$59 Trillion in the Hole (and Counting)

USA Today is reporting, “Taxpayers on the Hook for $59 Trillion”:

“The federal government recorded a $1.3 trillion loss last year — far more than the official $248 billion deficit — when corporate-style accounting standards are used, a USA Today analysis shows.

“The loss reflects a continued deterioration in the finances of Social Security and government retirement programs for civil servants and military personnel. The loss — equal to $11,434 per household — is more than Americans paid in income taxes in 2006…

“Modern accounting requires that corporations, state governments, and local governments count expenses immediately when a transaction occurs, even if the payment will be made later.

“The federal government does not follow the rule, so promises for Social Security and Medicare don’t show up when the government reports its financial condition…

“Unfunded promises made for Medicare, Social Security, and federal retirement programs account for 85% of taxpayer liabilities. State and local government retirement plans account for much of the rest…

“The Financial Accounting Standards Advisory Board, which sets federal accounting standards, is considering requiring the government to adopt accounting rules similar to those for corporations. The change would move Social Security and Medicare onto the government’s income statement and balance sheet, instead of keeping them separate.

“The White House and the Congressional Budget Office oppose the change, arguing that the programs are not true liabilities because government can cancel or cut them.

“Chad Stone, chief economist at the liberal Center on Budget and Policy Priorities, says it can be misleading to focus on the government’s unfunded liabilities because Medicare’s financial problems overwhelm the analysis.

“‘There is a shortfall in Medicare and Medicaid that is potentially explosive, but that is related to overall trends in health care spending,’ he says.”

$59 Trillion Review

  1. The shortfall is misleading because Medicare overwhelms the analysis.
  2. The apparent solution, then, is to ignore Medicare and Medicaid, as if they did not exist.
  3. Besides, “the programs are not true liabilities because government can cancel or cut them.”

Yeah, right. Let’s see it. Let’s see Bush (or any politician, for that matter) come on TV and say we are canceling Medicaid, Medicare, and Social Security.

The best we can hope for is a complete revamp of our medical system. I talked about this in “Health Care Costs Soar — What Are We Getting for It?

U.S. Is Dead Last

A study of comparative performance of American health care shows that you can find much better care, but you can’t pay more. The Commonwealth Fund reports:

“Despite having the most costly health system in the world, the United States consistently underperforms on most dimensions of performance, relative to other countries… Compared with five other nations — Australia, Canada, Germany, New Zealand, the United Kingdom — the U.S. health care system ranks last or next to last on five dimensions of a high performance health system: quality, access, efficiency, equity, and healthy lives. The U.S. is the only country in the study without universal health insurance coverage, partly accounting for its poor performance on access, equity, and health outcomes.”


Competing Plans

  1. President Bush announced his plan for “Affordable, Accessible, and Flexible Health Coverage” in the State of the Union message.
  2. California Gov. Arnold Schwarzenegger has his health care plan.
  3. Democratic Sen. Ron Wyden has a health care plan.
  4. Families USA, the self-proclaimed “voice for health care consumers,” pans Bush’s health savings account approach while offering its own plan.

Darn near anything is better than what we have now, but none of the above programs Is remotely close to what is needed. All of the above ideas are patches to our current broken system.

In “Health Care Costs Soar — What Are We Getting for It?,” I was attempting to be practical when I suggested we “take a look at New Zealand and start all over from there. Reducing expenses by two-thirds and improving care dramatically at the same time has to be a good start.”

Is a single-payer, government-sponsored system like New Zealand’s ideal? No. It is not. It’s far from ideal. But is it orders of magnitude better than what we have today? Most likely, it is. Certainly, I was correct when I suggested that we start all over. What’s debatable is from where.

Ideally, one can argue that the best solution is for the government to get out of the way and let the free market work. From a practical standpoint, however, I am wondering if something like what New Zealand or the U.K. have is the best we can get. Perhaps it is. In fact, given the current political state of affairs, it might be hoping for too much. The problem is that right now, we have purposeful disincentives every step of the way.

Purposeful Disincentives

  1. Insurance companies do not make money paying claims. The result: Paperwork and bureaucracy are both increased on purpose so that claims are not paid.
  2. A visit to the emergency room might be 100% paid on most policies, but a doctor’s office visit might have a huge deductible. The result: Needless emergencies.
  3. Medical liability costs are soaring. The result: Every test (no matter how unlikely the benefit) is taken.
  4. There is competition for services and bragging about technology between hospitals. The result: The latest medical equipment is everywhere, even if it serves two patients a year. Costs are passed on by charging $10 a pill for simple aspirin.
  5. Drug imports from Canada are restricted. The result: Drug costs are soaring.
  6. Government policies mandate payment for fertility treatments. The result: Women 40-plus years old are covered for the costs of artificial insemination treatments as many as five times before they get pregnant.
  7. Medicaid (for the first year) is not qualified. The result: You get one year automatically on Medicaid before getting audited and kicked off if you do not qualify. There are no post actions to go back for payments. You are simply dropped.

The time to start over is now. Start over from where is what is debatable. We can debate ad nauseam the correct approach. But the closer we can get to a free market approach, the better off we will all be.


June 1, 2007

The Daily Reckoning