Problem: As a nation we’re in dangerous debt territory. If we don’t do something quickly and dramatically, we’re headed for some very rough and painful times.
But while it seems the American public senses this on the whole, polls seem to indicate that all the “free” stuff handed out by government is popular with a large percentage of the population. Or said another way, they understand that we have a debt problem, they understand the implications of that problem and they don’t mind spending cuts – just so the spending cuts don’t effect programs they like.
The problem is further compounded by an irresponsible administration which gives the debt problem lip service but submits budgets that exponentially increase the problem:
The president’s recent budget proposal would accelerate America’s descent into a debt crisis. It doubles debt held by the public by the end of his first term and triples it by 2021. It imposes $1.5 trillion in new taxes, with spending that never falls below 23% of the economy. His budget permanently enlarges the size of government. It offers no reforms to save government health and retirement programs, and no leadership.
Both of these facts make it hard for those who would actually like to address the problem of debt before it overwhelms us. That’s because they’ll really get no support politically from the administration, no call to arms and leadership, and the American people are proving to be fickle about the whole process sending very mixed signals.
Well the obvious solution is to find some means of cutting spending to at least the level of revenue and to begin working to pay the debt down in an earnest and timely manner. What isn’t a solution is business as usual but on steroids as proposed by the President. So today, Rep. Paul Ryan (R-WI) introduced the GOP plan to address the problem. Or at least part of the problem. That of out-of-control spending and addressing the debt. How it will play with the American people remains to be seen, but it is both an earnest and timely proposal. It also makes some pretty dramatic cuts which is where you can expect to see the pushback.
For starters, it cuts $6.2 trillion in spending from the president’s budget over the next 10 years, reduces the debt as a percentage of the economy, and puts the nation on a path to actually pay off our national debt. Our proposal brings federal spending to below 20% of gross domestic product (GDP), consistent with the postwar average, and reduces deficits by $4.4 trillion.
But there’s pain in them thar words. And it means things are going to have to be quite different in some areas than they are now. Government is going to have to be rolled back. That is unless we’re partial to a complete collapse of our economy and our currency, hyper inflation and all the good times those developments would bring.
So to specifics in Ryan’s proposal. Addressing welfare in general, he says:
This budget will build upon the historic welfare reforms of the late 1990s by converting the federal share of Medicaid spending into a block grant that lets states create a range of options and gives Medicaid patients access to better care. It proposes similar reforms to the food-stamp program, ending the flawed incentive structure that rewards states for adding to the rolls. Finally, this budget recognizes that the best welfare program is one that ends with a job—it consolidates dozens of duplicative job-training programs into more accessible, accountable career scholarships that will better serve people looking for work.
As we strengthen and improve welfare programs for those who need them, we eliminate welfare for those who don’t. Our budget targets corporate welfare, starting by ending the conservatorship of Fannie Mae and Freddie Mac that is costing taxpayers hundreds of billions of dollars. It gets rid of the permanent Wall Street bailout authority that Congress created last year. And it rolls back expensive handouts for uncompetitive sources of energy, calling instead for a free and open marketplace for energy development, innovation and exploration.
I am quite pleased to see the second paragraph. It is indeed time to eliminate “corporate welfare” and subsidies for favored industries. It also takes on what we would call traditional welfare. And make no mistake about it Medicaid and food stamps are welfare. As for the “perverse incentives” Ryan points too, here’s what they’ve yielded recently:
I’m sure some of that comes with the economic downturn, but it also indicates the effect of the incentives to sign people up for the welfare program.
We can’t afford the level of welfare we’re paying out now – and that included corporate welfare and subsidies. We are a compassionate people, but I end up shaking my head when I hear government officials claiming that people at “4 times the poverty level” need help? Really? So what’s the purpose of the poverty level as a measure and why are we now convinced we have to “help” people well above that level?
Then there are the twin third rails of politics, but areas where dramatic reforms are absolutely necessary to get us on the right fiscal track as a country. And those are Medicare and Social Security. The Ryan plan:
Health and retirement security: This budget’s reforms will protect health and retirement security. This starts with saving Medicare. The open-ended, blank-check nature of the Medicare subsidy threatens the solvency of this critical program and creates inexcusable levels of waste. This budget takes action where others have ducked. But because government should not force people to reorganize their lives, its reforms will not affect those in or near retirement in any way.
Starting in 2022, new Medicare beneficiaries will be enrolled in the same kind of health-care program that members of Congress enjoy. Future Medicare recipients will be able to choose a plan that works best for them from a list of guaranteed coverage options. This is not a voucher program but rather a premium-support model. A Medicare premium-support payment would be paid, by Medicare, to the plan chosen by the beneficiary, subsidizing its cost.
In addition, Medicare will provide increased assistance for lower- income beneficiaries and those with greater health risks. Reform that empowers individuals—with more help for the poor and the sick—will guarantee that Medicare can fulfill the promise of health security for America’s seniors.
I’ve already seen some on the left characterizing this as "privatizing" Medicare. And, of course, as we all know, that’s dangerous as government always does it better – look at the budgets for example. Look at the debt.
In fact, what Ryan is talking about is giving seniors a choice vs. automatically enrolling them in a government insurance program that averages about $60 billion a year in waste, fraud and abuse. There will be a subsidy – probably means tested. Is the the ideal libertarian answer? No. But as I’ve said before, freedom is choice and any legislation that expands that is at least a step in the right direction.
We must also reform Social Security to prevent severe cuts to future benefits. This budget forces policy makers to work together to enact common-sense reforms. The goal of this proposal is to save Social Security for current retirees and strengthen it for future generations by building upon ideas offered by the president’s bipartisan fiscal commission.
