Health Care Spending to Grow Even More Slowly

The Hill highlights a new report from PricewaterhouseCoopers showing that “medical inflation will likely fall to 6.5 percent next year — a 50 year low.”

“The rate of growth in healthcare costs slowed predictably during the recession… PwC’s Health Research Institute expects that trend to continue not only as the economy continues to improve, but after the healthcare law brings millions of uninsured people into the healthcare system, driving up demand.”

“It cited new penalties on hospitals whose patients must be readmitted soon after being discharged, as well as still-developing efforts to improve care coordination and efficiency. Slow growth is also being driven by changes in employer-based healthcare plans, which are increasingly shifting more costs to employees.”

Chart of the Day

– The Congressional Budget Office released its assessment of the Senate Gang of Eight’s immigration reform bill, including this chart showing that the proposal would boost gross domestic product by 3.3% in 2023 and by 5.4% in 2033.

Matthew Yglesias: “In the next ten years you’d have about a $700 billion decrease in deficits. And that’s all without raising taxes or cutting spending on useful programs… This is not, I think, remotely on the political agenda but it occurs to me that in principle this could be the non-tax-hiking, non-welfare-state-gutting sequestration replacement America has been waiting for.”

Battle Over Medicaid Expansion Rages in Maine

Maine Gov. Paul LePage (R) vetoed legislation that would expand his state’s Medicaid program under President Obama’s health care reform law, “turning the focus back to majority Democrats to try and rally enough Republican votes to override it,” according to the Bangor Daily News.

“It passed in the House, 97-51, and in the Senate, 23-12. While both tallies included some Republican votes, they fell short of the two-thirds threshold needed to override LePage’s veto… In his letter, LePage warned lawmakers against accepting promises that the federal government will pay nearly all costs of expanding Medicaid over the next decade.”

Budget Cuts Make Pentagon Wary of Syria Conflict

Jeffrey Goldberg reports that as the White House continues to revise and adjust its approach to the brewing conflict in Syria, it is the Pentagon that is most resistant to initiating military action, as highlighted by a recent interaction between Secretary of State John Kerry and Chairman of the Joint Chiefs of Staff, General Martin Dempsey.

“Dempsey informed Kerry that the Air Force could not simply drop a few bombs, or fire a few missiles, at targets inside Syria: To be safe, the U.S. would have to neutralize Syria’s integrated air-defense system, an operation that would require 700 or more sorties.”

“At a time when the U.S. military is exhausted, and when sequestration is ripping into the Pentagon budget, Dempsey is said to have argued that a demand by the State Department for precipitous military action in a murky civil war wasn’t welcome.”

White House Continues to Weigh Climate Change Options

Reuters reports on President Obama’s refusal, thus far, to utilize the National Environmental Policy Act to incorporate the cost of greenhouse gas emissions in approving federal projects.

“NEPA forces officials to consider the environment before approving federal projects… In early 2010, the White House suggested it would make an update to NEPA that would require counting greenhouse gas emissions among the impacts worthy of a NEPA review. But those standards have been on ice ever since they were written.”

“Several former U.S. officials said the White House is at least a year away from blessing a climate change component of NEPA – if such a move is taken at all.”

Are the Credit Rating Agencies Too Much Too Late?

As the budget debate and debt ceiling drama heat up again in Washington, DC, credit rating agency Moody’s is weighing reducing the US’s perfect Aaa credit rating, following S&P’s downgrade in 2011. Expected Loss looks at whether such a move makes any sense.

“But given the US GDP is growing, while Europe is in a recession, can it make any sense to downgrade the US?  Remember, the rating agencies claim their ratings are RELATIVE measures of risk.  In other words, the rating agencies are ranking each country relative to other countries.”

“Our guess is that what’s happening here is the result of a fair share of awkwardness surrounding a situation in which many of the rating agencies’ outstanding ratings may not reflect their current opinions.  If they delayed implementing the downgrade since the US first failed to meet the relevant criteria necessary to maintain the AAA rating, they would now look a little silly downgrading so long after the fact, now that the economy has stabilized, or turned the corner.”

Smart Policy Can Reduce Damage From Wildfires

Brad Plumer highlights a new report from Headwaters Economics looking at how government policies increase the damage caused by wildfires.

“The number of people living in fire-prone areas has grown dramatically… State and local governments are mostly in charge of deciding whether to develop this land. Yet the federal government picks up the biggest piece of the tab for fire suppression and protection — now spending about $3 billion per year.”

“For starters, the feds can tighten fire standards and building codes for homes in these areas. Congress could also limit the mortgage-interest deduction for homes built in especially vulnerable regions — or require homeowners to buy federal fire insurance.”

What Would Tax Reform Look Like?

