Tag Archives: Medicare

Reforming U.S. Health Care to Control Costs

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My last two posts, here and here, have made the case that:

  • Our national debt is now 74% of GDP (for the public part on which we pay interest), the highest since WWII, and steadily getting worse. This will create a huge problem in the not so distant future, as soon as interest rates return to normal (higher) levels.
  • Entitlement spending is the main driver of our increasing debt. The best way to control Medicare and Medicaid spending is to control the cost of health care spending in general.
  • The overall cost of health care, public and private, in the U.S. is now 17.4% of GDP, much higher than for any other developed country, and is steadily increasing.
  • The main reason our health care costs are rising so rapidly is that Americans do not have enough “skin in the game.” Health insurance pays for close to 90% of our health care costs so that we pay for very little directly out of our own pockets. This means we have little incentive to pay close attention to these costs.

Christus Health in Dallas and Privia Medical Group in Washington, DC  are causing disruption by shifting health care delivery from hospitals to outpatient settings.  They are putting in place a number of lower-cost and more consumer friendly options which reward collaboration, performance and a focus on cost and quality on the part of both management and front-line providers.
Capture18As I have pointed out in previous posts, here and here, several policy changes would help speed up this process of needed change:

  • The tax exemption for employer provided health insurance should be limited to the cost of high deductible catastrophic insurance with an equal (refundable) tax credit for those without employer coverage. Health Savings Accounts would be encouraged for routine health care expenses.
  • Affordable Care Act exchanges would continue to operate as at present but without any mandates.
  • Medicare would provide a fixed level of assistance with which seniors would purchase a private health plan of their own choosing, rather than being open ended as at present.
    Medicaid. The federal government would give states fixed, per-person payments. Low-income individuals could combine Medicaid and the (refundable) tax credit to enroll in private insurance.

Conclusion. The whole idea is to make everyone, rich and poor, young and old alike, responsible for their own health care expenses.  Only with such a consumer-oriented, free-market system will we be able to preserve the high quality of American health care and rein in excessive costs at the same time.

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The High Cost of U.S. Health Care

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As I indicated in my last post, ”Entitlement Spending and the National Debt,” our national debt is much too high and steadily getting worse.  Furthermore, it is entitlement spending, especially Medicare, which is the fundamental driver of our increasing debt.  If we don’t solve this problem relatively soon, we will have another financial crisis on our hands, much worse than the last one in 2008.  When interest rates go up, as they will sooner or later, then interest payments on our accumulated debt will rise precipitously and threaten to bankrupt the nation.
CaptureThe only effective way to control Medicare costs, however, is to control the overall cost of healthcare in the U.S., i.e. for private healthcare.  The above chart shows the nature of this problem.  Right now we are spending 17.4% of GDP on healthcare, public and private, and this is predicted to reach 19.6% of GDP by 2024.  This is almost twice as much as for any other developed country.
Capture6The Omaha World Herald had an article on Sunday, “Bending the Curve,” purporting to show that cost increases for total national healthcare spending are dropping (see just above).  The problem is that these supposedly low price increases in recent years are still twice the rate of inflation which is now averaging under 2% per year.  This means that even 4% – 5% price increases per year are much too high and need to be curtailed even further.
Capture10The fundamental reason why U.S. healthcare is so expensive is that Americans do not have enough “skin in the game.”  The above chart shows that our direct out-of-pocket costs for healthcare have been steadily dropping for the last fifty years as the role of health insurance has expanded.  This means that we simply don’t have enough personal incentive to hold down healthcare spending on our own.
Conclusion: We have to control entitlement spending, especially for Medicare, to get our national debt under control.  But this can only be done by limiting the steep spending increases in overall healthcare, public and private.  How will we be able to do this?  Be patient, we’re getting there!

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Entitlement Spending and the National Debt

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I discuss two fundamental economic and fiscal problems on this website:

  • The slow growth of our economy, only 2.1% per year since the end of the Great Recession in June 2009. This is largely responsible for stagnant wages for middle- and low-income workers, which is in turn responsible for the rise of the populist presidential candidates Bernie Sanders and Donald Trump.
  • Our massive national debt, now 74% of GDP for the so-called public part, on which we pay interest. This is the highest it has been since right after WWII.
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Slow economic growth gets more public attention because of its direct and negative effect on so many people. However massive debt is more of an existential problem.  Right now our debt is almost “free” money because interest rates are so low.  But with debt predicted (by the Congressional Budget Office, for example) to keep climbing steadily under current policy (see the first chart) and with the inevitability of increased interest rates in the future, interest payments on the public debt are bound to rise precipitously.
Capture4The second chart just above (from the Concord Coalition) shows that interest payments on the debt will likely soon become the leading source of growth in federal spending.  But perhaps surprising is that the three non-interest sources of spending growth are the entitlement programs, Medicare, Social Security and the combined Medicaid, CHIP and ACA exchange subsidies.  All other government spending will decrease in relative terms.
Capture3Is it not readily apparent from this data that the only way to curtail a huge fiscal crisis in the not so distant future is to get entitlement spending under much better control?  The last chart, just above, (from the Trustees of SS and Medicare) shows the growth in general fund revenue required for Medicare and SS going forward.  In 2016 the discrepancy is 2.1% of GDP which amounts to $401 billion.  The discrepancy will double by 2040.  Of course, OASDI (SS) and HI (Medicare Part A) have trust funds paid into by payroll taxes.  But these trust funds are already paying out more than they take in and will be exhausted in a few years.

Conclusion. Spending on entitlement programs must be brought under much better control. How to do this will be the topic of my next post.

