I spent a couple hours yesterday fruitlessly trying to find numbers regarding the actual changes in funding that would come about as a result of Romney's plan to overhaul Medicaid by turning it into a block grant program. Finally found an analysis, from the Center on Budget and Policy Priorities, of a similar plan, one by Paul Ryan which has a slightly different but similar formula to determine funding.
To summarize the analysis, had the policy been put into place in 2000, total federal Medicaid funding, which accounts for up to 80% of all Medicaid funding for a state, would have fallen by 29% in 2009. Were the policy put in place in 2013, it would result in a 49% cut in funding by 2030. By the time most of my readership is approaching the nursing home stage of life, where 60% of current residents are on Medicaid, federal funding would be a tiny fraction of what it would be without the Republicans' change.
Again, it is absolutely legitimate to propose changes to Medicaid to help balance the budget. But it is not a change that should be made with only vague calls to "cut, cap and balance" the budget using historical spending rates to justify it, despite those historical spending rates not including those federal programs that millions of Americans are counting on.
Romney is actually on the right track with the idea to give more power to the states to tailor their Medicaid programs to the needs of their people. But Romney betrays his true goal by how he goes about reforming the program. He will lock funding cuts into the law and THEN hope that states can find the savings to provide their citizens with the help they need. The primary principle that he starts building from is that funding will be cut; continuing to provide necessary services is secondary. Were he to instead empower states first, along with financial incentives for states to find savings, and move to cut funding only after states demonstrate improved efficiency, we would know that he cares about the health of Americans more than slashing the budget. But that's not what he's proposing.
It's a very illuminating distinction.
Showing posts with label Federal Budget. Show all posts
Showing posts with label Federal Budget. Show all posts
Monday, March 12, 2012
Sunday, March 11, 2012
Cut, Cap and Bullshit, Part 3
Today I continue a review of Mitt Romney's spending proposals, which center on the idea of Cut, Cap and Balance, which seeks to limit federal spending to 20% of GDP, despite the continuing explosion in medical costs, the current federal share of which will approach 20% all by itself in the lifetime of at least some who are reading this post (source).
We have already discussed the implications of the Republican plan to replace Medicare with a voucher system. On Romney's website, he says one of his goals will be to "[p]ass the House Republican Budget proposal, rolling back President Obama’s government expansion by capping non-security discretionary spending below 2008 levels". The House Republican Budget proposal includes the Ryan voucher plan.
Additionally, Romney's website outlines his plan to "reform" Medicaid. Now, Medicaid is often portrayed as free health care for lazy people. But 37% of all pregnancies are supported with Medicaid funds. Fully 60% of current nursing home residents are on Medicaid. Given increasing lifespans and longer dying processes of modern medicine, it seems likely that most of us will wind up depending on Medicaid.
Under the current Medicaid system, states run Medicaid programs which get most of their funding from the federal government. There are various federal rules to which these programs must conform; my experiences with the West Virginia and Ohio programs have therefore been more or less the same.
Romney's plan includes having the federal government give a chunk of money to each state to do with pretty much as they please, instead of the current system of regulations and matching funds. The theory goes that each state will be more free to design a plan that fits the needs of their state, as well as to provide 50 opportunities for experimentation. This is, actually, kind of a good idea, assuming that there are protections to keep Oklahoma and Texas from telling their elderly, children and disabled to fuck off.
The problem comes with Romney's proposal for how much money each state gets. The plan, similar to Ryan's Medicare plan, is to limit the growth of the program to the overall inflation rate, as measured by the Consumer Price Index (CPI), plus one percent. What would this mean for long-term future of Medicaid and, more importantly, for its beneficiaries?
Romney assumes, based on nothing I'm aware of, that states will be able to continue to provide the same benefits to citizens even with much less funding. But what if they don't? Passing these funding limitations will likely lead to massive cuts in these programs, unless the magical state government competence fairy shows up.
Rather than putting these massive cuts in place and just hoping that states are able to create savings, it makes more sense to give states increased flexibility while maintaining funding at current rates, along with financial incentives for states to innovate and save costs. Then, if states are able to find the savings Romney hopes for, we could work on decreasing funding.
