No new promises, please

No new promises, please

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)

55 responses

  1. Pingback: Instapundit » Blog Archive » KEITH HENNESSEY: No new promises, please….

  2. Pingback: Hot Air » Blog Archive » CBO’s ObamaCare analyses carry big uncertainties

  3. Very honest post. As a foreigner, from Argentina, I am truly concerned that this initiative will transform this country into another basket case…something I've seen first-hand, believe me, it hurts…a lot. Starts from the fiscal gap but it never ends as it is propeled by the ever-growing entitlement mentality. Granted, health care is in real need of reform, let's hope this bill doesn't go through and fiscal-responsible people (Reps or Dems) do not let this fall through the cracks and start putting forward gradual solutions that may address the real problem, the difficulties to find affordable and reliable healt-care.

  4. Great post. If only it would work. Maybe the world will change and it will but I am hedging my bets. I tell my children the debt is not theirs. I am a patriotic American but the debt is rapidly not becoming mine either.

    I would warn any friends I have that are Chinese or Japanese that when there is a nationwide repudiation of the debt – i.e. default or massive inflation, know you were warned.

    I have moved from being a citizen with some say in my government to a serf. My land is the king's that I rent for property taxes, my goods are the king's that may be taken at anytime if I annoy him, my freedom is at mercy the king's minions who gleeful right new rules of the land daily.

    The government at all levels is rapidly losing legitimacy.

  5. Or you could choose to stop grossly over funding a military complex which is several times larger than our closest likely adversary and which leads us to unnecessary commitments in our foreign policy. Since we’re contemplating choices and all…….

  6. From the Dictionary of Political B.S. (and I don’t mean Bachelor of Science)

    chutz·pa [khoo t-spuh]
    –noun Slang

    Part 1: Presenting a plan that (1) adds a hugely costly, soon-to-be-entrenched new entitlement to our already unsustainable long-term fiscal imbalance, (2) includes the politically easiest, least painful budgetary sacrifices as “offsets” even though (A) those sacrifices are unlikely to actually be made for the most part and ( B ) even insofar as they actually are implemented, they are already necessary and inevitable as the easiest parts of any solution to the fiscal imbalance, and using them up to “fund” a new entitlement rather than for deficit-reduction will necessitate politically more difficult, more painful, and later-arriving budgetary sacrifices.

    Part 2: Constantly, emphatically presenting an argument in support of this plan that combines (1) “Rock Soup” (packaging together – as if one were somehow dependent on the other — the costly new entitlement with relatively minor and apparently mostly independent pilot programs and other measures that, optimistically speaking, may lead to some reforms that may lead to other reforms that one day could reduce costs) and (2) the “South Park Underpants Gnomes’ business model” as follows:
    Premise #1: The current course of projected federal spending on healthcare is unsustainable
    Premise #2: ? [this is where one would expect, but not find, some explanation of how adding this entitlement would reduce total projected federal spending on healthcare]
    Conclusion: We need this plan!

    Part 3:Constantly referring to “bending the cost curve” without ever presenting an analysis that shows lower spending (the height of the curve; where on the Y axis of spending at any given point) at some point and showing lower spending in NPV terms. (Oh, and including among those elements that will supposedly “bend the cost curve” a broad expansion of preventive care that will supposedly reduce healthcare spending, even though the experts say it won’t, and presenting a moronic, intelligence-insulting argument to explain why this conclusion of savings is just common sense — “Hey folks, it’s obviously less expensive to treat a problem earlier than later, right?”).

    Part 4: Proclaiming your plan “the most significant effort to reduce deficits since the Balanced Budget Act in the 1990s.” (Obama) or ”the biggest deficit reduction bill that any member of Congress is ever going to have the opportunity to vote on.” (Hoyer) or ” "a triumph for the American people in terms of deficit reduction" (Pelosi)

    • That stupid emoticon of the smiley face wearing shades was supposed to be a capital "B" in parenthesis. Anyone know how to turn off automatic emoticons when commenting on blogs?

    • As I’ve said before, although I have mixed feelings about it (since I do want to see some coverage subsidized for a significant number of the currently uninsured), I come down hoping (very uncomfortably) that this legislation fails so that consideration of any such large entitlement will (hopefully) occur in the more rational context of a plan for our long-term fiscal imbalance, or at least in the context of greater awareness and cognizance of that challenge and the difficult trade-offs we face. If creating a new, expensive entitlement is considered worth doing, it should be considered worth doing within that rational framework, and if it wouldn’t be considered worth doing in that rational framework, it’s not worth doing.

