Winning Progressive

(By NCrissie B)

This week I’m discussing Michael Grunwald’s The New New Deal: The Hidden Story of Change in the Obama Era. Today I look at the challenges of drafting and passing the American Recovery and Reinvestment Act. Tomorrow I’ll examine the challenges of making the stimulus bill work. Finally, I’llinterview Michael Grunwald and see how the ARRA’s successes became ‘The Greatest Story Never Told’ … until now.

Michael Grunwald is a senior national correspondent for Time magazine. Before joining Time, Grunwald was a congressional correspondent, New York bureau chief, and investigative reporter for the Washington Post, and a local and national reporter at the Boston Globe. He has received the George Polk Award for national reporting, the Worth Bingham Prize for investigative reporting, the Society of Environmental Journalists award for in-depth reporting, and numerous other journalism awards.

Four Pillars

Barack Obama was elected during the worst economic crisis since the Great Depression. Several of the nation’s oldest banks had collapsed. The stock market had plummeted. Lenders weren’t lending. Consumers weren’t consuming. Millions had already lost their jobs, and millions more soon would. Economist and Obama transition team member Christina Romer put it bluntly: “Depressions really, really suck.” Yet although most Americans knew the economy was bad, almost no one knew how bad it was. In December of 2008, we had not yet had what Grunwald calls “our ‘Holy s**t!’ moment.”

President-elect Obama and his transition team knew their first priority would have to be patching the gaping holes in a leaking economy. Yet he had campaigned on “Change We Can Believe In,” and he meant to keep the four pillars of that promise:

• Green Energy – In his first policy speech in 2007, Candidate Obama said “The country that faced down the tyranny of fascism and communism is now called to challenge the tyranny of oil. The very resource that has fueled our way of life over the last 100 years now threatens to destroy it if our generation does not act now and act boldly.” The last phrase quoted FDR’s ‘Arsenal of Democracy’ speech, and just as the humming factories of World War II had lifted the U.S. from the Great Depression, President-Elect Obama believed green energy initiatives could help lift us from the Great Recession
• Health Care – Candidate Obama saw health care as both a moral crisis and an economic crisis. Health care spending was one-sixth of our economy and on pace to be one-third by 2040, yet our life expectancy and infant morality outcomes were mediocre. Insurance costs squeezed businesses and workers, and rescission and cancellation often turned illness into bankruptcy. Research focused on individual drugs or treatments, tested against placebos, with almost no comparative data on whether a new drug or treatment was better than those already available. Reforming health care, the president-elect believed, was essential to economic recovery.
• Education – Candidate Obama had attended a prep school in Hawaii and Ivy League universities, yet in Chicago he saw struggling schools that offered excuses instead of excellence: “these kids can’t learn” because gangs-drugs-parents-the-system. President-elect Obama saw “these kids” as “our kids” and was determined to provide schools that gave them a chance to thrive.
• Community – Energy, health care, and education were all part of our national economic crisis, but Candidate Obama saw a deeper problem: the fraying of our sense of community. “I am my brother’s keeper. I am my sister’s keeper,” he said. While he recognized the productivity of market economies, he also recognized a role and a duty for government. New investment in infrastructure, from roads to rails to electricity to broadband connectivity, would both grow the economy and rebuild a shared sense of purpose.

These were the four pillars of change on which Candidate Obama had campaigned, and President-Elect Obama wanted his economic recovery plan to address all four.

Three Ts

But first that plan would have to prevent a Second Great Depression, and most economists agreed on how to do that. Triggered by a banking crisis, the economy now faced a death spiral. Families who had lost or feared losing their jobs were spending less, providing less revenue for businesses, forcing them to lay off more workers. With more workers unemployed and more businesses closing, tax revenues plummeted at the very time people needed more community support, leaving governments – federal, state, and local – with budget crises that could force yet more layoffs.

