Frontline’s two part series, “The Divided States of America” makes the case that the divisive and hyper-partisan political atmosphere of the past eight years was caused primarily by the racially tinged reaction of the extremist Tea Party to the progressive policies of a forward looking, if inexperienced, black president.
I think that Frontline has missed the most fundamental reasons for our current malaise, namely that:
Slow economic growth since the end of the Great Recession in June 2009 has caused great angst and resentment amongst middle-income, and especially blue-collar, workers who have stagnant incomes when they observe all around them the elite professional, managerial and financial classes who are doing so well.
Self-righteous attitude of progressives who refuse to accept that conservatives have legitimate, and maybe even superior, points of view on various issues.
National Debt. The public debt (on which we pay interest) is now 76% of GDP, the highest since the end of WWII, and is projected by the Congressional Budget Office to keep steadily getting worse without a change in policy. Right now, with ultra-low interest rates, our $14 trillion debt is essentially “free” money. But what is going to happen when interest rates go back up to more normal levels? It could easily be a new fiscal crisis, much worse than the financial crisis of 2008.
Inequality. Inequality has risen somewhat in recent years but slow growth is the real problem. What is especially lacking is new business investment to increase labor productivity. The best way to fix this is with tax reform (lower tax rates paid for by shrinking deductions) and a reduction in government regulation. But this would mean more “trickle down” economics. Horrors!
Improving Obamacare. The Affordable Care Act has increased access to healthcare but has done nothing to control costs. Most developed countries control the cost of healthcare with a “single payer,” government run monopoly. But this is anathema to many Americans who neither want to give up personal choice nor want to forgo the innovation which a free-market consumer-driven healthcare system provides.
Conclusion. The driver of our currently divisive political climate is a deep chasm between the fundamental beliefs of the two different sides. How can this deep division be overcome short of a new crisis which pulls both sides together? A very difficult question.
The U.S. spends 18% of GDP (and rising) on healthcare, public and private, almost twice as much as any other developed country. The Affordable Care Act, passed by Congress and signed by President Obama in 2010, increases access to healthcare in the U.S. but does nothing to control its cost.
President-elect Donald Trump and the Republican Congress want to repeal the ACA and replace it with a more effective and less expensive alternative. An excellent plan for doing this, “Transcending Obamacare” has been proposed by Avik Roy, the President of the Foundation for Research and Opportunity. Mr. Roy’s Universal (and refundable) Tax Credit Plan will:
expand health insurance coverage well beyond ACA levels without an individual mandate
improve the quality of coverage and care for low-income Americans
achieve permanent solvency of U.S. healthcare entitlements
reduce the federal deficit without raising taxes
reduce the cost of health insurance for individuals and businesses
Here are the main elements of the Universal Tax Credit Plan:
Premium assistance. The Plan repeals the ACA’s individual mandate and expands access to health savings accounts. By lowering the cost of insurance for younger and healthier individuals, the Plan would expand coverage beyond ACA levels.
Employer-sponsored insurance reform. The Plan repeals the ACA’s employer mandate, thereby offering employers a wider range of options for subsidizing workers’ coverage.
Medicaid reform. The Plan migrates the Medicaid acute-care population onto the reformed private individual insurance market, with 100% federal funding. The Plan returns to the states full financial responsibility for the Medicaid long-term care population.
Medicare reform. The Plan gradually raises the Medicare eligibility age by four months each year (forever), allowing younger retirees to remain on their existing plans.
Veterans’ health reform. The Plan gives veterans the option of private coverage via premium assistance.
Medical innovation is encouraged by the Plan.
Conclusion. The Universal Tax Credit Plan is a big improvement over the ACA because it expands access, improves quality and dramatically lowers costs for both individuals and the country as a whole. Check it out!
Reviving the economy after the Great Recession. This was done but the recovery has been unnecessarily slow with annual growth averaging just 2% of GDP ever since June 2009. In fact, stagnant middle-class and especially blue-collar incomes are the reason Donald Trump eked out a victory over Hillary Clinton.
