What's Wrong with the Obama Administration's Cuts to Medicaid

Jul 6, 2011Richard Kirsch

President Obama's proposed Medicaid cuts won't address the source of rising costs, but they would be a major step backward for public health care.

President Obama's proposed Medicaid cuts won't address the source of rising costs, but they would be a major step backward for public health care.

While the public debate about the Republican budget focused on the sharp reactions against Paul Ryan’s Medicare privatization scheme, the other big “M” in health care, Medicaid, hasn’t received the attention it deserves. As a result, the Obama administration has proposed cuts in Medicaid. These will undermine the achievements of its own historic health care law and harm access to health care for tens of millions of women, children and seniors.

Unlike Medicare, our national health insurance program for seniors and the disabled, Medicaid comprises 51 different state programs (including Washington DC) operating under a set of federal rules, financed by both the federal and state governments. As a result, it’s much harder for the feds to control Medicaid costs through policy changes. The Ryan/Republican budget doesn’t even try; it simply limits the amount that the federal government will spend on Medicaid and shifts the rest of the costs to the states, while weakening the rules so that states can dump people out of the program.

Unfortunately, most of the proposals that have been made by President Obama in the debt-ceiling negotiations are a kinder and gentler version of the same wrong-headed policy of shifting costs to states, and through them to American families, rather than dealing with the underlying reasons that Medicaid costs are rising.

It’s true that Medicaid costs are increasing, but that’s not because Medicaid has done a poor job of controlling health care costs, at least compared with the rest of the nation’s health care system. For example, from 2000 to 2009 private health insurance companies spending per person increased by 7.7% each year while Medicaid spending on acute care health services –- doctor, hospital, prescriptions, tests, mental health – increased by 5.6% a year. Medicaid did an even better job controlling spending on long term care, which went up an average of just 3% a year per beneficiary, the same rate at which the economy grew and lower that the overall rate of medical inflation (4.1%).

To really see where Medicaid spends it money, you only need to look at the 5% of Medicaid beneficiaries who are responsible for more than 50% of the costs. These are people with very serious, chronic health conditions and serious disabilities. President Obama knows this –- in fact, he raised the issue at the National Governor’s Association in February.

The other major factor in Medicaid spending is increased enrollment –- particularly when the economy tanks. For example, enrollment of families was flat from 2004-2007 but spiked sharply once the recession began. Enrollment jumped by three million from June 2008 to June 2009 alone, the biggest increase since the early day of the program.

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Rather than dealing with the root causes of high Medicaid spending, the Obama administration proposes to cut $100 billion from Medicaid over the next decade, mostly by changing the way it pays states for the program. The biggest change would be to reimburse states at the same rate for all their Medicaid patients, unlike now, where states get a different rate for different populations, such as children or seniors. The new so-called “blended rate” would be set at a lower amount than current health spending. Like the Ryan plan, the proposal is simply a cut to states, albeit a much smaller one than Ryan proposed and without the loosening of rules on who and what to cover included in the Republican budget. States would still cut back on who and what it covers, if only to the extent allowed within the current rules. States would also cut payments to providers, which in many cases – particularly physicians, dentists and hospitals in some states – would make it harder for patients to get needed medical care.

The “blended rate” proposal also strikes a blow at the Affordable Care Act, which is counting on Medicaid to provide care to more than half of the 33 million uninsured who will be covered under the new law. Under the Affordable Care Act, the federal government will reimburse states 100% of the cost of these new enrollees for the first three years and gradually reduce that to 90%. Compare that to the average 57% now that the federal government pays as its share of Medicaid. The blended rate would result in states having to pay a lot more for people who become eligible for Medicaid under the Affordable Care Act. As a result, states will throw up more barriers to enroll these working families and will scream more loudly about how the ACA is hurting their budgets. That later charge has almost no basis in fact now, but will become true under the blended rate proposal.

A second Obama administration proposal would close off one source that states now use to finance Medicaid, taxes on health care providers. Since states would be reluctant to replace these taxes with other taxes, they would also cut their spending on Medicaid, lowering federal spending.

In fact, only 10% to 15% of the cuts in Medicaid spending in the Obama proposal would come from rational savings in the system – increased efficiencies in providing medical equipment and prescription drugs – as opposed to simply giving states less money and making it harder for them to raise money for Medicaid.

The Affordable Care Act was a huge step toward a more rational health system, but the Obama proposals for Medicaid in the budget take us backward. Instead, the President should accelerate reforms that focus on the handful of high cost patients that drive most of the costs, by requiring states to implement care coordination programs which provide systems and incentives for health care providers to improve the care of the chronically.

Early this June, Senator Jay Rockefeller announced that 41 Democrats had pledged to “stand united against any efforts to slash Medicaid." Their action was aimed at the debt-ceiling and budget talks. Unfortunately, their resolve will be tested soon, in the Medicaid proposal made by their Democratic President.

Richard Kirsch is a Senior Fellow at the Roosevelt Institute, whose book on the campaign to win reform will be published in 2012. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

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Republicans Remain Poor at History – But So Do American Citizens

Jun 17, 2011Harvey J. Kaye

story-book-200We could all use a brush up on some of the nation's most important historical moments.

story-book-200We could all use a brush up on some of the nation's most important historical moments.

In a recent article, New York Times writer Sam Dillon reports that the results of nationwide exams conducted as part of the National Assessment of Educational Progress show that "American students are less proficient in their nation's history than in any other subject." And there is, as Dillon notes, a developing consensus as to why this is so: "History advocates contend that students' poor showing on the tests underlines neglect shown to the subject by federal and state policy makers, especially since the 2002 No Child Left Behind act began requiring schools to raise scores in math and reading but in no other subject. The federal accountability law, the advocates say, has given schools and teachers an incentive to spend less time on history and other subjects."

That may well be so. But I want to suggest another possible cause for young people's poor knowledge of American history: kids are simply emulating conservative celebrities. And the kids are no fools. They know from the news that if you want to get ahead, if you want to be taken seriously, if you want to be a contender, if you want to be a candidate for President of the United States -- a rightwing candidate, that is -- you can't be good at history. Isn't that the lesson of the past few weeks? Sarah Palin couldn't explain what Paul Revere's ride was all about. Bachmann didn't know that Lexington and Concord -- the first battles of the American Revolution -- were fought in Massachusetts, not New Hampshire.

