Fibonacci

It's Time to Face Up to the U.S. Medicare Crisis: Kevin Hassett
2006-01-23 00:14 (New York)


(Commentary. Kevin Hassett is director of economic policy
studies at the American Enterprise Institute. He was chief
economic adviser to Republican Senator John McCain of Arizona
during the 2000 primaries. The opinions expressed are his own.)

By Kevin Hassett
Jan. 23 (Bloomberg) -- When you look at the problems facing
America, the cost of health care is at the top of the list. It
will soon hit the crisis stage, if it hasn't already.
A number of reports suggest the issue will be featured
prominently in President George W. Bush's State of the Union
address on Jan. 31. What might he do?
If the size of a problem is any indication of its likely
priority on the president's agenda, reforming health care will
be front and center. According to the most recent Medicare
trustees report, the present value of the program's obligations
-- what Medicare will have to pay over an infinite time period
in today's dollars -- totals $68.1 trillion.
The future looks so bleak for two reasons. First, the U.S.
health-care system is the most expensive in the world. According
to the most recent comparisons by the Organization for Economic
Cooperation and Development, Americans spent $5,635 per person
on health care in 2003, $1,828 more than Norway, the country
with the second-highest per-capita spending. Second, we have a
rapidly aging society.

When Boomers Retire

When the baby boomers retire, they will almost all join
Medicare, so the government will have to pick up the tab for
providing the world's best health care to a huge elderly
population.
The scale of the problem is almost unfathomable. By 2060,
Medicare is expected to cost 10.5 percent of gross domestic
product, compared with 2.6 percent in 2004. Our kids won't enter
the workforce with balls and chains tied around their necks;
they'll have Grandma and Granddad instead.
In principle, policy responses could address both sides of
the equation. Liberalizing immigration rules, for example, would
lower the percentage of the population that is elderly, because
immigrants tend to be young. If the liberalization focuses
especially on individuals with scientific expertise, then we
will make our workforce more productive as well.
Any solution, however, will have to address the cost side
as well.
A recent report suggested that Al Hubbard, the president's
top economic adviser, favors an approach spelled out by R. Glenn
Hubbard, former chairman of the President's Council of Economic
Advisers.

The Hubbard Approach

In a new book, written for the American Enterprise
Institute with John Cogan of the Hoover Institution and Daniel
Kessler of Stanford University, Glenn Hubbard proposes a number
of measures that could significantly improve the health-care
system.
One of the authors' key insights is that health-care costs
are so high today because few people actually pay the sticker
price for the services they purchase. Imagine how it might
change your diet if you could eat anywhere you want for free.
The health-care system allows folks to do almost the same thing.
The book's first suggestion is to reduce the tax preference
for employer-provided insurance. This would be terrific policy.
Because employer contributions to employee health plans aren't
taxed, employers have a strong incentive to avoid taxes by
granting compensation in the form of benefits.
This creates gold-plated health plans that use expensive,
low-deductible, low-co-payment insurance. Those luxury plans
drive costs up for everyone else, including Uncle Sam, and it's
crazy for the federal government to subsidize them.

Shifting Incentives

Cogan, Hubbard and Kessler recommend shifting the
incentives towards greater cost-consciousness by allowing
individuals to deduct all direct payments for health care if
they buy high-deductible catastrophic insurance.
They calculate that full tax deductibility would decrease
wasteful health-care spending by roughly $40 billion and reduce
the ranks of the uninsured by 2 million to 6 million people, all
at a revenue cost of only $6 billion per year. And the extra
attention consumers will pay to cost will help make the whole
system more efficient.
With government spending this year predicted to hit $2.6
trillion, that seems a small price to pay for more fiscally and
medically responsible health-care spending.
It seems quite plausible that the White House is fond of
this proposal. After all, the two Hubbards (who aren't related)
have worked closely together ever since the president began
seeking the White House.
But if phones in a hotel have buttons labeled ``room
service,'' phones in the White House should have a button
labeled ``lip service.'' Lots of great ideas make it into the
State of the Union address. Few of them become law.
The concern is that this proposal might head down the same
path as tax reform. The president's panel devised an excellent
plan, but Republicans dropped the ball faster than a New England
Patriot in Denver. Will they do so again?
If they want to demonstrate that they can govern
responsibly, they can begin by attempting to address America's
biggest problem in an intelligent and manageably incremental
way.

--Editor: Winski (jmg/scc)

Story illustration: For stories on U.S. health-care policy, see
{TNI US HCP <GO>}. For top health stories, see {HTOP <GO>}. For
the Medicare Web Site, see http://www.medicare.gov.

source: bloomberg.com

Fibonacci

We need an ostrich smiley.

