Debt, Health Care and the Democratic Presidential Candidates

As the readers of this blog well know, I am highly concerned about our rapidly growing national debt and how to fix it.  I have stated many times that the only feasible way to do this is to get entitlement spending, and especially health care spending, under much better control.

The Committee for a Responsible Federal Budget has prepared a report, “Primary Care: Estimating Leading Democratic Candidates’ Health Plans” comparing the health care plans for Joe Biden, Pete Buttigieg, Bernie Sanders and Elizabeth Warren.  Even though their plans are campaign oriented and not fully developed policy documents, they are still indicative in a general sense of the direction in which a future Democratic President would attempt to implement health care reform.

All four of these candidates would expand coverage by an additional 20 to 30 million people, thereby assuring nearly universal health insurance coverage. But there are still two huge problems remaining.

  • First of all, it is too expensive overall, roughly double the cost as compared to other developed countries.
  • Secondly, as mentioned above, it is the health care entitlement programs, i.e. Medicare and Medicaid, which are the fundamental drivers of our national debt.

How do the four leading Democratic Presidential candidates compare on addressing these two remaining fundamental problems?

On the first question, according to CRFB, their plans would have relatively minimal impact (see chart below). Total national healthcare expenditures would either slightly decrease (by 2%) or slightly increase (by 6%).

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On the second question likewise, their plans would vary (see chart below) from having a minimal effect on the debt to making the debt substantially worse.

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Conclusion.  The healthcare plans of the top four Democratic Presidential candidates would have either a very small positive effect or a major negative effect on the two biggest problems of American health care, the cost issues.  Basically their effect would be to significantly expand access to health care without addressing the cost problems or else making them worse.

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Two Starkly Different Views of America Today

Sunday’s New York Times (1/19/2020) is incredibly negative about life in the U.S. today.  Consider the following opinion pieces in the Sunday Review section:

  • The Injustice of This Moment Is Not an Aberration by Michelle Alexander which deplores mass incarceration, mass deportation and the rise of white nationalism.
  • We Don’t Understand China’s Power by David Leonhardt which claims that as China continues to move forward, the United States is slipping into reverse.
  • How Did Americans Lose Faith in Everything? by Yuval Levin who claims that we are living through a social crisis of isolation, alienation and despair which has sent suicide rates climbing and driven an epidemic of opioid abuse.

These authors are addressing serious problems in our country.  But what I observe in Omaha NE is that the economy is booming and there is a huge labor shortage.  For example, our local Target store is now hiring at a starting salary of $13 per hour.  This is economic opportunity in action!

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For an optimistic national perspective, see the recent Wall Street Journal editorial The Economy’s Inequality Dividend which points out that:

  • The current jobless rate of 3.5% is the lowest in 50 years. The labor participation rate (currently 63.2%) has grown steadily for five years.
  • During the last three years wages for the bottom 10% of earners over age 25 rose an average of 5.9% annually and even faster (6.1%) for workers without a high school degree.

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  • The black unemployment rate of 5.5% is the lowest that has ever been recorded. The poverty rates for blacks (20.8%) and for Hispanics (17.6%) are also the lowest ever recorded.
  • In 2019 forty million fewer people lived in households receiving government assistance than in 2016 and the food stamp rolls have shrunk by 9.5 million in the last three years.
  • Between 2016 and 2018 the number of taxpayers earning less than $25,000 declined 5% while increasing 8% for those making between $100,000 and $200,000.

Conclusion.  There are both good and undesirable aspects of life in today’s America.  Although I tend to accentuate the positive, I am aware of the less fortunate members of our society and support programs designed to give them a lift.

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Concrete Actions Which Can Be Taken to Fix the Debt

My last post, “Why It Is So Difficult to Fix Our Debt Problem” made the case (I hope!) that there is really only one practical way to fix our debt problem.  It is to control the cost of healthcare spending in the U.S. and especially the cost of entitlement healthcare spending such as for the programs Medicare and Medicaid.  In fact, Medicare by itself is the biggest part of this problem.

Consider that:

  • In 2018 there were 60 million Medicare recipients and this number is projected to reach 81 million by 2030, just ten years away (see chart):Capture92
  • Medicare spending, 4.2% of GDP in 2020, is projected to reach 7.1% of GDP by 2040.  Again, as pointed out in the previous post, Medicare is the fastest growing single government program in our entire country.