Perhaps raise the caps (I gave a certain percentage to my 401k regardless of how much I earned, so doing the same with Social Security doesn’t really bother me. And it will provide increased revenue for the fund. Again, ideal? No, but then I don’t consider either Medicare or Social Security to be “welfare” since most participants have paid into those systems for their entire working life. But there are changes which will have to be made. I don’t favor means testing if the cap is raised. But I do think that a hard look at the retirement age is necessary. My ideal outcome, obviously, would be getting government out of the retirement income business, but that’s not going to happen. So Social Security has to be made self-supporting and not a drain on the budget – as does Medicare.
Budget enforcement: This budget recognizes that it is not enough to change how much government spends. We must also change how government spends. It proposes budget-process reforms—including real, enforceable caps on spending—to make sure government spends and taxes only as much as it needs to fulfill its constitutionally prescribed roles.
If we don’t get some restrictions on government spending, nothing is going to change. Nothing. We’ve watched Congress talk the talk for decades, ala Nancy PAYGO Pelosi. But they ignore their own legislation and policy at will. As Ryan says, there have to be “real, enforceable caps on spending”. I interpret that as “you cannot and will not spend more than you take in”. We’ll see how the Congress interprets that.
Tax reform: This budget would focus on growth by reforming the nation’s outdated tax code, consolidating brackets, lowering tax rates, and assuming top individual and corporate rates of 25%. It maintains a revenue-neutral approach by clearing out a burdensome tangle of deductions and loopholes that distort economic activity and leave some corporations paying no income taxes at all.
Here is something that is going to be as hard to do as entitlement reform. Why? Because the tax system provides Congress with another way to wield its power. But the way it has wielded this power has done precisely what Rep. Ryan points too here – it has “distort[ed] economic activity.” Make the system simple, remove the loopholes, broaden the base (get some more “skin” in the game from those who now don’t pay taxes) and my guess is you’ll not only see an increase in revenue, but a far greater increase in economic activity.
Bottom line: We are in a “you can pay me now or you can pay me later” moment. And if we wait, we’re going to be paying a price we’re just not willing to pay, all because we chose to avoid the pain now. I’m sure the opponents of this proposal are going to call it “extreme” and something that will “hurt the children”. Trust me, if you want to see extreme, put it off until this house of cards collapses. And if you want to avoid “hurting the children”, man up and face the pain now to avoid it later when it really will “hurt the children”.
UPDATE: Chris Edwards at CATO gives his take on the Ryan budget. I’m pretty much agreed with everything Edwards says:
- Ryan doesn’t provide specific Social Security cuts, instead proposing a budget mechanism to force Congress to take action on the program. It is disappointing that his plan doesn’t include common sense reforms such raising the retirement age.
- Ryan finds modest Medicare savings in the short term, but the big savings occur beyond 10 years when his “premium support” reform is fully implemented. I would rather see Ryan’s Medicare reforms kick in sooner, which after all are designed to improve quality and efficiency in the health care system.
- Ryan adopts Obama’s proposed defense (security) savings, but larger cuts are called for. After all, defense spending has doubled over the last decade, even excluding the costs of wars in Iraq and Afghanistan.
- Ryan includes modest cuts to nonsecurity discretionary spending. Larger cuts are needed, including termination of entire agencies. See DownsizingGovernment.org.
- Ryan makes substantial cuts to other entitlements, such as farm subsidies. Bravo!
- Ryan would turn Medicaid and food stamps into block grants. That is an excellent direction for reform, and it would allow Congress to steadily reduce spending and ultimately devolve these programs to the states.
- Ryan would repeal the costly 2010 health care law. Bravo!
Here’s a chart Edwards includes in his post:
I’m a huge supporter of military spending in order to maintain our national security and technological edge, but I find it hard to believe that there aren’t many places where savings could be accrued in “Security”. And I’d also note under the broad “Security” umbrella fall many other programs that could be cut – like the entire TSA. But, in any event, it is an area that should also be looked at with an eye for cutting spending. It would get us to our goal of paying down the debt even sooner and it can be done without jeopardizing our security (cut costs not capability).
UPDATE II: Geoff over at Ace of Spades gives a little context to the Ryan proposal:
Now, where I come from, the “extremes” are on either side of a situation, right?
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More fallout from the ObamaCare monstrosity. Reality begins to set in with a vengeance:
Want an appointment with kidney specialist Adam Weinstein of Easton, Md.? If you’re a senior covered by Medicare, the wait is eight weeks.
How about a checkup from geriatric specialist Michael Trahos? Expect to see him every six months: The Alexandria-based doctor has been limiting most of his Medicare patients to twice yearly rather than the quarterly checkups he considers ideal for the elderly. Still, at least he’ll see you. Top-ranked primary care doctor Linda Yau is one of three physicians with the District’s Foxhall Internists group who recently announced they will no longer be accepting Medicare patients.
"It’s not easy. But you realize you either do this or you don’t stay in business," she said.
For those slow on the uptake – when limited resources meet unlimited need, rationing is going to take place regardless of whether one wants it or likes it. Rationing can take effect in many ways. Two of the most common are by price and by availability (or a combination of both).
Declaring everyone is “entitled” to health care doesn’t make it more affordable or available. Because its availability doesn’t increase automatically on such declarations. And that was the fly in the ObamaCare promise from the very beginning. Then add in the absurd claim that you can get more for less and you’re where we are now with doctors and Medicare patients.
Reality is a harsh mistress. Reality says that a person will do what is necessary in the business world to keep their business going. We’ve seen that with the drop in employment during this recession as businesses cut back on headcount to survive it. The same goes with the business mix of paying customers any business has. If it takes a certain amount a month to maintain your practice, you have to ensure that is covered along with whatever profit (read salary) you want for yourself. The most common way a business does that, besides cutting expenses, is to raise prices.
But in health care you can’t really do that. So? So instead you change your business mix. You begin to refuse to see those who pay the least in favor of those who pay the most, i.e. less Medicare patients and more private insurance patients.
