Health Care and Federal and State Deficits

Stanley Feld M.D.,FACP

Published: December 11, 2010

The basic truth is Federal and State deficits cannot be fixed unless spending for Medicare and Medicaid is decreased. President Obama’s Healthcare Reform Act‘s bureaucratic complexity of will increase the cost of the healthcare system without increasing the quality of healthcare.

New schemes such as Accountable Care Organizations will fail as did the Health Maintenance Organizations of the 1980’s and 1990’s.

None of our political leaders are interested in facing the real reasons for the escalating healthcare costs.

This year Medicare, Medicaid and SCHIP will account for more than 20 percent of all federal spending. These entitlements cost more than Social Security or National Defense.

The entitlements are being expanded inefficiently by President Obama’s healthcare reform act.

By 2035 federal health care spending is projected to account for almost 40 percent of the federal budget. At the current rate of increase in Medicare eligible aging population, a rising Medicaid population and the rising healthcare costs the federal government will collapse under its own weight.

“Two bipartisan commissions have issued recommendations to sharply reduce annual deficits, in part through bold changes — some sound, others dubious — in the way health care is paid for.”

The White House commission, headed by Erskine Bowles and Alan Simpson, proposes ways to decrease entitlement spending for Medicare and Medicaid by nearly $400 billion dollars between 2012 and 2020.

A second commission, an independent panel headed by Pete Domenici and Alice Rivlin, has suggested savings of $137 billion dollars by 2020 by Medicare cost-sharing.

Both commissions have some good suggestions. Many of the ideas of both commissions are wrong.

The real reasons for escalating healthcare costs are;

1. The grotesque profits of the healthcare insurance industry as a result of the federal government outsourcing the administrative services for Medicare and Medicaid. (See 40 billion dollar per year growth)
2. The lack of states limiting premium rate increases for the healthcare insurance industry.
3. The absence of promoting rate competition among healthcare insurance companies.
4. The extremely high cost (estimated 300 billion to 750 billion dollars a year) for defensive medicine as a result of President Obama’s refusal to deal with effective tort reform.
5. The lack of incentives for consumers to maintain their health. The obesity epidemic represents one example where incentives are lacking.
6. The lack of effective public education that would teach people the principles of health maintenance.
7. Discourage confusing media coverage of clinical research studies. The media is interested in the sensational contradictions inherent in serious clinical research.
8. These contradictions are supported by the publication of shabby clinical research in medical journals and other publications.
9. The lack of effective public service announcements about health.
10. The lack of consumer incentives for maintaining good health and utilizing medical services wisely.
11. The ideal Medical Savings Account would solve many of these problems instantly.
12. Few healthcare policy makers think consumers are smart enough to understand how to use the ideal Medical Saving Account effectively. Therefore health policy “experts” dismiss Medical Saving Accounts.
13. Medical Savings Accounts are different than President Obama’s restricted health savings account.

Both commissions are promoting the same ideas of redistribution of wealth and cost shifting. Both increase the cost to those that can afford it. Neither commission deals with consumer incentives.

President Obama’s healthcare reform act does not deal with consumer incentives. It deals with government control and consumer dependence on regulations.

All of the ideas of the commissions are cost containment ideas, not health promoting ideas.

Both commissions shift much of the burden of insurance coverage from the federal budget to individuals or to the states.

The commissions’ recommendations are the typical political shell game. They produce no real reduction in the cost of health care. They are a political ploy because they make the federal deficit look better while not doing a thing to repair the healthcare system..

One suggestion is to require wealthier older people to pay more for Medicare coverage and more of the cost for their own health care. Medicare already uses means testing to set the Medicare premium. The means testing is calculated using IRS tax returns. The distributions of IRA funds are taxed twice. Medicare costs more in after-tax dollars than ordinary group insurance for many seniors.

The problem is that means testing doesn’t work to reduce the deficit. Half of all Medicare beneficiaries live on low incomes and pay minimal premiums. Cost-shifting will undermine the health or financial security of senior Americans of modest means. Beneficiaries might have to pay hundreds or even thousands of dollars in additional out of pocket expenses.

The Domenici-Rivlin commission is advocating ending employer pre-tax exemption for healthcare coverage. This will increase federal revenue and lower the deficit. It will also increase taxes and decrease discretionary income. The result will be a decrease in consumer spending. A decrease in consumer spending will hurt the economy. Ultimately it will increase the federal deficit and decrease our standard of living.

It is time for common senses and sound economic thinking to Repair the Healthcare System.

The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone.