Lowering the Cost of American Healthcare III. Single Payer?

Posted on December 13, 2015 by jackheidel

My last two posts, here and here, argue that the high costs of American healthcare, almost double what other developed countries pay per-capita, has two fundamental causes which must be addressed:

Very low out-of-pocket costs as a result of the tax exclusion for employer provided care.
The very expensive, and rapidly growing, government entitlement programs of Medicare and Medicaid.

It is often suggested that the best way to get these high costs under control is for the U.S. to adopt a single-payer, government run, healthcare system, like many other developed nations have done. Writing in yesterday’s Wall Street Journal, the policy analyst, Nathan Nascimento, makes a persuasive, and well referenced, counter argument to this suggestion:

The State of Vermont recently backed away from implementing a single payer system because of the very high tax increase which would have been required, more than doubling Vermont’s annual budget.
The State of Colorado will vote a year from now on a petition-supported single payer proposal, ColoradoCare, which would be paid for by a $26 billion annual state tax increase and is therefore unlikely to pass.
In Canada, which has a single payer system, the average wait between a general practitioner’s referral and delivery of treatment was more than four months in 2013.
Our own Veterans Affairs hospital system, a single payer system on an annual budget, is failing thousands of veterans who often die while waiting for treatment.
Medicare, an open ended single payer entitlement system, now costing almost $600 billion per year, is one of the main causes of our burgeoning, out of control, national debt.

Conclusion: For the U.S. to move to a national single payer system would be very risky and very costly. It is far better to wait and see if Colorado or some other state is willing to take such a leap of faith and then see how it works out in that context.

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Lowering the Cost of American Healthcare II. Entitlements

Posted on December 10, 2015 by jackheidel

My last post emphsizes that any solution to our nation’s long term debt problem must include reining in the cost of American healthcare. There are two major drivers to this problem as is made clear by a new report from the American Enterprise Institute, “Improving Health and Health Care: An Agenda for Reform.”
First of all, out-of-pocket consumer spending on healthcare has been steadily declining for many years. The less we pay directly for our own healthcare, the less incentive we have to control costs.
Secondly, the cost of healthcare entitlement spending, for Medicare and Medicaid , is growing rapidly as a percentage of GDP. Such a rapid increase is unsustainable and must be curtailed. Here is what the AEI report recommends for doing this.

Medicaid. It serves two groups of people: 1) able bodied adults and their children and 2) the disabled and elderly. The federal government should make fixed, per-capita payments to the states based on historical spending patterns for these two groups. The able-bodied adults and children would get the same (refundable) federal tax credits as everyone else supplemented by Medicaid payments. The states would be totally responsible for the second group.
Medicare. The current system would be gradually migrated to a premium support system which would provide enough to pay for a choice of competing insurance options. The eligibility age would gradually rise to 67, consistent with Social Security.
Health Savings Accounts. HSAs are tax-preferred vehicles for saving for medical expenses until the (perhaps high) deductible amount is reached. Their use is growing rapidly. A one-time $1000 federal tax credit for establishing an HSA would increase their number even more. Their use should be expanded into Medicaid and Medicare as well.

Such reforms as these can significantly lower the cost of providing healthcare to the poor, the elderly and everyone else as well. If we don’t do something along these lines, we will eventually end up with a government run single payer system much to our detriment.

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How to Avoid a New, and Much Worse, Financial Crisis

Posted on August 13, 2015 by jackheidel

Is it possible for the U.S. to effectively address its enormous debt problem in today’s contentious political environment? Two weeks ago I discussed in “America’s Fourth Revolution” why the political scientist James Piereson thinks this is impossible. He is very persuasive but I think he is too pessimistic.
Since then I have discussed several different things we should do to turn around this perilous situation:

If spending for just Medicare and Medicaid (two very expensive entitlement programs) alone fell by 25% over ten years, as a percentage of GDP, and then stayed in line with GDP after that, the U.S. would actually have a budget surplus in 2040.
Just recognizing the magnitude of our debt problem would do wonders in public awareness.
If the Tea Party were able to grow beyond a protest movement and unite the country behind a majoritarian agenda of work, mobility and opportunity, it would be much more effective in achieving its fiscally conservative goals.
Another significant way to save money, and get better results at the same time, is to turn over more and more programs to the states. A good way to do this is with block grants to the states for federal programs in such areas as welfare, education and Medicaid. This would give the states more flexibility to get the job done in an efficient and cost saving manner.

