The elderly and the disabled, who are the constituents of Medicare, are well represented by very strong organizations speaking on their behalf,” says Henry J. Aaron, Senior Fellow in Economic Studies at the Brookings Institution in Washington. “The poor, who are served by Medicaid, are less well organized and have much less clout and therefore I think they are in greater jeopardy.”

Interestingly enough, Medicaid often helps middle-class families as well, providing access to otherwise excessively expensive long-term stays in nursing homes for the eldest senior citizens. In fact, after they use up their savings to cover whatever they can of the costs, many Americans end up qualifying for Medicaid assistance. “So people who are middle class in their working lives and early retirement years, may find themselves relying on Medicaid later on,” says Aaron. “That’s pointed to as an instance that dramatizes the shortcomings of our current financing system for long-term care.”

If Medicaid is less popular and less known then Medicare, the dearest entitlement program to the hearts of US voters remains Social Security, the rather stingy, by developed world standards, American pension system.

“Social Security has the best branding of them all,” says Mike Franc, “Nobody wants to touch it because it is an iconic program that has been out there for about 70 years and Americans have gotten used to it and see it as a very intrinsic part of their future.”

“It is also an issue on which President Bush did himself a great deal of political damage with a proposal very much along the lines of the one Mr. Ryan had put forward before he was the vice presidential candidate,” chimes in Aaron, “so Republicans have decided they just don’t want to talk about it.”

Ironically, all parties agree that, while politically poisonous, Social Security would be the easiest item to fix in the world of entitlements. “It has substantial reserves at present time, enough to pay benefits for another 25 years roughly, but it doesn’t have enough money to pay benefits indefinitely,” explains Aaron. “And given the fact that, if you want to extend its financial life, you are going to have to either cut benefits or raise taxes, and neither of those are popular options, the President hasn’t wanted to talk about it either.”

Liberals would like to close the gap between inlays and outlays mostly by raising taxes and conservatives would prefer doing it entirely on the spending side of the equation (reducing costs by increasing the retirement age or decreasing benefits for example.) It is not unlikely that, at least in a less partisan Congress, a politically viable solution will have to entail a combination of the two approaches.

In the end, it is important to remember that, despite what candidates might go around saying over the next couple of weeks, Republicans do have a plan for entitlement reform that is very different from the President’s approach (Democrats hope to keep the current system as it is by tweaking it just enough to achieve the kind of savings that will keep it going.)

Naturally, the implementation of much that comprises a campaign pledge depends on the balance of power in Congress and whether or not a president is pulled more toward the extreme by a friendly majority or more toward the center by an unfriendly one. In any case, the choice between two alternative visions for the future of the country is there and it is a glaring one.


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