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YOUR BOTTOM LINE

The Politics of Medicare; Middle Class Squeeze; Arming the Workforce of Tomorrow

Aired August 25, 2012 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


CHRISTINE ROMANS, HOST: Forty-eight million people depend on it, workers are taxed to help pay for it, and these guys can't stop talking about it.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES OF AMERICA: I have strengthened Medicare.

FORMER GOV. MITT ROMNEY (R-MA), PRESIDENTIAL CANDIDATE: So this is the president's idea, for instance, for Medicare was to cut it by $700 billion.

OBAMA: My plan has extended the life of Medicare by nearly a decade. Their plan would shorten the life of Medicare and end Medicare as we know it.

ROMNEY: So the differences in our Medicare perspective could not be more stark and dramatic.

(END VIDEO CLIP)

ROMANS: The politics may sound petty, but it's no small matter, whether you're 16 or 65, it's medical insurance you'll likely need to rely on at some point. And you've already started paying for it with every paycheck.

This is the breakdown of federal budget, this is how the government spends your tax dollars, the largest piece of that goes to Medicare, Medicaid and the chip plan for younger Americans. So what's the problem with Medicare? Cost.

The Kaiser Family Foundation says Medicare covers an average of 48percentof all healthcare spending for seniors. And while that might seem modest, the government is spending hundreds of billions of dollars to keep up with rising healthcare cost. Plus, a flood of baby boomers is about to retire and join those 48 million Americans already on Medicare. So, something needs to be done.

An annual report from the board of trustees of the nation's entitlement programs finds that Medicare costs account for 3.7 percent of GDP in 2011, that's expected to rise to 5.7 percent by the year 2035 and will increase gradually every year hitting 6.7 percent of GDP by 2086.

Stephen Moore joins me now. He is an editorial writer of the "Wall Street Journal."

Stephen, do you conclude that lawmakers must address these financial challenges as soon as possible? There are no simple answers to what there is a very complex problem here. You're not going to get simple answers in a sound bite or a bumper sticker, are you?

STEPHEN MOORE, EDITORIAL WRITER, "WALL STREET JOURNAL": You really aren't. And you know, it's interesting when you gave those statistics about the escalating costs. Let me just toss out another one to you, Christine, which is that right now we're spending about $500 billion a year, that's billion with a b, on Medicare even under these Republican plans that are supposed to cut the plan within a dozen years, the cost of this program is going to about double.

So, it really becomes a question of whether this is going just to squeeze out everything else that we want from our federal government because the cost is growing so rapidly.

ROMANS: I want to bring in Dean Baker into the conversation. He's co- founder of the Center for Economic and Policy Research.

Dean, the political focus is on the Medicare structure here, but healthcare costs are what is really driving this thing out of control at this point.

DEAN BAKER, CO-FOUNDER, CENTER FOR ECONOMIC AND POLICY RESEARCH: That's exactly right. And you know, our health care costs are hugely out of line with everyone else in the world. If you take the average for other wealthy countries, Canada, Germany, United Kingdom, whatever you want to throw into the mix, we pay about twice as much per person as those other countries and we have almost nothing to show for it in terms of outcomes. We don't have longer life expectancies, in fact, we are ranking at the bottom of that.

So, the problem here is private sector healthcare cost, which, you know, of course, we pay for a lot of that through Medicare. And if we don't contain private sector healthcare costs, there's no way we could square the circle here. So, you have to want to do that. Your arguably the Affordable Care Act makes some steps in that direction. You know, clearly you have to go further. But the key is controlling private sector healthcare costs.

ROMANS: But then you, guys, really disagree. Like Dean, I mean you -- even calling it a Medicare problem, I've heard from a lot of people on the left, like we don't have a Medicare problem, we have a healthcare problem. And people, budget cutters want to just cut Medicare instead of fixing it.

BAKER: Well, that's exactly what I would say. I mean if you look at these projections, we spent around 17 percent of our GDP on healthcare, that's projected to go over 20 percent by 2022, and if you look further at 2030, 2040, we are looking at comprising 30 percent of GDP. This is a devastating cost. So, if we somehow say, OK, we're going to fix Medicare, and we're going to maybe get rid of it altogether, that's fine, then the federal budget is OK, but none of us are going to be able to afford healthcare.

