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Obama presents “gutsy” budget; Clinton begs in China; Treasury writes obituary

Monday, March 2nd, 2009

Obama presented Congress with an agenda described as “breathtaking in its scope and ambition,” “gutsy,” or “bold and courageous”—by his supporters. Passing it won’t be easy, Obama admits, because “it represents a threat to the status quo.” But his enormous popularity might make it possible to get a big share of what he wants (Charles Babington, Associated Press 3/1/09).

Some analysts called the budget “almost radical,” and the U.S. Chamber of Commerce noted that “You don’t rebuild a house by blowing up its foundations.”

Spending

The budget assumes a deficit of $1.75 trillion this year, quadrupling that from the year before: that is 12.7% of the GDP. Federal outlays will balloon in 2009 to $4 trillion, or 27.7% of GDP, up from $3 trillion or 21% of GDP in 2008, and 20% in 2007 (“The Obama Revolution,” Wall St J 2/27/09).

To “reform health care” by vastly expanding insurance coverage, Obama proposes a $630 billion fund for a national insurance program to cover all Americans. This amount will just be “a start.” Costs are soon expected to exceed $1 trillion. Savings will be achieved by cutting payments to providers, reducing hospital admissions, and “promoting efficiency.”

Revenue

The money will come from tax increases on “the rich”—for now defined as singles earning $200,000 or more, or couples earning $250,000 or more. High earners would also see limitations on personal exemptions and itemized deductions, including charitable contributions. The estate tax would be reinstated, and capital gains taxes increased. Revenue projections assume that taxpayer behavior will not change.

A key new source of revenue (“but don’t call it a ‘tax’!”) is an expected $78.7 billion from a cap-and-trade carbon emissions scheme, such as one recently rejected by the U.S. Senate, growing to more than $646 billion by 2019. In effect, this constitutes a very large tax increase on 100% of Americans.

Of the windfall, $15 billion/year is supposed to subsidize alternative energy—which can become relatively economical only if the cost of hydrocarbon fuels soars because of taxation, cap-and-trade, or EPA “Clean Air” regulations. The rest will help fund a promised $800 tax “rebate” or “credit” to people who pay little if any tax, creating a new constituency for keeping the current regime in power—and for “fighting global warming.” Recipients of this new entitlement may not notice that $800 is not nearly enough to offset a $4,000 loss in purchasing power owing to higher energy costs spread throughout the economy.

These revenue projections assume a robust market for carbon emissions permits. After peaking at nearly 30 euros ($38) in mid-2008, carbon dioxide traded at 9.95 euros ($12.60)/tonne on Feb 28 (AFP 3/1/09). Opposition to cap-and-trade schemes is building worldwide; it could bring down the Australian government (Business Spectator 3/2/09).

Until the Next Generation of Taxpayers Grows Up….

Secretary of State Hillary Clinton wrapped up her first overseas trip by urging China to continue buying U.S. debt, saying it would help jumpstart the flagging U.S. economy and stimulate the buying of Chinese imports. China is the top holder of U.S. Treasury bills, owning $696.2 billion worth in December, 2008. Its help is needed to finance the $787 billion stimulus package.

Clinton said that concern about the human rights situation in China should not be a distraction from the vital issues of the economy and climate change. A journalist reported seeing plainclothes police taking away some visitors attempting to enter a church where Clinton attended Sunday service (Britbart.com 2/22/09).

Is the U.S. Treasury Solvent?

Between January 2008 and January 2009, the M2 money supply increased from $7.3 trillion to $8.2 trillion, meaning that the Federal Reserve created $1 trillion out of thin air in one year. It has used this money to buy distressed assets. It claims that when the economy recovers it will sell the assets and retire the money before it causes runaway inflation. This assumes, of course, that somebody will want to buy these assets (Downsizer Dispatch 2/23/09).

The quality of the assets held by the Federal Reserve has deteriorated substantially, starting in August 2007, write Philip Baggus and Markus H. Schiml. The Fed’s leverage has increased from 22 to 50. This means that the Fed is insolvent if a mere 2% of its assets go into default.

In the “2008 Financial Report of the United States Government,” the Treasury wrote an obituary for the U.S. government, even before the “stimulus bill,” Secretary Geitner’s proposed TARP II, [and the proposed gutsy budget], states Craig Cantoni.