What we need to do to turn our debt situation around is to greatly shrink our annual deficits below their current level of about $450 billion per year. If the debt is growing slower than the economy, then it will shrink as a proportion of the economy. This is what happened after WWII (see above chart) and it needs to happen again now!

Can America’s “Fourth Revolution” Be Avoided?

Posted on August 2, 2015 by jackheidel

My last post, “America’s Fourth Revolution,” presented a persuasive argument by the political scientist, James Piereson, that our currently dysfunctional political system will be unable to solve our most fundamental problems of massive debt, accompanied by a rapidly aging population and slowing economic growth. This will result, according to Mr. Piereson, in a severe crisis leading to a fourth revolution, overthrowing the New Deal liberal consensus which has prevailed since 1932.
It is commonly understood that entitlement spending: Social Security, Medicare and Medicaid, is the main driver of our rapidly growing national debt. A recent report from the Centers for Medicare and Medicaid Services, summarized in the Wall Street Journal, shows that U.S. healthcare spending is likely to rise from just under 18% today to 19.6% of GDP in 2024.
Barron’s editor, Thomas Donlan, has just reported that the Director of the Congressional Budget Office, Keith Hall, stated in a recent hearing of the Senate Budget Committee that if spending for Medicare and Medicaid, as a percentage of GDP, fell by 25% over ten years, and then stayed in line with GDP after that, the U.S. would have a budget surplus of 2% of GDP in 2040 instead of the otherwise projected deficit of 6.6% of GDP. Furthermore debt held by the public would fall to 24% of GDP, a remarkable achievement.
This is significant because one country, The Netherlands, spends 12% of GDP on healthcare, and every other country in the world (except for the U.S.) spends less than 12%.
Conclusion: all the U.S. needs to do, so to speak, is to bring healthcare costs in line with the rest of the world and our entire deficit spending problem would be solved! Nobody is claiming that this will be easy but it certainly is within the realm of possibility. It is also far superior than waiting to act until we have another fiscal crisis and thus risking a huge change, a revolution, in our way of life.

America’s Fourth Revolution

Posted on July 28, 2015 by jackheidel

The Manhattan Institute’s James Piereson has written a fascinating new book, ”Shattered Consensus: The Rise and Decline of America’s Postwar Political Order” in which he argues that the New Deal liberal consensus has broken down and will soon be replaced by a new model containing several specific features. The coming new model will be the result of a Fourth Revolution of comparable scope to the first three:

A Democratic-expansionist regime from 1800 until 1860 which dissolved in the midst of the slavery and secession crisis.
A Republican-capitalist regime from 1860-1930, which was brought down by the Great Depression.
A Democratic-welfare regime from 1932 until the present, although with faltering support after 1980.

America’s third regime is in the process of fading out or collapsing for three reasons:

Debt. The national debt of $18 trillion today, at about 100% of GDP, is comparable to the debt at the end of WWII. But once the war ended the government cut spending and stopped borrowing and the U.S. economy grew at 4% for the next 20 years. Nothing comparable to this major debt reduction is in sight today.
Demography. Today there are about 160 million people in the U.S. workforce of whom 120 million have full time jobs. The workforce will grow by 1 million per year for the next ten years while the number of people turning 65 will grow at nearly twice that rate. The nation will soon reach a point where 150 million working people will be paying payroll taxes to support 80 million people on Social Security and Medicare. Political leaders are doing nothing to address this looming crisis.
Slowing Economic Growth. The chart above shows how the U.S. economy has been slowing since the 1960’s. Since the end of the Great Recession in 2009, GDP has grown at only 2.2% and is likely (CBO) to continue growing indefinitely at this slow rate under current policies. The second chart shows the enormous difference between 2% growth and, for example, even 3% growth over time.
Why don’t Congress and the President deal with these problems now, before they reach the point of crisis? It’s because Congress has become increasingly polarized, with Democrats having moved leftward and Republicans moving rightward. Polarization is characteristic of regimes as they begin to tear themselves apart in conflicts which defy resolution within the existing structure of politics.
My approach on this blog is that these very severe problems can be solved by politicians working together in a cooperative way. Mr. Piereson makes a very persuasive case that this is not likely to happen and that it will take a huge new crisis, a revolution, to straighten things out.
I hate to say so but he may be right.

