Wednesday, January 30, 2013

Healthcare & the Deficit

If you're talking about the deficit, then you really need to be talking about healthcare. Here's why.

From a 2010 CBO report.
Social Security is not a problem. Other Federal Noninterest Spending is not a problem. Medicare and Medicaid is a problem. Why is that? Well, according to this chart ...

From Mother Jones.
... it's because we're getting older. Not much we can do about that. What we need to address is the pale green part of this graph — Spending in the Absence of Aging and Excess Cost Growth. And how do we do that?

From Wonkbook.

Simple — hire any other industrialized country in the world to run our health care system. The chart above is pretty damning. The US government spends more per capita on healthcare than anybody else, and our system is supposedly privately run. Now, if you'll take a look at what we spend in that sphere ...

From Wonkbook.
So, all told, we spend about $8000 per person on healthcare in this country. The second slot goes to ... bit hard to say, but each of Canada, France and England appear to spend about $4000 per person, or roughly half what we do.

If you want to reduce the deficit, reduce healthcare costs.

Monday, January 21, 2013

Party Up, Chuck

From Talking Points Memo:
Sen. Chuck Schumer (D-NY) said Sunday that Democrats in the Senate intend to draft a budget this year that will include revenues, regardless of House Republicans use of the debt ceiling to force the Senate to come up with a  budget. 
"We're going to do a budget this year, and it's going to have revenues in it," he said on NBC's "Meet the Press."  "And our Republican colleagues better get used to that fact."
 Chuck — we've got you covered. All you need to do is ...
  1. Expand the number of brackets to what they were during the early Reagan years, and bring the top marginal rate back to the 50% it was back then. It was good enough for St. Ronnie; it's good enough for today. 
  2. Get rid of the capital gains tax. Treat all income as ordinary income. 
  3. Junk the mortgage interest deduction. OK, just phase it out then.
  4. Set the trigger for the alternative minimum tax at $250,000 (for a household) and adjust it automatically for inflation.
A couple of other things. There's been a lot of screaming about the deficit lately, but very few people are noticing that the deficit has been getting smaller.

The graph above shows that the deficit got worse in the 70s, but got considerably worse at the same time the Reagan tax cuts were enacted. (Hint, hint). Then things got much, much better in the 90s under Clinton, and we were in a surplus at the end of his administration. (Psst -- Clinton raised taxes.) And then the bottom fell out under Bush. There's the the first big dip, which is the result of the Bush tax cuts and the wars in Afghanistan and Iraq. It improves somewhat, and then craters once the recession took hold (and tax receipts fell). (Note that the 2009 budget was created by Bush, and included a modest stimulus package. Then Obama enacted his own stimulus package. Both were the right thing to do.)

But since 2010, the deficit has been decreasing — at a pretty aggressive clip. And, if employment rates continue to rise, more people will leave government assistance and start paying taxes again. So this trend line is really, really good.

Better news still is what we're spending to service the national debt.

From the New York Times
Holy moly! As a percentage of GDP, our interest expense is the lowest it's been since the 50s! This is because the interest we're being charged is crazy.

From the Department of the Treasury
The real interest rate (e.g., the one calculated after accounting for inflation) is negative for anything with less than a 20-year maturity. So when we borrow money now, we're actually paying less back in the future! Pretty cool.

And, finally, there seems to be an idea that there are just great gobs of government waste floating around out there. Here's a breakdown of the 2011 budget by type:

From Wikipedia

Sixty-two per cent of the budget goes to defense, Social Security and health care. An additional 6% goes to servicing the national debt. So that leaves 32% open for cuts — and just 18% if you're looking solely at discretionary outlays. Sure, the budget is an eye-opening $3.6 trillion dollars, but when you put aside caring for the army, old people and the sick (and interest), you're looking at an effective budget of $1.152 trillion for a nation of 300 million people. That's about $3840 per person, or $320 per month, or $10 a day — for research on disease, air traffic control, food inspections, air quality standards, national parks, the federal highway system, NASA, the Library of Congress — everything. That strikes me as rather cheap.

We don't have a spending problem. We have a revenue problem. And some of us aren't paying our fair share.

From the New York Times.
And note that this table includes neither state income taxes or sales tax, which are very regressive in nature.
For more on how our total tax structure is basically flat (e.g., regressive), see this article from the Atlantic.