ROMANS: So, let me ask you, Stephen Moore, your guys plan, I mean there is a lot of sniping and fighting on the campaign trail, and I kind of want to keep the politics out of this and talk about the best ways to address this.

MOORE: Sure.

ROMANS: Because there are cynics like me who thinks that a lot of this electioneering is not really about addressing Medicare. How do you fix it?

MOORE: Well, let me go back to a point that Dean made, that I do disagree with, and that is the idea that we don't have really high quality healthcare in the United States. I don't think there's any question that we do. We, in fact, I think we have by far the highest quality healthcare in the world, in terms of the services that you get. If you get cancer or heart disease or some terrible injury, you don't want to go to a hospital in Britain or Canada, you want to come here. We're the cutting edge.

And, in fact, one of the reasons that healthcare costs are so expensive in the United States, is we're the leading innovators and every other country basically, you know, takes the innovation that we do and they kind of fall on our back.

Now, the issue about how to solve this problem. I agree with Dean that it's partly, you know, private sector costs of healthcare have gone through the roof. It's a question of which is driving which, is Medicare driving the private sector healthcare cost, or the private sector costs driving Medicare. What I like about Paul Ryan's plan, Christine, is what he would allow seniors to shop around in the private marketplace to see if they can get a better deal. We're consumers. That's the way we, you know, buy everything, whether it's food or housing --

ROMANS: OK.

MOORE: We shop around. What's wrong with that idea?

ROMANS: OK, Dean, he just said what he likes about Paul Ryan's plan. What do you like about Paul Ryan's plan?

BAKER: Well, it certainly wouldn't be that. I mean, the fact of the matter is we've actually tried that. I mean we have Medicare Plus Choice in the '90s, that allowed people to shop around. We have Medicare Advantage under President Bush. And, of course, that is exactly what we have in the private sector today.

Most of us, you know, we get our healthcare through our employers and employers shop around. Unfortunately I'm an employer, I've had that experience. I don't like to do that. That really doesn't work. So, you know, you sort of go -- how many times do we have to keep trying the same thing before we finally say that really isn't working?

ROMANS: All right. Stephen and Dean, don't move, stay where you are, we've got more conversations on this. Most of the people sniping about fixing Medicare are years away from actually using Medicare. We're going to take the microphone away from the politicians and turn it over to seniors.

(BEGIN VIDEO CLIP)

THOMAS MORFORD, MEDICARE RECIPIENT: I hate to see it disrupted, but if they don't do something about it, my kids aren't going to have it.

(END VIDEO CLIP)

ROMANS: The people behind the numbers. That's next.

(COMMERCIAL BREAK)

ROMANS: The people who know the Medicare math best won't be found in a presidential campaign or a Washington think tank. It's the people who rely on Medicare every day. We went to a retirement community in Tinton Falls, New Jersey to bring you the Medicare story from people who aren't using it to get elected.

(BEGIN VIDEOTAPE)

PAT DRISCOLL, MEDICARE RECIPIENT: My wife has had cancer and surgery involving cancer. She's had open-heart surgery, a couple of knee operations, and the cost to us has been virtually nothing.

JEANNE MACARTHUR, MEDICARE RECIPIENT: I pay a $30 co-pay. I've been to the doctors maybe six times this year. It's all very manageable.

PETER LUMLA, WIDOWER & MEDICARE RECIPIENT: My wife was diagnosed with cancer. And luckily we had Medicare. I could have paid for it, but it would have wiped out a lot of my savings. It would have been like $100,000.

BEVERLY NAUSKER, MEDICARE RECIPIENT: Within the next four years, under either Obama or Romney --

MITT ROMNEY, REPUBLICAN PRESIDENTIAL CANDIDATE: We want to make sure that we preserve and protect Medicare.

OBAMA: Their plan ends Medicare as we know it.

NAUSKER: Seniors who can afford it may be expected to pay a little bit more for their health care.

DRISCOLL: As long as we're not talking about tens of thousands of dollars. That's -- even if Romney gets elected, then we're going to have Medicare for us. Whether we'll have it for our kids and grandkids is another issue. And people are concerned about that.

MACARTHUR: I really hope there will be Medicare because I think it makes old age much, much nicer.