But while we can laugh all we want at Palin and Bachmann, the problem isn't that they don't have the facts straight about American history -- it's that too many of us don't know enough about it. And our ignorance can be politically debilitating. Consider...

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Two weeks ago, on the 67th anniversary of the D-Day Landings at Normandy, former U.S. Senator Rick Santorum, a Pennsylvania Republican, announced that he was entering the race for the presidency. Eager to harness the Greatest Generation to his cause and strike a blow against "Obamacare," Santorum stated: "Almost 60,000 average Americans had the courage to go out and charge those beaches on Normandy, to drop out of airplanes who knows where, and take on the battle for freedom... Those Americans risked everything so they could make [their own] decision on their health care plan."

Naturally, leftwing commentators mocked him for saying it. But the progressive punditocracy missed a great opportunity. Santorum wasn't just speaking stupidly; he was also speaking wrongly. Contrary to what he asserted, the GIs who stormed the beaches of Normandy essentially were fighting for the chance of pursuing freedoms and securing government-guaranteed national health care. They and their fellow Americans knew quite well that just six months earlier President Franklin Roosevelt, in his State of the Union Message of January 1944, had translated his original vision of the Four Freedoms -- freedom of speech, freedom of worship, freedom from want, freedom from fear -- into a proposal for a Second Bill of Rights. And among the rights he enumerated was "The right to adequate medical care." Moreover, the President himself knew that the vast majority of his fellow citizens supported his proposal. Polls conducted for the White House in 1943 by Princeton's Public Opinion Research office showed that 83 percent of the American people wanted Social Security to include health care, not just for veterans, but for all Americans.

To listen to the right, you'd think the very idea of national health care was the Trojan Horse of communism. And yet a bit of history teaches that the Greatest Generation and its greatest leader -- our foremost heroes of the twentieth century -- hoped to enact it. Un-American? Hardly.

I don't care if conservatives know enough about history. But I do care that we and our fellow citizens do. For starters, we have got to be able to point out when the Tea Party right gets history dead wrong. Moreover, we have got to remember who we are. And to do that we need to not only restore the study of history to its rightful place in the school curriculum, but also make sure that the history we teach enables students to think and act as citizens, not game show contestants. Responding to equally dismal reports of student ignorance of America's past, progressive columnist Max Lerner wrote in April 1943: "History belongs to the people. It must be taught as part of the people's struggle to build a free democracy on this continent. It must be taught as the prelude to what American democracy can do and be."

Harvey J. Kaye is the Ben & Joyce Rosenberg Professor of Democracy and Justice Studies at the University of Wisconsin-Green Bay and the author of Thomas Paine and the Promise of America. He is currently writing The Four Freedoms and the Promise of America: FDR, the Greatest Generation, and Us. Follow him on Twitter: www.twitter.com/HarveyJKaye

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Tom Ferguson on the Budget Battle: "We've Got Two Conservative Parties"

Jun 14, 2011

In a recent interview with New School Radio's Antonio Seccareccia, Roosevelt Institute Senior Fellow Tom Ferguson weighs in on the budget debate, which he sees as "the end stages of the Reagan Revolution." The problem, he says, is that there are essentially two conservative parties at the national level: "Republicans want to cut, Democrats want to cut less." That leaves no one to defend programs like Social Security at a time when people need them most.

In a recent interview with New School Radio's Antonio Seccareccia, Roosevelt Institute Senior Fellow Tom Ferguson weighs in on the budget debate, which he sees as "the end stages of the Reagan Revolution." The problem, he says, is that there are essentially two conservative parties at the national level: "Republicans want to cut, Democrats want to cut less." That leaves no one to defend programs like Social Security at a time when people need them most.

As for the growing deficit, Tom argues that the Republican push to cut taxes without cutting expenditures created the problem.  However, it only became truly catastrophic after the financial crisis, since "financial collapses typically crush economies for years, and that's driven down the tax take of governments."  In order to close the gap, we need to return to full employment as soon as possible.  Tom believes President Obama's biggest mistake was his failure to pass a big enough stimulus in 2009, and the economy continues to drag because of his reluctance to push for another round.

Click here to listen to the full interview, including Tom's take on Social Security, the Bush tax cuts, state-level union-busting, and more.

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Cato: Privatization Deals Are "Fraught with Peril"

Jun 10, 2011Matt Stoller

In a recent op-ed for Politico, Roosevelt Institute Fellow Matt Stoller argued that privatizing public assets leads to poorer service at a higher price. Below, he responds to a libertarian critique of that piece.

In a recent op-ed for Politico, Roosevelt Institute Fellow Matt Stoller argued that privatizing public assets leads to poorer service at a higher price. Below, he responds to a libertarian critique of that piece.

Cato's Roger Pilon, who according to his bio held "five senior posts in the Reagan administration," responded to my piece on infrastructure with an interesting sentiment: agreement.

Stoller does go on to criticize much of the “privatization” that’s taken place since – starting with Fannie Mae and Freddie Mac. He’s right there: These “private-public partnerships” are fraught with peril, not least by giving privatization a bad name, something he doesn’t consider.

I'm pleased that Pilon shares my skepticism towards privatization deals. Since Fannie worked pretty well when it was a fully public agency, I'm not inclined to care as he does about the PR value of privatization, but I will take agreement on the substance where I can get it. In fact, I'll return the favor, and showcase another area of agreement between us.

The idea of “public goods” is not meaningless, but the definition has to be strict, as economists know, and the means for privatizing ersatz “public goods” have to be clean. Given the vast public sector before us, we’ve got years of privatization ahead. Let’s hope it’s done right.

I too hope these deals are done right. So whenever you see a private actor complaining about environmental reviews, safety reviews, Davis-Bacon restrictions, excessive public input, or pushback against other mechanisms that a democratic society uses to govern its own decisions, you should, as no doubt Pilon would, express skepticism that privatization is simply being used as a way to avoid public accountability.

Matt Stoller is a Fellow at the Roosevelt Institute and the former Senior Policy Advisor to Congressman Alan Grayson. You can follow him on Twitter at @matthewstoller.

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The Well-funded Assault on the CFPB

Jun 3, 2011Bryce Covert

Republicans may claim that the Consumer Financial Protection Bureau has too much power, but the money and lobbying has piled up on the other side.

