Medicare Medicaid Overlap - A Simple Permanent Fix

There is an almost unbelievable example of government waste in today's front page WSJ story about overlap of Medicare and Medicaid coverage.  The New York Times had an article about the same issue on June 1. There are about 10 million who qualify for both plans.  That is 16% of Medicare enrollment but accounts for 27% of Medicare spending and 15% of Medicaid enrollment but accounts for 39% of Medicaid spending.  These folks are normally much sicker than the average person so of course spending is out of proportion, but the article describes several examples of incompetent frustrating and wasteful management of competing claims and coverages.  The Obama administration has given fifteen states grants of up to $1M to study the problem and propose solutions.

The overlap often occurs when poor people reach age 65 or become disabled and qualify for Medicare.  They may not have the money to pay Medicare premiums.  A simple description of the issues can be found here. 

Here is an easy solution.  If a person qualifies for Medicare, the only Medicaid benefit available to him or her is payment of Medicare and Medigap premiums and deductibles.   No need to spend a lot of time or money studying this one or wasting the time of poor elderly citizens trying to grapple with two government agencies.  Just fix it.

Marriage: "Ticket for Entitlement"

In a June 23 NYTimes Op-Ed, Katherine M. Franke worries that approval of same sex marriages in New York will make marriage the only “ticket for entitlement” to “partner” health care benefits, eliminating hard won benefits for “domestic partnerships” and “civil unions.”  She wants gay and lesbian couples to have “greater freedom than can be found in the one-size-fits-all rules of marriage.” She argues that “marriage ought to be one choice in a menu of options by which relationships can be recognized and gain security.”

Just as I suspected!

There are four major constituencies who might provide recognition and security (benefits) to persons establishing relationships. These are a personal group consisting of family, friends, and neighbors, the church or other faith group, the state, and employers.  I doubt that any one “menu selection” will ever again suit all four in the way that traditional marriage once did.  Maybe a model such as this one can help clarify the thinking or at least the issues.

Employers should, of course, be free to grant benefits to whomever they wish depending on company philosophy, competitive situations, costs, etc.  Companies make such decisions rationally based on the belief that they will get what they pay for and, if they need to offer health care benefits to the elderly grandparents of a prized candidate they are seeking to hire, they should be free to do so, perhaps disguised as an inflated salary.  Of course employers must be perceived to be fair in their treatment of employees or they will eventually be unable to hire successfully.

The state should take a lesson from the employers and recognize that it will get what it pays for.  If it offers substantial benefits to legally married couples, couples of all kinds will clamor to get legally married to claim those benefits.  And the benefits will have to be paid for in higher tax rates on the folks who don’t get married or with borrowed money.  As I and many others have been arguing, with minimal success, the state should tax us all, individuals and corporations, at the same low, moderately progressive, rates with no deductions, exemptions, exclusions, credits, or holidays, and stay out of our personal lives.

I can’t speak about other faith groups, but serious Christians have willingly submitted to very challenging teachings from Jesus about marriage and divorce.  Of course there are various interpretations of those teachings and their importance.  I have argued in a previous posting that pastors and priests should stop working for the state, administering vows and submitting paperwork associated with legal marriage, and focus only on whether or not a particular union is to be deemed “Holy Matrimony” and blessed by their church.  For more explanation, read Church and State in Avoidable Slow Motion Collision. 

And, as for the family, friends, and neighbors group, that is strictly personal and nobody else’s business. 

One thing for sure:  Our state and federal governments are already issuing far too many “tickets for entitlement,” and New York has just added one to the list.

You can read Ms. Franke’s article here.

Federal Lottery Announced

All the states but Alabama, Alaska, Hawaii, Mississippi, Nevada, Utah, and Wyoming have state lotteries. State sponsored gambling has been frowned on by many citizens, but since education is popular, lotteries have often been sold based on the profits going to education. That hasn’t necessarily meant education would get any more funding since lottery profits often just free up former education funds for other uses. Any additional lottery money that has gone to higher education has supported increased charges for tuition and fees and encouraged more student borrowing and has generally been of no benefit to anyone other than university administrations and faculties and the handful of students who got the big scholarships.

