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Obama on Health Care Reform: Let’s Go Bankrupt Faster

John on May 17, 2009 at 9:25 am

The video of Obama’s townhall appearance in New Mexico is seven minutes long, but worth watching if you care about the future of health care in America:

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Let’s diagram his answer (shame on you if you’re too lazy to watch the clip):

  • I campaigned on reform…I’m optimistic about getting it done
  • Health Care is 1/6 our our economy…we have to be practical
  • Principles
    • Control Costs – “If we insured everyone under the current system…we’d go broke.”
      • Costs are up for consumers and businesses
      • Medicare is going broke. Medicare is the #1 “driver” of deficits.
      • “By far the biggest contributor to our annual debt is medicare and medicaid, social security, defense and service on the debt.”
      • “What’s driving us into debt is health care.”
      • If we emphasize prevention and wellness…
      • If we expand health IT…
      • “There are simple things we can do that will save us money.”
    • Universal coverage…if everyone has coverage then we get preventative care.
      • “Might cost the federal government overall a little more…”
    • Why not do single payer?
      • What is single-payer?

        • Answer: “Medicare is sort of a single payer system but it’s only for people over 65.
        • You don’t have insurance companies as middle-men.
      • If I were starting from scratch, I’d go single-payer
      • We have a system of employer based care
      • We don’t want a huge disruption in care
      • Let’s have a system where people who are happy don’t have to change, and…
      • People who don’t have coverage or are not happy can enroll in a “public plan that you could enroll in and sign up for.”
  • I’m working with Congress. The bill is coming.
  • We’re going to get it done this year.

Now, look over that diagram of what he said. Do you see the problem? You should because I’ve made it easy by highlighting it in blue. Actually, there are several problems, but I’m just focusing on the most serious one.

Oh, there’s one missing bit of data you need to fully see the problem. What Obama calls the “public plan” is usually referred to as the “public option”. So just what is the public option?

It’s Medicare.

Not exactly. They might readjust some fine points. But basically it’s Medicare. In fact, some have called the plan “medicare-for-all.”

Currently, Medicare covers about 35 million seniors. But the academic who helped write Obama’s plan has said that, if it’s enacted, about 40% of the US population would end up on the medicare/public option.

Obama wants to triple the size of the program that is bankrupting us.There are about 300 million people in the US. If 40% are on the public option, Medicare grows from covering 35 million Americans to 120 million within a year or two. In other words, Obama wants to triple the size of the program that is bankrupting us. Amazingly, he even says it might cost a little more to do it. Yikes!

I found an article that explains why Medicare is bankrupting us in real budget numbers. To really appreciate it, you’ve got to understand some basic accounting, so slog through this next excerpt. I promise it’s not that hard and you’ll learn something (I did anyway):

Cash accounting is what the government uses for its books. This computes net income or deficit by counting only cash income “in” and cash expenditures “out” during the year.

Accrual accounting, in contrast, also counts legally incurred rights to receive future income and obligations to make future expenditures that accrue during the accounting period.

Accrual accounting is used in the private sector — in fact, cash accounting is illegal for most businesses much larger than a newsstand. The reasons should be obvious, but a simple example can make them clear.

Say you are a business manager and make a deal for the business under which it receives a net $1 million cash payment this year. That looks good! But wait … suppose that to get this payment up front you commit the business to make a $10 million payment to the other party ten years from now.

Using accrual accounting the $1 million of cash received up front is offset by the present value of the $10 million commitment to pay in the future — which is that amount reduced by the market rate of interest for that long. If the interest rate is 5%, the present value of $10 million payable ten years from now is $6 million.

So when using accrual accounting — as required by law and your accounting firm — you are seen accurately to have created a $5 million loss for the business. You have some explaining to do to your boss.

But imagine that instead you use cash accounting. Then the $1 million that comes in today boosts the business’s income and profits by fully that much while the attached $10 million liability is ignored. The business’s owners don’t know about the liability because it’s not reported on the books. They give you a fat profit-sharing bonus, you take it, retire, and are long gone when the $10 million bill lands on them and everyone else in the business as a surprise — bam! — in the future.

Did you make it through that? If not, read it one more time. Now here’s the payoff vis a vis Medicare (all number for 2007):

Now imagine that instead you are the U.S. Congress. You exempt the federal government — that is, yourself — from using the accrual accounting methods that you impose by law on everybody else, and have it simply use cash accounting for programs such as Social Security, Medicare, Medicaid, federal and military pensions, and so forth.

Thus, for Social Security and Medicare for instance, you have the government count all the FICA taxes it receives in their name in income, and you use them to declare “Deficit reduced to only $163 billion!” — while ignoring the more than $2 trillion of attached liabilities for Social Security and Medicare, present value, that accrue in the single year...

Add to the liability for Medicare and Social Secutity the reported increase in other on-balance sheet liabilities of $290 billion, and the one-year in increase in the net liabilities of the federal government becomes $2.384 trillion. (And there’s more, the real final number is bigger yet — I’m not counting other off-balance sheet liabilities for the likes of Medicaid, federal and military pensions and such because I don’t want to become too depressed to continue).

Some perspective:

All federal income taxes, individual and corporate combined, in 2007 totaled $1.534 trillion.

The word unsustainable comes to mind.

Now the good news is that we haven’t really spent this money yet. We’ve only promised to spend it. We can change the program so we’re forced to spend less, at least in theory. We can, for instance, raise the retirement age for social security or cut benefits Medicare provides. But those aren’t the proposals on the table. Instead, in the middle of a recession with record levels of debt already on the books, Obama wants to triple the size of Medicare.

Here’s another thought…How about we control costs first. Once we show that we can do that…then we expand the program. I mean, if we can control costs with a public option, we should be able to control costs within medicare as it is now. They’re basically the same thing. How about some proof of concept before we triple the size of the program that’s bankrupting us.

There’s an old saying that seems to suit the times we’re living in. Nothing concentrates the mind like a hanging. The public option is a noose for the American economy.

Related: Over at Hot Air, Allah makes some of the same basic points about another recent Obama speech on Health Care.

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Category: Energy & Economy, Health & Education |

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