No new promises, please
19 March
This comment is addressed to those fiscally conservative Members of the House of Representatives thinking of voting for pending health care legislation.
America is on an unsustainable fiscal path. If we do nothing to address this, within 25 years the U.S. government will default on its debt, with devastating consequences for the U.S. economy and society.
We are on this path because past elected officials made unsustainable benefit promises and enshrined them in law. In some cases they paid for those promises in the short run. In all cases they created programs that would grow more generous over time.
Those past elected officials enjoyed the political benefits of creating a new promise, and they shifted the burden of paying for these promises onto their successors and onto future generations of citizens.
You are their successor, and we are those future generations. The bill is coming due. The gap between future spending and taxes is the most important economic problem America faces. If we don’t fix it, we’re screwed.
To fix this problem we need to slow the growth of Social Security, Medicare, and Medicaid spending. You may think we also need to raise taxes, either for reasons of policy or of political compromise.
The long-term fiscal gap is enormous. It’s not measured in billions or even tens of billions of dollars. It’s measured in percentage points of GDP. One percent of GDP this year is $146 billion, and our fiscal gap is many times that. We need to make huge fiscal policy changes to avoid economic disaster.
Big changes are easier to make if we phase them in gradually, so people have time to plan and adjust. The longer we wait to start, the bigger the necessary changes, and the more wrenching they are to American society.
Good policy is to start these changes immediately, so that they’re in place and it’s hard to repeal them. Set the changes up so they grow steadily over time. Turn the aircraft carrier by an enormous amount, begin immediately and do it gradually, but lock the full course and ultimate direction in now. American society can then incrementally adjust to the changing conditions, and elected officials will not be confronted with sudden, disruptive, painful policy spikes they will be tempted to postpone or repeal.
Slowing the growth of popular entitlement programs is politically painful. So is raising taxes. Elected officials get punished for both.
This problem may seem politically intractable because of serious policy disagreements about the relative mix of spending changes and tax increases. Each party sees electoral advantage in attacking the other’s possible proposed solutions, so it’s hard to cooperate across the aisle.
As the pain of a government default approaches, markets will punish the U.S. economy to the point where elected officials will be forced to negotiate a solution. The danger is that you and your colleagues wait until this time, when the changes needed will be bigger and even more painful. If you can fix this before the markets force you to, America will be better off.
You have to fix this because your predecessors made an expensive promise and left you the bill. If you don’t fix it, your successors will have to. After that, the clock runs out and the economy collapses.
Now President Obama and your party’s Congressional leaders want to make a new promise. They want to expand the role of government so that almost every American has prepaid health insurance. Like past promises, this is attractive to the millions who would receive the benefits of this new promise, and to many more who feel compassion for them. Like many, you probably believe that reducing the number of uninsured is an important policy goal.
What about the costs of funding this new promise? In this legislation President Obama and your party’s Congressional leaders have made some hard choices. The biggest are policies that would slow the growth of Medicare spending and policies that would raise certain taxes. These are hard policy choices that involve societal pain and political risk.
The legislation has been structured so that, if it is never changed, and if the projections hold true, the costs of this new promise will be fully offset by the Medicare “cuts” and tax increases. The costs of the new promises will not be shifted to the future if those two conditions hold. The referee says that, if those two conditions hold, this new promise has been paid for.
That makes this bill different than some of its predecessors. The President argues that it is more responsible than past promises. He argues further that it is fiscally responsible. I agree with the first and disagree with the second.
If these bills become law, we are left with two problems. The assumed conditions may not hold, so this new promise may in fact be underfunded just like all prior promises. And even if the conditions hold, we still have left unsolved the long-term fiscal problem with which we began, and we have fewer tools available to fix it.
The assumed conditions will not hold because they are not designed to hold. The bills’ authors have cleverly constructed the promises so that they are paid for in an accounting sense, but are politically unsustainable. New Medicare spending on doctors is paid for, as long as you believe Congress will allow even bigger cuts to take effect two years from now. The new insurance subsidies are paid for, as long as you believe that a tax increase scheduled to begin far in the future will survive eight years of labor union lobbying for repeal or perpetual delay. The new insurance subsidies are designed to cover those who buy health insurance outside of employment, but not those with the same salary who get health insurance through their job. If you believe this inequity is politically sustainable, then the bill is paid for. If instead you think there will be unbearable political pressure to provide equal treatment and expand subsidies to some of the 100+ million Americans who today get their health insurance through their job, then the subsidies you enact now are only the camel’s nose under the tent, and you are setting us on a path to an even larger and unfunded government promise.
The bill’s architects have cleverly gamed the rules to minimally satisfy the requirements of getting the referee to say the new promise is funded, while creating real long-term fiscal risk. There is an obvious parallel to the financial engineers who worked with credit rating agencies to tweak new risky credit derivatives until they barely qualified for a AAA rating. The financial engineers did not eliminate real risk, they instead solved for the rating agency’s scoring model. They then sold these products to clients as safe investments, with a wink. The authors of the pending health care bills have done the same with the CBO scorekeepers. You are the potential client being asked to buy this product. The proponents assure you that the scorekeeper says it’s OK. Then they wink.
