THE NATIONAL ECONOMY:
According to Wall Street panhandlers, and the wizards of news, the longest recession since the Great Depression is “over”. However, many economists, not to mention millions of unemployed Americans, are not quite ready to pop a cork to celebrate.
Although the economic climate is not as gruesome as it was a few months ago, relevant economic indicators still resemble a soggy wet dough-ball trying to bounce off the floor.
Recessions have far-reaching impacts on a wide range of economic and social outcomes. Although the number of economic and social impacts of the current recession is numerous, our patience/tolerance for reading about them and the time we allocate to deal with the changes is limited.
Therefore, we will focus on the economic/social issues of the recession that are having the largest impact in our economy.
THE OUT-LOUD ROAR OF THE MONTH:
A Roar-Out-Loud and a wrinkled “middle finger salute” to the slime ball-management at the American Association of Retired Persons (AARP, Inc.).
AARP, one of DC’s most powerful lobbying groups, has worked inside the beltway for years to defeat real health care reform and lobby against the best interests of its membership (senior citizens).
These slithering mollusks earned a cool $770 million in 2008 in royalties from insurance companies that sold products referred by AARP Services Inc.
About a quarter of its revenue comes from selling insurance through its affiliate, United Healthcare Group, the nation’s largest for-profit insurance company.
Do you think we may have a conflict of interests here? These connections will always assure that the status quo insurance infrastructure wins lobby dollars with AARP.
As an FYI (for your information) and historical reference, AARP was the driving force behind the passage of President Bush’s 2006 senior nightmare “Medicare Prescription Drug, Improvement, and Modernization Act” (MPDIMA).
This confusing legislation turned the clock back to the pre-1965 private insurance/drug industry high margins and prices in Medicare.
For mild entertainment, watch AARP representatives reject listening to their constituents’ on the website listed below. (Texas August 4, 2009 town hall health care meeting).
MEDICAL CARE & POLITICAL BEDLAM:
The U.S. medical care system is a swollen tick gorged with blood and borrowed deep into the neck of the U.S. economy. The current medical care system has had over 200 years to mutate into what it is today, and with our political system, it may take half that long to remove the gorged tick and institute any real significant change.
Even a corpse is aware of the fact that the percentage of Gross National Product (GNP) ‘[GNP= the market value of all final goods and services made within the borders of a nation in a year]’ devoted to health care has been rising for several decades. However, the increasing share of GNP devoted to health care, by itself, is not evidence that the health care market is in need of repair.
There are many products, such as recreational activities, whose share of GNP rises as our wealth increases, yet there is no concomitant clamor to reduce our expenditure on them, as there is on health care.
Unfortunately, it is impossible to develop a proper public policy for medical care do to the continual demonizing of certain components of the medical industry, unclear federal policies, and third party money interests.
At least everybody seems to agree that our health care system has many inefficiencies, excessive administrative expenses, inflated prices, poor management, and inappropriate care, waste, and fraud.
These problems significantly increase the cost of medical care and health insurance for employers and workers and affect the security of families.
For the most part, total spending for health care in the United States, private and public spending combined, has risen steadily over the past several decades ( See Figure-1).
Most analysts agree that the most important factor contributing to the growth of spending for health care in recent decades has been the emergence, adoption, and widespread diffusion of new medical technologies and services.
In 2008, the annual premium for an employer health plan covering a family of four averaged nearly $12,700 workers contributed nearly $3,400. The annual premiums for family coverage significantly eclipsed the gross earnings for a full-time, minimum-wage worker ($10,712). The annual premium for single coverage averaged over $4,700.
Although nearly 46 million Americans are uninsured, the United States spends more on health care than other industrialized nations, and those countries provide health insurance to all their citizens (not adjusted for technology differences).
There is a fundamental philosophical difference between health care policies in countries like Switzerland, Canada, France, Germany, and the U.S. These European countries and Canada have adopted health care into their basic federal charters along with fire, police, and military protection while the U.S. has not.
Historically, health care in the U.S. was not and still is not, considered part of the federal protection for its citizens. With the formation of America, the implicit social contract was to surrender some freedoms so that government could protect people from other people through the formation of armies and police, but not protection from ill health, disability, and disease.
Until the early 1920’s inequities of health in America were primarily a matter of inequities of wealth. Wealthy people lived longer because of better nutrition, less stressful lives, better sanitation, and so on.
As of the 1920s, expensive advances in medical technology began to give greater advantages to those who could afford to take advantage of them.
The creation of the health insurance industry between 1929 and the late 1940s was to close the gap for health care wealth inequities. The idea was to spread the risk, and costs of expensive care (Damn, sounds similar to packaged real estate bank mortgages).
With illness and disease excluded from the charter of federal protection for over 200 years it is not surprising why any mention of adding it to the federal charter of responsibilities along with fire, police, disaster, and military protection sends violent shock waves through many U.S. citizens (Generation programming).
The problem for progressive politicians like President Obama is that they have not been getting this perspective or their view of health care as another basic government protection out in public effectively.
In the end, we will see health care legislation from liberals and conservatives negotiated into roughly in the same framing ballpark — maximizing material interests of some group—with the political progressives left in the bleachers.
