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How to balance the budget – real health care reform

Recently, the NY Times published a “deficit-reduction calculator” that is fun to play with, but its options for reducing government spending and raising revenue are simply too limited.

Ezra Klein gives some links to other similar calculators, but in case you want to skip to the ending, pretty much the only way to balance the budget without raising taxes is to hold down the growth of health care costs. Especially Medicare, which pays approximately half of our country’s health care bill.

In fact, if we paid per person for health care what any (including the most expensive) country with better health care outcomes pays, then we would have no budget deficit at all, we would have a budget surplus. We spend twice as much per capita as any other advanced country, and yet we have worse health outcomes and a lower life expectancy. And it is destroying our economy.



  1. Oh my, wow. I can’t wait to read what the usual commentators have to say in response.

    wait wait wait

    Tuesday, November 16, 2010 at 7:05 am | Permalink
  2. patriotsgt wrote:

    Good Morning Thought Dancer – I actually agree that we need REAL HCR. What we got was a good try, but not it. What we also got was a fairy tale funding scheme. What I would like to see is comprehensive reform that includes a real funding mechanism, not taking 1/2 trill from medicare, and another few hundred billion from education, food and housing from the poor, etc. Because we all know that these programs will get refunded via emergency legislation and that they will eventually add to our debt and deficit. We need a separate income tax deduction like SS or medicare and we need to know up front what that will be, at least for the 1st 5 years. Lets get real and get this right and tell Washington to stop messing around.

    Tuesday, November 16, 2010 at 7:49 am | Permalink
  3. Common people are concerned about the deficit, but they are concerned insomuch as they can blame the government for letting it go unchecked. “Pay taxes in order to balance the national budget? It’s not MY responsibility,” they’ll say.

    Some of these people would probably consider themselves Patriots, but rather than to help the country (which is by definition the body of people that make it up), they’ll defend to the death their freedom to choose not to help the country.

    Tuesday, November 16, 2010 at 8:34 am | Permalink
  4. Chris wrote:

    I agree with Elvis. And “balance the budget without raising taxes” is an odd goal to begin with, kind of like wanting to send EMS to the accident scene without burning gas.

    Remember, the Bush tax cuts only got passed because they were scheduled to expire. So letting them expire would not in fact be a tax hike, and anyway both parties agree on letting them ride for 98% of taxpayers.

    With taxes the lowest they’ve been in 25 years, and a budget deficit that both sides claim could lead to the “death of the country,” why shouldn’t returning tax rates to more historically-average levels be on the table?

    Tuesday, November 16, 2010 at 10:28 am | Permalink
  5. Jason Ray wrote:

    I agree with Patriotsgt, we do need real health care reform and what was passed is was a step in the right direction it wasn’t the solution. The primary reasons that the US Health Care system costs twice as much with worse outcomes can be primarily attributed to three factors:

    1) The pharma industry, which only makes money selling newly patented drugs and therefore we use more new drugs, at much higher cost, than any other country.

    2) The legal climate and malpractice insurance industry, which drives up costs and drives out experienced doctors.

    3) The inherent inefficiencies from having literally hundreds of companies involved in the health care supply chain, as opposed to most developed countries that have “single payer” structures.

    I think it’s unrealistic to believe we will get a “single payer” system here, but the other two can be addressed – once you get the corporate dollars out of the process. Maybe that’s also an unrealistic hope, but until the pharma industry and the legal environment are addressed we’re not going to be able to fix the problem.

    Tuesday, November 16, 2010 at 10:57 am | Permalink
  6. jonah wrote:

    Jason ray, while you may agree with PGT I think PGT may disagree with you on at least two of the 3 points you raised.

    Tuesday, November 16, 2010 at 11:30 am | Permalink
  7. Dan wrote:

    Does anyone have a link to the breakdown of US healthcare costs, and compared to other industrial nations?

    I don’t just mean the % of premiums going to healthcare costs vs admin, but rather what is the breakdown of healthcare costs.

    From discussions with doctors and reading the information I’ve been able to gather, there is less of an emphasis on preventative medicine. I’d be interested in the costs of good preventative medicine versus the cost of emergency room visits (which are an order of magnitude more expensive than regular appointments and for which we all pay).

    I realize this does not address Medicare costs.

