Tag Archives: Medicare

Beyond ObamaCare: Where Do We Go From Here?

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Last Sunday’s Washington Post has an Op Ed column by Jon Kingsdale, “Beyond Healthcare.gov, Obamacare’s Other Challenges” which describes the many challenges confronting ObamaCare besides just the website problems and the millions of individual policies which will be cancelled for not meeting the minimum requirements of the Affordable Care Act.  Based on his experience setting up the Massachusetts Health Insurance Exchange from 2006-2010, there will  be huge problems in getting enrollment, billing and premium collections working smoothly for such a large government program.  For example, an estimated 27% of those who will be eligible for tax credits under the ACA do not have checking accounts.  How will their monthly premiums be paid and tracked for these people if they’re late?
Considering all of the problems involved in the implementation of ObamaCare, and the fact that it does not really reform our current very costly healthcare system but rather just extends it to cover more people, it makes much sense to move toward real healthcare reform, which will control costs.
A column in today’s Wall Street Journal by Ramesh Ponnuru and Yuval Levin, “A Conservative Alternative to ObamaCare”, lays out several basic features which should be included in a sensible, market oriented approach to healthcare reform.   The principles are:

  • A flat and universal tax credit for coverage which applies to everyone and not just for employer provided healthcare.  The (refundable) credit would be roughly the amount necessary for catastrophic coverage.
  • Medicaid could be converted into a means-based addition to this tax credit.
  • Everyone with continuous coverage (which would be provided by the tax credit) would be protected from price spikes or cancellations if they get sick.  This provides a strong incentive to buy and retain coverage without the need for a mandate.

A market oriented healthcare system like this is not only preferable to all of the mandates and restrictions of Obamacare, it also improves our current system by both expanding coverage to more people as well as controlling costs by giving health consumers (all of us) a much bigger stake in purchasing healthcare.
The United States spends 18% of GDP on healthcare, twice as much as any other country in the world.  Our fiscal stability and future prosperity depend on getting this huge and growing cost under control.  The ObamaCare fiasco provides an excellent opportunity to get started on doing this.

Are Deficit Fears Overblown?

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In yesterday’s Wall Street Journal columnist David Wessel responds too mildly in “Why It’s Wrong to Dismiss the Deficit” to Larry Summers’ view that we should not worry about the deficit.  Mr. Summers says, “Let me be clear.  I am not saying that fiscal discipline and economic growth are twin priorities.  I am saying that our priority must be on increasing demand.”  According to Mr. Wessel, here is the essence of Mr. Summers’ argument:

  • The deficit isn’t an immediate problem; growth is.
  • We’ve done enough (about the deficit) already.
  • The future is so uncertain that acting now is unwise.

Granted that the deficit for fiscal year 2013 is “only” $680 billion after four years in a row of deficits over a trillion dollars each and that interest rates are at an historically low level at the present time.  The problem is that the public debt is now at the very high level of 73% of GDP and is projected by the Congressional Budget Office to continue climbing indefinitely.  Interest on the debt was $415 billion for fiscal year 2013 which represents 2.5% of GDP of $16.8 trillion.  With GDP growth increasing at about 2% per year since the end of the recession in June 2009, this means that interest on the debt is already slowing down the economy and it’s just going to keep getting worse as interest rates inevitably return to higher historical levels.
Growth is very definitely an immediate problem.  But increased government spending is the wrong way to address it.  The right way to address it is with broad based tax reform (lowering tax rates in return for closing loopholes) to stimulate investment and risk taking by businesses and entrepreneurs.  Significant relaxing of the regulatory burden would also help, especially for the small businesses which are responsible for much of the growth of new jobs.  So would immigration reform to boost the number of legal workers.
As uncertain as the future is, we can be quite sure that entitlement spending (Social Security, Medicare and Medicaid) will be going up fast in the very near future as more and more baby boomers retire and the ratio of workers to retirees continues to decline.  It would be very risky indeed to assume that economic growth will increase fast enough to pay for increased entitlement spending.
Conclusion:  large deficits are a very urgent and immediate problem which we ignore at our peril!   Furthermore the best ways of boosting the economy don’t require increased government spending.

