The cure: the politics of debt have gotten so insane that both parties are on the verge of gutting Medicare. The moment might be right to actually fix it.

• Author: Longman, Phillip

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While the partisan gap in Washington is wider than it's been at any time in living memory, the two parties do have one remarkable agenda in common. Both have proposed cuts in Medicare so drastic that they would have been politically suicidal a decade ago and may still be. Yet neither party is backing off.

All but six Republicans in the House of Representatives have voted to turn Medicare into a voucher program--a vision endorsed by all the GOP's major presidential candidates as well. Under the proposal, famously crafted by Representative Paul Ryan, each senior citizen would receive only a fixed amount of money (about $8,000 on average in 2022) to spend on private health care insurance each year, regardless of what his or her health care needs and costs might actually be. The Congressional Budget Office (CBO) estimates that under the plan, seniors would pay about 68 percent of their health care costs out of their own pockets in 2030, as compared to 25 percent to 30 percent under traditional Medicare.

Democrats rightly characterize this plan as "ending Medicare as we know it," but both President Obama and party leaders agree that deep cuts in Medicare spending must happen soon. "With an aging population and rising health care costs, we are spending too fast to sustain the program," the president told a joint session of Congress on September 8. As part of his most recent deficit reduction plan, he has proposed $248 billion in Medicare savings over the next ten years. This includes higher copays for many beneficiaries and steep cuts in payments to providers. If you think Obama and the Democrats are bluffing, consider that the health care law they passed last year came with hundreds of millions in Medicare cuts and includes a mechanism that could cut vastly more. And though the president in September came out against Republican plans to raise the Medicare retirement age to sixty-seven, in the debt limit negotiations earlier this year he signaled his willingness to go along with it.

Then there's the new Joint Select Committee on Deficit Reduction--aka the "super committee"--on which the president has also put his signature. By the end of the year, Congress must take an up-or-down vote on the recommendations of a majority of the committee, which are likely to include steep cuts to Medicare and, possibly, increases in the retirement age and other restrictions on eligibility. In the event the committee deadlocks, across-the-board spending cuts, including some to Medicare, go into effect.

Why are both parties declaring war on Medicare when both know that it could lead to their own political annihilation? The reason is simple. While both Democrats and Republicans fear the wrath of the AARP and the exploding ranks of hard-pressed seniors--to say nothing of lobbies like the American Hospital Association--Medicare's relentless squeeze on the budget seems to party leaders to give them no choice but to attack the program's spending regardless of the political cost. Medicare's ever-expanding claims on the treasury threaten to crowd out nearly every other priority on either party's agenda, from bullet trains and decent public schools to, yes, avoiding future tax increases and draconian cuts in the military.

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The U.S. wouldn't even face a structural deficit, much less have to endure the downgrading of its credit rating, were it not for the cost of Medicare (and, to a lesser extent, Medicaid). Just the projected increase in the cost of these two programs over the next twenty years is equivalent to doubling the Pentagon's current budget, and there is no end in sight after that. By contrast, Social Security will rise only gradually, from 4.8 percent of GDP to 6.1 percent in 2035, and then taper off as the large Baby Boom generation passes. Meanwhile, according to the same CBO projection, all other government programs--the military, the courts, farm subsidies, Amtrak, infrastructure spending, education, and so on--are on course to shrink dramatically as a share of the economy, from 12.3 percent of GDP in 2011 to 8.5 percent in 2035. As others have observed, the federal government is not so gradually being transformed into a giant, and insolvent, health insurance company.

We can at least be thankful that both parties are sane enough to recognize the problem and brave enough to offer politically courageous proposals to solve it. But here's the bad news: neither side's solution is likely to work. The GOP's privatization plan won't actually cut health care costs, but merely shifts them to individuals. Meanwhile, the Democrats' ideas, though offering more in the way of actual reform, are unlikely to bend the cost curve anywhere near far enough. Moreover, by focusing so much on cutting reimbursement rates to doctors without directly attacking the colossal inefficiency of the U.S. health care system, the Democrats' approach runs the very real risk that it will lead to a severe shortage of doctors willing to treat Medicare patients.

Here's a better idea--one that offers a relatively painless and proven fix that will also vastly improve the quality of U.S. health care. Approximately a third of all Medicare spending goes for unnecessary surgeries, redundant testing, and other forms of overtreatment, according to well-accepted estimates. The largest single reason for this extraordinary volume of wasteful and often dangerous overtreatment is Medicare's use of the "fee-for-service" method of compensating health care providers that dominates U.S. medicine, under which doctors and hospitals are rewarded according to how many procedures and tests they perform. To fix this, the federal government should do the following: announce a day certain and near when Medicare will be out of the business of subsidizing profit-driven, fee-for-service medicine.

Going forward, Medicare should instead contract exclusively with health care providers like the Mayo Clinic, Kaiser Permanente, the Cleveland Clinic, Intermountain Health Care, the Geisinger Health System, or even the Veterans Health Administration. All these are nonprofit, mission-driven, managed care organizations widely heralded by health care experts for their combination of cost-effectiveness and high quality, including cutting-edge use of electronic medical records, adherence to protocols of care based on science, and avoidance of medical errors. Because doctors working at these institutions are not compensated on a fee-for-service basis, they are neither rewarded for performing unnecessary tests and surgeries nor penalized financially for keeping their patients well. And unlike for-profit HMOs, these institutions are not pressured by shareholders to maximize earnings through withholding appropriate care.

By the late 1990s, the spread of health maintenance organizations and other forms of managed care virtually eliminated health care inflation in the United States, providing a brief moment--not seen since--when the cost of health care did not outpace average wage increases. That triumph in cost containment had its downsides, to be sure, namely the corrupting entry of profit-driven institutions that undermined medical professionalism and often led to denial of needed care. But with the benefit of hindsight, we can avoid repeating those mistakes and reinvigorate the once idealistic and highly effective managed care movement by insisting that Medicare providers also be nonprofit institutions. If we have to control the cost of...