Today we hear quite a lot about the U.S. debt ceiling or debt limit. So in this article I try to draw upon Internet news, political news, and economic news for sources to examine this situation. Before deciding about the politics of the debt limit, one must understand it – what it is, from where it came, and how Congress uses it.
Debt Ceiling ORIGIN, Composition, and Purpose
A statutory ceiling on federal debt was established in 1917 under the ‘Second Liberty Bond Act.’
The debt is the total outstanding liability owed by the US Federal Government to:
- U.S. Citizens
- Corporations
- Foreign Governments
The debt can be classified into two general categories:
- Public accounts, consisting of treasury bills, bonds, and notes
- Government accounts, owed by the federal government to itself, consisting primarily of Social Security and similar trust funds
The debt ceiling’s original purpose was an instrument established by Congress to limit the Treasury Department’s ability to borrow, but it has increasingly lost its effectiveness. It has been waived ten times in the last decade. And a vote to increase the debt limit has often been tied to “must pass” spending increases.
Debt Ceiling MYTHS
Here are some myths about the debt ceiling:
- Failure to pass a debt ceiling increase means defaulting on our debts – Refusing to raise the debt limit does not mean defaulting on our debts. The U.S. Treasury currently takes in more than enough revenue to pay both the interest and the principal on the debts we currently owe. The government would have to prioritize its expenditures – for example, sending out checks for the troops’ pay and Social Security first.
- Failure to pass the debt-ceiling increase on time would be unprecedented – Both the administration and the media sound as if we are at the edge of economic Armageddon if we have not raised the debt ceiling. That’s not quite so.
- It’s always a “clean bill” – The administration is insisting that it would be shocking for Congress to add any conditions to the debt-ceiling increase. But such conditions are far from unprecedented.
- This is not about future spending – The administration insists that raising the debt ceiling is just about paying for spending that’s already occurred. Depending on how high it is raised, it may be about paying only for spending that is already authorized – or much more. Authorized and spent are not the same thing.
- Only Republicans oppose raising the debt ceiling – The media and the administration want to turn this into a partisan fight. The ongoing narrative is that radical Republicans in thrall to the Tea Party want to wreck our finances, while Democrats responsibly want to pay our bills.
Debt Ceiling SCARES
Here are some scares that the administration and MSM try to promulgate:
- Treasury Secretary Timothy Geithner has warned that failing to lift the debt ceiling would have “unthinkable” consequences.
- Timothy Geithner said, [not raising the debt ceiling will] “shake the basic foundation of the entire global financial system.”
- Joshua Green, a senior editor at The Atlantic, wrote, “If Congress fails to raise the federal debt limit, the government will default, which all parties agree would have catastrophic effects on the economy.”
- The Associated Press reported that if “borrowing slams up against the current debt limit ceiling of $14.3 trillion and Congress fails to raise it, ‘the resulting’ damage would ripple across the entire economy, eventually affecting nearly every American.”
- When Democratic Senator Mark Warner of Virginia asked at a hearing what would happen “if we were to default and not raise that debt ceiling,” Federal Reserve Chairman Ben Bernanke replied ominously: “It would be an extremely dangerous and very likely recovery-ending event.”
When/If the Debt Ceiling IS raised, what happens?
In a release this afternoon (2 Jun 11), the Moody’s ratings agency said it would put the U.S. credit rating under review if Congress and the Obama administration don’t make progress on increasing the debt limit. “If the debt limit is raised and default avoided, the Aaa rating will be maintained. However, the rating outlook will depend on the outcome of negotiations on deficit reduction.”
The United States is at risk of having its pristine credit rating lowered if politicians in Washington cannot agree on a plan to bring down the nation’s deficits over the long term, ratings agency Standard & Poor’s said Monday (18 Apr 11). This means that there is a one-in-three chance that S&P could downgrade the nation’s “AAA” credit rating within two years. S&P said its outlook change was based on the growth of the United States’ deficits over the last several years as a percentage of gross domestic product, the broadest measure of economic activity.
Back in April, Standard & Poor’s threatened to reduce America’s top-shelf credit rating. Now another investment agency, Moody’s, has issued a similar warning. In fact, Moody’s is more urgent. S&P spoke of a one-in-three chance that our credit rating would take a hit within the next two years. Moody’s is talking about downgrading our AAA credit rating within the next few weeks. There is also a difference in the stated reasons both agencies gave for issuing their warnings. S&P was explicitly worried about our mounting national debt, while Moody’s is worried that we won’t make it bigger. This is an important warning shot fired by the credit market. Standard & Poor’s used a rifle, while Moody’s used a pistol. Raising the debt ceiling without budget reforms in place means we would dodge the Moody’s pistol shot and run smack into the S&P rifle bullet, which was fired to warn us of much more serious, long-term danger.
When/If the Debt Ceiling is NOT raised, what happens?
The United States has hit its debt limit on 16 May, 2011, and the world hasn’t come to a screeching end, the sky isn’t falling, and no one is really talking about it. The Obama Administration and Geithner have continually warned about a “double-dip recession,” yet, America is still in a recession and hasn’t gotten out of it. “Recovery Summer,” in fact was the opposite, the economy hasn’t recovered.
If Congress fails to raise the debt limit by August 2, the Treasury has only two options: It can default on its debt – meaning, stop paying its creditors around the world – or continue to pay creditors but halt any other federal spending above what the government collects in taxes. In effect, that would mean an overnight spending cut of about 40 percent. Here are six consequences if the Treasury is forced to choose one of those options:
- Cut $125 Billion Per Month – The federal government must borrow an additional $125 billion each month to finance all of its commitments. If the Treasury chooses to continue to pay creditors but stop all other federal spending, the government will have to begin reducing its spending by $125 billion every 30 days.
- Treasury Bonds Collapse – If the government defaults on its debt, economists say that prices for Treasury bonds would collapse and interest rates would probably soar to record highs.
- Cut Medicare and Social Security – To reduce spending by $125 billion a month, the government would have to make deep cuts to the two giant entitlement programs.
- Stock Market Plunge – Wall Street generally agrees with Geithner that it would be a disaster if the U.S. defaulted on its debt.
- Government Furloughs or Mass Layoffs – The federal government would most likely turn to furloughs or mass layoffs to immediately cut spending.
- Sky-High Mortgage and Interest Rates – If the government defaults, interest rates on mortgages would shoot up.
Dilemma and Debate
Current spending growth is unsustainable. The Government Accountability Office estimates entitlement spending on Social Security, Medicare and Medicaid alone will amount to more than 20 percent of GDP by 2080, if current policies are unchanged. Excessive government spending and high tax rates reduce economic freedom and thus the range of choices open to individuals. When government runs large deficits and adds to the national debt, private investment can be crowded out. Today, the gross federal debt is approaching 100 percent of GDP. In addition, unfunded liabilities of Social Security and Medicare total more than $100 trillion. Studies by leading economists Kenneth Rogoff and Carmen Reinhart have shown that when sovereign debt exceeds 90 percent of GDP, real growth tends to slow.
China, and others holding U.S. sovereign debt, will suffer huge losses if the United States cannot get its fiscal house in order and return to constitutionally limited government. By undervaluing the yuan against the dollar, China has accumulated more than $3 trillion in foreign exchange reserves, with a substantial amount invested in U.S. government securities.
For most of America’s history, adherence to the framers’ “Constitution of Liberty” did limit government spending, and the private sector flourished. Whether that ethos of liberty returns will determine the future path of U.S. fiscal and monetary policies.