If you’re a doctor, you spent 10 years of your life getting to the position you now hold and even more years building your practice. You are, in fact, a small business owner who employs a good number of health care workers both directly and indirectly.
If however 40% of those you see are Medicare patients and those patient payments to doctors are being drastically reduced such that you’ll now be pulling in much less a month than you need to meet all your financial requirements, it is time to reassess the mix of patients you can afford to see. Note the word – afford. This is the only way a doctor can “raise prices”.
There are those who claim that such a doctor has a responsibility to see whoever comes in the door. In fact that doctor has many other responsibilities that preclude that – like his responsibilities to those he employs, the expense of his practice, malpractice insurance, student loan payback, etc. He can’t see the first patient until all of those things are paid for. And then he has to maintain his or her practice (thus the overhead) at a certain level to meet the needs/demands of the patients he does see.
So when he looks at his mix of patients, he has to make a decision, doesn’t he? And, as you see in the cite, many are beginning to make that decision. He has to get that revenue stream back up to the level at which he can at least cover minimum needed to sustain his practice at a level he deems necessary.
Among the top points of contention is the complaint by doctors that Medicare’s payment rate has not kept pace with the growing cost of running a medical practice. As measured by the government’s Medicare Economic Index, those expenses rose 18 percent from 2000 to 2008. During the same period, Medicare’s physician fees rose 5 percent.
"Physicians are having to make really gut-wrenching decisions about whether they can afford to see as many Medicare patients," said Cecil Wilson, president of the American Medical Association.
But statistics also suggest many doctors have more than made up for the erosion in the value of their Medicare fees by dramatically increasing the volume of services they provide – performing not just a greater number of tests and procedures, but also more complex versions that allow them to charge Medicare more money.
From 2000 to 2008, the volume of services per Medicare patient rose 42 percent. Some of this was because of the increasing availability of sophisticated treatments that undoubtedly save lives. Some was because of doctors practicing "defensive medicine" – ordering every conceivable test to shield themselves from malpractice lawsuits down the line.
Of course they practice preventive medicine because Congress has adamantly refused to address tort reform, so, in many practices the largest expense incurred per year is malpractice insurance. And naturally that constant threat drives the medicine to some extent. Additionally it is human nature to try to get what you believe your services are worth if you’re going to render them.
Instead we have an outside entity arbitrarily declaring what they’re worth. It is has now gotten to the point that providers have to make some decisions because they can no longer operate at the level they desire too with the payment structure in effect. And, as can be seen, they are making those decisions.
Which brings us back to the point that was made on this blog many times before when the promise of health care for all at lower cost kept being thrown around. You can’t have it both ways. The fact that there is now going to be more demand on a finite product means that rationing is somehow going to exist. The fact that you have insurance obviously doesn’t guarantee you a doctor.
Of course the reaction to these decisions is predictable as well:
Still, even if primary-care doctors had to rely exclusively on Medicare’s lower payment rates their incomes would only drop about 9 percent, according to a recent study co-authored by Berenson, who is also a fellow at the non-partisan Urban Institute.
"The argument that doctors literally can’t afford to feed their kids [if they take Medicare's rates] is absurd," said Berenson. "It’s just that doctors have gotten used to a certain income and lifestyle."
Got the implied argument there? Whatever the income and lifestyle, they’ll just have to get over it and go along with the arbitrary price fixing government decides on. They’re probably among the “undeserving rich” Krugman was talking about below. Oh, and note that a 9% drop in income also means a commensurate drop in the amount of overhead the office can afford – headcount in other words. And that may mean poorer treatment.
You don’t get to decide what you’ll charge and let the market either reward or punish you for doing so. Oh, no. The government will decide on what is acceptable, private insurance will go along because it is worth their while (they may not match the cost but they’ll lower their payout because the government has lowered its payout), malpractice insurance will most likely rise (you can’t do a better job with less staff and less time) and there you are, captaining a sinking ship.
Of course the reaction being documented here is an immediate reaction to a flawed policy. It is as natural as self-defense, because in a business sense, that’s precisely what it is. Health care is a business, not a “right”. And this is how businesses react to such intrusions in the market that could conceivably kill their chance at survival.
Long term the result will be even worse and more drastic. And we’ve begun to see it already. With all the turmoil and cost cutting in the health care industry, fewer and fewer are choosing it as a career path. People like Berenson can sneer at doctor’s concerns now, but as almost every medical association out there has noted, fewer and fewer people are entering the profession. And that’s across the board. It seems, for whatever reason, our social engineers simply don’t understand economic basics and constantly and consistently dismiss them with disastrous results.
Incentive is a wonderful motivator that has brought us all sorts of innovation and a better life. Destroy that and you destroy motivation and the desire to excel. That’s precisely what is happening here – with predictable results.
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Any political junkie worth his salt has at some time or another looked around at the wreckage that was once a proud country and asked, “how in the world did we get here”?
Simple – we allowed a malignant political class to arise and we, for some reason, chose to allow them to handle our affairs of state without close monitoring that is the job of any responsible citizenry. The bottom line is we’ve been badly represented by that political class and we’re getting very close to “paying the piper” time.
So how did we get here? Well I’ve been of the opinion that the perks and power that today’s politics promise are so heady and attractive that they draw a particular type person to pursue such positions. Maybe not as much at local levels, but certainly at state and most definitely at a national level. And for the most part this personality type is not who we want in those positions.
At one time, holding office was seen as a public duty, a service and temporary in nature. A person served their time, did their duty – usually at a loss earnings-wise – and then went back to their former life.
Not anymore. Now we have the Bill Clinton-type personalities whose entire focus in life is to become a politician. It isn’t about duty or service anymore, it’s about a career and the trappings of power that go with it. Couple that with a belief that they know better than you what your priorities and responsibilities in life should be and how you should live it, and we end up where we are today.
