If you want to know why we’re not making progress on the so-called “fiscal cliff” you need only look at the rhetoric coming from alleged “experts” who the media trumpets due to their previous positions in various administrations. Peter Orszag is one of those.
Although it isn’t yet time to panic about the fiscal cliff, negotiations so far aren’t exactly going well. The Republicans are committing themselves to an unsustainable principle of no marginal tax-rate increases whatsoever. And the Democrats are failing to seize the moment to make progressive reforms to Medicare and Social Security.
Now watch the birdie, because….
To date, Barack Obama’s administration has basically just repeated its previous budget proposals for Medicare, which are perfectly fine and desirable as far as they go.
Bullcrap. Obama has done exactly nothing to solve this problem. Yet it, along with defense, is where virtually the entire budget problem lies.
To go further, the Center for American Progress recently convened a group of health policy experts (including me), which put forward a dozen proposals to slow the growth of health costs over the coming decades. Although these changes don’t generate significant “scoreable” savings because their effects are too uncertain for the Congressional Budget Office to fully evaluate, they may well have a larger impact on our long-term fiscal future than anything else that could possibly be contained in the budget deal.
Peter continues to dissemble with:
On Social Security, as I have previously argued, the Democrats, while they still control the White House and the Senate, should want to lock in the victory they have already won over the idea of keeping private accounts out of Social Security. Plus, as Peter Diamond and I have laid out, it’s possible to restore the program’s long-term solvency while also making it fairer — including by having it reflect the growing gap in life expectancy by income and education. Finally, and perhaps most important, Social Security reform can be phased in gradually, thereby minimizing the damage to the labor market from too much austerity too soon.
Social Security is mostly a non-issue, but for the intentional destruction of its funding base with the payroll tax cut. That must be rescinded now. With it rescinded a relatively modest set of changes, specifically indexing the full benefit age to longevity and changing the COLA formula to CPI instead of the wage index, bring the system close enough to balance over the next 75 years that standing alone it becomes a non-event.
But Peter, along with the rest of the people on the Hill and the various commentators on left and right, intentionally take this part of the problem, which is simple and easily-fixed, and conflate it with Medicare and Medicaid, which can only be fixed by stuffing a major lobbying force into the hole and killing it — the medical industry and their cadre of harpies.
But neither Peter or anyone else wants to address the cause of the medical cost escalation, which is almost entirely:
- Cost-shifting cross-border, which results in the United States effectively funding every advanced treatment modality’s research and development, which the rest of the world then gets to use for reproduction cost. This is why scorpion antivenon costs $100 a dose in Mexico and $14,000 a dose here in the United States; we allow restricted supply and testing modalities that drive this sort of insane cost escalation. The converse is why drugs like Viagra cost $2 in Canada and $20 here; we allow other nations to demand (and get) advanced therapies at reproduction cost and they threaten to break patents if we refuse. Rather than tell them “if you break the patents then there will be no development of these treatments at all since we will not permit you to soak us for those costs” we instead knuckle under to the pharamaceutical industry.
- Cost-shifting inside the United States; laws such as “CON” laws in the states and EMTALA drive an effectively-infinite demand for medical care untempered by price. With the feedback mechanism of both price and consequence for personal choice, whether it be drug abuse or simply too much pie-hole stuffing and too little movement (read: you’re fat!) the underlying reality is that inflating the cost of having a baby from 1963 to today by the CPI should result in a price under $1,000. Instead it’s 10 times that much. The Okahoma Surgical Center proves that this is not due to the cost of providing the service, in the main — it’s about the cost-shifting and monopoly protections, as their charges for common identical procedures are 1/5th that of “customary and ordinary” in traditional hospitals!
You can’t “bend” this cost curve. You have to destroy these distortions and you must do it now, because the damage being done by them is both cumulative in the form of debt but in addition it is literally eating the Federal Budget whole! Medical spending by the Federal Government has gone from $53 billion in 1980 to approximately $850 billion last year. There is no “gradual” way to deal with this — you have to slam the medical industry’s fingers in the door and then chop the protruding pieces off or the theft will continue until the budget blows up and so does the government.
As Rep. Hoyer said on CNBS this morning “this is a math problem.” Indeed it is, but we will get exactly nowhere addressing it until we put the parts of the budget that actually are driving the problem on the table and address them.