Feeds:
Posts
Comments

Archive for the ‘Medicare’ Category

Before our depressing discussion today about the fiscal impact of entitlement programs (Social Security, Medicare, Medicaid, EITC, Food Stamps, welfare, and Obamacare, etc), here’s a video of how it all began.

I think this is a great introduction to the issue, particularly since you learn how “public choice” (i.e., politicians engaging in self-serving behavior) played a key role in the development of today’s welfare state.

But if you don’t have the time to watch a long video, here are four key things to understand.

  1. Entitlements (budget geeks sometimes use the term “mandatory spending”) are programs that automatically give people money if they meet certain requirements (such as reaching a certain age or having income below a certain level).
  2. Since these programs automatically give people money, they are not part of the annual appropriations process (the “discretionary spending” parts of the budget that are determined on a yearly basis).
  3. Some entitlement programs are “means tested” and designed to funnel money to low-income individuals. This type of spending is sometimes referred to as “unearned benefits.”
  4. Some entitlement programs are “social insurance” since people pay specific tax in exchange for specific benefits. This type of spending is sometimes referred to as “earned benefits” (though in many cases recipient receive much more than they paid).

By the way, there’s one additional thing to understand.

Indeed, it may be the most important thing to understand if you care about America’s fiscal and economic future.

5.  Entitlement programs are a slow-motion fiscal train wreck.

Let’s look at a new study authored by James Capretta of the America Enterprise Institute. He also has some sobering observations on the history of entitlement programs.

The growing expense of entitlement programs has occurred steadily for more than a half century and is reflected in the shifting distribution of federal spending activity. …by the early 1960s, two-thirds of all spending continued to require approval by the House and Senate appropriations committees each year, and less than a third was spent on entitlement programs. … By 2019, nearly two-thirds of all spending in the budget was for entitlement programs, and less than a third went to annually appropriated accounts.

If you prefer this information visually, here are a couple of pie charts from the study.

While there are dozens of entitlement programs, the big three are Social Security, Medicare, and Medicaid.

The largest entitlement programs are Social Security, Medicare, and Medicaid. Together, they now make up nearly half of all federal spending. Their combined growth over the past half century is the primary source of intensifying fiscal pressure. …In 2019, combined federal spending on them was 9.8 percent of GDP, up from 3.7 percent in 1970. CBO expects them to cost 17.2 percent of GDP in 2050, which is almost equal to the average annual revenue collected by the federal government from 1970 to 2019.

And here’s how they’ve been consuming ever-larger shares of America’s economic output.

What’s driving this ever-increasing fiscal burden?

In part, it’s because we have more and more old people and they are living longer.

So what does all this mean?

Capretta points out that uncontrolled entitlement spending may lead to a debt crisis.

I don’t disagree, but I think that’s a secondary concern. The real problem is that government spending will become an ever-larger economic burden. And that will hinder growth whether it’s financed by borrowing or taxes.

Speaking of taxes, here’s the chart from the study that deserves our close attention. It shows the relationship between demographics, benefit generosity, and tax burdens.

Here’s how Capretta describes the relationship.

…for each of the stipulated replacement rates (25, 50, and 75 percent), the tax rate necessary to keep the program solvent rises with increases in the aged dependency ratio. This explains why social insurance taxes in many aging societies have been increased to high levels in recent decades.

I’ve taken the liberty of augmenting the chart to show how these factors interact (though the order of #1 and #2 doesn’t matter).

The bottom line is that the United States is on track to become a high-tax, European-style welfare state if fiscal policy is left on autopilot.

In other words, unless there’s genuine entitlement reform, future Americans will be condemned to lower living standards.

P.S. Here’s some more history. In a column for the American Institute for Economic Research, Richard Ebeling looked at British history to explain how the private sector played a role in social insurance before being displaced by government.

Throughout the 19th century, a primary means for the provision of what today we call the “social safety nets” was by the private sector outside of government. The British Friendly Societies were mutual assistance associations that emerged to provide death benefits for the wives and children of the breadwinner who had passed away. But they soon offered a wide array of other mutual insurance services, including health care coverage, retirement pension programs, unemployment insurance, savings clubs to purchase a family house, and a variety of others. …by the end of the 19th century around two-thirds to three-quarters of the entire British population was covered by one or more of their programs and insurances. The research also discovered that a large majority of the subscribers were in the lower income brackets of the time… What stands out is that these were all private and voluntary associations and exchanges, in which the government paid little or no role.

On a related note, here’s an excellent short video on the English “poor laws” from the 1800s.

P.P.S. In addition to the fiscal burden of entitlement programs, there’s also a major problem in the way these programs discourage work.

Read Full Post »

I’ve always considered Senator Bernie Sanders to be the most clueless and misguided of all presidential candidates.

But I also think “Crazy Bernie” is actually sincere. He really believes in socialism.

Elizabeth Warren, by contrast, seems more calculating. Her positions (on issues such as Social Securitycorporate governancefederal spendingtaxationWall Street, etc).) are radical, but it’s an open question whether she’s a true believer in statism. It’s possible that she simply sees a left-wing agenda as the best route to winning the Democratic nomination.

Regardless of motive, though, her proposals are economic lunacy. So maybe it’s time to give her “Looney Liz” as a nickname.

Consider, for instance, her new Medicare-for-All scheme. She got hammered for promising trillions of dollars of new goodies without specifying how it would be financed, so she’s put forward a plan that ostensibly fits the square peg in a round hole.

But as Chuck Blahous of the Mercatus Center explains, her plan is a farce.

…presidential candidate Sen. Elizabeth Warren released her proposal to ostensibly pay for the costs of Medicare for All (M4A) without raising taxes on the middle class. As published, the plan would not actually finance the costs of M4A. …the Warren proposal understates M4A’s costs, as quantified by multiple credible studies, by about 34.2%. Another 11.2% of the cost would be met by cutting payments to health providers such as physicians and hospitals. Approximately 20% of the financing is sought by tapping sources that are unavailable for various reasons, for example because she has already committed that funding to other priorities, or because the savings from them was already assumed in the top-line cost estimate. The remaining 34.6% would be met by an array of new and previous tax proposals, most of it consisting of new taxes affecting everyone now carrying employer-provided health insurance, including the middle class.

Here’s a pie chart showing that Warren is relying on smoke and mirrors for more than 50 percent of the financing.

By the way, the supposedly real parts of her plan, such as the new taxes, are a very bad idea.

Brian Riedl of the Manhattan Institute unleashed a flurry of tweets exposing flaws in her proposal.

Since I’m a tax wonk, here’s the one that grabbed my attention.

Wow. Higher taxes on domestic business income, higher taxes on foreign-source business income, higher taxes on business investment, more double taxation of capital gains, a tax on financial transactions, and a very punitive wealth tax (which would be a huge indirect tax on all saving and investment).

If ever enacted, the United States presumably would drop to last place in the Tax Foundation’s competitiveness ranking.

And let’s not forget that Medicare-for-All would dramatically increase the burden of government spending. In one fell swoop, we’d become Greece.

Actually, that probably overstates the damage. Based on my Lassez-Faire Index, I’m guessing we’d be more akin to Spain or Belgium (in other words, falling from #6 in the rankings to the #35-#40 range according to Economic Freedom of the World).

P.S. Don’t forget that Medicare has a massive shortfall already.

P.P.S. Looney Liz’s plan is terrible fiscal policy, but keep in mind it’s also terrible health policy since it would exacerbate the third-party payer problem.

Read Full Post »

The so-called Green New Deal is only tangentially related to climate issues.

It’s best to think of it as the left’s wish list, and it includes a paid leave entitlement, government jobs, infrastructure boondoggles, and an expansion of the already bankrupt Social Security system.

But the most expensive item on the list is “Medicare for All,” which is a scheme concocted by Bernie Sanders to have the government pay for everything.

Would this be a good idea? In a column for Forbes, Sally Pipes of the Pacific Research Institute explains that government-run healthcare in the United Kingdom has some very unfriendly features.

Nearly a quarter of a million British patients have been waiting more than six months to receive planned medical treatment from the National Health Service, according to a recent report from the Royal College of Surgeons. More than 36,000 have been in treatment queues for nine months or more. …Consider how long it takes to get care at the emergency room in Britain. Government data show that hospitals in England only saw 84.2% of patients within four hours in February. …Wait times for cancer treatment — where timeliness can be a matter of life and death — are also far too lengthy. According to January NHS England data, almost 25% of cancer patients didn’t start treatment on time despite an urgent referral by their primary care doctor. …And keep in mind that “on time” for the NHS is already 62 days after referral.

If this sounds like the VA health care system, you’re right.

Both are government run. Both make people wait.

And both produce bad outcomes. Here’s some of the data from the British system.

Unsurprisingly, British cancer patients fare worse than those in the United States. Only 81% of breast cancer patients in the United Kingdom live at least five years after diagnosis, compared to 89% in the United States. Just 83% of patients in the United Kingdom live five years after a prostate cancer diagnosis, versus 97% here in America.