Both struggling families and struggling state and local governments had to balance their budgets. That left the federal government as “the spender of last resort,” the only economic actor that could intervene to stop the death spiral. But just spending money would not be enough. Larry Summers and other economists had studied government stimulus efforts in the U.S., Japan, and elsewhere, and identified three conditions for success:

• Targeted – Government spending had to boost consumer spending in order to boost business revenues, end layoffs, and spur new hiring. Data showed that during an economic downturn, family spending decreased as a percentage of income for wealthier families. Simply, they could afford to save or pay down debt, while median- and lower-income families had to scramble to get by from month-to-month. Thus, jobs for the unemployed and assistance for the working poor would boost consumer spending more and end the death spiral sooner than tax cuts or credits for the wealthy.
• Timely – Government spending also had to happen at the right time: before the bottom fell out of the economy and left any stimulus futile, and before consumer demand began to recover and left any stimulus likely to spur a burst of inflation.
• Temporary – Thus government spending programs that were intended solely as stimulus needed to stop when consumer demand recovered. Ideally that meant built-in end triggers. Unemployment benefits end automatically when a worker gets a job, and assistance for the working poor tapers as they find jobs that pay better wages. Startup loans help innovative, risky, yet potentially transformative new companies get through ‘The Valley of Death’ until private capital and sales revenues make them self-supporting.

The Obama transition team agreed on the Three Ts, both in principle and in most of the details. There were a few quibbles, but the larger problem was how to find enough targeted, timely, temporary projects to fill out the $500-750 billion package most economists predicted would be needed to forestall a depression and create a recovery.

Sixty Votes

When the Obama transition team took that number to Capitol Hill, jaws dropped. House Speaker Nancy Pelosi had been considering a stimulus package of just $300 billion. President-Elect Obama was asking for more than twice that, on the heels of the $700 billion TARP program just rushed through to prop up the financial industry. Passing that had been fractious enough, and its failure to pass on the first vote had pushed the markets even further into crisis. The 2008 elections had given her a larger majority, but $750 billion was still a lot of money.

And then there was the Senate, where Democrats had only 58 seats, with Minnesota’s Al Franken was still locked in a recount. Without at least two Senate Republicans – really three, so no one could be pilloried by the Senate Republican Caucus as “the deciding vote” – no bill would pass. That assumed the new president could get every Senate Democrat to agree, including fiscal conservatives like Nebraska’s Ben Nelson. Indeed no one was sure whether Democratic stalwart Ted Kennedy, who had collapsed at the president’s inauguration, would be able to return to cast a vote.

As the economic news grew ever more grim in January, with new data showing a Second Great Depression was nearer than anyone had imagined, the ‘ideal’ size for a stimulus bill grew to over $1 trillion. But in the Senate, both the few Republicans whom the president had any hope of swaying and the conservative Democrats whose votes he could not lose, the number was “under $800 billion.” Grunwald reports that number was based not on data but emotion and the echoes of the TARP bailout.

Even had Congress been willing to reach for $1 trillion, Grunwald writes, there remained the problem of meeting the three Ts. There were plenty of ideas for how to spend money, but not enough would be targeted, timely, or temporary enough to work as depression-sparing stimulus. As one Hill staffer put it, “We can’t stuff that much pig through the python that fast.”

The American Recovery and Reinvestment Act did pass. Republicans denounced it as waste and cronyism, even as many progressives complained it was not enough. It was not waste, not cronyism, and not enough … but Grunwald doubts any bigger package could have met President Obama’s four pillars, Treasury Secretary Summers three Ts, and found 60 votes in the Senate.

And as we’ll see in my next post … it did work.

(Crossposted from Blogistan Polytechnic Institute (BPICampus.com))

(By Eric Brehm, cross-posted at Bang The Buckets)

As the recall effort grows throughout Wisconsin, so too does my effort to present talking points about just why I feel Governor Scott Walker is worthy of being recalled. My continued thanks to Winning Progressive for providing me a space for this message. 