    Tuesday, November 16, 2010 at 11:41 am | Permalink
  8. Don wrote:

    Going back to November 8, I stated that Medicare was one of the 800 pound gorillas in this budget mess we’re facing. This seriously backs up what I said – or at least what I tried to say.

    Medical costs – and Medicare is a huge part of national medical costs – are way out of line. Jason hit one nail right on the head – Big Pharma. They got pretty much everything they wanted out of the health care bill.

    Jason got close with point number three. I’ve had numerous discussions with my health care providers and have been amazed at the burden that dealing with a multiplicity of insurance companies places on their costs – up to 1/3 of the cost of running their offices is consumed by the administrative costs of filing and tracking insurance. Medicare is seriously stream-lined compared to the rest of the insurance industry and, curiously enough, Medicare claims are handled, under contract, by a number of our largest insurance companies. Why can’t they handle their own claims in such a manner? Maybe this is what Jason is saying above, if so, a tip of my hat on this point.

    As to point two, malpractice really has little impact on medical costs. In a letter to Orin Hatch in October of 2009, the Congressional Budget Office indicated that a package of changes including limits on malpractice awards “would reduce total national health care spending by about 0.5 percent (about $11 billion in 2009).”
    Check out’s statement on insurance and health care costs at

    There are a number of national health care models which could have been considered here in the US, single-payer being only one of them (the real question, in my mind, isn’t whether we should have a single-payer system, but rather how can we efficiently and realistically create a universal health care system). The Swiss, with one of the best health care systems in the world, decided, through a national referendum process, to create a federally directed program, but implement it through, I believe, six private corporations that manage premium collections and expenditures. The Swiss have universal health care, a longer life-expectancy, and at a cost significantly lower than the US.

    None of these models were seriously considered during the drafting of the HCR bill because is would have messed with big insurance – which got most of what they wanted just as Big Pharma did.

    Tuesday, November 16, 2010 at 12:01 pm | Permalink
  9. Iron Knee wrote:

    At least can we all agree that repealing the current health care reform bill, even with its flaws, is not a good idea? I consider the current bill a (reasonably sized) step in the right direction, and perhaps the only way to help get past the political obstacles that stand in the way of real reform.

    Historically, Medicare started the same way, with small steps (including big giveaways to the insurance industry) that eventually led to the current Medicare system, which in my opinion is reasonably good.

    Tuesday, November 16, 2010 at 12:59 pm | Permalink
  10. Don wrote:

    You ask a loaded question, IK. I really, really, really wish that Congress and the Administration, in their infinite wisdom, had truly started out down this path with smaller, easily dissected steps. Instead we have a law that is very much open to manipulation because of its complexity – complex laws and regulations can lead to complex shenanigans.

    Would I want to have it repealed? No. Do we need an alert, thoughtful, and rational group of implementers? Oh my heavens yes and I’m afraid those sort of implementers are in very shot supply at the moment. Ugh!

    Tuesday, November 16, 2010 at 1:41 pm | Permalink
  11. Jason Ray wrote:

    Thanks Jonah, maybe I should have been clearer that what we agree on is that the health care bill that got passed is a step forward but not an answer. He can comment on the next piece of analysis 🙂

    Don – thanks for the well thought out and cogent comments. One item, though, on the legal framework – the actual cost of malpractice AWARDS (emphasis added)is indeed small. My work in the field, however, indicates that it’s not the cost of the awards that’s the problem – it’s the cost in process design and its impacts on doctor choices and longevity that are the problem. Many unnecessary costs are built in to the system to reduce liability, and those costs are invisible in the average analysis.

    One of the reasons that emergency room care is so expensive is that every incoming patient has to be tested and “scoped” before any treatment begins. A pregnant woman, brought into the hospital from a home birth that didn’t work out, for example, has to be tested to verify that she is actually pregnant! That kind of test has minimal medical validity – it has everything to do with limiting liability.

    I agree that just limiting malpractice awards would not have a major impact, but I do ask that you consider the full impact on the costs when dozens to hundreds of companies each try to maximize the limitations on their own liability. And also consider that the cost of malpractice insurance is a “cost of doing business” in the US and that cost gets passed on in the total scheme.

