Posts Tagged ‘ debt ’

IPAB- The most important part of health care reform (that you’ve never heard of)

Besides the insurance subsidies that will provide every American with access to health insurance, the Independent Payment Advisory Board (IPAB) is the most important part of the Affordable Care Act. Why is this obscure board, buried in the pages of the health care law, so important? It represents the best chance to save and sustain America’s Medicare system for the long term.

When fully implemented, IPAB will be a panel of 14 health care experts who will be nominated by the President and confirmed by the Senate. They will be charged with making changes to Medicare if costs in that program rise too rapidly. The board will have the authority to make changes to Medicare without the approval of Congress (though Congress can overrule it) if Medicare spending rises above the yearly bar that Congress has set. The changes can be something like lowering payments to hospitals that have high rates of readmission, incentivizing preventive treatments or bundling payments to save money and promote more efficient care. Its important to note that the board can’t raise fees or ration care, but has  significant power to tinker around the edges.

You’re probably thinking: well, that sounds good and all, but why is this board so important? Several reasons:

It can succeed in cutting costs where Congress has failed.

Medicare will be a large contributor to the nation’s debts in the future. Even though Medicare is much more efficient than private insurers at controlling costs, health care costs are still rising at an unsustainable rate in the economy as a whole. This affects Medicare as well. So, when health care costs rise in the private sector, Medicare can’t be too far behind.

Congress has tried and failed to control costs in Medicare. It tried to slap a sustainable growth rate (SGR) on Medicare but that has been permanently delayed by later Congresses. Congress caved to special interests when it made Medicare’s prescription drug benefit and the result is that drugs cost much more here than in other countries (which is why people go to Canada for cheap prescription drugs).

It should be no surprise to anyone that Congress is inept at saying “no” to special interests. The IPAB takes responsibility for saying “no” out of Congress’s hands. As a panel of healthcare experts not responsible for raising campaign contributions or dealing with lobbyists, the IPAB can succeed where Congress has failed. The CBO projects that the IPAB will save the country billions in Medicare spending.

IPAB can make all health care cheaper and more effective

Medicare does  not exist in a vacuum. When costs in the private sector go up (and they have been for years), Medicare’s costs must go up as well. IPAB can help by making both Medicare and our health system as a whole, more effective.

Our system is plagued by inefficiencies, and as a result we have the highest healthcare spending per capita in the world. Its important to note that all our extra spending hasn’t bought us any better healthcare than the rest of the world enjoys. Our life expectancy is 36th in the world (right below Cuba). Clearly there are ways to drastically improve healthcare in the US. How are they going to happen?

Because Medicare occupies such a huge part of the health care market, reforms to that program have the ability to spread throughout the healthcare system. Peter Orszag, Obama’s former budget director has said 

If the board realizes its potential to push Medicare toward paying for better quality care, as opposed to paying for more care, “it could well turn out to be perhaps the most important component of the new legislation,”

For example, if Medicare starts lowering payments to hospitals with high re-admission rates, hospitals will have to improve their treatment methods or else lose a lot of money. That will save all health insurers money, not just Medicare. If bundling payments does save money and improve care, private insurers might start copying Medicare, so that their costs go down as well. If Medicare stops paying for new and expensive procedures that have not been proven to work better than older, cheaper procedures, then private insurers will have the cover to do that as well.

Those are just a few ways that innovation in the large Medicare market can spark innovation through the private sector (where the costs really are located) as well.

There is no good alternative to IPAB

The alternative to controlling costs through the IPAB are, as I understand them, thoroughly underwhelming. Adopting a complete single-payer system in the US would work, but it is unlikely to happen. The other options are to

  1. raise taxes until health spending starts slowing, or
  2. shift costs.

I’m no fan of simply raising taxes every time health care spending increases and option 2 seems equally terrible. This is the plan proposed by Republicans. They have proposed giving everyone who would traditionally be covered by Medicare a small voucher that they could use to buy insurance on the private market. Since private insurance is much more expensive than Medicare, seniors would be responsible for almost all of their own costs.

Another alternative would be to raise the Medicare age from 65 to 67. This option, as the graph below shows, would save the federal government money, but would actually increase system-wide costs as a whole. 