The Intergenerational Financial Obligations Reform (INFORM) Act

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On page nine of today’s New York Times is published a full page letter to Congress and President Obama, “Enact The Inform Act”, signed by over one thousand economists as well as former government officials.  It would require “the Congressional Budget Office, the Government Accountability Office and the Office of Management and Budget to do fiscal gap and generational accounting on an annual basis to assess the sustainability of fiscal policy and measure, on a comprehensive basis, the fiscal obligations facing our children and future generations.
“Unlike the measurement of the official federal debt, fiscal gap and generational accounting are comprehensive.  They leave nothing off the books, be it defense spending, Medicare expenditures, or the profits of the Federal Reserve, in assessing the sustainability of fiscal policy and the size of the fiscal bills being left to our own children.”
The INFORM Act is sponsored by a nonpartisan and millennial driven organization which goes by the name, The Can Kicks Back . This is very significant because it is precisely the younger generation of Americans who should be most concerned about the fiscal irresponsibility of so many of our national leaders.  They are the ones who will be stuck with the huge national debt which is being generated by the profligacy of federal spending and also the ones who may have their own retirement benefits greatly curtailed because of it.
Young people should be especially incensed by such irresponsible behavior which will affect them so greatly.  We should support their efforts to turn around this ugly situation!

A Pessimistic View of America’s Future III. What, Me Worry?

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This week’s cover story in Barron’s, by Gene Epstein, “What, Me Worry?”, attempts to create more attention for our impending fiscal crisis.  “Stop all the dithering, D.C.  The baby-boom budget bomb could destroy the economy within 25 years.  The time to act is now.”  As Mr. Epstein says:

  • Obamacare is part of the problem but so are Medicaid, Medicare and Social Security.
  • The latest budget report from the Congressional Budget Office, published on September 17, makes an “optimistic” forecast that the federal debt will grow to 100% of GDP by 2038 from an already high 73% today.
  • But its more realistic forecast is a debt of 190% of GDP by 2038, worse than the current debt of Greece, which has a 27% unemployment rate.

“By 2038 there will be 79.1 million U.S. residents 65 and older, up from 44.7 million today.  The working age population, 18 to 64, will grow at a much slower rate, to 214.7 million from 197.8 million today.  As a result the dependency ratio will plummet to 2.7 working age people to support each senior in 2038, from 4.4 today.”
“Since the elderly population won’t begin to reach critical mass until the mid-2020’s, the rising tide of red ink will be relatively modest over the next ten years.”
“The nation thus might be likened to a family with about 10 good working years left which needs to cut spending in order to save for a rapidly approaching old age.  But alas, it’s a dysfunctional family incapable of rational planning.”
Today we have the option of simply containing the growth of entitlement spending.  If we don’t act now, tomorrow we will be forced to make deep cuts in entitlement spending.  Today we have the option of making intelligent cuts in discretionary spending.  Tomorrow we’ll be forced to make drastic cuts across the board which will make the slowdown in the economy due to the budget sequester “look like a Sunday afternoon walk in the park” (Bill Clinton, May 2013).
What does it take to knock common sense into our national leaders?

Our Dire Fiscal Situation II A Promising Solution

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As I discussed in my last post, the Congressional Budget Office has shown very clearly that the U.S. is on an unsustainable fiscal path which must be reversed in order to avoid calamity.  We are spending too much money and not taking in enough tax revenue.  In a recent Wall Street Journal Op Ed column, the economist Martin Feldstein describes “How to Create a Real Economic Stimulus”.  “A successful growth and employment strategy would combine substantial reductions in the relative size of the future national debt with immediate permanent tax rate cuts and a multiyear program of infrastructure spending…….The only way to reduce future deficits without weakening incentives and growth is by cutting future government spending.”
Mr. Feldstein proposes slowing the growth of benefits of middleclass retirees by gradually raising the full benefit retirement age for Social Security from 67 to 70 and also raising the age of Medicare eligibility to the same level.  This would create a budget savings of 1% of GDP, or $200 billion, by 2020.   Rather than eliminating such popular tax deductions as the one for mortgage interest or the exclusion of employer payments for health insurance, he recommends limiting the amount by which individuals can reduce their tax liabilities to 2% of adjusted gross income.  This single change to the tax code would, for example, reduce the 2013 deficit by $140 billion.
In addition to lowering tax rates for individuals, corporate tax rates should be cut from 35% to about 25% in order to be competitive with other industrial countries.  We should also adopt the internationally common “territorial” system which doesn’t tax foreign earnings brought back home.
In short, we decrease spending and raise revenue with entitlement reforms and a limit on tax expenditures thereby creating a framework for tax rate reductions and infrastructure spending.  These are the sorts of bold measures needed to produce a real stimulus and thereby get our economy back on track!