While many Wisconsinites are already in favor of the recall, my hope is that there are also some Wisconsinites that are still on the fence, but could be convinced that perhaps they belong on the recall side of it. My hope is that the many wonderful volunteers doing the yeoman’s work of collecting signatures for a recall might find something in this series to combat those who question just why they are working so hard in the first place. Ultimately, of course, my hope is that the current Governor of Wisconsin will be recalled, and will lose that recall election.  Why should he?  Here’s four more reasons:

Scott Walker denies health coverage. 

Governor Walker is proposing a cut of over $550 million to BadgerCare, a program designed to provide affordable health coverage to lower-income working families. This will be accomplished by moving about 215,000 people — children and adults — to a lower-cost “benchmark” program which would provide fewer benefits. Approximately 6500 people would be disqualified from the program entirely.  Governor Walker is selling the change as a tough choice that needs to be made, but that rings a little hollow coming from someone whose own health care plan is probably rather generous.

Best of all (or worst, depending upon how you look at it), the proposal seeks a waiver from the federal Affordable Care Act of 2010. Right now, the federal law is freezing some state policies like eligibility requirements. Governor Walker and the Department of Health Services are seeking to change those requirements to force some people off Badgercare if they can be covered elsewhere. As often happens with the governor’s office, the move to seek the waiver is accompanied by a threat — if the waiver doesn’t happen, an estimated 53,000 people will be kicked off the Badgercare rolls. Walker has stated that’s not his fault. “If they fail do that (grant the waiver), the federal government itself has then forced this action.” (Source for this quote and other information can be found here.)

It’s bad enough, in my opinion, that the governor continues to cozy up to people like the Koch Brothers and hands out high-paying jobs to people who may be unqualified for them (see Reason #4 in this series). But to do it at a time when his actions seek to remove a viable healthcare option from lower-income people — including lower income kids — seems especially distasteful to me.

Scott Walker diminishes voting rights.

Under the leadership of Governor Walker, the Republican-dominated legislature of our state passed the strictest Voter I.D. law in the nation. What they said, of course, was that this was necessary in order to combat rampant voter fraud in Wisconsin. Senate Majority Leader Scott Fitzgerald claimed “we continue to see these isolated incidents of people trying to vote five, six times a day.” That would be indeed be horrible, if it were in fact true. However, when Politifact looked into it, they determined it was false. An investigation into Wisconsin voter fraud was conducted in Wisconsin in 2004, and found that 7 cases of voter fraud had been committed, all by convicted felons.

What does this mean? It means there is an exceedingly small chance that voter fraud will occur in an election, and an even smaller chance that it will actually determine the outcome of an election if it does occur. By way of example, here are some things that are more likely to happen than Wisconsin voter fraud:

• Hitting a hole-in-one while golfing.
• Getting hemorrhoids.
• Being on a plane being flown by a pilot who has been drinking.
• Winning an Academy Award.
• Finding out your item is worth a fortune on Antiques Roadshow.
• Finding out your child is a genius.
• Fatally slipping in the bath or shower.
• Bowling a 300 game.
• Finding a person who speaks Cherokee.
• Injuring yourself from use of fireworks.
• Getting murdered.
• Finding a four-leaf clover on the first try.
• Being considered to be possessed by Satan.

Wisconsin’s new law requires voters to show a non-expired state or photo identification in order to cast a ballot. Other forms of identification that had been accepted — like student ID’s, state employee ID’s, out-of-state driver’s licenses, expired driver’s licenses, and even voter registration cards — are not permissible. Will this stop voter fraud? No. In fact, the 7 cases referenced above would not have been stopped if the felons had been required to show proper ID.

So why the new law? Because Governor Walker wants to take away rights. Not all rights, of course, but the rights of certain people. Those that will be most affected by the Voter ID law will be the elderly, college students, and minorities. Oddly enough, taken together, those three groups vote for Democrats a majority of the time. Hmmmmmm. The last time we saw this kind of targeted effort to keep people away from the polls, Dr. Martin Luther King and other Civil Rights leaders were marching about it.