When the priority changes from being about service to being about a career, the incentives change as well. Under the first scenario, a politician would consider it his or her duty to be a careful steward and do the people’s business with an understanding that his decisions will effect him and his family too. He’d also have an incentive, then, to face difficult problems and solve them quickly before they get out of hand. He’d also be less inclined to worry about the “political” effect of tough decisions since he had no designs on staying in the position of power any longer than necessary to fulfill his obligation to serve.
However, when the focus is on a career in politics, then the focus is decidedly not on the people’s business, but instead on that person’s business – their career. And maintaining that career and lifestyle and the power that comes with it becomes the first and dominant priority.
Those wishing to get elected and stay elected must be prepared to break every moral rule they have ever known if the ends justify it. Economist Frank Knight notes that those in authority, "would have to do these things whether they wanted to or not: and the probability of the people in power being individuals who would dislike the possession and exercise of power is on a level with the probability that an extremely tender-hearted person would get the job of whipping master in a slave plantation."
That paragraph describes, with exceptions, the dominant political class in charge of our country’s politics today. It also helps explain why they’re so out of touch with the rest of the country. Their focus is inward, their constituency is within the party and the beltway, not the populace and they attempt to keep power by throwing out just enough bones to keep the populist dogs at bay. They ensure reelection through devious device only open to incumbents known as “constituent services” which in reality means they offer the only remedy to a situation or law they helped create and propagate to those caught up in its consequences.
In other words, all our politics now are about serving special interests and using those special interests to maintain elected office or advance to higher ones. The issues themselves are somewhat incidental to the process of maintaining or advancing in office. If it is useful to that end, then we’ll see politicians blather on about fixing this or doing that.
For the most part, however, not much really gets done. Oh some money may be thrown at a ”problem” and some bureaucracy set up or a study done. But no solution is really ever forthcoming. Look at how long Medicare and Social Security have been identified as future fiscal black holes. Show me where anyone – anyone – has seriously addressed the real problems we face with them (and no, ObamaCare doesn’t address the Medicare problem, it instead exacerbates it) and taken steps to solve them? We’ve seen them talked about endlessly. We’ve seen accusations fly from one side to the other and back. But when all is said, nothing is done, and the can is once again kicked down the road while politicians point fingers at everyone but themselves.
Meanwhile, those in power stay in power and the only thing that changes is the amount of money you and your family owe due to their profligacy.
Is it any wonder the Tea Parties have arisen? My only question, looking back over the years, is why did it take so long?
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A good number of voices are beginning to say that technically, if not in fact, the country is bankrupt.
America is a "Mickey Mouse economy" that is technically bankrupt, according to Jochen Wermuth, the Chief Investment Officer (CIO) and managing partner at Wermuth Asset Management.
"America today looks like Russia in 1998. Consumers, companies and the government are all highly indebted. America as a result is a bankrupt Mickey Mouse economy," Wermuth told CNBC.
Wermuth goes on to say that if the same IMF team that managed the 1998 Russian financial crisis in Russia were to walk into the US Treasury today, “they would withdraw support for current US policy”.
And don’t forget Mort Zuckerman who called the present policies our “economic Katrina”.
But as bad as present policies are, they aren’t solely the reason we’re in the awful economic shape we’re in. We have a history of that.
"Even before the (Troubled Asset Relief Program) and the expansion of the Fed’s balance sheet, total US public and private debt as a percentage of GDP in the US stood at 290 percent, that figure is now far higher," Wermuth added.
Laurence Kotlikof explains it in terms of a “fiscal gap”.
The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.
The IMF pointed out in its last report that the US must close this fiscal gap to “stabilize the debt to GDP ratio”. The IMF estimates ““closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”
So what does that mean in dollars?
To put 14 percent of gross domestic product in perspective, current federal revenue totals 14.9 percent of GDP. So the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act.
Note the two words – “immediate” and “permanent”. In order to pay off the huge debt our “betters” in Washington DC have run up over the years, strictly from the revenue side, our taxes would have to see an “immediate” and “permanent” doubling.
Sounds like bankruptcy to me.
Kotlikof also tells us about the shady book keeping Congress has been engaged in for decades and what the books probably really look like:
Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future.
But of course, “official” or “unofficial” it is still debt. Whether Congress will admit to it doesn’t change the fact that it is future debt that Congress has incurred through its profligate policies.
And what’s going to bring this all crashing down, despite the smooth and reassuring words of politicians without a clue? Promises made with no fiscal ability to keep them because, in reality, they’re Ponzi schemes:
We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.
Got that – government promised $4 trillion a year that it doesn’t have and never has had. And, thanks to Congressional Democrats, it just expanded that bill under ObamaCare. The system, much like an engine running at hight RPMs with no oil, is going to stop and stop abruptly:
The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.
The result of any of those, of course, would be economically catastrophic. And the results among the citizens of this country would be horrible:
Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.
For years and years, politicians have claimed all is well with these programs, that we can afford them and that they’ll always be there for those who need them. None of the above is or has been true since their inception. If any private business operated as these programs have, the CEOs would be under the jail and wouldn’t see daylight until our sun exploded.
For years, the left and Democrats have made war on corporations and businesses all the while it has been government leading us to financial ruin. This debt isn’t debt run up by the private side of the economy. It is purely government’s doing. Now, given the gravity of the situation, we have very few options and the future does not look bright.
Next time you see your Congressional representative or Senator, thank him or her for the mess they’ve had a hand in creating and ask them how they are going to fix it. Don’t be surprised by the blank stare you receive in return. They haven’t a clue.
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You remember last week when the supposed “good news” was released – Social Security wasn’t in as dire shape as we’d been told and Medicare was going to be fine too? Yeah, since ObamaCare passed and the doc fix was sure to be implemented, not to mention the half trillion in cuts to Medicare, why we were on the road not only to solvency but to deficit reduction.