Other factors that have contributed to the growth of health care spending include increases in personal income and the growth of health insurance coverage. Demand for medical care tends to increase as real (inflation-adjusted) family income increases.
The expansion of insurance coverage in recent decades, as evidenced by the substantial reduction in the percentage of health care spending that people pay out of pocket, has also increased demand, because insurance coverage reduces the visual cost of medical care for consumers.
However, according to the best available evidence, increasing income and insurance coverage cannot explain much of the growth in health care spending in recent decades.
EXCESS COST GROWTH:
Factors that affect spending for health care include general inflation; growth in the size of the population; and, to a lesser extent, changes in the population’s age composition.
Removing the effects of those factors reveals the amount of spending growth attributable to factors beyond inflation and demographics.
The most useful way to measure the growth of spending over the long term is to gauge the increase in health care spending for an average individual relative to the growth of GDP per capita (person), which is commonly referred to as “excess cost growth”.
This phrase does not imply that growth in per capita spending for health care is necessarily excessive or undesirable. It simply measures the extent to which the growth in such spending exceeds the growth in per capita GDP, after adjustments for changes in the age composition of the population.
Table-1 below shows the excess cost growth for spending in health care during that period. (That is, spending by the private sector and by federal, state, and local governments for health care programs other than Medicare and Medicaid).
In computing historical rates of overall cost growth, CBO (Congressional Budget Office) removes the effects of changes in the age composition and size of the relevant population. Thus, for Medicare and Medicaid, CBO excludes the effect of increases in the number of beneficiaries in the programs.
For Medicare and for the overall growth of health care spending, it also removes the effect of changes in the age composition of the population.
For Medicaid, CBO removes the effect of changes in the composition of the program’s caseload— that is, changes in the portions of beneficiaries who are children, disabled people, elderly people, and other adults.
So what is it all about Jethro?
Other than the entertainment value gained from watching insane political fighting over medical care issues, watching people pull guns on one another, or beating the hell out of each other at town hall meetings what does all of this mean?
Under current rules and regulations, the federal budget is on an unsustainable path—meaning that federal debt will continue to grow much faster than the economy over the long run.
Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the U.S. population will cause federal spending to increase rapidly under any plausible scenario.
Unless revenues increase just as rapidly, the rise in spending will produce growing budget deficits and accumulating debt.
Keeping deficits and debt from reaching levels that would cause substantial harm to the economy would require increasing revenues significantly as a percentage of gross domestic product (GDP), decreasing projected spending sharply, or some combination of the two.
Projections of Health Care Spending
Over the past 30 years, total spending for health care has more than doubled as a share of GDP. According to CBO’s (Congressional Budget Office) projections, under the extended-baseline scenario, that share will double again by 2035, to 31 percent of GDP.
Thereafter, health care costs will continue to account for a steadily growing share of the economy, reaching 37 percent of GDP by 2050 and 46 percent by 2080.
In 2009, total consumption per person is expected to average about $26,000, of which about $7,000 will be spent on health care. Under CBO’s projections, spending per person by 2035 would have grown by more than $14,000 (in 2009 dollars), but more than 80 percent of that extra money would be spent on health care.
Although spending for other goods and services would grow by just 14 percent, spending for health care would nearly triple.
Unlike the deficit, which drives the amount of money the government has to borrow in any single year, the national debt is the cumulative amount of money the government has had to borrow throughout our nation’s history.
Each time the government runs a deficit, it increases the national debt; each time the government runs a surplus, it shrinks the debt.
Also called debt held by the public, measures the government is borrowing from the private sector (including banks and investors) and foreign governments.
Net debt is the best measure of the effect of debt on the economy because it reflects the interaction between the government as a whole and the private sector.
When the net debt is particularly large that is, when the government is borrowing large amounts of money from the private sector, less capital is available for private firms to borrow, which can lead to less investment and slower economic growth over the long term.
Every dollar the government spends on debt interest payments is a dollar that is unavailable for programs that currently benefit taxpayers.
Interest is what we pay now for benefits received in the past. Adding to the national debt by running up deficits essentially shifts the costs of current programs on to future generations, who will have to pay the debt interest costs.
EFFECT OF RISING DEBT OVER TIME:
Debt held by the public can grow faster than gross domestic product (GDP) for a limited time, but it cannot do so indefinitely.
If the ratio of debt to GDP continues to rise, lenders may become concerned about the financial solvency of the government and demand higher interest rates to compensate for the increasing riskiness of holding government debt.
Eventually, if the debt-to-GDP ratio keeps increasing and the budget outlook does not improve, both foreign and domestic lenders may not provide enough funds for the government to meet its obligations.
By then, whether the government resolves the fiscal crisis by printing money, raising taxes, cutting spending, or going into default, causes disruptions in economic growth.
Congressional Budget Office (CBO) budget projections carried out into the future, show whether current commitments imply that spending will consistently exceed revenues and produce debt that grows faster than the economy.
Projections of the debt-to-GDP ratio indicate that changes in current policies (medical care) will be necessary at some point to bring the federal budget back to a sustainable path. Hence, the game on health care reform is born.
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