Just like I told Simon Hobbs on CNBC many years ago.

The best part of Sally’s column is that she explains how the flaws in the U.K. system are being copied by Bernie Sanders and other supporters.

Great Britain’s health crisis is the inevitable outcome of a system where government edicts, not supply and demand, determine where scarce resources are allocated. Yet some lawmakers are gunning to implement precisely such a system in the United States. The bulk of the Democratic Party’s field of presidential candidates — including Senators Kirsten Gillibrand, Kamala Harris, and Elizabeth Warren — co-sponsored Senator Bernie Sanders’s 2017 “Medicare for All” bill. That plan would abolish private insurance and put all Americans on a single government-run plan… Britons face long waits for poor care under their country’s single-payer system. That’s not the sort of healthcare model the American people are looking for.

The bottom line is that Medicare for All would further exacerbate the third-party payer problem that already plagues the health care system.

And that means ever-escalating demand, rising costs, and inefficiencies.

There are only two ways of dealing with the cost spiral. One option is huge tax increases, which would result in a massive, European-style tax burden on the lower-income and middle-class taxpayers.

Taxpayers in the U.K. endure higher burdens than their counterparts in America, But they also suffer from the second option for dealing with the cost spiral, which is rationing.

Some of the data was in Ms. Pipes’ column.

If you want more examples (and some horrifying examples), you can click stories from 2017, 2016, 2015, 2014, 2013, and 2012.

Read Full Post »

In a strange way, I admire Bernie Sanders. He openly embraces big government. Back during the 2016 campaign, I frequently observed that the difference between the Vermont Senator and Hillary Clinton is that he wanted America to become Greece at a much faster rate.

Well, he just installed a turbo-charged engine and stepped on the accelerator. He’s proposed a single-payer healthcare scheme that is being called “Medicare for all.”

According to Sanders and other advocates, the government’s health system is a good role model: People pay a tax while working and they get health care when they’re old. But there’s a not-so-slight problem with that approach. For every dollar that Medicare recipients paid to the program, taxpayers are financing three dollars of spending.

That approach is workable (though only in the short run) for Medicare. But it won’t work if government is paying for everyone’s health care.

So even Bernie admits that a tax increase will be necessary. And not just any tax hike. He’s proposing the biggest tax hike in the history of the United States. Heck, it’s the biggest tax hike in world history. Here are some of the frightening details, as reported by the Washington Post.

The Medicare for All legislation backed by Sen. Bernie Sanders (I-Vt.) and 16 Senate Democrats does not include details on how it might be paid for. …Sanders’s Senate office released a white paper on possible ways to pay for the legislation.

He starts with a giant payroll tax of 11.5 percent (on top of the 15.3 percent payroll tax that already exists).

The taxes themselves would fall on both employers and employees. Sanders floats the idea of a 7.5 percent tax on employers… Another tax, of 4 percent, would hit individuals.

To understand what this means, just contemplate the disastrous impact of Obamacare on the job market.

Sanders also has a big class-warfare tax hike.

The next big slice of funding: higher tax rates on the very wealthy. Income…$250,000…higher…would be hit harder, on an upward sliding scale, ending at a 52 percent tax on income over $10 million.

By the way, imposing a tax is the easy part. Collecting revenue will be a much harder task, especially since Sanders wants to take the very successful experiment of the 1980s and run it in reverse. He also wants a big levy on banks (foreign financial institutions are probably praying for that outcome), an extra layer of tax on American companies competing in world markets (foreign corporations are cheering for that one), along with a huge boost in the death tax and the imposition of a wealth tax (lawyers and accountants doubtlessly are licking their chops).

Sanders imagines a tax on financial institutions worth more than $50 billion, a one-time tax on offshore profits (an idea that is continually floated then sunk in tax reform negotiations), a higher estate tax (topping out at 55 percent), and a 1 percent wealth tax on the richest 0.1 percent of households.

That’s all the tax hikes listed in the Washington Post story, but Sanders also has some additional material on his office website.

A huge increase in the double taxation of dividends and capital gains (particularly when you consider that personal tax rates will be much higher.

…end the special tax break for capital gains and dividends on household income above $250,000, treating this income the same as income earned from working.

A restriction on itemized deductions.

…itemized deductions would be capped at 28 percent for households making over $250,000. In other words, for every dollar in tax deduction a high-income household could save at most 28 cents.

For what it’s worth, I don’t like the state and local tax deduction and the charitable deduction, and I also don’t like preferences for housing.

But I want to eliminate such distortions only if the revenue is used to finance lower tax rates, not to finance bigger government.

That being said, let’s get back to our list. Sanders has a special tax targeting small business.

…ensure that all business income of high-income people would be subject to the existing 3.8 percent tax to fund Medicare, either through the net investment income tax or the additional Medicare tax on earned income.

Last but not least, he wants to skim $112 billion over 10 years from corporations by manipulating accounting rules.

…eliminate the “last-in, first-out” (LIFO) accounting method.

The bottom line is that Sanders, in one fell swoop, would saddle America with a European-sized government. And that would mean European-level taxes. The only thing that’s missing is he didn’t propose a value-added tax.

Though I’m sure that would get added to the mix since the huge increase in the government’s fiscal burden would retard growth. And since that would mean sluggish revenue, politicians would seek another way to extract more money from the economy’s productive sector.

P.S. I’m a policy wonk rather than a political tactician, but my guess is that Bernie is misreading the mood of the American people. Yes, “free” healthcare sounds nice, but people get understandably scared when they get a price tag. This is why single-payer was repealed in Bernie’s home state. And it’s why Colorado voters rejected a similar scheme by a landslide margin.

Read Full Post »

I sometimes feel like a broken record about entitlement programs. How many times, after all, can I point out that America is on a path to become a decrepit European-style welfare state because of a combination of demographic changes and poorly designed entitlement programs?

But I can’t help myself. I feel like I’m watching a surreal version of Titanic where the captain and crew know in advance that the ship will hit the iceberg, yet they’re still allowing passengers to board and still planning the same route. And in this dystopian version of the movie, the tickets actually warn the passengers that tragedy will strike, but most of them don’t bother to read the fine print because they are distracted by the promise of fancy buffets and free drinks.

We now have the book version of this grim movie. It’s called The 2017 Long-Term Budget Outlook and it was just released today by the Congressional Budget Office.

If you’re a fiscal policy wonk, it’s an exciting publication. If you’re a normal human being, it’s a turgid collection of depressing data.

But maybe, just maybe, the data is so depressing that both the electorate and politicians will wake up and realize something needs to change.

I’ve selected six charts and images from the new CBO report, all of which highlight America’s grim fiscal future.

The first chart simply shows where we are right now and where we will be in 30 years if policy is left on autopilot. The most important takeaway is that the burden of government spending is going to increase significantly.

Interestingly, even CBO openly acknowledges that rising levels of red ink are caused solely by the fact that spending is projected to increase faster than revenue.

And it’s also worth noting that revenues are going up, even without any additional tax increases.

The bottom part of this chart shows that revenues from the income tax will climb by about 2 percent of GDP. In other words, more than 100 percent of our long-run fiscal mess is due to higher levels of government spending. So it’s absurd to think the solution should involve higher taxes.

This next image digs into the details. We can see that the spending burden is rising because of Social Security and the health entitlements. By the way, the top middle column on “other noninterest spending” shows one thing that is real, which is that defense spending has fallen as a share of GDP since the mid-1960s, and one thing that may not be real, which is that politicians somehow will limit domestic discretionary spending over the next three decades.

This bottom left part of the image also gives the details on built-in growth in revenues from the income tax, further underscoring that we don’t have a problem of inadequate revenue.

Here’s a chart that shows that our main problem is Medicare, Medicaid, and Obamacare.

Last but not least, here’s a graphic that shows the amount of fiscal policy changes that would be needed to either reduce or stabilize government debt.

I think that’s the wrong goal, and that instead the focus should be on reducing or stabilizing the burden of government spending, but I’m sharing this chart because it shows that spending would have to be lowered by 3.1 percent of GDP to put the nation on a good fiscal path.

Some folks think that might be impossible, but I’ll simply point out that the five-year de facto spending freeze that we achieved from 2009-2014 actually reduced the burden of government spending by a greater amount. In other words, the payoff from genuine spending restraint is enormous.

The bottom line is very simple.

We need to invoke my Golden Rule so that government grows slower than the private sector. In the long run, that will require genuine entitlement reform.

Or we can let America become Greece.

Read Full Post »

Government intervention has messed up the healthcare sector, leading to needlessly high prices and massive inefficiency.

Fixing the mess won’t be easy since it would involve addressing several contributing problems, including Medicare, Medicaid, the healthcare exclusion in the tax code, Obamacare, and the mess at the Veterans Administration.

But at least we know the right solutions. We need entitlement reform and tax reform in order to restore a genuine free market and solve the government-created third-party payer crisis.

And to bolster the case for reform, we’re going to look at three new examples of how government intervention makes the healthcare system worse rather than better.