And the yearly bit of political theater played out as planned:
The normal process with the annual Trustees’ Reports is for the Trustees to develop and publish the best available projections for the future finances of Social Security and Medicare. The respective Social Security and Medicare actuaries then sign a pro forma blessing of those projections, which is tacked to the back of the report when released to the public.
“Pro forma” is the key. Usually, whether they believe the rosy projections or not, their signatures appear on the report.
But this year, one of them just couldn’t do it in good conscience. The Medicare Chief Actuary just couldn’t sign his name to the fiction without adding a memo of his own.
The actuary’s alternative memo explains that “the projections in the report do not represent the ‘best estimate’ of actual future Medicare expenditures.” Worse than that, they are not even in the ballpark of reasonability. The official 2010 Trustees’ Report tells us that total Medicare expenses will be total 6.37% of GDP by 2080. The CMS actuary’s alternative memorandum explains that 10.70% of GDP is a more reasonable estimate for that year – though one that is roughly 68% higher.
The two reasons the actuary cites are the “doc fix” – a formula the actuary describes as "clearly unworkable and almost certain to be overridden by Congress” (both the Obama administration and leaders in Congress are on record opposing them – yet there they are in the report on the “plus” side of the ledger).
The other assumption the actuary dismisses as unrealistic is the assumption that future program cost will be contained by “downward adjustments in annual price updates reflecting in turn the assumption that health service productivity growth will parallel “economy-wide productivity.” The actuary flatly states there is no evidence to support this assumption and, on the contrary, much to call it deeply into question.
This is a key point; the glowingly optimistic projections in the official Trustees’ Report assume that we as a nation will be content to have 40% of our medical facilities go under within the next 40 years, and that we will happily accept these severe constraints upon beneficiaries’ access to health care. If that is not in fact the societal will after the enactment of health care reform, then the official cost estimates should be tossed into the nearest receptacle.
Bad though all of this is, none of it is actually the worst gimmick in the official report’s advertised improvement in Medicare solvency. That involves the double-counting of Medicare savings. Earlier this year, Congress passed a health care bill containing various new Medicare taxes and constraints on program expenditures. Such savings are assumed in the official report to extend the solvency of Medicare. But Congress chose instead to spend the savings on a new health care entitlement.
Remember, the Trustees’ report, like CBO projections, must be based on current law. So they must include the assumptions contained within those laws. What the actuary says very bluntly is the assumptions are a fantasy and that the reality of the situation is far from that included in the report.
“(T)he financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range. . . or the long range. . . . I encourage readers to review the ‘illustrative alternative’ projections that are based on more sustainable assumptions for physician and other Medicare price updates.
You can read that “illustrative alternative” here. Needless to say the Trustees’ report, as published, belongs on the same shelf in your library as “The Wizard of Oz.”
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USA Today brings us a story that should surprise no one. Medicare, the supposed model of a government run health care system, is finding that fewer and fewer doctors are willing to take on new patients under that system. They cite the low payments Medicare offers (or perhaps forces) for patient treatment. Baby boomers just now entering the system are going to find their choice of a doctor restricted.
The numbers break down like this:
• The American Academy of Family Physicians says 13% of respondents didn’t participate in Medicare last year, up from 8% in 2008 and 6% in 2004.
• The American Osteopathic Association says 15% of its members don’t participate in Medicare and 19% don’t accept new Medicare patients. If the cut is not reversed, it says, the numbers will double.
• The American Medical Association says 17% of more than 9,000 doctors surveyed restrict the number of Medicare patients in their practice. Among primary care physicians, the rate is 31%.
Note especially that final group. Primary care physicians are the group of physicians that the newly passed health care reform law depends on to implement its “preventive care” regime.
The reason is rather simple and straight forward – Medicare offers 78% of what private insurance pays in compensation for a doctor’s services. Why doctors are leaving or restricting new Medicare patients is rather easy to understand as well:
“Physicians are saying, ‘I can’t afford to keep losing money,’ ” says Lori Heim, president of the family doctors’ group.
Consequently they cut or drastically restrict the source of the loss. While most doctors are not going to turn away existing Medicare patients, they may not accept new ones and finally, through attrition, close their practice to Medicare patients.
It isn’t rocket science – no good businessman is going to continue to do things in which the net result is a loss of money. And a doctor’s private practice is a business – one which employs a number of people. He or she, like any business person running a small business, cannot afford the losses. So they identify the problem and eliminate it.
As this continues it will put them in a direct confrontation with the federal government. It is anyone’s guess, given the current administration’s choices for wielding power, how that will turn out. But what this rejection of the compensation offered by government is doing is bringing to the fore is one of the underlying conflicts of the new health care law – the premise of the law is that government can control costs (and payments) and thereby make medical care less costly. The doctors are saying, go for it, but I’m not playing.
At some point, government is going to have too address those who make that declaration. We’ll then see how free of a country we really are, won’t we?
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Yes, yes, I know – it comes as a complete surprise. No question, we all thought having more covered by insurance, no pre-existing conditions, no caps on payouts and lower premium costs – all the while run by our efficient government – would surely lower costs. It’s just logical, right?
President Obama’s health care overhaul law will increase the nation’s health care tab instead of bringing costs down, government economic forecasters concluded Thursday in a sobering assessment of the sweeping legislation.
You know, you want to laugh at this because most people who gave up on moon ponies and unicorns when they were 8 knew that what was promised by this bill wasn’t possible. But it is hard to laugh at this level of mendacity. Isn’t it interesting that now suddenly the truth begins to filter out – after the fact, of course.
USA Today, in true sycophantic fashion, tries to lessen the blow to the administration by calling it a mixed verdict. It also notes it is the first look at the legislation by “neutral experts”. That’s because it was so important to rush this bill through without giving anyone time to read or analyze it – you know, so the benefits could kick in … in 2014.
And what do these experts find? Well it is less than a “mixed verdict”. As I read it, it’s an outright condemnation of the law.