Republicans may claim that the Consumer Financial Protection Bureau has too much power, but the money and lobbying has piled up on the other side.

Rep. Spencer Bauchus may have called the Consumer Financial Protection Bureau "the most powerful agency ever created," but a new piece at The Nation by Ari Berman details the extensive power being marshaled on the other side. While the Republicans who are trying to handcuff its authority claim to be defending small community banks and businesses, the real money is coming from much deeper pockets:

Warren and the CFPB are up against what she estimates to be a $3 trillion consumer financial services industry, which views the bureau as a potentially grave threat to its prosperity. According to the Center for Responsive Politics, 156 groups -- the vast majority representing corporate interests -- lobbied the government about the CFPB in the second half of 2010 and the first quarter of 2011. The list ranged from JPMorgan Chase to McDonald's.

And it goes on further:

The Chamber [of Commerce] has an entire division devoted to fighting Dodd-Frank, the Center for Capital Markets Competitiveness, and a huge budget. In the first quarter of this year, the Chamber spent $17 million on federal lobbying, far more than any other group, with a dozen lobbyists focused on the CFPB alone. In 2009 the Chamber was anything but subtle in its attacks on the bureau. "We're fundamentally trying to kill this," said senior director Ryan McKee.

It's pretty clear why banks of all shapes and sizes would be lining up against this Bureau. For the first time in decades, the CFPB promises to be a watchdog on lenders that looks out for the consumer with some actual teeth. That will likely mean crackdowns on payday lenders, debt collectors, loan sharks, and others. But why would the Republicans be the first line of defense in this fight? After all, they've proposed bills to replace the single job of director with a five-member committee, make it easier to overturn and veto the new rules it writes, and prevent it from using its powers until it has a permanent director. (Meanwhile, they've threatened to block any nominees to that position, effectively kneecapping its authority if that bill were to pass.) All of this is likely to slow down the reforms and regulations that the agency has been tasked with creating.

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As I've pointed out before, the GOP's timing couldn't be worse for the middle class. A recent report showed that these days a single worker needs an income of $30,012 a year to cover basic expenses and save up for retirement and emergencies -- in other words, achieve financial stability -- which is about three times the national poverty level. A single worker with two young children needs $57,756 a year, and a family with two working parents and two young kids needs $67,920. But wages have actually been falling for the first time ever over the past decade, which lead to the median American family's earnings dropping to $47,127 in 2010 -- only enough for a single worker to meet financial stability. When Americans don't have enough income flowing in, they turn to debt to plug the holes. That's a big part of the reason that Americans carry $796.1 billion in revolving debt. With so many relying on credit products, you would think it would be imperative to make sure they're safe. As Elizabeth Warren herself has pointed out, we do more to ensure that consumers can't buy toasters that have a 1 in 5 chance of exploding than we do to ensure that consumers don't take out mortgages that have the same chance of putting a family on the street.

Yet Republicans stand in shoulder to shoulder opposition. As quoted in Berman's piece, Hazen Marshall, a former Republican staff director for the Senate Budget Committee, said earlier this year, "If the House Republicans had their way, they would just repeal the CFPB!" The answer to why they have taken this stance might lie in following the money that he traces so well.

And the fight won't be over even if the current Republican bills are struck down. "Everyone agrees the real fights are yet to come, once the CFPB goes live and begins tackling difficult issues like policing scams in the credit and mortgage markets, and cracking down on overdraft lending fees and shady prepaid credit cards," Berman reports. "'There's bound to be a fight about every single rule-making, supervision and enforcement action,' says [Lisa] Donner of AFR."

Buckle up, it's going to be a long fight. But it's one that's worth having.

Bryce Covert is Assistant Editor at New Deal 2.0.

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The Political Winners and Losers of a Debt Ceiling Showdown

May 19, 2011Bryce Covert

Assistant Editor Bryce Covert sat down with Roosevelt Institute Senior Fellow Bo Cutter, who was director of the National Economic Council and Deputy Assistant to the President from 1992-1996 in the Clinton White House. In the second of a two-part interview, he calculates how likely a default is, looks at the extremism on the Republican side preventing negotiations, and games out a winning strategy for the administration.

Bryce Covert: What are the odds of the debt ceiling being raised?

Assistant Editor Bryce Covert sat down with Roosevelt Institute Senior Fellow Bo Cutter, who was director of the National Economic Council and Deputy Assistant to the President from 1992-1996 in the Clinton White House. In the second of a two-part interview, he calculates how likely a default is, looks at the extremism on the Republican side preventing negotiations, and games out a winning strategy for the administration.

Bryce Covert: What are the odds of the debt ceiling being raised?

Bo Cutter: I would put the odds of a default at 15 or 20 percent. Sounds low, but it ought to be zero. It is so inconceivable to me that it wouldn't be raised. It's not like the shut down where there was a fairly large number of people who wanted one and there was another set of people -- I was in that other set of people -- who thought that if we were going to play those games, I'd rather have a shut down than a default. Unlike then when there were people who could figure out arguments for why we ought to have a shut down, no one can come up with a good argument for why we should have a default.

There are three kinds of players in this. There's the administration, which basically wants to do everything it possibly can to not have a default. Part of that is that they are responsible. There's a real sense of fiduciary responsibility for the country. So they're out there trying to avoid it. Group two is the set of people, a set of the Congressional Republicans, who fundamentally believe it doesn't matter, that there isn't an effect. I don't see how you change their minds other than have a real problem. Group three is a dangerous group. It's the other group of Congressional Republicans who believe that it would be a very bad thing to do, but they're going to push it for all they can and run some risks. For example, that's where Newt Gingrich was on Meet the Press and that's where a lot of them are. Some of them are there because they think that's the right way to negotiate and the problem is not as big as people think. Others are there because that's the politically convenient place to be. That's the dangerous group, and that's where the miscalculation can occur.

Bryce Covert: What were the circumstances you faced when dealing with this battle during the Clinton administration?

