WASHINGTON – Here is a riddle for you. What’s the connection between the US looming fiscal crisis, the 2011-2012 budget proposal put forward by Congressman Paul Ryan which includes drastic changes in Medicare payments, and the advice to Americans to change diet and walk at least thirty minutes every day that came from the authoritative podium of the World Health Care Congress?
Believe it or not, the connection is very strong. In a modern society certain individual costs are socialized through centralized welfare programs. So, the overall size and extent of the socialized individual needs matters a great deal. And, as the extent of these costs inevitably become a public policy and public finances issue, when they explode beyond any control –this is the case of the American health crisis– we see how millions of people who do not take care of their health as much as they could, (without major efforts on their part), originate massive medical needs that translate into massive costs, consequently creating a huge political problem.
Individual behavior, political consequences
And this is the issue before us, as different players put forward different welfare spending blueprints aimed, in large measure, at taking care of the consequences of the bad habits of millions of Americans. So, do keep in mind that what is now framed as a “political issue” at its roots has individual behavior, (life style, diet, exercise, addictions). The gigantic national medical needs that policy-makers are trying to address largely largely stem from from this behavior.
Indeed, systems are put in place to provide health care. And they cost money. How much of these costs are socialized and what the consequences of this socialization are for public finances becomes a matter of political debate. Yet, it all starts with individual needs in large part framed by personal behavior.
How are we dealing with the consequences of personal behavior? Paul Ryan has a plan
But let’s see how this plot unfolds. House Budget Committee Chairman Paul Ryan, Republican of Wisconsin, opened the “Big Budget Debate” by presenting a broad-based plan on April 5 aimed at obtaining substantial savings that will cut the astonishingly high yearly deficits and consequently the total national debt. Compared with Obama’s budget, his “Path to Prosperity” proposal would cut an additional 6.2 trillion dollars over the next ten years.
Ryan’s plan outlines spending cuts that create a path to fiscal sanity. His assumption is also that a combination of lower government spending, plus a streamlined tax system, including lower corporate tax rates only up to 25%, will contribute to higher economic growth. This “Path to Prosperity” may actually work.
In line with an anti-government, Tea Party inspired, mood?
More broadly, one would think that these proposed drastic spending cuts should be in line with what angry voters loudly demanded in the course of the 2010 campaign that led to a stunning Democratic defeat in the House. In fact the entire Tea Party phenomenon was and is largely an “anti tax and spend” grass roots movement.
So, big green light for Ryan and the Republicans from the voters? Well, not so fast. Angry Tea Party activists and many others demanded much lower government spending during the 2010 campaign to renew the Congress and they voted for the Republicans who seemed inclined to cut. But at the time nobody cared to single out in any detail “what should be cut and by how much”.
No. People really want to have their cake and eat it too
And here we get to the real problem, namely the basic immaturity that characterized a debate long on grandstanding and posturing and short on seriousness.
People running for office on a platform that would include –say– “No more federal money for private groups that provide abortions” may have scored big with ideological voters, but these cuts do not get you far. In fact, beyond ideological posturing, from a fiscal point of view, they are meaningless.
And yet, unfortunately, the political reality is that even for the most ferociously anti-government Americans the real, if unspoken, slogan is: ”Cut, cut everything, but do not touch my programs, please“.
Translation: Symbolic cuts are good, cuts in what I get are bad.
The untouchable welfare state
And, as it turns out, all these armies of supposedly self-reliant, “do it yourself” Americans are adamantly opposed to cuts in their favorite welfare programs. And these include Medicare and Social Security.
And very few told them in unequivocal terms that any path to fiscal restoration has to include cuts in all entitlements which alone constitute about 60% of all federal spending. Until this issue is squarely and honestly put on the table, serious spending reform may remain an elusive goal.
House Budget Committee Chairman Ryan means well, and I wish him success; but I sense that America is not yet on board.
Social security reform, a bit easier
Regarding Medicare and Medicaid, both programs are essential pillars of the US welfare state. Tinkering with them without broad popular support is politically explosive, if not suicidal.
Social Security is equally important; but fixing it is likely to be much easier. Repairing Social Security is mostly about moving forward the age of full benefits eligibility, in line with changed demographics and longer life expectancy. As we all live longer, so we should get our benefits a bit later. These program modifications can be done in a gradual way, without harm for future recipients.
Medicare is a mess, as it is part of the broader health care cost explosion
But Medicare is a much bigger mess. Because Medicare is one large component of a monstrous health care system characterized by the highest cost structure in the world; it is therefore negatively affected by its crazy cost dynamics.
As currently conceived, Medicare is a subsidy, whereby enrolled senior citizens pass on to the government their medical bills. The problem is that, as the actual costs of medical care in the US keep growing well ahead of inflation, the overall Medicare financial burden for federal finances will soon be unsustainable.
The Ryan remedy
The Ryan Budget blueprint puts forward a bold reform. The US Government will stop underwriting costs. It will provide a fixed amount of money that will be used by individuals to cover insurance policy premiums that they will select from within a pool of competing insurers. Beyond that, the Government contribution will rise only with inflation.
The rational here is to introduce a system that will incentivize competition among insurers and a more judicious use of health care. This is good. But only up to a point.
If costs keep growing, limited government help will dry up quickly
Indeed, if policy makers assume that medical costs are destined to rise at the current rate indefinitely, then it is clear that a limited premium support program will not do it. Assuming sky rocketing costs, senior citizens, after having quickly utilized whatever money comes from Washington, will be left to fend for themselves, and some for sure will not have enough money to do so.