[T]he analysis also found that the law falls short of the president’s twin goal of controlling runaway costs. It also warned that Medicare cuts may be unrealistic and unsustainable, driving about 15% of hospitals into the red and “possibly jeopardizing access” to care for seniors.
Translation: this goes to the central political point about the bill. Who among the politicians in DC are going to be willing to take on the necessary cuts to Medicare promised by the bill (to “pay” for it) and alienate one of the most powerful demographic election blocs?
The Medicare actuary says no one.
The report acknowledged that some of the cost-control measures in the bill — Medicare cuts, a tax on high-cost insurance and a commission to seek ongoing Medicare savings — could help reduce the rate of cost increases beyond 2020. But it held out little hope for progress in the first decade.
“During 2010-2019, however, these effects would be outweighed by the increased costs associated with the expansions of health insurance coverage,” wrote Richard S. Foster, Medicare’s chief actuary. “Also, the longer-term viability of the Medicare … reductions is doubtful.”
Of course they are, and anyone but the moon pony crowd knew that going in. It’s like the promise of eliminating “waste, fraud and abuse”. If there was any appetite or ability to do that, don’t you think the estimated $60 billion a year in Meidcare waste, fraud and abuse would have been eliminated by now?
And what if they did make the cuts? Anyone, what is the likely reaction of health care providers? Uh, “we don’t take Medicare/Medicaid patients anymore”? That is exactly what will happen. That means those with government insurance coverage won’t be able to find access (unless that too is eventually mandated).
A separate Congressional Budget Office analysis, also released Thursday, estimated that 4 million households would be hit with tax penalties under the law for failing to get insurance.
The U.S. spends $2.5 trillion a year on health care, far more per person than any other developed nation, and for results that aren’t clearly better when compared to more frugal countries. At the outset of the health care debate last year, Obama held out the hope that by bending the cost curve down, the U.S. could cover all its citizens for about what the nation would spend absent any reforms.
The report found that the president’s law missed the mark, although not by much. The overhaul will increase national health care spending by $311 billion from 2010-2019, or nine-tenths of 1%. To put that in perspective, total health care spending during the decade is estimated to surpass $35 trillion.
The administration doesn’t even argue the point, claiming that’s a bargain for insuring 95% of the country. Of course, what USA Today doesn’t point out is that 75% of the 4 million households that will be hit with those tax penalties average less than $60,000 a year individually and families making less than $120,000 a year.
Also keep in mind that the CBO analysis and estimate are based in the assumption that absolutely everything in the bill goes as planned – to include the Medicare cuts. Or said another way, the $311 billion “cost’ is a joke and it will most likely cost far more than that.
The CBO also looks at Medicare:
In addition to flagging the cuts to hospitals, nursing homes and other providers as potentially unsustainable, it projected that reductions in payments to private Medicare Advantage plans would trigger an exodus from the popular program. Enrollment would plummet by about 50%, as the plans reduce extra
benefits that they currently offer. Seniors leaving the private plans would still have health insurance under traditional Medicare, but many might face higher out-of-pocket costs.
That brings us back to the politics and the polite word used -‘unsustainable’ – to mean the cuts just aren’t going to happen.
USA Today ends its article with this:
In another flashing yellow light, the report warned that a new voluntary long-term care insurance program created under the law faces “a very serious risk” of insolvency.
What they’re talking about is this:
One other interesting note from this study was a paragraph on the new Community Living Assistance Services and Supports insurance program for home care, known as the CLASS Act.
While it produces a $38 billion net savings through 2019, that’s mainly because you have to pay five years of premiums before you can start taking advantage of the program.
After that, the Medicare Actuary doesn’t like the way it looks in financial terms.
“Over the longer term, expenditures would exceed premium receipts, and there is a very serious risk that the program would become unsustainable as a result,” the study says.
“Unsustainable” – pay 5 years of premiums before you get the first benefit and the “expenditures would eventually exceed premium receipts”. Sounds exactly like every other program I’ve seen designed and engineered by politicians. That’s why we’re in the freakin’ fiscal mess we’re in now.
And the moon pony crowd keeps believing you can get something for nothing and that we can fix crap like this to where it will actually work and cost less too.
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Byron York’s count has it at 209 “no”, 204 “yes”, with 18 undecided. David Dayden at FDL puts the count at 191 “yes”, 206 “no” (205-209 with leaners), with 17 undecided.
As you can imagine, the pressure on the remaining 17 or 18 is going to be enormous. Bart Stupak claims it has been a “living hell”.
Still nothing out of the CBO which means a Saturday vote is unlikely.
Obama’s interview with Brett Baier of Fox is likely to do nothing to change minds about health care, just as his speech in Ohio had little effect. He may as well have gone to Australia as this is shaping up. But it is clear he and the Democrats want to avoid any talk about “process” and continue to wave it away as something the American people just aren’t concerned with. Big mistake.
And although he wouldn’t own up to it in the Baier interview, Obama has told others that the fate of his presidency is on the line with this vote.
All it took for Dennis Kucinich to cave was a 45 minute ride on Airforce One. The liberal Ohio Democrat has found a way to rationalize his change of mind.
If you don’t think this is having an effect throughout the land, just remind yourself of the Scott Brown race, where Brown ran for liberal lion and chief health care reform advocate Teddy Kennedy’s seat as the “41st vote against health care”. Then cast your eyes west and note that Barbara Boxer, another Senate liberal is vulnerable as well.
Speaking of California Senators, Dianne Feinstein’s “National Insurance Rate Authority” has been dropped from the reconciliation bill. Since it has nothing to do with budgetary matters, it can’t be included. If this monstrosity passes, look for her to attempt to add it at another time as an amendment to some other Senate bill.
And Code Red suspects two new “yes” votes for the bill, from California Democratic Reps Dennis Cardoza and Jim Costa have to do with announced water allocations for the water starved Central Valley in the state. Yesterday the Interior Department moved up the March allocation, something never done in the past. A “back room deal” for their votes?