      Hopefully the president’s fiscal commission, outside private fiscal commissions, and the work of groups like Concord, CRFB and the Peterson Foundation will help shift emphasis to the long-term fiscal imbalance issue and will help provide this rational framework in which tough choices are faced.

  7. Why is it so much easier to get fiscal conservatives on board with funding military adventures than it is to get them on board with making quality healthcare available to 30 million fellow citizens? If you are serious about fiscal conservatism, you must advocate for a significant reduction in military spending.

    • Because there is no constitutional authority to provide health care to citizens, while there is a constitutional authority to wage war. Instead of slashing the military budget, we should cut out everything except the military and a few other essentials- yes, that includes Social Security and Medicare.

      • The Constitution also says war is to be declared by three quarters vote of Congress only. Perhaps we wouldn't need such a high military budget if we stopped declaring unconstitutional wars.

      • Exactly.

        We need a military. But as much military as we have now?
        People need healthcare. And millions can't get it in our current system.
        We need to deal with our long term budget issues.
        We need to raise taxes…but there are obvious limits.

        Those are the facts. Oversimplified, for sure. But they are the cards on the table.

        My question is why should people's healthcare suffer when we have the option of cutting military spending?

      • Do you mean millions can't get health care or do you mean that millions can't get health insurance? Be specific. I can see that millions do not have health insurance; I do not see millions who cannot get health care.

        And yes, there are obvious limits…the biggest of which is the Constitution. The Constitution says the federal government can have an army. The Constitution is also crystal clear that anything not specifically assigned to the federal government is the responsibility of the states.

        It isn't hard to understand. So, to your question, "why should people's healthcare suffer when we have the option of cutting military spending?": Just because the federal government looks as if it has unlimited money and unlimited powers does not mean that it does.

  8. Keith, I am afraid you are making too much sense and laying out logic many do not want to consider anyway. Demanding no new promises is enough IMO.

  9. Pingback: No New Promises, Please  | TightWind

  10. Anyone who believes that the Republicans will be fiscally responsible is deluding themselves. When have they been fiscally responsible in the past?

    Keith himself says it best: "The longer we wait to start, the bigger the necessary changes, and the more wrenching they are to American society." The waiting has already happened. We waited in 1930s (Roosevelt). We waited in 1940s (Truman). We waited in the 1960s (Johnson). We waited in the 1970s (Nixon). We waited in the 1990s (Clinton). We are now at the point where the changes are necessarily big.

    You can criticize what you THINK is going to happen (CBO won't hold. Congress will buckle.) Or you can face what will ASSUREDLY happen if this doesn't pass (Health care and entitlement costs increasing at an unsustainable rate).

    It is easy to say what is wrong with this legislation. But without an alternative, it's what we have. And it's not as good as it should have been because of Republican pressure. Fair enough – that's their role. But if the argument is that the bill should have more teeth, it was partially neutered from the right not the left.

    Finally, to compare modifying a bill to get proper CBO scoring with the problems with ratings agencies and the financial crisis is offensive. The financial ratings agencies lacked understanding of the instruments in play, and were also actively deceived by the investment banks and others as to the realities underlying the securities being scored. There is neither a lack of understanding (except to the extent that the future prediction is impossible for either proponents or critics of the bill) nor active, illegal deception in the process.

    And after all the accusations and blather, what we are left with is this: What other proposal is on the table that would change the structure and the course of health care costs?

  11. A majority of Americans do not want Obamacare passed. Obama, Reid and Pelosi are on ego trips that are totally at odds with what a majority of Americans want. Fine. See you in November.

    • glad I won't have to see you until then, wish it were longer. no solutions, no ideas, no responsibility for where you've taken the country already. nothing. zilch. zippo. nada. republicans have added absolutely no value to the country since 2002, and in fact have moved things largely backwards.
      the democrats are SAYING that they are happy to take this legislation to the elections, and it seems thats what you want as well. I don't see what the problem is?

  12. Pingback: Nightly Ramble Friday (The socialist healthcare edition)

  13. The truly hysterical thing is that this entire post is basically an argument for universal single payer health care as the only way to actually cut costs long term.

