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Realizing the unpopularity of their health care plan, the Republicans are now playing games with the word “cut,” to deny that their proposal would lead to large cuts in Medicaid spending over the next decade and beyond. The NYT ran a piece that ostensibly was intended to clarify the issue, but likely left readers more confused than they had been previously. The piece tells readers:
“At issue is whether the funding changes should be compared to the increases that would occur under current law, the Affordable Care Act, or whether the focus should be on the modest annual increases that would happen under the Republican bill.
“The White House says that Republicans are being victimized by a broken budgeting system that unfairly casts their fiscal restraint as callous cutting.”
The baseline for spending against which the Republican proposal is being measured is a baseline that assumes current levels of services and eligibility requirements are left in place. This can perhaps best be explained by a comparison with Social Security.
Under the law, workers are entitled to Social Security benefits based on their work history and their age. With a growing population of people receiving Social Security benefits and new retirees typically collecting higher benefits than earlier retirees (due to higher average wages), and an inflation adjustment for those already receiving Social Security, benefit payments rise each year.
By standard budgetary practice, if the Republicans were to reduce the benefit schedule or not give the annual cost of living adjustment, it would be called a “cut” in benefits even if total Social Security payments stayed the same or rose somewhat. It is a cut because people would be getting less than is promised under the current law.
In the case of Medicaid, the Congressional Budget Office (CBO) uses the best information available to project the eligible population and also the cost of providing services to this population. This is the baseline that the Republicans are working from with their health care plan. They are proposing to spend roughly $800 billion less over the 10-year budget horizon than the baseline spending level projected by CBO. This is equal to approximately 17.0 percent of projected spending over this period and 25.6 percent of spending in 2026, the last year for which CBO made projections for the Republican plan. (The reduction from baseline is even larger after the end of the 10-year horizon.)
This means that unless the Republicans have some way to reduce the cost of services that they have not told anyone about (e.g. paying drug companies and medical equipment companies less for their products or doctors less for their services), Medicaid will not be able to provide the services offered under current law. Given the size of the reductions relative to the baseline, by year 10 this will likely mean hugely reducing the number of people getting coverage and quite likely throwing people out of nursing homes.
This is the meaning of “cuts.” This is, in fact, a rather simple point and not a question of semantics. The Republicans do not have a plan for Medicaid to provide the level of services promised under current law, they are proposing to radically reduce the level of services. This is not ambiguous, just like it is not ambiguous that President Obama was not born in Kenya.
Realizing the unpopularity of their health care plan, the Republicans are now playing games with the word “cut,” to deny that their proposal would lead to large cuts in Medicaid spending over the next decade and beyond. The NYT ran a piece that ostensibly was intended to clarify the issue, but likely left readers more confused than they had been previously. The piece tells readers:
“At issue is whether the funding changes should be compared to the increases that would occur under current law, the Affordable Care Act, or whether the focus should be on the modest annual increases that would happen under the Republican bill.
“The White House says that Republicans are being victimized by a broken budgeting system that unfairly casts their fiscal restraint as callous cutting.”
The baseline for spending against which the Republican proposal is being measured is a baseline that assumes current levels of services and eligibility requirements are left in place. This can perhaps best be explained by a comparison with Social Security.
Under the law, workers are entitled to Social Security benefits based on their work history and their age. With a growing population of people receiving Social Security benefits and new retirees typically collecting higher benefits than earlier retirees (due to higher average wages), and an inflation adjustment for those already receiving Social Security, benefit payments rise each year.
By standard budgetary practice, if the Republicans were to reduce the benefit schedule or not give the annual cost of living adjustment, it would be called a “cut” in benefits even if total Social Security payments stayed the same or rose somewhat. It is a cut because people would be getting less than is promised under the current law.
In the case of Medicaid, the Congressional Budget Office (CBO) uses the best information available to project the eligible population and also the cost of providing services to this population. This is the baseline that the Republicans are working from with their health care plan. They are proposing to spend roughly $800 billion less over the 10-year budget horizon than the baseline spending level projected by CBO. This is equal to approximately 17.0 percent of projected spending over this period and 25.6 percent of spending in 2026, the last year for which CBO made projections for the Republican plan. (The reduction from baseline is even larger after the end of the 10-year horizon.)
