Why health care will keep us ill

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The flaw in the annointment is that our out of paradigm legislators and administration have apparently agreed that whatever healthcare they pass will be a ‘tax now, spend later’ arrangement.

This will only serve to reduce aggregate for the time leading up to the additional spending, which looks to be, perhaps, three years.

While it may not be enough to throw us back to negative growth, it will work against any transition back towards full employment we might have had otherwise.


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18 Responses to Why health care will keep us ill

  1. John says:

    Re: “The flaw in the ointment…”

    I think that should be “the fly in the ointment.”


  2. warren mosler says:

    agreed on the ‘credentials’ issue


  3. Blissex says:

    But there is absolutely no Obama plan, the current legislation has been entirely designed by Congress. The administration has only proposed some general principles, and then stood by as Congress made a mess of it, because they think that putting forward a plan that Congress can snipe at is what doomed Clinton’s proposal.


  4. warren.mosler says:

    yes, will wait to see what actually comes out of it.

    lots of good ideas, thanks.

    i’ve been specifically talking a medicare type catastrophic coverage.


    zanon Reply:


    Congress listens to Harvard University, not some guy in BVI. Unless you can get Greg Mankiw to tear up his textbook, Larry Summers to admit he was wrong, and Paul Krugman to embrace tax cuts, all these ideas are going nowhere.

    PKs big failure has been their inability to make progress in the academy. Law “makers” infact just do what academic experts tell them to do.

    beowulf: if you can find some suicidal senetor to take up Warren, the next day he will find op-ed by Yale professor making fun of him. Then someone will make bad joke about him in cocktail party. And an aid will snigger behind his back. Game over.


  5. Blissex says:

    «Congress will end up tearing up the Obama plan»

    But there is absolutely no Obama plan, the current legislation has been entirely designed by Congress. The administration has only proposed some general principles, and then stood by as Congress made a mess of it, because they think that putting forward a plan that Congress can snipe at is what doomed Clinton’s proposal.


  6. beowulf says:

    I should have noted out that using the Social Security part of FICA open a whole other can of worms, so perhaps better to stick with the Medicare’s 2.9% tax (employee and employer sides combined) as the deductible/credit, but then its not really a catastrophic insurance plan.
    Oh well, I’ll wait till the Obama plan flames out before I bend your ear on this again Warren. :o)


  7. beowulf says:

    and my plan was never even a consideration


    Dread not Warren. The political consequence of “tax now, spend later” is that Congress will end up tearing up the Obama plan and starting over sometime between the time the new taxes start in 2010 and the new spending starts in 2010. So you may yet see your proposal considered on Capitol Hill.

    To get to that point, it seems to me you need to find a friendly congressman or senator who can help you boil down your proposal into legislative language and who’ll then sponsor it. Since a CBO cost estimate is required before any bill can go to the floor for a vote, the threshold question will be– how do you fund it?

    Of course Congress could just authorize the Treasury to print the money (by requiring the Fed to purchase Treasury debt or however it is the fiction of an “independent central bank” is maintained) but I do believe that would break the CBO’s collective brains. The bill might have to set a tax rate (to hazard a guess, a 10% payroll tax) to fund the program so the CBO can come back and state the Mosler Plan won’t add to the deficit over 10 years– a requirement for a bill that can pass the Senate by a 51 vote budget reconciliation act. Meanwhile, the legislation could give the president the authority to issue an executive order to waive the new taxes and just print the money as the medical bills come in.

    As I mentioned on the “more from Geitner and Obama” thread, it would be easier to re-engineer the existing Medicare system than to start a new government agency from scratch to handle catastrophic insurance. Seems to me the easiest way to do so is eliminate Medicare’s existing premiums, 80/20 coinsurance and age restrictions of course, then take some portion of the employee half of FICA taxes (1.45% Medicare, 6.2% Social Security) and make that a deductible / income tax credit. Median household income is what, $55,000? 7.65% of that is $4,207.50. All Medicare providers will list their prices for the patient at time of service but would bill Medicare directly. Medicare would pay the invoice but would send out to each patient an annual list of medical expenses paid (or prepaid rather).