Two of the biggest companies to warn of fallout from the debt-ceiling fight are life-insurance giant MetLife and private-equity powerhouse KKR. MetLife is brief in its warning, which appears in the quarterly report it filed May 10. It’s wrapped into a broader “risk factor” disclosure about “difficult conditions in the global capital markets and the economy,” and warns of market and economic volatility more generally. KKR is more specific. With its quarterly report filed on May 5, it added an entirely new section to its risk factors, warning of potential harm from a “failure or the perceived risk of a failure to raise the statutory debt limit of the United States…”
Financial firms aren’t the only ones worried about the debt ceiling. Hansen Medical, a small maker of medical robots in Mountain View, Calif., warns about the debt ceiling debate in its May 10 quarterly report. Seattle Genetics, a biotech company focusing on cancer and autoimmune disorders, warns of the debt ceiling debate in its May 6 quarterly report.
The debt ceiling is NOT the problem
The Treasury is out of money, but not out of games. Now that it has finally been made clear that in order to accommodate the debt ceiling by adding marketable debt, the Treasury has no choice but to literally plunder retirement accounts, we now know that in order to fit in the just announced $110 billion in new bond issuance over the next week, Tim Geithner will have to reduce US retirement funding (the bulk of which, the Social Security Trust Fund already lost $1.1 trillion in the past year) by at least $45 billion.
It should be noted that the debt ceiling is not the problem. Raising it solves the duplicity of Treasury behavior but doesn’t resolve the fact that we are caught in a debt death spiral that will result in the collapse of the dollar, producing hyperinflation and the likely collapse of our government.
Congress must accomplish three things to put the United States on a path to financial responsibility: (1) cut current spending, (2) restrict future spending, and (3) fix the budget process.
- Responsibility for the Debt Lies with Congress – When the Constitutional Convention met in Philadelphia in May 1787, the delegates who attended were well aware of the problems of the national debt, the state debts, and the poor financial reputation of the government. The Framers of the Constitution sought to reassure lenders that, even though it might change its form of government, the United States would honor its debt. The Framers included in the Constitution several other provisions that fixed responsibility for the national debt on the Congress of the United States. Legislative powers fix upon Congress the responsibility for the national debt.
- Congress Let Debt Get Out of Control – To spend more money than you have, you borrow, creating debt. Congress has grossly overspent beyond its means, creating a huge national debt. From a debt of $79 million when the Revolutionary War ended, the United States has racked up a debt of nearly $14.294 trillion. To put today’s debt in perspective, consider:
- It would take essentially everything that Americans produced (GDP) in all of last year to pay off the existing national debt of $14.294 trillion.
- The debt when the American Revolution ended was about $34 per American, which in today’s, inflation-adjusted dollars would be about $653 per American. Today, the debt owed by each American is over $45,000, nearly 68 times the size of the debt when the American Revolution ended.
- Cut Current Spending, Restrict Future Spending, and Fix the Budget Process – As federal borrowing approaches the current debt limit, Congress must reach agreement to accomplish three things to put the country on a path to financial responsibility.
- Cut Current Spending – In making cuts in current spending, Congress should emphasize cuts in continuing programs because, given the budget practices of government that look to existing budgets as baselines for setting future budgets, the current cuts likely will result in related reductions in future spending.
- Restrict Future Spending – In designing effective statutory restrictions on future spending, Congress should seek to reduce spending, with a reasonable transition period, to not more than the modern historical level of federal revenues.
- Fix the Congressional Budget Process – To do this, Congress should:
- amend existing federal laws that provide permanent or indefinite appropriations for federal agencies or programs (including entitlement programs), so as to retrieve congressional control of spending for those agencies and programs.
- estimate and publish the projected cost over 75 years of any proposed policy or funding level for each significant federal program.
- require a calculation of cost of a proposal that takes account of that response information available to Congress when it decides whether to pursue the actions.
Default on the debt does not occur when government borrowing reaches the debt limit. When the government reaches the debt limit and cannot borrow more money to pay its bills coming due, it must, as a practical matter in the absence of guidance set by law, establish priorities in paying the bills.
Congress should proceed with an orderly change of course in federal spending – taking action to cut current spending, restrict future spending, and improve federal budgeting – and at the same time it addresses the debt limit.
Failing to Control the Spending that Causes Debt, Congress Has Raised the Debt Limit Regularly – Early in the past century Congress enacted the first aggregate public debt limit, on federal bonds. Throughout the 20th century and into the present century, Congress has from time to time raised the debt limit and also has authorized the government temporarily to exceed the debt limit.
Fifteen weeks after the Japanese attacks on the U.S. territories of Hawaii, Guam, Wake Island, and the Philippines, Congress doubled the debt limit. Following the Japanese surrender on September 2, 1945, Congress took up the debt limit again -to cut it to $275 billion on June 26, 1946. Congress left the debt limit of $275 billion in place, but several times enacted legislation that temporarily authorized the government to borrow money in excess of the debt limit. Finally, on September 2, 1958, Congress raised the debt limit to $283 billion.
Since then Congress has raised the debt ceiling 30 times, and it now stands at $14.294 trillion.
WARNINGS from Europe – What could happen
- The European Debt Crisis – The “Vienna initiative” was a plan, drawn up in 2009, that halted the rot of financial contagion spreading through central and eastern Europe. It is now being discussed as a possible model for resolving Greece’s sovereign-debt crisis. The need to come up with a new plan for Greece is mounting. On May 20th, 2011, Fitch, a ratings agency, cut the country’s debt rating by another three notches. Yields on Greek ten-year bonds this week reached 16.8%, more than twice what they were a year ago.
- Greece’s Monetary Policy – Greece, struggling to avoid default on its massive national debt, obviously is in bad shape. This year it will run a budget deficit equal to 9.5 percent of its GDP. That actually is a significant improvement over last year, when its deficit topped 15 percent of GDP. Greece also provides an object lesson to those who believe that budget deficits are the result of low taxes. Greek taxes run as high as 40 percent on incomes above €70,000 per year. It’s not low taxes that caused the Greek crisis, but high spending. (Sound familiar?)
- Greek Coup? – Despite last year’s 110 billion euro Greece bailout there remains serious concern that the periphery EU nation will be unable to continue its debt repayments. Due to the increasing severity of the problem, and the ongoing resistance to additional support, the Central Intelligence Agency has now issued a report warning on how worsening Greek unrest could bring rise to even a military coup. A number of European Union countries including Germany, Finland, and the Netherlands have lost already lost interest in and support for extending any further bailout funds to Greece as its austerity measures continue to flounder.
- EU Safety Net Frays – “There can be no more illusions about getting help from the state,” said Ms. Gema Díaz, at home on a recent evening in a charmless, government owned complex on the outskirts of the city. Hers is a story repeated across Europe, fueling the protests and strikes that have tied up airports, blocked highways and, in Greece, even turned deadly. For millions of Europeans, modest salaries and high taxes have been offset by the benefits of their cherished social model – a cradle-to-grave safety net which, in the recent boom years, seemed to grow more generous all the time. Now, governments across Europe say they have little choice but to pull back on social benefits, at least for now.
- Greece, Ireland, Portugal Bailouts – It was a year ago that the European Union produced its big bazooka to quell the euro area’s sovereign-debt crisis: a €750 billion fund to safeguard the single currency, following within days of the €110 billion bail-out of Greece. It did not work. Ireland has since been bailed out, and a rescue of Portugal is in the works.