So why doesn't Romney do it that way? It's because the real goal is to force huge cuts in these programs and the rest of government (except, of course, for the military). If he were to be honest about the true results of his policies, he'd be laughed out of the race. But by hiding these results, he hopes to sneak into office without voters really knowing what they're voting for.
We have already discussed the implications of the Republican plan to replace Medicare with a voucher system. On Romney's website, he says one of his goals will be to "[p]ass the House Republican Budget proposal, rolling back President Obama’s government expansion by capping non-security discretionary spending below 2008 levels". The House Republican Budget proposal includes the Ryan voucher plan.
Additionally, Romney's website outlines his plan to "reform" Medicaid. Now, Medicaid is often portrayed as free health care for lazy people. But 37% of all pregnancies are supported with Medicaid funds. Fully 60% of current nursing home residents are on Medicaid. Given increasing lifespans and longer dying processes of modern medicine, it seems likely that most of us will wind up depending on Medicaid.
Under the current Medicaid system, states run Medicaid programs which get most of their funding from the federal government. There are various federal rules to which these programs must conform; my experiences with the West Virginia and Ohio programs have therefore been more or less the same.
Romney's plan includes having the federal government give a chunk of money to each state to do with pretty much as they please, instead of the current system of regulations and matching funds. The theory goes that each state will be more free to design a plan that fits the needs of their state, as well as to provide 50 opportunities for experimentation. This is, actually, kind of a good idea, assuming that there are protections to keep Oklahoma and Texas from telling their elderly, children and disabled to fuck off.
The problem comes with Romney's proposal for how much money each state gets. The plan, similar to Ryan's Medicare plan, is to limit the growth of the program to the overall inflation rate, as measured by the Consumer Price Index (CPI), plus one percent. What would this mean for long-term future of Medicaid and, more importantly, for its beneficiaries?
Romney assumes, based on nothing I'm aware of, that states will be able to continue to provide the same benefits to citizens even with much less funding. But what if they don't? Passing these funding limitations will likely lead to massive cuts in these programs, unless the magical state government competence fairy shows up.
Rather than putting these massive cuts in place and just hoping that states are able to create savings, it makes more sense to give states increased flexibility while maintaining funding at current rates, along with financial incentives for states to innovate and save costs. Then, if states are able to find the savings Romney hopes for, we could work on decreasing funding.
So why doesn't Romney do it that way? It's because the real goal is to force huge cuts in these programs and the rest of government (except, of course, for the military). If he were to be honest about the true results of his policies, he'd be laughed out of the race. But by hiding these results, he hopes to sneak into office without voters really knowing what they're voting for.
Saturday, March 10, 2012
Cut, Cap and Bullshit, Part 2
Yesterday, I lamented that Mitt Romney and the Republican Party are attempting to make a massive change to the role of government, their Cut, Cap and Balance plan, without informing voters of the implications of that change. Romney's website includes a section on spending. It's quite a document, to say the least, and at least gives us some hints as to the likely damage to the nation that would be done by a President Romney. Let's go through it item by item; this will take a few days:
Romney intends to cut $500 billion without touching the ridiculously-bloated military budget. We're in such terrible financial straits that we have to make all the draconian cuts that we'll discuss, but we MUST continue to spend 450% more than our nearest competitor, apparently.
Tomorrow, we'll look at Romney's plan to devastate Medicaid and Medicare, which millions of Americans depend on for their health. But we can't touch even one penny of the military budget!
As president, Mitt’s goal will be to bring federal spending below 20 percent of GDP by the end of his first term. Reduced from 24.3 percent last year; in line with the historical trend between 18 and 20 percent.You know who never had a year with federal spending below 20% of GDP, per the OMB (.xls)? Ronald Reagan. Neither did Reagan's successor, George Bush. The best either did was 21.2%, in 1989.
Close to the tax revenue generated by the economy when healthy.That's actually true, per the Excel/.xls link above. Way to go, Mitt!
Requires spending cuts of approximately $500 billion per year in 2016 assuming robust economic recovery with 4% annual growth, and reversal of irresponsible Obama-era defense cutsThe $500 billion number is pretty accurate, based on the OMB .xls data above. The 4% annual growth number is optimistic for the next few years, given that in the past 11 years we have only just barely touched 4% briefly in 2004.