Our Dire Fiscal Situation I. The Facts

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Take a look at the front page of a new report from the Congressional Budget Office, “The 2013 Long-Term Budget Outlook”.  It shows very clearly the huge fiscal mess confronting our country in the near future.
First of all, our national debt has almost doubled as a percentage of GDP in the last five years, from about 38% of GDP at the end of 2008 to 73% today.  Although the debt is actually projected to dip to 68% of GDP in 2018, it then begins a steady climb because of increasing interest costs as well as increasing spending on Social Security and government healthcare programs (Medicare, Medicaid and the Affordable Care Act).  The debt will be back to 71% of GDP by 2023 and then climb rapidly to about 100% of GDP by 2038.
Notice from the graph that federal tax revenues have just about recovered from the recession and will soon level off at their historical level of about 19.5% of GDP.  But federal spending will resume a steady climb, reaching 26% of GDP by 2038.  As the gap between revenue and spending gets wider and wider, the national debt grows faster and faster.  This is the enormous fiscal problem we are faced with in the next 25 years.   The worse it gets the harder it becomes to turn around.  It is imperative to address this problem without delay.
In order to reduce the debt from its current level of 73% of GDP down to the historical average of 38% by 2023, Congress would have to pass an additional $4 trillion in spending cuts or tax increases over the next decade.  The only way such enormous savings can be achieved is by reining in entitlement spending: Social Security, Medicare, Medicaid and ACA.  I will outline one way to do this in my next post!

Private Health Care Reform is Getting Started!

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Yesterday’s Wall Street Journal has a very interesting article, “More Employers Overhaul Health Benefits”, which describes a movement just getting started whereby employers give their employees a fixed sum of money and let them choose their own plan from an online market place.  The idea is that employers will be better able to predict and control their healthcare expenses for employees.  Furthermore, employees will be able to get better value for dollars spent by selecting their own coverage options, deductible amounts, copays, etc.
In fact, in an exchange run by Liazon Corp., which has 60,000 people enrolled, 75% of workers have chosen less expensive plans than they had before, by accepting bigger deductibles and copays, as well as smaller choices of healthcare providers and restrictions such as primary-care gatekeepers.
This is such an appealing approach to private healthcare cost control that the Accenture Management Consulting Company estimates just five years from now there will be 40,000,000 business employees receiving their healthcare benefits in this manner.  This would be a phenomenal development!
The United States spends 18% of GDP on healthcare altogether, both public and private, which is double the amount spent by any other country.  This enormous expense is a major reason why wage growth is stagnant in our country as well as why the costs of public programs like Medicare and Medicaid are so high and contributing to so much government debt.  It is critical for our country to get the rapid increase of healthcare costs under much better control.  That’s why this new movement of employers and employees working together on this critical problem is such a big step in the right direction.
If the estimate by Accenture is anywhere nearly accurate about how fast this new private healthcare selection method will grow, then there will soon be an excellent opportunity for Congress to expand its benefits to the control of Medicare and Medicaid costs as well.  This is very exciting indeed!

Can We Solve Our Fiscal Problems Without Raising Taxes?

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Scott Lilly, a Senior Fellow at the Center for American Progress, has an Op Ed column in yesterday’s Fiscal Times, “The Choice Congress Won’t Face Up To”.  Mr. Lilly admits that we have at least a long-term deficit problem, namely exploding entitlement spending driven by the aging of the U.S. population.  The Congressional Budget Office predicts that federal outlays, including entitlements, will be 22.8% of GDP in 2023 while revenues will equal only about 19.3% of GDP, a huge gap.  And outlays will continue to rise,  because of entitlement spending, reaching 25% of GDP by 2040.  This means that the public debt, on which we pay interest, would rise from 73% of GDP today, to 99% of GDP by 2040.  As interest rates inevitably return to their historical average of 5%, interest payments on this massive debt will become an increasing burden on the economy.
Mr. Lilly asks the question:  How are we going to cut back on entitlement spending when the average Social Security monthly check is $1268 out of which about $350 goes to out-of-pocket medical expenses not covered by Medicare?  Congressman Ryan has proposed limiting the growth of Medicare to the increase of inflation + 1%.  But the cost of healthcare is increasing much faster than this.  And many seniors are living close to the edge.
Thus we reach “the choice which Congress won’t face up to.”  According to Mr. Lilly, either we have to make big cuts in entitlement spending or else raise taxes dramatically so that federal revenue increases to about 24% of GDP by 2040.  Mr. Lilly makes the far-fetched claim, based on flimsy evidence, that such a large tax increase will not retard economic growth.  But let’s set this issue aside for now.
Is there any alternative to increasing taxes so dramatically in order to avoid making big cuts in entitlements?  The answer is yes.  The above discussion assumes that the cost of healthcare in general will keep on increasing at the current rapid rate, much faster than the increase in inflation.  This is the main driver of entitlement costs.  The U.S. currently spends 18% of GDP on healthcare which is double the amount spent by any other country.  This is what must change.  We should abolish, not just postpone, the employer mandate in Obama Care.  But even more fundamentally, the tax exemption for employer provided healthcare should be removed (and offset with a rate reduction).  This would make consumers far more aware of the cost of healthcare and therefore drive down these costs.
Only after serious attempts are made, such as above, to control costs should any consideration be given to raising taxes.