- Debt Ceiling Warnings from Europe – As the debate over America’s debt burden intensifies, Europe’s social and economic problems provide a warning to the United States. For over a decade, continental Europe has witnessed political and economic decline, culminating in a sovereign debt crisis which has brought the single European currency to its knees. What are the lessons from Europe on where the spiraling debt crisis will end? The Government in Britain has chosen to swallow the bitter pills of austerity cuts and deficit reduction. The Conservative-led coalition has pledged to eliminate Britain’s structural deficit by 2015, as well as to cut 490,000 public sector jobs. Sweden, which is also outside the Eurozone, has successfully steered its economy through this crisis. Having learned valuable lessons in the 1990s, Sweden’s center-right government has chosen to incentivize work and maintain budget discipline, which has led to economic growth of 4.5 percent in 2010.
Conclusion
Let us Americans analyze these different European approaches and what lessons they can offer America’s next presidential candidates. Politicians (of both parties) have only to look to Europe for a free, painless lesson about what awaits this country. But, as we (taxpayers) know, politicians tend to cling to their beliefs, even in the face of contrary evidence (Reid and Schumer come to mind).
But that’s just my opinion.
openid.aol.com/runnswim,
you got the 100 comment, congratulation,
you work hard today for it. enjoy, and you had us sharks lirking,
MATA AND AYE AND NAN AND ME TRYING FOR IT.
bye
@mata: There’s only so much I can do from memory. This is going to take some dedicated research time.
What you are doing, however, is throwing semantic arguments in my face. It’s a fact that there were steep rises in payroll and self employment (i.e. social security) taxes in 1982, at the same time that there were steep cuts in high end income and estate taxes. It is a fact that both of these occurred in the Reagan administration. It is a fact that the former (regressive tax hikes) were used to partially finance the latter (progressive tax cuts). The social security tax hike wasn’t used to finance some big new government program. The revenues went straight into the US general fund. They could have been used to retire debt. Instead, they were used to pay for the operations of government, which had less tax money to support those operations, on account of the Reagan tax cuts (as documented in major study which you, yourself, have quoted in the past). It is a fact that, coupled with legislation to increase the social security taxes, pledges were made reaffirming that the surpluses were, in effect, to be lent to the government in exchange for interest-bearing T Bills, to be retained by the social security trust fund.
I distinctly remember you quoting an accounting change relating to Reagan, which, I believe, you used to partially explain away the marked rise in debt:GDP resulting from the Reagan tax cuts. I hope that I can find this.
Here’s a well written op ed which explains the points I’ve been trying to make:
http://www.oregonlive.com/news/oregonian/david_sarasohn/index.ssf/2011/02/time_to_live_up_to_reagans_soc.html
For the record, I’m not “blaming” Reagan for anything having to do with social security. I blame him for voodoo economics, which is that tax cuts pay for themselves by generating increased economic activity sufficient to generate increased tax revenues to pay for the tax cuts. This is by now one of the most discredited economic hypotheses in history.
I’ll readily admit that too much government spending has contributed to the current debt crisis. But it is wrong to deny that the great tax cuts of the past 30 years have not played an important role. The Reagan tax cuts were justified, at the time, on the now discredited supply side theory that tax cuts pay for themselves. The Bush tax cuts were justified on the basis of illusory surpluses which were projected to extend out for a decade. Absent supply side theory and absent the illusory budget surplus, both tax cuts would have been viewed as irresponsible and unjustifiable.
Social security is not a ponzi scheme and Medicare is simply the best and most cost effective segment of the entire health care economy. The reason that Social Security is in trouble is that it is a pay as you go system which was mismanaged, by both political parties. The reason Medicare is in trouble is that Medicare is not allowed to raise the Medicare tax in the way that private insurance companies can have annual double digit increases in premiums, whenever the private companies want to unilaterally levy those premium hikes.
P.S. (re: your #107): Reagan raised SS benefit taxes on wealthy from 0% to 50% and Clinton raised them from 50% to 85%. This is entirely consistent with the Clinton/Rubin “focus like a laser” economic priority on deficit reduction, of which both felt that tax increases were an integral component. You can criticize it, but it was internally consistent with other policies and most economists would say that it worked. This is related, by the way, to the whole means testing social security debate.
– Larry Weisenthal/Huntington Beach, CA
Larry, I never would have mentioned the Social Security amendmends in any form except to point out to you that it was one of Reagans tax INCREASES, that he did in conjunction with tax reductions in his overall policy. Therefore, whatever you think you read, I assure you it was another of our many moments when you think I said something I didn’t because you evidently read in a different language than I do… LOL
Larry, you went on a multi-paragraph tirade about Reagan in a thread about Social Security, the trust fund, and Congress frittering away those funds with non Social Security related spending. Now you say you weren’t “blaming” Reagan for having anything to do with SS? Hey guy, you brung it up… not me. But again, what I notice is that you don’t mind Congress spending the trust fund on non social security spending… unless it was Reagan. This sounds to me like a personal problems. I guess we won’t be seeing you visiting the Reagan Presidential Library anytime soon, yes? Too bad… great facility. I got the inside tour once, including the “basement” archives.
INRE SS/Medicare and ponzi schemes. We’ll never get to an agreement on that, so I suggest we drop it. You think I’m wrong because of your liberal definition and imaginary Congressional intents. I think you’re naive. Not much more to be said about that, is there?
@mata:
I never said that. I said that the government should have used social security surpluses to pay down debt/redeem T bills. I said that both parties are guilty of social security trust fund mismanagement.
I’ll try to find the quote from you to which I referred. You write a lot; so I suspect that it might not be all that easy. But I’ll give it the old college try.
– Larry W/HB
I “write a lot”? Larry, I’ve been so scarce around this blog of late that I’m almost forgotten as an author! LOL
Let me save you some time, because you are wrong, wrong and more wrong. We’ve discussed Reagan tax policies vs Clinton on one thread in particular. None of which involved the GDP. That was where you and I had a personal falling out because I think of tax policies en toto, and you like to just focus on Reagan’s first tax cut bills, and ignore his corporate and other tax increases that enabled a faltering economy to recover… unlike this bunch. And in that thread, I only mentioned Social Security once, and that was in reference to the tax increases you choose to ignore to this day.
Since you’re morphing this as some how associated with our separate discussion in a different thread about GDP growth, I’ll provide that thread, taking place over a month later, to you as well. It had to do with Obama’s being the first GDP downswing on record thru any of our recessions in the lastest 110 years… a dubious accomplishment at best that I’m quite sure he doesn’t want to run on.
Apparently, you are trying to conjoin these two conversations, and conflate I said something about Social Security and GDP that I did not. Two simple facts. Reagan raised taxes on social security income. Clinton doubled down on that by raising it further, but only via class warfare senior citizens. Reagan’s GDP growth is a record of always going up, as has every other POTUS… until this one.
Now go cure cancer, and stop using your memory. It ain’t working right, guy.
@MataHarley: #109,
“INRE SS/Medicare and ponzi schemes. We’ll never get to an agreement on that, so I suggest we drop it. You think I’m wrong because of your liberal definition and imaginary Congressional intents. I think you’re naive. Not much more to be said about that, is there?”
Mata, stick to your guns on Ponzi, which is exactly what it is and how it’s structured, no matter what original intent may or may not have really been. I mentioned Canada above because there, both Federal and Provincial Governments have become convinced, against all intelligent research disputing it, that the only way to keep SS solvent is to bring in millions of immigrants whom, they are convinced, will “pay-in” to cover the retiring boomers, etc. That is a Ponzi scheme by any other name.
The U.S. Governments also believed and assumed that continual population growth would cover the shortfalls in time. By any other name, a Ponzi scheme is a Ponzi scheme.
@raider (#111):
Social security was designed as a pay as you go system. Had all the social security tax surpluses gone to redeem treasury debt, the debt:GDP ratio would now be sufficiently low to allow for the borrowing necessary to finance it through the period when the Baby Boomers finally die off (given also some relatively simple adjustments). As I wrote, it’s a century-long cycle, with population cycles being precisely analogous to business cycles (in which companies alternately borrow/pay off/borrow/pay off).
