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The Cruelest Cut

Why McCain is lying when he says he wouldn’t cut Medicare, and why it’s been so hard for the media to call him out on it.

Ten days ago, the campaign’s unofficial referees came down pretty hard on Barack Obama and his campaign. The issue was Medicare--specifically, Obama’s accusation that John McCain intends to slash the program.

McCain’s advisers have insisted he would do no such thing. agreed, calling Obama’s claim “false” and “not true.” The Washington Post came to the same conclusion, giving Obama "three pinocchios" for "significant factual errors."

I respect both Factcheck and the Post's policy writers. Attempting to verify campaign boasts is a difficult, thankless job they generally do well. But I think they made the wrong call here.

Obama’s attack on Medicare has some intellectual dishonesties--dishonesties that might undermine future health care reform efforts. But Obama’s broad, underlying argument--that McCain proposes to cut Medicare in ways that would visit serious harm upon beneficiares--is absolutely correct.

That’s one pinocchio, maybe. But three?

What follows is an explanation of why McCain is lying when he says he wouldn’t cut Medicare, why that lie matters, and why this sort of controversy--which has been very common this election cycle--is so difficult for the media to sort out.


To get the full picture, we have to revisit (one more time!) the backstory of McCain's overall health care policy--of which the Medicare cut, real or imagined, is just a small part.

The central piece of McCain's proposed reform is a new tax credit, available to everybody under 65, that’s supposed to offset the price of insurance coverage. Whatever the merits of this idea, it's very expensive. But when McCain introduced the plan, back in the spring, his advisers said it would be revenue neutral--i.e., McCain would pay for it by raising money somewhere else. To do that, advisers said, McCain would eliminate the current tax exemption for premiums paid on employer-sponsored health insurance.

The math on that swap was plausible, since the new credit would cost about as much as the current exemption does. But it meant some people would end up paying higher taxes--a fact the Obama campaign was quick to exploit. In response, the McCain campaign "clarified" the plan: McCain wasn't proposing to elminate the entire exemption, advisers said, just the part that applies to income taxes. Group health insurance premiums would remain exempt from payroll taxes, as they are now.

That achieved the political objective; under such a scenario, very few people would end up paying higher taxes. But it also meant the proposal wouldn't pay for itself. Quite to the contrary, it would produce $1.3 trillion in new deficit spending over ten years.

Here's where Medicare comes into the story. On October 6, in an interview with The Wall Street Journal's Laura Meckler, McCain adviser Douglas Holtz-Eakin insisted that the health care proposal remained revenue neutral. To cover that $1.3 trillion shortfall, Holtz-Eakin said, McCain planned to take money away from Medicare and Medicaid.

Later in the article, Meckler referred to these ideas as "cuts" to Medicare. (I did the same thing, in an item that appeared on this blog.) And, within a few days, the Center for American Progress Action Fund published an analysis that suggested the McCain plan would reduce Medicare spending by about 13 percent in the next decade. "To put this into perspective," the authors wrote, "the cut in 2012 would be equal to the entire amount that Medicare spends on nursing home care, or hospital outpatient services, or low-income subsides for the Medicare drug benefit."

When Obama seized on this information, in advertisements and speeches, the McCain campaign cried foul. They noted, correctly, that Holtz-Eakin never used the word "cut." He had used the word "savings" and suggested they would come from reforms designed to improve the efficiency of Medicare and Medicaid, such as eliminating fraud and changing payment formulas to encourage better quality care. McCain’s advisers also reiterated their intention to make higher-income beneficiaries pay higher Medicare premiums.

After investigating, both Factcheck and the Post decided the McCain campaign was right. Factcheck concluded:

The fact is that McCain has never proposed to cut Medicare benefits, or Medicaid benefits either. Obama's claim is based on a false reading of a single Wall Street Journal story, amplified by a one-sided, partisan analysis that piles speculation atop misinterpretation. The Journal story in turn was based on an interview with McCain adviser Holtz-Eakin. He said flatly in a conference call with reporters after the ad was released, 'No service is being reduced. Every beneficiary will in the future receive exactly the benefits that they have been promised from the beginning.