Some highlights:

  • The government debt held by the public will be 650% of GDP by 2080, compared to “only” 109% during World War II (Chart 2, p 2).
  • The balance sheet (p 10) lists government assets of $1.9 trillion and liabilities of $12.1 trillion. The bonds of a corporation with such an unhealthy balance sheet would be rated as “junk.”
  • The footnote to the balance sheet states that the unfunded liability of $49 trillion for Social Security and Medicare is not counted as a liability on the balance sheet.
  • In an addendum entitled “Management’s Discussion and Analysis,” retirement benefits for veterans and civil servants increased from $90 billion to $550 billion from 2007 to 2008 (Table 1, p 3).
  • The net operating cost of the federal government increased 266.3% from 2007 to 2008.
  • A letter from the Government Accountability Office states that: “The material weaknesses discussed in our [audit] report continued to …. hinder the federal government from having reliable financial information to operate in an efficient and effective manner.” [Cantoni’s translation: “The government cooks the books.”]

Additional information:

Posted in economics, health care reform | 10 Comments »

Is wealth redistribution America’s future?

Wednesday, October 29th, 2008

As worldwide economic meltdown continues, and the cost of the U.S. bailout/”rescue” soars, the question looms: how will government pay even the short-term costs? Political candidates are not addressing this issue.

The make-somebody-else’s-children-pay-later strategy may soon reach the ultimate limit. Somebody has to load money into the Treasury now. Investors have been fleeing to the supposed safety of U.S. Treasuries, but how much debt can even a superpower accumulate before would-be creditors begin to worry about repayment?

The take from income taxes depends, of course, on the amount of income people have. If that isn’t enough, what next?

France and a number of other welfare states have a net wealth or “solidarity tax.” In 1999, Donald Trump once proposed a one-time net worth tax of 14.25% on individuals and trusts worth $10 million or more, claiming it would generate $5.7 trillion, which could be used to pay the national debt—before it got swollen by the bailout/”rescue.” This is not likely to be indexed to inflation.

No political candidates, of course, are publicly announcing a plan to confiscate assets. However, in a 2001 Chicago Public Radio interview, Barack Obama signaled his approval of wealth redistribution—and said it was a tragedy that the civil rights movement did not accomplish that. A tape including Obama’s discussion of using legislative or legal means to force redistribution is posted on the Drudge Report.

Of particular note was Obama’s answer to an audience member, probably a small businessman, who said, “Your plan’s gonna tax me more, isn’t it?”

“It’s not that I want to punish your success,” Obama said. “I just want to make sure that everybody who is behind you, that they’ve got a chance at success too. I think than when you spread the wealth around, it’s good for everybody.”

This doesn’t sound like the redistribution of wealth from the foolish to the prudent that occurs in a free market when a bubble bursts, but rather government redistribution, bailing somebody out of trouble by putting somebody into trouble, with a hefty “toll for the troll,” as Arthur Laffer describes recent government panic reactions (“The Age of Prosperity Is Over,” Wall St J 10/27/08).

Obama’s remarks are compatible with Marxist ideology—and he has yet to disavow the ideas of his Communist associates (Wes Vernon, RenewAmerica 5/28/08, Cliff Kincaid, Schwarz Report, October 2008).

“Whenever people make decisions when they are panicked, they are rarely pretty,” writes Laffer.

The election is occurring in a time when panic may be just beginning:

  • A front-page article in the overseas edition of the People’s Daily said Asian and European nations should banish the U.S. dollar. “The grim reality has led people, amidst the panic, to realize that the United States has used the U.S. dollar’s hegemony to plunder the world’s wealth,” said Shi Jianxun of Shanghai’s Tongji University (Reuters 10/24/08).
  • The dollar rally, in the face of deteriorating fundamentals, has been called a “death dance.” The gap between the paper gold market and physical gold market is widening. In Toronto, a multimillion-dollar off-market transaction in physical gold involved paying $1,075 per ounce—settled in euros. Foreigners may force changes causing the U.S. dollar to lose its global currency status. A freeze in short-term credit could interfere with distribution channels of railways and truckers in the U.S. (Jim Willie, Hat Trick Letter 10/23/08).
  • The Federal Reserve is inflating at 341% per annum. Banks are buying Treasury debt; the Treasury spends the money. Businesses must compete with the Treasury to get money. Without productivity, it is not possible to emerge from a recession (Gary North 10/24/08). See charts from Federal Reserve Bank of St. Louis and other sources.
  • A £516-trillion derivatives “time bomb” is ticking away. Warren Buffet called derivatives “financial weapons of mass destruction” (Independent 10/12/08).

