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Does Big Government Hurt Economic Growth?

By JEFF MADRICK
Published: April 15, 2004

In widely reported comments before a Congressional committee in February, Alan Greenspan, the Federal Reserve chairman, suggested that President Bush’s tax cuts should not be even partly rescinded. Rather, Mr. Greenspan said, the nation should cut future domestic spending, including Social Security benefits, to balance the budget. Higher spending or higher taxes would deter economic growth, he warned.

The committee should have asked the statistically oriented chairman for the evidence. A comprehensive analysis by the economic historian Peter H. Lindert, published in a new book, “Growing Public” (Cambridge University Press), contends that there simply is none. His analysis is partly a broad extension of other studies by economists like Joel B. Slemrod of the University of Michigan, but he adds considerably to the argument.

Mr. Lindert is a professor at the University of California, Davis; former president of the Economic History Association; and an associate of the National Bureau of Economic Research. He has examined levels of taxes, public investment in education, transportation and health care, and social transfers like Social Security, and finds a stark contradiction between conventional wisdom and the evidence. “It is well known that higher taxes and transfers reduce productivity,” he writes. “Well known – but unsupported by statistics and history.”

He compares the level of social spending over nine decades up to 2000 in 19 developed nations, including most of Western Europe, Japan, Australia, the United States and Canada. His analysis differs from many studies in part because he focuses on social programs, not overall government spending.

He finds that high spending on such programs creates no statistically measurable deterrent to the growth of productivity or per capita gross domestic product. As many nations in Europe built welfare states after World War II, they continued to grow faster than the United States, a nation with low social spending.

For many people, this defies common sense. Higher taxes to support social programs surely deter investment or the willingness to work to some degree. As Mr. Lindert points out, estimates by some economists, like Martin Feldstein, a Harvard professor and president of the National Bureau of Economic Research, find that extra government spending leads to a large reduction in gross domestic product.

In fact, taken literally, these studies suggest that the gross domestic product of Sweden, to take an example of a nation with heavy social spending, should have been reduced by up to 50 percent. But nothing remotely like that has happened.

The principal problem with such studies, Mr. Lindert writes, is that they are simulations of a highly simplified world. The economists recreate an economy where almost all incentives lead to slower growth, Mr. Lindert said, but that world does not exist.

Why, then, have high levels of social spending proved no deterrent to growth in the real world? Mr. Lindert has several explanations, some of them surprising.

First, he says, the tax systems of countries with high social spending are less antigrowth than is realized because nations in Scandinavia and Continental Europe typically derive so much tax revenue from regressive consumption taxes. In fact, these nations do not penalize profits and capital investment any more than the United States or Japan does, and possibly even less.

Mr. Lindert cannot be pigeonholed as a conservative or a liberal. He says he believes that less tax on capital will promote growth. But nations with high social spending typically tax alcohol, tobacco and gasoline highly, he notes, which contributes to better health and environmental quality. Healthier workers are more productive, and cleaner air requires fewer expensive environmental regulations.

Second, he finds that social programs in nations with high welfare levels usually include everyone. Because benefits are generally not cut off as incomes grow, the disincentive to get jobs or invest is reduced.

But third, he finds, much of the public spending in these nations is also conducive to economic growth. Among such spending is that for education and health. Mr. Lindert argues firmly that under comprehensive public health programs, people are healthier and live longer, which also makes them more productive. He cites a study by the economist Zeynep Or for the Organization for Economic Cooperation and Development that finds that in nations where a higher proportion of all health outlays are public, life spans are significantly increased.

Mr. Lindert also contends that higher levels of government support for child care and requirements to re-employ women after maternity leave at the same job can enhance economic growth. Business considers such workers long-term employees and is likely to invest more in their training and place them on a faster track. Workers probably expend more time and effort on their long-term careers.

The statistical probability that some women will leave work creates a bias against all women. Ample government support apparently reduces this bias. The difference between pay for men and women is higher in the United States than in most of Europe, and is especially narrow in Sweden, which provides generous child support.

This summary does not do justice to Mr. Lindert’s book. He also, for example, provides a valuable history of social spending and proposes a theory about why some nations spend more than others that is closely related to how well democracy works. This is a piece of research that is rich in insight and grounded in empirical evidence. There will be challenges. But the upshot is unmistakable. Government spending, if administered wisely, can have great value for everyone, including but not limited to the especially disadvantaged.

Jeff Madrick is the editor of Challenge Magazine, and he teaches at Cooper Union and New School University.E-mail: challenge@mesharpe.com.