Fibonacci

Lawmakers Balk at Medicare Cuts While Harsh Future Choices Loom
2006-02-17 00:10 (New York)


By Brian Faler
Feb. 17 (Bloomberg) -- When President George W. Bush
proposed reducing Medicare costs by $36 billion over five years
this month, even some Republican lawmakers said the cut was too
big to get through Congress.
Yet the reduction would equal just 1.6 percent of the
program's projected spending for that period, wouldn't even
offset next year's increase in expenditures -- and would be
dwarfed by spending the Congressional Budget Office projects will
grow by $50 billion annually within seven years.
Medicare's soaring expenses -- driven by increasing health-
care costs, a flood of retiring Baby Boomers and the program's
new prescription drug benefit -- will soon present lawmakers with
an unpalatable choice, said Bob Bixby, head of the Concord
Coalition, a Washington-based group that advocates a balanced
federal budget.
``We need to start confronting the choices of either raising
taxes or cutting back the benefits,'' he said.
Either option would be politically difficult. Cuts in
programs such as Medicare, which provides health insurance to 42
million elderly and disabled Americans, face strong opposition
from elderly voters, a politically influential group; at the same
time, tax increases are anathema to most Republicans.
Supporters of Bush's proposed reductions acknowledge that
they would have only a minor impact on Medicare's bottom line,
while arguing that they represent a necessary start.

`A Toe in the Water'

``This is a toe in the water,'' said Senator Judd Gregg, a
New Hampshire Republican and the Budget Committee chairman.
``You've got to get your toe in the water before the rest of the
foot.''
Bush has said he wants to reduce an estimated $423 billion
federal budget deficit for the current fiscal year by making $65
billion in cuts to social-benefit programs, including $36 billion
from Medicare. While the Medicare cuts would have a small impact
on the deficit, they would affect hundreds of thousands of
elderly Americans with annual incomes of more than $80,000, who
would pay higher premiums for coverage, as well as health-care
providers whose payments would be reduced.
Douglas Holtz-Eakin, an economist who recently stepped down
as head of the Congressional Budget Office, said it's ``really a
good thing'' that the proposed cuts are in the budget.
``Over the long term, Social Security, Medicare and Medicaid
are the big pressing fiscal issues,'' he said, naming three of
the government's biggest entitlement programs. ``Getting to them
sooner is better than later,'' said Holtz-Eakin, who is now an
economist with the Council on Foreign Relations in Washington.

Major Fight

Reducing entitlement programs remains unpopular in Congress,
as evidenced by the fight that erupted over last year's proposal
to cut Medicare spending by $6.4 billion over the next five
years. That cut was part of a $39 billion spending-reduction
measure that passed the Senate only when Vice President Dick
Cheney broke a tie. The House approved the measure by two votes.
No Democrat in either chamber voted for the cuts.
Bush last month signed the legislation into law, making it
the first cut to an entitlement program in eight years.
``Any more reductions of a significant scope could be
difficult to achieve this year,'' Senate Finance Committee
Chairman Charles Grassley, an Iowa Republican, said Feb. 9 after
Bush proposed a new round of cuts.
Medicare is projected to cost $336 billion this year,
according to the CBO. That would make it four times the size of
the Education Department, five times the size of Veterans Affairs
and 15 times the size of the Justice Department.

Fast-Growing Program

Medicare is also projected to be among the fastest-growing
federal programs. The CBO said Medicare spending will rise by an
average of $31 billion per year for six years. By 2013, the CBO
said, the program will grow by $50 billion per year -- the
equivalent of adding a new federal agency to the government's
books every year.
Beyond then, the projections border on fantastic. The CBO
said Medicare and Medicaid, the health insurance program for the
poor, are projected to grow from about 4.2 percent of the
nation's gross domestic product in 2005 to as much as 22 percent
of GDP in 2050. At that point, the programs would consume a
greater share of GDP than the entire federal government does
today. By comparison, Social Security is projected to grow from
4.2 percent of GDP to 6.4 percent in 2050.
Those increases will squeeze other federal programs, as
departments scramble for a shrinking share of the government's
resources.

Threatened Programs

``Those who are advocates of anti-poverty programs, social
programs, education, have their programs threatened by runaway
entitlements,'' said Brian Riedl, a budget analyst at the
Heritage Foundation, a Washington-based public policy research
group. ``There won't be room for both.''
In one sign of mounting concern over the issue, budget
analysts from the Heritage Foundation and the Brookings
Institution -- two public-policy research groups at opposite ends
of the political spectrum -- have begun hosting joint events
warning of the programs' looming costs.
Some Democrats have sought to hold out against reductions in
entitlement spending until Republicans agree not to make
permanent Bush-backed tax cuts that would cost $1.35 trillion
over the next decade.
Senator Kent Conrad, the highest-ranking Democrat on the
Budget Committee, has declined to say whether he would support
another rounds of Medicare cuts.
``It depends very much what constitutes the package'' and
whether Democrats are included in developing the legislation, he
said last week.

`A Bipartisan Way'

``There is an opportunity to come together to seriously
address our fiscal shortfalls,'' Conrad said. ``It only will be
accomplished in a significant way, I believe, if it is done in a
bipartisan way.''
Bush said in his Jan. 31 State of the Union address that he
would appoint a commission to study the issue.
``We need to put aside partisan politics and work together
and get this problem solved,'' he said. ``Every year we fail to
act, the situation gets worse.''
House Democratic leader Nancy Pelosi this week rejected
Bush's call for a bipartisan commission, saying in an interview
that Bush should meet personally with Republican and Democratic
congressional leaders to forge compromises.
While Bush's proposed cuts aren't big enough to make much of
a dent in the program's projected costs, budget analysts said the
proposal would help force lawmakers to confront the issue.
``This long-term problem that we talk about is rapidly
becoming a short-term issue,'' the Concord Coalition's Bixby
said.

source: bloomberg