(END VIDEOTAPE) ROMANS: Stephen Moore and Dean Baker are back with us. Stephen, I want to start with you. Nothing changes for those folks under your guys plan, nothing changes for people 55 and older, but their grandchildren's Medicare would be completely different, well, Obama administration says it would be gutted. Why is that a good thing?

MOORE: It's going to be different, no matter who is elected president. There is just no way that it can stay on the path that is right now, or it would bankrupt the government. So, it has to be fixed. I think even Dean would agree with that. You know, it's interesting. I was looking at the statistics on income over the last five years, Christine.

And what these statistics show is one age group actually had an increase in their income while every other age group fell in income. And you know what age group that was? People over the age of 65 actually have done pretty well. Younger workers are hurting. And that raises the question about fairness. Is it fair for young workers with lower incomes to subsidize a very generous health care program for some of the seniors that you were interviewing that generally have higher incomes than the people who are paying into the system.

ROMANS: So, Dean, is that fair?

BAKER: Well, I would say you have to look at this a little more closely. Let me just correct something very quickly. Under Governor Romney's plan actually seniors currently getting Medicare would be affected. The doughnut hole in the prescription drug benefit would come back, as that was part -- that was eliminated by the ACA.

ROMANS: You are right. And he says he would repeal the president's health care plan. And there are parts of the president's health care plan that directly pertain to Medicare, you are right. You guys- let me ask you this. And I guess I'll start with you again, Dean.

We've seen all these Democratic campaigns designed, I guess, around scaring seniors. But really this is about younger people. Are we using -- are they using -- in Washington, are they using Medicare, Mediscare is what they used to call it to try to invigorate a vote that they really want.

BAKER: Well, clearly, you know, this political season, it's a very, very important political issue. I have to agree with Steve, I mean I don't think either of them are talking about serious answers. I mean, you know, I mean maybe Stephen is going to say that he thinks the Ryan/Romney plan is serious. I don't really see much of a plan there.

I worry that that does lead to the elimination of Medicare. But I can't say President Obama's got something, I think the Affordable Care Act makes progress, it does reduce the shortfall. But clearly you have to do much more. And what that more is, he hasn't said.

ROMANS: Add more, Stephen Moore. I'll ask the Stephen Moore what the more is. Now, Stephen, you know, one thing about the Ryan -- Paul Ryan in particular, he was also an early proponent for privatizing Social Security. There are some seniors who we talk about privatizing or voucher -- giving vouchers for Medicare, they say, well, we're really glad we didn't do that for Social Security, because that would happen right before a really big financial crisis. That was a real problem.

I mean, why does he have more traction on this?

MOORE: Well, I think the crisis is much closer for Medicare than it is Social Security. You know, the Social Security problem is maybe 10 or 15 years away. The Medicare problem is right upon us. I mean it's costing more than we're taking in with the program. And look, it's just a question of what we want in terms of priorities in our budget, in terms of national defense, in terms of education, in terms of roads. Do we want the entire budget to go for healthcare?

And I think, you know, Dean and I agree on this point. That whether you like Paul Ryan's plan or not, and there's elements of his plan I like and some things I don't like, but the problem is the president really hasn't put forward any plan to deal with the crisis. And we're Thelma and Louise, we are going right over that cliff.

ROMANS: Dean, no plan?

BAKER: Well, no. I mean we have to keep in mind, if you look at the Medicare Trustees report, he's eliminated roughly two-thirds of the projected shortfall. Now, you still have a shortfall, you go yeah, you want to eliminate it, but that's a lot to do. So, he did some big, heavy lifting. And I think he deserves some credit for it as much as I've criticized him plenty on that one.

ROMANS: All right, guys. Stephen Moore, Dean Baker, nice to see both of you.

(BEGIN VIDEO CLIP)

PAUL RYAN, REPUBLICAN VICE PRESIDENTIAL CANDIDATE: The Romney plan for a stronger middle class.

JOE BIDEN, VICE PRESIDENT OF THE UNITED STATES OF AMERICA: This is a make or break moment for middle class.

ROMNEY: We're going to rebuild the middle class in America.

OBAMA: We can't just balance our budget on the backs of middle class families.