Neither of the alternatives would not slow the growth in medical costs. They would just be the equivalent of the federal government saying “somebody else should pay for it!” That “somebody else” would be you, me, employers and state governments.Shifting costs is just a budgetary sleight-of-hand that saves the federal government a nickel but charges everyone else a dime.

If implemented correctly, the IPAB can get our growing federal health care budget under control. It also has the potential to reduce costs and improve quality in the private market. Growing health care costs are the greatest future budgetary threat to the US. The IPAB is the only serious, recent effort that has the potential to both improve care and lower costs in our health care system. We sorely need it.

Long-term versus short-term problems in the US

There are many daunting issues facing the United States. This country has an employment problem, a debt problem, an infrastructure problem and a political problem, to name a few. However, not all of these problems are created equal. Some are causing immediate  pain to the country (unemployment) while others are not currently causing us any pain at all (debt). The crucial distinction that people often forget when they talk about the country’s “problems” is that there are long-term problems and there are short-term problems and the these issues need to be tackled as such.

For instance, the US does not currently have a debt problem. Interest rates are at record lows and investors are actually paying the US to borrow more money. The US government’s debt load is not currently hurting the US economy at all. However, in about ten years or so, we will have a debt problem because around then the world economy will be different and we will not be able to borrow money for free. We will have to bring down our debt over the next decade or so, but for the time being, our debt is not really a even a nuisance. Therefore, our debt is a long-term problem. Solutions to that problem should focus on taming long-term drivers of debt, not on de-funding NPR or other such nonsense.

The US has an immediate employment problem. We have an unemployment rate of 9 percent and millions of people stuck in jobs they don’t want to be. This is a short-term problem that requires a short  term solution. Unfortunately, a solution to our employment issues is likely to involve measures  that temporarily increase the deficit. The government can solve the jobs problem,  but to do so it has to temporarily increase the deficit. That’s OK, because for now we do not have a debt problem– that problem is off in the future– and to a certain extent, we have to solve the jobs problem before we can solve the debt problem. To solve the debt problems we  need more people working and less people on public assistance (the symptoms of our jobs problem). Temporary spending now can solve our jobs problem, while also setting the stage for solving our debt problem down the road.

The US also has an infrastructure problem. Most  of our bridges, dams, schools, levees, highways, power lines and railroad tracks were built before the 1970s. The number of deficient dams in the US tripled from 2001 to 2007, while our roads are crumbling, even as the funding to replace them is dropping. We obviously need infrastructure, and sooner or later the bill to fix our bridges will come due. Call it our second national debt. When you run budget deficits every year, they eventually add up and have to be re-payed. When you underfund your infrastructure  every year, it eventually has to be rebuilt. There’s no way around it. Fixing our infrastructure will cost money and will hurt the deficit whenever it is done. I’d say its a long-term problem, though its  best to fix it now. If we fix it now, while borrowing is free, it will hurt the debt much less than if we do it years from now when borrowing costs us money again. Spending money now on fixing our infrastructure will also put people back to work, helping to solve our jobs crisis. The solutions to all these problems have a way of intermingling.

Finally, our political crisis. This is both a short- and a long-term problem for the US. S&P downgraded US debt because they believe our political system will be unable to solve our debt problem. Businesses won’t invest in the economy because they don’t think our jobs problem will be solved soon. Foreigners are increasingly unwilling to invest in the US  because our infrastructure is lagging behind.

All this leads back to Washington. We have a political system that people have no faith in. Republicans almost caused a default back in August and rejected a proposal that would have solved our debt problem. There’s been almost no movement on jobs since last January, and the political system seems unable to complete even the simplest tasks. I fear this may be the most difficult problem to solve. Its a shame because solving our political problem is also the key to juggling and solving our other impending short-and long-term predicaments.