As soon as this scenario sinks in, and you can bet that the Democrats will make sure to highlight this point, this whole Medicare reform proposal will become a huge political liability.
It will be very hard to convince future recipients that they have nothing to worry about, because the new system will magically contain costs, so that they will be in line with inflation. People are unfortunately used to costs going up, and up, every year.
But why these costs in America?
And this is indeed the real core issue. Why skyrocketing medical costs in America of which Government payments is only one, albeit very large, component? No similar phenomenon is registered in comparable advanced countries. What’s so special about the US?
In truth, say the experts, there is absolutely no objective justification for this ongoing explosion of medical costs in the US.
“Fee for service”, no built-in disincentive to over prescribe, and an unhealthy population contribute to increase demand and cost
There are contributing factors, though:
–One is that medical professionals are paid on “fee for service” basis, with no limitations. Which means that the more they prescribe, the more money they make. There is abundant evidence indicating widespread include way too many unnecessary procedures, redundant tests and over prescription of medications. All this comes with a huge price tag.
–The second is that the medical insurance system places insufficient checks on this practice.
–And, third, we have a very unhealthy US population more and more afflicted by chronic diseases whose treatment creates enormous financial burdens for the whole system. The Medicare program sits in the middle of this mess. In fact, it sits on the most expensive end of the continuum, because it provides for elderly patients, by definition in greater need than the average younger individual.
My point is that, unless the health care fundamentals –mostly “fee for service” and “wellness education”– are not drastically modified, it would be hard to find a permanent and satisfactory solution for Medicare.
Can we change the underlying fundamentals that drive up costs?
But can this be done? Of course it can. But it requires a small revolution –a revolution recommended by health care professionals.
Fate has it that this new Paul Ryan Budget has been unveiled just at the same time of an event held by The World Health Care Congress. One of the speakers was George Halvorson, Chairman and CEO of Kaiser Permanente, one of the largest health care providers in America.
Enter George Halvorson of Kaiser Permanente
And what Halvorson had to say is truly astonishing. With example after example he pointed out the absurd cost disparity between what people are charged in the US and in Germany, France, Canada and other modern countries regarding practically each and every routine medical procedure.
Everything in the US costs double, triple or more. For the same procedure? With the same or comparable effort? This is completely absurd.
No justification for exorbitant US prices
Some price differences may be justified by local economic conditions, prevailing costs, wages, etc. But “everything” costing so much more? And this is not about cost of surgeries in emerging countries’ facilities where we can understand that costs can be even 1/10 of what you would pay in the US. This is not Indian hospitals we are dealing with. We are talking about advanced, wealthy nations with per capita incomes quite comparable to the USA.
Chronic illnesses absorb most of the money
And George Halvorson also pointed out that the real budget busters in the US are not the relatively few, complicated and expensive procedures for rare cancers and what not. The real problem is represented for instance by the explosion of obesity and obesity related chronic diseases, like type two diabetes.
Obesity has created an army of chronically ill patients who need constant treatment. And it is these patients who break the bank.
However, we know that obesity, with very few exceptions, has its roots in something very, very mundane: people eat too much of the wrong stuff and exercise too little. Is it possible that “overeating” has really become a national medical and now public policy problem? You bet.
And the miracle of a 30 minute daily walk
And what else? Well Halvorson talked about nutrition and exercise. (See above about obesity). And, you may find it odd, but he dedicated a fair amount of time within his presentation extolling the benefits of a 30 minute walk –every day. He provided suggestions in how this walk could be split into two 15 minutes installments and so on. He indicated that the body “really needs to move”. And that this walking is a key factor in tuning up all metabolic functions, so that “all systems” are kept in good working conditions.
Walking and the Budget
So, what’s the connection between walking or not, better or poor diet, doctors salivating when they get a new diabetes patient and Ryan’s Medicare reform plan? Well there is a huge connection.
First of all, skyrocketing medical costs do not depend on some sort of law of physics. They are driven by bad incentives that can be modified.
Secondly, aggregate national costs are driven by total demand for services. And this demand can be lowered, significantly, if people overall develop much healthier habits.
Simple changes in diet and exercise (as Halvorson recommends) by millions of people could have a rapid effect in the reduction of demand for services that end up costing hundreds of billions of dollars, becoming in the end a huge component of publicly paid health care.
And so, oddly enough, an issue originating in personal habits, multiplied by millions of individuals, becomes a public policy issue, and inevitably a political issue in the forthcoming budget battle.
Can all this be taken in as we frame the national policy debate on health care?
It would be nice if the unfolding national debate on Medicare reform would take all this into account. If, instead, medical care costs increases are treated as a given, an independent variable that cannot be modified, then the whole debate will be restricted to: “This is what it costs. Now let’s decide who pays what”.
Caricature and emotions will prevail
And the politicians will not be driven by a desire to reform; but by a desire to apportion payments so that their favorite constituents come up on top.
If this is so, then the debate will be portrayed as one between the ”mean spirited Republicans” who want to throw indigent grandma out of the hospital, and the “compassionate Democrats” who want to keep grandma in the hospital, have Uncle Sam absorb the cost and then hope to find a way to the pay the bill; in the meantime jacking up the national debt, praying that China will keep buying it when we issue more of our increasingly dubious Treasury bonds. Not a good way to frame this critical problem affecting tens of millions of citizens.
If we could only learn how to walk……