Social security is a mismanaged pay as you go system. It is only a “ponzi scheme” to those who find the term politically expedient. What happens in Canada or anywhere else has no bearing on these facts.
– Larry Weisenthal/Huntington Beach, CA
Larry, just how is it “mismanagement” if Congress utilizes the SSA and the ensuing SS Trust Fund EXACTLY as how they wrote the legislation to use it?
You think it’s moral mismanagement. I’m telling you it was deliberate, intentional, and well within how they structured that immoral piece of legislation to begin with. The problem is you are placing your own wishful, more moral intents upon a Congress that NEVER, and I mean NEVER, held the same view.
I will also point out that your criticism of this intentional and deliberate “misuse” of taxpayer dollars has been confined to your favorite target to hate – Reagan. I will also point out, once again, that Reagan did NO accounting changes. It went on budget under Johnson. It stayed on budget under Reagan, and wasn’t scheduled to come off budget until 1992. The Dem Congress did that earlier.
And the on/off budget makes no difference in the accounting in the federal budget for all intents and purposes. You are barking up the wrong tree, standing on the dead horse you continute to beat.
No, Larry. It was designed as a take in advance pension plan where the immediate beneficiaries were paid by those who would not receive their benefits until well in the future.
It was also designed to be a piggy bank of borrowing by Congress from day one.
You’re simply imposing your own imagination over reality. Don’t fit. Ponzi, ponzi, ponzi.
As far as this repeated “pay as you go”, BS… aka PayGo… that is the Congressional practice of financing spending with funds available today, rather than borrowed. However what Congress designed, INTENTIONALLY, is to collect from taxpayers today for their pensions tomorrow, to pay other pensioners today that never put a dime into the system.
No matter how you spin it, it’s robbing Peter to pay Paul for the SS payouts. As far as it being “funded”, that would only have happened if the accounting trick of investing in T-notes that could be used to fund non-social security spending were written in as prohibited. But they didn’t, did they?
From day one and it’s inception – as written in 1935 – it was always intended to be a ponzi scheme tax fund of collecting fees today, to pay out tomorrow, and use as a piggy back loan source for Congressional spending on *anything* they wanted to. Period. And you wonder why I hate that entitlement as much as I do Medicare? But now, like many others, after five decades of being robbed, I have little choice. I sure won’t get that money back any other way other than to demand the benefits. But if they offered me a cash out payment, I’d take it in a heartbeat and go elsewhere.
@openid.aol.com/runnswim: Thanks for the feedback. I was in my middle 40’s when diagnosed so the wait and see option was a non-option for me. Based on the links you provided to bees, hopefully it looks like they may be coming out with new and better ways to treat it.
I expect to catch hell for this, but there is another way to make Social Security solvent without crippling future generations. A linear cap-off on the maximum amounts that SS pays out to persons over 65. Sure, I understand that everybody payed in at X-amount of dollars depending on how much they made, and it fair to them, but the current system isn’t fair either. The consideration here is that the highest earning people who paid in are much more able to take the hit, and most of them (i.e. those who averaged over $200,000 a year in the last decade) could still likely afford a very nice retirement on what they were paid during that time. The trick here is that the SS system must be made a lock-box that Congress and the Treasury are forbidden to ever borrow from.
I don’t like this either, but it is a way to fix the current SS system until it can be phased out and a better sensible one created.
@Aye:
When Obama was out on the stump, saying that doctors were padding their income by cutting people’s feet off when that procedure was unnecessary, he was perhaps verging upon an almost truth. As we know, there probably isn’t a doctor in the entire U.S. who would do what Obama seemed to accuse doctors of typically doing; however, I would not be shocked if, for private insurance and government insurance, that doctors frequently “pad” their bills in the ways similar to that listed above. When there is no direct connection between the doctor and the patient with regards to billing, the doctor knows that medicare and insurance companies are out to screw him, so, when he can get a little extra money, by charging $500 to remove a splinter, he will do it. No way, if a patient was paying the doctor directly, would he charge him or her $500.
@MataHarley: You ought to repost this, Mata, apart from the references to Larry. You make many excellent points.
@Aye:
We are kindred spirits here. My medical insurance is a very high deductible, so I pay for most everything I need out of pocket. I always, without fail, ask up front if there is a cash discount or a direct-payment discount. In almost every instance, there is. This saves them 1-2 hours worth of paperwork.
@openid.aol.com/runnswim:
Now, let’s be serious; this is the government we are talking about here.
@openid.aol.com/runnswim:
When you talk about “paying for tax cuts” you are making the implicit assumption that all of your earnings belong to the government and when they parcel some back to you, that has to be compensated for somehow.
The phrase “voodoo economics” was a silly political phrase, offered up instead of an argument against tax cuts. Reagan’s stimulated economy lasted us for about 3 decades. I would much rather have the Reagan economy over the Obama economy.
In both cases, government spent too much. Not exactly a news flash.
1. Government is the only organization which is unable to do something like, “Let’s decrease the payments to this operation by 10% due to an economic downturn.” Instead, there is a built-in 7% increase each year, whether this is a call for that or not.
2. Government is so economically incompetent that, even though dozens of organizations can point out specific cases of waste, fraud and abuse, government seems unable to cut any of this from its budget.
3. Government is so economically confused that, many members of Congress assume a static response to tax rates being raised or decreased. This is stupidity beyond human comprehension. Reagan used himself as an example. He would work 2 pictures a year, because, after that, he was working for the government (paying a 90% tax rate). Tax rates have a great affect upon economic activity. Reduce tax rates and economic activity is ramped up….it happens every time it is tried.
@Ditto:
This makes perfect sense, which is why government will never do it.
First of all, Ditto, there is already an income cap for how much of your earnings are taxed for SS. It’s called the SSWB (Social Security Wage Base). It was $106,800 in 2010. This means that someone making a million annually is still only paying in the same as someone who made $107K. Ergo, when collecting post retirement, they have a cap for maximum benefits received because their contribtions were also limited.
Now you’re the second person who seems to believe that just because someone was able to earn and pay the maximum during their working years, that they do not deserve to get that benefit back because you, and others, have determined they can better afford it and can do just fine without it.
Seems that Greg, our resident socialist and income gap philospher has made great inroads with a few of you. Because now, with our seniors and social security, a few of you echo Greg by stating you can determine what someone can and cannot do without in income.
The Social Security calculations system is as fair a ponzi system as can be “fair”… what you get back is based on what you contribute over your working life (except in it’s first years)…. and that contribution is limited by the SSWB threshhold.
What is immoral about SS is not what some people are receiving over others, but it’s system of collection, and it’s function as the Congressional piggy bank for non SS spending.
And while I agree that the trust fund and SS surplus should have been made untouchable by Congress, that is not how they designed this system from the start… which is the foundation of my argument with Larry (providing he can manage not to divert the conversation in order to assail Reagan – his favorite sport).
I doubt that legislators ever cared about future pensions when constructing the SSA. Considering the fiscal era of the SSA, they were probably eyeing a no interest source of cash for Congressional spending since we were entering the New Deal Era with a bang… and for that they needed the bucks.
I don’t believe at all that they don’t deserve it, which is why I specifically indicated I don’t like it. Nor has Greg convinced me of following his socialist beliefs. It’s just that no matter how the government handles it, some are not going to get what was promised. Little about the Social Security System is “fair”. One of the things the politicians are talking about is raising the age of collecting Social Security. That is not fair to those who were told they would receive it at age 65 and who will have to work longer than expected. Many current collectors of Social Security are getting far more than they ever paid into the system.
