Health Care - We Can Do Better

Today is the first anniversary of the Affordable Care Act (Obamacare).  It will not take full effect until 2014 and even then will only begin to chip away at health care costs and the number of people uninsured.  Our health care system has a long way to go.

We still spend way too much on health care, do not cover everyone, and have poorer medical outcomes than other industrialized countries.  The chart below tends to substantiate the position of the United States relative to its peers in the OECD (Organization for Economic Co-operation and Development) states.  

In the chart we see that generally life expectancy increases with per capita spent on health care.  The outstanding exception is the United States that spends almost twice as much as most other states but surpasses only the lowest few in life expectancy.  These data strongly suggest that the United States does not deliver health care effectively or sufficiently.

Life Expectancy (years) vs Per Capita Health Expenses ($US) from publicly available OECD data.  Data Labels removed for legibility are Belgium, Finland, Iceland, Ireland, Netherlands, and Sweden, which are in the $3000 to $4000 cluster.

Over time, if the ACA does its job, health care costs will come down and more people will be covered.  But, the improvements will be minimal even after five years and may never allow us to catch up with our international peers.

Conservative Washington Post columnist Charles Krauthammer, an ACA opponent makes the following criticism that we might consider to be praise.

And here's what makes it so politically seductive: The end result is the liberal dream of universal and guaranteed coverage -- but without overt nationalization. It is all done through private insurance companies. Ostensibly private. They will, in reality, have been turned into government utilities. No longer able to control whom they can enroll, whom they can drop and how much they can limit their own liability, they will live off government largess -- subsidized premiums from the poor; forced premiums from the young and healthy.

It's the perfect finesse -- government health care by proxy. And because it's proxy, and because it will guarantee access to (supposedly) private health insurance -- something that enjoys considerable Republican support -- it will pass with wide bipartisan backing and give Obama a resounding political victory.

Although ACA didn’t come into being on such a triumphant note nor with nationalization, it could be a start.

Across the country, we use regulated or publicly owned utilities to deliver water and electric power to everyone at reasonable prices.  We should be able to follow that example and deliver health care to everyone at reasonable cost.

In his book, “The Healing of America” (The Penguin Press, New York, 2009), T. R. Reid identifies three models for delivering health care.

The Bismarck Model began in Germany during the nineteenth century under the auspices of Prussian Chancellor Otto von Bismarck.  It has lasted through two world wars and German reunification, because the people demanded it.  As in the US, the program is funded by employers and employees through payroll deductions and health services are provided through private insurance companies.  

The big differences are that the insurance companies are non-profit, everyone is covered, and cost control is accomplished through regulation of medical services and fees.

Other countries using this basic model are Japan, France, Belgium, and Switzerland.

The Beveridge Model was founded through the persistent efforts of one William Beveridge, who was the motive force behind the National Health Service in the United Kingdom.  So popular is the NHS that when Margaret Thatcher privatized almost everything in Britain, she never considered touching it.

This model is funded through taxes, and typically the government owns the facilities and hires the medical staff.  Medical services are available to everyone, and there are no medical bills.  Patients register with a physician’s surgery, and the doctor gets a fee whether or not the patient visits the doctor.  So, there is a built-in wellness incentive.

Other countries that employ this model are Italy, Spain, and most of Scandinavia.  This form of the dreaded “Socialized Medicine” is found also in the US Veterans Administration.

The National Health Insurance Model is a hybrid of the above two models.  The health care providers are private, but the government acts as a single-payer insurer that collects premiums and pays the medical bills.

Canada is the best known country that uses the NHI system.  Taiwan and South Korea also have adopted it.

These models prove that a heath care system can work when the emphasis is put on care rather than profit.

Of course, the default is an Out-of-Pocket model that applies to Cambodia, rural areas of China and India as well as all those still uninsured in the US.

We can hope that our ACA will converge, sooner rather than later, on a system similar to  those that have succeeded in other OECD countries.   

In Defense of Social Security

Social Security is a prime target of deficit hawks because it is some 20% of the federal budget.  Unfortunately, some of the deficit doves have also bought into the idea that Social Security should be cut.  We can expect that after any reductions in discretionary spending this year, Social Security will be an even larger portion of the budget next year and so, a bigger target.

Social Security is not a government spending program that directly purchases goods and services.  Instead, it is a transfer program that reallocates money from one consumer (wage earner) to another (recipient).  Properly managed this transfer consumes no net government resources and should be sustainable indefinitely.  For its entire existence since 1937, Social Security has been self supporting albeit with some adjustments along the way.  Only minor adjustments are needed to continue self-sustainability. 

To some conservatives such reallocation constitutes confiscation.  Consequently, they try to emaciate the program by associating it with the deficit.  It should be an issue argued on the basis of morality and national values.  Because the old will always be with us, they will, in any event, have to be cared for in one way or another.  

Social Security has been effective and popular, because it spreads the pain of providing for the old among a large wage-earner community not just those who have aging family members and possibly no family wealth.  To progressives this is an appealing view; to conservatives not so much.  

