In 2012 I was a candidate in the Republican Primary for U.S. Congress, Nebraska District 2. My platform at that time was to “Eliminate the Deficit.” Today I am about to enter the 2018 Nebraska Republican Primary for the U.S. Senate. My platform will be to “Fix the Debt.” (http://www.fixthedebt.org/)
Our current debt ($15 trillion for the public part on which we pay interest) is now 77% of GDP, the highest since right after WWII, and steadily getting worse. At the present time it is essentially “free” money because interest rates are so low. But that is already starting to change. Every 1% increase in interest rates will increase interest payments by $150 billion per year. A huge upsurge in inflation (which can happen at any time), followed by a corresponding rise in interest rates, will become a huge drain on the federal budget and likely lead to a new crisis much worse than the Financial Crisis of 2008.
With healthcare spending, both public and private, now almost 18% of GDP, and growing rapidly, there is really only one practical way of getting our national debt under control: stabilize the cost of healthcare in the U.S.
Consider the following data:
Our national health expenditure grew 4.3% (much faster than inflation) to $3.3 trillion in 2016, $10,348 per person, and accounted for $17.9% of GDP.
National health spending is projected to grow at an average rate of 5.6% for 2016 – 2015, and reach 19.9% of GDP by 2025.
FederalMedicare Outlays were $588 billion in 2016 or 15% of federal outlays.
Federal Medicaid outlays were about $390 billion in 2016 or 10% of federal outlays.
The federal tax exclusion for employer provided health insurance was $250 billion in 2016.
Summary: the federal government spent almost $1.23 trillion on healthcare in 2016, over 30% of all federal spending of $3.9 trillion.
Conclusion. The only practical way to get our nation’s debt under control is to limit the growth of healthcare spending. Right now federal spending on healthcare is defined benefit (i.e. open ended). We simply must move to a defined contribution system where all of us as healthcare consumers assume responsibility for our own healthcare spending. Detailed proposal forthcoming!
Now that the Republicans have failed to replace the Affordable Care Act with a poor substitute, it is likely that a bipartisan plan will emerge. Both sides want changes in the existing structure of the ACA. The Democrats want to hold down the rapidly growing costs for individuals who purchase insurance through the exchanges. The Republicans want to hold down the overall cost of American healthcare which now exceeds 18% of GDP.
There should be plenty of room for compromise:
Medicaid. The Centers for Medicare and Medicaid Services project that under the House bill, which caps federal spending growth for Medicaid and saves hundreds of billions of dollars, total Medicaid enrollment will stay roughly constant above 70 million for the next decade, compared to 55 million before the ACA was enacted.
A Bipartisan Problem Solvers Caucus would fund cost-sharing payments to insurers, proposes curtailing the mandate on employers to provide health insurance to their workers, advances states’ ability to band together into regional compacts for selling insurance across state lines, and expands the opportunity for states to experiment with different ways of providing coverage.
Medicare. Just letting Medicare negotiate for drug prices and reducing the variation in the costs for post-acute care would provide huge savings, without even addressing inefficiencies in Medicare’s basic design.
Conclusion. The above plan holds down the cost of insurance purchased by individuals on the exchanges as well as taking significant steps to control the costs of both Medicare and Medicaid. It doesn’t address the huge inefficiency of employer provided care but nevertheless represents a big step forward towards implementing cost control in healthcare.
The Affordable Care Act was passed by a Democratic Congress in 2010 with no Republican support. It expands access to healthcare but does nothing to control costs which have now reached 18% of GDP and climbing.
The current Republican Senate bill to replace the ACA does attempt to control costs but is unable to attract enough support to pass.
The problem is to achieve both broad access and much lower costs at the same time. In general, Democrats prefer a single payer system while Republicans want to retain a free market approach. So compromise will be required.
The tax exemption for employer provided health insurance should be replaced by a universal (and refundable) tax credit for all limited to the cost of catastrophic health insurance (with a high deductible). This will preserve expanded access as well as requiring everyone to pay attention to costs.
Tax preferred health savings accounts for routine healthcare expenses should be authorized and further subsidized for low-income families through the ACA exchanges.
Medicaid (for poverty-level families) should be put on a fixed federal budget to control runaway costs. States should be given much greater flexibility to direct resources to those with the greatest needs.
Redesign of Medicare. Medicare is currently being subsidized by the federal government (after FICA taxes and premiums paid) at over $400 billion per year. Introducing a defined contribution element into this single payer program will help to hold down costs.
Pre-existing Conditions can be covered with suitable enrollment windows and state-run high-risk pools.
Conclusion. The ACA has achieved nearly universal access to healthcare in the U.S. But costs continue to rise sharply. A universal tax credit combined with health savings accounts for the private market combined with a defined contribution single payer Medicare system has a good chance of getting overall healthcare costs under much better control.
The Affordable Care Act, established in 2010, greatly expanded access to healthcare in the U.S. However, in spite of its name, it has done nothing to control the rapidly increasing cost of healthcare which is the core of our debt problem.
The new Senate plan, struggling to gain enough support to pass, puts Medicaid on a budget but doesn’t even attempt to address wider aspects of the healthcare cost problem.
A wider approach is the best way to proceed and perhaps now it is the only way to succeed in getting something done. Mr. Peter Suderman, who writes for Reason magazine, proposes several principles for a new approach:
Work for broader coverage but not necessarily universal coverage. This allows focusing on other important features such as:
Unification, not fragmentation, is what should be emphasized. Medicare and Medicaid are paid for directly by the government. Employer provided coverage, subsidized through the tax code and costing $250 billion per year, is the biggest problem in the U.S. healthcare system. It incentivizes employers to provide ever more generous insurance while insulating individuals from the true cost of care. It discourages job switching and entrepreneurship. Medicare ends up paying out far more than individuals have paid in.