Uncivilized responses to medical debt

Borneo Bulletin
April 14, 2004
Woman unable to pay medical bill locked up in hospital

NAIROBI (dpa) – A mother of seven has been kept locked up in a Kenyan hospital for a year because she cannot pay her medical bill, local media reported Tuesday.

The woman was admitted to a hospital in the town of Meru last April after adomestic quarrel, and shortly after gave birth to twins. As she was not able to pay the bill of 6,000 Kenyan Shillings (US$77), the hospital kept her locked up, wrote the East African Standard newspaper. A year in hospital confinement has escalated the bill to 103,000 Kenyan Shillings (US$1,300 USD), but the hospital proprietor insists the woman will not be released until the bill is cleared.

It is common in Kenya for hospitals to keep patients because they cannot pay their bills.

The government has promised to introduce a social health insurance system under which the poorest people would get free medical care, but it is unclear how the government plans to finance the scheme.

http://www.brunei-online.com/bb/wed/apr14w39.htm

Comment: Our approach to medical debt is to force many individuals intopersonal bankruptcy. Considering our great national wealth, maybe we should be almost as ashamed as should this hospital proprietor.

Zero for Heroes

The City Politic
Zero for Heroes
Many of the people who spent months in the pit at ground zero have respiratory ailments. And no health insurance. And no aid from the government. Why?

By Greg Sargent
From the October 27, 2003 issue of New York Magazine.

David Rapp used to pride himself on being an active guy. A 250-pound construction worker, he drove piles on the Williamsburg Bridge and on projects all over the city. He could carry a sack of cement on his shoulder as easily as you carry an order of takeout sushi back to your desk. He liked fixing cars. He went crabbing in Jamaica Bay.

Then came September 11. Rapp spent several months at ground zero, drilling steel reinforcements into the “bathtub wall”—the slurry wall between the pit and the Hudson River that prevented the water from flooding the area.

Rapp’s illness began with a faint dizziness and shortness of breath, but it steadily got worse. Before long, he was useless to his former employers. They laid him off. Now Rapp is very, very sick. He’s suffering from severe pulmonary disease—meaning he never gets enough air. He has frequent respiratory infections. He’s on twelve medicines. He carries an oxygen tank wherever he goes. “I just went straight down,” Rapp says, his voice somewhere between a whisper and a rasp. “It’s real depressing.”

He’s learning to accept the fact that he may never work again. But with that comes a question: How is Rapp, whose medical costs are now covered by temporary state workers’ comp, going to pay for his treatment in the future?

“I’m a scared guy right now,” says Rapp, who clearly isn’t accustomed to making such an admission. “I’m in real bad trouble. There are a lot of claims coming in right now. I’m afraid my pharmacy will tell me I’m cut off. I rely on my medicine to breathe.”

Rapp is one of perhaps thousands of people who are not cops or firefighters but who toiled at ground zero and are now sick, even disabled, from asthma, chronic infections, and other respiratory illnesses. These conditions, some experts maintain, were caused by the “crud”—the mixture of dust, ash, fumes from burning plastic, pulverized concrete, and vaporized human remains around ground zero.

Unlike the cops and firefighters whose heroism—and subsequent illnesses—have gotten huge amounts of attention, these other workers lack the medical safety net and pension enjoyed by the guys in uniforms. So they are scrambling for treatment in all kinds of ways. Some are on waiting lists for financially strapped private programs. Others are still battling for workers’ comp. Still others are defying doctors’ orders and working—because with a job comes health insurance. While some have found temporary treatment, they all share an uncertain future, with no guarantee that they’ll get the long-term care they’ll need.

The reason for this is not hard to divine. Two years have passed since the attacks, and there has been no comprehensive effort by the federal government to treat people who got sick helping out at ground zero. Incredibly, thousands of people are ill from a national disaster, and the federal government is AWOL.

“From a public-health standpoint, this is an intolerable outrage,” says Dr. Stephen Levin, who oversees a program at Mount Sinai Hospital that screens thousands of patients with ground-zero-related illnesses. “There is a patchwork, at best, of treatment resources for a limited number of people. But this requires a serious federal response. Hundreds and hundreds of people are facing lives turned totally upside down by illness—without access to care.”

They include volunteers with no insurance; people whose workers’-comp claims have been stymied by insurance companies; and others who were laid off after 9/11 because they were too sick to work—and lost their insurance. These are the same people, you may recall, who were hailed as heroes after 9/11, with adulatory bumper stickers and THANK YOU signs along the West Side Highway.

