David R. Henderson  

Reagan's Medicare Bill

Housing Finance Reform... Morning Commentary...
A health care bill to expand Medicare and increase taxes to pay for it passes both the House of Representatives and the U.S. Senate by wide margins and is signed by the President. Most people who are paying attention think that, for good or ill, this expansion of government will be with us forever. But just 17 months later, the law is repealed. Whereas it was passed in the House of Representatives by a vote of 328 to 72, the same House, with only a slight change of membership, votes 360 to 66 to repeal the bill. The new President, who, as Vice-President, had urged the President to sign the original bill, now signs the bill to repeal.

The bill described above was the Medicare Catastrophic Coverage Act, which President Reagan signed into law in June 1988 after it got bipartisan support in the House and Senate. Both the House and Senate repealed it less than two years later.

This is from my "'Losers' are the Key to Undoing Obamacare," which ran on Monday. I draw lessons from the repeal of Reagan's expansion of Medicare for repeal of Obamacare.

Link fixed. Thanks Eric--and Thomas.

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COMMENTS (9 to date)
Brett writes:

Rather sickening, really. They defeated a law designed to actually reform the system by stirring up the elderly to rally to promote themselves at everyone else's expense.

Is that your brilliant idea? Destroy the only piece of truly systemic health care reform in forty years by stirring up those who benefit from the status quo, so that we can push the problems off even further?

Hyena writes:

Shouldn't you support Obamacare, then?

Medicare is a transfer from relatively poor working people to relatively wealthy retirees, that would seem far worse than sloshing money around the middle class. Especially when you consider that Medicare, like Social Security, probably depresses saving and investment.

eric falkenstein writes:

broken link!!!

Thomas Sewell writes:

The correct URL is here.

Frank Howland writes:

So the lesson is that in the United States fiscally responsible extensions to medical insurance (the Reagan and Obama plans) can be repealed because the senior citizens who are asked to share the burden have enough political power to get their way. However, fiscally irresponsible extensions to Medicare (Medicare Part D under George W. Bush) sail through. This is surely bad news in light of our long term fiscal problems.

David R. Henderson writes:

@Frank Howland,
Frank, the seniors weren't "asked" to share the burden. They had a burden imposed on them.

Richard A. writes:

If Medicare part D was means tested, I suspect that those seniors that faced increased premiums would drop this coverage. Big pharma would not like that.

John Goodman writes:

Good parallel. Here is my take on the same subject:


Frank Howland writes:

Asked vs. imposed, a distinction without a difference in the context of what I wrote.

As a society we extend a huge benefit to senior citizens which the rest pay. Laws that require (impose on, if you will) seniors to pay for part or all of the benefit are rejected; laws which extend benefits to seniors without having them pay for them are passed.

You can view this as a series of intergenerational transfers analogous to Social Security. Those who were 65+ in 2006 get a huge transfer which those who are younger must pay for. If the new law ("Obamacare") is not repealed and the Medicare portions of that law are not altered, part of the overall transfer to current seniors will be reduced; thus, repeal of the law is another way to protect the current transfer to old folks. I think you and I agree that the intergenerational transfers will break down at some point in the foreseeable future. Some of those currently alive (maybe you and me) will see reduced benefits and the present value of the taxes they paid for Medicare will exceed the present value of the benefits they get from Medicare. (It's possible that the pace of technological improvement will be such that their investment in taxes will turn out to yield a decent return in terms of better health in their old age.)

Another way to look at it is this: seniors in 1988 rejected a benefit they had to pay for because it wasn't worth it to them; seniors in 2006 accepted a benefit which they might not have been willing to pay for. Seniors in 2010 may reject a reduction in benefits, but if they had to pay for those benefits they might accept the reduction.

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