One of the things Baier did in his interview is question the health of Medicare. He got the president to admit that the bill doesn’t fix the structural problems of the program. More and more medical providers are recognizing that problem and opting out of taking Medicare patients because they claim they can’t afford them. And if Medicare is in bad shape, Medicaid is in worse shape. As if to emphasize that point, drug store chain Walgreens has announced that after April 16th, it will no longer take new Medicaid patients.
The point, of course, is this “reform” does nothing to address the structural problems of the two government run systems which are at the core of the health care cost problem in the US.
Last, but not least, the Attorney General of Virginia has announced the state’s intention to sue the federal government if the present health care bill is passed under the “deem and pass” rule. Virginia has already passed a law declaring it illegal for the federal government to require individuals to purchase health insurance.
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Ezra Klein says he’s been looking for polling data concerning Medicare prior to its passage to determine how popular it was at the time. If it wasn’t particularly popular, his obvious intent is to use that to make the argument that Democrats have a good chance of surviving a vote on this monstrosity by saying “but people love Medicare now”.
He finds that Greg Sargent has beaten him too the punch:
In a last-minute effort to stiffen Dem spines, senior Dem leadership aides are circulating among House Dems some polling numbers from the 1960s that underscore how controversial Medicare was in the months leading up to its historic passage.
Dem leadership staff is highlighting a series of numbers from 1962 on President John F. Kennedy’s proposal. In July of that year, a Gallup poll found 28% in favor, 24% viewing it unfavorably, and a sizable 33% with no opinion on it — showing an evenly divided public.
A month later, after JFK’s proposal went down, an Opinion Research Corporation poll found 44 percent said it should have been passed, while 37% supported its defeat — also showing an evenly divided public.
Also in that poll, a majority, 54%, said it was a serious problem that “government medical insurance for the aged would be a big step toward socialized medicine.”
After Lyndon Johnson was elected, a Harris poll found only a minority, 46%, supported a Federal plan to extend health care to the aged. Today, of course, Medicare is overwhelmingly popular.
That brings me to the most important question: is Medicare “overwhelmingly popular” or is Medicare “popular” because it is what seniors are stuck with? There’s a big difference there. Is Medicare what seniors would have if they had a choice? Of course there’s no way to determine that, but the popularity (and, as many claim, the necessity) of “Medigap” insurance to cover the obvious holes in coverage speak to a clientel which may be less enamored with the mandatory system than we think.
Much has been made of seniors concerned about losing their coverage – government coverage, for heaven sake! Supporters of the travesty now in Congress claim that senior’s fear of losing their coverage is driven by their satisfaction with it. Logically that’s a leap. When you have no choice in the matter and what you have is being threatened, you’re likely to want to at least keep that. That doesn’t necessarily mean you love it or you’re satisfied with it or you’d wish it on anyone else. At most, it just means it beats the unknown.
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Everyone’s favorite maniac congressman, Alan Grayson of Florida, introduced a bill yesterday that would quite simply open up Medicare to all citizens and legal residents of America. It is the purest “public option” proposed thus far. And it might just work.
Already the leftosphere is singing Hosannas. From Firedoglake:
As quixotic efforts go, I’ll take Alan Grayson’s HR 4789, a four page bill which “allows any American to buy into Medicare at cost.” You cannot possibly get more simple than that, it would not add one cent to the federal deficit, and it would offer people the option of purchasing Medicare (and its provider network) or purchasing an insurance product from a private company.
This evening Alan Grayson, Orlando’s spectacular and effective fighter for ordinary working families in a Congress that overwhelmingly caters to wealthy and powerful special interests, introduced the most real and straight forward healthcare reform bill that’s come up so far. Unless Obama makes the House leadership kill H.R. 4789– a distinct possibility– this should pass the House more easily than anything that’s been proposed for healthcare reform so far. And I bet it could even win cloture in the Senate! His bill offers the opportunity for everyone in the country to buy into Medicare. “Obviously,” said Grayson, “America wants and needs more competition in health coverage, and a public option offers that. But it’s just as important that we offer people not just another choice, but another kind of choice. A lot of people don’t want to be at the mercy of greedy insurance companies that will make money by denying them the care that they need to stay healthy, or to stay alive. We deserve to have a real alternative… The government spent billions of dollars creating a Medicare network of providers that is only open to one-eighth of the population. That’s like saying, ‘Only people 65 and over can use federal highways.’ It is a waste of a very valuable resource and it is not fair. This idea is simple, it makes sense, and it deserves an up-or-down vote.”
To the Huffington Post:
When Rep. Alan Grayson (D-Fla.) first became a father, his health insurance company refused to pay for the birth of the child, and Grayson had to pay $10,000.
Grayson told the House that story Tuesday during an impassioned and personal speech urging fellow lawmakers to support legislation that would allow Americans to buy into Medicare. Grayson introduced a four-page bill Tuesday that would make that a possibility. He asked would-be opponents to grant Americans the option to buy into the same health care plan that the federal government already offers.
And, of course, Daily Kos:
So instead of pontificating about how there is no SP or PO in the current HCR bill, he is solving the problem by offering a separate simple bill that would essentially do the same thing…allow Medicare for All…
There would be no pre-existing conditions and no medical underwriting, presumably the pools would be large enough to spread the risk.
There is no funding required for this since subsidies are not proposed for this bill. It would essentially be a PO starter. Then it could be added as an option to the exchange and subsidies could in theory be applied just like any other plan in the exchange.
We should support an “Up or Down” vote on this plan!!!
The bill’s genius is its simplicity, and specifically the promise to charge premiums to new enrollees, which would appear to make the bill deficit neutral. Here’s the entire text:
H. R. 4789
To amend title XVIII of the Social Security Act to provide for an option for any citizen or permanent resident of the United States to buy into Medicare.