Scott Walker wants to control Wisconsin poll workers.

Recent Wisconsin news suggests that the Republican Party intends to use a little-known law to control who will be working at the polls on the day of the recall election. According to the article just linked:

The law, which had been used only sporadically before, allows political parties to submit lists of poll workers to municipal clerks, a rule intended to give each party representation at polling locations to oversee the accuracy of the process.

Clerks must choose workers from the submitted lists, the breakdown of which is based on the number of votes each party’s candidate received at that polling place in the previous gubernatorial or presidential election.

For many years, clerks have been left to choose and train their own poll workers without much input from the parties, state election officials said this week. That is changing this year, though the GOP is not saying why.

(Wisconsin State Journal, November 22, 2011)

This isn’t quite fraud, but in my opinion it does provide some telling insight into the character of Scott Walker.  Now, in fairness, I don’t know Scott Walker. We’ve never met personally. We’ve exchanged mail once or twice, which is how my whole blogging experience began, but beyond that I know nothing about him that I can’t read in the papers. I don’t like many of his policies, but I may not be qualified to judge him as a man.

Still, I have to admit, when a fake recall began on November 1 so Governor Walker could begin collecting campaign contributions . . . When Republican lawmakers threatened to make it harder to collect recall petitions by passing a law to have them notarized . . . when the news broke about “stacking the deck” with poll workers . . . when the Governor’s team began to press the courts to use new, gerrymandered districts of the Republicans’ design for the recall election . . . these items troubled me.

This type of behavior, especially when it is shown repeatedly, strikes me as petty. I can understand that those in power want to stay in power, but for a party that talks about small government, they are sure using a lot of government right now. For a party that talks about the value of American freedom, they would seem to be attempting to influence the basic freedom of the vote.

If Scott Walker and the Radical Republicans were seven years old, I would hope that any good parent or teacher would tell them that their behavior is unacceptable, and make an attempt to correct it. Again, I don’t know the governor and I don’t know the extent of his character, but in my opinion this seems small. It seems petty. It seems mean-spirited. And I have to question whether the voters of Wisconsin want small, petty, and mean-spirited to be qualities that reside in the Executive Mansion and control the Executive Branch.

Scott Walker ignores the Wisconsin State Constitution.

Like any governor of the state of Wisconsin, Scott Walker was required to take an oath of office upon assuming the post. In that oath of office, he had to solemnly swear that he would “support the Constitution of the United States and the Constitution of the state of Wisconsin.”

The Constitution of the state of Wisconsin is relatively clear on a couple of points:

Article I, §4 – ANNOT.
The legislature cannot prohibit an individual from entering the capitol or its grounds. 59 Atty. Gen. 8.

Article I, §4
Right to assemble and petition. Section 4. The right of the people peaceably to assemble, to consult for the common good, and to petition the government, or any department thereof, shall never be abridged.

And yet, under Scott Walker’s watch, the Department of Administration has updated the Wisconsin State Facilities Access Policy, which applies to the Capitol. Now, according to the update, all activities and displays in state buildings must be permitted, and the application for that permit must be received 72 hours in advance of the proposed activity or display. You may have missed it, but the new policy was put in place on December 1.

Maybe it’s just me, but I can’t imagine why a sitting governor would allow his Department of Administration to pass a rule that violates the very constitution that a sitting governor has sworn to uphold. Even if the goal was altruistic — for instance, if Governor Walker thought it necessary to protect the public from the state prisoners that were used to set up the Capitol Christmas tree – the greater obligation has to be to the state constitution, in my opinion.  Of course, this is nothing new for Scott Walker, who was restricting access to the Capitol way back in February, when protests against what was then still known as the “Budget Repair Bill” were going strong.

My own expectations for politicians — of either party — has dwindled significantly over the years. But it seems to me that at a bare minimum, we should be able to expect that an elected official will actually uphold their Oath of Office. 