Although a comprehensive tax reform effort seems unlikely in the current political environment, Gary Becker looks at some of the most glaring problems in the current system.

“Expensing investments and taxing earnings moves the income tax code a long way in the direction of a tax on consumption rather than on incomes. The basic efficiency advantage of consumption taxes is that they do not distort the decision to consume now rather than consume later since the returns on savings and investments are not taxed. By contrast, income taxes do distort this decision since they tax the incomes earned on savings as well as the incomes that led to the savings.”

“Whether ones moves to a consumption tax or not, taxes should be simpler and flatter because that would reduce the large cost of tax compliance, and encourage greater investment and work effort. A reasonable proposal that would maintain progressivity yet have a much flatter tax structure would be to have only two or three tax rates.”

Why Social Security Is Not a Ponzi Scheme

Cullene Roche explains why pundits and lawmakers that describe Social Security as a “Ponzi scheme” are “extremely misleading.”

“It’s illogical to compare Social Security to a ‘ponzi scheme’.  Ponzi schemes run out of funding at some point.  But the US government can’t run out of dollars so that’s clearly wrong.  Now, it could make the dollar worthless by creating too many of them, but that’s very different than running out of dollars.”

“I am not saying there’s a free lunch here.  Absolutely not.  But if we’re going to have an intelligent debate about all of this we should at least start by understanding what the real debate is about.  This isn’t about whether we have the ability to fund Social Security.  This is is about understanding the real constraint on our government (the inflation constraint) and how we are going to balance government spending with the side effect of inflation.”

Medicaid Fight Heats Up in Mississippi

Sandhya Somashekhar highlights a brewing fight over Medicaid in Mississippi that is putting the state’s entire program at risk because of disagreement over the Medicaid expansion in President Obama’s health care reform law.

“State law requires that the legislature reauthorize Medicaid annually, and because it has a tax component, it needs the support of three-fifths of both chambers. This usually happens without fanfare. But Democrats in the House rejected the reauthorization bill. Their objection? Republicans will not permit a debate on expanding Medicaid under the health law.”

“The governor has said that he hopes to hold a special session later this month to reauthorize Medicaid, and that he believes he has the power to run the program himself if the legislature does not.”

The Long Road to Reform at the US Postal Service

The Wall Street Journal looks at what ails the struggling US Postal Service, which has experienced declining revenue over the last five years and faces a rapidly approaching debt ceiling.

“The past has saddled it with far more capacity than it needs in an era of email and websites—more property, more sorting facilities, more workers—and a business model that the U.S. Government Accountability Office describes as ‘not viable.’”

“Everyone knows the USPS needs significant change. But politics have produced a nearly unbreakable gridlock. Junk mailers and periodical publishers lobby hard for low mailing rates. Unions protect jobs. FedEx and UPS want to rely on the USPS where convenient, but don’t want too much competition. And members of Congress demand efficiency—as long as it doesn’t mean closing a post office in my district.”

“Eventually, something will give. Until then, the imperative is to preserve the core competencies of USPS: the brand, the people’s trust and that delivery network.”

Arizona Approves Medicaid Expansion

Arizona’s state legislature has approved the Medicaid expansion in President Obama’s health care reform law after a lengthy standoff with Gov. Jan Brewer (R), reports Reuters.

“Brewer, a staunch conservative in this desert southwestern state, has said Arizona had no choice but to agree to provide care to 300,000 poor and disabled residents through the federal-state program. She said the decision would also protect rural and other hospitals from being jeopardized by the rising costs of paying for uninsured patients, inject $2 billion into the state’s economy and create thousands of jobs.”

Bloomberg: “The move will let the state restore Medicaid to childless adults living in poverty, who were covered until 2011, when lawmakers froze enrollment. It also will ease a rising burden on residents whose insurance rates help pay for the care hospitals give to the uninsured.”

The Curious Decline of Inflation

Matthew O’Brien searches for possible answers to the riddle of falling inflation expectations, which has persisted despite the Federal Reserve’s open-ended asset purchasing program, and lands on austerity as the explanation.

“If it was just about low demand in the rest of the world translating into low inflation here because of lower oil and food prices, we wouldn’t see core prices falling quite as much… core inflation is at its lowest level since 1963. It’s lower now than the worrying low level it hit in 2010 that scared the Fed into launching QE2 to avert deflation.”

“It’s a three-act story of bad policy. First, the stimulus peaked, and then reversed prematurely; then, state and local governments began slashing budgets to balance them as they are required; and now, the federal government is cutting spending in the dumbest way Congress could come up with — the sequester. Now, QE2 did manage to increase inflation despite some austerity, but there’s more of it this time around… the fiscal contraction the past six months has probably overwhelmed any ‘money-printing’.”