If those are not enough reasons to dislike lotteries, there are also the simple facts that they are extremely regressive taxes, preying on the poor, and that they clog up the checkout lines at the convenience stores on Friday afternoons. Thank goodness for the “pay at the pump” option. The only good thing about lotteries is that participation and payment of that particular tax is voluntary.

With 43 states participating there is no reason to be surprised that the federal government has established a lottery. There is one big difference. While the state lotteries are designed to increase revenue to the states, the federal lottery is designed to increase borrowing and spending. This particular lottery is an effort to drag out the current housing slump by enabling homeowners facing foreclosure to get interest-free forgivable loans, heaping bad debt on bad debt, in a vain hope that housing prices and the economy will rebound within two years. The lottery angle comes in because the government expects applications to far exceed available funds and will use a drawing to determine the winners.

Well, at least for this new federal lottery, the tickets are free and there will be no impact on convenience store checkout lines. And for our more liberal senators and representatives, a few thousand more votes will be secured for the next election.

I wonder if the winners will be selected with a public drawing on TV as for many of the state lotteries.

You can read the news stories here and here.

Fathers' Day Shopping and Consumer Spending

I just did my Father's Day shopping, two pairs of Bermuda shorts and a nice T shirt at J C Penney's for $27.68, 7% sales tax included. That is cheap. Let me hasten to say that the “sticker price” on these items was much higher, but nobody buys clothes anymore unless they are heavily discounted, and these were about 70% off. Of course they were not made in America. I could have ordered some Bill's Khakis made in America for about $100 a pair. Quality is good, but the way I abuse shorts, getting paint and roofing tar all over them, Penney's $9.95 price is a much better deal. And there are those great Southern Tide golf shirts made in America. A Raspberry Row Southern Tide is available on line for $78.50. But Penney’s had similar shirts for $9.95. 

I like to use 1965 as a baseline for economic comparisons because that was the year I started my first real job, and it was a starting point for President Lyndon Johnson’s “Great Society” which, some argue, started us on the path to economic disaster that is only now playing out. I remember being able to get a pair of khaki pants about that time at J C Penney’s in Kinsgport, TN, for $4.95. That got me wondering how much of the consumer spending dollar is being spent on clothing, and other categories, now compared to then. One thing led to another, and I came up with the chart below.

 In 1965 and in 2009, food, clothing, and health care combined accounted for about 30% of consumer spending. But food and clothing continuously declined over that 44 year period as health care spending climbed relentlessly. I guess a PhD thesis could be written explaining the various reasons for those long term trends (I know suits and ties are less prevalent now.), but I believe most of the difference can be explained by the presence of unfettered competition in the food and clothing businesses and the heavy government involvement and almost complete elimination of competition in health care.

Clothing is the easiest to explain since our government allowed the complete destruction of the US textile industry by imports. Of course we lament the loss of jobs, but I don’t see many of us flocking to buy Bill’s khakis and Southern Tide golf shirts. Bottom line is that it was the right thing to do and benefitted everybody in America except the textile workers who lost their often unattractive jobs while enabling citizens of developing countries to earn a living. Now, in South Carolina, folks who would have been making textiles are producing BMW’s, Michelin Tires, and Boeing air planes.

Food has benefitted greatly from mechanized farming and, when necessary, immigrant labor. When a 70 calorie slice of baloney is ten cents, there is no justification for anybody in America suffering from malnutrition.

An interesting thing about food and clothing is that consumers have the freedom to pay very low prices for perfectly good but minimal products or very high prices for bells and whistles or status or superior quality. Both food and clothing are excellent examples of dynamically free markets. Not so with health care. With health care, we can’t even find out what something costs until everything is done and we have recovered or died and the bills begin arriving. One thing for sure is that, without the government involvement, we would be paying a lot less for health care than we are now paying.

