One Opinion On Funding (?) Medicare

I am behind in my reading, but I ran across this and thought it was worth passing on...

People only accept change when they are faced with necessity, and only recognize necessity when a crisis is upon them.

- Jean Monnet

The simple reality is that if We the People of the US want Medicare, in even a reformed and more efficient manner, we must find a way to pay for it. It will not be cheap. Raising income taxes on the "rich" is not enough. You have to go back and raise income taxes on the middle class, too. Oh, wait, that will be a drag on the economy and consumer spending. And in any event it will not be enough.

The only real way to pay for those benefits will be a value-added tax, or VAT. And while it could be introduced gradually, let there be no mistake that it will be a drag on economic growth. Government spending does not have a multiplier effect on the economy. It is at best neutral. What creates growth is private investment, increases in productivity, and increases in population. That's it. Tax increases have a negative multiplier.

A significant VAT along with our current income taxes will give us an economy that looks more like the slow-growth, high-unemployment world of Europe. Can we figure out how to deal with that? Sure. But it is not growth-neutral.

Republicans in 2013 will be like the dog that caught the car. What do you do with it? The last time they (embarrassingly, we) really screwed it up. The defining political question of this decade will not be Iraq or Afghanistan, or the environment or any of a host of other problems. The single most important question will be what do you do with Medicare? Cut it or fund it? Reform it for sure, but reform is not enough to pay for the cost increases that will come from an increasingly aging Boomer generation.

There is no free lunch. At some point, you cannot run on "no cuts in Medicare" and "no new taxes" and be honest. At least not this decade. Maybe when we have cured cancer and Alzheimer's and heart disease and the common cold at some future point, medical costs will go down, but in the meantime we have to deal with reality.

You may be able to fool the voters, but you will not be able to fool the bond market. Not dealing with reality will create a very vicious response. Ask Greece.

And that is the national conversation we must have with ourselves. There is a cost to government. There is a cost to extended Medicare benefits. (I am blithely assuming we deal with all the "easy" stuff like Social Security, and make real cuts in other areas.)

And for my international readers, this is an issue that the entire developed world must deal with. We all have our problems created from years of very poor choices, overleveraging, and deficits. It will not be easy. I must admit to smiling when I see the protests in France over raising the retirement age from 60 to 62. Really? Amazing.

And while France causes me to smile and shake my head, the refusal on the part of the US leadership to give more than lip service to solutions that might disrupt their slim majority of voters is maddening.

This election next week will change very little in real terms, the things that matter, like whether the US economy can grow or will face a very real crisis and a true depression. That potential is in our future, and it is coming at us faster than you think.

John Mauldin
Thoughts from the Frontline Weekly Newsletter

Patients Should Pay Their Own Bills

Big Spenders: Increases in health care costs rival the rising of the sun for inevitably. Should we blame greedy doctors and drugmakers? No, blame should be placed on the system the government has promoted.

The tax code encourages employers to buy health care insurance plans with pretax dollars. Because these plans are exempt from federal income and payroll taxes, employers salaries. Nearly 60% of American adults are covered by an employer-based plan.

For most, these plans work well. But the arrangement that so many have become accustomed to has driven health care spending ever higher. The cost of medicine increased 98% between 1992 and 2008, a period when the consumer price index rose 53%. Health care spending now makes up 17% of the economy, a far bigger slice than it did before the 1965 creation of Medicare and Medicaid, when it never went beyond 6%.

Why has this happened? Devon Herrick from the National Center for Policy Analysis has the simple answer: We have become big spenders on health care because our motivation to be thrifty has been legislated away.

"A primary reason why health care costs are soaring is that most of the time when people enter the medical marketplace, they are spending someone else's money," Herrick wrote in "Why Health Costs Are Still Rising," an NCPA report released last week.

Because Americans who have employer-based coverage see little money coming out of their pockets when they visit a doctor or go to the hospital, they have little incentive to keep costs down.

"When patients pay their own medical bills, they are conservative consumers," Herrick writes. "Economic studies and common sense confirm that people are less likely to be prudent, careful shoppers if someone else is picking up the tab."

According to Herrick, for every dollar of hospital care that is consumed, a patient pays only 3 cents. The rest is paid by a third party, the insurance company. When a patient visits a doctor, less than 10 cents of every dollar of care consumed is paid by the patient. Again, a third party pays the balance.

And "for the health care system as a whole, every time patients consume $1 in services, they pay only 12 cents out of pocket."

Medicare and Medicaid have also had an impact on spending, as they too are third-party payers that, similar to insurance plans, hide from patients the true cost of medicine.

To show what a health care sector without similar incentives looks like, Herrick turns to cosmetic surgery, the demand for which has exploded in recent years.

Citing American Society of Plastic Surgeons data, he says 1.7 million cosmetic surgical procedures were performed in 2008, "more than 40 times the number performed two decades ago." Yet cosmetic surgeons' fees, he says, have remained relatively stable, rising only 21% from 1992 to 2008.

The rather flat line of growth in spending on cosmetic surgery is due to the nature of the market. Almost all payments are made out of pocket by patients, which forces them to be wise consumers. It also requires doctors to compete on price.

The third-party payer problem that has forced costs higher was not addressed by ObamaCare. In fact, the Democrats' plan to bring down costs will only make the problem worse. Their chief goal is to increase the role of the third-party payer, that third party being the government, or, in the interim, the government and an insurance market under the central-planning thumb of Washington. Costs won't be going down.

The appropriate policy solution would be one that puts patients in control of their health care. It's obvious that the country needs more spending discipline, the kind that lets consumers, not the government, make their own choices on health care purchases. Let the market — consumers trading freely without coercion — solve the problem.

If Washington were to give health savings accounts the same tax treatment afforded employer-based insurance, exempting them from federal income and payroll taxes, the incentive for consumers to ration their own care would slow the rise in health care spending. This is something Republicans need to consider as the new Congress starts to dismantle ObamaCare.

IBD editorial

I Thought It Was Universal Health Care?

Obama White House hands out 111 Obamacare waivers

"I don't think this is a question of the practicality of whether it works or does not work. This is a question of the law that was passed and then all of a sudden you have a bureaucracy that decides who gets the exemptions and who doesn’t. That is what is wrong. It is not fair. It is an outrageous procedure and they should have either passed it and it was universal for everybody or it isn’t for nobody."

Wayne Rogers

See the list here

It Doesn't Look That Bad...

(Click image to enlarge)

Michael Ramirez, IBD

This Is A Level Playing Field?

"The Obama administration said Friday it will cut premiums and upgrade coverage in a new health plan for people with medical problems, because enrollment has been disappointingly low." Initially, "government economists had projected that people turned down by private insurers would flock to the new Pre-Existing Condition Insurance Plan, with 375,000 expected to sign up this year," yet "as of this week, a little more than 8,000 had enrolled, officials said." This is due in large measure to the premiums, which "can range from $400 to $600 per month or more for people in their 40s and 50s."

AP

So just because there are not enough people in the plan, the federal government can ARBITRARILY decide to REDUCE the premiums and make the benefits RICHER? How can they do this? Easy. Taxpayers subsidize the change.

And exactly how does a private health insurer compete on this supposed level playing fiield?