Bo Cutter: Remember that we had lots more time and in effect by being able to push it off and to run an extremely active communications campaign about how truly insane this was, we got the debt ceiling raised without having to give anything. Because in the negotiations our side was saying to their side, how much pain do you want to take? We can do this for a long time, and at the end of the day good things don't happen if there's a default. So you're not going to do it anyway, but between now and then we're going to beat you over the head every day on this issue. Do you really want to have this fight? They then decided, okay, we'll do a shut down and the mechanism we'll use will not be the debt thing because we've concluded that's the third rail. Rather, it'll be the budget.

The difficulty for them under those circumstances was having already been beat like a rug on the budget stuff. They were weakened. The shut down, as I said when it was getting close, is quite hard to sustain because the administration tends to speak with one voice while the Congress speaks with a hundred. There's a kind of cacophony on the one hand and a single voice on the other. If the single voice is saying every single day why are these crazies doing this to the American people, they get tired of it in a hurry.

Bryce Covert: What are the differences between now and then?

Bo Cutter: This time around you knew going into it, and the "it" is this whole set of fights over the budget, you knew they were going to be different. You knew that there's a much more extreme set of Congressional Republicans, incomparably more extreme, than during the Clinton administration. Second, the wiggle room around the default was much less and the budget issue hit first. So my theory was that President Obama should absolutely have forced them into a situation where they had to choose to close down the government. They should not have given a dime on that. I think there is no question that he would have won a shut down battle for all the above reasons.

If you win the shut down battle and then you go into the default battle, you've already won. These guys do not want that pain again. So if you had the shut down battle in mid-March you'd have had two to three months to have the debt ceiling fight. I personally felt at the time that he'd win the shut down battle and it would almost certainly mean reelection. I think he's going to be reelected anyway, but it would have been such a thorough and complete defeat and it would have ended any fight about default.

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So I think they chose the wrong path there. I think they did it because there is an inevitable tendency in Washington and in government to think that the current deal is the deal you have to get rather than thinking much more strategically and choosing the terrain on which you want to fight. I'd rather fight the shut down battle than fight the default battle.

Bryce Covert: Who are the key players then and now and are there any differences?

Bo Cutter: I think the administration side of it is every bit as capable as we were. Some of them are the same players, and the ones who aren't are pretty able people. I don't think there's a big difference on the Democratic side. On the Republican side, I think that they have a much, much more difficult caucus to manage than the Republicans then did because the extreme wing is so much more extreme. They believe that they won the shut down battle, they got $38 billion worth of cuts. So you've got this extreme group elected six months ago that thinks they won their first battle. The reasonable -- reasonable being a term you have to qualify in these circumstances -- Republican leaders have crazies on their hands that they have to manage. My own sense is that the leaders probably would have preferred a short, abrupt, losing shut down battle to this scenario. Because they knew they were going to be in a situation where their crazies were pushing them right off a cliff. I think the dynamics are much worse, but it isn't on the quality of the people on the Democratic side. It's the structure of the caucus on the Republican side.

Bryce Covert: If we go into default, who will end up being the political losers and winners?

Bo Cutter: It depends on who does what in the next two months. If the administration doesn't create the right kind of narrative, I think it's likely to be the one that's blamed. Although it's never all or nothing. If you were President Obama, this is such an awful set of circumstances it's hard to even imagine scenarios, but you would say to yourself that the Congressional approval level is in the low double digits, like 11. Mine is about 50%. So I have five times the approval rating and I can afford, if I had to, the blip to 40%, but they can't take the blip to zero. If they're absolutely pushing me right against the wall and there is no give and no reasonable proposal, if I'm President Obama I probably say I'm still better off by holding. But it's a real close call.

Gingrich basically stated what the Republican strategy is going to be. He said they're not going to go into default. The country would come down hard on all of the leadership. But he said what we can do is take a bite, raise the debt ceiling by $10 billion, it will last for a relatively small time, and the administration will have to give. Then we'll raise it by $60 billion. That's two weeks, so we'll come back two weeks later. And we'll just keep doing that over and over and over and force them into giving.

I really believe that it depends on what the administration does to prepare. There's a lot they can do, and there are actual proposals you can make. I think President Obama's strategy has to be a process strategy. It has to be to say we are not going to agree on policy. We can come to some really vague, really general framework about the general numbers. Obama has made a ten-year proposal for a $4 trillion reduction in debt total and therefore a substantial reduction in debt as a percentage of GDP. If you look at Congressman Ryan's proposal, in reality he proposes a lot less than that because there's a lot of fakery in his numbers, but you could dress it up and say that he proposes about that amount. Therefore he and Obama are in rough agreement that something like $4 trillion in debt reduction has to occur in the next ten years. Obama can say let's agree to that. Let's agree to a process by which every six months or so, if Congress hasn't enacted and the president hasn't signed legislation that actually makes that happen, there are automatic across the board cuts and there are automatic tax increases. We can have a battle about how much and who does what. But in other words, President Obama's proposal would be let us agree on a framework for debt and understand as grown ups that we are not in the next two or three months going to agree on fundamental policy differences. If I were him, I would put that out there and I would campaign on it every day. I think that's the only way they win it. I think otherwise they are caught in this bite by bite by bite and are running a real risk of miscalculation. That's my big worry, is that that the Republicans argue, well, we know that a default shouldn't occur but let's push a little harder. That side is running a big, big risk.

There is also governance point about this. What the hell right does the political leadership of any party have to impose these kinds of risks on the American people? I increasingly think they just forget whether you're for or against a particular Medicare policy or whatever, as a matter of governance and in a country that's supposed to consist of free government and free citizens, just what the hell right do they have to do that? This is a different game than a shut down. These are big damn risks.

 

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Debt Ceiling Doomsday: How Flirting with Default is Playing with Fire

May 18, 2011Bryce Covert

Assistant Editor Bryce Covert sat down with Roosevelt Institute Senior Fellow Bo Cutter, who was director of the National Economic Council and Deputy Assistant to the President from 1992-1996 in the Clinton White House. In the first of a two-part interview, he explains why there is such limited time to raise the debt ceiling, how a default could lead to a double dip, and why every single American will feel the pain.

Assistant Editor Bryce Covert sat down with Roosevelt Institute Senior Fellow Bo Cutter, who was director of the National Economic Council and Deputy Assistant to the President from 1992-1996 in the Clinton White House. In the first of a two-part interview, he explains why there is such limited time to raise the debt ceiling, how a default could lead to a double dip, and why every single American will feel the pain.

