How Entitlement Reform Became Health Reform

It's testament to how deeply the idea of an entitlement crisis has embedded itself in Washington that news that Obama planned a "fiscal accountability summit" was immediately taken as proof by The Washington Post that he was readying a frontal assault on Medicare, Medicaid, and Social Security.

It was an understandable leap for the paper to make. Fiscal responsibility has, in this town, long been an anodyne synonym for entitlement reform. The "responsible" part signaled that you were courageous enough to cut treasured social programs in service of the national debt. The left, which never bought into this ruthlessly austere vision of responsibility, reacted with a defensive fury. It had just spent eight years protecting the entitlement programs from sharp-knifed "reformers." Would it have to do so again?

Today's "White House Fiscal Summit" will take place at 1:30 in the State Dining Room. It will feature speeches from the president and vice president and "breakout" sessions where Cabinet officials and White House advisers will gather in small groups to work on health care, Social Security, taxes, contracting and procurement, and the budget. (You'd think, by the time you were appointed to a presidential Cabinet, you'd be rid of "breakout sessions." You'd be wrong.) Notice what's not in there: Entitlement Reform.

Its absence is the product of a quiet but powerful change in thinking that has taken place in the offices of elite Washington and, now, the halls of the White House. Where a decade ago the looming fiscal threat of entitlement spending led economists and budget wonks to wear out their worry beads, today a more subtle understanding of our fiscal future dominates. In this telling, there's no such program as SocialSecurityandMedicareandMedicaid. There's Social Security, which has modest long-term liabilities and needs little, if any, help. And then there's health-care reform. "That," says Henry Aaron, a senior economist at the Brookings Institution, "is the big kahuna."

How this happened depends on whom you talk to. Dean Baker, an economist at the Center for Economic and Policy Research, points to the 2005 Social Security privatization fight. "A lot of people were suddenly out there arguing that there's no crisis and we don't need to do anything on Social Security," he says. That forced left-of-center wonks who'd not thought much about the crisis to confront the numbers or, more precisely, the graphs. "We've done a graphic that shows what deficits look like in every country with longer life expectancies than us and what the deficit looks like going 70 years with the same per-capita health-care costs of that country."

It's a startling image. That orange line shooting into orbit? That's our projected deficit. That blue line levitating gently upward? That's our deficit if health costs grew more slowly. And those other lines sinking downward? They're our deficit if we had the per-person health costs of countries like France, Germany, and Canada. In all cases, Social Security spending remains unchanged.

Aaron locates his light-bulb moment in a paper written by Richard Kogan, Matt Fiedler, Aviva Aron-Dine, and Jim Horney for the Center on Budget and Policy Priorities. He remembers sitting around a table with Peter Orszag, now director of Obama's Office of Management and Budget, Bob Reischauer, who runs the Urban Institute, Bob Greenstein, who founded the CBPP, and an array of other economic luminaries while Kogan and Horney presented their findings. "The long-term fiscal outlook is bleak," they wrote, and "rising health care costs are the single largest cause."

Aaron says that the "meeting was sort of a slap-the-forehead moment. I said 'you guys are saying there is no problem other than a health-care financing problem long-term!' Credit goes to them, in my opinion." (An updated version of their paper, written with Kris Cox, can be downloaded here.)

What everyone agrees on is that the thinking entered government in the person of Peter Orszag. In 2007, Orszag was named director of the Congressional Budget Office. From that perch, he brought Kogan and Horney's thinking to the halls of Congress. Orszag liked to show a particular slide in his public presentations and speeches that broke down the interplay between the government's various fiscal commitments:

Government spending and Social Security, it says, will hold relatively constant in coming years. It's Medicare and Medicaid that chew up federal spending.

This graph, however, could be used as evidence for a simple focus on Medicare and Medicaid. The programs are unsustainable. They need to be slashed. The next slide in Orszag's presentation is titled "misdiagnosing the problem." The fiscal threat, it argues, is not more beneficiaries or the type of beneficiaries that are the factors internal to Medicare and Medicaid. It's the cost per beneficiary. Orszag has a graph for this, too:

And since Medicaid and Medicare pay for health services on the private market, this can only be fixed through broader health reform. Orszag now directs the Office of Management and Budget. He will lead today's "health care" breakout session. Richard Kogan works for him. So it's no surprise that asked for details on today's fiscal summit, one senior administration official told me that "the most likely outcome at this point is that we focus on health care given that it's the key to our fiscal future." Another explained the focus starkly. "Health is mathematically bigger," he said. The rumors originally held that eager entitlement cutter Peter G. Peterson would give the day's keynote. Now Robert Greenstein, director of the very think tank that released Kogan and Horney and Cox's paper, will speak.

Fiscal responsibility, in other words, is no longer a stand-in for entitlement reform. In Obama's Washington, it means health reform.

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