    • I disagree whole=heartedly. A single payer system run by the govt would instantly be unionized – then we can pay for all healthcare bureaucrats and healthcare workers to retired by age 60 with what, 80% pay for the rest of their lives? Wait till you see what that will do to healthcare costs. Just look at every program run by the govt. Or better yet – what happens when I pay my premiums to govt – who instantly spends it on something else (like what they've done with Social Security) and then some day – they can't pay my claims because it all finally comes crashing down. I don't expect a dime from social security that I've paid into for years – but I'll be damned if I'll gamble my healthcare that way.

      • have a look at per capita costs in every other healthcare system in an industrialised country anywhere in the world, and tell me whether healthcare costs would be higher under a nationalised (or even semi-nationalised) system.
        get back to me when you have the figures, and if you still disagree, then you're basically ignoring reality.

  14. How the CBO Scores Congressional Legislation

    CBO:  The MedHelp bill spends $1 trillion and increases what you must borrow, the deficit, by $230 billion.
    Politician:  What if I tell you that we will stop paying the doctors, saving an additional $400 billion?

    CBO:  Can you really do that?
    Politician:  Just assume that I can. I'll write it into the margin.
    CBO:  Then, the bill spends $1 trillion and decreases the deficit by $170 billion, by raising taxes by $770 billion, and saving $400 billion on the doctors.

    Press Conference:  The bi-partisan, mathematical, unbiased, technoid, trustworthy, very smart CBO has just scored the MedHelp bill. Ladies and Gentlemen and Republicans, this bill delivers medical help to everyone, and reduces the deficit by $170 billion. How could any intelligent person be against it?

  15. Dear Math Whiz: Please describe the scenario for health care spending in relation to the nation's and it's citizens financial well being if nothing is done and costs continue to rise at, oh 39% a year, the way my insurance premiums currently do.

    • Jeff,
      I don't know why you direct random questions at me, after calling me sarcastic names.

      Instead, I suggest you make your positive case. Analyze what is happening, why, and what you want to do about it. Or, add some analysis or cited facts to the discussion.

      Sorry about your insurance rate. Do you have any ideas about what is causing that increase, or can you cite an analysis?

  16. Keith, just a quibble, but the only presidents who have balanced the budget recently are Democrats – and Obama would have, too, if he hadn't inherited the Second Great Depression from the worst president this country has had since Herbert Hoover. The CBO says the health care bill will reduce the deficit by a trillion dollars over 20 years – why aren't fiscal conservatives lining up to get on board with this?

    Let's not even mention the pilot programs, which are actually a substantial part of the bill, and which the CBO doesn't score, because they're unproven. These programs are, across the board, aimed at real-life experiments attempting to determine how hospitals can reduce costs and provide better care. It's inconceivable that none of these will have even a modicum of success, and if a few of them actually turn out to be good models, we could see even greater cost-reductions and quality of health care across the board.

    The truth is, democracy is notoriously short-sighted – it works in four-year cycles, and doesn't usually worry about things like deficits, which can be passed on to future generations. But this Congress and this President have said, "We don't care that we're taking a pounding in the polls, we are going to do what's right for this country." And they're pushing forward with a necessary bill to restructure health care in America so that it makes sense, reduces the deficit, and addresses the most terrible costs of the most terrible health care policy option America faces: Doing nothing at all.

    I can't believe fiscal conservatives like yourself aren't on board, full-throated, and fighting tooth and nail to get it passed.

    • It reduces the deficit through trickery – gimmicks in the budget. There are many articles about that – have you seen them…They have taken out the doc fix spending. They're stealing from other programs. And they're raising taxes and fees by hundreds of billions. This program isn't free – you do get that right? It doesn't cost a negative number. And – please – do you really believe any govt estimate – come on now, really? Cause I'll take that bet – how much would you wager? There is nothing fiscally conservative about this bill. It sucks money away from families and businesses – from the private sector to the govt. It expands govt to a ridiculous amount (17,000 IRS workers alone and a billion dollars per year). And it takes away our freedom – I'm really looking forward to the health service commission deciding what treatments are appropriate for my family – how about you? Mammograms beginning at age 50 as recommended by the govt would have killed many women that I know. Why would you trust your healthcare to these corrupt people?

    • You're kidding right.

      Obama's budget projects trillion dollar deficits as long as the eye can see, including after the projected completion of both of the wars.

      The Bush tax cuts expire this year. To blame Bush for future deficits is truly bizarre.

  17. @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.

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