Apparently, both parties hope that the day of reckoning can be postponed until after November 4.

Additional information:

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Which candidate’s health plan will hurt the most?

Friday, October 17th, 2008

The basic difference in the major candidates’ proposals for “health care reform,” according to Mark Pauley, writing in Health Affairs, is that McCain recognizes that workers earn their health benefits, while Obama apparently views benefits as the employer’s money (Greg Scandlen, Consumer Power Report 10/16/08).

Obama and supporters claim that the McCain plan will cause workers to lose employer-sponsored insurance, while Obama’s will permit those who like their employer-sponsored plan to keep it.

Summarizing the only two academic studies of the McCain and Obama plans,
John Goodman writes that, according to the Lewin study, 9.4 million would lose employer coverage under McCain, and 13.9 million under Obama. That means for every three people who lose coverage under McCain, four would lose it under Obama. The loss under Obama could be much higher. Employer-based coverage could actually increase with the McCain plan, while dropping by 60 million under Obama, according to the analysis by Roger Feldman of the University of Minnesota.

Obama promised that people buying insurance on their own would have access to the same coverage as members of Congress. The Lewin study assumes that the government-sponsored “national plan,” with the same on-paper benefits, would pay providers 25%, or even 40% less than private plans do.

Medicaid rolls would swell by 16.6 million under Obama, and shrink by 12 million under McCain, as Medicaid enrollees shifted to private plans.

Neither candidate has proposed a realistic way to pay for his proposal. The estimated 10-year cost is $2.1 trillion for McCain and $1.1 trillion for Obama (according to Lewin), and $2 trillion for McCain and $6 trillion for Obama (according to Feldman).

According to an analysis by the Pacific Research Institute (PRI), the McCain plan would help to end job lock, and result in a wage increase averaging $9,000 per year. PRI states that the Obama “job-killing” taxes would be especially harmful to low-income workers, and his reforms would lead to a “death spiral” for privately chosen health insurance (John R. Graham, “Presidential Prescriptions: Diagnosing the Candidates’ Health Reforms, PRI 10/14/08).

The McCain tax credit would correct the “arbitrary, unfair, and wasteful” distribution of tax benefits for health insurance, writes John Goodman. The Obama proposal would “build on today’s regressive, discriminatory subsidies for employment-based insurance,” while new rules would make insurers “little more than functionaries in a new federal government regulatory regime,” states Grace-Marie Turner (Health Care News, September 2008).

Senator Obama seems to be confusing a tax credit with a tax deduction, suggests Ralph Weber, who spoke at the 2008 AAPS annual meeting. A $5,000 tax credit is the equivalent of a $20,000 deduction for most families. It actually is enough to pay the average family health insurance premium in New Mexico, leaving $2,000 to start building up health savings. McCain has also proposed allowing the purchase of health insurance across state lines (FlashReport 10/16/08).

The New England Journal of Medicine shows its political colors in its Oct 16 article, “Primum Non Nocere—the McCain Plan for Health Insecurity.” It concludes that “Senator McCain’s plan does not demonstrate the kind of judgment needed in a potential commander in chief of our health care system”—assuming a “system” that has a commander in chief (David Blumenthal, N Engl J Med 2008;359:1645-1647). For balance, however, Joseph Antos of the American Enterprise Institute writes in an accompanying article that Obama’s “hopes are too audacious to be believed.” A pay-or-play mandate amounts to a tax on labor (N Engl J Med 2008;359:1648-1650).

The “usual suspects show up as savers: health information technology, prevention, and comparative-effectiveness research”—but none is “likely to produce savings any time soon,” Antos writes.

Additional information:

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Posted in economics, politics, single payer health care, socialized medicine | 5 Comments »

Fed rolls printing presses

Tuesday, October 14th, 2008

For more than three decades, savvy world investors have feared that in any serious deflationary crisis, the U.S. would panic and open the floodgates of printed fiat currency, writes Richard Maybury.