Romney intends to cut $500 billion without touching the ridiculously-bloated military budget. We're in such terrible financial straits that we have to make all the draconian cuts that we'll discuss, but we MUST continue to spend 450% more than our nearest competitor, apparently.
Tomorrow, we'll look at Romney's plan to devastate Medicaid and Medicare, which millions of Americans depend on for their health. But we can't touch even one penny of the military budget!
Friday, March 9, 2012
Cut, Cap and Bullshit, Part 1
In Mitt Romney's primary night speeches, he regularly reiterates his support for the "cut, cap and balance" plan. According to the reasoning of this plan as elucidated on Romney's website, we should cap federal spending at 20% of Gross Domestic Product "because since the 1950s, federal spending as a percentage of GDP has hovered around 20 percent.." The following graph, which I made based on data from the Office of Management and Budget (.xls), shows the percentage of GDP spent by the federal government each year starting in 1950 and ending with projections through 2017:
Cut, Cap and Balance sounds good in theory. If 20% has worked for the past 60 years, it should work into the future, right? But this ignores that most Americans expect the government to help pay for their health care when they get old or disabled, and the costs of that care for the federal budget will explode in our lifetimes. The Government Accountability Office projects that the federal government's share of health spending will grow to 20% of GDP all by itself by 2080.
It's perfectly legitimate to argue for a 20% spending cap. But the way Republicans present it as an abstract concept without informing voters of the true implications of such a cap is dishonest. Over the next few posts, I'll look at various issues involved in bringing spending to this limit.
Cut, Cap and Balance sounds good in theory. If 20% has worked for the past 60 years, it should work into the future, right? But this ignores that most Americans expect the government to help pay for their health care when they get old or disabled, and the costs of that care for the federal budget will explode in our lifetimes. The Government Accountability Office projects that the federal government's share of health spending will grow to 20% of GDP all by itself by 2080.
It's perfectly legitimate to argue for a 20% spending cap. But the way Republicans present it as an abstract concept without informing voters of the true implications of such a cap is dishonest. Over the next few posts, I'll look at various issues involved in bringing spending to this limit.
Wednesday, September 7, 2011
Hiding the costs of cutting
(Very long post. The take home point is that the Republican plan to modify/replace Medicare will result in massive increases in out-of-pocket expenses for beneficiaries, because private insurance is just straight-up indisputably more expensive than Medicare. In order to be able to cover these increased costs, each of us would have to start saving thousands of dollars a year starting today to make up the difference. So why not just pay more in Medicare taxes, the increase of which would be less than the amount we would have to set aside should Republicans get their way?)
In my previous post, I discussed that, since most voters don't know how the federal government spends money, Tea Partiers were able to get into office on a vague pledge to "cut spending", without ever being specific about what spending would be cut. After they got into office, besides some invectives hurled at budgetarily-trivial organizations like Planned Parenthood and NPR, their main budgetary proposal was Wisconsin Rep. Paul Ryan's "Path to Prosperity". Its main cost savings come from changing traditional Medicare into a system oddly enough quite similar to Obamacare. Instead of being a government-run, subsidized health insurer, Medicare would give seniors vouchers with which they could purchase private insurance on government-run exchanges, just like Obamacare. While it would decrease government expenditures on health care, it would increase health care expenditures overall and vastly increase costs for seniors. That means that current workers, who of course are tomorrow's seniors, would have to immediately start paying thousands of dollars a year in a hidden "tax" to make up for the supposed "savings" Republicans want to impose.
As currently constituted, Medicare offers subsidized insurance. The total cost of insurance is made up of both government subsidies and seniors' out-of-pocket expenses. The Republican plan, which all but 4 Congressional Republicans voted for, would not change anything for anyone already on Medicare or anyone 55 or above. That is, if you're 65 years old and get into Medicare before 2022, it doesn't change anything. According to the Congressional Budget Office (.pdf) and the Kaiser Family Foundation (.pdf), the average Medicare beneficiary, under current law, would get about $8,000 in subsidies in 2022 and have to pay about $6,200 out-of-pocket every year, for a total cost of about $14,000 a year.