However, what you get back usually exceeds what you put into it during your life. Additionally the government found ways to expand who could collect. For example for those disabled at age 60 they can file to collect. About 4.4 million children receive approximately $2.4 billion each month because one or both of their parents are disabled, retired or deceased. Back in the 1970’s the government finally become aware that this Ponzi scheme system could not be sustainable. Now the system is clearly doomed because of the imbalance between those collecting and those paying in. It could be argued that the prevalence of birth control and abortions since Roe v. Wade helped to kill some of the expected potential payers into the system. Should we therefore reduce Social Security to those who admit to using birth control, women who had abortions, planned Parenthood Workers or radicals who supported the ” Zero Population Growth” movement? Should we take it away from every politician who voted to send our youth into war zones? Part of the problem is also due to the fact that people are living much longer than the designers of the system expected, and it wasn’t “tweaked” as it should have been years ago. Should we therefore cut the amount paid back in Social Security relative to the lowering of the income:payment ratio? In fairness to this, should we stop and roll back cost of living adjustments for SS? AARP wants to pretend that there is no problem and campaigns against any changes.
My whole point here is that the jig is up, and many are going to pay-up and get little in return. Some of us are going to be cheated from getting what they paid into the system. We have to deal with this because politicians have been too chicken-sh*t to fix the system before it could get to the current (and future) state. You can paint me with the “Greg” brush all you want, but that doesn’t change the fact that the system is untenable and will be broke in probably less than 20 years. Hell, I’m in my early fifties and the way the government has mismanaged SS I have no confidence that I will ever be able collect. We need consider tough sensible (and if possible fair) measures to try to deal with this boondoggle.
Ditto, I think you know that I don’t disagree one iota that the SS entitlement program was a political farce and monstrous error, right along with Medicare, from the start. And I’m not painting you with the “Greg brush”, but what you suggested is exactly what Greg always suggests… that the rich need to give up their due because they can better afford it. Don’t feel singled out… I said the same thing to Nan G when she echoed the “Greg mantra” too. I guess desperation about debt makes people not think too clearly about what they are suggesting on occasion.
The only solution is to reform SS (i.e. the overdue tweaking you mentioned), , keep it in place for current and upcoming, and start weening the young generation off of it and onto private sector alternatives. Unlikely that’s going to happen, mind you. But that’s the reality.
Social Security has a longer lifespan than Medicare for being insolvent, so they have more time to “kick that can down the road”, as they say. Medicare is the looming entitlement today. What they (Congress) have done, by spending the surplus on non social security expenses, is add interest and debt costs to the taxpayers for being free and easy with that SS piggy bank. But I hardly think it’s justified for those who have paid in… minimum or maximum… to bail out decades of irresponsible Congresses by allowing them to decide some people are just too wealthy to have their social security benefits returned. They are just as worthy of that benefit as the one who paid in the least.
Look at it this way. If those evil wealthy seniors don’t need it, they can return it to the private sector in multiple ways…. purchasing or charities. Despite what they choose to do, do you prefer the government hangs on to that stolen cash and hope they apply it correctly? Not me.
@mata:
Just as Social Security and Medicare supporters have to acknowledge the very real problems which exist, so do the social security and Medicare critics need to acknowledge that these programs did precisely what they were designed to do. Hundreds of millions of people have been given dignified retirements and lifesaving healthcare, because of these programs. This includes benefits to widows and children. At the time Social Security was instituted, 65% of senior citizens were living in poverty.
Medicare is simply the least dysfunctional component of the entire healthcare sector. It delivers the best care, with the widest choice of providers, unsurpassed clinical outcomes, greatest consumer satisfaction, and for the least amount of money of any other component of the general health care sector. It could and will be much better, as payment is based more on outcomes and less on procedures.
The benefits to entrepreneurs, through not having to worry about providing support for their parents and for allowing them to take greater risks (by providing a safety net) are incalculable.
It is certainly a defensible position that privatization could be advantageous. I don’t agree with this position, but it is defensible. But it’s entirely unfair to dismiss the enormous good that both of theses programs have done. Both have done precisely what they were designed to do, and both have overwhelming support among beneficiaries and the voting public, in general. Both do have fiscal challenges, but there are common sense solutions, which can and will be employed.
As I wrote, I’ll stipulate as to the problems which have existed, and you should stipulate as to the hundreds of millions of lives on which these programs have positively impacted.
– Larry Weisenthal/Huntington Beach, CA
Larry, isn’t that assuming that if they had not given the US Treasury that cash, via the SS trust fund, that they could not have done better investing it for themselves? Not being able to see via a parallel universe, that’s quite a leap. Probably some would have done better with the extra cash and their own investment choices, and others worse. For the latter, incapable of handling their own cash, I’m sure it was a positive impact. For the former, those capable of handling their own cash, not likely. They could get better return on their cash elsewhere.
But I can’t say it’s a positive impact over all when you consider that the purchase of the t-notes, which were used by Congress to spend on other things, has now incurred debt and interest on what would have been surplus funds if Congress couldn’t get it’s sticky fingers on it. So all in all, considering every expense and the debt/interest involved, I’d say it was an extremely expensive program that is an utter failure for the nation.
@mata:
I think that #127 and #128 provide a very nice depiction of the difference between liberal DNA and conservative DNA. I’m not claiming that one DNA is intrinsically “better” than the other, but it shows why it’s so often not possible to resolve these disagreements on the basis of factual argument.
It’s a fact that financial security is not simply a matter of hard work. A great many people would work hard all their lives, and never achieve it, no matter how a privatized social social security replacement was structured. Financial security is related more to investor acumen (and, not infrequently, luck), than it is to hard work, per se. At a certain point, most people become old and unable to work. In other situations, people have health care problems, which wipe out their savings. There are lots of ways where good, responsible, industrious people hit roadblocks.
Anyway, I’d like to ask you to consider the very real issue of the benefits to an entrepreneurial society in having said entrepreneurs free to invest their resources in their businesses, as opposed to having to invest it in the care of their parents. And the benefits to entrepreneurs in allowing for greater risk taking, because of the existence of the safety net. Safety nets provide actual benefits to capitalism, in addition to supporting neer-do-wells.
– Larry Weisenthal/Huntington Beach, CA
@Mata
I don’t agree with Greg’s anti-rich class warfare rants, I was only proposing one option on dealing with the coming insolvency. The people are going to have to pay the price for the dereliction of duty of Washington DC on dealing with these issues and no matter what decisions are reached, it is going to be unfair to a good many people (and of course some fairness that will be seen as unfair from detractors). This can not be helped, but there must be mitigation to ensure that the unfairness is distributed in as fair a manner as possible. My motivation here is only on discussing real world ways to deal with the problem, without demagoguery and with no political ill will towards the wealthy or any other group.
Having said all that, I for one would like to hear suggestions on what to do to deal with these problems. I’m very tired of unproductive political posturing. I’m simply asking that we try discussing possible solutions.
Larry, I’d like to counter your theory of the SSA as “entrepreneurial” with a very real fact. If I die pre-retirement, or even a few years in, I am severely limited to whom that can be bequeathed to. I certainly can’t pass it on to my adult son or even my granddaughter. It’s simply vanished into the US Treasury.
On the other hand, if I assumed I made the same returns with using private investments and capital gains, instead of being forced into a government mandated pension plan, I can leave those benefits…. whether pre or post retirement… to any heir I choose. Those earned benefits and gains not only stay in the private sector, but my spouse or other limited beneficiary doesn’t get just a percentage of my earned benefits.
So which, exactly, is the best use of benefits and beneficiaries, as it relates to private entrepreneurs?