If you live in Wisconsin, please sign a recall petition.  Please tell your friends and neighbors to do so.  If you live outside of Wisconsin, you can still help by calling friends or family in their state to see what they’re thinking.  The rich Progressive history of the state of Wisconsin is at stake.  That history is worth fighting for; it is a fight that, together, we can win.

For this weekend’s reading list, we have an article on the class divide in America, an analysis of how inefficient the U.S. health care system is, an account of how the House GOP is cutting the budget of the Securities and Exchange Commission even though such cuts will not reduce the deficit, and an argument that President Obama can ignore the debt ceiling under the “faithfully execute” provision of the Constitution.

If you have any feedback on these articles, or would like to recommend an article for next weekend’s reading list, please let us know at Winning Progressive’s Facebook page.

Greed, Excess, and America’s Gaping Class Divide – an attempt by Matt Taibbi in Rolling Stone magazine to explain how the obscenely wealthy in America have managed to avoid the class resentment that tea partiers direct at government workers, unionized employees, and others who still have health insurance, pensions, and fair wages.

America’s Inefficient Health Care System – a post explaining how rapidly skyrocketing health care spending in the U.S. has led to little increase in life expectancy even as European countries have seen smaller increases in health care spending and larger increases in life expectancy.

As a Watchdog Starves, Wall Street Is Tossed a Bone - an article about how House Republicans have proposed to cut $200 million from the budget of the Securities and Exchange Commission, even though that money would go to Wall Street rather than deficit reduction, and despite the fact that more effective SEC law enforcement often brings in revenue through penalties and fines.

The Debt Limit: Faithful Execution – Hendrik Hertzberg argues the requirement in Art. II, Sec. 3 of the Constitution for the President to faithfully execute the laws of the U.S. can provide an avenue for the President to ignore the debt ceiling limit because the spending for which debt needs to be incurred is required by law.

Republicans point out that Medicare has tried to control costs centrally for decades with terrible results. They argue that a decentralized process of trial and error will work better, as long as the underlying incentives are right. They suggest replacing the fee-for-service with a premium support system. Seniors would select from a menu of insurance plans. Their consumer choices would drive a continual, bottom-up process of innovation. Providers could use local knowledge to meet specific circumstances.

* Medicare has lower overhead costs – approximately 5% for Medicare and 8.9% for private insurance. Once you factor profits, commissions, and premium taxes in, private insurance overhead goes up to 16.7%

* Medicare has controlled costs better than the private system. From 1970 to 2000, annual per enrollee costs went up 9.7% for Medicare and 11.1% for private insurance.

* Medicare Advantage plans, which are Medicare plans run by private insurers, cost the government 14% more than traditional government-provided Medicare

Why is this brilliant? Most ordinary pundits (those without space on the Times op-ed page) use the more common device of citing studies on both sides to show that there is support for both sides. But this is rookie league stuff. Brooks shows how it’s really done: just dismiss the entire attempt at empirical support with a wave of the hand, which lets you get back to “philosophy.” It’s much easier to know nothing than to know something.

But for this question, we don’t even need to go to the academic studies. We already have a health care system where people “select from a menu of insurance plans. Their consumer choices would drive a continual, bottom-up process of innovation. Providers could use local knowledge to meet specific circumstances.” It’s called the individual market, there are tens of millions of people in it, and it’s a complete failure. It leaves tens of millions of people uninsured, and to those who are insured, it delivers mediocre care at high costs. The only way you can ignore this fact is by pretending that facts don’t matter…

Um, David, there’s this country to north of us. It’s called Canada. They have a national health insurance system that covers everybody. And that system . . . Whom am I kidding? When you don’t have respect for facts, a few more aren’t going to change your mind.

(By Mark Bridger, cross-posted at That Mans Scope)

There has been a lot of discussion about what would happen to Medicare if Rep. Paul Ryan’s budget proposal ever became law. Democrats have claimed that Medicare will, in effect, be ended, and that people retiring in the future will be faced with huge increases in their healthcare costs — perhaps $1000 or more per month. Republicans have claimed that this is a lie and a scare tactic, that Medicare will simply be changed somewhat, and that reports of huge premium increases are simply exaggerations. Both sides cite a report by the Congressional Budget Office (CBO) called A Long-Term Analysis of a Budget Proposal by Chairman Ryan. The full text (pdf) can be found HERE.