    FYI – I don’t believe the standard Republican rhetoric about malpractice reform tries to address many of these issues, but even a broken clock is right twice a day 🙂

    Tuesday, November 16, 2010 at 3:53 pm | Permalink
  12. ebdoug wrote:

    Obama had to get health care passed before the midterm elections. He was never going to have a second chance. Period.

    Has everyone contacted his or her legislator to make sure that tax cuts to the rich expire? I have. I told both Gillibrand and Schumer that while I’m not rich,(40K per year) I live off dividends and will pay more (willingly) in taxes. I e-mailed Obama. I wrote to Mrs. Obama. I’m not “holier than thou”. It has to be done; especially if you are one of those who will have increased taxes. Let them know how you feel.
    This is where the income for the health care program can come from.

    Tuesday, November 16, 2010 at 4:51 pm | Permalink
  13. Don wrote:

    @ Jason – I believe the CBO analysis did include an estimate of costs driven by fear of litigation.

    Emergency room costs are an entirely different story.

    Tuesday, November 16, 2010 at 9:14 pm | Permalink
  14. How interesting, now that the reform is passed, that the rhetoric in the comments is so much … calmer. 😉

    Wednesday, November 17, 2010 at 6:00 am | Permalink
  15. patriotsgt wrote:

    Jason – since Jonah is anxiously awaiting my response to your analysis..
    On the pharm – I agree that system needs to be reformed, however I feel we must use caution to not reform out the incentive for companies to spend millions to billions on the R&D of new or improved drugs.

    The other piece about Pharm and how it increases HC costs is the relatively (last 20-30 yrs) new phenomenon of pharmacy advertising. Why do my kids have to see a commercial about erectile dysfunction during a history channel show? It’s because Dr’s are more likely to prescribe meds that Pt’s want, more then they need. IMO another overly diagnosed condition is ADHD in children, but Dr’s go along with it, parents don’t fight it, and schools endorse it.

    On your legal analysis – I agree the gov’t has underestimated the scope and breadth of the “litigation prevention” steps and procedures taken. Many can be unnecessary extra layers of protection that have become needed to both limit liability and to reduce the cost of malpractice insurance.

    On # 3 and removing corp dollars or investigating single payer. I am willing to look at anything that improves overall healthcare delivery. I argue frequently about the quality of HC in America being the best in the world. It is, but I can admit perhaps not accross the board. If you have good insurance in our country you can get the finest medical care in the world.

    That leads me back to my original point being I agree there is a need to reform HC, the bill that was passed was a good try, but not it. I like Don’s thinking that it may have been better to build the reform piece by piece and build it well, but we must deal with what we got. Can we give everyone (who doesn’t have it already) the same insurance as gov employees get, sure. Whats the cost and how can we pay for it. Will it be like school tax, where everyone pays whether you use it or not. Or will it be like SS tax where you get out what you put in. Then we’d need to add the price of sudsidies for those who can’t afford it, which is unlike SS. The current funding scheme robs from other social programs and thats not a real funding solution. Borrowing from business, we should determine what we can afford and how it gets funded, then determine the breadth and scope based on what we can afford.

    Wednesday, November 17, 2010 at 7:18 am | Permalink
  16. Jason Ray wrote:

    By the way, the deficit reduction calculator from the NY TImes is an interesting exercise. I completely agree with IK that it’s too simplistic, but it does give a reasonable “order of magnitude” for certain classes of solutions. One thing that’s clear – as long as Medicare, Social Security and Defense spending are “off the table” it’s impossible to balance the long term budget without tax increases.

    I hope this means that in the upcoming “adult conversations” the Republicans are talking about they intend to put Defense spending on the table.

    Thursday, November 18, 2010 at 12:13 pm | Permalink
  17. George Meredith MD wrote:

