The Cost of Reform

The campaign to elect the next President has been mind numbing.  The circus-like GOP primary season provided lots of words but absolutely no plans on how to get the deficit under control and the economy moving.

And no one has called out any of the candidates on their “cut taxes” pledges coupled with “cutting the size of government” pledges.  Now with the Republican Convention over and the Democrats still in session, we still have heard no one, republican or democrat, put the dimensions of this task before us.

The 2013 Federal Budget projected about a $1 trillion deficit.  Of that deficit, about $500 million is in unfunded expenditures for Medicare and Medicaid.  Proportioning this gap against what the government expects to pay in Medicare and Medicaid costs, one could say that Medicare makes up about $350 billion (about 35%) and Medicaid makes up $150 billion (about 15%) of the deficit.

So stay with me.  If someone is going to “reduce the size of government” or “tackle entitlements” in an effort to balance the budget, what’s going to have to happen?

The answer is quite simple.  Either everyone receiving Medicare or Medicaid pays more or everyone in these programs receive less health care.  (Of course we could all pay more.)

Those in Medicaid are not going to pay more.  The reason they are in Medicaid is because they can’t afford health care coverage in the first place.

For Medicare, however, the 48 million participants, on average, would need to pay out of pocket the $350 billion gap in order to cover unfunded Medicare.  That represents about $7300 per year (about $600 per month) in extra medical expense.  That seems a lot for those on fixed income.  This suggests a lot of people using less health care or a lot of us paying more even though we are not in Medicare or Medicaid.

In no way does this simple math mean we should do nothing.  Health care must be paid for.  There are no real free lunches.  The question is how do we pay for it?

The answer must lie in some mix of real reductions in the cost of health care (not creating a second and lower tier level of care), increased wage withholding taxes (in essences paying more before one becomes Medicaid eligible), and probably a new, consumption based tax (like a national sales tax to cover those who can’t cover themselves).  Who’s talking about this?

The Democratic Convention speaks to the fairness of healthcare.  They speak passionately.  But these are words that will let us all down unless we realize the hole we are digging and what it is going to take to get out.

The Democrats are correct that the solution to the budget deficit should not become a burden on the poor or elderly.  But without a proposal, Democratic pleas are hollow.

The brave Republicans boarder on being heartless with the glib notion that vouchers will solve the problem.  Think about this.  The gap is $350 billion.  So for vouchers to work (provide coverage and eliminate the deficit), the government must issue $350 billion less in voucher value than we are spending today.

Political pundits say that neither party will get real about the solutions which will be necessary until the election is over.  Voters must choose between tough talking and compassionate talking.

It would serve everyone well if the candidates just laid out the dimensions of the problem.  They could tell us that health care costs are rising for Medicare and Medicaid by double digits and with State’s contributions, will top $1 trillion with one year.  This is not a problem for political parties.  Rather it is an American problem that only all Americans can solve.

There are about 60 days until November 6.  There are three debates and countless stump speeches.  And the web is on duty 24 hours a day.  There is no excuse for not telling it as it is.  Wouldn’t it be refreshing to hear “I don’t know the answer, but I will work with anyone and everyone to solve it”.

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