Obamacare Brings Hospital Savings, Better Care

Bloomberg examines how “hospitals are improving care and saving millions of dollars with one of the least touted but potentially most effective provisions” of President Obama’s health care reform law: Accountable Care Organizations.

“Under the program, hospitals and physician practices take responsibility for tracking and maintaining the health of elderly and disabled patients. If costs rise beyond an agreed upon level, hospitals may become responsible for reimbursing the government. If they cut the cost of care while maintaining quality, hospitals share in the savings.”

“Medicare’s accountable-care program requires hospitals and doctors to show they are improving or maintaining the quality of their care before they are paid any bonuses… More powerful technology will also help. And unlike in the ’90s, today’s programs are backed by a new law.”

Lawmakers Lack Creativity on Fiscal Policy

While some lawmakers insist that there is little that fiscal policy can do to boost the economy, Alan Blinder looks at three creative ideas to incentivize businesses to boost hiring.

“Congress could make a good start on faster job creation simply by ending what it’s doing—destroying government jobs. First, do no harm… Offer tax breaks to firms that boost their payrolls. For example, companies might be offered a tax credit equal to 10% of the increase in their wage bills over the previous year… Suppose Congress enacted a partial tax holiday that allowed companies to repatriate profits held abroad at some bargain-basement tax rate like 10%. The catch: The maximum amount each company could bring home at that low tax rate would equal the increase in its wage payments as measured by Social Security records.”

“My general point is that the fiscal cupboard is not bare. There are things we could be doing to boost employment right now. That we are not doing anything constitutes malign neglect of the nation’s worst economic problem.”

The Fiscal Policy Debate is Out of Whack

Simon Johnson warns that as we move beyond the 2008 financial crisis, the debate over fiscal policy and the debt ceiling demonstrates that lawmakers have forgotten the dark days.

“We have lost our grip on what is appropriate and inappropriate in discussing fiscal-policy choices. A shock that plunges the economy of any industrialized country into a recession will be met by automatic fiscal responses that seek to counteract the effect… there are also important discretionary fiscal-policy choices that must be made in a deep recession.”

“Regardless of party affiliation, the discussion in public and in private in late 2008 was about the appropriate form and scale of support for the economy… There was no serious resistance to the notion that we were confronting the biggest crisis since World War II.”

Feds Get Better at Stopping Medicare Fraud

USA Today looks at a major jump in the policing of Medicare fraud, after the government “revoked the ability of 14,663 providers and suppliers to bill Medicare over the past two years — almost two and a half times the number that had been revoked in the previous two years.”

“A key part of the anti-fraud effort…includes a new, easier-to-read summary statement that allows recipients to see exactly who has billed Medicare with their identification numbers… During the past four years, the government has recovered $14.9 billion in Medicare fraud money, due in large part to the 2010 health care law.”

“The law allowed the government to analyze data to spot indications of fraud and stop paying providers… all providers had to go through a reapplication process to participate in Medicare. Those who didn’t meet a requirement, had felony convictions, had incorrect addresses or who weren’t properly licensed are no longer allowed to bill Medicare.”

Farm Bill Reforms are Welfare for the Wealthy

Mark Bittman explains how the effort to reform the farm bill, which includes everything from agriculture subsidies to the Supplemental Nutrition Assistance Program (also known as food stamps), “steals taxpayer money from the poor and so-called middle class to pay the rich, while propping up a form of agriculture that’s unsustainable and poisonous.”

“Two of the most expensive programs are food stamps, the cost of which has justifiably soared since the beginning of the Great Recession, and direct subsidy payments.This pits the ability of poor people to eat — not well, but sort of enough — against the production of agricultural commodities. That would be a difficult choice if the subsidies were going to farmers who could be crushed by failure, but in reality most direct payments go to those who need them least.”

“Knowing that direct subsidy payments are under the gun, our clever and cynical representatives are offering a bait-and-switch policy that will make things worse, and largely replace subsidy payments with an enhanced form of crop insurance — paid for by us, of course — which will further reduce risks for commodity farmers.”

Rejecting Medicaid Expansion is a Rational Choice

While research indicates that under current policy it makes fiscal sense for states to expand Medicaid under President Obama’s health care reform law, Tyler Cowen explains why rejecting the expansion and the accompanying federal dollars is still a sound fiscal decision.

“States don’t want to be left holding the bag, and governors know it is hard to take back benefits once granted… The chance to jump on the Medicaid expansion bandwagon won’t go away tomorrow. Even if the cost-benefit ratio > 1, you still might want to play wait and see. There is even a chance that in the meantime you are somehow offered a better deal yet.”