What made them ill? There was the hydrochloric-acid mist released by plastics smoldering in the wreckage. Also, the falling towers ground a huge amount of concrete into powder so fine that it could be inhaled deep into the lungs. These irritants caused swelling that led to sinusitis, laryngitis, bronchitis, asthma.

Marvin Bethea developed bad asthma. When the towers fell, Bethea, a paramedic, was tending to people in a nearby bank. He found himself inhaling air so dense, he recalls, that “it felt like someone was dumping dirt down my throat.” Two years later, his doctor has told him his condition is so bad that he should quit his job, which entails running up stairs with heavy equipment. But he’s still working—because without the job, he’d lose the health insurance.

The plight of these workers has been taken up by politicians here and there, notably Hillary Clinton and Representative Carolyn Maloney. Maloney is drafting legislation that would require the government to pay the medical costs of all responders without coverage who were injured or sickened at ground zero. “Three thousand rescue workers, and probably thousands more, are still suffering from health problems that are a direct result of their work at ground zero,” she says.

In recent weeks, Levin has done an extensive assessment of his program, which has screened nearly 8,000 victims. And he made two striking discoveries. The first: Ground-zero workers who are being examined now are showing roughly the same rates of illness as they did last year. “We’re finding that these problems are not going away,” Levin says.

The second revelation is no less surprising. Mount Sinai also runs a treatment outfit that has cared for around 400 people. And of those patients, Levin says, 40 percent have no insurance whatsoever. “This disturbing new finding further illustrates how our fragmented system fails people every day,” says Clinton.

The environmental fallout of 9/11 has finally enabled Democrats to stake out a ground-zero-related issue of their own. Clinton has already made headlines with her criticism of the EPA and its mishandling of the downtown-air-quality issue.

In fairness, the Feds have done a few things. Last February, under heavy pressure, they allotted $90 million to pay for the long-term monitoring of ground-zero workers. But the program covers only screening—not treatment. There’s a federal Victims Compensation Fund, but it only applies to people who were at ground zero between September 11 and 15.

In the weeks ahead, the government will have a harder time sidestepping the issue. Representative Chris Shays, a Connecticut Republican, is chairing a congressional hearing at Mount Sinai on October 28 on ground-zero-related health issues. It promises to be a lively show, at which Rapp will be a star witness. “We’d like to see the administration come to grips with this problem,” says Levin. “They surely haven’t done so thus far.”

Click here to read the article at NewYorkMetro.Com

O Canada; Oy Vey United States

O Canada; Oy Vey United States
By David Morris, AlterNet
April 12, 2004

Four years ago Steven Pearlstein of the Washington Post wrote a long essay to end his tour as Canadian correspondent. His gloomy assessment of Canada’s future as a self-governing, independent country contained this remarkable reflection on its past.

Over the years, Canadians might have coalesced around a shared sense of history but for the fact that they have so little of it they consider worth remembering. The country never fought a revolution or a civil war, pioneered no great social or political movement, produced no great world leader and committed no memorable atrocities – as one writer put it, Canada has no Lincolns, no Gettysburgs and no Gettysburg addresses.

To which Carleton University history professor Blair Nearby responded with customary Canadian restraint, “If history is wars and confrontation and winner-take-all decisions, then we don’t have very much of that…But if you think that history can be a record of individuals arriving at decisions through consensus, negotiation or through the political system then we have a pretty long and commendable record.”

Indeed they do.

The U.S. and Canada share a common border and much else. We are alike ethnically and economically. We eat the same foods. We watch the same movies. We speak the same language. But we think and act differently. And this difference has become more and more evident in recent months.

Both the United States and Canada uncoupled from Britain. We did so rapidly and violently. Canada did so gradually and peacefully. Canada did not achieve sovereignty until 1867. One might argue that in this case haste made waste. Our initial attempt at nation building proved catastrophic. In 1861-1865, more than 600,000 Americans lost their lives in the Civil War, a greater number of deaths than occurred in all the other wars we have fought put together.

Contrary to the conventional wisdom it appears that Canadians, not Americans are more willing to innovate and take risks, at least in public policy. Consider the different strategies our two countries have embraced to provide health care to our residents.