This means that unless the Republicans have some way to reduce the cost of services that they have not told anyone about (e.g. paying drug companies and medical equipment companies less for their products or doctors less for their services), Medicaid will not be able to provide the services offered under current law. Given the size of the reductions relative to the baseline, by year 10 this will likely mean hugely reducing the number of people getting coverage and quite likely throwing people out of nursing homes.
This is the meaning of “cuts.” This is, in fact, a rather simple point and not a question of semantics. The Republicans do not have a plan for Medicaid to provide the level of services promised under current law, they are proposing to radically reduce the level of services. This is not ambiguous, just like it is not ambiguous that President Obama was not born in Kenya.
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The New York Times reported this afternoon that Senate Republicans have now altered their health care bill to include a provision that would penalize people who opt not to buy insurance. According to the article, people who go more than two months without insurance will have to wait six months for a new policy to take effect after they buy it.
This is an entirely reasonable change since it prevents the obvious problem that many people would have opted to game the system without a provision like this. As I and others pointed out, it would be a pretty low-risk proposition for healthy people, especially older ones who faced high premiums, to go without insurance and then buy insurance only if they developed a serious illness.
This would likely make the system unstable since it would mean that the pool of people in the system were less healthy than average, and therefore have higher health care expenses. This would raise costs and premium prices, leading more people to drop out. Eventually, only very unhealthy people would look to buy insurance, which would be extremely expensive.
For this reason, the penalty makes sense. What doesn’t make sense is that the Republicans are just adding the provision now. This problem of adverse selection (only less healthy people buy insurance) is not a new discovery. It has been known to people writing about insurance for more than half a century. So how could the Republicans spend all this time hashing out a bill and only now realize that they have a problem?
This is yet another piece of evidence (as if more was needed) that this is not an effort to provide better insurance to the public, it is about giving tax cuts to rich people. The insurance aspect is a sidebar, sort of like when you buy cheese at the store and you need it wrapped in something. You don’t really care what the cheese is wrapped in, you care about the cheese.
In the same vein, the Republicans don’t really care what the insurance looks like, they care about the tax cuts for rich people. If they did care about the insurance, the penalty for going uninsured would not be a last minute addition.
The New York Times reported this afternoon that Senate Republicans have now altered their health care bill to include a provision that would penalize people who opt not to buy insurance. According to the article, people who go more than two months without insurance will have to wait six months for a new policy to take effect after they buy it.
This is an entirely reasonable change since it prevents the obvious problem that many people would have opted to game the system without a provision like this. As I and others pointed out, it would be a pretty low-risk proposition for healthy people, especially older ones who faced high premiums, to go without insurance and then buy insurance only if they developed a serious illness.
This would likely make the system unstable since it would mean that the pool of people in the system were less healthy than average, and therefore have higher health care expenses. This would raise costs and premium prices, leading more people to drop out. Eventually, only very unhealthy people would look to buy insurance, which would be extremely expensive.
For this reason, the penalty makes sense. What doesn’t make sense is that the Republicans are just adding the provision now. This problem of adverse selection (only less healthy people buy insurance) is not a new discovery. It has been known to people writing about insurance for more than half a century. So how could the Republicans spend all this time hashing out a bill and only now realize that they have a problem?
This is yet another piece of evidence (as if more was needed) that this is not an effort to provide better insurance to the public, it is about giving tax cuts to rich people. The insurance aspect is a sidebar, sort of like when you buy cheese at the store and you need it wrapped in something. You don’t really care what the cheese is wrapped in, you care about the cheese.
In the same vein, the Republicans don’t really care what the insurance looks like, they care about the tax cuts for rich people. If they did care about the insurance, the penalty for going uninsured would not be a last minute addition.
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The Washington Post had an interesting column by a doctor that discussed the difficulties his diabetic patients face dealing with the high cost of insulin. While the doctor, David Trigdell, does call for measures by the government to reduce the price that patients and insurers have to pay for the drug, he doesn’t ask the most basic questions about why the price is high in the first place.
This gets back to how the government finances medical research. To a large extent it relies on patent monopolies, and other types of monopoly rights, to pay for drug research. These monopolies are the reason that insulin is expensive. If it were sold in a free market, insulin would be cheap, and Dr. Trigdell’s patients would have little trouble covering the cost.
