One Man’s Interpretation of the Euphemisms
As you continue to work on our current budget situation, we are writing to let you know that we join with the 64 Senators who recently wrote that comprehensive deficit reduction measures are imperative, and to urge you to work together in support of a broad approach to solving the nation’s fiscal problems. As they said in their letter to President Obama:
“As you know, a bipartisan group of Senators has been working to craft a comprehensive deficit reduction package based upon the recommendations of the Fiscal Commission. While we may not agree with every aspect of the Commission’s recommendations, we believe that its work represents an important foundation to achieve meaningful progress on our debt. The Commission’s work also underscored the scope and breadth of our nation’s long-term fiscal challenges.
Beyond FY2011 funding decisions, we urge you to engage in a broader discussion about a comprehensive deficit reduction package. Specifically, we hope that the discussion will include discretionary spending cuts, entitlement changes and tax reform.”
You’ll notice that last sentence is decidedly nonspecific. That’s necessary at this point of the process. Step 1 is to demonstrate that folks with a broad range of views agree that something must be done about our building debt. Getting that consensus requires some vagueness about the eventual policy solutions. Hence such elliptical phrases as “tax reform” and “entitlement changes.”
I usually use the phrase “tax reform” to mean structural changes — improvements, one hopes — to the tax code independent of revenue levels. For purposes of this letter, however, I interpret it as meaning revenue increases as well. As regular readers know, I think the best way to do that is to attack spending-like provisions that are structured as tax preferences.
I interpret “entitlement changes” to be reductions in the biggest entitlement programs — Medicare, Medicaid, and Social Security – relative to the spending scheduled under current law. That qualifying phrase is important, since there’s plenty of room to reduce the growth rate of these programs without cutting below today’s benefit levels. Some smaller entitlements like farm subsidies, however, should be cut from today’s levels.
Finally, I believe the “discretionary spending cuts” should include security spending, not just non-security.
So that’s what I mean by the euphemisms.
The question comes down to how incentives will be changed on health care spending. Cost shifting to patients or providers may or may not have the desired effect if it drives patients from preventative care to emergency care – although sometimes preventative care leads to waste if you treat people for diseases that they die with, rather than die of.
Relying on current cost growth to make future projections can be dicey, since much of the cost growth comes from improvements in both imaging and drugs which are real advances rather than inflation as we understand it. Part of the higher medical inflation rate is probably a result of “measurement error” in not differentiating cost growth and improvements better. If someone gets a CT scan or MRI instead of an X-Ray, costs have gone up, but not because of inflation.
Will improvements keep coming? Probably. Will they keep costing more and more? I suspect there is a natural ceiling to how much more cost can increase before innovation starts bending the cost curve down on its own. The challenge is to not short circuit the finding of this ceiling by enacting governmental controls – although it could be that governmental controls will spawn cost innovation. I expect, however, that they will merely act like most regulation and pick winners from existing suppliers and lock in their gains rather than making things cheaper and better.
There is also the question of where the best source of cost control comes from. I expect the pressure for cost control will come from employers – especially if the funding of Medicare, Medicaid and the eventual Public Option is consolidated into the Business Receipts Tax as proposed by Lawrence B. Lindsey (rather than the VAT proposed by Len Burman). This is especially the case if there is an opt out for providing the services or coverage in-house rather than paying a tax for the government to do it. I suspect that, given the option, many employers will start doing medical care in house and avoid 3rd party payment altoghether. You can have an opt out with a BRT, but not with a VAT.