Maybury believes that the deflationary crisis has arrived; dollars are being created by the Federal Reserve at an astounding rate. The steady upward slope of BASE, the St. Louis Adjusted Monetary Base has become vertical.

Since officials don’t know the location of the threshold that would trigger an inflationary crisis, making the U.S. dollar worthless, they are dropping money into the economy in increments instead of one huge infusion.

Americans see each of the smaller injections as a failure. Thus, each one makes them more fearful. The velocity of money falls, nullifying the inflationary effect of the injections, Maybury writes (U.S. and World Early Warning Report, Special Bulletin #3, 10/10/08).

The only silver available for purchase is in 1,000-oz. bars. One explanation, suggested by Arthur Robinson, is that Americans are so frightened that they have bought up all the silver coins.

Nonetheless, “we have the tools to manage the crisis,” writes Paul Volcker reassuringly (Wall St J 10/10/08). Volcker was Federal Reserve chairman from 1979-1987. “Financial authorities, in the United States and elsewhere, are now in a position to take needed and convincing action to stabilize markets and restore trust.”

If confidence is restored, the game can proceed. At least for a time.

The international confidence-builders have had an “unprecedented crisis” come up at a most awkward moment: Just after World Bank president Robert Zoellick called for a “radical revamping of multilateral organizations in light of the global economic meltdown,” it was found that the security of the World Bank Group’s computer network has been compromised by cybercriminals. Intruders have had access to the Bank’s most sensitive systems for at least 6 months. Officials have been scrambling to find the cause of the problem, while also trying to keep news from leaking to the public.

Maintaining the Bank’s information infrastructure costs about $280 million per year. One disgruntled staffer complained that it doesn’t even have an internal search engine that works. But investigators found that intruders were “downloading anything and everything.” Among other problems, spyware had been covertly installed on workstations in the Bank’s Washington headquarters (Fox News 10/10/08).

As President Bush told Americans, the crisis is global.

Neither the Federal Reserve nor the World Bank is offering a confidence-inspiring path to financial stability.

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AAPS, Obama & socialized medicine

Wednesday, October 8th, 2008

Last month AAPS members voted unanimously to re-affirm the AAPS Resolution to Oppose a Single-Payer Medical System.

In that resolution, AAPS urges all physicians to oppose a government-controlled or single-payer plan as harmful to patients, and therefore inconsistent with a high standard of medical ethics.

Presidential nominee Sen. Barack Obama has proposed an ambitious plan to restructure America’s health care sector — a plan some have called “socialized medicine.” Many others reject that label.

In the newest Cato Institute Briefing Paper, Cato director of health policy studies Michael F. Cannon argues, “Reasonable people can disagree over whether Obama’s health plan would be good or bad. But to suggest that it is not a step toward socialized medicine is absurd.”

Cato Institute Briefing Paper #108
Introduction:

“Democratic presidential nominee Sen. Barack Obama (IL) has proposed an ambitious plan to restructure America’s health care sector. Rather than engage in a detailed critique of Obama’s health care plan, many critics prefer to label it ‘socialized medicine.’

“Is that a fair description of the Obama plan and similar plans? Over the past year, prominent media outlets and respectable think tanks have investigated that question and come to a unanimous answer: no.

“Reasonable people can disagree over whether Obama’s health plan would be good or bad. But to suggest that it is not a step toward socialized medicine is absurd….”

READ THE ANALYSIS

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Posted in economics, politics, socialized medicine | 3 Comments »

Massive pork bill passed by unconstitutional process to “rescue” economy

Sunday, October 5th, 2008

According to the U.S. Constitution, all revenue bills must originate in the U.S. House of Representatives. How then did the massive bill to make taxpayers buy all kinds of toxic debt originate in the U.S. Senate?

It only appears that way. For purposes of our lawmakers, “it”—that is the shell bill wrapped around the “rescue” package—did come from the House. Apparently, any bill previously passed by the House will serve. This one was a bill requiring “mental health parity,” H.R. 1424, originally sponsored by Rep. Patrick Kennedy (D-RI) and pushed through as the shell bill by Sen. Edward Kennedy (D-MA). That is an insurance mandate that forces employers and insurers who offer mental health benefits to more than 50 workers to provide them on par with medical benefits. There can be no higher deductibles or copayments for mental health benefits, or stricter limits on physician visits (Kevin Freking, LA Times 10/2/08).