Here is a little more complete picture of how some of the major components of consumer spending changed over that 44 years. I can’t help wondering: Do we really need to be consuming all those pharmaceuticals? (Click on the chart for a more readable version.)

 You can find all the data at the BEA NIPA site.

Higher Education Higher and Higher

There have been some recent news items questioning the value of very expensive higher education and picking on the for-profit educational institutions in particular because their graduates aren’t earning enough money to pay back the money the feds loaned them for education expenses.  Whose fault is that?  Shared responsibility, I would say. 

What do you think the cost trends for higher education over the past twenty years would have been if colleges, private, public, and for profit, had been forced to compete for students based on the ability and willingness of students and their parents to pay instead of on availability of government funded scholarships and loans?  I am pretty comfortable in saying that cost control at such institutions would have been much better, mission creep would have been eliminated, and today’s tuition and fees would be a fraction of current levels.  And, of course, the major driver for increased cost has been the possibly well intentioned pumping of both federal and state dollars into the system.  Is it any wonder that university faculties are overwhelmingly in favor of bigger government and higher taxes?

We see an entirely different result in the computer and related technology businesses, for example, which have been forced to compete based on ability and willingness of customers to pay, and have experienced continuously falling prices.  Groceries are another example of prices generally remaining reasonable because, even though the government has pumped billions into the business, it was mostly in the form of “Food Stamps” and retailers still had to compete to get the “Food Stamps” spent in their stores.  Another advantage has been that stamp spenders and dollar spenders got the same prices.  I wish the same could be said for health care...that we all got the same price.

Housing, on the other hand, has behaved, until the crash in 2008, more like education.  Housing was heavily subsidized by government through guarantees of subprime loans, mortgage interest deductions, etc., and prices soared until the bubble popped.

Health care is a special case because even though the government has pumped billions in, they have done so at fixed reimbursement rates per procedure as a general rule.  So, capacity has expanded and procedures have proliferated and total expenditures have soared even as prices have been held down.  That hasn’t worked very well, has it?  Too often the determining factor on whether to have some procedure done is not whether it is truly needed and worth the money but whether or not it is "covered."

What if education and housing had been treated like health care with the government offering to buy houses for people but the total cost of the house could not exceed $100,000 or pay for college educations but the total cost of the education could not exceed $50,000?  We, of course, would have had a proliferation of $100,000 homes and $50,000 educations.  When taxpayer funds are available, people will design systems to qualify and line up to claim them!

The higher education and health care bubbles will eventually burst just as housing did as it becomes obvious that the value of the infrastructure that has been created to allow residential colleges and universities with excessive overhead are not worth the money and as the total cost of health care exceeds our willingness to pay.

Can the government just stay out of these businesses or, at the most, simply provide housing and education “stamps” and leave the buying and negotiating to the citizens?  That is the best, though still inadequate, justification I know of for education “vouchers.”

Feral Cats, Hardwood Floors, Guns, or Butter

The classic “guns or butter” dilemma concerning use of federal tax revenues (and borrowed money) suggests a choice between spending on national defense or welfare.  I first heard it from Lyndon Baines Johnson who used the phrase to argue in 1967 that we could afford to launch a “war on poverty” and establish a “great society” even while funding the Vietnam War.  Both wars were lost, and the “great society,” as he envisioned it, never materialized.  And there is, of course, a third category of spending that was not even mentioned: essential government services.  

Federal spending during the Lyndon Johnson years averaged a bit less than 20% of GDP.  For the first two full years of the Obama administration, it has averaged just over 26% of GDP.  Are we better off as a result of the 40 years of expanded entitlements and welfare spending?  I don’t think so.

Here is the problem.  Because government spending buys votes, the appetite for such spending is insatiable.  Unfortunately, a majority of senators and representatives apparently feel a duty to get re-elected by “bringing home the bacon” in the form of federal dollars for their own states and districts.  Two examples of frivolous federal spending stand out in current news.