    At tax time, 100% of the medical expenses incurred come out of the deductible, if the charges are less than (to use our example) $4,207.50, the patient keeps the remainder as a refundable income tax credit. If the charge exceeds the cap, there’s no credit but no further copayments either.

    I wouldn’t sweat keeping back the initial $1,000 to encourage preventive treatment, just include a clause like (from Pete Stark’s solid Americare bill) Benefits shall also be made… without the application of any deductible or coinsurance for preventive services that are recommended by the United States Preventive Services Task Force.


  8. warren mosler says:

    and my plan was never even a consideration



    zanon Reply:

    And next up for “national debate” — open borders.

    prediction: there will be some amnesty for illegal immigrants already in US. Republicans will complain and lose the hispanic vote even more. Democrats will thus increase their base further. Republicans should realize they are just enablers and vote whichever way Pelosi does. Only way to change this crazy system is to embrace it.


  9. zanon says:


    US on the brink of serious debate? Have you been asleep in a cave? Health care bill has passed. People are sick and tired of talking about it. It has been handed over to bureaucrats and people have moved on.

    And why are you changing subject?

    You claim that “prevention” will save health care $$$. I call that obvious nonsense and ask for proof. You bring up Palin (?!)


  10. Tom Hickey says:

    Zanon, I brought Palin and “death panels” in because it is relevant to the discussion about the politics of health care in the US right now. I think that this is a big deal in the media because she has touched a nerve, and that is rationing care. So I see this a positive development in that an essential aspect of the problem that has been largely avoided in being put on the table.

    Implicit is cost control is who gets how much care and who pays for it. Care is already rationed by personal wealth and insurance company decisions about what they must pay for. However, the bulk of spending occurs in the final years, and this means that Medicare and Medicaid absorb most of the cost. The US is on the brink of a serious debate about this. While Palin’s warning was largely beside the point in the debate about the current bill, it is looming in the wings and will be a hot button politically.

    The health care debate is a huge looming issue that isn’t going away anytime soon, and economic efficiency/cost effectiveness vs equity is going to be central to the politics. The left and right are diametrically opposed on most of the key issues. However, we shouldn’t let ideology cloud reality in the heat of debate. So I’m throwing it out there.


  11. zanon says:

    That quote is the typical nonsense I am talking about. How do you prevent “coronary disease”? Good food and exercise? Great! We know all about that, yet you still see an America filled with fatties eating fast food. We don’t need healthcare reform to get Americans off their butts and eating better.

    And, now we have this good food eating, exercising American who is free of cardiac disease — great! Will they be cheaper over their lifetime? Maybe instead of dropping dead at 55, they are not going to live until 90, collecting social security, and spending their last 20 years in an old folks home ($$$) with Alzheimers.

    If we wanted to save money on healthcare, it would be cheaper just to encourage everyone to start smoking again.

    I laughed at you saying pouring concrete = $$$ or drugs. Did not work out so well for CRE did it? Take the profit out of drugs, and you stop getting new drugs. Or maybe you think drug companies are charities working out of the goodness of their hearts?


  12. Tom Hickey says:

    “My question was: why do you (or anyone) think that prevention will bring down costs? It is obvious to me that it will not.”

    Prevention is difficult to establish if it involves counterfactuals — measuring things that didn’t happen. “Preventive medicine” is usually used to mean something broader that things like eating nutritiously and exercising regularly.

    “Efforts toward disease prevention in the community and the individual. It covers patient interviews and testing to detect risk factors; sanitary measures in homes, communities, and medical facilities; patient education; and diet and exercise programs as well as preventive drugs and surgery. It has three levels: primary (e.g., prevention of coronary heart disease in a healthy person), secondary (e.g., prevention of heart attack in a person with heart disease), and tertiary (e.g., prevention of disability and death after a heart attack). The first is by far the most economical. Important advances in preventive medicine include vaccination (see vaccine), antibiotics, diagnostic imaging, and recognition of psychological factors. See also epidemiology, immunology, industrial medicine, quarantine.”