A giant step towards national healthcare. Even if the Affordable Care Act is repealed, its replacement will be much more universal than before. Unfortunately, however, the ACA increases access but does nothing to control the cost of healthcare (now 18% of GDP) which continues its steady rise. This is what has to change.
A global pact to combat climate change. Global warming is real but our response should be more circumspect. China has only pledged to reduce carbon emissions after 2030. India has 300 million people off the electric grid. It also has an abundant supply of coal. Heroic efforts by the developed world alone will have little effect on worldwide C02 levels.
A rash of new financial and environmental regulations. Both Dodd-Frank and new EPA regulations have contributed significantly to the economic slowdown which is why they are likely to be modified by the Trump Administration and Congress.
The Iran nuclear deal. The problem here is what will happen when the 10 – 15 year deal expires. Iran then will have a green light to develop nuclear weapons unless China and Russia agree to new sanctions which is unlikely.
American retreat from superpower status. Obama deposed a dictator in Libya but walked away from the aftermath. His premature decision to leave Iraq allowed ISIS to spring up. He let the civil war in Syria run out of control. A “reset” with Russia did nothing to prevent Putin from invading Ukraine and annexing Crimea.
As my regular readers know I am focused primarily on two major national problems:
Speeding up economic growth to create more jobs and better paying jobs, and
Getting our national debt under control by reducing our annual budget deficits so that our debt will shrink over time as a percentage of GDP.
The evidence continues to persuade me that entitlement spending in general and the cost of healthcare in particular will play the biggest role in solving these two problems. My last post points out that healthcare, higher education and housing are all drags on family expenses but that the cost of healthcare has by far the largest negative effect on our economy.
The United States spends 18% of GDP (and climbing) on healthcare, both public and private, twice as much as any other developed country. This enormous expense must be reduced but how will it happen? The Affordable Care Act has increased access to healthcare but has not bent the cost curve.
Now the Republicans (President-elect Trump and Congress) want to repeal the ACA and replace it with something less restrictive and less expensive. A popular alternative is health insurance which has:
High deductibles typical of catastrophic coverage in order to hold down the cost of insurance.
Tax credits to defray the cost of insurance.
Tax preferred health savings accounts to pay for routine expenses below the deductible.
Unfortunately it’s not this simple. Today’s New York Times has a credible Op Ed by Drew Altman, CEO of the Henry Kaiser Family Foundation, “The Health Care Plan Trump Voters Really Want,” which reports on a series of focus groups set up by Kaiser after the election to quiz Trump voters about healthcare. What Kaiser learned about Trump voters is that:
In the pre-ACA market, they liked their ability to buy lower-cost plans which met their needs.
They want lower drug costs and improved access to cheaper drugs.
The very last thing they want in healthcare reform is higher out-of-pocket costs.
Conclusion. What Trump voters are looking for in healthcare reform is quality healthcare at a low cost. This is also the Republican ideal. But the high deductible plus health savings account combination is going to be a hard sell to many Trump voters.
I am a fiscal conservative (I want to balance the budget) and a social moderate. I voted for Hillary Clinton for president because Donald Trump is a sleazy person and has such a volatile temperament. But I’m also in favor of making big changes and Mr. Trump will certainly do this.
If Obamacare is repealed, 20 million Americans will lose their health insurance. Yes, but it’s not going to happen this way. Obamacare will end up being modified and improved, not abolished.
His tax cuts would chiefly benefit the rich and would greatly increase our national debt. Yes, but the House of Representatives has a much better plan to do this and it is Congress, not Mr. Trump, which will develop a detailed plan.
Even if he does not actually deport illegal immigrants, he will foment the divisive politics of race. The illegal immigration problem needs to be solved and Mr. Trump is likely to get this done, with or without a wall.
Mr. Trump has demanded trade concessions from China and NAFTA. If he causes a trade war, the fragile world economy could tip into a recession. Blue collar workers, his strongest base of support, have had stagnant incomes for years and deserve some help. If he can increase our exports, blue collar workers will benefit.