(END VIDEOTAPE)

ROMANS: All right. Sounds great, but what can these guys actually do for the American shrinking middle class? That's next.

(COMMERCIAL BREAK)

ROMANS: Twenty years of wealth erased. That's the story of America's middle class. A Pew study this week found that this was the worst decade in modern history to be stuck in the middle. But stuck in the middle -- stuck would be better than the reality. The middle class is falling behind. Take a look. From 2001 to 2010, media net worth for a three-person middle class household fell from a $129,000 to just $93,000. That's net worth. Part of the reason there's such a dramatic drop is that income has fallen over the last ten years as well, going from $73,000 to $69,000 a year for a family of three. The other factor that is simply devastating the middle class, the collapse of the housing market. Their wealth, more than any other group, is tied to their home. It's become a struggle for those clinging to the middle to maintain their standard of living.

And who is at fault? The Pew survey found Americans more likely to blame Congress, Wall Street and the Bush administration before they pointed the finger at President Obama.

CNN contributor John Avlon is senior columnist for "Newsweek" and "The Daily Beast", the worst setback for the middle class since World War II.

Interesting that the president is pretty far down the list on where they're placing the blame. How does that play politically?

JOHN AVLON, CNN CONTRIBUTOR: Well, politically it's for the president's benefit. I mean it's kind of extraordinary. He's been in office three and a half years, and yet folks are not -- the squeezed middle class, they are blaming, as you said, Congress, Wall Street, and the Bush administration. That's bad news for Mitt Romney, because Republicans, of course, control the House of Representatives.

ROMANS: Because there's this narrative, though, on the campaign trail that every minute they're talking about social issues is not good for Mitt Romney because his strength is perceived to be in the economy, but this Pew survey would maybe suggest otherwise.

AVLON: Well, it becomes what is his argument? His argument always has been in business I was a turn-around artist. That's what I'll do for the country, but if the question is what specific solutions does he have for the middle class?

And you can re-brand your plans all you want, but you see, the problem that he's facing is the result actually connected to the Bain attacks, it's the association of Mitt Romney with Wall Street and the super rich. That drives a wedge between his economic expertise and the middle class, who really should be looking for new solutions to get them out of this problem.

ROMANS: We've had a lot of rich presidents, though.

ALVON: Absolutely.

ROMANS: There are rich people who have appealed to the middle class.

AVLON: FDR, absolutely. So, this should not be a disqualifier. It's partly the way the Obama campaign has sought to define it, but you see the fact that folks blame the Bush administration more than President Obama, that's music to Chicago's ears right now. But it really does become this election is a contest for who can win the middle class and it's not going to be bumper stickers, it's got to be real policies on how to improve their situation.

ROMANS: Some of the surveys, though, show the Pew survey and also our recent CNN/ORC poll have been showing that quite frankly, when you ask middle class Americans who they think is, who they think the president favors, they say Obama favors the middle class, while the view of, you know, Governor Romney say he favors the rich.

How does Mitt Romney combat this to win the middle class votes? Because you know what, the middle class vote is a holy grail in a campaign, because everyone thinks they're middle class, whether they really are or whether they have middle class values. Everyone thinks they are middle class.

AVLON: That's right. And, you know, in that speech in Kansas that President Obama gave early in the cycle, he basically said this is going to be about a fight for who can defend the middle class. That's how he wants to frame it himself. As you said, look, being wealthy and successful is not a disqualifier for connecting to middle class voters. Far from it, it can be a real -- it can be a real credit, but Romney's got to go beyond bumper stickers. He's got to say what he would do specifically.

And he can make a pro-business argument -- I understand how the economy works, I know how business works, therefore I will liberate businesses, start investing in our communities again and that will end up benefiting the middle class. The problem is, during the Bush administration, as the survey shows, the middle class was started to get squeezed then. This is not just a symptom of the great recession.

ROMANS: Well, it's been something that's been going on from -- since before the great recession. There's no question about that.

AVLON: Absolutely.

ROMANS: I mean, we were talking about, you know, the middle class assault on the middle class, quite frankly, all the way back to 2003, when it on the surface, times were good. They also in that survey, there is some people blamed foreign competition, too.

AVLON: Sure.

ROMANS: I mean, there's a lot of different factors at play, but what are these guys saying or doing to say, hey, I can fix it, I'm the one who can fix it?