For our first example, let’s look at a new report from the National Center for Policy Analysis, which compares what happens when the federal government decides to build a hospital with a similar project constructed by a local government with private-sector involvement.

We’ll start with a look at Veterans Administration project.

…the VA hospital in Denver, Colorado, was run-down, crowded and outdated. …the VA considered renovating the medical facilities of the Fitzsimons Army Medical Center at a cost of $30 million. Then, the University of Colorado Hospital offered to open jointly-operated facilities for $200 million. VA officials passed on both ideas due to cost concerns. Instead, officials sought and received approval for a stand-alone facility.

That decision was very costly for taxpayers.

The VA failed to produce a design that could be built for its budget of $604 million, ultimately causing a budget-busting $1 billion overrun. …Soon, the plan to build an affordable replacement morphed into the most extravagant and expensive hospital construction project in VA history.

And, as is typical of government projects, the cost to taxpayers was far higher than initial estimates used to justify the project.

Now let’s look at another project, this one in Dallas, Texas.

…the original Parkland Hospital was built in Dallas to serve the young city’s indigent population. …its aging facilities could no longer meet the demand of 1 million patients admitted each year. …The project to rebuild Parkland, split roughly 60/40 in revenue sources, was accountable to both the public and its private donors. …Project managers hired an independent auditor to monitor all project transactions. Budget progress reports were made available to both Parkland’s Board and the public.

The final outcome was far from perfect (after all, local governments are also quite capable of wasting money). But the involvement of the private sector, combined with the fact that the local government was spending its own money, created incentives for a much better outcome.

On the first day of construction, Parkland’s project team was $100 million over budget. But a flexible design, and a willingness to balance needs and wants, allowed the team to deliver a larger, more cost-effective hospital than originally conceived for a mere 6 percent increase in budget.

And here’s a chart from the NCPA report that perfectly captures the difference between the federal government and a project involving a local government and the private sector.

Can you think of a better argument for local private-public partnerships over the federal government?

Yet policy keeps moving in the wrong direction in Washington.

The Obamacare boondoggle was all about increasing the federal government’s control and intervention in the healthcare sector.

And this brings us to our second not-so-great example of government-run healthcare.

The New York Times has a story with a real-world example showing how the President’s failed legislation is hurting small businesses.

LaRonda Hunter…envisioned…a small regional collection of salons. As her sales grew, so did her business, which now encompasses four locations — but her plans for a fifth salon are frozen, perhaps permanently.

And why can’t she expand her business and create jobs?

Because Obamacare makes it impossible.

Starting in January, the Affordable Care Act requires businesses with 50 or more full-time-equivalent employees to offer workers health insurance or face penalties that can exceed $2,000 per employee. Ms. Hunter, who has 45 employees, is determined not to cross that threshold. Paying for health insurance would wipe out her company’s profit and the five-figure salary she pays herself from it, she said.

And Ms. Hunter is just the tip of the iceberg.

For some business owners on the edge of the cutoff, the mandate is forcing them to weigh very carefully the price of growing bigger. “There’s kind of a deer-in-headlights moment for those who say, ‘I have this new potential client, but if I bring them on, I have to hire five additional people,’” said Philip P. Noftsinger, the payroll unit president at CBIZ, a financial services provider for businesses. “They’re really trying to assess how much the 50th employee is going to cost. …Added to that cost are the administrative requirements. Starting this year, all companies with 50 or more full-time workers — even those not yet required to offer health benefits — must file new tax forms with the Internal Revenue Service that provide details on employee head count and any health insurance offered. Gathering the data requires meticulous record-keeping. “These are some of the most complex informational returns we’ve ever seen,” said Roger Prince, a tax lawyer.

Here’s another real-world example.

The expense and distraction of all that paperwork is one of the biggest frustrations for one business owner, Joseph P. Sergio. …He is reluctant to go over the 50-employee line and incur all of the new rules that come with it. That makes bidding for new jobs an arduous and risky exercise. …”If you ramp up, and it pushes you over 50, there’s all these unknown costs and complicated rules. Are we really going to be able to benefit from going after that opportunity? It freezes you at a time when you need to be moving fast.”

And don’t forget that while Obamacare discourages entrepreneurs from creating jobs, it also discourages people from seeking jobs.

That’s the kind of two-for-one special that’s only possible with big government!

Now that we’ve cited examples of bad policy from the Veterans Administration and Obamacare, let’s turn to Medicare for our third example.

Veronique de Rugy of the Mercatus Center writes about rampant Medicare fraud in her syndicated column.

Medicare is rife with fraud, and every year, billions of dollars are improperly paid out by the federal government’s giant health care bureaucracy. According to the government’s latest estimates, Medicare fee-for-service (parts A and B) made $46 billion in improper payments last year. And Medicare Advantage (Part C) and Medicare Prescription Drug Coverage (Part D) combined for another $15 billion in improper payments. Even more disturbing is the possibility that these numbers underestimate the annual losses to taxpayers from fraud and bureaucratic bungling. According to the work of Harvard University’s Malcolm Sparrow, fraud could account for as much as 20 percent of total federal health care spending, which would be considerably higher than what the government’s figures indicate.

None of this should be a surprise. Medicare has a notorious history of waste, fraud, and abuse.

But there is a glimmer of good news. There’s actually a program to identify and recover wasted funds.

The RAC program is geared toward correcting improper payments… The auditors thus pay for themselves with the money they recoup instead of simply being handed a lump-sum check. That the RAC program has an incentive to reduce wasteful spending and save taxpayers money makes it fairly unusual among government initiatives.

Unfortunately, no good deed goes unpunished in Washington.

…bureaucrats are set to greatly diminish the program’s effectiveness in 2016. Rather than empower these fraud hunters, they are drastically reducing the number of paid claims that auditors can review every 45 days (from 2 percent down to just 0.5 percent). The new limits will make it that much harder for auditors — whose cost already amounts to just a drop in the bucket — to recoup taxpayer losses.

I’ve also written about this absurd effort to curtail the RAC program, but Veronique makes a critically important observation that has widespread applicability to so much of what happens with government.

Agency failure is routinely rewarded in Washington with bigger budgets and greater authority, but here success will not be.

This, in a nutshell, is the difference between the private sector and the government.

In my speeches, I sometimes point out that people in the private economy make mistakes all the time, but I also explain that the incentive to earn profits and avoid losses creates a powerful incentive structure to quickly learn from mistakes.

That means resources quickly get reallocated in ways that are more likely to boost economic efficiency and increase growth and living standards.

In government, by contrast, this process is reversed. Bureaucrats and politicians reflexively argue that failure simply means that budgets should be expanded.

All of which explains why these cartoons are such perfect depictions of government.

Read Full Post »

Yesterday, I shared several stories that exposed the festering corruption of Washington.

Today, let’s look at one issue that symbolizes the pervasive waste of Washington.

Medicare is the federal government’s one-size-fits-all health program for the elderly. Because of its poor design, it bears considerable responsibility for two massive problems.

  1. It contributes to the systemic third-party payer problem in American health care.
  2. It exacerbates America’s long-run challenge of excessive entitlement spending.

But there’s another issue. Medicare also has a very serious problem with fraud. As is so often the case with government programs, the offer of free money encourages unethical behavior.

Well, we have some good news and bad news about Medicare fraud.

As reported by the Wall Street Journal, the good news is that there is a small effort to catch fraudsters who bilk taxpayers.

Recovery audit contractors, as they are known, recouped $2.4 billion in improper payments in 2014, down from $3.7 billion in 2013 before the agency scaled back other audit activities and temporarily suspended the program… Those recoveries represent just a fraction of the total amount Medicare estimates it spends on incorrect payments. The Medicare program made $58 billion in improper payments to medical providers and health plans in 2014, according to PaymentAccuracy.gov, a federal website that tracks agencies’ estimates of waste.

But the bad news is this small program is being curtailed.

The federal Medicare agency is sharply cutting back the work of auditors that review hospital claims and seek to recoup improper payments for the government… Starting in January, the auditors will be able to review only 0.5% of the claims the agency pays to each hospital or provider every 45 days, according to an Oct. 28 letter to the contractors. That is a quarter of the prior threshold: 2% of claims. The contractors say the new directive, in what is known as a “technical direction letter,” will further limit their ability to pursue undue payments.

Readers are probably wondering why this effort is being hamstrung instead of expanded.

Well, you won’t be surprised to learn that the folks who benefit from waste want to keep the gravy train rolling.

The latest step is a sign of how the $600-billion-a-year Medicare program can struggle to effectively rein in improper payments, fraud and waste, sometimes under pressure from medical providers… The Medicare agency “is getting a lot of pressure from the provider community to scale back the [audit] program,” said Kristin Walter… Hospital representatives welcomed further restrictions on the auditors.

Sort of like burglars welcoming “further restrictions” on police officers.

Unfortunately, the interest groups benefiting from waste and fraud have allies in government.