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Health Care Spending is Driving Budget Deficits

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In my last post, “Annual Deficits are Starting to go Back Up,” I refer to a new report from the Congressional Budget Office to show that it is the large annual increases in federal healthcare spending (Medicare, Medicaid, CHIP and Obamacare) which is the main driver of our annual deficit spending which is going to start increasing again unless we do something serious about it.
CaptureThe basic problem is, as shown by the above chart, that Americans, in general, don’t have enough skin in the healthcare game, i.e. we don’t pay enough of our health care expenses out of our own pockets, and therefore we don’t directly feel the pain of high and rapidly increasing health care costs.
A group of policy experts from the American Enterprise Institute have come up with a practical plan to address this problem.  Its elements are:

  • Retain employer provided coverage. This is how half of Americans get health insurance. The only change would be an upper limit on the tax preference for employer-paid premiums so that only the most expensive plans would exceed it.
  • Tax Credits. Individuals without employer coverage would get a tax credit with no strings attached to pick any state-approved plan that meets their needs.
  • Continuous coverage protection. As long as people stay insured, they cannot be denied enrollment based on health status.
  • Medicaid reform. The federal government would give states fixed, per-person payments based on historical spending patterns. Able bodied adult and their children could combine Medicaid and the (refundable) federal tax credit to enroll in a private insurance option.
  • Medicare reform. Medicare would provide a fixed level of assistance which seniors would use to purchase a health plan of their own choosing.
  • Expanded Health Savings Accounts. These are intended to be used with catastrophic insurance with a high deductible. HSAs could be established with a one-time $1000 tax credit and unused funds rolled over from one year to the next.

Such a system does not repeal, but rather improves the Affordable Care Act. It keeps the ACA exchanges and introduces cost controls in a flexible manner, i.e. without mandates.  It is the type of system the U.S. needs to get health care costs, and therefore overall deficit spending, under control.

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Lowering the Cost of American Healthcare III. Single Payer?

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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.
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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

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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.”
Capture1First 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.
Capture2Secondly, 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.
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  • 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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It’s Easy to be Pessimistic about America’s Future

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As I remind readers from time to time, this blog is concerned with America’s fundamental fiscal and economic problems: a slow economy, massive debt, and increasing income inequality. Largely because of these apparently intractable problems, more and more people are becoming pessimistic about the future of our country.
CaptureAlthough I am by nature an optimist, these matters weigh on me as well:

  • The just introduced “Bipartisan Budget Act of 2015” is a sell-out to the status quo. It breaks the agreed upon sequester spending limits by $112 billion over two years with essentially no attempt to create long term spending restraint.
  • As pointed out recently by the Washington Post’s Robert Samuelson, the presidential candidates are talking mainly about new entitlements (the Democrats) or tax cuts (the Republicans). In both cases this represents a flight from reality.
  • Entitlements: The number of people aged 65 or older will increase from 15% of the population today to 22% of the population in 2040. The cost of Social Security, Medicare and Medicaid will jump from 6.5 % of GDP today to 14% of GDP in 2040. We simply must control these costs by raising eligibility ages for SS and Medicare and increasing premiums for wealthier recipients.
  • Economic Growth: Annual growth has averaged only 2% of GDP since the end of the Great Recession in June 2009. Slow growth means weaker gains in wages, more unemployment and larger spending deficits. This can be fixed long term with honest tax reform, but not with unrealistic tax cuts.

Conclusion: Isn’t it obvious that we need political candidates who will speak forthrightly with the people about the need for addressing these humongous problems? Americans aren’t dumb.  They will respond to straight talk from their supposed leaders.   

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

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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.
CaptureSince 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?

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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.
Capture2Barron’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.

Status Quo on the Budget Is Not Good Enough II. Look at the Big Picture!

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In my last post, “Status Quo on the Budget Is Not Good Enough,” I discussed a report from the outgoing chair of the Senate Budget Committee, Patty Murray (D-WA), and explained how it epitomizes the lack of progress made on the massive debt problem which has developed since the Great Recession of 2008 -2009.
CaptureThe basic problem is that Senator Murray’s analysis simply does not recognize the seriousness of our debt problem as shown in the above chart.  Right now our public debt (on which we pay interest) is “sitting” at 74% of GDP for a year or two, before it continues its rapid increase.  This projection assumes an historically “normal” growth rate of 3% and no new recessions, neither of which assumption is assured.  It also assumes that the sequester budget cuts and new top tax rate of 39.6% stay in effect.  In other words it is a best case scenario based on current policy.
Breaking it down, the debt will continue to increase because annual deficits will continue to exceed the rate of growth of the economy.  The main driver of these increasing deficits is the cost of the health care entitlements of Medicare and Medicaid.  Medicare costs will increase rapidly because of the aging of the American people.  Medicaid costs will increase rapidly because: 1) more low-income people are being covered by the ACA and 2) since the recession there are more low-income people to be covered.  I certainly support expanded healthcare coverage but we have to figure out how to pay for it!
How do we contain the increasing costs of Medicare and Medicaid?  We do it by controlling the overall rapid growth (at twice the rate of inflation) of healthcare costs in general, i.e. for private healthcare. How do we do this?  See a couple of my recent posts either here or here.
Senator Murray, along with many other progressives, argues that we need more deficit spending in order to stimulate the economy and create new jobs.  More jobs are badly needed but more deficit spending is the wrong way to get them.  Then how?  With tax reform among other things.
Based on the outcome of the 2014 elections, I am optimistic that something along the lines of what I have just described will be tried by the next Congress.  We’ll soon find out!