Since there seems to be some controversy as to what this report actually says, I downloaded it and spent some time reading it; my wife, who is also a mathematician and has studied finance, did the same. Here is what we found out.

The report deals with budgets and deficit projections mostly related to Ryan’s plan to convert Medicare from a “single-payer” government program to a voucher-based plan entirely based on private insurers. In Ryan’s proposal, participants would purchase a health insurance policy from an approved vendor through a Medicare “Exchange”; vendors would have to insure all qualified (by age and citizenship) applicants, and could base their charges only on age, not on physical or pre-existing conditions.  It does not appear that the Ryan plan makes any assumptions or establishes any requirements about the type or quality of coverage that must be offered in the “Exchange.”  Coverage would be optional (no personal mandate) and not subject to any of the provisions of the 2010 Healthcare Reform Bill. The age of eligibility would gradually increase to 67 in 2033.

In order to help beneficiaries of the program (“seniors”) pay for private insurance, the government would provide uniform supplementary payments which would grow over time only with the “Urban Consumer Price Index,” which is far below the rate of health care inflation.  (There would also be some transfer of funds from plans with healthier members to plans with less healthy one, though it is unclear how or to what extent this would work; in any case, it would not affect the premiums that retirees pay.) These voucher payments from the government would go directly to the private insurers, exactly the same way that tuition payments would go to directly to schools under so-called “education voucher” programs championed by Republicans.

People currently on Medicare, or who would be eligible for Medicare before 2022, would be allowed to enroll in and be covered by traditional Medicare for as long as they wish. Younger people (basically age 55 or under now) would have to enroll in the Ryan plan. In effect, those currently retired people who only care about their own healthcare (and not that of younger friends, relatives, or fellow cititzens) need not worry about the Ryan plan.

So what will happen, according to the CBO, to people retiring in 2022 or later?

In order to analyze this, the CBO defines certain important phrases.

1. Baseline Healthcare Cost. This is the amount it would cost an average 65-year-old to purchase private health insurance comparable to what Medicare now covers. “Comparable” is a tricky term, since all policies, including Medicare, have built-in deductibles and co-payments. Thus, taking these into account, Medicare pays for about 80% of total expenses (actually 76%), statistically. The CBO mentions this specifically, and we adjust for that in our computations (see below).

2. Extended Baseline Scenario. This scenario projects Medicare expenses moving forward for folks who would be allowed to continue in traditional Medicare after 2022.  Is included for comparison between Medicare and “Ryan-care”.

3. Alternative Fiscal Scenario. This scenario assumes various changes to revenue (most lower) and outlays (mostly higher) based on proposed legislation other than the Ryan plan.  These policy changes include extension of the 2003 tax cuts, changes to provider compensation (e.g. to doctors) and other proposed or passed legislation. This Alternative Scenario is similar to the Extended Baseline Scenario above, but is more expensive.

We now come to the key table which summarizes CBO’s analysis of the costs to government and to the individual of the Ryan plan versus (traditional) Medicare:

The first three lines show the present-day situation . The cost of Medicare coverage is about 89% of the cost of a comparable private plan. Because everything is related to this baseline private plan, we see that the government pays, for each individual, 54/89 = 60% (approx) of the cost of insurance, while that individual pays the remaining 40%. For example, a typical senior age 65 might pay Medicare premiums of $150 per month (Medicare parts B and D) and another $150 per month for supplementary insurance. (The CBO, in a note to this table, says “A beneficiary’s spending includes premiums, out of pocket costs for covered services, and payments for any supplemental insurance; see point 1 above). This comes to $3600 per year, which according to the chart is 35% of the cost of a private plan. Thus, a simple computation gives the cost of a private plan to be about $10,000 and the cost of Medicare coverage to be about $9000 — split between $3600 individual and $5400 government contributions.