Bryce Covert: We hit the debt ceiling on Monday. What happens now to keep the government functioning?

Bo Cutter: What Tim Geithner can do is use various sources that throw off cash and use that cash to pay bills for a while. He can also stop access to debt from non-federal sources. Firstly, state governments get access to federal debt, which they often use as a safe holding place for money that has come in from one source and is going to go out on a project. They want zero risk associated with it, so they put it in short-term federal debt notes. They don't get a lot of interest these days, but it's absolutely safe, or it used to be. But if they buy that debt, it's new debt, even though it's short-term and it's going to be paid back. So Geithner has cut off access to that. That gives him slightly less demand for debt than he would have otherwise expected over the next few weeks.

Secondly, there is an aspect of the Federal Employees Retirement System, FERS, in which federal retirees and federal employees pay for some level of premium or copayment as part of their pension program. He can use that cash. Geithner has essentially taken it -- there's nothing that says he can't -- from the federal employees. It's going to have to go back, it's not a net reduction of debt, but it gives him working cash.

Finally, he can do the same thing with sources of income in the entitlement system. There are Medicare premiums and certain kinds of Social Security taxes, and he can use those for a limited period of time. All of this is essentially squeezing every bit of cash that's on its way to becoming debt for a variety of reasons. He takes it and uses it to pay bills for a while before it becomes debt.

Bryce Covert: How long can this process last?

Bo Cutter: The estimates are that when Geithner began to do this, which wasn't very long ago, he had about 11 weeks of give. That's why you see the estimation for default in approximately early August. No one quite knows the point at which it would become a real default, but it is something like the moment that someone who should have received interest doesn't and knows it. If I had a savings bond I might not check it every hour on the hour, so I might not actually know other than reading the newspaper that I didn't get my interest on a particular day. But my broker might tell me I'm not getting paid interest on my federal bonds anymore, and I might then check the next day, and at that point the US is in default.

The time available for freedom of movement is much less now than we used to have because the deficit is so much bigger. We're running about a $1.6 trillion deficit. So divide that by 12 and we are at approximately $130 billion a month, which is $4 billion, $4.5 billion a day. This says that Geithner had about 350 billion in spare cash lying around. Which isn't surprising. It's approximately 2% of GDP, and any big place is going to have a certain amount of slosh in it. But that's it. You don't have anymore after that.

Back in the Clinton days when I was in the White House, our deficit was approximately $220 billion and falling because it actually balanced for the last couple of years. So it was one sixth of the deficit today, which means we had six times the amount of time to play with if we really wanted to. Well, not quite six times, because population has grown somewhat so there's a little bit more cash, but the things that have increased the amount of wiggle room haven't increased as fast as the deficit has. Not even close. So in relative terms, Bill Clinton had a lot more time to play with than President Obama does.

Bryce Covert: What happens if we don't raise the debt ceiling in time?

Bo Cutter: You have to remember that all dollars are green. You can't tell one from the other. There is a tendency to think that we'll spend, but we won't spend the part of the money that increases the deficit. But if you're in deficit and you're building debt at the rate of $4.5 billion a day, there is no dollar that doesn't increase the deficit, including your interest payments. So the first thing that actually hits once you begin to run out of room is interest payments, because they're scheduled. The inability to pay interest is a default. If a whole set of Medicare bills are coming due, as they do every day, you can default. It hurts everything in the system. You can defer payment on Social Security for a week or something like that. The people who are receiving it get whacked, but you can do that if you had to. But you cannot defer the interest payments, and there are interest payments due every day.

Once you're in default, bad things begin to happen. It becomes irreversible. I suppose that if you were in technical default, which is to say you were in default and you missed an interest payment, but the problem got resolved and you were back within a day or so, it would still be quite damaging but I suspect that the world would recover. But it would create an absolutely rational crisis of confidence in the US government's capacity to pay. It would be in the market and there'd be no denying it.

If you're a government official, you have to take this really seriously. It is against the law to incur more debt and the sanctions can, under certain circumstances, be criminal, and they go to the person. Sometimes I hear, in particular in Congress but also on blogs I read, people acting a little bit as if this were a game. They think this fight is behind the scenes but people are kind of making payments anyway.

Bryce Covert: Some conservatives are using that term "technical default" and saying that it wouldn't be as bad for our economy as letting Congress spend over the $14.3 trillion limit. What is this distinction that they're trying to make?

Bo Cutter: There is no difference between default and technical default. A default happens if you can't pay interest. It's binary. You either pay it or you don't pay it. What they are trying to imply is that a little, teeny, short default surely wouldn't be a problem. They're right only in the sense that it would be less of a problem. If you were in frantic negotiations to come up with a deal and Tim ran out of money and there was nothing he could do, and he says we have four hours, we'd be in default on the payments that need to be made in those four hours. But you can probably avoid being in actual default because you could delay when you send out the electronic blips that say you've paid interest for half a day. That's technical default. That wouldn't be the catastrophe that Geithner has commented on. But it's a truly terrible thing and it's really stupid to get in that position. To argue that somehow or other we have until we get into technical default is crazy. I regard it as a distinction, not a difference.

I was watching Newt Gingrich on Meet the Press on May 15th and he used the same line that they all do, which is that they look very arch and say, you know there are games being played here and obviously you can stretch it out forever. But there are no games. Everybody knows these mechanisms. They've been written about extensively, they're not hidden. And they're really limited. There isn't some other magic pot of money. There used to be something called the exchange stabilization fund, and it was a fund that was off-budget and was in theory supposed to be used to stabilize the dollar. But when we did the Mexican bailout and we couldn't get any money out of Congress, in the end Secretary Rubin used the fund in order to do the bailout. Eventually we got back more money than he put in, but Congress got so mad that they took it away. They took away one of the big buffers.

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Bryce Covert: What are the effects the country will feel in the event of a default?

Bo Cutter: As opposed to a shut down, there are two classes of effects, both bad. One is how it effects the economy as a whole, and then there are government payment effects. When a government shut down looked likely, I argued that in the short- and medium-run, the broad economic effects of a shut down are pretty close to zero. It's different with a debt ceiling problem were we ever to actually to go into default.

