Philadelphia Reflections

Winter of Our Discontent

Lyndon Johnson

In 1965, Lyndon Johnson diverted the (then) rapidly accumulating reserves of Social Security to support his new Medicare program for the sick elderly, along with Medicaid for the sick poor. It was a time of post-war prosperity, the country was sympathetic to the successor to the assassinated John Kennedy, and might well have agreed that the accounting trick Johnson employed was entirely justified. Unfortunately, he was making a huge financial commitment against major political opposition and felt that it was necessary to employ smoke and mirrors to accomplish a worthy goal. His lack of forthrightness however now puts his image in a bad light, when an unexpected demographic event occurred, clearly demonstrating he went beyond his mandate. The totally unforeseen event was that the unusually large generation of baby boomers collectively decided to have fewer children. The "bulge in the python" created the approaching deficit for funding retirements of baby boomers, which the boomers bitterly resent. In spite of that unusually large generation regularly making contributions of 12.4% of income toward providing for its golden years, they now approach the time to spend what they discover really isn't there. President Johnson's accounting trick, called a "unified" budget, was accomplished by describing Medicare and Medicaid as amendments to the Social Security Act. Title 18 was Medicare, Title 19 was Medicaid. Incidentally, those seeking to amend the two medical programs later have thus been destined to be confused for decades by discovering congressional oversight, lies not in the Health committees but in subcommittees of the Ways and Means and Finance Committees. The public shrugged it all off as meaningless congressional quaintness.

A major difference in the way the two medical entitlement programs are financed can if you wish to be similarly traced to quaintness in the former Kerr-Mills and King-Anderson bills, but cynics may imagine more substantial motives. Medicare is entirely a federal program, while Medicaid is nearly half financed by state taxes, while entirely administered by state governments. Federal oversight of the way its share of the money is spent was indeed provided by the enabling legislation. But states have always gone their own way in Medicaid, emitting vast clouds of offended belligerence at the least sign of federal "interference". The central unspoken issue is a recognition that if one state is significantly more generous to the poor than a nearby state, busloads of poor folks might rapidly migrate to take advantage of it. As they migrate in, employers might migrate out rather than pay higher state taxes inevitably generated by new poverty imports. State governments are happy to get the federal Medicaid money, but why must they spend it on poor people?

Whether states express this motive, they have this incentive. Either way, few exceptions are seen to a progressive diversion of federal funds for the hospital and physician costs of the poor, which is what the law intended, into something not intended, payment for nursing homes. In Pennsylvania, for example, less than 2% of the Medicaid budget is now used to reimburse physicians although reimbursement was originally quite adequate. Hospitals now uniformly complain: Medicaid reimbursements have driven away private philanthropy but pay 20% less than the cost of providing care. Indeed, the incentive to provide famous cutting-edge care is blunted for fear of attracting more Medicaid patients who would seek it. Although nursing homes are the main beneficiary of this diversion of funds, they too are funded below a level which would attract out-of-state migrants. This whirlpool of dissatisfaction has evolved during a period of wide-spread surpluses in state budgets. Total funding of the Medicaid program by the federal government is much desired by the states, but likely would not help the poor much; it would help the uninsured. What is most needed here is administrative discipline, and beyond that legislature discipline; an elusive wish since 1790.

State governors have recently taken to urging universal health insurance, but note that insurance is the only industry expressly designated (by the McCarran Ferguson Act) to have state rather than federal regulation. As a consequence, the health insurance industry is deeply intertwined in state politics. The term "Single payer system" is viewed with suspicion by the states as meaning consolidated federal administration, just as the opposite term "Socialized Medicine" alludes to supplanting professional with political control. Patients and doctors use these terms, everyone else is mainly concerned with the money. At 16% of the Gross Domestic Product, it is quite a lot. Naturally, insurance companies deplore that so many people do not own their insurance products, but it is hard to see why anyone else would feel that way.

For example, trial lawyers who even have a candidate for President, seem not to perceive a threat to their business model in total government control of healthcare; they are probably quite wrong. No one in the big industry appears to realize that health costs are progressively narrowing down to the first year of life and the last year; employers have been trapped by a tax abatement into paying for something which in time will scarcely affect their employees. When they do realize it they will surely try to escape their present posture of paying for the whole system with intergenerational transfers. Union leaders do not seem concerned that the coming bankruptcy of Ford and General Motors will probably be blamed on their notoriously generous health insurance benefits. Democratic politicians who were scarcely born when Lyndon fleeced the boomers do not seem to be concerned that the sixties generation loves to make a fuss. Although everyone acknowledges that total coverage leads to higher costs, and higher costs lead to rationing, few people seem to act on this knowledge. Residents of Blue states have scarcely heard of Health Savings Accounts, and if Pete Stark, the current chair of the Health Subcommittee of the House Ways and Means Committee, has his way they never will. But thirteen million people in states colored red on the political map have enrolled in HSAs, in spite of numerous obstacles which Blue politicians placed in their way. No one who wants to pay for drug costs with medical research funds seems to notice that life expectancy in America has increased by nearly twenty years in the same half-century that Russian life expectancy has shortened. Doesn't anyone want a cure for cancer or Alzheimer's Disease?

Have a nice time, suckers.

Originally published: Tuesday, February 06, 2007; most-recently modified: Wednesday, June 05, 2019