The American Thinker has a nauseating story about the fraudulent actions of a hospital in Houston

The president of Riverside, his son, and five others were arrested on October 4 as part of a nationwide Medicare fraud sweep.  Earnest Gibson III, chief executive officer of Riverside General Hospital for 30 years, has been charged with bilking $158 million out of Medicare over the last seven years. …Friday’s arrests at Riverside came nine months after the arrest of Mohammad Khan, the hospital’s acting administrator, who pled guilty to his role in the Medicare fraud scheme…the Centers for Medicare and Medicaid Services suspended payments to Riverside.

You may be wondering why this is a nauseating story when it appears that some bad guys were nailed for screwing taxpayers.

Well, now we get to the disgusting part. A politician in Washington has been fighting to enable that bad behavior.

Sheila Jackson Lee, congresswoman for Houston’s 18th district…wrote CMS Acting Director Marilyn Tavenner requesting she reconsider the agency’s decision. …Jackson Lee…asks taxpayers who have already been bilked out of hundreds of millions of dollars to pour more money into a…hospital run by alleged crooks…while administrators and politicians rake in more dough.

Sadly, the Congresswoman’s political pressure generated results.

…a month after Jackson Lee appealed to CMS…, 70% of the hospital’s Medicare payments were restored.  CMS lifted the suspension even though federal investigators were only two months away from arresting Gibson and the others.  Jackson Lee’s intervention seems to have caused even more taxpayer monies to be directed toward a hospital brimming with corruption. …This is why Washington, D.C. is broken.  Like Jackson Lee, too many politicians think that redistributing other people’s hard-earned money into the pockets of potential felons is okay as long as they get political benefit.

By the way, it’s not just Democrats. The Daily Surge reports that some Republicans are helping providers rip off taxpayers.

…efforts to rid Medicare of waste, fraud and abuse have been stymied by the power of the hospital lobby that refuses to payback excessive payments made by Medicare and are working with friends and allies in government to ensure the improper payments are never returned to the taxpayers. …at least one GOP members, Rep. Sam Graves (R-MO) has actually introduced legislation further limiting the ability of the auditors to sniff out waste. His bill would block audits of Medicare providers unless their estimated error rate exceeded 40% of total billing. More than one third of all Medicare bills would have fraudulent before an audit could be triggered. So much for good government.

Ugh, makes me want to take a shower.

So what’s the bottom line? Unfortunately, fraud is an inherent part of government. When politicians create redistribution programs, amoral and immoral people will figure out ways to maximize their share of the loot.

In the case of Medicare, it means that providers have huge incentives to over-charge, over-diagnose, over-treat, and over-test.

After all, thanks to third-party payer, the patient doesn’t care.

That’s why I’m in favor of programs to combat fraud. And the RAC program doesn’t even cost taxpayers any money since the auditors are compensated by getting a slice of the improper payments that are recovered.

Imagine that, a policy where the incentives are to save money for taxpayers!

However, the only long-run and permanent solution is to shrink the size of government.

And that’s why it’s time to restructure Medicare. We have 50 years of evidence that the current approach doesn’t work.

Read Full Post »

Not all birthdays are a cause for untrammeled joy. Most of us baby boomers, for instance, don’t like being reminded that we’re getting older.

And for folks who follow fiscal policy, the fact that Medicare is now 50 years old is hardly a cause for celebration. That’s because the program, as one of the three big entitlement programs, will turn American into Greece without substantial structural reform.

But it’s not just a budgetary issue.

Writing for the Wall Street Journal, Sally Pipes of the Pacific Research Institute opines that this isn’t a happy birthday for taxpayers, seniors, or the healthcare system.

The only birthday gift this middle-age government program merits is a reality check. Health insurance for senior citizens was part of LBJ’s expansion of the welfare state, all in the service of establishing a “Great Society.” Yet many beneficiaries today are struggling to secure access to high-quality care. Future beneficiaries, meanwhile, are forking over billions of dollars today to keep a program afloat that may be bankrupt when they retire.

Like many government programs, it is far more expensive than initially promised.

Medicare spending has zoomed far beyond original expectations and is now anything but sustainable. In its first year, 1966, Medicare spent $3 billion. In 1967 the House Ways and Means Committee predicted that the program would cost $12 billion by 1990. It ended up costing $110 billion that year. Last year the program cost $511 billion, and seven years from now it will double to more than $1 trillion, according to the Kaiser Family Foundation.

And like many government programs, it is riddled with waste, fraud, and abuse.

Medicare has been dogged by fraud and other improper payments—$60 billion overall in fiscal 2014, according to a recent report by the Government Accountability Office.

You can click here if you want some jaw-dropping examples of how the program squanders money.

Moreover, many doctors don’t want to treat Medicare recipients because they lose money after you included the expense of accompanying paperwork and regulations.

…nearly three in 10 seniors on Medicare struggle to find a primary-care doctor who will treat them, according to the Medicare Payment Advisory Commission. Another survey conducted by Jackson Healthcare, the health-care staffing company, found that 10% of the more than 2,000 physicians it surveyed don’t see Medicare patients at all.

So what’s the solution?

We’ve tried price controls and that doesn’t work.

Other approaches also won’t be adequate. So the only answer, Sally explains, is to shift to a form of vouchers sometimes called “premium support.”

…tweaking the eligibility age won’t be enough. If Medicare is to survive into old age, the program has to be converted from an open-ended entitlement to a system of means-tested vouchers. Under such a system, the government would give every senior a voucher based on health status, income and age. Seniors in better health and those who are wealthy would receive smaller vouchers. Sicker or needier seniors would receive larger ones. Seniors would then choose from among privately administered health plans the one that best suited their needs and budget. Insurers would have to compete for beneficiaries’ business, and providers would have to compete to get on the most popular plans. Lower prices and better-quality care would be the result.

Grace-Marie Turner of the Galen Institute and Merrill Matthews of the Institute for Policy Innovation have a similarly pessimistic perspective.

In a column for Investor’s Business Daily, they highlight some of the same problems with cost and quality, but they also add important insight about how Medicare has caused rising health care costs.

…health economist Theodore Marmor pointed out: “Hospital price increases presented the most intractable political problem for the Johnson administration. In the first year of Medicare’s operation, the average daily service charge in America’s hospitals increased by an unprecedented 21.9%. Each month the Labor Department’s consumer price survey reported further increases…”

Gee, what a surprise. With Uncle Sam picking up the tab, normal market forces were eroded and providers responded by jacking up prices.

The federal government has responded with price controls, but that’s been predictably ineffective.

Congress imposed a type of price-control mechanism in 1983 called Diagnostic Related Groups, or DRGs. And in the early 1990s, Congress tried to cut spending on physicians by creating the Resource Based Relative Value Scale. Then there was the infamous Medicare “Sustainable Growth Rate,” later dubbed the “doc fix,” which passed in 1996 to contain Medicare spending by cutting doctors’ fees. It was repealed only recently, after Congress had postponed the vote 17 times.

So what’s the bottom line?

Government involvement dramatically increases spending, followed by clampdowns on soaring prices, leading to restrictions on doctors and patients. Perhaps next time, we might try market forces rather than another failed effort at centralized government programs.

Or we can simply leave policy on autopilot and somehow have faith that Obamacare’s death panels will “solve” the problem.

P.S. Here’s the video I narrated which explains the importance of the right kind of Medicare reform.

And if you want (what I think) is a very good description of the program, it’s that Medicare charges seniors for a hamburger and gives them a hamburger, but taxpayers are getting a bill for a steak.

Read Full Post »

The American Enterprise Institute has published a comprehensive budgetary plan entitled, “Tax and spending reform for fiscal stability and economic growth.”

Authored by Joseph Antos, Andrew G. Biggs, Alex Brill, and Alan D. Viard, all of whom I know and admire, this new document outlines a series of reforms designed to restrain the growth of government and mitigate many of the tax code’s more punitive features.

Compared to current law, the plan is a huge improvement.

But huge improvement isn’t the same as perfect, so here’s my two cents on what’s really good, what’s partially good, and what has me worried.

I’ll start with something that’s both good and bad.

According to the latest CBO estimates, federal tax revenues for 2015 will absorb 17.7 percent of GDP and spending will consume 20.4 percent of economic output. Now look at this table showing the impact of the AEI proposal. As you can see, the burden of taxes and spending will both be higher in the future than today.

That’s obviously bad. One would think a conservative organization would present a plan that shrinks the size of government!

But here’s the catch. Under current law, the burden of government is projected to climb far more rapidly, largely because of demographic changes and poorly designed entitlement programs. So if we do nothing and leave government on auto-pilot, America will be saddled with a European-sized welfare state.

From that perspective, the AEI plan actually is good since it is based on reforms that stop most – but not all – of the already-legislated expansions in the size of the public sector.

So here’s the bottom line. Compared to what I would like to see, the AEI plan is too timid. But compared to what I fear will happen, the AEI plan is reasonably bold.

Now let’s look at the specific reforms, staring with tax policy. Here’s some of what’s in the report.

The goal of our tax reform is to eliminate the income tax’s inherent bias against saving and investment and to reduce other tax distortions. To achieve this goal, the income tax system and the estate and gift taxes would be replaced by a progressive consumption tax, in the form of a Bradford X tax consisting of a…37 percent flat-rate firm-level tax on business cash flow and a graduated-rate household-level tax, with a top rate of 35 percent, on wages and fringe benefits.