Starting out as a 3-page bill, the package rapidly expanded to 442 pages, despite a promise by Sen. Chuck Schumer not to “Christmas-tree” the bill. It got decorated even more after the House rejected it in response to an outpouring of rage from constituents.

In a tape played on talk radio, Rep. Barney Frank (D-MA), chairman of the House Financial Services Committee, said his mail was running about 50:50. “Fifty percent no, and 50% hell no.” Incumbents have a lot of explaining to do, especially if they switched their votes from “no” to “yes.”

Possible rationales: The stock market plunge after the “no” vote. Disaster aid to states struck by summer storms. A one-year patch for middle-class families facing a sting from the alternative minimum tax. More students able to finish college if a credit crunch on college loans is forestalled. Increasing FDIC insurance from $100,000 to $250,000. Tax credits for “alternative” energy. A really good speech by Joe Knollenberg (R-MI) about how he was willing to pay the price of getting this important thing done.

The biggest single switch was in the Congressional Black Caucus. Thirteen members of the CBC switched from “no” to “yes”; many had heard from Barack Obama. Both presidential candidates strongly endorsed the bill.

“When I woke up this morning, I had real peace that this was the right thing to do,” said Rep. Mike Conaway (R-TX), a certified public accountant (Patrick O’Connor, Politco.com 10/4/08).

Among the switchers was Rep. John Boehner (R-OH), the hero of conservatives credited with the initial rejection. Apparently because of the addition of $150 billion in “sweeteners” to the $700 billion bailout, he called on Republicans to vote for the modified bill.

Among the least well-known features of the bill is a provision that makes IRS authority to conduct undercover operations permanent. IRS agents can, for example, run an extended sting operation disguised as an accounting firm. The bill also empowers the IRS to share personal tax returns with any federal agency investigating suspected “terrorist” activity.

The most earth-shattering provisions in the bill lay the foundations for an economy-killing carbon tax like the “cap-and-tax” system that is now destroying European industry, observes Matthew Vadum (Capital Research Center 10/2/08). On Oct 2, while Americans were focused on the threat of a credit meltdown, House Democrats released principles for an aggressive plan to cap greenhouse gas emissions, which could cost even more than the failed $6.7 trillion Lieberman-Warner Climate Security Act, writes Marc Morano, communications director for Senate Environment and Public Works Committee Inhofe staff.

The $700 trillion that the Treasury is now authorized to hold in “troubled assets” is piled on top of other recent bailouts. These include: $29 billion for Bear Stearns financing; $200 billion for Fannie Mae and Freddie Mac nationalization; $85 billion for AIG; $300 billion for Federal Housing Administration rescue bill; and much more, for a total of more than $1.8 trillion, or more than $17,000 for every American household, writes Declan McCullagh (Politics and Law 10/3/08).

As Congress and the President celebrate “dealing with” the problem, Treasury Secretary Paulson, with his selected associates, is planning to move quickly to buy distressed assets. What is his experience in valuing assets? Paulson, remember, was formerly head of Goldman Sachs and, simultaneously, the Nature Conservancy. He presided over the donation of 680,000 acres of land in Tierra del Fuego, Chile, to the Wildlife Conservation Society without ever assessing the area’s potential value for timber, oil, or metals, in order that Goldman Sachs shareholders could know the true value of the giveaway (Vadum, op. cit.) (Also see Fred Lucas, “In Goldman Sachs We Trust: How the Left’s Favorite Bank Influences Public Policy, Foundation Watch, October 2008.)

Carbon emissions trading is the biggest potential moneymaker for Goldman Sachs.

Who will be competing to unload assets on the U.S. taxpayer? Gov. Arnold Schwarzenegger already has his hand out for California, which has been shut out of credit markets and could run out of cash by the end of the month. Many foreign banks are also on the verge of the abyss.

The stock market fell further after the bailout, as did the dollar. The focus has now shifted to the fallout and to the question of whether the latest, biggest bailout will succeed in containing the panic.

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Posted in economics | 6 Comments »

Government funding breeds conformity, says surgery professor

Sunday, August 10th, 2008

If you want government funding, there are certain ideas that you dare not question, stated Donald W. Miller, M.D., University of Washington professor of surgery, a member of AAPS.