Like many clients who did not understand the derivatives they were buying, you may not be an expert in the arcane world of CBO scoring. Or you may believe the bill will be implemented exactly as written, that there will be no future expansions or spending increases, and that future elected officials will resist all of the above pressures. If so, you still must wrestle with the unsustainable fiscal path with which we began. The deficit reduction credited to this bill by the referee and claimed by the bills’ proponents sounds large, but compared to our long-term fiscal problems it is trivially small. The President argued that health reform is entitlement reform, and that slowing the growth of health spending would address our long-term fiscal problem.
Instead, at best this bill makes our long-term fiscal problem no worse, while using up options to solve it. The pending legislation takes all of the easiest hard choices and uses them to offset the new promise. This leaves even harder and more painful policy choices when policymakers choose or are forced to address the long-term fiscal problem.
The pending legislation raises taxes “on the rich.” When someone tries to close our long-term fiscal gap, these tax increases will no longer be available.
The pending legislation slows the growth of Medicare spending, but then spends that money on the new promise. We still have the old unfunded promises, and those relatively easy Medicare policy changes will no longer be available to fund them.
When you or your successors choose or are forced to solve our long-term fiscal problem, these tools will be unavailable. You will have to reduce benefits and charge seniors higher premiums, copayments, and deductibles. You will have to cut provider payments even more. You will have to means-test benefits more aggressively. You will have to raise the eligibility age for these programs. If you favor tax increases, you will find yourself evaluating options to raise them not just on the rich, but also on the middle class. The arithmetic will force you to do these things.
You will have to do some of these things even if the pending health care bills die. You will have to do many more of them if these health care bills become law.
You are being pushed to do a variant of what your predecessors have done. Solve a societal problem. Make a popular new promise. Ignore those who warn the promise is underfunded. Worry about the existing long-term problem later, or better yet, hand it off to the next crowd. If this legislation makes that long-term problem harder to solve by taking future options off the table, someone else can worry about that.
There is a simple answer, and you can choose it. Break the cycle. Don’t make a new promise that makes our biggest problem harder to solve and pushes it into the future. On our current path there’s not much future left.
Make us no new promises, please, until you have funded the old ones.
(photo credit: epSos.de)
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@Andrew Patton "Because there is no constitutional authority to provide health care to citizens"
Hey, um, directly after the words "provide for the common defense" are the words "promote the general welfare".
What do you think that means? If "provide for the common defense" suddenly means bomb the living hell out of a random country 'cause Dick Cheney's buddies want it's oil, why can't "promote the general welfare" actually mean make sure citizens are able to see a damn doctor?
I would say that the difference is between the words "provide" and "promote". I agree that the current Defense budget is unnecessarily large (as many posts have indicated) and that foreign entanglements (of choice) are the last thing we need. But we still have to have a military and that military must be funded. "Promoting the general welfare", however, does not mean "provide a new entitlement". I believe the government's role should be to promote fair practices amongst insurance companies, promote competition, promote charitable organizations, and promote healthy lifestyles. Taken together, these actions would allow the uninsured to buy insurance on their own (if they so choose) without creating yet another unsustainable government program.
It doesn't matter what other country's per capita spending is because…This bill does NOTHING to reduce healthcare spending. That's all you need to know. It increases it, and adds enormous bureaucratic overhead on top of it all. If it really bankrupts the country – can you see that it does no good? You honestly don't believe that deficit reduction number? Have you heard about the budget gimmicks involved? The unreasonalbe assumptions? At the very least, any reduction is achieved by raising taxes which would reduce the debt further if we didn't implement this program (by trillions). And yeah, I think defense spending should be cut too – but don't make the mistake of thinking that justifies this. I'm an Indendent voter – nothing justifies this bill. The beginning of socialism in our country – its just wrong.
why doesn't it matter what other country's have as per capita spending? equivalent outcomes, and less spending, shouldn't we be investigating what it is that we're doing wrong and they are doing right?
It doesn't matter because the root causes of health care spending are different.
Let's look at 3.
1. Doctor salaries — much higher in the US than in the European countries you are references. Last time I looked US salaries are about double for GP/FP.
2. End of life care — the US is much more generous in care in the last year of life, less rationing and more heavily intrusive care (this is very expensive which is why most public run health care spending doesn't have it)
3. Pharma prices — drug prices in the US are much higher and underwrite a fair portion of drug R&D. If we drive them down, we affect R&D. It's not clear how much but it's clear the effect is negative.
The payments system (single payor or multi) is not a big driver of costs. These other things are.
Common sense! Don't expect Obama and the Democrats in Congress to follow any common sense advice. Not when they control the piggy bank and can still borrow or print trillions and trillions. Yes the time of reckoning in coming soon, but they will have filled the pockets of the special interests and have their cushy exit plans ready to go. Its the bitter, gun toting, bible thumping, bigotted working people of our nation who will pay the price for their corruption!!!!!