Sunday, January 20, 2013

Why Inequality Matters in a Recession

Joseph Stiglitz, writing in the New York Times:
There are four major reasons inequality is squelching our recovery. The most immediate is that our middle class is too weak to support the consumer spending that has historically driven our economic growth. While the top 1 percent of income earners took home 93 percent of the growth in incomes in 2010, the households in the middle — who are most likely to spend their incomes rather than save them and who are, in a sense, the true job creators — have lower household incomes, adjusted for inflation, than they did in 1996. The growth in the decade before the crisis was unsustainable — it was reliant on the bottom 80 percent consuming about 110 percent of their income. 
Second, the hollowing out of the middle class since the 1970s, a phenomenon interrupted only briefly in the 1990s, means that they are unable to invest in their future, by educating themselves and their children and by starting or improving businesses. 
Third, the weakness of the middle class is holding back tax receipts, especially because those at the top are so adroit in avoiding taxes and in getting Washington to give them tax breaks. The recent modest agreement to restore Clinton-level marginal income-tax rates for individuals making more than $400,000 and households making more than $450,000 did nothing to change this. Returns from Wall Street speculation are taxed at a far lower rate than other forms of income. Low tax receipts mean that the government cannot make the vital investments in infrastructure, education, research and health that are crucial for restoring long-term economic strength. 
Fourth, inequality is associated with more frequent and more severe boom-and-bust cycles that make our economy more volatile and vulnerable. Though inequality did not directly cause the crisis, it is no coincidence that the 1920s — the last time inequality of income and wealth in the United States was so high — ended with the Great Crash and the Depression. The International Monetary Fund has noted the systematic relationship between economic instability and economic inequality, but American leaders haven’t absorbed the lesson. 
Our skyrocketing inequality — so contrary to our meritocratic ideal of America as a place where anyone with hard work and talent can “make it” — means that those who are born to parents of limited means are likely never to live up to their potential. Children in other rich countries like Canada, France, Germany and Sweden have a better chance of doing better than their parents did than American kids have. More than a fifth of our children live in poverty — the second worst of all the advanced economies, putting us behind countries like Bulgaria, Latvia and Greece. 
From the Atlantic.

Wednesday, January 16, 2013

A Small Act of Genius

Earlier this week, Rep. Jan Schakowsky quietly made one of the most substantive attempts to rein in healthcare costs and reduce the deficit, all in one fell swoop.
House Democrats on Tuesday introduced the “Public Option Deficit Reduction Act,” which would provide consumers the choice to opt into a government-run health insurance plan in the Obamacare exchanges. 
The bill, which almost certainly cannot pass in the Republican-controlled House, is a mostly symbolic effort meant to keep the public option alive as a policy prescription. It is sponsored by Rep. Jan Schakowsky (D-IL), who is on the Energy & Commerce health subcommittee, along with Energy & Commerce Ranking Member Henry Waxman (D-CA) and 43 other lawmakers. 
“The Public Option Deficit Reduction Act will give health care consumers more choice and lower their premiums,” said Schakowsky. “And, by providing a lower-cost alternative to private insurance, it would put pressure on all insurers to lower their premiums in order to compete.” 
Citing an earlier estimate by the nonpartisan Congressional Budget Office, Schakowsky expects it to reduce the deficit by some $100 billion over 10 years by boosting competition among insurers and paying providers at Medicare rates. The 2010 version of the public option was expected to reduce the debt by $68 billion over 10 years.
The magic comes in the form of reduced administrative costs. Paul Krugman points to a research paper by Jacob Hacker, which says:
The public Medicare plan’s administrative overhead costs (in the range of 3 percent) are well below the overhead costs of large companies that are self-insured (5 to 10 percent of premiums), companies in the small group market (25 to 27 percent of premiums), and individual insurance (40 percent of premiums). 
These administrative spending numbers have been challenged on the grounds that they exclude some aspects of Medicare’s administrative costs, such as the expenses of collecting Medicare premiums and payroll taxes, and because Medicare’s larger average claims because of its older enrollees make its administrative costs look smaller relative to private plan costs than they really are. However, the Congressional Budget Office (CBO) has found that administrative costs under the public Medicare plan are less than 2 percent of expenditures, compared with approximately 11 percent of spending by private plans under MedicareAdvantage. [See page 12.] 
This is a near-perfect “apples to apples”comparison of administrative costs, because the public Medicare plan and Medicare Advantage plans are operating under similar rules and treating the same population. 
(And even these numbers may unduly favor private plans: A recent General Accounting Office report found that in 2006 Medicare Advantage plans spent 83.3 percent of their revenue on medical expenses, with 10.1 percent going to non-medical expenses and 6.6 percent to profits—a 16.7 percent administrative share.) 
The CBO study suggests that even in the context of basic insurance reforms, such as guaranteed issue and renewability, private plans’ administrative costs are higher than the administrative costs of public insurance. The experience of private plans within FEHBP carries the same conclusion. Under FEHBP, the administrative costs of Preferred Provider Organizations (PPOs) average 7 percent, not counting the costs of federal agencies to administer enrollment of employees. Health Maintenance Organizations (HMOs) participating in FEHBP have administrative costs of 10 to 12 percent. 
In international perspective, the United States spends nearly six times as much per capita on health care administration as the average for Organization for Economic Cooperation and Development (OECD) nations. Nearly all of this discrepancy is due to the sales, marketing, and underwriting activities of our highly fragmented framework of private insurance, with its diverse billing and review practices. Indeed, according to research by the Commonwealth Fund, the United States could save up to $46 billion a year if it spent what other countries with mixed public-private insurance systems, such as Germany, spend on insurers’ administrative costs. [Footnotes omitted.]
The beauty of this is that entry into the government program is completely voluntary. If you find the whole thing to smack of socialized medicine and death panels, you're free to continue with your regular plan. If you want to save a bunch of money through reduced administrative costs, you can do that too. It's up to you.

What would be screwed up, however, is if Republicans, in the name of liberty, used the tyrannical power of the government to prevent its citizens from participating in this program by voting this down. Which they most certainly will do.