Of course, it is necessary to pay for the research, but there are other mechanisms. The most obvious would be for the government to pay for the research upfront as it is doing now in the case of the development of a Zika vaccine by Sanofi. (Unfortunately, in this case, the government is both paying for the research and planning to give Sanofi a monopoly on its distribution.)
If drug research was paid for upfront it would have the benefit that all research findings would be fully open (that could be a condition of the funding) and there would be no reason for unnecessary duplicative research, as no one would have the incentive to try to innovate around a patent just to develop a copycat drug. I discuss this in chapter 5 of Rigged: How Globalization and the Rules of the Modern Economy Have Been Structured to Make the Rich Richer (it’s free).
The Washington Post had an interesting column by a doctor that discussed the difficulties his diabetic patients face dealing with the high cost of insulin. While the doctor, David Trigdell, does call for measures by the government to reduce the price that patients and insurers have to pay for the drug, he doesn’t ask the most basic questions about why the price is high in the first place.
This gets back to how the government finances medical research. To a large extent it relies on patent monopolies, and other types of monopoly rights, to pay for drug research. These monopolies are the reason that insulin is expensive. If it were sold in a free market, insulin would be cheap, and Dr. Trigdell’s patients would have little trouble covering the cost.
Of course, it is necessary to pay for the research, but there are other mechanisms. The most obvious would be for the government to pay for the research upfront as it is doing now in the case of the development of a Zika vaccine by Sanofi. (Unfortunately, in this case, the government is both paying for the research and planning to give Sanofi a monopoly on its distribution.)
If drug research was paid for upfront it would have the benefit that all research findings would be fully open (that could be a condition of the funding) and there would be no reason for unnecessary duplicative research, as no one would have the incentive to try to innovate around a patent just to develop a copycat drug. I discuss this in chapter 5 of Rigged: How Globalization and the Rules of the Modern Economy Have Been Structured to Make the Rich Richer (it’s free).
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The NYT had a piece on how many smaller cities that have already lost factory jobs are no seeing a loss of jobs in retail due to the growth of online shopping.The article provides an interesting picture of some of the cities in industrial Midwest and Northeast that have already lost many of their manufacturing jobs and are now seeing major retailers shut their doors.
What is striking is that the piece doesn’t present any economists saying how this is good news, as is usually the case on pieces with trade, since the fact that people can buy items online for less money means that they will have more money left in their pockets to buy other things. In fact, there is a better case for this story with retail than with trade since the on-line retailers generally are still in the United States, which means that the money will largely be re-spent here. By contrast, much of the money spent on imports is not spent in the United States.
It is also worth noting that the rate of job displacement due to technology has actually been extremely slow (as in the opposite of fast) over the last decade as productivity growth has fallen to its slowest pace on record. This doesn’t mean that people are not losing jobs due to technology, but the rate is slower than normal, not faster than normal.
There could be a problem of inadequate aggregate demand, but in that case, the Federal Reserve Board should not be raising interest rates. The purpose of higher interest rates is to slow the economy and reduce the rate of job creation. The Fed raises interest rates because it considers aggregate demand to be too high, not too low.
The NYT had a piece on how many smaller cities that have already lost factory jobs are no seeing a loss of jobs in retail due to the growth of online shopping.The article provides an interesting picture of some of the cities in industrial Midwest and Northeast that have already lost many of their manufacturing jobs and are now seeing major retailers shut their doors.
What is striking is that the piece doesn’t present any economists saying how this is good news, as is usually the case on pieces with trade, since the fact that people can buy items online for less money means that they will have more money left in their pockets to buy other things. In fact, there is a better case for this story with retail than with trade since the on-line retailers generally are still in the United States, which means that the money will largely be re-spent here. By contrast, much of the money spent on imports is not spent in the United States.
It is also worth noting that the rate of job displacement due to technology has actually been extremely slow (as in the opposite of fast) over the last decade as productivity growth has fallen to its slowest pace on record. This doesn’t mean that people are not losing jobs due to technology, but the rate is slower than normal, not faster than normal.
There could be a problem of inadequate aggregate demand, but in that case, the Federal Reserve Board should not be raising interest rates. The purpose of higher interest rates is to slow the economy and reduce the rate of job creation. The Fed raises interest rates because it considers aggregate demand to be too high, not too low.