I’d say about the only way we could combine our two differing opinions on the value of the SSA is if it were a choice, and not a mandate. If one felt they wanted to government to manage their pension plan – knowing full well that any portion, or all of it could be inaccessible to those I want to have access – they should elect to participate.
Those who don’t should not be responsible for paying SS taxes at all.
Also, to be entirely on an even footing with private investment plans, any election to participate in SS should also be reversable, with a transferrence of their funds to a private investment of their choice later on…. much as changing 401Ks, banks for your CDs, money markets, etc.
Now, what would you say the chances of that happening as part of a reform might be? I’d say zip, nada, nothing. This would entail Congress willingly giving up their access to the future payments for today’s spending. And they won’t do it.
Social Security is an insurance plan, not an annuity plan or investment plan. FICA taxes are insurance premiums.
@mata:
In principle, I’d agree with you. In principle, I’d agree to the same approach to the health care mandate. You can opt out, but you can’t receive any benefits, no matter what.
The problem is this: real world scenarios. There still are a lot of households where there’s a division of labor: one parent cares for the kids, while the other works. So, you’ve got families where the breadwinner doesn’t buy life insurance or disability insurance. You’ve got other situations where an elderly guy worked hard all his life, but made some bad investment decisions (or had some bad luck) and now he and his wife have exhausted their assets at age 78 and can’t get work to make a living wage. Does society turn its back on both the husband and the wife? If society doesn’t turn its back, then where’s the fairness to all those who paid into the system?
Health care is the same way. How about allowing people to opt out of ObamaCare and opt out of buying health insurance and then just letting them bleed to death on the sidewalk, when they are hit by a bus? Maybe you are O.K with that. But what about when it’s the guy’s wife or kid who gets hit by the bus? Should they be allowed to bleed to death, because the guy was either irresponsible or else lost his job and couldn’t afford the COBRA?
Nothing is simple and the details kill you.
– Larry Weisenthal/Huntington Beach, CA
@Ditto, I think I’ve put forth my own “solution”. But it sure isn’t going to be accepted. Social Security and Medicare, IMHO, both need to be carefully dismantled in a way that the current recipients are not affected, those close to receiving those benefits are not significantly affected (because, with this economy, they have too little time to make alternative arrangements).
For those under that magic cut off number, a “weening” solution needs to be implemented… just like a pension plan that has different benefits for vesting 10 vs 20 years. For the young? Total opt out and into privitization and self responsibility.
Oh my gawd.. the drama, the hyperbole, the insults. Larry, really now. How do you think the world went on prior to 1935 and 1965 (entitlement programs). I’ll tell you how. People and families made arrangement for their own golden… er, aluminum now… years, and doctors worked out different arrangements for payments for their services.
And in case that you didn’t hear me, after a post last year and more than a few references to it, there are many wealthy seniors who want to opt out of Medicare, but thanks to Bill Clinton and his regs change, they can’t do so without also yielding all the cash they paid into SS. And they are related how? Only as a deterrent. And even with that, the WH (both Bush and Obama) are fighting the opt out of Medicare request. Why? Because it screws up the ponzi scheme accounting.
No.. nothing is simple and the devil is all in the details. But unfortunately since Congress foisted both entitlement programs upon this nation in the early and mid 20th century – both of which are sinking this economy at different rates of speed – the only solution is to find the way to carefully bug out.
Larry, now that I’ve addressed your hyperbole and emotional characterizations, why don’t you address the two points you’ve avoided. I’ll make it simple for your triaging of time:
1: Government pensions plans (SSA) vs private pension plans and their entrepreneurial value in keeping the money accessible both to the investor and their choice of beneficiaries – plus keeping the money in the private sector for re’investment, which SSTF does not do.
2: Why don’t you explain to us how O’healthcare cures the costs of treating that hypothetical, bleeding heart story of people being left to die on the sidewalk when Medicare and our economy cannot sustain “free” coverage.
Oh my word.. the level if naivity here is staggering. Hey, if you and Wiki want to classify it as “social insurance”, and that makes it sound hunky dory to you, so be it. I’m not so easily swayed by convenient labels that misrepresent reality. But hey.. if you want to buy into an “insurance” plan for decades, changed annually at the whim of Congress based on our economic conditions, and with limited opportunity to pass that benefit on to heirs, have at it. Just don’t drag me into your net of complacency, blind trust of government, and limited investment intelligence. Please feel free to play the fool, sans my participation. Free world and all, ya know. Or it used to be.
SSA is an insurance plan, only if you become disabled prior to retirement ages. Even at that, there are criteria to be met for qualifications for such. As the retirement pension plan, there is no resemblence to “insurance”. Additionally the original SSA included unemployment “insurance” as part of it’s encompassing plan. That’s now a separate mammoth federal agency drain on it’s own, with ever morphing pots at the end of the rainbow.
So are you done with your BS “labels” as a non efficent and ineffectual argument now, Greg?
@mata:
I try not to avoid things, but I don’t always read each and every post on big complicated threads like this. This thread got away from me. You’ve got to remember that it’s not just you – there are a lot of people who don’t agree with me. I don’t respond to each and every point which you make (you make a lot of points). I’m not making excuses, but, as I’ve stated before, this isn’t my day job and I reserve the right to choose what I read and what I write. In cases where anyone offers a criticism or offers a point aimed in my direction and I don’t respond, just feel free to declare victory and be satisfied with having the last word.
But I’ll answer your last two points, since you are kind enough to make it easy for me to do so:
I’ve stated that social security has been dreadfully mismanaged. The system would make perfect sense if all surpluses were put into debt retirement. In that way, there’d be efficient use of capital. The only active capital would go to paying benefits and to retiring debt. There would be decades of debt retirement and decades of debt accrual. Over the long term, everything would balance out — I can prove that mathematically; so the concept of social security was not ill conceived; it was only mismanaged.
I want to discuss this from a managerial point of view and not from a political philosophy point of view.
You have to start with the recognition that, one way or the other, people need health care. Young people, middle aged people, and old people. What’s the most cost effective way to provide this health care?
You can look at Medicare two ways. One way, it’s going bankrupt, because there’s not enough money coming in through Medicare tax to pay for it. But this is not because of bureaucratic inefficiency; it’s simply because the government can’t get away with raising Medicare tax the way that private insurers can get away with increasing premiums.
If you look at it the other way, Medicare is — objectively speaking — precisely as I’ve represented it to be: the least dysfunctional segment of the health care sector. Widest choice of providers. No pre-authorizations. Direct access to specialists, without gatekeepers. Greatest consumer satisfaction. Unsurpassed outcomes. Lowest cost per age-adjusted beneficiary.
So the issue with Medicare is just political philosophy. Conservatives object to paying for other people’s health care. Liberals acknowledge the fact that the government is taking their money to pay for other people’s health care, but this doesn’t give them abdominal cramps and indigestion.
– Larry Weisenthal/Huntington Beach, CA
I know you’re busy. And yes, I happen to consider your quest to cure cancer a far more lofty existence than mine. But I will remind you that this isn’t my “day job” either. I am merely responding to you, asking me to stipulate about such entrepreneurial “benefits” that you suggested. Since you asked, and I responded, I wanted feedback to my response.
And your response is, actually, a “non response”. Again you echo some emotional answer that it’s been “mismanaged” when I have pointed out to you… more than once.. that it was managed *exactly* how it was conceived and implemented. A 1935 Congress (SSA), followed by a 1939 Congress (creation of trust fund) had originally designed for surplus funds to become available for Congress to spend as they see fit. That you don’t agree with how “they saw fit” is a rare moment of unity. But you make excuses, and I point out this was the original intent.