The right way to think about the economic effects is as follows. First interest payments increase, probably permanently. If you go into default for only one day maybe the permanent effect is only a little. But if you're in default in any substantial way, and I'd say that's more than a half a day, but let's say a week, then the interest rates on US debt go up forever. That's because the risk premium has suddenly appeared. The whole world thinks US debt is essentially risk-free. But that is suddenly going to change. So Americans will pay higher interest rates forever for debt. Since these days half of our debt goes to pay other countries who hold it, it's not money that one set of Americans is paying to another set of Americans, it's money that Americans as a whole are shipping out of the United States.

A lot follows from that. That means mortgage rates go up, it means loans to small businesses go up. One way to think about this is that if you increased by 20 basis points the interest paid on say a $170,000 house, you've increased over the lifetime of a 25- or 30-year mortgage the price that the consumer would pay by about $19,000. And a mortgage would certainly increase by 20 basis points. What's generally thought is that mortgages will increase about one and a half times more than federal debt because it's riskier. Then the increase in price would ripple from there to other kinds of debt. So everybody in America suddenly starts paying more for debt.

The next thing that happens is that growth slows. If people have to spend more of their money on interest, they're spending less of their money on things. Businesses are going to invest less. And the rate of growth is going to fall. Once again, this depends completely on how long a default lasts. But if it lasts a week or a couple of weeks, the rate of growth in the US economy probably falls around 1 percentage point. That's a big number. Consistent with that would be a rise in unemployment by about 600,000 people.

It's hard to see anything good coming out of those things. You could say it was a wash if it was money that one set of Americans owed to another set. That is a horrible way of thinking about a default, but if America's debt was all owed to America like it is in Japan, you wouldn't have some of these effects, because the money wouldn't be going out of the country.

Bryce Covert: Could one effect of default be a double dip recession?

Bo Cutter: Oh absolutely. Right now we're running at about a 2% growth rate. We've had a couple blips up, but if you average what everybody says we're doing, it's 2, 2.5%. So take a point out of that and it's not a danger, it's a certainty that we'll see a double dip. The issue is just how long the default is going to be. Back to the spurious technical default, if that's all it was it would just hurt everybody in America a little bit. If it were longer than that, we would experience the 1% fall in growth, and if it were a couple of weeks, which is inconceivable, there would be a double dip right away.

Bryce Covert: What are the effects of the government being unable to make other kinds of payments, beyond paying interest?

Bo Cutter: Everything else stops. You can't pay Social Security, you can't pay Medicare, you can't do anything. It's done. I'm sure that under even cataclysmic circumstances like this some rules of reason hold and people would be slow at layoffs and would try to slow walk it all, but they'd have to begin the process. Because if you're $1.6 trillion in deficit, you're spending $4.5 billion a day and that becomes illegal. So you have to start trimming in a hurry. You can't spend anything, period.

We've never actually been in default. So while we know what happens in a shut down and we know a little bit about what you can do to avoid it, we don't know what happens in this situation. But I've been asking my friends in the government for the last week or so, and they think that the kind of safe haven that is given to national security, including the defense department, homeland security, and FBI, would continue, but much more stringently. There would be a much, much tougher filter for who was regarded essential and who was not. As I told you, there had been a lot of thinking back when I was in government about how you operate in the case of a shut down. But since we've never had a default, people haven't been spending their time writing opinions about what you do at HUD in that situation. They'll have to quickly figure that out. Remember these are career public servants who are going to be criminally and personally accountable, so they're going to draw an increasingly tough line.

I think probably the way they would do it -- and it's insanity -- would be to chart a path down to zero deficit. A fast path.

Bryce Covert: What will the average citizen feel if the event of a default?

Bo Cutter: I think the absolutely first thing is a 1,000-point drop in the stock market in a day. That's the fastest reactor. I've been reading some estimates and the general consensus is that if there's a default that looks as though it will be real but short, the stock market probably falls  1,000-1,200 points, although there are much higher estimates in there but no lower. And if you think that that's probably a 50-75 basis point rise in the basic underlying federal rate, it probably means a 10% fall in the value of debt. Every piece of debt in America is on the market every day and is being priced. The stated nominal interest rate doesn't change, the value of the debt changes. So if you are a holder of debt in your portfolio, the value declines instantly. Everybody feels it right away. It's not just the recipients of federal aid as it would be in a shut down. Mr. or Mrs. Tea Party, who are all for this, will see their savings wiped out. Then they're mad.

Bryce Covert: What happens to the pensions that the Treasury borrows from? Does it affect the pensioners?

Bo Cutter: For a while no. It's a little bit like you run a business and you're in some difficultly on your personal credit card. So you take a little bit of the cash flow from the business (even though you shouldn't) and use it to pay your bill. You know that the next day you're going to be in better shape personally and then you can pay back the business and things are fine. If you do too much of it you've then harmed the business. But if you paid it back, there probably isn't any harm. In the Treasury's case it is taking funds that federal employees had a right to expect were being invested and you are on a cash basis not investing them. But remember contractually you owe them the return as if you had invested the cash anyway, so you're just going to have to make it up. It's not as if you can permanently take money away from federal employees or from the Medicare premiums or from Social Security.

But there's a point at which it clearly would. I see getting yourself into this position as a really, really bad thing. Not as if there's a little bit bad but it's okay and then there's a little bit more bad. It's really bad. Then there are degrees of bad. The longer it lasts the worse it becomes.

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In BoehnerWorld, It's "Women and Children Last!"

May 13, 2011Lynn Parramore

Continuing the attacks on women and children is creating stormy seas for the Speaker.

Like the notorious first-class passengers on the Titanic who scrambled ahead of women and children into the lifeboats, Boehner & Co. act as if leaving women and children to fend for themselves as they shovel money towards America's wealthiest is the proper response to an economic crisis. How did it come to this?

Continuing the attacks on women and children is creating stormy seas for the Speaker.

Like the notorious first-class passengers on the Titanic who scrambled ahead of women and children into the lifeboats, Boehner & Co. act as if leaving women and children to fend for themselves as they shovel money towards America's wealthiest is the proper response to an economic crisis. How did it come to this?

There's no denying that the GOP 2012 budget launches a frontal assault on programs that disproportionately serve women and children. The blueprint includes plans to convert Medicare from a program in which the government pays medical bills of seniors over 65  into a voucher system that forces them to buy insanely expensive and inadequate private insurance. There are also schemes to saw deeply into social safety net programs like food stamps and Medicaid -- you know, the kinds of programs that keep poor children from starving in the street.