The Root of Greece’s Problem (and Ours)

Posted on July 9, 2015 by jackheidel

Will it be the Euro or Drachma for Greece? It’s down to the wire as Greece and the European Union negotiate the necessary conditions for Greece to remain in the Eurozone. I have devoted several recent posts to the Greek fiscal crisis, pointing out the parallels between the Greek situation and our own.
Greece needs a bailout because its public debt is nearly 180% of GDP. Our own public debt is “only” 74% of GDP at the present time but is predicted by the CBO to reach 175% of GDP by 2040, just 25 years from now. Furthermore, Greece is currently receiving very favorable lending conditions from the European Central Bank, much better than are likely to apply in the U.S. in the long term. This means we’re likely to have another deep crisis on our hands much sooner than 25 years from now.
Consider the data in the above charts from today’s Wall Street Journal. It shows that Greece is spending 14.4% of GDP on pensions, more than any other major European country. Furthermore, the efficiency of its VAT revenue collection is the poorest in the EU. In other words, Greece has a very high rate of entitlement spending and has a poor tax collection system to support it.
In a general sense the U.S. is in a similar situation. Today we spend about 13% of GDP on mandatory, i.e. entitlement, programs, compared to a total tax revenue level of 18% of GDP. Just entitlement spending alone is projected to rise to 18% of GDP by 2050, unless changes are made.
Just as Greece needs to tighten up on pension spending, improve revenue collection and get its economy growing faster, the U.S. needs to tighten up on entitlement spending and speed up its stagnant economic growth as well.
We’re not yet as bad off as Greece is today. But we’re headed in that direction with no one to bail us out when we get there!

How to Fix Disability Insurance

Posted on June 9, 2015 by jackheidel

The Trust Fund for Social Security Disability Insurance will run out of money by the end of 2016. If no changes are made, all SSDI benefits will have to be reduced to 81% of scheduled benefits after that. Congress must act to avoid this outcome. The easiest fix would be to merge SSDI into the larger Social Security program in which case both SSDI and SSI would run out of money about 2033.
But as the Manhattan Institute’s Scott Winship points out in National Affairs, “How to Fix Disability Insurance,” “the looming insolvency of the SSDI Trust Fund offers a rare opportunity to fundamentally reform SSDI” to better target assistance to those with debilitating impairments who truly need this support. The share of adults age 25 to 64 receiving SSDI benefits has tripled from 1.6% to 5% between 1970 and 2010 during a time when a shift from manufacturing, agriculture and mining to service work has reduced physical demands on workers.
Mr. Winship suggests the following reforms be implemented in the SSDI program:

Raise the 1.8% (out of the total 12.4% of the payroll tax going to SS) going to SSDI slightly to solve the immediate problem.
Expand the support options available to able-bodied men and women who can work, at least for a significant number of hours.
Reduce the number of people applying for benefits. For example, by increasing employer incentives for taking stricter safety measures, accommodating and rehabilitating those who become disabled and making greater use of claims management.
Use a stricter definition of disability. For example, mental and musculoskeletal conditions may be amenable to treatment.
Make it less attractive and more difficult to receive benefits for those who, while impaired, are able to work. Conditions likely to improve would be automatically subject to review after a short period of time.
Facilitate work among those with serious impairments who would still like to work. The point here is to make sure they benefit from working without feeling threatened with possible termination of benefits.

The point is that there are many practical steps which can be taken to make SSDI more cost efficient while preserving it for those who truly need it. This is a good example of the sort of changes that need to be made in all entitlement programs to shore them up for future generations by bringing their huge costs under control.

Should We Raise Taxes or Cut Spending?

Posted on April 16, 2015 by jackheidel

Tax Day is a good time to remind ourselves about our perilous fiscal situation. With a public debt (on which we pay interest) of $13 trillion and with annual deficits of just under $500 billion adding to the debt each year, we have a huge problem which is not being adequately addressed by Congress. The solution is to either raise taxes or cut spending or do a combination of both.
Is it feasible to raise taxes, presumably on the rich? The problem in doing this is that our tax code is already very progressive as indicated by the above chart. The top 20% already pay 84% of all income taxes. It’s just not feasible to expect to be able to raise their taxes by a very large amount. In addition, Middle- and lower-income people are in a tight fiscal situation, because of the slow economy, and can hardly be expected to see their own taxes increase.
The alternative to raising taxes is to cut spending and there are many opportunities to do this. The organization Citizens Against Government Waste has just identified a collection of government programs whose elimination would save $639 billion in the first year alone. Taxpayers for Common Sense has a long list of potential spending cuts which would save $267 billion in the first year.
Amazingly, neither of these lists of possible cuts includes any mention of entitlement programs. Before very long, major savings in entitlement programs must certainly be achieved in order to put the federal government on a sustainable fiscal course.
In fact, spending should be trimmed all across the board, wherever possible, in order to get our annual deficits on a steadily downward course. It is critical for this process to get under way as soon as possible and to continue until fiscal balance is achieved by entirely eliminating deficit spending altogether.