Social Security is a pay-go program meaning that payroll taxes on current wage earners support current recipients.  It is well known that in the future there will be fewer wage earners to support more retirees.  This is a tractable problem as long as the economy continues to grow.  Currently, Social Security takes up about 4.5% of GDP, and projections shown in the following chart indicate that it will peak at about 6% in 2035 and remain there through 2085.  A shift of 1.5% of GDP into Social Security is well within the means of this great country.  

Social Security and Medicare Costs as Percent of GDP

Because Social Security taxes are regressive, adding a small progressive touch would be sufficient to address any shortage of funding.  Social Security taxes are imposed primarily on those with lower wages, but only on that portion of wages under $106,800, and not at all on capital gains.  So, the rich win by having wages above the upper limit and by having a larger fraction of income as capital gains. 

Additionally, over the last three decades incomes for the rich have increased much faster than the rest.  Between 1980 and 2008, the top 10% (families with earnings above $109,000) enjoyed an income increase of 41% while the bottom 90% have seen only meager increases.  The kicker is that these income increases have been in capital gains or in wages above the maximum of $106,800, so they have escaped Social Security taxes.  The following chart is from Emmanual Saez.

Social Security should not be part of any deficit debate.  As long as Social Security  depends on the efforts of lower wage earners, it is an insult to the middle class to decrease their benefits and protect lower taxes for the wealthy.   

Related Reading
Social Security and The Federal Deficit (pdf)
Robert Samuelson Wants to Take Money From Seniors...
Liberal Fallacies: Protecting Social Security From its "Friends"

New Conservatives Defy Public Sentiment

There is no economic argument that our federal deficit spending is too high.  The only arguments offered consistently are the homey falsehood that the government must balance its budget just like households and that the debt is really, really big.  Neither the falsehood nor an aversion to big numbers is a valid argument.

There must be another reason, and it is being revealed day by day in Wisconsin where Gov. Scott Walker subordinates the rights of citizens to establish a monarchal political agenda.  What we see is oppression of dissent, oppression of workers’ rights, establishment of crony government, and give aways of public assets.  A similar circus is unwinding in Ohio.  If these represent the face of the new conservatives, can we please have the old ones back? 

A national poll taken by the Pew Research Center, Feb 2-11, 2011, shows that people steadfastly prefer increases in Education, Veterans’ benefits, Health Care, Medicare, and others as shown in the chart.  Certainly these people know that many states have budget crises the worst of which can be helped at federal expense, yet their sentiment is clear.  

In addition, a March-1st New York Times/CBS News Poll reveals that 40% would prefer increased taxes over other measures to balance a state budget.  Further, 60% oppose taking away collective bargaining rights, and 56% oppose cutting pay and benefits of public employees.

People may not know that these budget crises at both the state and national levels are exaggerated to advance a political agenda that we citizens would otherwise not accept.  It would be better to have an emergency tax on those who still have income, than  jeopardize our future by neglecting important investments to prosper in it. 

Debt Interest Then and Now

This morning I was reminded of the government deficits and interest payments during the Reagan administration.  Then the deficits were running about 4% of GDP and interest rates were 8 to 10%; now those rates are 10% and 0.25%.  So, as a fraction of GDP we now have at least a factor of 10 advantage over the earlier time.  For fun, I ran the following chart to compare these numbers over history.

Fed funds rate (%) and Federal Deficit as percent of GDP

Currently we are getting a pretty good deal on our "borrowing" compared to the Reagan era (1980-1988) and not worse than the Bush era (2000-2008).

But, you might say that those rates won't stay that low forever.  You would be correct only because nothing is forever.  The Fed controls rates and will keep them low for years or until employment has recovered substantially.

Then you may argue that if the interest rate is not high enough, no one will be willing to buy our bonds.  Then I would have to point out that deficit spending creates its own demand for Treasury bonds.  James Galbraith makes this point as follows:

So long as U.S. banks are required to accept U.S. government checks -- which is to say so long as the Republic exists -- then the government can and does spend without borrowing, if it chooses to do so. And if it chooses to issue Treasuries to meet the demand, it can do that as well. There is never a shortfall of demand for Treasury bonds; Treasury auctions do not fail.

He discusses it again in an interview with Ezra Klein.

Too much government spending may lead to inflation.  Currently, at our high levels of unemployment, inflation is not as much of a threat as deflation.  That threat is increased by recent increases in commodity prices and the unrest in the Middle East that is causing increased oil prices.  Ordinarily such increases would be considered inflationary.  Now they are deflationary.  The argument is that oil prices will increase the prices of food and many other things.  However, labor does not have the leverage to obtain increased wages, and firms are not experiencing the demand that would allow them to increase prices.  It follows that people will have to do with less discretionary spending and firms will have lower profit margins.  These are deflationary indications.

Clearly, we have greater problems than debt interest.  The best way to fight deflation is with a bit of inflation.  That would indicate more deficit spending.

Oh no!  A different story leads to the same conclusion.  Cutting deficits now is wrong.