And that's not all. The GOP budget includes a plan to increase the age at which a citizen can receive Social Security to 69. For all the waitresses who stand on their feet all day, the teachers who exhaust themselves in front of classrooms for decades, the flight attendants who ricochet from time zone to time zone, and the millions of other women who go to work every day to support their families, this amounts to a sentence to slave on until they literally drop dead. Is that what GOP congressional members want for their daughters, mothers and wives? Or are our elected leaders so disproportionately wealthy that they can't comprehend what plans like this will mean to women who don't have, for example, the kind of pensions that members of Congress enjoy?

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American women have already earned less than their male counterparts. They take hits to their expected Social Security benefits when they temporarily leave the workforce to have children. They do the bulk of the unpaid work of caring both for children and for their elderly parents. As the National Organization for Women's Terry O'Neill points out, women are more likely than men to have jobs in which they can't expect a pension and also more likely to lack representation by unions:

So after a lifetime of working at unequal pay, women head into their retirement years with very little in the way of savings. Single women of color -- about half head into their retirement years with zero to negative net worth, and white women who are single head into their retirement years with a net worth of only $41,000. It's estimated that because of unequal pay, a woman loses -- depending on her level of education and what industry she works in -- that she will lose between $400,000 and $2 million in her lifetime.

But for the GOP, it's the economic titans who deserve our largess in the form of reduced tax burdens. In a time when many families are barely making ends meet, Boehner actually told Matt Lauer recently that asking the wealthy to pay their fair share in taxes was "totally off the table".

It's a Path to Prosperity all right. But only for the lucky few. The rest get thrown overboard.

Maybe the Speaker just doesn't care about women and children. That's what some of the nation's most prominent religious leaders think. High-profile members of the Catholic Church have now called out Boehner, publishing a letter of protest in which they call the House 2012 budget "particularly cruel to pregnant women and children."

Boehner had better turn course, or he might find himself on a sinking  ship.

Lynn Parramore is the editor of New Deal 2.0, Media Fellow at the Roosevelt Institute fellow, co-founder of Recessionwire, and the author of Reading the Sphinx.

**Follow Lynn Parramore on Twitter at http://www.twitter.com/lynnparramore

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5 Reasons Newt is a Non-Starter

May 12, 2011Lynn Parramore

How is Newt a no-go for the White House? Let me count the ways...

He's back! He's running! Like the eponymous amphibian who loses a tail and keeps on coming, the Georgia rascal is sliding back into the political game. If you have not yet seen the risible video of Newt's jowly announcement that he will once again seek the nation's highest office, then grab a coffee, sit back, and enjoy.

How is Newt a no-go for the White House? Let me count the ways...

He's back! He's running! Like the eponymous amphibian who loses a tail and keeps on coming, the Georgia rascal is sliding back into the political game. If you have not yet seen the risible video of Newt's jowly announcement that he will once again seek the nation's highest office, then grab a coffee, sit back, and enjoy.

Newt's candidacy is going nowhere, and will only serve to divert enormous amounts of corporate cash from his fellow Republicans. But it will brighten the days of progressive bloggers, who think him very entertaining and aren't overworried about his chances of winning, because he's got....

Too much nasty: Q. When does a pecadillo become a perverse pattern? A. When you have numerous affairs and then point the moral finger at a sitting president for his. And if you're trying to convert Evangelical Christians to your cause, piling it on as Newt has done with the famous dumping-the-wife-recovering-from-cancer hospital scene is no-no. His bitter intolerance for gays, Muslims, African Americans, poor people, immigrants, and others who do not look, think, and act like him is likewise problematic for assuring voters that the GOP has made it into the 21st century. Which brings me to Newt's second problem...

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Too much Old White Dude: If you want to run against a fit, handsome, young, mixed-race president, it's not helpful to be a chubby, aging, white guy. Potentially being the oldest in the field of GOP candidates is not a helpful distinction -- I mean, gravitas can work, but Newt is too prone to silly outbursts to pull this off. Looking like you're completely out of touch with the young and hip -- who can't remember what it was like before cell phones, much less what you were doing with your first Contract with America -- will not the White House win you. And as to how women react to you when you're on wife number three...well, let's just say it does not add to the enthusiasm.

Too much crazy: Newt is a bright, contrarian type of guy who enjoys thinking about cool stuff like physics. I'm down with that. But unfortunately his brain seems to misfire in ways that are hard to reconcile with political viability. If you're a guy who likes to write reviews on Amazon in which you display your penchant for deriving foreign policy ideas from spy thrillers, you may have a bit of explaining to do. But you're courting real trouble if you go around flapping  about Obama's "Kenyan, anti-colonial behavior" and comparing freedom to beach volleyballs (See this helpful compendium of the "11 Craziest Things Newt Ever Said").

Too many Newts: There have been many Newts, and unfortunately for his current incarnation, the Ghosts of Newts Past tend to haunt the politician in inconvenient ways. At one point, he was a Rockefeller Republican. Then he was an Environmentalist. Then he was a social conservative, a supply-side conservative, an Evangelist-courting-Roman Catholic, etc. etc.. An uncharitable view would suggest that he is Whatever Newt Has the Best Chances of Being Elected. And since he still doesn't really have any chance of actually being elected, perhaps he's never really found himself.

Too much Pay-to-Play: The number of ethics violations Newt racked up through unsavory money transactions as Speaker of the House is breathtaking. But the worst thing about Newt is what Roosevelt Institute Senior Fellow Tom Ferguson pointed out in a recent interview with New Deal 2.0: He can be credited as one of the architects of the current pay-to-pay system in Congress. You know, the one where you get a committee appointment bringing in the most cash. This crass, ruthless turn in American politics is among the most damaging to democracy and has done more to separate the will of the voters from the actions of the politicians they elect than perhaps anything else in the last fifty years. It's the revolting mentality that induces Newt's former buddy and fellow Georgia politician Ralph Reed to talk giddily about his need to "hump corporate accounts". Americans have a deep anger just now about the degree to which Big Business buys the political system, and Newt's coziness with that particular sector will open him up to all sorts of unpleasantness.

And that, in a nutshell, is why Newt will never be president.