Under the Republican plan, seniors would instead get a voucher for $8,000, the same as the government's cost in 2022 under current law, and purchase private insurance via a government-run exchange. The CBO estimates that a plan providing similar benefits to Medicare via a private insurer would cost a bit over $20,000 a year, or over $6,000 more than a traditional Medicare plan. This is because, with Medicare's bargaining power, they are able to pay lower reimbursement rates to doctors and hospitals. Because the federal government's contribution stays at $8,000, the out-of-pocket cost for a senior in 2022 would be over $6,000 higher than they would pay out-of-pocket with traditional Medicare.
The savings for the government come via limiting the rate at which the voucher's value increases over time, as well as by pushing back the age at which citizens qualify for the voucher (going from 65 in 2022 to 67 in 2033). Instead of the current system, where the government's cost increases in step with the rise of health care costs, the Republican plan would index increases in the govenment's cost to overall inflation, which historically is well below inflation in health care costs. This means that the percentage of seniors' health care costs which are paid by the government will decrease over time, as the voucher increases in value more slowly than health care costs go up. The CBO also projects that the difference in price between a traditional Medicare plan and a similar private plan will continue to increase over time. So people younger than 55 would get an even worse deal than today's 55 year olds.
So let's look at how much a 55 year old today would have to save in order to cover the increased costs in their retirement. All the calculations are my own, and I'd be happy to share more details if anyone cares:
-The Social Security Administration projects that a person who turns 65 in 2022 can expect to live 19 years.
-In order to pay $6,240 more out-of-pocket, per the Kaiser projection, for each of those 19 years (which is a very kind assumption, as the actual out-of-pocket cost will increase faster than inflation), assuming a 5% return on investment, would require a nest egg of $77,764 at age 65, which would be spent down to $0 over the next 19 years
-In order to have a nest egg of $77,764 by age 65, again assuming a 5% return on investment (which is also very kind and very close to the average 5.3% rate of increase of the Dow over the 20th century, given the current return on a 10 year government bond of about 2%), a current 55 year old would have to save just over $5,200 a year, or $100 a week, starting today to not lose ground.
-If you drop the expected rate of return on investment to 3%, which again relative to the 10 year T-bill is kind, a current 55 year old would have to save just over $7,000 a year, starting today, to not lose ground.
-When you consider that health care costs have increased by 4.9% in real terms over the past 4 decades, which means that health costs have gone up faster than the Dow increased in the 20th century (4.9% real is actually more than 5.3% nominal, which doesn't include inflation), it is likely that younger workers will get an even worse deal than current 55 year olds. They'll have more time to save up their nest egg, but in real terms they will have to save/deposit even more to make up the difference.
All of this boils down to the fact that Medicare, due to its massive, bordering-on-monopsony power to control reimbursement rates, is more effective at limiting costs than private insurance. If your goal is to limit health care costs for the government, the Republican plan is one way to go. But if your goal is to limit overall costs, which at the end of the day is what matters, then it's a big step in the wrong direction. Instead of paying thousands more a year into individual accounts to pay increased out-of-pocket costs in our retirement, we would be better off to pay more than we currently do into the Medicare system.
In the next post, we'll discuss why Republicans' claims that privatization will actually decrease costs, which seem to be largely based on their misinterpretation of the effects of Medicare Part D (Medicare prescription coverage), are flawed.
In my previous post, I discussed that, since most voters don't know how the federal government spends money, Tea Partiers were able to get into office on a vague pledge to "cut spending", without ever being specific about what spending would be cut. After they got into office, besides some invectives hurled at budgetarily-trivial organizations like Planned Parenthood and NPR, their main budgetary proposal was Wisconsin Rep. Paul Ryan's "Path to Prosperity". Its main cost savings come from changing traditional Medicare into a system oddly enough quite similar to Obamacare. Instead of being a government-run, subsidized health insurer, Medicare would give seniors vouchers with which they could purchase private insurance on government-run exchanges, just like Obamacare. While it would decrease government expenditures on health care, it would increase health care expenditures overall and vastly increase costs for seniors. That means that current workers, who of course are tomorrow's seniors, would have to immediately start paying thousands of dollars a year in a hidden "tax" to make up for the supposed "savings" Republicans want to impose.