In today’s The State Newspaper, there is a report of a woman in Lexington County who, because she lives in a “rural” area, got assistance from the USDA (A stands for agriculture) to buy a new home with 100% financing.  (This woman is not a farmer, but probably buys some agricultural products from time to time.)  She also just barely made the April 2010 deadline to qualify for an $8,000 federal tax credit which she did not need in order to buy the home but which was used to install new hardwood floors. 

And, yesterday, in the WSJ, there was a report that the IRS has determined that taking care of stray animals is a tax deductible expense and that a woman who is doing so can accept tax deductible donations to cover her expenses.  The woman who won the ruling is quoted as saying, “I was stunned.  It feels great to have established this precedent.”

I am pleased that the Lexington County woman has a new home with new hardwood floors, and I firmly believe that stray animals should be treated humanely.  But have we really reached the point that we think it is reasonable to tax individuals, or borrow money from China, to pay for the flooring and veterinary bills of other individuals?  At a time that we are borrowing to fund a third of federal spending, do we really want to allocate scarce federal resources to oak boards and cat food?

Unfortunately, I have no doubt how the owner of the new home with new floors and stray cat lovers are going to vote.  “Progressive” strategy has been to get us all on welfare, to secure our votes, and that is a war that is about to be won.

It is clearly time to make some responsible adult choices and eliminate all those tax deductions, exemptions, exclusions, and credits, while lowering marginal rates, in order to get the economy going, expand employment opportunities, increase total tax revenues, and begin re-instilling some sense of personal responsibility in ourselves.

Afterthought: I am not a total Grinch.  I had the privilege, as a Home Works of America volunteer, of spending 3+ days last week in the home of a disabled grandmother and her preschool grandchild, totally roach infested, with no stove, no heating or cooling, most of the electrical circuits dead, no washing machine, clothes dryer not functioning, toilet not functioning properly, carpets with years of dirt accumulation, three TV’s and several video games, and hardly a book in sight except a dusty old Bible and a phone book.  Extensive assistance of such folks who really cannot help themselves is where scarce federal “butter” dollars should be going, if family, neighbors, and faith groups have not stepped in, rather than to new hardwood floors and cat food.  The $8000 federal tax credit for first home purchases would be two years income for this household.  As I have written before, we have plenty of resources to help the truly needy, without borrowing, if we didn’t insist on trying to help everyone.

The news articles are at the links below.

http://online.wsj.com/article/SB10001424052702304778304576377744105236346.html

http://www.thestate.com/2011/06/12/1854555/government-programs-give-home.html#storylink=misearch

Theology of Wealth Spreading

I have no interest at all in the theologies of Stephen Hawking, Charles Darwin, or Ayn Rand, but I believe that we can learn a great deal from them about physics, evolution (which, of course, has to have come after and has nothing to do with creation), and free enterprise economics.  I don’t have any interest in comedian Bill Maher’s theology either, and I am thinking he may not have anything of value to teach us.

The theology of St. Luke the Evangelist, on the other hand, interests me a great deal.  He wrote the Gospel of Luke and The Acts of the Apostles which together comprise about 27% of the New Testament.  He is believed to have been a serious follower of Jesus, a physician, and a compassionate person.  Luke emphasizes Jesus going about doing good, reaching out to those in need, and is the only Gospel writer who includes Jesus re-attaching the ear whacked off by one of the disciples during his arrest at the Mount of Olives.  Matthew just leaves the ear lying there.

What made me think about this was the report of the ambushing of Senator Paul Ryan by an enthusiastic young Catholic challenging Ryan to clean up his act by rejecting the Ayn Rand philosophy and following St. Luke instead.  I reject Ayn Rand’s atheism but think she had some really good points about business, economics, and work, and I enthusiastically accept St. Luke’s theology but don’t believe he said anything at all about health care options or government wealth redistribution.