Americans and Canadians began debating the idea of universal health care in the 1930s. On this side of the border, President Roosevelt abandoned the idea. Thirty years later President Kennedy raised the idea again only to abandon it under pressure from critics like Ronald Reagan who called it “Marxist.” Thirty years later President Clinton refused to allow national health insurance to become a part of his health care initiative. Reportedly, he and Hillary concluded it would amount to political suicide.

On the northern side of the border, Canadian provinces began creating pilot universal health care systems in the 1930s and 1940s. The insurance plans first covered hospitals and then doctors. In 1965, the entire country embraced a health care plan that was uniquely Canadian. Authority over the kinds of services provided was left in the hands of the provinces. Private hospitals and doctors, not the state, delivered the services. Patients could choose their doctor. The system was non-profit. A single insurance company paid the bills.

At the time Canada embraced national health insurance it was spending about the same percentage of its budget on health care as the U.S. Today it spends a third less. And while all Canadians are covered, in the U.S. some 45 million Americans lack health insurance.

National health insurance allows Canadians greater freedom and latitude to plan their lives. No one in Canada takes a job or remains in a job because of its health benefits. Canadians do not strike over lack of health coverage.

By not tying health insurance to the job, Canadian businesses have become more competitive. In the U.S., automakers spend about $1,200 per car on health insurance. In Canada, the cost is about $120 per car. In November 2002, officials from Ford, GM and DaimlerChrysler wrote Canadian policymakers urging them to maintain and strengthen their national health system. “The public health system significantly reduces total labor costs…compared to the cost of equivalent private health insurance services purchased by U.S.-based automakers.”

Needless to say, the car companies did not send a similar letter to American policy makers.

Canadians make different decisions than we do about the importance of privacy and public access. In the U.S., life can be patented. Last year the Canadian Supreme Court ruled that in Canada it cannot. Life is not property north of the border.

Last month a Canadian federal judge ruled that the sharing of music via the Internet isn’t theft and doesn’t violate copyright laws. The same day the judge handed down that decision, the U.S. House judiciary committee approved the Piracy Deterrence and Education Act of 2004. The Act imposes fines of up to $250,000 and three years jail time for anyone sharing music.

In 1969, Canada liberalized its abortion law at the same time as a growing number of U.S. states were doing so. Initially the procedure required approval of a Canadian hospital’s Therapeutic Abortion Committee. But when that process resulted in unequal access the Canadian Supreme Court threw out the entire law. Efforts to recriminalize abortion failed.

Which means Canada is the only democratic industrialized nation in the world with no laws restricting abortion. Meanwhile American legislatures and courts have made it increasingly difficult for poor and rural women to have access to this procedure. Interestingly Canada’s abortion rate is much lower than that of the U.S. Its rates of abortion-related complications and maternal mortality are among the lowest in the world.

The debate about same-sex marriage is occurring in both Canada and the U.S. but the intensity and nature of the debate are very different. Just as Massachusetts recently declared gay marriage legal in that state so have the Canadian provinces of Ontario, British Columbia and Quebec. In Canada, there’s no move to alter the Canadian constitution to prohibit gay marriage. Indeed, half of all Canadians back the Prime Minister’s support of a federal law legalizing gay marriage. Revealingly, there does not appear to be a rush to the altar by Canada’s same sex couples. They’re sure they have time.

There’s one more issue on which Canada and the U.S. take dramatically different positions: internationalism. After Canada refused to join the Anglo-American invasion of Iraq, radio talk show hosts maligned Canada in a tone almost as disrespectful and colorful as the one they used to criticize France.

Canadians responded that they were not afraid to fight. Indeed, they noted that unlike the U.S. Canada did not have to be attacked before it sent troops to defend democracy against Hitler and Mussolini.

It was not military action per se but unilateral action that Canada opposed. The U.S. sees coalitions as weakening its influence. This is why we rarely join international organizations unless we have veto or dominant power (e.g. World Bank, IMF, United Nations). Canada, on the other hand, doesn’t seek a dominant hand. It believes that coalitions multiply capacity rather than weaken it.

Canada has been a leading advocate of the landmine conventions and International Criminal Court, neither of which the U.S. has joined. The names of the Canadian cities that hatched the plans to reduce ozone formation and greenhouse gas buildup are etched into the history of several of the key treaties themselves; the Montreal Protocol, the Toronto Atmospheric Accord.

Under President Clinton, the U.S. Senate passed a resolution 98-0 declaring our unwillingness to sign the Kyoto protocol. In one of his first acts in office, President Bush formally withdrew from the negotiating process itself. A little more than a year later Canada became the 100th country to ratify the Kyoto Protocol. Jean Chrétien, then Canada’s Prime Minister, gave this advice to Environmental Minister David Anderson who was to present the documents to the United Nations. “You say to them, Canada is a good citizen of the world.”