Shall I ask again? You suggested I am supposed to “stipulate” that SSA… in it’s originally conceived and implemented execution… is supposed to be more “entrepreneurial” friendly than the private sector alternative. I suggest that it is NOT… based solely on the two facts that:
1: the funds are accessible to the investor for recycling as they see fit in the private world and
2: the beneficiaries of those funds in the event of a premature death are more wide spread.
Try again.
Larry, you and I do not disagree that affordable health care is important to everyone. Despite the fact that you callously accused me of wanting people to “bleed to death on the sidewalk, when they are hit by a bus”. Geez, Larry…. what a tactic to take in debate, and seriously below your abilities for cogent thought.
You and I differ in two ways. You are willing to let costs escalate, and just figure out a way to steal more money to support that. I am looking for ways to effectively curb the escalation, thereby making it more affordable for both insurance companies to offer reasonable insurance premiums.. We do not argue that everyone would benefit from having some affordable medical options at their disposal. Only the ways that “option” is to be delivered.
You are happy to have insurance premiums “price fixed” by government via O’healthcare. Which I find ironic when you simultaneously suggest you are responding from a “managerial position”. Give me a break. If your costs to provide your services to others were reduced, would you not reduce your prices to be competative in your field, thereby making it more affordable to more? And that includes the Medicare covered patients that you currently refuse to service because of your “managerial” bottom line now.
Ugly statement made by an ugly attitude and blanket charcterization. And it’s these types of things you resort to that make my patience level with you at below zero.
@mata:
I can prove to you that this doesn’t work in the health care sector. California and Texas both had the same malpractice tort reform. This saved individual providers tens of thousands of dollars in premiums, but this had no impact whatsoever on health care costs to the consumers or on the volume and expense of “defensive medicine” practiced. There’s virtually no price competition in health care — save for rare situations, e.g. lasik refractive surgery.
I did — precisely — address these issues. What we are both talking about is efficient use of capital. Social security is only inefficient in that it removes capital from the economy. But this is only because the government steals the social security surplus to run other government programs, which have nothing at all to do with social security. This is capital mismanagement. If the government used surpluses only for debt retirement and benefit payment, there would be no extraneous capital removed from the economy.
I’ll concede that there was a fatal flaw in the inception of social security. Congress was given discretion in how to use the surplus. It’s understandable why this discretion was given, in that social security came into being during the Great Depression (and during the time of The Winds of War). The original law should have tied the hands of congress (i.e. mandated that surpluses go into debt retirement). But it didn’t do this. So I’ll give you this one.
With respect to not paying out to beneficiaries in the event of early death, there certainly are survivor benefits, to wit:
Now, if you don’t like these or if you want to expand them, then this could obviously be done, but this falls into the heading of SS management, more than shooting an arrow at the SS concept.
– Larry Weisenthal/Huntington Beach CA
We’re getting somewhere on both the original intent of the SSA not being all you wished it to be. Thus it’s inherent flaws.
We are also getting somewhere you that recognize that the survivor benefits are not equal to a parallel private investment over SS. However do you notice that you again turn to the whining… the “they should have done this” bit. Larry, it’s government. As I pointed out earlier INRE the intent, since it was both the New Deal Era, and post the Great Depression, Congress was eyeing those future benefit taxes collected as today’s spending. Thus the folly, and an execution and implementation that is not “mismanaged”, but utilized exactly as they created it to be.
I’m very aware of the beneficiaries limitations for SSA. I don’t need your links. Those limitations are the very founding of my argument with you that there is a “positive” entrepreneurial impact of SSA benefits. We don’t need to expand them since it’s a flawed economic system to begin with. Secndly, there is no benefit to the economy is allowing surplus “government pension/insurance” funds to be spend by Congress, at discretion, and incurring debt and interest.
The best benefit to both economy, and the “insured/pensioners” is to have the invested funds in private sector that are not only spread around for private sector growth, but also transferrable to ALL beneficiaries as the investors choose.
@mata:
Oh, c’mon Mata. Lighten up. It was a joke. I like my friendly neighborhood conservatives. I don’t go around making ad hominem attacks on conservatism as a philosophy.
Don’t you read what people on this blog write (all the time) about liberals?
“Liberalism is a disease”
“Liberals are brain dead”
“Liberals love dictators for cash” etc.
Just go to google and enter “flopping aces” “liberals”
It was just a little, good natured, very mild ribbing.
My apologies. I’ll truly try not to do it again. Lesson learned.
– Larry Weisenthal/Huntington Beach, CA
There was no indication there that it was a “joke”, but I will give you that you aren’t normally given to ad hominem philosophical attacks. On the other hand, you have done so quite often in your past. So I’ll let it go by without further thought. And thank you for acknowledging that, whatever your intent, it did not come across as you intended.
Now… I wanted to address this one:
First , let me notice that you… as a personal medical service provider.. .did not answer if you would, or would not, reduce your costs if your overhead was reduced. That’s kinda interesting…. LOL. I guess you leave yourself open on that one.
What you describe is not definitive proof. And in fact, in the history of the private sector supply vs demand formula, this is factually incorrect. What you did not consider is that the playing field was not equalized because the tort reform did not make a significant amount of difference (since not also addressed on a national level, and most insurance providers do have a national/international conglomerate) in the proverbial “bottom line”.
What you are, however, suggesting is that the insurance industry.. who averages about a 3% profit (virtually unsustainable over longer term for a business)… is some sort of gouging type entity. This becomes more ironic when the top gouging entity is actually pharma. But it does address that you do have a personal vendetta against the insurance industry in general, and give others a pass.
When you equalize the overhead playing field, and competition is allowed to flourish, all will base their premiums on what attracts the most business, and thereby minimizes their potential loss. However with the base overhead…. gouging practices in medical services provided, not to mention having to go thru primary doctors for everything… you cant even begin to equalize the field. I did not say there was a single cure. As you say, details are complicated. And tort reform… your example of why supply vs demand and over head doesn’t work… doesn’t even come close to making an accurate portrayal of the quest to lower costs.
@mata: I don’t have a vendetta against insurance companies. What I try to do is to educate people on how health insurance companies work.
In this vein, I don’t understand your point, here:
This doesn’t make sense to me. I may not be understanding your point. Health insurance can’t be sold across state lines. Anyway, my point on tort reform was simply addressing your contention that doctors would reduce their charges, in order to be competitive, were their costs to go down. I think that the malpractice reform data are conclusive on this point. Despite out of pocket costs to doctors and hospitals going down, neither fees nor amount of defensive medicine reflected this. Providers simply said “thank you very much,” and pocketed the difference.
The Texas experience is interesting (as it is more recent than California’s 32 year old tort reform initiative). Costs to consumers didn’t drop. Defensive medicine didn’t drop. What happened though, is this: High risk surgical specialists came into the state — not so low risk primary care physicians. Surgical specialists create their own demand. Boston has more neurosurgeons than the entire United Kingdom. So more surgeons, more surgery. Not necessarily to the benefit of patients.
Truly, I’m unaware of any study which ever showed that doctors ever compete on the basis of their fees. Would you want your cancer/heart disease/total hip replacement/face lift/diabetic retinopathy/etc. managed on the basis of “low bid?” The way it works in the real world is this: Insurance companies have to put together provider networks. This goes for Medicare, as well. So it’s the insurance companies (and Medicare) which set the rates for health care. If a doctor wants to be included in the “network,” he/she has to accept the rate schedule set by the insurance company. So that’s the level where the cost containment comes in, such as it is.
This doesn’t prevent the providers from compensating for lower payments than they’d like by providing more services. More and longer diagnostic sessions. More procedures. More treatment. More tests. More follow ups. More ancillary services. All of these under the control of the providers. It’s why ObamaCare (and also PawlentyCare) want to base payment on outcomes, as opposed to procedures and services. That’s the ultimate answer to cost containment.
