Thursday, October 17, 2013

Cutting Medical Costs Substitutes for a Tax Increase in Negotiations

An important point, inspired by an Ezra post today, is that there's another big way to cut deficits besides spending cuts and tax increases. That other way, and an enormous, profound one, is cutting medical costs, like with patent reform and greater Medicare bargaining. Republicans will never agree to any deal to end sequestration, or anything else, with a tax increase (unless maybe it's on the poor), but they may agree to a deal with measures to cut medical costs, a third way to slash deficits.

Thus, what Obama can bargain for with sequestration is things like patent reform, bargaining on prescription drugs, and letting Medicare bargain in general, and have much more power to say no based on effectiveness evidence. This can slash budget deficits just as much as a big tax increase, even a lot more over the long run. And, as part of a compromise, we can throw in medical tort reform, which has been important to Republicans. It's not a major factor, but it certainly can be improved.

And it frees up money to ask for more for basic scientific and medical research, education, smart infrastructure, and other high social return investments, that increase growth and decrease deficits over the long run.

And, in general, whenever there are efforts and plans to cut the debt, there are two ways, spending cuts and tax increases. But it might really be powerful to instead change the thinking to there are three ways, and that third way, perhaps the most powerful over the very long run, is measures to cut medical costs and inflation, and not just for the government, but in general, society-wide. So part of the bargain, part of the compromise, part of the deficit reduction, is things like greater Medicare bargaining, patent reform, and tort reform. I know currently to get anything passed with the Republicans of today is, shall we say, a challenge, but longer run, with the Republicans and their control of 5 years from now, 10 years, 20,...

Now, you might say that deficits aren't that big of a problem right now anyway, especially in the middle of a historic economic slump. But the Democrats have to have some concern about the direction of deficits, because otherwise Republicans can use them as a club (even moreso than otherwise) in coming elections. Anything that can help Republicans in elections, merited or otherwise, is a source of grave concern. Could you imagine what it would be like right now if Romney had won, or if the Republicans win in 2016 and Obamacare is repealed, they lock in the Supreme Court for 30 years,…