At the risk of oversimplifying, the AEI folks decided that it was very important to solve the problem of double taxation and not so important to deal with the problem of a discriminatory and punitive rate structure. Which is sort of like embracing one big part of the flat tax while ignoring the other big part.

We’d have a less destructive tax code than we have now, but it wouldn’t be as good as it could be. Indeed, the plan is conceptually similar to the Rubio-Lee proposal, but with a lot more details.

Not that I’m happy with all those additional details.

To address environmental externalities in a more cost-effective and market-based manner, energy subsidies, tax credits, and regulations would be replaced by a modest carbon tax. The gasoline tax would be increased to cover highway-related costs.

I’m very nervous about giving Washington a new source of revenue. And while I’m open (in theory) to the argument that a carbon tax would be a better (less worse) approach than what we have now, I’m not sure it’s wise to trust that politicians won’t pull a bait and switch and burden us with both a costly energy tax and new forms of regulatory intervention.

And I definitely don’t like the idea of a higher gas tax. The federal government should be out of the transportation business.

There are also other features that irk me, including the continuation of some loopholes and the expansion of redistribution through the tax code.

Child and dependent care expenses could be deducted… A 15 percent refundable credit for charitable contributions… A 15 percent refundable credit for mortgage interest… A refundable credit for health insurance…the EITC for childless workers would be doubled relative to current law.

Though I should also point out that the new tax system proposed by AEI would be territorial, which would be a big step in the right direction. And it’s also important to note that the X tax has full expensing, which solves the bias against investment in a depreciation-based system.

But now let’s look at the most worrisome feature of the plan. It explicitly says that Washington should get more money.

… we also cannot address the imbalance simply by cutting spending… The tax proposals presented in this plan raise necessary revenues… Over time, tax revenue would gradually rise as a share of GDP… The upward path of tax revenue is necessary to finance the upward path of federal spending.

This is very counterproductive. But I don’t want to regurgitate my ideological anti-tax arguments (click here if that’s what you want). Let’s look at this issue from a strictly practical perspective.

I’ve reluctantly admitted that there are potential tax-hike deals that I would accept, at least in theory.

But those deals will never happen. In the real world, once the potential for additional revenue exists, the appetite for genuine spending restraint quickly evaporates. Just look at the evidence from Europe about the long-run relationship between taxes and debt and you’ll see that more revenue simply enables more spending.

Speaking of which, now let’s shift to the outlay side of the fiscal ledger.

We’ll start with Social Security, where the AEI folks are proposing to turn Social Security from a substandard social insurance program, which is bad, to a flat benefit, which might even be worse since it involves a shift to a system that is even more focused on redistribution.

The minimum benefit would be implemented immediately, increasing benefits for about one third of retirees, while benefits for middle- and high-earning individuals would be scaled down to the wage-indexed poverty level between now and 2050.

Yes, the system they propose is more fiscally sustainable for government, but what about the fact that most workers are paying record amounts of payroll tax in exchange for a miserly monthly payment?

This is why the right answer is personal retirement accounts.

The failure to embrace personal accounts may be the most disappointing feature of the AEI plan. And I wouldn’t be surprised if the authors veered in this unfortunate direction because they put the cart of debt reduction ahead of the horse of good policy.

To elaborate, a big challenge for real Social Security reform is the “transition cost” of financing promised benefits to current retirees and older workers when younger workers are allowed to shift their payroll taxes to personal accounts. Dealing with this challenge presumably means more borrowing over the next few decades, but it would give us a much better system in the long run. But this approach generally isn’t an attractive option for folks who fixate on near-term government debt.

That being said, there are spending reforms in the proposal that are very appealing.

The AEI plan basically endorses the good Medicare and Medicaid reforms that have been part of recent GOP budgets. And since those two programs are the biggest drivers of our long-run spending crisis, this is very important.

With regards to discretionary spending, the program maintains sequester/Budget Control Act spending levels for domestic programs, which is far too much since we should be abolishing departments such as HUD, Agriculture, Transportation, Education, etc.

But since Congress presumably would spend even more, the AEI plan could be considered a step in the right direction.

Finally, the AEI plan calls for military spending to consume 3.8 percent of economic output in perpetuity. National defense is one of the few legitimate functions of the federal government, but that doesn’t mean the Pentagon should get a blank check, particularly since big chunks of that check get used for dubious purposes. But I’ll let the foreign policy and defense crowd fight that issue since it’s not my area of expertise.

P.S. The Heritage Foundation also has thrown in the towel on personal retirement accounts and embraced a basic universal flat benefit.

P.P.S. On a completely different topic, here’s a fascinating chart that’s being shared on Twitter.

As you can see, the United States is an exception that proves the rule. I don’t know that there are any policy implications, but I can’t help but wonder whether America’s greater belief in self-reliance is linked to the tendency of religious people to believe in individual ethics and moral behavior.

Read Full Post »

I’m very worried about the burden of government spending.

Moreover, I’m quite concerned that poorly designed entitlement programs will lead to fiscal disaster.

And I’m especially irked that Obama made the problem worse by ramming through yet another misguided and costly health care entitlement.

Given this background, you can imagine that I was very interested (and depressed) to see that Veronique de Rugy of the Mercatus Center put together some very important charts and analysis based on new fiscal policy projections.

After crunching the new numbers from CBO, here’s her bottom line conclusion.

…data from the Congressional Budget Office’s (CBO) recently released update to its Budget and Economic Outlook to show the trends and components of projected revenue and outlay increases. …growing entitlement obligations and net interest payments are projected to push outlays (spending) to grow faster than revenues over much of the next decade.

She also produced a chart showing the ever-rising burden of both taxes and spending. Pay close attention to how the numbers get worse at a rapid rate over the next 10 years.

There are two important takeaways from this data.

First, it should be abundantly clear that Washington is not suffering from inadequate tax revenue. Receipts are projected to rise in nominal dollars, in inflation-adjusted dollars, and as a share of GDP.

In other words, America’s long-run fiscal problems are solely a result of a rising burden of government spending.

Second, on the topic of government spending, it’s important to understand that the problem is overwhelmingly caused by entitlement programs. Social Security is part of the problem, but the real issue is government-run healthcare.

The President claimed Obamacare would “bend the cost curve.” But he wasn’t truthful since the White House implied the legislation would bend the curve down rather than up.

Here’s a second chart showing the breakdown of various spending categories.

As you can see, the problem is entitlements. And the healthcare entitlements deserve the lion’s share of the blame.

If this chart isn’t sufficiently depressing, then keep in mind that the numbers get even worse after 2024.

Simply states, the United States is doomed to become another Greece in the absence of genuine entitlement reform.

But let’s focus just on the next 10 years. Ms. de Rugy adds some detail.

…CBO projects three large budget categories—major health care programs (consisting of Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies for health insurance), Social Security, and net interest payments on the debt—will account for 85 percent of the total increase in outlays from 2014 to 2024. Total outlays are projected to increase from roughly $3.5 trillion in 2014 to $5.8 trillion in 2024, for a total increase of $2.3 trillion. Major health care programs are projected to grow by $816 billion, which accounts for 32 percent of the total. Social Security spending will grow by $654.9 billion over the next decade, which constitutes 28 percent of the total increase in outlays.

Let’s close, though, with some good news.

The numbers in the previous charts are all based on what happens if government policy is left on autopilot.

But what happens if politicians impose a modest bit of spending restraint?

According to the latest CBO forecast, inflation is supposed to average almost 2 percent over the next 10 years. So if some sort of spending cap is imposed and outlays “only” grow by a commensurate amount, it turns out that there’s a remarkably quick change in America’s fiscal profile.

As seen in this chart, there’s a budget surplus by 2019. And more important, government spending by 2024 is about $1.5 trillion lower than it would be with the budget left on autopilot.

Here’s a video from a few years ago. The numbers are out of date, but the underlying analysis is still completely appropriate. Simply stated, it’s very easy to balance the budget if politicians simply follow the Golden Rule of spending restraint.

P.S. Since this was a somewhat depressing topic, let’s close with some humor.

A few years ago, I shared a satirical application form for bailout money from Uncle Sam. Well, the New Yorker has an application quiz for Syrian rebels seeking American dollars.

Read Full Post »

Since I primarily work on fiscal policy, I normally look at the budgetary impact of entitlement programs. And the numbers are very grim.

But I’m also an economist, so I periodically comment on how government intervention undermines the efficient functioning of markets in the healthcare field.

Last but not least, I’m also a taxpayer, so I can’t resist occasionally expressing my frustration at how the government is a giant pinata of waste fraud and abuse. And government-run healthcare seems especially vulnerable.

Huge amounts of money bilked from taxpayers for supposed counseling sessions financed by Medicare and Medicaid.

Medicare getting scammed to pay for plastic surgery.

Russian diplomats scheming to get their healthcare costs covered by Medicaid.