AVLON: Well, so, Republicans have a special burden here, because they're not going to say we're going to throw you an extra lifeline, we're not going to strengthen the safety net, per se. Instead, Romney can say look, I'm going to take on some of that foreign competition, I'm going to get tougher with China, as he has proposed, so, and more importantly, I'm going to actually get that capital off the sidelines and start creating an environment of certainty where businesses can start investing again here in America, and that's the argument he needs to really make more aggressively. But if it becomes a question of who can empathize more with the middle class, Romney's got a real gap there. You see that in all of the personality sort of, you know, distinctions between Romney and Obama.

ROMANS: Right.

AVLON: Where Obama seems that he understands the problems of people like you. And again, part of the burden is actually the legacy of the Bush administration, the fact that it wasn't just the housing crisis, but the middle class folks started getting squeezed when a greater percentage of their paycheck was coming out during the supposed Bush glory years.

ROMANS: And that's Congress, too.

AVLON: Absolutely.

ROMANS: I mean Congress has passed laws and policies for years now with a very short-term -- I mean, they're short-termists, they really, really are. And I feel like people get it now, people get it, that it's been 25 years plus of policies that led them to where they are today, but I'm not sure they're hearing the solutions for how to get out of it.

AVLON: They're not, and this is where really it's incumbent upon both campaigns to go beyond bumper sticker politics to actual policies. Look, if you believe that America is as strong as our middle class, these numbers should be a huge wake-up call. Talk about a fiscal cliff, the middle class is getting squeezed like never before. Their value, their worth has plummeted. And so, if we're going to be strong as a country, and optimistic as a country, a candidate needs to do what Bill Clinton did in the 1990s, say he was going to go in and focus on the economy like a laser beam and restore the great American middle class. That is the challenge of this election.

ROMANS: You know, I think when you look at this, we're in the third inning of whatever's happening to the middle class right now and anybody on the campaign trail is promising you that next year they can fix it is just a liar.

AVLON: Absolutely. And we need to call the liars out. When they're promising they are going to lower the price of gas and they magically --

ROMANS: Come on.

AVLON: Or -- it took us a long time to get into this problem. It's going to take time to get us out, but it's going to take a commitment to strengthening the middle class, and that has got to be the policy focus of whatever the next administration is.

ROMANS: All right, (inaudible). Thanks, John. Coming up, just one in four high school graduates is ready for college and a career, and that's the good news! Just one in four. We're going to tell you why, next.

(COMMERCIAL BREAK)

ROMANS: Education is vital for America's economic security, and American high school students, they're not ready for college or careers. A new report this week found 28 percent of high school graduates who took the ACT didn't meet college readiness benchmarks in English, reading, math or science. Just 25 percent met those benchmarks in all four subjects, just 25 percent! And that's a slight improvement.

ACT notes that students are doing better in math and science, but those numbers are still nowhere close to what we need. They're not ready, and companies say they can't find qualified workers.

You heard me right. Even with 12.8 million Americans out of work and looking for a job, industry leaders are bitterly complaining there's a shortage of workers with the right skills, so they're importing talent from overseas. They'd import even more talent from overseas if the government would let them. Between 2010 and 2011, U.S. companies applied for an average of 300,000 H-1B visas, which allows companies to employ foreign workers. There's only 85,000 visas available.

And while other countries are busy producing engineers and doctors, the U.S. is partying. "The Princeton Review" this week released its annual ranking of the top party schools; another survey this week found that American college students who binge drink are happier than those who don't, but at least those kids are in college.

What are we doing to get them there? We already know that more than 300,000 local education jobs have been lost in the last three years. More than half of school administrators say that class sizes are getting bigger. They're cutting back on summer school programs and nonacademic programs like drama, band, ultimate frisbee, anything that's not critical, critical to the mission. I'm going to speak with the president's education secretary, Arne Duncan, on this show right here next week. We're going to find out exactly how he plans to fix it.

Do you think we spend too much or too little on education, and what is working in your child's class? I want you to tell me, find us on Facebook and Twitter, the show handle is @cnnbottomline, my handle is @ChristineRomans. And ChristineRomansCNN on Facebook. Back now to CNN Saturday for the latest headlines, have a great weekend.