    This means that strong action needs to be taken to control the rise of Medicare costs as well as other public healthcare programs such as Medicaid.  For example:

  • Let Medicare negotiate drug prices with pharmaceutical companies. This is currently banned under the ACA and so will require congressional action.  It would have the effect of lowering drug prices for all Americans.
  • Require Medicare recipients to pay more than the 59% of the cost of their healthcare benefits which they now pay.  This could be done on a means-adjusted basis so that the affluent, at least, would pay the full cost of their own healthcare and with even middle-class recipients paying more, say 50% of parts B and D, than they pay at present.
  • Put Medicaid on a block-grant financial basis so that the federal government pays only a fixed amount to each state (increasing with inflation) rather than a fixed percentage of the expenses of each state. This will not only control the federal cost but also give the states a greater incentive to control their own Medicaid expenses.
  • (blunderbuss last resort) Medicare prices for all. Note that I did not say “Medicare for All” as has been proposed by several Democratic presidential candidates.  Medicare has a reasonable price control system which could be used for all of U.S. healthcare.  All of the world’s other advanced economies have both universal healthcare coverage and price controls of some sort for all medical expenses.
  • The CEO, Michael Hansen, of the Columbus (NE) Community Hospital has figured out to prosper financially with Medicare and Medicaid payment rates for most of his patients. This is reported (pages 66 – 69) in the book “The Price We Pay” by Marty Makary, MD

Conclusion.  The U.S. national debt is a very serious problem which must be addressed by our national representatives in the very near future.  Controlling the cost of the healthcare entitlement programs, Medicare and Medicaid is by far the best way to make significant progress on this huge problem.

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Why It Is So Difficult To Fix Our Debt Problem

The national debt is now over $23 trillion and growing at the annual rate of $1 trillion per year.  This is not only a very serious problem (see chart below), which will eventually cause enormous harm if not corrected, but it is also a very difficult problem to solve politically.

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First of all, there are many proposed solutions which simply will not work such as:

  • Modern Monetary Theory (ignore the debt until inflation strikes). The problem is that when inflation does take off someday, as it almost assuredly will, then interest rates will rise dramatically, and interest payments on the debt will explode.  This will lead to a  new financial crisis much worse that the Great Recession of 2008-2009.
  • Issuing long term bonds at low interest rates to finance the debt. Of course, we want to pay the lowest possible rate of interest on our debt.  But long term, low interest bonds merely postpone the eventual problem of much higher interest payments on the debt.  It lulls us into complacency in the meantime while we continue to accumulate massive amounts of new debt.
  • Growing our way out of debt. Our current trillion dollar annual deficits are increasing the debt by over 4% per year.  Projected annual growth going forward of 2% per year is simply inadequate to reduce the debt as a percentage of GDP and will, in fact, allow it to get progressively worse.
  • Cutting military spending. The current military budget is about $750 billion per year.  Let’s suppose that 10% is waste which can be eliminated.  There are two problems with this approach.  It will be very difficult for Congress to agree on how to cut $75 billion from military spending.  Furthermore $75 billion is less than 10% of the $1 trillion size of the current deficit and so would be little more than a drop in the bucket towards solving the underlying problem.
  • Cutting other discretionary spending such as for education, agriculture, foreign aid, etc. The same problem as above.  It would take a huge amount of effort by Congress, largely fruitless, to save only small amounts of money, not nearly enough to shrink the annual deficits significantly.

Secondly, the real problem, entitlement spending, is not sufficiently clearly understood as the real culprit:

  • The entitlements Medicare, Social Security and Medicaid all represent big chunks of federal spending (see chart below):

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  • Entitlement spending (Medicare, Social Security and Medicaid) represents by far the largest growth in federal spending, going forward (see chart below), with Medicare the biggest expense of all:

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  • The federal government pays 41% of all Medicare costs so that Medicare recipients pay only 59% of the costs (see chart below). Note that the Medicare payroll tax of 2.9% funds Part A (hospitalization) only.  The remaining Parts B (doctors), Part C (Medicare Advantage) and Part D (drugs) are paid for from federal government revenues.

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  • Here is a breakdown of the average federal subsidy to Medicare per individual, based on retirement year. A retiree in 2020, for example, will receive a $400,00 lifetime subsidy from Medicare (see chart below):

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  • The total annual federal contribution to Medicare is now about $600 billion per year and rising rapidly (see chart below):

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Conclusion:  Medicare represents by far the biggest single drain on federal revenues for the future.  It is therefore a huge threat to the solvency of the federal government.  Any serious plan to solve the federal debt problem must start with major reform of Medicare.

Next:  how should entitlement spending be controlled?

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In Spite of Our Problems, America is Thriving!

It is common these days for commentators to declare that America is in decline. For sure we have problems which are quite visible, such as:

Polarized politics and impeachment.  President Trump has been impeached by the House of Representatives but is almost certain to be acquitted by the Senate.  Congress still functions in the meantime and passes essential legislation such as annual budgets.  The polarization is a result of the increasingly nationalistic views held by workers who feel deserted by the elite establishment.  Global expansion of trade will continue but at a slower pace while adjustments are made to help displaced workers catch up.

Homelessness.  Los Angeles has an estimated 44,000 homeless people living on its streets. Homelessness is worsened by the rapid influx of high paid tech workers into our largest cities which results in a huge housing shortage. See picture below:


Opioid crisis.  Approximately 45,000 Americans die each year from opioid overdoses, about the same number as are killed by guns. The answer here is for tighter control of opioid prescriptions by physicians which is beginning to happen.