“Now if someone wants to argue that, given these considerations, Medicaid expansion still makes financial sense for a state, fine, I would be keen to read such an analysis. But that is not what I am seeing… Governors are not stupid, or their chiefs of staff are not stupid, and many governors are far less ideological than they let on. They are politicians. And they are politicians who understand that the federal government is not to be trusted and yes if you wish you really can blame that on the Republicans, or indeed on any prospective switch of power. That is why we are not seeing more states do the Medicaid expansion. In the meantime, the debate needs to catch up to the reality.”

Why the Tax on “Cadillac” Insurance Plans is Great Policy

The forthcoming tax on so-called “Cadillac” insurance plans is, according to Charles Lane, one part of President Obama’s health care reform law ” that liberals, conservatives and everyone in between should be able to agree on.”

“Nearly half of Americans get health insurance through their employers; a tax exclusion for its value encourages businesses to provide coverage… The ideal solution would be to eliminate or sharply reduce this tax exclusion… What survived was a 40 percent tax on the value of an employer-provided health plan that exceeds $10,200 for individuals and $27,500 for families. When the tax goes into effect in 2018, it will hit 16 percent of employer-paid plans.”

“Anticipating the tax, some companies are adjusting coverage now. More are offering employees higher-deductible plans and other incentives to economize, a trend that may be contributing to the overall slowing of health-care inflation… That’s basically good news.”

Missing the Point on Austerity and Stimulus

The debate between stimulus and austerity policies in the wake of the Great Recession continues to rage around the world. Clive Crook says that both sides are getting it wrong.

“Fiscal consolidation when the economy is strong is as important as fiscal stimulus when it’s weak: Without the first, you can’t count on the second… The right has mostly argued for austerity regardless. The left has mostly played down the need for fiscal control later, arguing that as growth resumes the problem will take care of itself.”

“It’s silly to ask whether high public debt causes lower growth or vice versa as though it must be one or the other. Almost certainly, both are true… What’s needed is fiscal strength (as conservatives stress) and the willingness to use it boldly when necessary (as Keynesians stress). This simple proposition was true in 2008 and it’s still true. It should be uncontroversial, but it seems to be more than politics can handle.”

Rejecting Medicaid Expansion Will Cost States More

The Hill highlights a new study by the Rand Corporation finding that “states that reject the Medicaid expansion will end up paying more for healthcare coverage than states that participate — and covering far fewer people.”

“Together, 14 states that have rejected the expansion will spend $1 billion more on uncompensated care than they would under the expansion, and they’ll lose out on $8.4 billion in federal payments… The 14 states included in the Rand analysis are also passing up a chance to cover 3.6 million uninsured people.”

Blame Democrats for Obamacare’s Funding Problems

Tim Kane: “Isn’t it strange that the Affordable Care Act was advertised as ‘shrinking the deficit’ back in 2010 because its fiscal outlays were so efficient, but now proponents are complaining that it’s not their fault the bill doesn’t have enough funds for implementation? How can you launch a project under the banner of cost efficiency and neglect an entire component of its cost structure?”

Is Entitlement Growth a Problem?

After last week’s report on Social Security and Medicare spending, Paul Krugman says that “the data suggest that we can, if we choose, maintain social insurance as we know it with only modest adjustments.”

“The latest projections show the combined cost of Social Security and Medicare rising by a bit more than 3 percent of G.D.P. between now and 2035, and that number could easily come down with more effort on the health care front. Now, 3 percent of G.D.P. is a big number, but it’s not an economy-crushing number. The United States could, for example, close that gap entirely through tax increases, with no reduction in benefits at all, and still have one of the lowest overall tax rates in the advanced world.”

But James Hamilton notes that the idea that Social Security and Medicare trust funds are “adequately funded” is off the mark.

“The Social Security trust fund ended 2012 with $2.6 trillion in assets… But the $2.6 T in current assets consist of nothing more than a big I.O.U. from the U.S. Treasury to the Social Security trust fund… Taxes will have to be raised, other programs cut, or the Treasury will have to borrow more from the public in order to deliver the funds that Social Security is assuming it’s going to be receiving from the Treasury between now and 2035.”

Tornados Prompt Weather Service to End Furloughs

The National Oceanic and Atmospheric Administration announced that it will no longer furlough employees at the National Weather Service under the sequestration spending cuts after the recent spate of deadly tornadoes that hit Oklahoma, according to The Hill.

“In an email to staff, NOAA Acting Administrator Kathryn Sullivan said the tragedies emphasize ‘how important every single employee within NOAA is’… Lawmakers said weather personnel should be exempt and criticized the Commerce Department, which runs NOAA, when it said the furloughs would move forward. The department’s original proposal would have ordered four days of furlough for every NOAA employee.”