I believe St. Luke’s message is to individual Christians and to The Church, The Body of Christ, and is about how Christians and The Church should be helping others with our hands and feet, time and talents, and bank accounts, face to face.   We are to be “going about doing good,” just as Jesus did, and I don’t believe our responsibility for such can be satisfied by voting for government to take from one group of citizens to give to another group of citizens, no matter which group we are in. I’m not suggesting that St. Luke would be either for or against government spreading the wealth around.  I’m just saying that does not seem to me to be an issue he addressed.

Wealth spreading as practiced in the US has had a serious downside.  Surely any reasonable analysis of our war on poverty, now in its forty sixth year, would conclude that we have done more harm than good by disrespecting and demoralizing and enslaving a significant portion of our population, making them dependent on government social programs.  A more moral choice might have been to focus on economic development, education, and personal responsibility targeted at enabling all but the disabled and mentally ill to earn their way through meaningful work.   

Here is the link to the news story.

Bubbles Never Have Soft Landings

We all know what happened to technology in 2000 and real estate in 2008.  We can be fairly confident that big changes are on the horizon for health care and education as well.

Social Benefits for the Elderly In Trouble

Yes, I know the dangling modifier "in Trouble" in this title can be read as applying to either social benefits or to the elderly.  Take it as a subtle suggestion that if we only provided social benefits to the elderly who are in financial trouble, those social benefits would not be at risk.  But that is not the subject of this post.

There are three basic reasons that government spending on social benefits for the elderly is in trouble and two of them are demographic and inevitable. 

1.  The percent of our population that receive SS and Medicare benefits is growing rapidly and is on the cusp of a major new expansion due to arrival, exactly on schedule, of the baby boomers born in the mid forties to mid sixties.
2.  In spite of our health care system, widely rumored to be substandard, such folks are living longer.

 

(That second chart has a sobering message for folks of my age.  When we were born, our life expectancy was about 63 years.  We are now 68.)

But back to the subject.  The third reason social benefits for the elderly are in trouble is economic and is correctable.

      3. Health care expenditures, Medicare included, are sucking up an inordinate proportion of our resources.  The root cause is that the primary competition in health care is competition to do more procedures and prescribe more drugs.  It makes sense because procedures and prescriptions are the only things that health care providers get paid for, and they are free, and encouraged by liability concerns, to do both without worrying about price competition.  The result is, we get more procedures and prescriptions at negotiated reimbursement rates and costs soar.

I’m not having much luck finding data on numbers of procedures performed over time, but I found an interesting tidbit in this article about CT Scans.  Sixty two million CT scans are being done annually, up from only 3 million in 1980.  That is amazing.  I’d guess some lives are being extended but probably not enough to raise the life expectancy significantly, and the cost must be astronomical.  Plus, as the article points out, CT scans are not without risk.

A reasonable average cost for scans seems to be about $1000 so that means we are spending about $62B a year on them.  And, if you show up at a hospital needing such a procedure without insurance, you might get a bill for $5000 plus.  There are several horror stories on the web, as well as hints about how to shop for low priced scans.  And one reference indicates that, in India, they are less than $100.  Just Google “ct scan cost in usa” and you will get lots of interesting reading.

I’ve written before about how government and insurance company involvement in health care and lack of transparent pricing have destroyed price competition, driving cost increases, and putting uninsured individuals at a terrible disadvantage, but since nothing has happened, I thought I would bring it up again.  Here are some earlier postings on that subject.  As Coach Steve Spurrier is fond of saying, "We'll see what happens."

The 80 - 20 Rule and Why It Doesn't Apply to Health Care

Medical Care Costs, Prices, and Accounting Systems

What Do You Mean, “Quality Health Care”

WSJ vs. NYT

Oh Death!

 

http://www.permanentfixes.com/2010/01/oh-death.html

http://www.permanentfixes.com/2011/01/80-20-rule-and-why-it-doesnt-apply-to.html

http://www.permanentfixes.com/2009/11/medical-care-costs-prices-and.html

http://www.permanentfixes.com/2009/10/what-do-you-mean-quality-health-care.html

http://www.permanentfixes.com/2010/02/wsj-vs-nyt.html

Hmm.  Looks like the stock market is entering the summer doldrums.