The high cost of healthcare.  American’s pay far too much for healthcare, compared with the rest of the world. See here and here. Solving this difficult problem is the only way to get our national debt under control.

But now contrast these serious but solvable problems with progress now occurring in the U.S. and around the world:

 The rapidly growing middle class.  Since 1967, there are fewer and fewer and fewer low-income households and a concomitant expansion of middle-income and higher income households.  See chart below:

Low wage workers are finally getting the biggest raises.  In the last few years the wages of the lowest paid workers are finally beginning to increase significantly. This is because the unemployment rate, under 4% (3.5% in November 2019) for almost two years, has created a major labor shortage. See graph below:

The advance of technology.  The top five public companies in the world, by market value, are American technology companies.  Our domination of technology world-wide vividly illustrates the overwhelming superiority of our free enterprise economic system.

Freedom and democracy around the world.  Freedom House rates democracy around the world as very strong even if there are several instances of nationalistic retrenchment.  See chart below:

The world is getting better overall.  In 2019 illiteracy and poverty fell around the world. Access to electricity and piped water rose. 

Conclusion.  The U.S. is very strong, both economically and militarily. Our immediate, pressing problems are minor compared to our great strengths.  The outbreaks of nationalism around the world are being addressed through democratic processes and represent no serious threat to the continued increase of freedom and prosperity in the U.S. and elsewhere.

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Controlling Healthcare Costs II. Private vs Public Costs

I have recently discussed in detail the rapidly increasing costs of American healthcare.

I have suggested ways in which the costs of our public healthcare programs, Medicare and Medicaid, can be controlled.

But the cost of private healthcare is increasing even faster than for the public programs.  For example, the cost of Medicare has increased by 21.5% in the last ten years, the cost of Medicaid has increased by 12.5% while the cost of private insurance has increased by 52.6%.

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The International Federation of Health Plans (iFHP) has clearly described the high costs of American healthcare compared to other countries.  For example:

  • Bypass surgery was less than half the price for the U.S. in all the other countries included in the study (see below).

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  • The average cost of bypass surgery in the U.S. is $78,000 while the second highest cost (New Zealand) is $37,800 (see below).

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  • Drug prices for most countries were less than half the U.S. price for almost all of the administered and prescription drugs included in the study (see below).

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How are these exorbitant prices for private American healthcare being paid?  It turns out that individual company employees are paying gradually increasing out-of-pocket costs (premiums and deductibles).  But primarily it is employers who are paying the major share of the increased costs.  Of course, this means that base employee salaries and wages are substantially less as a result (see below). 

Conclusion.  The cost of American healthcare is much too high for both individuals and the government. The rapidly increasing federal government costs are the primary cause of our rapidly increasing annual deficits and therefore to our out-of-control national debt.  Private healthcare cost increases are largely paid for by employers which means less pay for employees.
So far only Medicare and Medicaid have been able to exert any meaningful cost control and this has been done with strict price controls.  It is unlikely that private companies will be able to develop the clout to limit their healthcare costs in any significant way.  This means that overall strict price controls for all of U.S. healthcare are almost inevitable.

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Controlling Healthcare Costs. What Are the Options?

In my last post  I summarized the latest data showing how high and out-of-control American healthcare costs have become, both for individuals (and families) and government.

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For example, the cost of health insurance for the average American family is now $20,576 per year.  Many people without adequate insurance are being forced into bankruptcy.

Even though Medicare recipients pay 60% of their healthcare costs, the remaining 40% paid for by the federal government was $591 billion in 2017.  This enormous federal expense is increasing rapidly and is one of the main drivers of our out-of-control national debt which is now increasing (through annual deficits) at the rate of $1 trillion per year.

Drastic action is needed.  Here are some possible initial steps:

  • Let Medicare negotiate drug prices with pharmaceutical companies. This is currently banned under the ACA and so will require congressional action.  It would have the effect of lowering drug prices for all Americans. Nebraska Representative Fortenberry supports doing this.
  • Require Medicare recipients to pay more than 60% of the cost of their healthcare benefits. This can be done on a means-adjusted basis so that the affluent, at least, pay the full cost of their own healthcare with even middle class Medicare recipients paying more than at present.
  • Put Medicaid on a block-grant financial basis so that the federal government pays only a fixed amount to each state (increasing with inflation) rather than a fixed percentage of the expenses for each state. This will not only limit the federal cost but also give the states a much greater incentive to control their own Medicaid expenses.

The blunderbuss approach if nothing else gets the job done:

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  • Medicare prices for all. Note I did not say “Medicare for All” as is popular amongst the Democratic presidential candidates.  Medicare has a reasonable price control system which could be used for all of American healthcare.  All of the world’s other advanced economies have both universal healthcare coverage and price controls of some sort for all medical expenses.

Summary.  Healthcare costs in the U.S. are out of control and drastic action is needed to rein them in.  If moderate initial steps are not effective in getting the job done, then overall price controls, along the lines of what Medicare does already, will be necessary.  Americans, take heed of this urgent problem!

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