Now let’s look at what happens in 2022 when the Ryan plan kicks in. On page 23 of the CBO report we see that it estimates the premium support (government) to be $8000 for a typical 65-year-old (both for Medicare and Ryan-care). According to the chart above, this is 39% of the baseline private plan cost. To find the individual’s contribution, you multiply: $8000 x 61/39 = $12,512; this amounts to a charge of about $1000/month for new retiree (age 65). For a senior on traditional medicare, however, the individual contribution would be $8000 x 27/39 = (about) $5538. Thus, the Ryan plan would add about $7000 to the cost of insurance for an average 65-year-old person in 2022.

However, 65 is not the typical age of a retired person, and the Ryan plan (unlike traditional Medicare) allows extra charges based on age. For example, on page 8 the CBO document estimates the average government expenditure over all retirees 65 and older to be $15,000, not $8000. Applying the same calculation as above shows that the cost to an individual under the Ryan plan would be around $23,468 (nearly $2000 per month), while the cost under traditional Medicare would be only about $10,384. The difference is $13,084.

Thus, the average retired person in 2022 would have to pay more than $1000 per month extra under the Ryan plan.

These calculations, based entirely on tables and data from the CBO report, clearly confirm the assertions made by Democrats about the costs to senior citizen retirees under the Ryan budget plan.

Finally, the CBO report mentions in at least 10 different places (pp. 4, 15, 17, 19, 21, 23) that the Ryan plan would increase costs for participants starting in 2022. The Ryan budget overall cuts government programs — especially Medicare — while keeping taxes level or reducing them. Since retirees, especially the poorer ones, pay little in taxes, this clearly has the effect of cutting the budget at the expense of these senior citizens. In fact, as the calculations we made above (more than $2000 per month premiums) show, very few of these people would be able to afford healthcare under the Ryan plan. Their choice would be to do without, or hope for the best at emergency rooms. (And who will pay for that?)

The bottom line, therefore, is that Ryan’s plan to replace Medicare with vouchers would require the average retiree to play between approximately $7,000 to $13,000 per year more for health insurance while eliminating much of the cost savings benefits of the Medicare system (which is far more cost effective than private insurance).  If you’d like to remind the public how much extra people would have to pay under the Ryan legislation that all but five Republican Senators and all but four Republican House members voted for, please do so by using our Letter to the Editor Campaign page to write a letter to your local newspaper.

Winning Progressive’s Series on America’s Health Care System

America’s health care system was placed in the spotlight from the very beginning of the Obama administration, and rightly so for several reasons – good health is important to a successful citizenry, health care was out of the reach of many Americans, and the federal budget expense devoted to ensuring good health for its citizens is rising unsustainably.

Our Winning Progressive series on the American health care system will discuss what drives health care costs higher, Obama Administration plans to reduce these costs while expanding coverage to more Americans, and how other countries have tackled the challenge of keeping its citizens healthy.

Part 1 – Six Factors Driving Health Care Cost Sky-High

(by Mark McCutchan)

U.S. health care costs have been going up dramatically over the last 50 years, both in total expenditure and as a percentage of the GDP (graph 1).

Graph 1 –U.S. Health Care Costs vs. GDP (in $Billions)

In 2007, the U.S. spent $2.26 trillion on health care, or $7,439 per person, according to the Office of the Actuary (OACT) of the Centers for Medicare and Medicaid Services , 16% of our nation’s GDP.  Health and Human Services expects expenses to continue rising to 19.5% of GDP by 2017.

Warren Buffett appeared on CNBC last year to call the nation’s health care spending “untenable,” comparing “out of control” costs to a “tapeworm eating at our economic body.”

Here are the top six factors driving health care costs higher.  Some can be addressed directly by effective governmental action, while others are cultural and demographic in nature and will take much longer to address.

