Sunday, June 03, 2012

Why We Must Cut Entitlement Spending

Ignoring these numbers doesn't make them go away:
Consider America's fiscal situation, which is dire anyway you cut it. Federal spending on the poor has grown enormously, as Ron Haskins of the Brookings Institution told the House Budget Committee in April. The ten largest "means tested" programs (Medicaid, food stamps, earned-income tax credits, etc.) spent $4,300 per poor person in 1980 (in constant 2011 dollars), and $13,000 in 2011. That's a three-fold increase in real, per capita terms. Add in the $209 billion spent by federal programs too "small" to make the Top Ten, and total poverty spending reached $835 billion last year, or $17,380 for each American living below the poverty line. Spending on entitlement programs that aren't means tested was even larger: Social Security cost $731 billion and Medicare $486 billion. And in a dozen years, the number of Medicare and Social Security recipients will have risen by 50%. In 2011 the federal government spent $3.6 trillion, of which it borrowed $1.3 trillion, or more than a third. The Obama Administration expects to borrow a slightly larger amount in 2012. As a result, the gross federal debt stood at $14.8 trillion in 2011, 98.7% of GDP, and will surpass 100% of GDP each year through 2017. "Simply put," writes the steely-eyed Yuval Levin, "we cannot afford to preserve our welfare state in anything like its present form."
Taxing the rich isn't going to make these numbers go away, either.

10 comments:

mazenko said...

First, the govt needs to be able to negotiate drug prices and get out of subsidizing the health care industry through scams such as Medicare Advantage and Medicare D. Secondly, the program needs to move to a basic package of general care like they do in Germany, Austria, Switzerland, and the Netherlands. Beyond that people should purchase coverage for more health insurance as they want it and are willing to pay. And, of course, Medicare premiums need to be means tested and go up considerably for big consumers who can afford more.

Then, of course, Social Security can be handled fairly effectively by means testing it and managing it as an insurance program for a basic payment above poverty for seniors. Lift the cap on FICA to $500K. Finally, maintain the basic payouts but encourage people to invest in the new style 401ks which offer people the ability to sell 30% of their holdings in exchange for a guaranteed payout.

The basic premise of a guaranteed minimal payout for retirement and basic health coverage are foundational for a stable society. But beyond that basic safety net, people should save what they need to secure the lifestyle they desire.

Darren said...

I disagree that they're "foundational for a stable society". They're "nice to have if you can afford it", and we can't.

mazenko said...

I sympathize with your hesitance - but that's only because you have never known a society without such programs and the stability they provide. That's the beauty - they are so subtly below the surface that you're unaware of their significance. And, of course, there is no first world country in the 20th/21st century which you could cite as an alternative. But that's OK. We can afford it, if we simply make some common sense moves.

Ellen K said...

Drug prices are driven by cost. Cost is driven by lawsuits. That's why children's shots which used to be less than twenty dollars are now over $100. Trial lawyers, like John Edwards, have made millions off of such lawsuits and those costs for higher liability and for payoffs to plaintiffs is passed along to consumers. It's a vicious cycle. Also, not everyone needs the benefits offered to them. My uncle, before he died, used to do research on people claiming disability. He found a guy who claimed to be fully disabled replacing his roof. He said that of the cases he investigated, nearly half were false claims. Who knows how many fraudulent claims are being paid? We don't even know how many false social security claims are being paid. We need a more efficient system so that everyone gets a truly fair share.

Darren said...

Mazenko,
Here you go again with all but stating I'm ignorant, and if only I were smarter I'd totally agree with you.

Not a valid, reasonable, or intelligent rhetorical device, and I'll not debate your comment further.

Anonymous said...

"Drug prices are driven by cost. Cost is driven by lawsuits."

A large part of the costs for new drugs is that all the "low hanging fruit" has been picked.

Phase-I, -II, and -III clinical trials can easily cost hundreds of millions of dollars. A large part of *this* is that the new drugs often aren't much better than the old drugs, so it takes a lot larger sample to show the improvement. This isn't about lawsuits ... it is about not being able to bring a new drug to market that isn't *better* than the one it replaces.

In other industries it is normal for some manufacturers to compete on price. The drug industry doesn't work that way (due to regulation).

So ... it isn't just lawsuits. There are other issues. Some are inherent. Some are regulatory.

And some of it is companies cutting corners.

For example: VIOXX, from Merck.

The clinical trials Merck conducted for VIOXX showed that the patients taking VIOXX were 4x as likely to have a heart attack as patients taking the control drug. This was reported, but with qualifications (the claim was that most people wouldn't see this risk increase).

The problem was that Merck continued the study that they were doing and the new results showed that the heart attack risk applied to a much broader portion of the population than the initial data indicated.

Merck chose to not disclose this (for a while) and argued that it wasn't part of the original study time-frame, and so basically didn't count.