He wants to reverse the Paris agreement on climate change which would harm the planet and undermine America as a negotiating partner. Global warming is real but the Paris accord does essentially nothing to slow it down. Increased coal use in China and India will more than negate what the U.S. and Western Europe are doing to cut back on fossil fuels.
Mr. Trump has demanded that other countries pay more towards their security or he will walk away. NATO members should be doing more on their own and if he can prod them to do this, then NATO will be stronger as a result.
Conclusion. Mr. Trump’s expressed views should be interpreted as initial bargaining positions. They are likely to have the effect of leading to progress on many serious problems which need to be addressed. The risks involved in the negotiation process are worth taking
It is well understood that entitlement spending (Social Security, Medicare and Medicaid) is the biggest driver of our very serious long term debt problem. Furthermore the high costs of Medicare and Medicaid can’t be separated from the high cost of American healthcare in general. In other words, getting the cost of national health spending under control is a fundamental fiscal and economic issue. A major reason for this high cost is the tax exclusion of employer provided healthcare. American out-of-pocket spending on healthcare is only 11% of the total as compared to 26% in Switzerland or 52% in Singapore, two examples of countries with efficient free-market systems. Americans have little incentive to hold down the cost of their own care because it is mostly paid for by third party insurance companies.
The Affordable Care Act (aka Obamacare) expands access to healthcare but does nothing to control overall costs. This means that any changes made to the ACA should be aimed at preserving access but making healthcare much more cost efficient. This can be accomplished by
Keeping the Exchanges. The exchanges were set up to expand access for the uninsured and provide subsidies for those who couldn’t otherwise afford health insurance. This is the best feature of the ACA and should be retained.
Repealing the mandatesfor both individuals and employers. Mandates mean that benefits have to be strictly defined, uniform for all, and therefore more expensive. Employers are burdened by extra regulations which affect hiring and growth decisions.
Replacing the employer tax exclusion with a uniform tax credit for all. The credit would be about $2500 per person, the cost of high deductible catastrophic care. Employers could still provide insurance to employees but the tax deduction would be limited to the amount of the tax credit. The self-employed would get the same tax credit and it would also be refundable for those with low-incomes.
The American Enterprise Institute’s James Capretta describes how a transition could be made from the current ACA to such a new system.
The Supreme Court will soon render an opinion in King v. Burwell challenging the implementation of the Affordable Care Act. If the Court agrees with the plaintiffs, then anyone receiving health insurance through one of the federal exchanges operating in 33 states is not eligible to receive a subsidy. Several Committees in the House of Representatives are proposing to take such an opportunity to make improvements to the ACA. In addition, the Congressional Budget Office has just released a report on the “Budgetary and Economic Effects of Repealing the Affordable Care Act,” indicating that repeal of the ACA would add $137 to the deficit over 10 years. This is because the loss of ACA imposed new tax revenues and spending cuts to Medicare would exceed the amount of money spent to expand insurance coverage.
The economist John Goodman has an excellent new book, “A Better Choice: Healthcare Solutions for America,” describing several basic changes which would greatly improve the ACA. In summary they are:
Replace all of the ACA mandates and tax subsidies with a universal (and refundable) tax credit which is the same for everyone. This is the fairest way to subsidize healthcare for all and it also removes the huge market distortion provided by employer provided health insurance which is tax exempt. The tax credit would be about $2500 per individual and $8000 for a family of four, the approximate cost of catastrophic health insurance and also the average cost of Medicaid.
Replace all of the different types of medical savings accounts with a Roth Health Savings Account (after-tax deposits and tax-free withdrawals).
Allow Medicaid to compete with private insurance, with everyone having the right to buy in or get out.
Keep the ACA exchanges which would be required to provide change-of-health status insurance for the protection of the chronically ill.
Changes such as these would dramatically lower the cost of American healthcare by making all of us directly responsible for the cost of our own healthcare. They would also virtually eliminate the perverse market effects of the ACA which encourage companies to cut back on numbers and working hours of employees. This in turn would speed up the growth of our stagnant economy!