With regard to Big Pharma being a huge part of the health care cost problem; I’m in complete agreement.
– Larry Weisenthal/Huntington Beach, CA
I’m sorta amazed I have to do this, Larry. I mean this is your industry. But then, much has to do with rhetoric anc catch phrases vs reality, yes? Take, for example, the major health insurance corporations including Humana, United Health, Humama, Cigna, Blue Shield, etc. All of these companies offer policy coverage, state specific, in all, or almost all, states. They are just state specific. So do they, as a corporation, sell across state lines? Yes. Kinda. They just have to repackage their product to do so because of [spit] laws.
Now, when it comes to being more cost effective as to their packaging (one for every state,. for example), would it be cheaper for them to offer a non specific national policy that travels with every moving insured, and then just offer riders for any state they relocate to? I think so. And this is what I advocate. Sell a basic package, that is competative via multi national companies. And then shop state specific riders. Also, those riders should be interchangable. You can have a basic national package with Humana, and choose a Texas or California rider wtih another company. This way when you change jobs or location, you only need to change the riders for that particular state’s mandates. This covers both “across state lines”, as well as respecting states’ rights for their own mandates. Just accomplished a different way.
This should take care for your unexplained “confusion” on selling across state lines, and national companies that happen to service multi states for their plans. There are, of course, smaller state specific competing companies. But on a “big box” theory, they are at a fiscal disadvantage.
Have no idea why you want to frame insurance competition and reduced costs as confined to tort reform. You might as well say that one company installs better and majorly cheaper roofs because they use a cheaper roofing nail. huh? Tort reform, altho an important part of the overall reform, is just one small part of the cost equation. It’s worthless state to state without equalizing this limitation of frivolous lawsuits nationally. But even then, it just addresses the “nail” as opposed to the rest of the roof’s condition and cost needs that drive up real costs.
Of course you’re “..unaware of any study which ever showed that doctors ever compete on the basis of their fees.” I’m sorry.. do you need some government funded “study” to prove that supply vs demand, or competition in services, offers better pricing for the consumer? Can’t help you there.
@Greg:
I don’t think that it has ever been sold like this. It has always been sold as being a retirement fund. And, if an insurance company did this, the benefits would not be conferred upon people who did not pay into the system. Furthermore, they would not go broke.
@mata (#145): I still do not understand what point you were trying to make:
What does this have to do with the (well-studied, proven) fact that tort reform didn’t reduce health care costs? Your claim was that providers compete on the basis of fees and, if their costs were reduced, then they’d use this cost reduction to improve their competitive positions, vis a vis other providers. I said, no, they don’t, and the proof is that when their costs WERE reduced (via malpractice tort reform), they didn’t lower their fees.
You want to believe that health care follows straightforward rules of market economics. No, it doesn’t. This is because, uniquely in healthcare, the sellers control the purchase decisions for the buyers. This is why conventional market solutions will never work.
You think that health care providers compete on price, as in conventional capitalist markets. No, they don’t. There are no proscriptions against medical or hospital advertising. There’s a ton of health care advertising out there: cable TV, newspapers, magazines (including airline magazines), talk radio. Save for Lasik surgery, I don’t ever remember hearing a single advertisement about having lower prices. This also goes for pharmaceuticals. Do statin anti-cholesterol drugs (of which there are many) ever compete on price, in advertising? Do erectile dysfunction tablets? Why on earth would I, as an oncology provider, ever want to promote that I charge less than the competition (which I certainly don’t; quite the contrary)? You want cut rate oncology? Go to my competitor. Why would Memorial Sloan Kettering want to promote lower fees than MD Anderson? I mean, think about it. It’s absurd, and that’s why no one does it.
I never claimed that tort reform was the only “market” solution to health care costs. That wasn’t why I raised the example of tort reform. This, again, was simply to show you that lowered costs to providers doesn’t translate to lower prices for consumers.
The “solution” of allowing insurers to sell across state lines wouldn’t do anything at all for health care costs. Nothing at all. An insurance company selling insurance in California still has to meet California insurance standards, no matter where the company is headquartered and no matter what insurance product they sell in other states. Doctors are extraordinarily resourceful at maintaining their incomes. They control the purchase decisions. That’s the key to controlling health care costs. Change the incentives by reimbursing for outcomes, as opposed to reimbursing for procedures. And it’s an integral component of ObamaCare (as well as PawlentyCare).
– Larry Weisenthal/Huntington Beach, CA
And what does the single element of tort reform… in the overall aspect of reducing overhead of providing medical care… have to do with the entire question?
Once again. Roofing companies. I can get nails cheaper than the next guy. Am I now more competative for that piddly expense?
Stop moving the goal posts, Larry. Overall reduction of providing health care is not pivoting on tort reform, and you know it. Stop playing games.
And your comprehensive of a “basic national plan” that’s competitive, with insurance riders that are changeable (and shopable) when moving apparently sucks the big one. I fyou can’t get this basic concept, I’m done playing your elongated politicall games to support your hero and his failures. You can now address someone who gives a damn.
@mata:
I truly can’t figure out what you are talking about and what points you are trying to make, other than you don’t like social security; you don’t like Medicare; you don’t like Obama, and you don’t like me.
What on earth does the above quote really mean and what on earth does it have to do with the original subject under discussion (which was you claim that lowering costs to providers will lead to a reduction in health care costs, because providers will want to lower their fees to be “competitive”)?
– Larry Weisenthal/Huntington Beach, CA
Oh for heavens sake, Larry. Stop being emotional.
Does, or does not Humana, United Health, Blue Cross etal offer plans in different states or not.? And are they the same company or not?
Hint.. if they didn’t, AARP – or indy’s – would have to offer 50 different companies offering supplemental Med Advantage in each in individual state to cover them all. Otherwise, how could these national conglomerates offer plans “across state lines”.
And what part about offering a nationally competative base plan, topped with state specific riders that are changeable and added to the base plan, escapes your comprehension? If it does, stick with curing cancer, and stop talking about insurance reform.
@Mata
The problem here is still the money. What everyone has paid into the system up until now has already been spent by the government. If the government continues to draw money out of paychecks to fund SS while it is being phased out, then those workers are being cheated, because they will never see those funds. You suggest a pension system for many of us phased out of social security, but if the money has already been earmarked to support those still on SS, where will the funding for a pension system come from, and who will pay it? It seems to me that your solution is no more “fair” than mine.
With the dollar continually losing value due to the Federal Reserve printing, continual inflation, a job market where wages remain stagnant, with real estate values going down, and where 401K’s and current privatized investments going down the toilet thanks to market “corrections,” many people have lost their nest eggs. Real estate could possibly be an option for any who can still afford it, but banks are not lending out money like they used to even before the Democrats helped create a corrupt system to make all those high risk loans. I’m very pessimistic of privatization as an option when there are so few lucrative investments out there.
Ditto, you’re right of not trusting the DEMOCRATS AND SOME PRIVATE MARKETS,
remember that GOLDEN SACH HAD THE BILLIONS INVESTED BY THE LIBYA
PRESIDENT GADAFI, AND WHEN HE RECLAIMED HIS MONEY ,THEY TOLD HIM IT WAS SPENT IN BAD PLACEMENT, THEY ARE FRIEND OF OBAMA, AND COULD NOT EVEN MANAGE THE BILLIONS,
and manage to give a lot of money to 2008 election for their friend
@openid.aol.com/runnswim:
You’re saying these things like they’re not true?
Gary K. From the guy who assured us The Donald would be the nominee. To your credit you changed your mind. Who do you like now?