    To Balance the Budget
    Sacrifice the Sacred Cows

    You want to preserve our AAA bond rating and rescue our crashing economy? Simple: spend less and sharply reduce taxes. The more we reduce taxes, the stronger and faster our economy will grow. The US has one of the highest corporate tax rates of all industrialized nations.
    Almost all taxes would come way down with the below listed plan. And all else is rhetoric! Forget about Obama’s pie in the sky “investments” in health care, high speed rail, solar, wind and biofuels. These are but big government, Chicago type pay to play scams!
    To revitalize our crashing economy, we must sacrifice the sacred cows. The sacred cows being the phony war on drugs, the phony wars in Libya, Iraq and Afghanistan and the corrupt Medicare and Medicaid health insurance programs.
    Therefore we must, post haste:
    • Repeal Obamacare, immediately….why spend a trillion dollars to buy health care for the 32 million Americans who are currently receiving it for free right now? The looming taxes to support Obama’s socialization of American medicine have sent a negative message to small businesses and financial markets alike. The repeal of Obamacare would send a positive message to these entities.
    • Give current Medicaid and Medicare recipients vouchers and let them purchase whatever health insurance fits their needs…this would cut the cost of these corrupt programs by an amazing 70%…and, would lower the health care costs for the rest of us by a whopping 50%! It’s called “cost shifting” and is the reason your health care costs are currently so high.

    • Enforceable, meaningful deductibles and co-pays would return Medicare and Medicaid patients to the real world medical marketplace! And would simultaneously cut the cost of commercial health insurance for the rest of us by 50%.
    • Recognizing the BCBS scam that Sebelius and her lawyer pals ran in Kansas and in most other states, for years: issue a federal mandate that would allow patients to cross state lines, in order to purchase more competitive health insurance.
    • Sell all the government hospitals…Army, Navy, Air Force, VA, US Public Health Service…sell all the government hospitals to the highest bidder…and instead, give this group of patients commercial health insurance vouchers. In many cases, these patients would end up using the same doctors, nurses and hospitals but in more polite, goals oriented, professional settings.

    • Scrap the phony trillion dollar Medicare prescription drug program. Let the seniors buy the safer, much less expensive generic drugs.

    • Scrap the (Chinese) solar panel, wind farm and gasohol programs. These programs are not, and never will be, cost effective. If economically viable, let them stand on their own…without any government subsidy.

    • Tell OPEC where to get off by imposing an adjustable energy import tax. The less you charge us, the less we tax your products. And vice versa…..

    • Open up the Dakotas, west Texas and elsewhere for horizontal drilling, in order to tap our nation’s vast untapped natural gas and petroleum reserves.
    • Structure gasoline and diesel road taxes so as to encourage the use of our abundant natural gas resources for surface transportation.
    • Abolish redundant, counterproductive programs: Departments of: Homeland Security, Education, Labor, Energy, Commerce, ATF, IRS, TSA and Federal Courts.
    • Remove all unions from all mass transit in America. Tell transit workers that efficient, privately run mass transit, free of unions, is a matter of national survival.
    • Get the hell out of Libya, Iraq and Afghanistan, right now! Station our troops stateside until they can find work in the private sector. There was no domino effect when we abruptly left South Viet Nam. There would be no domino effect if we were to abruptly leave Libya, Iraq and Afghanistan.
    • Begin war crime trials for those who corruptly got us into these unconstitutional foreign entanglements. Send such people a message: no more foreign wars when our strategic national interests are not at stake. We can no longer afford to be the world’s policeman.
    • Call a halt to the phony war on drugs and the corrupt judicial-prison industry that it supports. It’s a war on our own citizens. The war on drugs has several purposes, but the main reason is an excuse to beef up the police into a paramilitary force. It’s a total scam. The politicians want to claim they’re tough on crime. We all know, the fact that drugs are illegal drives the price up. High prices create crime.

    Do these things and, bingo, our economy rights itself almost overnight. Or continue with the Hillary Clinton-Barack Obama pie in the sky programs and we are cooked.

    George Meredith MD
    Virginia Beach

    Monday, July 18, 2011 at 12:12 pm | Permalink
  18. Iron Knee wrote:

    I totally agree with you on abolishing the war on drugs, and getting out of Iraq and Afghanistan ASAP. Plus that Medicare should be able to negotiate for cheaper drug prices. But other than that, your post is complete and utter nonsense.

    You say that we have one of the highest corporate tax rates in the world, but that is so misleading that it is a lie. The official rate may be high, but we allow corporations to shelter so much profit that corporations here pay less in taxes than most other countries. Not to mention that most of those countries have VAT taxes on companies that we don’t have.

    I won’t bother arguing against the rest of your BS. We tried that and it didn’t work, and drove our economy into the toilet. Now you want more of the same? How stupid do you think we are?

    Monday, July 18, 2011 at 6:57 pm | Permalink