Canadians march to a different drummer. Which doesn’t mean they march in lockstep. Debates can be as stormy north of the border as south. After Parliament’s decision to ratify Kyoto, Alberta, the Texas of Canada, spearheaded national opposition. Gay marriage has come under attack by various religious groups. There is a determined effort in several provinces to privatize parts of the Canadian health care system.

Vigorous debate simply affirms that democracy is alive and well in our northern neighbor. We are a democracy too. But perhaps less thoughtful and deliberative than Canada’s.

David Morris is vice president of the Institute for Local Self-Reliance.

Click here to read the article at AlterNet.Org

Is Medi-Cal sustainable?

Health Access
April 13, 2004
Budget Subcommittees on Health Consider Cuts

Earlier today, both the (California) Assembly and Senate Budget Subcommittees on Health considered a range of health care cuts, and heard testimony from numerous organizations representing consumers, providers, and communities throughout the state.

The Assembly Budget Subcommittee on Health, chaired by Assemblyman Mervyn Dymally, followed the lead of its Senate counterpart in rejecting the full range of proposed enrollment caps. The committee rejected proposals to deny coverage to children applying to get Healthy Families (SCHIP) coverage; children with disabilities applying to get into California Children’s Services (CCS); recent legal immigrants applying to get Medi-Cal; undocumented pregnant women and infants, as well as long-term care to undocumented seniors, applying to get Medi-Cal; immigrants with cancer applying to get into the Breast and Cervical Cancer Treatment Program in Medi-Cal; and hemophilia patients and others applying to get into the Genetically Handicapped Persons Program.

The Subcommittee decided to hold the provider rate cut proposal open, and did not take a formal action.

Both subcommittees heard testimony regarding concerns about the Medi-Cal redesign process and proposals, and new information came out about the proposals.

One proposal was entitled “a conceptual framework for a tiered approach to benefits and cost sharing,” and also included charts indicating who got what benefits and cost-sharing in each of the three tiers, but also the fiscal analysis that presumes such changes would generate savings of over $111 million.

Another proposal under discussion is to geographically expand the reach of Medi-Cal managed care, even though many of these counties have not proven to be able to sustain managed care plans in either the private or Medicare markets.

Health Access Updates (message for April 13, 2004):
http://www.health-access.org/blogger.html

Health Access website:
http://www.health-access.org/

Medi-Cal Redesign:
http://www.medi-calredesign.org/

Comment: It is a relief to know that California legislators cannot accept capping enrollment for those who cannot afford the costs of essential health care. Slamming the doors on low-income individuals with health care needs is an unacceptable, inhumane approach of containing costs.

But a review of the Medi-Cal Redesign website demonstrates that most of the news is bad. For decades, innumerable efforts have been made to reduce expenditures in the Medi-Cal program. There is virtually no slack left. The program is chronically underfunded. New innovations can only result in a decrease in services available, or a mass exit of willing providers who would not be able to sustain solvency with the proposed 15% further reduction in payments.

Separate health welfare programs for low-income individuals will always be underfunded. Other nations have resolved this dilemma by placing everyone in essentially the same insurance risk pool (though through different models). It is now past time for us to consider a similar approach, not just for California, but for the entire nation. With the $1.79 trillion that we are currently spending, we can certainly afford to do it.

Florida Senate policies benefit infant-sized coffin industry

Orlando Sentinel
April 12, 2004
Editorial
What are they thinking?

As the state Senate and House go into conference to ruminate on the budget, here’s something they should keep in mind:

One of the dumbest things the Senate did was slash health-insurance coverage for 7,000 low-income pregnant women.

Even those who think adults should be responsible for themselves surely care about the babies. Prenatal care helps to prevent pre-term, low-weight births; among babies born before 32 weeks of pregnancy, one in five will die in the first year of life.

It took years of effort for Florida to cut its newborn death rate to the national average. In the nineties — when Florida began to get serious about giving low-income women prenatal care — the percentage of births without prenatal care was cut in half.

If statistics make senators’ eyes glaze over, they might do well to think of their proposed cut as an increase in the number of infant-sized coffins.

http://www.orlandosentinel.com/news/opinion/orl-edped121041204apr12,1,1922376.story?coll=orl-opinion-headlines

Comment: Even the coffin industry surely would prefer public policies that would reduce infant coffin sales now, replacing them with deferred sales of more lucrative adult-sized coffins.