Jeff seems to have found the Constitution's Rorschachian clause: "general welfare" means whatever the bleep you want it to mean. Whether you look at it in the Preamble or Art. I, Sec. 8, the phrase is quite vague. Lots of things could qualify under the "general welfare" clause: malpractice reform, universal healthcare, strippers…. On that last item, I'd like to think that a stripper for every single male and/or female (no discrimination here) would be in the country's "general welfare," too. Think of all the joy we could bring! Alas, it's not, so you might look for something a bit more substantive when you claim a mandate for this laugher of a bill. I wonder if ObamaCare supporters would reject out-of-hand all of the GOP's suggestions, or are some versions of the "general welfare" not as good for the…err…welfare of the general public? (I'd love my own federally-guaranteed stripper, btw, and would gladly support any politician who fought for my constitutional right to one.)
Creating yet another federal entitlement, despite some of the above assertions to the contrary, will always lead to more spending because doing fiscally responsible things like raising taxes (anathema to the Right) or cutting spending (unknown to the Left) aren't politically popular things to do. That's why they're called entitlements: because they're all about me!
If Bush is to blame for the pending collapse of the Republic ("Second Great Depression"), then Obama/Pelosi/Reid certainly have to be credited with the assist when it actually happens (federal insolvency). Hooray bipartisanship!
Yes, we face long term fiscal problems down the line. And this health care legislation punts it down the road. But find me 1 just ONE person in the GOP willing to attack this, and I will support them. You can't have tax cuts forever without spending reductions. And you can't tackle the long-term problem with mandated programs without adjustments. Go ahead, sacrifice the senior vote. I dare you.
I didn't think so. The GOP had from 2002 to 2006 to secure the votes for a generation and blew it. Have fun in the wilderness until 2020.
Don't forget it was a Republican Congress that brought about balanced budgets in the 1990s. The Congress controls the purse, the President can direct it, approve or disapprove it. Had the Gingrich Revolution (counter-revolution?) not taken place, Clintigula would have continued the leftist spiral downward.
"It's all BOOOOSHH's fault is getting a bit tiresome.
Great article. A number of comments here assail you in the usual manner – "well if we do nothing we certainly face disaster". Well, that is true. But the real comment is HOW MUCH WORSE WILL WE BE IF WE DO THIS VS DOING NOTHING? I think this bill will hasten our demise. What we need to do is STOP. Period.
Then we need to step back and discuss the problem and potential solutions – which are allowable under our constitution and "the way we do things" in the US. Then we need to have a bill drafted which doesn't hand out political favors like popcorn at the movies. Then we need to encourage our reps to put the plan in place.
IT WILL NEVER HAPPEN – because our representatives like to hand out favors like popcorn.
The solution is easy, and mark my words, will happen in the next month – disobedience. Some people think that this disobedience will be violent – i hope not. But, I won't blame those that feel it necessary to save their country. Personally, I favor starving the federal government. If we stopped paying our withholding and estimated taxes for 6 months what do you think would happen to the pols in DC?
As I recall, Social Security was enacted as a safety net for the truly needy. But it was expanded through the years to the mentally ill, drug addicts, kids with ADD, etc. Everyone says they pay into it, but those who paid 2.9% as opposed to the present day 7% have been drawing twenty to thirty years benefits. Most of those have homes that were paid for, pensions, etc. They would not be considered "needy" by todays standards (see how many take buses to Indian casinos). No one has touched this government program to make any changes. We are living longer and can save money by raising the retirement age. It must be means tested, of course that would have saved more prior to the financial meltdown as most nest eggs are depleted (I speak from experience on that). But even these changes have never been made because seniors would scream. Now with this health care plan, they will just die. Obama found the "final" solution to Social Security.
This article was extremely naive.
The Democrats are presenting the bill in bad faith. They know the bill as written will not work. That is not the point, though. Their goal is to create a crisis and then usher in "single-payer" or fully nationalized health insurance. Thus, the worse the bill, the better it is, in their eyes. The Democrats believe in good faith that socialized medicine will save money. Their foolishness is naive.
You completely failed to address the elephant in the corner of the living room: socialism. The Democrats want it and the rest of America is like a lobster being boiled slowly until it turns a bright shade of socialist red.
This column probably convinced no one at all to change their mind. It is an utter failure. Nor does it really inform anyone of anything that is remotely true.
Please focus on the real issue, which is socialism in sheep's clothing.
Reality Check:
You say "Their goal is to create a crisis". The crisis is here, regardless of who chooses to acknowledge it. In 1970 medical costs were 7% of GDP. In 2004 they were 15.9% of GDP. In the same time period, Canada went from 7% to 9.9%.
You say that the real issue is "socialism". Nice talking point, but remember: we are the only Western Democracy without universal coverage. And this bill isn't even universal coverage.
So if you are so concerned about socialism, allow me to ask: do you also believe Canada, UK, Japan, Australia, Spain, Germany, France, Norway, Sweden, Finland, Ireland and Scotland are all socialist countries?