We now have another example to add to the list.

The Washington Post has an excellent expose on how government incompetence has made Medicare a prime target for fraudsters and other crooks.

…in a Los Angeles courtroom, Bonilla described the workings of a peculiar fraud scheme that — starting in the mid-1990s — became one of the great success stories in American crime. The sucker in this scheme was the U.S. government.The tool of the crime was the motorized wheelchair. The wheelchair scam was designed to exploit blind spots in Medicare, which often pays insurance claims without checking them first. Criminals disguised themselves as medical-supply companies. They ginned up bogus bills, saying they’d provided expensive wheelchairs to Medicare patients — who, in reality, didn’t need wheelchairs at all. Then the scammers asked Medicare to pay them back, so they could pocket the huge markup that the government paid on each chair. …The government paid. Since 1999, Medicare has spent $8.2 billion to procure power wheelchairs and “scooters” for 2.7 million people. Today, the government cannot even guess at how much of that money was paid out to scammers.

Wow. Billions of dollars of fraud and the government to this day still can’t figure out the level of theft.

And wheelchair fraud is just a small slice of the problem.

…while it lasted, the scam illuminated a critical failure point in the federal bureaucracy: Medicare’s weak defenses against fraud. The government knew how the wheelchair scheme worked in 1998. But it wasn’t until 15 years later that officials finally did enough to significantly curb the practice. …Fraud in Medicare has been a top concern in Washington for decades, in part because the program’s mistakes are so expensive. In fiscal 2013, for instance, Medicare paid out almost $50 billion in “improper payments.”

You won’t be surprised to learn that fraud is so lucrative because the government routinely over-pays for items.

…The original equipment scam had sprung up in the 1970s, at a time when Medicare was young and criminals were still learning how to steal its money. Doctors, for example, could bill Medicare for exams they didn’t do. Hospitals could bill for tests that patients didn’t need. The equipment scam was the poor man’s way in, an entry-level fraud that didn’t require a medical degree or a hospital. …“Let me put it to you this way: An $840 power wheelchair, Medicare pays close to $5,000 for. So there’s a huge profit margin there. Huge,” said one California man who participated in a recent fraud scheme involving wheelchairs.

So this isn’t just a story about government incompetence and taxpayer ripoffs, it’s also a story which shows why third-party payer is a recipe for excessive healthcare spending.

The good news is that the wheelchair scam is slowly fading away.

The bad news is that the overall problem of a poorly designed entitlement system ensures that scammers and other crooks will simply come up with other ways to pillage taxpayers.

Today, even while the wheelchair scam is in decline, that same “pay and chase” system is allowing other variants of the Medicare equipment scam to thrive. They aren’t perfect. But they work.  In Brooklyn, for instance, the next big thing is shoe inserts. Scammers bill Medicare for a $500 custom-made orthotic, according to investigators. They give the patient a $30 Dr. Scholl’s.

Geesh.

When examining entitlements, I’ve  argued that Medicaid reform is the biggest priority.

But perhaps the rampant fraud means Medicare should be addressed first.

Though the right answer is to reform both programs, which is why I’m so pleased that the House of Representatives has approved the Ryan budget for four consecutive years, even if each new proposal allows more spending than the previous one. What matters most if that Ryan’s plan block grants Medicaid and creates a premium support system for Medicare.

Those reforms won’t eliminate waste, fraud, and abuse, but the structural reforms will make it harder for crooks to take advantage of the programs.

P.S. If you want more background information on Medicare, here’s a post that explains why the program is so costly even though seniors don’t enjoy first-class benefits.

P.P.S. And here’s my video explaining why Medicare desperately needs reform.

But keep in mind we also need reform of Medicaid and Social Security.

Read Full Post »

When government suppresses the free market and takes over the healthcare sector, you get some really odd results.

Consider these stories from Sweden:

 A man sewing up his own leg after getting frustrated with a long wait.

The government denying a wheelchair to a double amputee because the bureaucrats decided his impairment might not be permanent.

Speaking of amputations, an unfortunate man was put on such a long waiting list that his only treatment, when he was finally seen, was to have his penis removed.

Today, we’re going to augment that list. But not with another story from Sweden, which is actually a much better country in terms of public policy than most folks realize.

Instead, we’re going to look at some great moments in government-run healthcare in both the United States and the United Kingdom.

Our first story is from the Chicago Tribune and it deals with Medicaid and Medicare spending.

But we’re not going to look at the aggregate data. Those numbers are very sobering, to be sure, and you can click here and here to learn more about that problem.

Instead, we’re going to drill down into the details and get some up-close evidence of why the programs are so costly. Simply stated, providers learn how to bilk the government.

A few years ago, Illinois’ Medicaid program for the poor noticed some odd trends in its billings for group psychotherapy sessions. Nursing home residents were being taken several times a week to off-site locations, and Medicaid was picking up the tab for both the services and the transportation.  And then there was this: The sessions were often being performed by obstetricians and gynecologists, oncologists and urologists — “people who didn’t have any training really in psychiatry,” Medicaid director Theresa Eagleson recalled. So Medicaid began cracking down, and spending plummeted after new rules were implemented.Illinois doctors are still billing the federal Medicare program for large numbers of the same services, a ProPublica analysis of federal data shows. Medicare paid Illinois providers for more than 290,000 group psychotherapy sessions in 2012 — more than twice as many sessions as were reimbursed to providers in New York, the state with the second-highest total. Among the highest billers for group psychotherapy in Illinois were three OB-GYNs and a thoracic surgeon. The four combined for 37,864 sessions that year, more than the total for all providers in the state of California. They were reimbursed more than $730,000 by Medicare in 2012 just for psychotherapy sessions, according to an analysis of a separate Medicare data set released in April.

Some of the specific examples are beyond belief. Keep in mind as you read the next passage that there are only 365 days in a year, and only about 261 workdays.

Of the Illinois OB-GYNs billing for group psychotherapy, Dr. Josephine Kamper had the highest number of sessions. She was paid for 10,399 sessions in 2012, at a cost to Medicare of $207,980. …Another OB-GYN, Lofton Kennedy Jr., billed for 9,154 group psychotherapy services. He declined to comment. The third-highest-billing OB-GYN, Philip Okwuje, charged Medicare for 8,584 group therapy sessions.  

Illinois isn’t the only place where taxpayers are getting ripped off.

A Queens, N.Y., primary care doctor, Mark Burke, was paid for more sessions than anyone else in the country — 20,841. He accounted for nearly one in every six sessions delivered in the entire state of New York in Medicare, separate data show. He did not return messages left at his office. Another large biller was Makeba Gordon, a social worker in Detroit. She was reimbursed for nearly 5,000 group therapy sessions for her 26 Medicare patients, an average of 190 each. She also billed for 2,820 individual psychotherapy visits for the same 26 patients, who allegedly would have received an average of 298 therapy sessions apiece in 2012. Gordon could not be reached for comment.

And I’m sure you won’t be surprised to learn that the bureaucracy in Washington doesn’t seem overly worried about this preposterous waste of money.

Aaron Albright, a spokesman for the U.S. Centers for Medicare & Medicaid Services, said in an email that Medicare has no policy regarding which physicians may perform group psychotherapy. During such sessions, “personal and group dynamics are discussed and explored in a therapeutic setting allowing emotional catharsis, instruction, insight, and support,” according to rules set out by one of Medicare’s contractors.

The second story comes from the United Kingdom.

Regular readers know that the government-run healthcare system in the United Kingdom is an ongoing horror story of denied care, sub-standard care, and patient brutality (click here to see some sickening examples).

You would think the U.K.’s political class would respond by trying to use money more effectively.

You would be wrong. The bureaucrats somehow have decided that tax monies should be used to finance a sperm bank, even though private sperm banks already exist.

Here are some excerpts from a report in the Daily Mail.

Britain is to get its first NHS-funded national sperm bank to make it easier for lesbian couples and single women to have children.For as little as £300 – less than half the cost of the service at a private clinic –  they will be able to search an online database and choose an anonymous donor on the basis of his ethnicity, height, profession and even hobbies. …The National Sperm Bank will be based at Birmingham Women’s NHS Foundation Trust, which currently runs an existing NHS fertility clinic and recruits sperm donors from the local population. Funded by a £77,000 Government grant, the bank will be run by the National Gamete Donation Trust (NGDT) which this year received  an additional £120,000 of public money to organise egg and sperm donation.

Some have criticized the initiative because it will purposefully increase the number of fatherless children.

…the move – funded by the Department of Health – is largely designed to meet the increasing demand from thousands of women who want to start a family without having a relationship with a man. Critics last night called it a ‘dangerous social experiment’ that could result in hundreds of fatherless ‘designer families’. …Ms Witjens rejected suggestions that children suffer adverse consequences from lacking a father figure. …Ms Witjens pointed to the removal of the reference to a ‘need for a father’ in the Human Fertilisation and Embryology Act, when taking account of a child’s welfare when providing fertility treatment.

I’m sympathetic to the argument that children do best in conventional households with fathers, but my main reaction to this story is that government shouldn’t try to either penalize or subsidize unconventional households.