We’re spending $1.79 trillion on health care this year. That’s more then enough to pay not only for prenatal care, but for all necessary care for everyone. Our policymakers need to redirect their efforts and start planning for an affordable system of universal health care coverage. We can show them the policies that they would need to adopt in order to establish a compassionate health care system for all. But we have to work harder on delivering that message.

Note: If the link above does not take you straight to the article, you may view the text under “Recent Articles of Interest”.

What are they thinking?: An Orlando Sentinel Editorial

ORLANDO SENTINEL
Editorial
What are they thinking?
Our position: State senators are making no sense in cutting care for pregnant women.

Posted April 12, 2004

As the state Senate and House go into conference to ruminate on the budget, here’s something they should keep in mind:

One of the dumbest things the Senate did was slash health-insurance coverage for 7,000 low-income pregnant women. That $31 million Medicaid cut is even more foolish than the proposed cut in the youth anti-tobacco program.

Women who lack health insurance during pregnancy are much less likely to go to the obstetrician for check-ups. When they show up at the emergency-room door in labor, it may be too late to save the baby or mother if there is a life-threatening condition such as high blood pressure or infection.

Research indicates prenatal care saves $4 for every $1 spent.

Is the Senate having a collective failure of memory? Do senators want to rewind the clock to 1980, when infant mortality in Florida was twice what it is now?

If statistics make senators’ eyes glaze over, they might do well to think of their proposed cut as an increase in the number of infant-sized coffins. Or an increase in the number of tiny preemies on life support, running up unpaid bills of $300,000 each.

Senators should defer to the House on this — and hope voters forget they ever suggested this cut.

United Healthcare violating insurance law, says NFIB

Denver Business Journal
April 8, 2004
United Healthcare violating insurance law, says NFIB

The National Federation of Independent Business accused United Healthcare Thursday of violating new state laws governing the cost of insurance for small businesses.

HB 1164 allows insurers for the first time to charge healthy groups up to 15 percent less for their health insurance. Unhealthy groups — those with more medical claims — will pay up to 10 percent more, but not until later this year. At that time, insurers can also offer discounts of up to 25 percent for healthy groups.

NFIB says the law allows insurers to discount groups by up to 15 percent, but United did not offer discounts of more than 6 percent if the group included five or fewer workers.

“We were convinced that small employers would be penalized for being small under the new rating flexibility legislation. This action has proved employers’ worst fears have been realized,” NFIB State Director Tim Jackson said.

United Healthcare CEO Victor Lazzaro said… “We are extending discounts that we believe are actuarially appropriate and in line with regulations and laws as written.”

http://denver.bizjournals.com/denver/stories/2004/04/05/daily39.html

Comment: The National Federation of Independent Business and United Healthcare are both quite willing to sacrifice access to affordable care for those with significant needs, in exchange for benefiting the majority who are healthy. Isn’t it time to take the control of our health care system away from these private entities that place their own interests above those of patients with health care needs?

A publicly owned system of funding health care would be designed to ensure that those with needs would have affordable access to care. Isn’t that the way it should be, or am I missing something here?

Congress wastes tax funds on private Medicare plans

Medicare Payment Advisory Commission (MedPAC)
April 8, 2004
M+C payment rates compared with county Medicare per capita fee-for-service spending (revised)

The purpose of this report is to present data on the level of Medicare+Choice (M+C) payment rates relative to the spending on similar beneficiaries in Medicare’s traditional fee-for-service program.

Before the Balanced Budget Act of 1997 (BBA), payment rates for private plans were set at 95 percent of a county’s per beneficiary spending under the traditional FFS program.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), altered the payments in several ways.

Across all counties, Medicare is paying M+C plans an average of 107 percent of what it would cost to cover the current mix of M+C enrollees under the traditional fee-for-service Medicare program. This estimate (along with all the other estimates in this report) assumes that the average health risk of the M+C and traditional enrollees are the same, other than those differences accounted for by demographic characteristics. If, as CMS has found, M+C plans enroll a less costly population than would be accounted for by demographics, Medicare would be paying M+C plans more than 107 percent of Medicare’s spending under FFS. (MMA), altered the payments in several ways.

The “100 percent of FFS” prong of the payment formula ensures that no county will have M+C payment rates below its average FFS spending. In fact, because of the additional payments made on behalf of M+C patients by the Medicare program directly to hospitals for IME (indirect medical education), payments to plans in “100 percent of FFS” counties average 102 percent of the cost of covering demographically similar beneficiaries.