Lynn Parramore is the editor of New Deal 2.0, Media Fellow at the Roosevelt Institute, co-founder of Recessionwire, and the author of Reading the Sphinx.

**Follow Lynn Parramore on Twitter at http://www.twitter.com/lynnparramore

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It’s the Prices, Stupid: Consumers Don't Drive High Health Care Costs

May 11, 2011Richard Kirsch

Republican plans that shift costs to consumers completely misunderstand the United States' health care system.

Yesterday, Speaker Boehner issued what Robert Bob Borosage of Campaign for America's Future correctly labeled extortion: "Give us trillions in cuts in Medicare and Medicaid or we blow up the economy." Boehner's threat to tie the lifting of the debt ceiling to trillions of cuts in spending would force huge cuts in Medicare and Medicaid.

Republican plans that shift costs to consumers completely misunderstand the United States' health care system.

Yesterday, Speaker Boehner issued what Robert Bob Borosage of Campaign for America's Future correctly labeled extortion: "Give us trillions in cuts in Medicare and Medicaid or we blow up the economy." Boehner's threat to tie the lifting of the debt ceiling to trillions of cuts in spending would force huge cuts in Medicare and Medicaid.

Actually, there are no health care cost savings in the Ryan-Boehner budget, just cost shifts. The Ryan budget cuts Medicare by shifting more than $6,000 a year to each senior who benefits from it. It shifts Medicaid costs to state taxpayers by cutting federal funding to states for the program.

While the extremes of the Ryan-Boehner budget have been widely decried, the underlying assumption behind their Medicare privatization plan is too often accepted by a broad array of health policy advisers. The Ryan budget assumes that the problem with health costs is that consumers don't pay enough out of pocket for care and that plans are too generous. Unfortunately, that's also been the view of some Democratic health policy advisers. White House officials backed the taxation of higher cost health plans in the Affordable Care Act (ACA), and others like former Clinton OMB Director Alice Rivlin support a less draconian version of Medicare privatization.

But the reason that health care costs so much in the United States is not that we consume too much health care; it's that we pay too much for what we consume. As Uwe Reinhardt and three other health economists summarized succinctly after comparing the prices we pay and the amount of health care we use in the United States with other developed countries, "It's the prices, stupid."

For example, we make one-third fewer doctor visits a year than people in other countries but we pay an average of $59 for an office visit, compared with $31 in France. Our doctors make a lot more money than their colleagues in other countries. Adjusting pay across countries by purchasing power, U.S. doctors get paid about two times as much as in others. A Congressional Research Service analysis found that specialists in the United States are paid about $50,000 a year more than would be predicted, even considering the higher level of wealth in the United States.

We go to the hospital a lot less, too, and when we're there we don't stay as long. But we pay a lot more. The average hospital stay costs us $3,181, compared with $837 in Canada. We do get a lot more MRIs in the United States, more than twice as much as other countries, and we also pay a lot more for each scan: an average of $1,200 compared to $839 in Germany. And as everyone knows, the price of brand-name prescription drugs is much higher in the United States than other countries.

Why do we pay so much more for the same product? The biggest reason is that other countries understand that health care is a public good, not a commodity. Markets can't control health care prices, since it is health care providers who decide what care is delivered. When providers determine both demand and supply, market economics don't apply.

Even in the United States, with all the political pressure from the doctor, hospital, and drug lobbies, we can see how a public insurance entity does a better job of controlling prices than private insurance. Medicare sets prices and pays $500 for an MRI, less than half the $1,200 U.S. average. Even with its older patients, Medicare pays $2,200 for an average hospital stay, almost 50% less than the U.S. average.

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Private insurance companies not only fail to control prices, they add costs. The private insurance companies that Ryan wants to hand Medicare over to are the primary reason that we spend more than four times as much on administrative and insurance costs in the United States as other countries.

Which brings us to another market-driven argument that underlies the Ryan proposal and other conservative nostrums for controlling health care costs: that because Americans have insurance they are not prudent purchasers of health coverage. Again, the international comparison should put this to rest, as in all those other countries with much lower health spending everyone is fully covered. In these countries, the only prudent purchaser is the government, which is responsible for getting lower prices. As it is, the amount that Americans pay out-of-pocket for health care is already a lot more than consumers in other developed countries, even accounting for our higher incomes.

The Obama budget plan begins to address the root causes of high health care costs by increasing the authority of a new public entity designed to control what Medicare pays for health care. The President contrasted his budget approach with that of the Republican budget in his April 13th budget address at George Washington University, saying: "Their plan essentially lowers the government's health care bills by asking seniors and poor families to pay them instead. Our approach lowers the government's health care bills by reducing the cost of health care itself."

The centerpiece of Obama's plan to control Medicare costs is to add additional powers to a new body established under the ACA called the Independent Payment Advisory Board (IPAB). The IBAP will function as a kind of military base closing commission for Medicare. If the growth in Medicare costs exceeds a target amount, then it would institute cost control measures that would go into effect unless Congress intervened. Since cutting eligibility and benefits are not part of the IPAB mandate, cost savings would have to come from the actual drivers of cost: the prices paid for services and the way health care services are delivered.

Obama's budget proposal would strengthen the IPAB's current authority, although the details of how to do that have not yet been specified. As you can imagine, it is already a target of attack from health care providers who are finding a sympathetic ear among both Republicans and Democrats in Congress. It's also a favorite target of the right, which calls it "Obama's death panel."

The battle being fought over Medicare is, like every other economic issue that faces the nation, a matter of power and a test of our democracy. We can control health care costs and improve the quality of care by addressing the root causes: our market-driven health care system pays too much for care and rewards quantity over quality. But changing the way we finance and pay for health care will mean putting the interest of consumers over the power of the industry lobby. For the doctors, hospitals, drug companies, medical device manufacturers and insurance companies, a dollar saved is a dollar lost in revenue.

The firestorm of popular opposition to the Ryan Medicare plan is because he chose to side with industry over seniors. But with Boehner threatening to hold the economy hostage, and a health industry that has enormous lobbying clout, the future of our nation's national health insurance system for seniors and the disabled remains in grave doubt.

Richard Kirsch is a Senior Fellow at the Roosevelt Institute, whose book on the campaign to win reform will be published in 2012. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

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