We are currently living in a high risk fiscal bubble. Low interest rates mean that our enormous and rapidly growing national debt is virtually “free” money. When interest rates return to historically normal (much higher) levels, interest payments on the debt will explode putting us in a precarious fiscal situation.
As I have pointed out in the last few posts, it is the cost of entitlements and, in particular, health care entitlements, i.e. Medicare and Medicaid, which is driving our debt problem. The most effective way to control these entitlement costs is to control overall health care costs by insisting that all of us have more “skin in the game,” meaning that we must pay more of our health care costs directly from our own pockets as opposed to having them paid by third party insurance companies. The latest report from the Congressional Budget Office, just a few days ago, shows that our debt problem is even worse than was projected just a year ago (see above). The second chart (just above) shows the magnitude of the effort it will take to get our debt under control. Just to stabilize the debt, i.e. to keep it from getting any worse than it is right now, will require a combination of spending cuts and/or revenue increases of 1.7% of GDP which amounts to $330 billion in 2016 dollars. Conclusion. We have a huge national debt problem which is only going to keep getting worse until we make somewhat painful changes in federal policy. We have to either restrain spending increases and/or increase taxes by significant amounts. Health care entitlements are the biggest problem area and Medicare is worst of all.
Our two presumptive presidential candidates, Hillary Clinton and Donald Trump, are completely ignoring this grave problem. And indeed their proposed policy initiatives will only make it worse!
Do we have the strength to deal with this dire problem short of another crisis?
My blog addresses the three main economic and fiscal issues facing the U.S. today: slow growth, economic inequality and massive debt. Today I focus on inequality by referring to a recent article by the Manhattan Institute’s Scott Winship, “Up: Expanding Opportunity in America.” Mr. Winship observes that there has been little change in upward mobility over the past three generations. Furthermore the U.S. has upward earnings mobility rates quite comparable to Canada and the Scandinavian countries, which are generally regarded as having strong economies. Nevertheless he makes several suggestions for attempting to boost upward mobility in the U.S. as follows:
Proposal 1: Wage War on Immobility through an Opportunity, Evidence and Innovation Office and an Opportunity Advisory Commission. OEIO would fund and evaluate an array of demonstration projects at the state and local levels. It would consolidate many already existing programs and have a budget of $20 billion per year.
Proposal 3. Block-Grant Means Tested Programs and Send Them Out to the States. Such a proposal has recently been made by the House Budget Committee.
Proposal 4.Encourage Employment through Work Subsidies. This is already being done with the Earned Income Tax Credit.
Proposal 5.Encourage Delayed and Planned Childbearing through Tax Incentives. The idea is to promote marriage by expanding the current Child Tax Credit of $1000 per child for single parents to perhaps $4000 per child for married parents, but for low-income families only.
Proposal 6.Reform the Social Security Disability Insurance Program. The share of adults age 25 to 64 receiving SSDI benefits has tripled from 1.6% in 1970 to 5% in 2010. Reform of this program would put many able-bodied men and women back to work and save lots of money, some of which could be used to fund the above programs.
Conclusion: Increasing upward mobility is one very good way to combat economic inequality. Mr Winship provides an excellent discussion of several new as well as already established ways of accomplishing this goal.
Peter G. Peterson is an 88 year old billionaire from Kearney NE. His Peterson Foundation has just established the Peterson Center on Healthcare whose purpose is “developing a comprehensive approach to finding existing innovative solutions in healthcare that improve quality and lower costs, and accelerating their adoption on a national scale.”
Working with Stanford University’s Clinical Excellence Research Center (CERC), the Peterson team looked at 15,000 single and multi-specialty physician practices around the country and winnowed the list to those practices which were in the top 25% on quality measures and in the lowest 25% in cost. The second step was to identify the features of practices that help explain their exceptional performance. This led to the identification of the 11 most exceptional physician practices (see above map) around the country. The study found that total annual health spending was 58% lower for patients cared for by these exceptional practices compared to their national peers. Further analysis finds that nationwide adoption of the observed features of these practices would conservatively save $300 billion per year.
These extraordinary high-performing practices shared three basic features distinguishing them from others as follows:
Their patient relationships are deeper: always on, conscientious observation, and complaints are gold.
They have wider interaction with the healthcare system: responsible in-sourcing, staying close, and closing the loop.
They have a team-based practice organization: upshifted staff roles, hived (highly collaborative) workstations, balanced compensation, and investment in people rather than space and equipment.
These findings debunk the myth that excellent value only exists by replicating methods used by very large health systems with an efficiency culture cultivated over many years. For example, “an independent three physician practice in a low-income neighborhood can be among the best.”
The Peterson Center on Healthcare is in the process of showing that free enterprise health care can achieve remarkable gains in both high quality and low cost. This is hugely important at a time when total U.S. spending on healthcare is already way too high and growing rapidly.
If private enterprise and the free market cannot figure out how to provide quality healthcare at a much lower cost, it is almost inevitable that the U.S. will eventually end up with a single-payer national healthcare system like most of the rest of the world.