Payment rates for enrollees in “blend” counties (most of whom are in areas of northern California with a relatively high hospital price index) average 111 percent of FFS payment. By design, the payment formula’s floors are set higher than FFS spending in many counties. Medicare pays 116 percent of FFS spending for enrollees in floor counties in large urban areas and 123 percent of FFS spending in floor counties in other areas. By contrast, in non-floor counties Medicare pays 104 percent of average FFS spending.

The minimum update component of the rate formula prevents county rates from declining, even if other portions of the formula would otherwise lower rates.

http://www.medpac.gov/
For the two page report, under “Recent products,” click on “MedPAC Brief: M+C payment rates compared with county Medicare per capita fee-for-service spending (revised April 8, 2004)”

Comment: The private Medicare plans promised us lower costs, which they said were made possible by the alleged efficiencies of the competitive marketplace. But they failed to deliver, and many plans pulled out of the Medicare markets. Now Congress has responded by granting the private plans between 3% and 23% more than the costs of the traditional Medicare program, plus whatever else the plans can gain on their own through selective marketing to healthy Medicare beneficiaries.

This is an explicit concession by members of Congress that there is no magic in the competitive marketplace of private health plans. When many members of Congress are protesting that Medicare is headed for bankruptcy, it is outrageous that they would spend even more taxpayer dollars merely to “stabilize” these private plans that have already proven their inability to prevent administrative waste.

This is no longer an expensive experiment in health funding policies. The experiment is over, and the results are in. It is an egregious abusive use of a Congressional edict to give billions of our tax funds to an unworthy private industry. We need to evict these highly unethical scoundrels from our venerable chambers of Congress and replace them with our own scoundrels, but scoundrels with at least some semblance of ethics.

For an excellent article by Theodore Marmor and Jonathan Oberlander on the specious claim of Medicare ‘bankruptcy’:

http://www.post-gazette.com/pg/04095/295433.stm

Note: If and when the above link expires, the article is available under “Recent Articles of Interest”.

Forum: News flash — Medicare will not go 'bankrupt'

Alarmist language frightens and misleads the public, say Theodore Marmor and Jonathan Oberlander, and opens the door to imprudent policy debates

Sunday, April 04, 2004

Talk of Medicare going bankrupt is once again dominating the news. The pattern is utterly familiar.

Program trustees issue a report forecasting that Medicare revenues are insufficient to keep pace with future spending obligations and that the trust fund for hospital insurance consequently will become insolvent (last month’s report moved up the projected date of insolvency to 2019). Media accounts warn in hyperbolic tones that Medicare is “going bankrupt.” And politicians declare that “hard choices” must be made if Medicare is to be saved.

Unfortunately, most Americans do not realize that a program like Medicare cannot, like a private trust, go bankrupt.

Medicare has survived four decades of such warnings without any disruption of services to its elderly and disabled enrollees. Despite repeated earlier forecasts of insolvency, Medicare has never gone bankrupt — and it’s not going bankrupt this time around either.

Intended as prudent warning, the forecasting of Medicare’s future finances — and the alarmist language accompanying media reports — instead frightens and misleads the public, and opens the door to imprudent policy debates.

The intermingling of the vocabularies of trust funds, solvency and fiscal prudence has been a central (and ambiguous) feature of social insurance politics in America since the New Deal. Clarifying the language is a precondition to understanding the fiscal realities of a program like Medicare.

In the first place, no precise analogue to private bankruptcy exists in public programs like Medicare. The program’s hospital “trust fund” refers to an accounting term, a conventional way to describe earmarked revenue and spending. The very notion of a public “trust fund” emphasizes the “trust” that earmarked financing (such as the Medicare and Social Security payroll taxes) was originally meant to symbolize.

Since the mid-1930s, the federal government has used the language of trust funds to underscore the solidity of commitment to finance promised benefits in social insurance programs. Other agencies of government came to use this same device to describe specially favored (and protected) objects of governmental support. By the late 20th century, Americans had grown so used to such accounting conventions that the fundamental differences in private and public trust funds have become indistinct.

In private firms or households, a trust fund without funds is literally insolvent, unable to finance any activity. Private trusts cannot tax and their other options are highly constrained. It makes sense to think of private “trustees” making sure the projected income from the trust fund’s “investments” are financially realistic; there is no place else to turn if the invested capital is lost or the income sharply reduced.