Miller’s views are similar to those expressed in 2005 by another UW professor, Gerald Pollack, whose work on muscle contraction has challenged the reigning view in his field. Pollock said that science has become a “culture of believers,” The rule is “just keep it safe and get your funding.”

Pollack noted that breakthroughs in science were fairly common 50 years ago, citing Linus Pauling in molecular biology, Jonas Salk in vaccines, Richard Feynman in physics, and James Watson and Francis Crick in the study of DNA. “Where are the heroes of the past 30 years?”

He believes that Einstein’s challenge of orthodoxy would probably fail in today’s grant system. Granting committees demand that a scientist predict what he will be able to accomplish in year one, year two, etc. This amounts to “an implicit admission that no breakthroughs are to be anticipated.”

If science is likened to a skeleton, the grant system sets out to pay a multitude of scientists to add a tiny bit of flesh. But what if the skeleton itself is misdesigned? In the past, science was recognized to progress by overthrowing the “dominant paradigm.” Today, defenders of the dominant paradigm are probably sitting on the grants committee.

Today’s orthodoxy holds, according to Miller, that global warming is caused by humans, AIDS is caused by the human immunodeficiency virus, heart disease is caused by saturated fats, and cancer is caused by mutations. It also holds that radiation, cigarette smoke, and other toxins are dangerous in proportion to their strength, no matter how small the dose. If you want to test a contrary belief, you won’t get funded.

Miller predicts that at some point a major belief like one of these will come tumbling down. “And when it’s acknowledged, a lot of other science will be called into question” (Bruce Ramsey, Seattle Times 3/19/08).

Dr. Miller will speak at the AAPS annual meeting in Phoenix, Sep 11-13.

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Nonsmoking, persons of normal weight have highest lifetime medical costs; Japan passes anti-flab law

Tuesday, July 1st, 2008

Politicians and others usually list the funding of prevention and chronic disease management programs as a key method of achieving cost containment. Smoking and obesity are most frequently mentioned as risk factors to target. In the long run, however, removing these risk factors would probably increase medical costs—even assuming that preventive interventions cost nothing.

Using a simulation model, researchers found that never-smokers of normal weight actually incurred higher lifetime medical costs than obese nonsmokers. Smokers of normal weight had the lowest costs. Life years gained through prevention are not lived in full health. Reduction of risky behavior resulted in substituting expensive, chronic diseases of aging for cheap, lethal ones.

Healthy living is still a good thing, researchers conclude, considering that “the aim of health care is not to save money but to save people from preventable suffering and death” (van Ball PHM, et al., PLoS Medicine 2008;5(2):e29).

The Japanese Ministry of Health, however, believes that a new law to reduce waistlines will rein in ballooning medical costs. Companies and local governments are now required to measure the waistlines of all persons between the ages of 40 and 74 as part of their annual checkups. If the target of a 10% reduction in the number of overweight people in 4 years, and 25% in 7 years, is not met, the national government will impose penalties on the companies or local governments.

Japanese are not noted for being overweight. But a flower-shop owner who got measured during an aggressive special check-up campaign was dismayed to learn that his waist measured 33.6 inches, 0.1 inch over the limit. The average for white American men is 39 inches.

“Strikeout,” said the defeated flower-shop owner .

Critics say that more than half of all Japanese men will be considered overweight. They think the campaign will encourage overmedication and ultimately increase medical costs (NY Times 6/13/08).

Childhood obesity is a major funding area for the Robert Wood Johnson Foundation (RWJF). Based on a World Bank study, RWJF claims obesity costs 12% of the U.S. healthcare budget. Tens of millions of dollars worth of studies on obesity have found, among other things, that poor minorities are more likely to be fat than wealthy whites, and that there are three times as many supermarkets in wealthy neighborhoods as in poor ones, and four times as many in white neighborhoods as in black ones. Proposed interventions to reduce both fat and disparities are not spelled out.

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Posted in economics | 5 Comments »

Retirees projected to need $225,000 per couple for medical costs

Saturday, June 21st, 2008

According to an annual study released by Fidelity Investments, a couple retiring this year will need about $225,000 to cover lifetime medical costs. The study assumes no employer-sponsored retiree coverage. It includes Medicare premium payments, copayments, and deductibles, as well as out-of-pocket prescription drug costs.