And a government-sponsored sperm bank definitely falls into the latter category.

But I’m not surprised. Governments love to squanders other people’s money, and the U.K. government has considerable expertise (if you can call it that) in this regard.

Heck, the U.K. healthcare system is even financing boob jobs. But we’re not talking about reconstructive surgery for women who had mastectomies. They pay for breast augmentation for women who claim “emotional distress.”

Though maybe the U.K. government deserves a special prize. It developed a giveaway program that was so convoluted that nobody signed up to take the money.

Read Full Post »

I had a very bad lunch today.

But not because of what I ate. My lunch was unpleasant because I moderated a noontime panel on Capitol Hill featuring Senator Ron Johnson of Wisconsin and my Cato colleague Chris Edwards.

And I should hasten to add that they were splendid company. The unpleasant part of the lunch was the information they shared.

The Senator, in particular, looked at budgetary projections over the next 30 years and basically confirmed for the audience that an ever-expanding burden of federal spending is going to lead to a fiscal crisis.

To be blunt, he showed numbers that basically matched up with this Henry Payne cartoon.

Here’s a chart from his presentation. It shows the average burden of spending in past years, compared to various projections of how much bigger government will be – on average – over the next three decades.

The Senator warned that the most unfavorable projection (i.e., “CBO ALT FISC”) was also the most realistic one. In other words, federal spending will consume a much larger share of economic output over the next three decades than it has over the past two decades.

But our fiscal outlook is actually even worse than what you see in his slide.

The Senator’s numbers are based on average spending levels over the 2015-2044 period. That’s very useful – and sobering – data, but if you look at the annual numbers, you’ll see that the trendline gives us additional reasons to worry.

More specifically, spending for the major entitlement programs (Social Security and Medicare, as well as Medicaid) is closely tied to the aging population. So as more and more baby boomers retire over the next couple of decades, spending on these programs will become more burdensome.

In other words, our fiscal problem will be much larger in 2040 than it will be in 2020.

Here are the long-run numbers from the Congressional Budget Office. The blue line is federal spending on various programs and the pink line is total spending (i.e., programmatic spending plus interest payments). And keep in mind that these numbers don’t include state and local government spending, which presumably will chew up another 15 percent of our economic output!

In other words, America will become Greece.

And don’t delude yourself into thinking that CBO must be wrong. I’m not a big fan of the Congressional Budget Office (particularly CBO’s economic analysis), but these numbers are driven by demographics.

Moreover, CBO’s grim outlook is matched by similarly dismal numbers from the IMF, BIS, and OECD.

By the way, CBO doesn’t do projections once federal government debt exceeds 250 percent of GDP, so the gray-colored trendline beginning about 2048 is not an official projections. It’s merely an estimate of the total spending burden assuming that the federal budget is left on autopilot.

Of course, we’ll never reach that level. We will suffer a fiscal crisis before that point. But when it happens to us, the IMF won’t be there to bail us out for the simple reason that the IMF’s credibility is based on the backing of American taxpayers.

And we’ll already have been bled dry!

So unless we find some very rich Martians (who are also stupid enough to bail out profligate governments), it won’t be a pretty situation. I’m not sure we’ll have riots, such as the ones that have taken place in Europe, but there will be plenty of suffering.

Fortunately, there is a solution. All we need is a modest bit of fiscal restraint so that government grows slower than the private sector. That would completely reverse Senator Johnson’s dismal long-run numbers.

And some countries have shown that multi-year periods of fiscal restraint are possible.

The real question, though, is whether politicians in America would be willing to adopt the entitlement reforms that are needed to control the long-run growth of spending.

Read Full Post »

The Census Bureau just released a report on America’s aging population.

The big takeaway is that our population will be getting much older between now and 2050.

And since I’m a baby boomer, I very much like the fact that we’re expected to live longer.

But as a public finance economist, I’m not nearly as happy.

As I explain in this interview with the Wall Street Journal’s Digital Network (and as confirmed by BIS, OECD, and IMF data), the United States is going to get deluged by a tsunami of entitlement spending.

I mentioned that it’s important to focus on the ratio of workers to retirees. This “dependency ratio” matters because economic output largely is a function of an economy’s working-age population.

To cite my famous cartoons, you need a sufficient number of people pulling the wagon to support those riding in the wagon.

Here’s a chart from the Census report to help you understand the magnitude of the problem. As you can see, both in the United States and other nations, the increase in the dependency ratio is almost entirely the result of aging populations.

Census Dependency Ratio

This is why I said that we face a slow-motion train wreck because of poorly designed entitlement programs.

But the good news is that there is time to reform those programs and avert a crisis.

Which explains why I probably sound like a broken record about the need for genuine entitlement reform.

In a column citing the new private pension system in the Faroe Islands, I gave the arguments for modernizing Social Security with personal retirement accounts.

But we also need to deal with the health entitlements.

Here’s how to fix Medicare.

And here’s how to fix Medicaid.

By the way, some of the damaging provisions of Obamacare can be de facto repealed by including them in the Medicaid block grant, so it’s a critically important reform.

Needless to say, I think these reforms are far better for the economy than the big tax hike Obama has endorsed to deal with the giant financing gap.

P.S. For a clever look at the worker-dependency ratio, check out the party ship produced by a Danish think tank.

P.P.S. The interviewer also mentioned that America’s racial composition is changing, which gives me an excuse to point out that Social Security reform is particularly beneficial for blacks because of differences in life expectancy.

Read Full Post »

Self awareness is supposed to be a good thing, so I’m going to openly acknowledge that I have an unusual fixation on the size of government.

I don’t lose a wink of sleep thinking about deficits, but I toss and turn all night fretting about the overall burden of government spending.

My peculiar focus on the size and scope of government can be seen in this video, which explains that spending is the disease and deficits are just a symptom.

Moreover, my Golden Rule explicitly targets the spending side of the budget. And I also came up with a “Bob Dole Award” to mock those who mistakenly dwell on deficits.

With all this as background, you’ll understand why I got excited when I started reading Robert Samuelson’s column in today’s Washington Post.

Well, there’s a presidential whopper. Obama is right that the role of the federal government deserves an important debate, but he is wrong when he says that we’ve had that debate. Just the opposite: The White House and Congress have spent the past five years evading the debate. They’ve argued over federal budget deficits without addressing the underlying issues of what the government should do, what programs are unneeded, whether some beneficiaries are undeserving… The avoidance is entirely bipartisan. Congressional Republicans have been just as allergic to genuine debate as the White House and its Democratic congressional allies.

By the way, I have mixed feelings about the final sentence in that excerpt. Yes, Republicans oftentimes have displayed grotesque levels of fiscal irresponsibility. Heck, just look at the new farm bill. Or the vote on the Export-Import Bank. Or the vote on housing subsidies. Or…well, you get the point.

On the other hand, GOPers have voted for three consecutive years in favor of a budget that restrains the growth of federal spending, in large part because it includes much-needed reforms to major entitlement programs such as Medicare and Medicaid.

But Republican inconsistency isn’t our focus today.

I want to address other parts of Samuelson’s column that left a bad taste in my mouth.

He argues that you can’t balance the budget merely by cutting discretionary programs. That’s technically untrue, but it’s an accurate assessment of political reality.

I’m much more worried about his assertion that you can’t balance the budget even if entitlement spending also is being addressed.

Let’s look at what he wrote and then I’ll explain why he’s wrong.

Eliminating many programs that are arguably marginal — Amtrak, subsidies for public broadcasting and the like — would not produce enough savings to balance the budget. The reason: Spending on Social Security, Medicare and other health programs… But even plausible benefit trims for affluent retirees would still leave deficits. There would still be a need for tax increases.

This is wrong. Not just wrong, but demonstrably inaccurate.

The Ryan budget, for instance, balanced the budget in 2023. Without a single penny of tax hikes.

Senator Rand Paul and the Republican Study Committee also have produced balanced budget plans. Even as scored by the statists at the Congressional Budget Office.

By the way, you don’t even need to cut spending to balance the budget. Spending cuts would be desirable, of course, but the key to eliminating red ink is simply making sure that government spending climbs at a slower rate than revenues.

And since revenues are expected to grow by about 6 percent per year, it shouldn’t take advanced knowledge of mathematics to realize that the deficit will fall if spending grows by less than 6 percent annually.

Indeed, we could balance the budget as early as 2018 if spending merely was restrained so that the budget grew at the rate of inflation.

But never forget that the goal of fiscal policy should be shrinking the size and scope of the federal government, not fiscal balance.

Ask yourself the following questions. If $1 trillion floated down from Heaven and into the hands of the IRS, would that alter in any way the argument for getting rid of wasteful and corrupt parts of the federal leviathan, such as the Department of Housing and Urban Development?

If the politicians had all that extra money and the budget was balanced, would that mean we could – or should – forget about entitlement reform?

If there was no red ink, would that negate the moral and economic imperative of ending the welfare state?