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The NYT gave us yet another piece telling us that Donald Trump is right about his growth projections and that the Congressional Budget Office is wrong. The piece, by Kai-Fu Lee, the chairman and chief executive of Sinovation Ventures, a venture capital firm, and the president of its Artificial Intelligence Institute, tells readers that we are about to see mass displacement of jobs due to the spread of artificial intelligence (AI).
This mass displacement has another name, it’s called “productivity growth.” In other words, Lee is predicting a massive boom in productivity growth. If we get a massive boom in productivity growth, it will mean a huge rise in the rate of GDP growth.
While Lee doesn’t put a number on the rate of productivity growth, it is clear he thinks it is faster than anything we have seen in the past. In the long post-war Golden Age from 1947 to 1973, and again from 1995 to 2005, productivity growth averaged 3.0 percent annually. (This was a period of rapid wage growth and low unemployment.) Since Lee apparently thinks the growth will be even faster with his job-killing AI story, we should probably envision productivity growth even faster than this 3.0 percent rate.
In that case, Trump and his crew are probably being too pessimistic projecting GDP growth of just 3.0 percent over the next decade. After all, GDP growth is just the sum of productivity growth and labor force growth. Even with the retirement of the baby boomers we are still expecting labor force growth in the range of 0.5–0.7 percent annually. So, if Mr. Lee is anywhere close to being right about his projections of the future, then the Trump team is being too pessimistic.
We can leave the resolution of this debate over the future for other occasions, but there is one point that is clear. If anyone thinks that Mr. Lee’s view should be treated seriously, they better also take Trump’s growth projections seriously. Anyone who thinks this NYT column is plausible but that Trump is just inventing numbers has problems with simple arithmetic and should be laughed out of any serious policy discussion.
There is another important point that Lee misses in his column. He argues that AI will transfer wealth from the rest of us to the people who own AI. This is sloppy thinking. One gets to “own” AI from patent and/or copyright monopolies. These come from governments, not technology. If the ownership of AI is leading to an upward redistribution of income the most obvious way to deal with it is to reduce the length and strength of these monopolies.
This basic point, that policies designed to give incentives to innovate can be altered should be obvious to anyone involved in this debate. But, as we all know, the economy is suffering from a severe skills shortage.
The NYT gave us yet another piece telling us that Donald Trump is right about his growth projections and that the Congressional Budget Office is wrong. The piece, by Kai-Fu Lee, the chairman and chief executive of Sinovation Ventures, a venture capital firm, and the president of its Artificial Intelligence Institute, tells readers that we are about to see mass displacement of jobs due to the spread of artificial intelligence (AI).
This mass displacement has another name, it’s called “productivity growth.” In other words, Lee is predicting a massive boom in productivity growth. If we get a massive boom in productivity growth, it will mean a huge rise in the rate of GDP growth.
While Lee doesn’t put a number on the rate of productivity growth, it is clear he thinks it is faster than anything we have seen in the past. In the long post-war Golden Age from 1947 to 1973, and again from 1995 to 2005, productivity growth averaged 3.0 percent annually. (This was a period of rapid wage growth and low unemployment.) Since Lee apparently thinks the growth will be even faster with his job-killing AI story, we should probably envision productivity growth even faster than this 3.0 percent rate.
In that case, Trump and his crew are probably being too pessimistic projecting GDP growth of just 3.0 percent over the next decade. After all, GDP growth is just the sum of productivity growth and labor force growth. Even with the retirement of the baby boomers we are still expecting labor force growth in the range of 0.5–0.7 percent annually. So, if Mr. Lee is anywhere close to being right about his projections of the future, then the Trump team is being too pessimistic.
We can leave the resolution of this debate over the future for other occasions, but there is one point that is clear. If anyone thinks that Mr. Lee’s view should be treated seriously, they better also take Trump’s growth projections seriously. Anyone who thinks this NYT column is plausible but that Trump is just inventing numbers has problems with simple arithmetic and should be laughed out of any serious policy discussion.
There is another important point that Lee misses in his column. He argues that AI will transfer wealth from the rest of us to the people who own AI. This is sloppy thinking. One gets to “own” AI from patent and/or copyright monopolies. These come from governments, not technology. If the ownership of AI is leading to an upward redistribution of income the most obvious way to deal with it is to reduce the length and strength of these monopolies.