Congress, on the other hand, has a radically different relation to the financing and spending decisions affecting trust fund programs like Medicare. It can, for example, change the hospital payroll tax rate for Medicare and immediately eliminate any shortfall, if it has the political will to do so. Likewise, the Congress can alter the benefits and reimbursement provisions of the program’s hospital or medical coverage. Or it can do some of both, as it has in different proportions over Medicare’s operational history since 1966.

Thinking that the trust fund is the crucial fiscal variable is analogous to thinking that a thermometer’s reading constitutes a heat wave or a freeze. Fiscal strain and political stress — that language accurately describes Medicare’s budget circumstances at some times and not at others. News accounts sometimes treat Medicare’s bankruptcy as a predetermined fact. Nothing could be further from the truth; the notion of bankruptcy as destiny distracts from Medicare’s capacity to alter its own future.

The trustees’ reports always stress that the projected date of insolvency assumes no corrective federal action or policy changes. But history shows that Medicare always has taken action to solidify its finances. In the 1980s, Medicare reformed its payment system for hospital and physicians, slowing down growth in program spending and pushing back the estimated date of trust fund exhaustion. More recently, the 1997 Balanced Budget Act included a series of Medicare reforms that dramatically controlled spending.

The result: While in 1997, Medicare’s hospital insurance trust fund was projected to become insolvent by 2001, by 2000 the trust fund was not predicted to be insolvent until 2025, the most optimistic fiscal forecast for Medicare in a quarter-century.

The lesson here is straightforward. Forecasts are simply possible futures, not predicted ones. Understood that way, the story worth telling is that attention now should focus on the problems and disappointments the recent Medicare legislation has generated, not handwringing about 2019. There will be plenty of time to worry about then; now is what is at issue.

(Theodore Marmor, a professor at the Yale School of Management, is the author of “The Politics of Medicare” (theodore.marmor@yale.edu ). Jonathan Oberlander, an associate professor of social medicine at the University of North Carolina-Chapel Hill, is the author of “The Political Life of Medicare” (oberland@med.unc.edu ).)

Click here to view the article at Post-Gazette.com.

Forum: News flash — Medicare will not go ‘bankrupt’

Alarmist language frightens and misleads the public, say Theodore Marmor and Jonathan Oberlander, and opens the door to imprudent policy debates

Higher Medicare spending correlated with lower-quality care

Health Affairs
April 7, 2004
Medicare Spending, The Physician Workforce, And Beneficiaries’ Quality Of Care
By Katherine Baicker and Amitabh Chandra

Abstract:

The quality of care received by Medicare beneficiaries varies across areas. We find that states with higher Medicare spending have lower-quality care. This negative relationship may be driven by the use of intensive, costly care that crowds out the use of more effective care. One mechanism for this trade-off may be the mix of the provider workforce: States with more general practitioners use more effective care and have lower spending, while those with more specialists have higher costs and lower quality. Improving the quality of beneficiaries’ care could be accomplished with more effective use of existing dollars.

http://content.healthaffairs.org/cgi/content/full/hlthaff.w4.184v1/DC1

Comment: Some will surely react in disbelief to the fact that “the greatest health care system on earth,” with its technologically-advanced, highly-specialized services, actually delivers lower-quality care when there is increased utilization of those high-tech, highly-specialized services. Though it is true, it represents not so much of an indictment of high-tech medicine as it is an indictment of our failure to adequately support a strong primary care base.

Primary care physicians deliver care at a lower cost primarily because they do not use as much expensive, high-tech interventions as do specialists practicing within their own field. But the long-term relationship between the primary care physician and his or her patient occurs within an environment that is more than conducive to lending attention to broader interventions that are well documented to improve outcomes. Scheduling a routine, screening mammogram is an impotent function of primary care physicians, but would not normally be part of the role description of a general surgeon, or certainly not of an ophthalmologist. The primary care fields are board-certified specialties for a very good reason. Primary care specialists specialize in primary care, providing important, beneficial services that are not provided by high-tech specialists.

We clearly need to improve the way in which we allocate our health care funds. Our current system is profit oriented. Physicians will understandably factor in profit potential as they choose their specialties. Access to health care funds should have a positive correlation with quality. But that will never happen under our current fragmented system of funding care.

Only with an integrated approach within a universal system will we be able to improve resource allocation. Such improvement should inevitably include generous funding of a strong primary care base. That would certainly move us closer to our goal of affordable, high quality care for all of us.

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