1.      Technological Advances – The Congressional Budget Office, reviewing a number of studies, has estimated that approximately half of the growth in healthcare costs in the U.S. is due to technological advances that allow for more treatment of more diseases.  Such advances can provide significant benefits to individuals receiving treatment and to society as a whole.  New technology, surgical procedures, and pharmaceuticals, however, are typically not subjected to an evaluation of their benefits versus their costs and, as a result, many expensive new technologies or procedures that become very popular among doctors and patients offer little to no benefit over the much cheaper approaches that they replace.  For example, the $1.5 million da Vinci robot, which performs various surgical procedures, adds $8,000 to the cost of heart bypass surgery, yet there is no evidence that it leads to better outcomes than traditional surgery.  “The trick is we really need research to know how to use these tools in a manner that will be preventive and predictive, to tailor the tests and interventions to what the patient really needs,” says Herb Kressel, radiologist-in-chief at Beth Israel Deaconess Medical Center in Boston.

2.      High Administrative Costs – According to Vermont’s Independent Senator, Bernie Sanders, approximately 30% of every healthcare dollar spent in the United States goes to administrative costs rather than to delivering care, and that includes marketing costs, bureaucracies to handle all the paperwork involved, and a thick layer of profit for everyone involved – drug, equipment and supply manufacturers, insurance companies, and for-profit hospitals. One of the big advantages of a single payer system is that the vast majority of this administrative expense is eliminated, as doctors have to deal with only one insurance entity.

3.      Lack of Health Insurance – According to the CDC, about 16% of Americans do not have health insurance.  The uninsured tend to get less preventative care, which delays treatment until there is a much bigger and more expensive problem to treat; they are also more likely to use emergency rooms, the most expensive form of care.   The cost to the health care system for treating the uninsured was almost $100 billion in 2001, the latest report available.  The cost to the uninsured in the form of lower productivity, enjoyment of life, and potential development has been estimated to fall between $65 and $130 billion per year.

4.      High Patient Demand: Direct-to-consumer marketing of prescription drugs was legalized in the US in 1997 (who among us doesn’t recall those commercials to “ask for the purple pill”?), and drug makers now spend over $4.3 billion on media ads in newspapers, magazines, TV and the internet to encourage potential patients to ask for their brand at the doctor’s office.  Doctors wishing to keep their patient are only too happy to oblige, contributing to the climb of US prescription drug sales from $145 billion in 2000 to $307 billion in 2010.  The growing abuse of prescription drugs, especially pain medication available at pill mills, has been estimated to cost $18 billion annually, before considering the lost lives, productivity, and criminal justice expenses.

5.      Poor Lifestyle Choices: Spurred by the abundance of convenient junk foods, effective neural marketing by Frito-Lays and other processed food manufacturers, and less free time to prepare healthy alternatives, Americans have developed a diet high in fat, sugar and caffeine over the last few decades.  Combine this with a 8 hours/day screen habit and loss of exercise time, and you have a recipe for an explosive rise in obesity, heart disease, and diabetes, increasing the demand for related health services.  The Congressional Budget Office has estimated that 12 percent of the growth in health care costs between 1987 and 2001 was caused by increased obesity in the U.S.

Graph 2 – US Population, Overweight & Obese

6.      Aging Population and End of Life Care – Our senior population is growing rapidly; the population eligible for Medicare (65 and older) is expected to rise from a current 40 million to 82 million by 2050, while the members of society in need of expensive end-of-life treatments, those age 85 and older, may rise from nearly 6 million today to 19 million by 2050.  Twenty-five per cent of all Medicare spending – about $125 billion – is for the 5% of patients who are in their final year of life, and most of that money goes for care in their last couple of months which is of little apparent benefit.  Our current health care system emphasizes avoiding patient mortality at any cost, without considering the importance of end-of-life decisions for patients and their families that can provide meaning and comfort.

In Part 2 of this series, we will cover competing proposals for reducing health care costs, and how progressive proposals offer the best approach for reducing health care costs without harming people in need of care.