As currently constituted, Medicare offers subsidized insurance. The total cost of insurance is made up of both government subsidies and seniors' out-of-pocket expenses. The Republican plan, which all but 4 Congressional Republicans voted for, would not change anything for anyone already on Medicare or anyone 55 or above. That is, if you're 65 years old and get into Medicare before 2022, it doesn't change anything. According to the Congressional Budget Office (.pdf) and the Kaiser Family Foundation (.pdf), the average Medicare beneficiary, under current law, would get about $8,000 in subsidies in 2022 and have to pay about $6,200 out-of-pocket every year, for a total cost of about $14,000 a year.
Under the Republican plan, seniors would instead get a voucher for $8,000, the same as the government's cost in 2022 under current law, and purchase private insurance via a government-run exchange. The CBO estimates that a plan providing similar benefits to Medicare via a private insurer would cost a bit over $20,000 a year, or over $6,000 more than a traditional Medicare plan. This is because, with Medicare's bargaining power, they are able to pay lower reimbursement rates to doctors and hospitals. Because the federal government's contribution stays at $8,000, the out-of-pocket cost for a senior in 2022 would be over $6,000 higher than they would pay out-of-pocket with traditional Medicare.
The savings for the government come via limiting the rate at which the voucher's value increases over time, as well as by pushing back the age at which citizens qualify for the voucher (going from 65 in 2022 to 67 in 2033). Instead of the current system, where the government's cost increases in step with the rise of health care costs, the Republican plan would index increases in the govenment's cost to overall inflation, which historically is well below inflation in health care costs. This means that the percentage of seniors' health care costs which are paid by the government will decrease over time, as the voucher increases in value more slowly than health care costs go up. The CBO also projects that the difference in price between a traditional Medicare plan and a similar private plan will continue to increase over time. So people younger than 55 would get an even worse deal than today's 55 year olds.
So let's look at how much a 55 year old today would have to save in order to cover the increased costs in their retirement. All the calculations are my own, and I'd be happy to share more details if anyone cares:
-The Social Security Administration projects that a person who turns 65 in 2022 can expect to live 19 years.
-In order to pay $6,240 more out-of-pocket, per the Kaiser projection, for each of those 19 years (which is a very kind assumption, as the actual out-of-pocket cost will increase faster than inflation), assuming a 5% return on investment, would require a nest egg of $77,764 at age 65, which would be spent down to $0 over the next 19 years
-In order to have a nest egg of $77,764 by age 65, again assuming a 5% return on investment (which is also very kind and very close to the average 5.3% rate of increase of the Dow over the 20th century, given the current return on a 10 year government bond of about 2%), a current 55 year old would have to save just over $5,200 a year, or $100 a week, starting today to not lose ground.
-If you drop the expected rate of return on investment to 3%, which again relative to the 10 year T-bill is kind, a current 55 year old would have to save just over $7,000 a year, starting today, to not lose ground.
-When you consider that health care costs have increased by 4.9% in real terms over the past 4 decades, which means that health costs have gone up faster than the Dow increased in the 20th century (4.9% real is actually more than 5.3% nominal, which doesn't include inflation), it is likely that younger workers will get an even worse deal than current 55 year olds. They'll have more time to save up their nest egg, but in real terms they will have to save/deposit even more to make up the difference.
All of this boils down to the fact that Medicare, due to its massive, bordering-on-monopsony power to control reimbursement rates, is more effective at limiting costs than private insurance. If your goal is to limit health care costs for the government, the Republican plan is one way to go. But if your goal is to limit overall costs, which at the end of the day is what matters, then it's a big step in the wrong direction. Instead of paying thousands more a year into individual accounts to pay increased out-of-pocket costs in our retirement, we would be better off to pay more than we currently do into the Medicare system.
In the next post, we'll discuss why Republicans' claims that privatization will actually decrease costs, which seem to be largely based on their misinterpretation of the effects of Medicare Part D (Medicare prescription coverage), are flawed.
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