    “Medical advances are not manna from heaven. Just like next quarter’s sales, you should not take them for granted.”

    A lot of stuff is already off the drawing boards and soon to enter the pipeline. I live near a large university medical complex and biotech companies are proliferating, surrounded by lot of new housing with more foundations being poured almost as we speak (can’t pour now, it’s snowing), even in this housing downturn. It’s obvious here this is very hot.


  13. Tom Hickey says:

    Good observation. Here is a similar criticism I posted in a comment over at Modeled Behavior, responding to a post about controlling costs in light of rational expectations:

    The idea that “the representative consumer” makes “rational” (fully informed) health care choices, or could make them, is absurd on the face of it, and anyone who has been faced with any kind of serious medical decision knows this. Unless one is a physician or someone equally educated and up to date in the field, one is totally at the mercy of the system, including the bean-counters at one’s insurance company. And there is often some disagreement regarding expert advice, e.g., between first and second opinions. This isn’t about “tear and compare.” How can a “representative consumer” possibly know about relative effectiveness of different treatments based on evidence. Oh, “the invisible hand.” Right. Count me skeptical. And just why are consumers being presented with choices that are relatively ineffective in the first place? This is best practice?

    Health care is a good instance of a sector in which rational expectations really does not work. If the goal is for everyone to spend less on health care, then more must be spent lower down in the system, making sure that everyone is properly examined on a regular basis, instructed in preventive measures, and can contact a qualified practitioner immediately when a possibly serious problem arises independently of the emergency room.

    The objective of health care reform should not be to “spend less” or “bend the curve,” but to provide maximally effective care at optimal efficiency. From a purely economic standpoint, disregarding the human values involved, we are dealing with our human capital here, and capitalism is about capital formation, preservation, and effective/efficient deployment. A great part of the cost involved in health care is loss of economic potential due to degradation of human capital. That is almost never plugged into the model.


    zanon Reply:

    You, as many others, assume that prevention will somehow lower health care costs.

    I have no idea why you think this is the case. You cannot prevent old age and death, and that is what costs $. Our biggest social policy that “wastes” human capital is a retirement age far below the ability to work.


    Tom Hickey Reply:


    The heaviest costs are incurred for serious illness, the likelihood of which increases statistically with age. The only way to reduce these costs, is rationing and that’s what the metaphor “death panels” is all about, as Palin recently clarified, claiming (without evidence or basis) that the government is preparing to deny care based on one’s productivity. This is an issue that will have to be addressed. So far, the politics seem to be saying, “no rationing.”

    This doesn’t mean that prevention, access, and early detection won’t reduce costs to a significant degree. Many experts testify they they will provide a lot of bang for the buck.

    The real problem is that technological advances in medicine are expensive, for a number of reasons. This opportunities and expenses are are only going to intensify, since the major technological advances in the foreseeable future are expected to take place in medical technology.

    Society is going to have to decide how it wants to see this technological advancement distributed. It is treated as a private good, then the rationing will be on the basis of wealth. If it is considered a public utility, then an approach similar to education will have to be devised and implemented. We aren’t really seeing this debated on the issues yet.

    As far as the retirement age goes, that may have to be revisited, But I think that with boomers scheduled to retire soon, seemingly without sufficient funds to do so comfortably, we will see a big shift anyway. There probably isn’t going to be as much wasted productivity on the golf course coming up.


    zanon Reply:


    I was not questioning whether prevention would give you “bang for the buck”.

    And I have no idea why you are bringing Palin into the conversation.

    My question was: why do you (or anyone) think that prevention will bring down costs? It is obvious to me that it will not.

    Medical advances are not manna from heaven. Just like next quarter’s sales, you should not take them for granted.

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