For a dual problem let's solve both parts. We need in a desperate way to turn around the federal debt that's mounting. The need is political - to reconcile progressives and moderates - and financial to keep our system going. A twin urgent need is to right a health expense system that endangers the solvency of families and government. For credibility and to force a change in momentum, we need to face the budget and the reform together, at once.
We can learn from 2 events we witnessed in August - the tribute to Sen. Kennedy and the "clunker" program's unexpected success - that an upstart, unconventional approach can have an outsized outcome. For the auto credits, we saw that wrapped in a rescue program of 100s of billions, it took a tiny footnote, $3 billion, to bring the biggest bang for the buck. New cars purchased, higher mileage, assembly lines in factories restarted.
I'm calling on Obama to push for health reforms and some tax changes. It's time for him to work with the Democrats – and dare the Republicans to get on board.
First, let's get a grip on what got us here financially:
From June 10 NYT -
You can see the initiatives that George Bush and Bill Frist pushed in the last 5 years—to enlarge Medicare to cover drugs, enact tax cuts for the wealthy, and launch 2 wars—flipped us from surplus to accelerated debt. Alone these policies by Bush added a taxpayer burden of almost $700 billion.
The graphic is adapted from one printed for David Leonhardt's article "Sea of Red Ink Was Years in the Making". Note the red arrows show events of Bush's presidency; red-and-blue ones show policies that bridged the Obama and Bush presidency, and the blue arrows show changes since we elected the Democrats.
We should take a hardheaded look at the cost challenge and come up with a plan that does a world of good and improves our budget position too. We've been diverted by people who want to scuttle a Democratic success, so the way to get back on track involves a bill more closely focused, that takes on the controversy.
As an economist, though not a health economist, I'll mention that figuring the dollars & cents can bring us a long way toward a scheme that delivers care and contains the growth of costs. Here are a few simple principles the White House should embrace.
He should say - let's take stock of what's good about our health financing system and what about it is too costly.
- What's good is you can seek out care, bounded by the policy of your insurance firm, if you can afford it. If you want you can find care outside its pay network. If you've got insurance, you can make choices.
- What's not good - the mounting costs to businesses large and small, to schools, state governments, US government. The premiums for employers have cost US auto firms $5000 more for every vehicle assembled, than a firm North of the border has to pay. These cost hikes undermine US firms' ability to compete, and that shrinks jobs.
So the benefit is choice, whatever choice you can afford. The downside is it can bankrupt families, businesses, governments. We need a bill with the simple aims of preserving choice and expanding care and accounting for its financing. It can be done, and we need to tilt the expense lower.
Here are some steps to do it.
- The US can lower costs by training more MDs and nurse practitioners at universities. Any dollars spent to expand residency programs for family practitioners will pay back. In primary care, shortages of professionals lifts prices, increasing supply removes that pressure on price.
- You can cut expense for institutional nursing home care by allowing patients to stay at home, if that's what the patient wants. It makes no sense to reimburse institutions and not cover lower-cost care at home. Both versions, the Senate and House bills, have this feature, it's called
(CLASS), the community living assistance services and support program. It is to be self-funded by optional payroll deductions (optional pay in, take out).
- A system that cuts off people when they get too sick is untenable, and unfair. No one loses their Medicare when they're sick. Neither should a person who has private insurance. The way to make sure an insurance firm doesn't drop a policyholder who is sick is not just to legislate it and forbid it, that's only a part of the answer. You must widen the risk pool of policyholders.
When you spread the risk over a much larger group of people, young and old, healthy and sick, it rebalances costs so the plan can also cover the costlier and preexisting illnesses.
That's part of the idea behind a larger insurance exchange for creating risk pools, it's the idea behind a government option like Medicare, it's the logic of the government option for folks who don't choose the private plan.
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Opponents who have aligned themselves against any House or Senate bill see reform see as a cause and contributor to debt. But as Leonhardt's chart shows, debt is caused by accumulated imbalance, past present and future between spending policy and tax receipts.
We all hate our taxes. One thing's for sure: after every round of "tax cuts", most all of us feel more heavily taxed than ever. There's a reason for that, the taxes are always shifted somewhere else.
Pres. Bush had the chance to stop the growing encroachment of "Alternative Minimum Tax" (AMT) on middle class Americans. It's a tax that was once meant for the superrich but it has reached down now to millions of ordinary American families who either have a large number of children or pay high property taxes. To stop socking these middle class families with an onerous tax, Bush had a choice to change the tax law and book the loss of revenue to government — or he could let the growing middle class tax burden swell and use those AMT receipts to fund his cuts in the estate tax for the wealthy. You know what choice he made and pushed Congress to go along. The AMT has become Any Man's tax.
To those who say the health reform program is not paid for, look again. In HR3200 Affordable Health Choices Act, the bill enacts for families with income >$350,000 a 1% tax surcharge, and for families with income between $500,000 and $1,000,000, 1.5%; and for >$1,000,000, 5.4%. Myself, I would cut that last rate to 4% or even 3.5% to gain some goodwill and traction.
I would begin a dialog on taxes to dovetail (with high-spirited discussion no doubt) with healthcare access, but most of the healthcare bill to be passed first. Tax responsibility is unfairly skewed toward most households to benefit the most privileged. The budget and tax question is the vulnerable soft underbelly of the healthcare debate. It's time to look at some unconventional fixes — and for Democrats to remove the tax issue from the GOP.
One of the most objectionable parts of the tax system is its double taxation of wage income. Your SS FICA and Medicare tax removes 7% of your take-home pay, you never see it. Then you pay income tax on it again as if it had never been withheld. I know of 1 Republican who ever cared about the wageearner injustice, that was Sen. Orrin Hatch when he ran for President in the NH primary in 1999. Hatch said in Nashua, NH, Dec. 1999 -
"my plan would allow a deduction for Social Security taxes ... whether or not the taxpayer itemizes.
This would save the average two-income American family $1,770 a year in taxes." - Orrin Hatch, Nashua NH, Dec. 17, 1999
He also said the double taxation of wages is "just plain wrong." It is the smartest thing said by a Republican - EVER.
The White House should propose to gradually create full deductibility to prevent the money being double taxed, it can't all be done in year 1. Use the surcharges above $350,000 to pay for much of it.
The benefit of this is to disarm the GOP talking point about taxes. It would redirect the conversation and address an inequity.
So that's a proposal to redirect the healthcare talks. Right now the Senate and House bills are too different, too complex, and have too many detailed provisions. The WH should pick the basic key features and write it more compactly and quickly.
One thing to know - if you think the talks over medicine and insurance were contentious, wait until it turns to taxes! We can't solve everything fully in 1 effort. But we've got the majorities now. If we can't make it work now, we never will.