The Republicans got everything they wanted from the Debt Deal

A debt deal has been struck and the winner is the Tea Party. The losers are Democrats, the economy, and the American people. Democrats and the President will try to say that it was a compromise and that both sides gave some and got some. Its not true, but they can’t very well get up in front of the cameras and say “this is a terrible, terrible deal which no one should support but for the fact that if we don’t vote for it, something even worse will happen.” That something worse would have a been a US government default, which would have pummeled the stock market, pushed banks under, tanked the value of the dollar, kept doctors, social security recipients or government employees from being paid and caused the interest rate to skyrocket on any kind of loan, be it a for a car, mortgage or on a credit card. In short, everyone in the United States had a ton to lose from a default. Everyone. There is not a single person who would have gained a thing in a US government default. But why was this disaster even a possibility? Its worth recounting how we got to this point.

Congress has been deficit spending since Clinton was President and every time you deficit spend, you have to increase the debt limit.  This time around, Republicans said they wanted to deficit spend without increasing the debt limit. They basically said “Woah, if you want us to keep the government from defaulting on the debt that we already voted for, you’re going to have to jump through a bunch of hoops and meet all of our demands.”

Republicans demanded a dollar in spending cuts for every dollar the debt limit would be increased. And they got it. Well, what about the fact that the main driver of our debt is  the tax cuts passed under George W. Bush? And how about the fact that domestic spending hasn’t even grown since 2001? Doesn’t matter, Republicans said that they wanted spending cuts, so they got spending cuts. The package agreed to will push back domestic discretionary spending to where it was under Dwight Eisenhower, (according to Pres. Obama) DWIGHT EISENHOWER! So we are going back to a level of domestic spending that existed back when there were no Pell Grants, no EPA, no interstate highway network to maintain, no Head Start program. We are supposed to run a post-industrial government with a budget from the Korean War period? That’s insanity.

What did Democrats get out of the deal? As any Republican will tell you, they got an increase in the debt ceiling as their prize. That’s right. Democrats got to protect the American people from a complete economic collapse. Stopping the Republicans from starting another Great Depression was their prize. This was a hostage situation in every meaning of the phrase. Republicans threatened to kill the hostage–they said they would cause an economic meltdown that would make 2008 look like Candyland unless all their demands were met. In the end, Democrats showed that they cared too much about the American economy to let the Republicans fulfill their threat. In a saner time, a political party who threatened to cause a US default for their own ideological ends, who used the health of the US economy as a bargaining chip, would never again be entrusted with any power by the American people. These are not sane times.

There you have it then. The only reason Democrats will vote for this package is because they do not want the US economy to implode. There is literally nothing in it for them to like. The richest Americans are not asked to pay a bit more to solve a crisis that their tax cuts largely created while Medicare, Medicaid and Social Security will likely be shrunk in the next round of cuts. All of the cuts come from the poor and middle class. Democrats’ only motivation to vote for this deal is to protect the American people from Republican recklessness. Republicans will vote for it because its everything they could have ever asked for. Some Republicans will still withhold their vote because they have decided that nothing less than a balanced budget amendment can win their vote. Those Republicans are even more ideological than the rest. They hate the government and they will never make any compromise for the good of the country.

Speaking of the good of the country, these cuts will slow down the economy and might even push us back into recession, if last quarter’s GDP numbers are any indication. A dollar less in government spending is a dollar less in the economy and there’s about to be a whole lot fewer dollars in the economy. These cuts come at a terrible time for the economy. The right time to make cuts is when the economy is already gorwing at a healthy pace, not when doing so will throw the economy back into recession.

God help us if Obama loses re-election. If he doesn’t win the election and end the Bush tax cuts once and for all, Republicans will just keep cutting until there is no more social safety net in America.

For more reading on the size of the GOP’s win here, look at this article.

How we got our debt

So if this is how we got our debt problem, why is the only solution to implement massive cuts to Medicare, Medicaid and Social Security?

Center on Budget and Policy Priorities

Maybe it would make more sense to end the Bush tax cuts and cut the Department of Defense  before we start talking about dismantling our social safety net.

Is Obama to Blame for our Deficits?

Today I will tackle the question: How much of the debt accumulated since Obama became President can be “blamed” on him? Obviously, one of the harshest criticisms Republicans level against the President is that he is to blame for the large deficits that have characterized our budget under his presidency, but is this deserved? For the moment, we will leave aside the question of whether it was wise to sign into law the tax cuts and spending programs that he did, and just focus on getting a number on the amount of the debt he is responsible for. Rep Michelle Bachmann (who is running for President)  has famously used this chart to pin blame for our recent deficits on Obama:

Its a bit hard to read, but the deficit in 2009 was $1.41 trillion and according to the most recent graph on her website, the deficit in 2010 was $1.29  trillion. The projected deficit for this year is 1.5 trillion and since we’re almost exactly halfway through the year, we’ll call it $.75 trillion for a total of 3.45 trillion in debt accumulated since Obama took office.