This basic point, that policies designed to give incentives to innovate can be altered should be obvious to anyone involved in this debate. But, as we all know, the economy is suffering from a severe skills shortage.
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As we all know, driving west in New Jersey is unsustainable. After all, if you keep going west, you will eventually end up in the Pacific Ocean. That’s pretty damn unsustainable. It would have been helpful if the Washington Post had clarified for readers that when the Republican health care experts cited in this piece called Medicaid “unsustainable” they meant it in the same way.
The Republicans were celebrating the prospect of the Senate’s health care reform bill which includes large tax cuts for rich people, which are coupled with large cuts to Medicaid. The economists justified these cuts by proclaiming Medicaid to be unsustainable.
This is true in the sense that spending is growing faster than the economy. Of course the same would be true of any category of spending that grows faster than the economy, like federal payments for various types of social media and any other category that might be seeing rapid growth for a period of time. If we projected out a rapid rate of growth for the indefinite future, it will eventually cost more than the whole economy. It’s just like driving into the Pacific Ocean.
As a practical matter there is no problem with covering the cost of Medicaid for moderate-income people, the elderly, and the disabled far into the future, if we don’t give big tax cuts to Donald Trump and his rich friends. We can and should look to get the costs of the program down by bringing what we pay for drugs, medical equipment, and doctors in line with other wealthy countries. Of course, this is a route that Donald Trump and his rich friends probably do not want us to take, nor does the Washington Post.
As we all know, driving west in New Jersey is unsustainable. After all, if you keep going west, you will eventually end up in the Pacific Ocean. That’s pretty damn unsustainable. It would have been helpful if the Washington Post had clarified for readers that when the Republican health care experts cited in this piece called Medicaid “unsustainable” they meant it in the same way.
The Republicans were celebrating the prospect of the Senate’s health care reform bill which includes large tax cuts for rich people, which are coupled with large cuts to Medicaid. The economists justified these cuts by proclaiming Medicaid to be unsustainable.
This is true in the sense that spending is growing faster than the economy. Of course the same would be true of any category of spending that grows faster than the economy, like federal payments for various types of social media and any other category that might be seeing rapid growth for a period of time. If we projected out a rapid rate of growth for the indefinite future, it will eventually cost more than the whole economy. It’s just like driving into the Pacific Ocean.
As a practical matter there is no problem with covering the cost of Medicaid for moderate-income people, the elderly, and the disabled far into the future, if we don’t give big tax cuts to Donald Trump and his rich friends. We can and should look to get the costs of the program down by bringing what we pay for drugs, medical equipment, and doctors in line with other wealthy countries. Of course, this is a route that Donald Trump and his rich friends probably do not want us to take, nor does the Washington Post.
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The Senate health care plan hugely increases the cost of insurance for older pre-Medicare age people compared to young people, and it eliminates the penalty for not buying insurance, so naturally the NYT tells us:
“That could inadvertently discourage the youngest and healthiest people from buying insurance, leaving a higher percentage of sicker people with expensive treatments on the exchanges, driving up insurers’ costs.”
If you raise the cost of insurance for older people relative to younger people, then we expect it to disproportionately reduce the number of older healthy people who buy insurance, not young healthy people.
The Senate health care plan hugely increases the cost of insurance for older pre-Medicare age people compared to young people, and it eliminates the penalty for not buying insurance, so naturally the NYT tells us:
“That could inadvertently discourage the youngest and healthiest people from buying insurance, leaving a higher percentage of sicker people with expensive treatments on the exchanges, driving up insurers’ costs.”
If you raise the cost of insurance for older people relative to younger people, then we expect it to disproportionately reduce the number of older healthy people who buy insurance, not young healthy people.
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The financial sector is chock full of people with no useful skills. This is why the government has to devise make-work projects like collecting back taxes owed to the I.R.S. for these people to do. As the NYT reports, this practice consistently leads to abuses by the collectors and often ends up losing the government money. But hey, at least it creates some good-paying jobs in these companies and a nice return to their shareholders.
The financial sector is chock full of people with no useful skills. This is why the government has to devise make-work projects like collecting back taxes owed to the I.R.S. for these people to do. As the NYT reports, this practice consistently leads to abuses by the collectors and often ends up losing the government money. But hey, at least it creates some good-paying jobs in these companies and a nice return to their shareholders.
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