Matt Yglesias

Opting In, Opting Out

Matt Compton observes that semi-optional federal programs are not a new idea in American politics:

Medicaid, for instance, is an opt-out program, but no state has ever chosen to take that step.

Federal highways are also an opt-out program, but we all follow the same speed limits.

To be more precisely, Medicaid and federal highways are, like a lot of federal K-12 policy, structured around conditional grants. The federal government makes funds available for certain purposes if states do certain things, and the states can choose not to do them. In the case of Medicaid I believe that Arizona actually held out for a long time before implementing the program. And to the day, the extent of the Medicaid benefits offered from state to state vary a great deal.

The “opt-out” structure of a public option would work differently since there wouldn’t be a net transfer of tax money involved. But for the federal government to enact a policy that works differently in some states than in others wouldn’t be a breach of any time-honored principle of government. What’s more, my strong suspicion is that a public option would either be poorly designed & implemented and flop, or else if it works as intended rapidly become available almost everywhere.

Medicaid and Health Reform

Stuck with the tab? (NGA photo)

Kevin Sack and Robert Pear reporting for the New York Times raise a non-crazy worry about the health reform legislation before the congress, gubernatorial concerns that Medicaid expansion will wreak devastation on state budgets. My go-to guy on Medicaid issues says the House bill handles this concern fairly well, but that the Senate legislation is less clear. And certainly when you become very concerned with slightly arbitrary metrics like CBO scores across a 10-year window rather than with overall fiscal responsibility, it creates incentives to craft legislation that shunts costs onto the states thus “hiding” them from the prying eyes of the scorekeepers.

To the best of my knowledge, the large state role in Medicaid is extremely ill-advised. In general in the United States you get better “quality of government” at the federal than at the state level. And in macroeconomic terms, state Medicaid responsibilities tend to work as “automatic destabilizers,” increasing burdens on state government just when the states can’t afford to spend money. In an ideal world, you’d see a much larger federal role in Medicaid and this would reduce the severity of recessions and in general reduce the need for contentious debates about stimulus bills. You’d also almost certainly get better health care coverage for poor people in most of the country.

But even though switching the financial responsibility from the state to the federal level wouldn’t involve any net change in the tax burden or the size of the public sector, it would “look like” a big increase in taxes and spending. So that’s obviously off the table for now. But something to keep an eye on during the health reform debate is that while Medicaid expansion is good, mandated increases in state-level Medicaid expenditures are pretty questionable policy. Better to have the federal government pick up the bulk of the tab for expansions.

Ben Smith Says the Left Won’t Object to Entitlement Cuts

Politico’s Ben Smith claims that Barack Obama can get a free pass from the left if he moves to gut Social Security and Medicare:

President Barack Obama plans a busy February. The new administration hopes to have a stimulus package passed by Congress, a new plan in place to shore up ailing banks and, by month’s end, to hold a “fiscal responsibility” summit.

If the stimulus and banking bailout weren’t controversial enough, the summit fills some entitlement reform critics with dread, as they fear it could speed calls for cuts to Social Security and Medicare.

Strikingly, however, Obama appears to be getting unusual room to maneuver on entitlements by most of his liberal allies. On the subject of entitlement reform, in fact, Obama’s honeymoon continues — at least in the unlikely precincts of the Democratic left, a counterintuitive development that has buoyed the spirits of reformers who would like to see drastic changes in the way Social Security works.

I’m not sure what the administration’s thinking is, but certainly I wouldn’t be silent if he were to propose draconian cutbacks in Social Security and Medicare. On the other hand, if Obama wants to get the long-term public fiscal situation in check by tackling its main root cause—runaway cost inflation in the health care sector—I would applaud that:

I have some reason for confidence that Obama will, in fact, do the right thing. That’s because the liberal perspective on this is espoused by, among other, Office of Management and Budget Director Peter Orszag. The chart above comes from his Congressional Budget Office days when he produced a masterful slide series entitled “Health Care: Capturing the Opportunity in the Nation’s Core Fiscal Challenge” which defines the “fiscal challenge” correctly as less an “entitlement” problem than an “health care” problem. You could solve the entitlement problem fairly easily, if brutally, without tackling the health care problem—just pair back benefits. And then instead of a bankrupt state you’ll have bankrupt families and you won’t have achieved anything. But if you can solve the health care problem, you’ll have done most of what needs to be done and set the stage for tackling other issues.

McCain and Entitlements

Marc Ambinder points to some Sarah Palin remarks in which she says “John McCain and I will protect the entitlement programs that Americans depend on – and above all, Social Security.” But it was just a few days ago that the McCain campaign decided that rather than raise taxes on health care, they wanted to More »« Less on Medicare and Medicaid. In other words, the very entitlements that Palin just promised to protect.

Meanwhile, it’s still the case that McCain has long favored privatizing Social Security — not protecting it.