What I will count into law are spending programs that Obama signed into law. So, to start we have the stimulus program which, to date has cost $654 billion.

The next big ticket item is the Affordable Care Act, the president’s healthcare reform measure. Contrary to popular belief, It is entirely paid for, and will even give us a surplus of over the next decade. The original bill was supposed to save $138 billion over a decade, but I believe that’s been downgraded to about $114 billion over 10 years. It was signed a little over a year ago so we’ll say that the Affordable Care Act gives a debt surplus of +$11.5 billion. 

Pres. Obama passed a budget for fiscal year 2010 and FY 2011 (fiscal year 2009 was signed into law by President Bush). Using the spending in Bush’s final budget as a baseline, Obama signed an increase in discretionary spending of $168 billion in FY 2010 and the continuing resolutions covering most of FY 2011 followed the same trajectory as FY 2010, so we’ll say he increased the deficit by $126 billion during the first 9 months of this fiscal year. Note: these include the costs of the wars, using Bush’s last budget as a baseline. That gives us a grand total of -$294 billion in spending as part of the normal, discretionary budget process.

Money for the bailouts of Fannie Mae and Freddie Mac as well as for Wall Street and the auto companies was approved and signed by Pres. Bush, though some of  it was disbursed by Pres. Obama. Because we are dealing with money signed into law by Pres. Obama and not money simply spent under his presidency (which would be unfair and would open up a huge can of worms I am not prepared to go into) we will not count their costs against Obama.

There have also been several other measures that were passed in order to aid the economic recovery. These totaled (table 1) $93 billion in 2010 and in 2011 they will total $270 billion. The recovery measures for 2011 were passed as part of a tax cut package extending the Bush tax cuts, which were set to expire at the end of 2010. Now, Obama worked out this deal with the Republican Congressional leaders who provided many of the votes for the package, so its not really fair for Republicans to brandish this package as a weapon against Obama on the deficit, but in looking at the package from a non-partisan stance, its clear that it has Obama’s signature on it, so it will count against him. Extending the Bush tax cuts will cost $375 billion in 2011.  After slicing the appropriations for 2011 in half (the year is half over) Obama signed into law -415.5 billion in tax cuts and government spending to aid the recovery.

In total, the stimulus program has cost -$654 billion, the Affordable Care Act has gained us +$11.5 billion, Obama has raised discretionary spending by -$294 billion and extra measures to aid the recovery have cost us -$415.5 billion to date, for a grand total of $1.352 trillion in spending signed into law by President Obama to date. That means Obama is “responsible” for, at most, 39 percent of the $3.45 trillion in debt accumulated since he took office. So, perhaps the lines on Michelle Bachmann’s famous graph should only be two-fifths as tall as they are.

But, (I’m sure some of you are thinking) how is  this possible? How has our deficit  gone up so much in the past two years, but yet Obama  has signed bills accounting for less than half of the balance? The thing about recessions is that during recessions, people start paying less in taxes because they have less money total, so they have less taxable income. There are also more people who rely on government programs like unemployment checks, food stamps and Medicaid during recessions. (As Paul Krugman explains) Drawing in less in taxes and giving out more in automatic government aid obviously increases the deficit, but since these changes happen automatically (Obama didn’t sign them into law) and we can’t blame the recession on Obama, he cannot be blamed for their effect on the deficit. (Note: All expansions of unemployment assistance beyond the usual 26-week period are counted against Obama, even though in the past all Presidents have expanded unemployment during recessions)

*Fair disclaimer: This analysis does not measure the cost of interest on the borrowing initiated  by Obama, which would tend to raise his total. Nor does it take into account the increased economic activity that undeniably resulted from the spending and tax breaks he signed into law, which would tend to lower his total.*

For a final primer on how our debt happened and what will drive it in the future, here’s Ezra Klein.