The figure has increased 4.7% since 2007. Fidelity’s first study in 2002 found that a couple needed $160,000 in savings to fund medical costs in retirement. Given current levels of savings, 6 in 10 retirees are “at risk” of not being able to maintain their standard of living (Eileen Alt Powell, Associated Press 3/6/08).

The very first cause listed for the rising costs, notes Dr. Lawrence Huntoon, is “the cost of a doctor’s visit”—expected Medicare fee cuts notwithstanding. Other causes are stated to include increased utilization, new technology, and increasing incidence of chronic diseases such as diabetes.

The study assumes, apparently, that Medicare will somehow be able to continue current premiums and benefits.

The federal government projects that by 2017, consumers and taxpayers will spend more than $4 trillion on medical care, $1 of every $5 spent, with the amount increasing at nearly three times the rate of inflation. The percentage paid by federal and state governments is projected to increase from 46% in 2006 to 49% over the next decade.

“Medicare, on its current course, is not sustainable,” testified Health and Human Services Secretary Michael Leavitt (Kevin Freking, Associated Press 2/26/08).

Neither John McCain, Hillary Clinton, nor Barack Obama listed dealing with the coming crisis in financing retirees’ medical care among their stated goals, according to the Kaiser Family Foundation. Obama calls for “expanded public insurance.”

The AMA’s National Health Care Policy Agenda also fails to mention this problem. It simply calls for Congress and the next Administration to “permanently replace the flawed payment formula.” Nor does the AMA allude to the problem in its ten questions for candidates.

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Sabotaging health savings accounts

Wednesday, June 18th, 2008

Nothing probably shows the potential of health savings accounts (HSAs) better than their enemies’ attempts to wreck them. An attempt to load on costly administrative requirements passed the House of Representatives but not the Senate. President Bush had threatened to veto it. Expect it to come back.

H.R. 5719 would have required every HSA transaction to be reviewed and verified as a legitimate medical expense. Currently, such expenditures are subject to an IRS tax audit, and many are made with a debit card that is only useful at a facility providing medical supplies or services.

A Wall Street Journal editorial called it “Health Savings Sabotage,” with a key player being Rep. Pete Stark (D-CA), who views HSAs as a “weapon of mass destruction.” While Democrats, including Barack Obama and Hillary Clinton, decry the high cost of medical care, including insurance overhead, “Mr. Stark and his friends want to impose the same bureaucratic overhead even on spending that consumers do with their own money” (Wall St J 4/19/08).

Cheating is a nonproblem, the editorial stated: “In any case if people cheat on their HSAs, they are only cheating themselves.”

Lobbying for the provision was EvolutionBenefits, which makes software used for “substantiation” of expenses in employer-owned Flexible Spending Accounts. H.R. 5719 would have enabled EvolutionBenefits to charge twice as much for administering HSAs.

“This is a near perfect example of the corruption of Washington,” writes Greg Scandlen. “A powerful member of Congress using his authority to benefit a single company at the expense of millions of consumers and taxpayers” (Consumer Power Report #123, 4/23/08),

“The message is clear,” writes Dan Perrin of the HSA Coalition, “we (the Democrats) think you cannot make your own decisions, so we are going to force you to pay a company to review your decisions and then we will give you access to your own money but only after we decide whether you made the right choice in the first place.”

Since HSAs were created in December 2003, 3.2 million accounts have been opened, covering 4.5 million Americans, one-third of whom were previously uninsured and bought coverage on their own. Thirty-three percent of new users are small businesses that previously had not offered coverage to their employees.

Consulting firm Watson Wyatt found that average health-insurance costs in the last two years rose 3.6% for employers who offered high-deductible accounts, versus 7% for employers who did not (Wall St J 5/1/08).

According to the U.S. Government Accountability Office (GAO), the number of tax filers reporting an HSA tripled between 2004 and 2007 (GAO-08-474R).

“The take-up rate is the fastest of any benefits innovation of our lifetimes, states Greg Scandlen. “Faster than IRAs, 401(k)s, and far faster than HMOs. The only thing that rivals it may be the conversion of HMOs into PPOs in the mid to late 1990s.”

“Which is probably one of the main factors in pushing H.R. 5719,” writes Frank Timmins. “HSAs are a threat to the SP [single payer] crowd. They need to slowly poison this baby before it grows to maturity.”

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Posted in consumer driven medical care, economics, single payer health care, socialized medicine | 3 Comments »

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