Health insurance coverage is not the same as healthcare. For non-catastrophic, non-emergency expenses, affordability should be emphasized, rather than subsidies. Health savings accounts are a good way to accomplish this.
Focus on government assistance for the poorest and sickest. This means upgrading Medicaid, and coverage for pre-existing conditions, at the same time as putting Medicaid, Medicare and employer provided care all on a fixed, but reasonable, budget.
Conclusion. The cost of American healthcare is a huge problem. Hopefully the Senate will begin to address this fundamental problem as it struggles to pass a healthcare reform bill.
I know that I repeat myself a lot. I am a fiscal conservative and social moderate. This puts me in the middle of the political spectrum from left to right. I support social welfare programs if they are legitimately helping the less fortunate among us. I am especially supportive of programs for African-Americans because of the racial bias they experience.
Unfortunately our national leaders have collectively lost a sense of fiscal responsibility in recent years. Looking at the standard debt chart (above) produced by the Congressional Budget Office, it is clear that indifference to debt commenced under President Reagan and has waxed and waned ever since. The debt has been growing especially fast ever since the Great Recession in 2008 and now stands at 77% of GDP, the highest since the end of WWII. Shrinking the debt (as a percentage of GDP) is now America’s most urgent problem.
As I have discussed before, it is the entitlement programs of Social Security, Medicare and Medicaid, as well as interest payments on our increasing debt which will continue to worsen the debt problem in the coming years without strong corrective action.
All entitlement programs need to be reformed to impose cost control. Right now the two healthcare bills in Congress propose that the funding mechanism for Medicaid be changed so that it will be on a fixed (federal) budget from now on, rather than be continued in its current open-ended form.
Medicare is an even more expensive program than Medicaid. It would be better to fix both of these programs at the same time, but it is better to fix Medicaid alone than to do nothing at all.
It would be even better to replace our employer provided healthcare system with a uniform, but limited, health insurance tax credit for all (including for the self-employed) and to make all of these major changes at the same time. This would be the fairest way to proceed.
Conclusion. The current GOP plan to curtail healthcare costs could be much improved. It is only a small step in the right direction.
Most of the controversy generated by the healthcare bill passed by the House, and the one now being considered by the Senate, concerns the way Medicaid is funded. The current system whereby states are reimbursed by the federal government for a percentage (national average 53%) of their Medicaid expenses would be replaced by putting the federal contribution on a strict per-capita basis, indexed to the annual rate of inflation.
Medicaid is a vast program now serving 73 million low-income and disabled Americans and is doing a good job especially for the elderly and the disabled with special needs. But it costs the federal government nearly $400 billion per year and the cost is growing rapidly. It is essential to get open-ended Medicaid spending under much better control and one good way to do this is to put the federal contribution on a fixed budget.
The Congressional Budget Office has just issued its latest Budget and Economic Outlook report. It shows the ever-worsening fiscal condition for the U.S., unless current policy is changed.
The deficit for 2017 is predicted to be $693 billion or 3.6% of GDP.
Deficits will grow dramatically over the next decade with trillion dollar deficits returning by 2022.
Debt held by the public (on which interest is paid) will grow by $11.2 trillion between now and 2027, from $14.3 trillion today.
Spending will grow from 20.9 percent of GDP in 2016 to 23.6 percent in 2027, while revenues will rise from 17.8 percent in 2016 to 18.4 percent by 2027.
The vast majority of spending growth over the next decade (83%) is the result of rising costs for health care, Social Security, and interest on the debt.
Conclusion. The national debt is growing much too fast. The only way to turn this dangerous situation around is to reform all entitlement programs, including Medicaid, to get their costs under much better control.
The GOP healthcare plan, both the House version and the Senate version, are highly imperfect. Yet they each do one thing which is badly needed. They put Medicaid on a budget. The current open-ended Medicaid program, whereby each state is reimbursed by the federal government for a percentage of its costs (the average is 53%), would be replaced by an annual per-capita payment which would increase only at the rate of inflation. It is estimated that the new per-capita budget would reduce federal Medicaid payments by about 25% after 10 years.
In order to get the federal debt under control, all three major entitlement programs, Social Security, Medicare and Medicaid, must be reined in and the current GOP plan would start doing this for Medicaid.
Reining in spending like this will force states to alter the way they regulate and administer Medicaid and the New York Times columnist Ron Lieber points out some of the challenges which will arise if Medicaid has to operate more efficiently:
• Nursing homes. One third of people who turn 65 will eventually end up in a nursing home. Furthermore, 62% of nursing home residents cannot pay for nursing homes on their own. The average annual cost of a semi=private room is $82,000.
• Home and community-based care. Medicaid is required to pay for nursing homes and may also pay for home and community-based care which is much less expensive and lets seniors stay in their own homes.
• Optional services for low-income people and the disabled. Optional services besides long-term home care include dental care for adults, therapy for disabled children at school, prosthetic limbs and prescription drugs.
Conclusion. Changing Medicaid from open-ended funding to a strict federal budget which grows at the rate of inflation will put a large burden on state Medicaid administrators and require some difficult tradeoffs to control spending. But this is absolutely essential as a first step towards controlling the rapid increase of entitlement spending.