Going On a Short Vacation!

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I began this blog last November, right after the national elections, to promote my strong view that the United States is on a dangerous fiscal course, with an already enormous, and still rapidly growing, national debt.  After four years in a row of deficit spending exceeding $1 trillion per year, the current year’s deficit is projected to be “only” $640 billion.  Far too many people, including many of our national leaders, interpret this to mean that the problem is getting solved and so we can relax.  But the already accumulated $12 trillion in public debt will cost our economy $600 billion a year, a significant fraction of total revenue, in interest alone when interest rates return to their historical average of 5%.
This is just the tip of the iceberg.  Federal spending is out of control all across the board.  Entitlement spending on Medicare and Medicaid is growing at twice the rate of inflation and is an especially acute problem.  But progress here depends on figuring out how to get healthcare costs in general under control, a huge challenge.  The much reviled sequester is working but it’s not nearly enough by itself to get discretionary spending under control.
Four years after the end of the Great Recession the economy is still limping along at 2% GDP growth and 7.6% unemployment.  And this is after enormous fiscal stimulus (deficit spending) as well as quantitative easing by the Federal Reserve.  Current policies are not working.  What we need is broad based tax reform with lower marginal rates (offset by ending tax preferences) to stimulate business investment and the private risk taking which propels the economy and creates jobs.  And, of course, faster economic growth will also increase tax revenue and therefore lower the deficit, as well as boosting employment.
This is a brief summary of what I’ve been saying for the past eight months.  To me it just seems like simple common sense, but not everyone agrees!  At any rate I’ll be out of town for the next two weeks.  I hope to be able to make a few new posts while I’m gone.  Stay tuned!

The Four Fiscal Fantasies

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Jon Cowan and Jim Kessler from the Third Way think tank have just written a new article, “The Four Fiscal Fantasies”, in which they address our country’s current fiscal situation from a point of view which is sympathetic to, but critical of, the left.

  • Fantasy #1:  Taxing the rich solves our problems.
  • Fantasy #2:  We can have it all.
  • Fantasy #3:  Waiting is benign.
  • Fantasy #4:  The politics get better.

These four fantasies are fairly self-explanatory.  The solution they propose for the long term insolvency of Social Security is an at least partial lifting of the FICA cap as well as chain-weighting of the CPI.  These are both good ideas.
Their solution to looming Medicare insolvency is to trim costs in the current program with, for example: bundled payments, medical homes for end-of-life, a permanent fix for the Sustainable Growth Rate (doc fix), reducing duplicative care, increasing provider coordination, etc.  This however is a band aid approach to getting Medicare costs under control.  We need far greater and more fundamental changes in our entire healthcare system, public and private.  Douglas Holtz-Eakin and Avik Roy have a plan to do this which I have discussed in my June 5, 2013 blog post, “Free Market Healthcare in America”.
With respect to discretionary spending in the federal budget, Mr. Cowan and Mr. Kessler propose several specific budget cuts in order to boost spending for other programs for kids, science, research, curing disease, infrastructure, etc.  Savings in one area would be spent on investments in other areas rather than being used for reducing the deficit.
To me this whole program represents a step in the right direction even though it does not come close to all of the changes that will be needed to shrink the deficit down to zero.  If national Democratic leaders would propose this sort of a program, it would force Republican leaders to take it seriously and would therefore break the current logjam in Congress.