The Republican Budgets Focus on Entitlement Savings

Posted on March 29, 2015 by jackheidel

Last week, both the House and the Senate passed ten year budget plans which would bring the federal budget into balance by 2025. I have devoted several recent blog posts to discussing these budget proposals and how they address our very serious debt and deficit problems.
There are several important points to make:

Under both of these Republican plans, overall spending will continue to increase by an average of 3.3% per year, from $3.8 trillion in 2016 to just over $5 trillion in 2015. The President’s budget would increase spending to $6.17 trillion by 2025 and would achieve no balance between spending and revenue.
Most of the savings in the Republican budgets, as indicated in the above chart, come from the mandatory (entitlement) programs of Social Security, Medicare and Medicaid. Medicare would be transformed into a subsidy program along the lines of the exchanges set up under the Affordable Care Act. Medicaid would be turned into a block grant program administered by the states. Social Security would be studied by a bipartisan commission to recommend operating efficiencies.
Other social welfare programs would be affected to a much smaller extent. For example, the Supplemental Nutrition Assistance Program (SNAP), or Food Stamps, has seen a growth of recipients of 69% between 2008 and 2013 while the poverty rate increased by just 16.5% during the same period. The Republican budgets would block grant Food Stamps to the states in order to achieve operating efficiencies.
It is true that both the House and Senate budgets would increase military spending by about 10%. But so would the President’s budget and we live in a very dangerous world. Military defense is one of the most very basic functions of our federal government.

Our country is in dire fiscal condition with large annual deficits projected indefinitely into the future, contributing to an exploding national debt. It is heartening that our political system is responding to this threat to our future security and prosperity. Let’s hope that House and Senate majorities continue to keep a sharp focus on the urgent task of fiscal restraint.

What Will It Take to ‘Fix the Debt’?

Posted on January 22, 2015 by jackheidel

I have recently become a volunteer for the national bipartisan organization, Fix the Debt. It is the outreach arm for the Washington think tank, Committee for a Responsible Federal Budget, which is an offshoot of the Simpson-Bowles Commission from several years ago.
As such, I give presentations to local civic organizations about our national debt and what needs to be done to get it under control. Typically the audience will readily appreciate the seriousness of our debt problem. What they want to talk about are practical ways to address it. They have their own ideas and want to know what I think as well. My first message is that we don’t have to pay off the debt or even balance the budget going forward. Realistically we need to shrink our annual deficits in order to put the debt on a downward course as a percent of our growing economy, as shown in the chart just below.

It will be a huge challenge to accomplish even this! Here are my ideas, in very general outline, on how to get this done:

Entitlements (Social Security, Medicare and Medicaid) are the biggest single problem because our population is aging so fast. Furthermore, in order to control the growth of Medicare and Medicaid, we have to do a much better job of controlling the overall cost of healthcare in the U.S. For example, even though healthcare costs slowed down to an increase of only 4.1% in 2014, this is still more than twice the rate of inflation!
The second thing we need to do is to make our economy grow faster than the roughly 2.3% growth we have achieved since the end of the Great Recession. The main way to get this done is through broad-based (and revenue neutral) tax reform at both the individual and corporate levels, by reducing tax rates, paid for by closing loopholes and limiting deductions.
Finally, there is enormous waste and inefficiency in the federal budget, with huge redundancy and overlap of programs between different federal departments. Responsibility for such programs as education, community development, transportation and social welfare, for example, should be returned to the states with block-grant funding to replace rigid federal control.

I have discussed each of these major reform ideas in much detail in previous blog posts and will continue to do so. As large as our fiscal problems are, I remain optimistic that they can and will be successfully addressed.

It Does Not Add Up

Jack Heidel's blog on fiscal responsibility

Category Archives: entitlement reform