Let's start with the idea that it's wrong to read so much meaning into Holtz-Eakin's statement. (I assume that's the implication of referencing "a single Wall Street Journal story.") Holtz-Eakin is not some random conservative gadfly. He is on the campaign payroll as its chief economic adviser. And this wasn't some off-hand remark that popped up on YouTube. This was a statement he made to one of the country's most reliable policy reporters for an article in the financial paper of record.

Factcheck (like the Post) also dismisses the Center for American Progress Action Fund's analysis as "one-sided" and "partisan." It’s true that the Fund has close ties to the Democratic Party establishment. (John Podesta, who used to advise Bill Clinton and now advises Obama, is the president.) And its findings certainly tend to advance the Democratic agenda. But whatever its predisposition, in this case, it produced an analysis that holds up under scrutiny.

No credible health care expert thinks that McCain could save anywhere close to $1.3 trillion from Medicare and Medicaid over ten years through the mechanisms McCain has identified. To meet that $1.3 trillion target, McCain would have to reduce what the programs cover or reduce what they pay for medical treatment--which would, in turn, make services less available. In other words, Holtz-Eakin can say whatever he wants on conference calls. Taking $1.3 trillion out of these programs is still going to lead to "cuts"--maybe not a full $1.3 trillion in cuts, but pretty drastic cuts all the same.

The wrinkle here--and the reason Obama deserves that one pinocchio--is that Obama also thinks that making Medicare and Medicaid more efficient can generate significant savings. And, like McCain, Obama would use these savings to help pay for his own efforts at making health care affordable. Critics have said these claims, like McCain’s, seem optimistic. They’re probably right, which means that Obama is also proposing to cut Medicare and Medicaid--something his ads and rhetoric don't exactly point out.

Still, there are deceptions and then there are deceptions. Obama has been both specific and consistent about how he'd wring savings out out of Medicare and Medicaid, right down to proposing a one-time expenditure of $50 billion to improve the use of information technology in medical care. He published these proposals more than a year ago and has touted them, without modification, ever since. McCain’s advisers came to this discussion late, they have been more vague, and they’ve changed their talking points several times.

More important, Obama isn't looking to generate $1.3 trillion from these savings. He's looking for less than half that much, making it a far less audacious claim. And if his expected savings don’t materialize, as the critics suspect, Obama will have an easier time finding the money elsewhere--at least relative to McCain, who will be struggling just to fill the budget holes left by his massive tax cuts.

Do these sorts of distinctions matter? I think so. While the numbers that campaigns toss around have a certain Fantasyland quality to them, they are a window into the way the candidates operate--and what they value most. Here, the numbers reveal that McCain is either being less honest with his campaign promises, less responsible about the budget, or less protective of Medicare than Obama is.

Of course, Obama’s fibs still matter, in ways that should trouble even his supporters. If he gets a chance to enact his agenda, and tries to claim savings from these efficiency gains to Medicare and Medicaid, you can bet critics will cite this recent rhetoric. If we didn't believe any of McCain's savings were real, they'll say, why should we believe any of yours are? These critics will have a point. Having completely discounted McCain's Medicare reforms, he's effectively discounted his own.

What’s worse, this isn't the first time we've seen this from Obama. Whatever the overall merits of McCain's plan, changing the current tax exemption of group health benefits is a tool many progressive reformers (rightly) want to use. Relentlessly attacking McCain's decision to tax health benefits, as Obama has, may make future reforms more difficult. He shouldn't be doing that.

But the media and the fact-checkers haven’t been telling this nuanced story. They haven't explained that, while both candidates sometimes play fast and loose with facts, one candidate's misrepresentations have been far bigger--and more important. Their job is to shine a light on reality. In this case, I think, they obscured it.

Jonathan Cohn is a senior editor of The New Republic, a senior fellow at Demos, and the author of Sick: The Untold Story of America’s Health Care Crisis--and the People who Pay the Price.