Blame the Right People, Brooks

In his column in the New York Times today, David Brooks has found the culprit for our fiscal miseries. Surprise. The guilty party is the American voter. And Brooks’ proof is this statement:

The average Medicare couple pay [sic] $109,000 into the program and gets $343,000 in benefits out, according to the Urban Institute.

Brooks’ implicit assumption is that the American voter has consciously arranged things this way and that the voter controls the prices paid for medical services as he/she controls the actions of the politicians. Having noted my initial reaction, I thought I’d find the numbers at the Urban Institute’s web site. In that process I learned, with some bemusement, that Brooks had used these numbers before, on October 8, 2012. And the NYTimes eXaminer, a fact-checking site, published (here) an analysis of that statement the day after noting that Brooks’ numbers evidently came from another source. That site also pointed to an Urban Institute document (last revised in 2011) where similar numbers are cited. That document is here.

In that tabulation (a Table titled “Two-earner couple both earning an average wage ($43,500 each in 2011)” — alas there are no page numbers) the Urban Institute cites lifetime payments cumulating in 2011 to $119,000 and benefits to $357,000. Close, to be sure. In Brooks’ case the “unpaid” amount is $234,000, in the Urban Institute’s case it is $238,000. Thus, based on Brooks’ attribution of his numbers to the Urban Institute, all he may be accused of is laziness. But let’s look at the other issues. The Urban Institute figures are all inflation-adjusted, not nominal.

Now Brooks’ assumption of voter control is a pure projection. Voters do not control medical pricing. Medical practices have vastly changed, not least the proliferation of extraordinarily expensive testing devices and their essentially routine use. The very existence of a national insurance program for the elderly—without a national cost control program that accompanies it—will lead to an expansion of prices just because the insurance exists. We notice the same phenomenon in student loans—where government loan programs, without cost-control imposed on tuition levels, has caused tuitions to sky-rocket. Voters also do not control the legislators in any direct way, thus relating specifically to medical insurance management.

Ultimately the responsible parties for the mess are the legislators. They are not managing correctly. That is why, in my opinion, national health care, to work properly, must include management of medical service providers and the pharmaceuticals industry as well. Until it does, politicians will get the credit and the voter will get the blame.

Medicare Trust Fund Finances

Yesterday I showed data on Social Security income and expenditures. Today I am showing similar data for the Medicare Trust Funds. That is a plural because three programs are found within Medicare. Of these one is Hospital Insurance (HI), one is Supplemental Medical Insurance (SMI) which comes in two parts, B and D. Part B pays for doctors visits and outpatient care, Part D pays for pharmaceuticals.  In the following graphic, I show income and expenditure data for all three combined for 1990, 1995, and for 2000-2012. Data to 2010 are from  the Statistical Abstract (link); data for 2011 and 2012 are from Centers for Medicare and Medicaid, the federal agency (link).

Notable here—in contrast to the data for Social Security—is that the income stream matches the outflow in benefits much more closely. In the thirteen-year 2000-2012 period, income exceeded or matched expenditures in ten years, fell below expenditures in three. The other significant difference is that Social Security income consists entirely of earmarked tax revenues from the public and interest earnings, while the Medicare Trust Funds rely much more heavily on general revenues and other sources of income. The following tabulation makes that clear:

Medicare Trust Funds Income in 2011
	$ bil.	Percent
Payroll/Premiums	259.9	49.2
General Revenues	225.2	42.7
State Contributions	6.5	1.2
Interest	20.7	3.9
All other	15.7	3.0
Income	528.0	100.0
Expenditures	560.3	106.1

The reason why Medicare is of such interest to would-be budget-cutters is the large role that general revenues represent in Medicare. It is 42.7 percent but would have to be more like 46 percent for these trust funds to have broken even in 2011. If the GOP had wished to insist on making Medicare altogether self-supporting, it would have loaded the aging population with $257.5 billion in out-of-pocket expenditures. Not taking care of our elderly—unless they’re rich. Is that what Free Market dictates at the moment?

Now as for Medicaid, which is designed for the poor, that’s entirely funded from general revenues. If that is chopped away from the budget as well, we’ll be well on our way to recreating the glorious days of Dickensian England.

Buy or Tax

The reason why an individual mandate—to buy insurance unless you have it from your employer or from the government already (Medicare, Medicaid)—is part of the health care act is because the Obama administration blinked. The government has full powers to levy taxes. Indeed the federal government has been collecting money for Medicare and Medicaid since 1966. In effect we’ve had a single-payer and centrally controlled health care system since then (thus for 46 years), but only for selected groups. This is a conceptually straight-forward approach. To get a workable national health care system, all we’d have had to do was to extend Medicare to anyone who is not already covered. In this country, however, there is a deep-seated traditional resistance to centrally-managed anything. Therefore, feeling that resistance, the Obama administration caved—and still failed to get bipartisan support. In my simple black-and-white world, if you can’t pass a proper national health care act—why then you walk. You say, like Mrs. Clinton might have said a while back, “Well, I tried.” You can’t make the horse drink.

The compromise then produces the controversy now. The compromise was to “let the private sector do it”—but with a half-hearted attempt to make everybody use the private offering. The battle now is couched in the totally irrelevant context of interstate commerce—and whether or not the government can compel anyone to buy—anything. This the government may not be able to do. But it certainly can tax. But the votes simply aren’t there to solve the problem in a straight-forward manner—by taxation.

Now conceptually I see no real difference between forcing me to pay a tax on the one hand and forcing me to purchase health insurance on the other. In either case I have to cough up the dollars. But if this is seen as opening the door to government-mandated purchases in general, I’m not surprised that the Supreme Court seems skittish; reader russell provides some of the Court’s misgivings in a comment to the earlier post on this subject (link).

More realistically, an insurance-based approach is inferior to a central-single-payer system. It costs a whole lot more. A national system does not, per se, prohibit an insurance-based system to coexist with it. A national system will always involve some rationing—and an overlay of insurance-paid extra benefits will satisfy the rich.

It is for these reasons, needless to say, that you won’t find much praise for the current act anywhere on LaMarotte. It is flawed in conception—and now it might fail in detail. At best it will be upheld by a 5:4 vote. If it goes down, Medicare and Medicaid may follow. After all a designated tax—designated for health care—may in some future lawsuit be judged to be a mandate to buy something—which it actually is.