IN THE HOUSE OF REPRESENTATIVES
March 9, 2010
Mr. GRAYSON (for himself, Mr. FILNER, Mr. POLIS of Colorado, Ms. PINGREE of Maine, Ms. SHEA-PORTER, Ms. SCHAKOWSKY, Mr. FRANK of Massachusetts, Mr. KUCINICH, Ms. EDWARDS of Maryland, Ms. WATSON, and Ms. JACKSON LEE of Texas) introduced the following bill; which was referred to the Committee on Ways and Means
To amend title XVIII of the Social Security Act to provide for an option for any citizen or permanent resident of the United States to buy into Medicare.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the `Public Option Act’ or the `Medicare You Can Buy Into Act’.
SEC. 2. UNIVERSAL MEDICARE BUY-IN OPTION.
(a) In General- Part A of title XVIII of the Social Security Act is amended–
(1) in section 1818(a), by striking `or 1818A’ and inserting `, 1818A, or 1818B'; and
(2) by inserting after section 1818A the following new section:
`(a) In General- (a) Every individual who–
`(1) is a resident of the United States;
`(2) is either (A) a citizen or national of the United States, or (B) an alien lawfully admitted for permanent residence; and
`(3) is not otherwise entitled to benefits under this part or eligible to enroll under this part;
shall be eligible to enroll in the insurance program established by this part. An individual may enroll under this section only in such manner and form as may be prescribed in regulations, and only during an enrollment period prescribed in or under this section.
`(b) Enrollment; Coverage- The Secretary shall establish enrollment periods and coverage under this section consistent with the principles for establishment of enrollment periods and coverage for individuals under section 1818, except that no entitlement to benefits under this part shall be effective before the first day of the first calendar year beginning after the date of the enactment of this Act.
`(1) IN GENERAL- The provisions of subsections (d)(1), (d)(2), and (d)(3) of section 1818 insofar as they apply to premiums (including collection of premiums) shall apply to premiums and collection of premiums under this section, except that–
`(A) paragraphs (4) and (5) of section 1818 shall not be applicable; and
`(B) the estimate of the monthly actuarial rate under section 1818(d) shall be computed and applied under this paragraph based upon costs incurred for individuals within each age cohort specified in paragraph (2) rather than for all individuals age 65 and older.
`(2) AGE COHORTS- The age cohorts specified in this paragraph are as follows:
`(A) Individuals under 19 years of age.
`(B) Individuals at least 19 years of age but not more than 25 years of age.
`(C) Individuals at least 26 years of age and not more than 35 years of age.
`(D) Individuals at least 36 years of age and not more than 45 years of age.
`(E) Individuals at least 46 years of age and not more than 55 years of age.
`(F) Individuals at least 56 years of age and not more than 64 years of age.
`(d) Treatment- An individual enrolled under this part pursuant to this section shall not be treated as enrolled under this part (or any other part of this title) for purposes of obtaining medical assistance for medicare cost-sharing or otherwise under title XIX.’.
There are no hidden takeovers of medical reporting systems, individual mandates, abortion mandates, or anything else. Nor is anything about pre-existing conditions, “Cadillac plans”, or any of the other issues plaguing ObamaCare at the moment. If you want to buy in, you can. If not, then so be it. So simple it’s almost irresistible. Especially when one considers the popularity of a public option in most opinion polls done over the last year. To be sure, when people are confronted with the costs of a public option, or most anything else promised via ObamaCare, they lose interest. But Grayson’s bill doesn’t have that problem, seemingly, because it’s charging premiums, and there aren’t even any provisions calling for subsidies. Again, it’s almost irresistible.
However, if we game out how this would actually work, then we start to see the problems.
First off, since the vast majority of us get insurance for ourselves and our families through our employers, we won’t likely be buying into Medicare. Nothing about Grayson’s bill changes the employer/health insurance relationship, so as long as we stay employed, we’ll remain a part of that system. Seniors, of course, are already a part of this system, so there’s no change there as well. Those most affected will be part-time employees not otherwise covered, the self-employed, the unemployed and the basically uninsurable. Other than the self-employed, the remainder of these likely Grayson bill participants are not likely to be able to afford the full cost of Medicare premiums, assuming that the government actually charges full price. So the emergence of subsidies is almost guaranteed, which will cost taxpayers even more.
Secondly, the more people who enroll in Medicare, the more providers accepting Medicare payments that will be necessary to accommodate them. Since Medicare pays doctors at a lower rate than private insurers, doctors and hospitals won’t want to take on many of these new patients, who basically cost them money. Just by way of example, get out your trusty phone book, call around for a dentist in your area who takes Medicaid payments, and see if they have any openings in the next year or two. That’s what would happen with a Medicare-for-all plan as well. Oh, and don’t forget that Medicare turns down requests for reimbursement at a much higher rate than private insurers do.
Most significantly, with a public insurer in the market place, one who can dictate prices and standards to providers, and who does not have to turn a profit in order to stay in business, the entire health insurance dynamic will be irrevocably altered. In order to stay in business at all, private insurance companies will need to join the Medicare and Medicare Advantage network, and will subject to whims and vagaries of Congress when it comes to reimbursements, executive pay, and whatever else suits Capitol Hill’s fancy (which, naturally, will be a great source of graft). Restrictions on denying coverage to those with pre-existing conditions, and mandates for covering everything from toe fungus cream to abortion will be introduced to the menagerie of legislation supporting Grayson’s simple four-page bill, until one day the idea of just taxing taking contributions from everyone’s paycheck for Medicare insurance and giving it to them “for free” is but a small step that might be done in a three-page bill. Eventually, Medicare-for-all and universal health care will be indistinguishable, including the waiting lines, “death panels” and substandard care.
Just one small, simple, four-page step. That’s all it will take. And it might just work.
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