But we still had extra corpses laying around after VIOXX use. And Merck was, basically, trying to ignore this.

There is more to the story, but the short version is that Merck's VIOXX was likely responsible for an extra 20,000 heart attack deaths over what would have happened without VIOXX. These things *do* happen, but Merck was also not very forthcoming about the extra risk when Merck got the data indicating the extra risk.

Thus the lawsuit(s).

A more comprehensive warning originally would have rendered all of the moot. But Merck didn't want that because fewer people would have taken the drug.

This is one example of lawsuits driving up drug costs, but I'm not really sure what to do about it. We could give the drug companies a free pass on withholding data and killing people. But I don't think that would work out well in the long run, even for the drug companies. I'd expect new drugs to be viewed very skeptically if everyone knew that they might be fatal and that the drug companies didn't need to mention this.

So ... (a) drug discover is harder ... the cheap/easy drugs have been found, and (b) the clinical trials are larger (not for lawsuit reasons) and thus more expensive, and (c) when the companies do something really stupid it can be very expensive because we have a lot of dead patients.

[NOTE: I was working for a drug-discovery biotech startup when the VIOXX scandle was working its way through the news. We spent some time trying to model the dangerous effect.]



-Mark Roulo

mazenko said...

Sorry, D. You seem quite put off by my comments lately, as if every point I make is merely to say your too stupid or ignorant to undertand. That's not my intention or my point.

I've tried to phrase them more delicately because it's not my point to call you stupid. It's just my argument that criticism of government often underestimates or fails to fully consider the positives.

Hopefully, I can phrase it more congenially in the future.

Darren said...

It's not that I haven't considered your points--how could I not, given the number and power of lefties in this country. It's that I've considered your points and decided that I don't agree with them. *My* calculus concludes that your positives are far outweighed by the negatives associated with them.

Bobbi Bennett said...

The same "stability" could be achieved by turning SS into more of a "401K" type savings account and allowing individual ownership of the accounts. Originally, SS program dollars were to be put in a Trust Fund and the program was to operate like an annuity. There is no reason people can't use their own SS dollars to buy annuities, municipal bonds or other safe investments. That promised Trust Fund doesn't exist so I, for one, have no desire to give more of my hard-earned dollars to government so they can use it to balance inflated budgets. Additionally,if people were allowed to will any $$ they don't use to their heirs, we might actually start to make a dent in poverty without bankrupting ourselves. We could scrap those programs that not even the GAO can track and evaluate, and use those same $$ to supplement the accounts of those below the poverty line, including those on Welfare, until they get back on their feet. That way, when they die, which many do before or early in retirement, they can will their money to their children and give them the leg up that wealthier parents give their children. Such a plan could begin to break the cycle of multi-generational welfare dependency in one generation. Let the government put simple limits on the accounts to avoid riskier investments, but get government out of the business of investing and managing the accounts - they don't do it well.

We could create a similar program for healthcare using a "401k" type model to create, tax free, individually owned medical savings accounts to transition away from existing massive and mismanaged programs. Accounts could be started at birth, with government using some of the dollars it currently spends to supplement the accounts of those with lower incomes. The $$ could be invested, and would grow and be owned by the individual. Employers could match funds.

If you think about it, the actual health CARE costs for a younger, healthy person are relatively small. We can add additional supplements for those with severe chronic illnesses or major disabilities. The funds could issue a debit-like card and be used to purchase basic health care as needed, as well as an insurance policy that meets the individual's needs from the private sector. And, because people would have set aside the $$ to cover preventive care, regular dr visits and basic prescriptions, insurance could range from basic hospitalization and major medical to Cadillac plans. We can allow purchases across We can make a minimal requirement to purchase a basic policy or earmark funds to private pay in case of hospitalization. We can allow purchase of insurance across state lines, and allow people to form their own groups and associations to increase their purchasing power irregardless of employment status. Once a threshold of funds is achieved, enough to cover insurance and on-going care, a portion of future contributions could be withdrawn and used for purchase of a home, education, or other major purchases. To encourage contributions, there should be no excessive penalty for these types of withdrawals, perhaps the individual's tax rate + 2-5%, with the additional tax earmarked to replenish the supplemental fund. Any $$ not used by the individual during their lifetime could be passed on to their heirs, eventually reducing the government contribution and the burden on future taxpayers.

Before the single payer advocates here start ripping this plan, take a moment to think of the possibilities. Bear in mind, we can address most of your concerns in the details of the policy.

As a conservative, I have no problem with a safety net as long as it 1. actually works. 2.doesn't place further burdens on the taxpayer, and reduces current burdens. 3. promotes wealth creation in the private sector 4. keeps politician's and bureaucrat's sticky fingers out of the cookie jar. and 5. fosters individual freedom and self sufficiency.

Darren said...

Those 5 points seem reasonable to me.