In other words, the first part of Samuelson’s column is right. We need a debate about “the underlying issues of what the government should do, what programs are unneeded, whether some beneficiaries are undeserving.”

But we’re not going to come up with a good answer if we don’t understand basic fiscal facts.

Read Full Post »

One of the challenges of good entitlement reform (or even bad entitlement reform) is that recipients think they’ve “earned” benefits.

If you tell them that programs such as Medicare are unsustainable and need to be changed, some of them suspect you’re trying to somehow cheat them. After all, they were forced to cough up payroll taxes during their working year.

That’s true, but the real issue is how much did they pay in tax and how much are they getting back.

Here’s a very sobering chart from the recently released Long-Term Fiscal Outlook from the Congressional Budget Office.

It shows that people in their 50s, 60s, and 70s paid, on average, between $45,000-$65,000 of taxes into Medicare. That’s a big chunk of money, but it’s far less than the $160,000-$270,000 that Medicare will spend on them.

Medicare individual tax spending

I’m tempted to say that current retirees and older workers are being charged for a hamburger but they’re getting a steak.

But that’s not accurate. As most recipients will tell you, Medicare leaves a lot to be desired, which is what you might expect with a government-run system.

So the right way to look at the program is that recipients are being charged for a hamburger, they’re getting a hamburger, but taxpayers (the ones who make up the funding gap) are being charged for a steak.

Which is why structural reform is the only good way of dealing with the program’s giant unfunded liability. As explained in this video from the Center for Freedom and Prosperity.

As discussed in the video, the reform (which has been part of the Ryan budget that’s been approved by the House) basically leaves the program as is for current retirees and older workers, but younger workers are allowed to move to a new system that gives them – upon retirement – the ability to choose their preferred health policy.

P.S. Don’t forget that we also need to reform Medicaid and Social Security, the other two big entitlement programs.

Read Full Post »

According to my reader poll, Michael Ramirez is the nation’s best political cartoonist.

His new masterpiece about entitlements is a good example of his talent. In one image, he manages to convey how the system lures people into danger by offering the illusion that they can get something for nothing.

Ramirez Entitlement Cartoon

The cartoon is an apt illustration of where we are today with programs such as Food Stamps and disability, with ever-greater numbers of people being lured into lives of dependency.

In other cases, though I’m afraid we’ve already passed the point of biting the hook, particularly for many of the middle-class entitlements. We’re now being reeled in and face a very real danger of being turned into euro-style fish filets.

Though if I’m allowed to extend the metaphor, many people are working to reform Social Security, Medicare, and Medicaid in hopes of escaping the hook of dependency and fiscal crisis.

But it’s very important to realize that not all entitlement reform is created equal. As I explained back in 2011, the left would be more than happy to impose price controls and means testing as part of a “grand bargain” that seduces gullible Republicans into accepting a tax hike.

Which is why this Glenn Foden cartoon hits the nail on the head.

Foden Entitlement Cartoon

Sort of reminds me of this Ramirez cartoon. Simply stated, Republicans are dangerously susceptible to bad deals, which helps to explain why tax-increase budget agreements are always fiscal disasters.

The moral of the story is that we need the right kind of entitlement reform, but that won’t be possible until at least 2017.

P.S. If you want a tragically funny look at how the welfare state changes people for the worse, read the politically correct version of The Little Red.

Read Full Post »

What’s the most absurd “health” expenditure by government?

Your tax dollars at work

There are lots of potential responses, including $240 million for penis pumps. Or how about the fact that Obamacare allows taxpayer-subsidized viagra for sex offenders?

But another potential answer is cosmetic surgery for “droopy eyelids.” Here are some of the details from a Miami Herald report.

Aging Americans worried about their droopy upper eyelids often rely on the plastic surgeon’s scalpel to turn back the hands of time. Increasingly, Medicare is footing the bill. Yes, Medicare. The public health insurance program for people over 65 typically does not cover cosmetic surgery… In recent years, though, a rapid rise in the number of so-called functional eyelid lifts, or blepharoplasty, has led some to question whether Medicare is letting procedures that are really cosmetic slip through the cracks — at a cost of millions of dollars. …From 2001 to 2011, eyelid lifts charged to Medicare more than tripled to 136,000 annually, according to a review of physician billing data by the Center for Public Integrity. In 2001, physicians billed taxpayers a total of $20 million for the procedure. By 2011, the price tag had quadrupled to $80 million. The number of physicians billing the surgery more than doubled. …surgeons also acknowledge an increased awareness of the surgery fueled by reality television, word-of-mouth referrals, and advertising that promises a more youthful appearance. And doctors concede they face increased pressure from patients to perform eyelid lifts, even when they do not meet Medicare’s requirement that peripheral vision actually be impaired.

Yet even though the Medicare requirements aren’t being met, these surgeries are still taking place. Why? Well, because the doctors and old people both realize that Uncle Sam will pay the bill so long as you make a nebulous claim that peripheral vision is affected.

Just like doctors and scammers will agree on a diagnosis of “bad back” or “mental illness” in order to get somebody on the taxpayer-financed disability gravy train.

In other words, once politicians create a pile of free money, people will figure out ways of getting their hands on that money.

That’s true for all programs.

But because of the amounts of money involved, Medicare is a far bigger problem than other programs, as explained in this video.

Which is why we desperately need the right kind of entitlement reform.

P.S. You won’t be surprised to know that other nations also have crazy government-financed health systems. In the United Kingdom, for instance, you can get a boob job at taxpayer expense. The government in the United Kingdom also provides taxpayer-financed sex trips to Amsterdam. And the bureaucrats at the European Commission get penile implants at public expense.

Read Full Post »

This is a tough question.

I obviously want comprehensive reform of all entitlement programs, so selecting just one is a bit of a challenge. Sort of like being asked to pick your favorite kid.

Would I reform Social Security? That’s a logical choice. It’s the biggest program in the federal budget, so it’s presumably the biggest problem.

And it sure would be nice to have personal retirement accounts, just like Australia, Chile, and other nations that have modernized their systems.

CBO Health Care Long Term Spending ForecastBut Medicare and Medicaid are growing faster than Social Security and the Congressional Budget Office projects that those two entitlements eventually will become a bigger burden on taxpayers than Social Security.

And since our goal should be to minimize the long-run burden of government spending, that suggests that it’s more important to reform the healthcare entitlements.

But which program should be fixed first?

There’s certainly a strong case to deal with Medicare. The health program for the elderly already is very expensive and it’s going to become even more of a budget buster because of demographic changes.

Moreover, shifting to a “premium support” system would be good for seniors since they would have the ability to pick a plan best suited to their needs. Basically the same type of system now available to members of Congress.

All things considered, though, I would deal first with Medicaid. There are three reasons why I would target the health program designed to supposedly help the poor?

  1. Medicaid is hugely expensive today and will become even more costly over time.
  2. The block-grant reform proposal is a good first step for restoring federalism.
  3. Obamacare can be partly repealed by block-granting the exchange subsidies as part of Medicaid reform.

For more information, here’s my video explaining how to reform the program.

I’m not going to cry – or even complain – if politicians instead decide to fix Medicare or Social Security. Just so long as they’re taking steps in the right direction, I’ll be happy.

What I don’t want to see, however, is a gimmicky plan such as Simpson-Bowles that merely papers over the underlying problems for a couple of years. The wrong type of entitlement reform is probably worse than doing nothing.

Read Full Post »

When I travel, particularly overseas, I run into a lot of people who are totally confused about the American healthcare system.

For all intents and purposes, they think the United States relies on the free market and that government (at least in the pre-Obamacare era) was largely absent.

So they are baffled when I tell them that nearly one-half of all health expenditures in America are directly financed by taxpayers  and that the supposedly private part of our healthcare system is massively distorted by government interference and intervention.

When explaining how government has screwed up private health insurance, I talk about third-party payer and  how genuinely private insurance works for home ownership and automobiles. And I cite examples of genuine free markets for cosmetic surgery and even (regardless of your views) abortion.

But from now on, I think I will simply tell people to watch this superb video from Reason TV.

This shows how a true free market operates. Efficiency and low prices are the norm, and consumers get a good deal.

My only quibble is that the video doesn’t explain how government policies – such as the healthcare exclusion in the tax code – should be blamed for the grotesque waste, inefficiency, and featherbedding in most parts of the medical industry.

But that’s a minor gripe. You should share this post with any and all fuzzy-headed friends and colleagues and tell them this is how smoothly the market would work if the government simply would get out of the way.

And if they want another example, here’s a report from North Carolina on free-market healthcare in action.

If we want this kind of system to be the rule rather than the exception, we need to scrap the healthcare exclusion in the tax code as part of a switch to a simple and fair flat tax. That will help bring some rationality to the health insurance market and address the part of the third-party payer crisis caused by indirect government intervention.

Then we also should reform Medicaid and Medicare to help address the part of the third-party payer crisis caused by the direct government intervention.

P.S. As this poster cleverly illustrates (and as Ronald Reagan correctly warned in the second video of this post), government is the problem, not the solution.

Read Full Post »

%d bloggers like this: