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Monday, April 12, 2010

Medical journal: Healthcare bill may trigger "Financial Armageddon"

The New England Journal of Medicine this month features a startling commentary on healthcare reform entitled, "The Specter of Financial Armageddon — Health Care and Federal Debt in the United States."
The authors declare at the outset, "The most important force shaping the U.S. health care system over the coming decades may well be the federal debt." Other highlights [emphases added]:
The United States has a substantial, growing structural deficit, much of which reflects current and projected increases in federal spending on Medicare and Medicaid. This federal health care spending amounted to 5% of the gross domestic product (GDP) and 20% of federal outlays in 2009 and is forecast to reach 12% of the GDP by 2050.1 Health care spending is thus a key driver of long-term debt.
To finance this debt, the government issues interest-bearing bonds. Doing so imposes several economic costs. First, interest payments consume an increasing share of income (1.3% of the GDP in 2009, or 5.3% of total federal spending), thereby reducing the resources available for public programs. Second, growing debt can lead to higher interest rates for all borrowers (government, businesses, and individuals), thus impeding economic growth. Finally, high debt reduces our capacity to respond to sudden economic shocks and magnifies the detrimental effects of any deficit.
The consequences of high debt levels depend on the treatments that policymakers prescribe. One approach is generating inflation to erode the value of the debt, but the adverse economic consequences  of this strategy can be severe. Another option is raising taxes.  Taxes reduce economic growth.
The economic stresses apparent in Greece and in California provide some glimpse into what such a fiscal Armageddon might bring.
The clear implication for health care reform is that as we evaluate options (or the possibility of maintaining the status quo), we should focus on the path to a sustainable fiscal situation rather than on short-run deficits.
If all the money saved through reductions in future spending on existing health care programs were devoted to new health care programs, our fiscal situation would be little improved. Similarly, if other fiscal tools, such as tax increases, are used to cover new programs, those tools will not be available to achieve broader reductions of the structural deficit. Thus, although covering the uninsured is a laudable policy goal that would improve access to health care for many, it would also add substantially to our structural spending and thus necessitate more draconian fiscal austerity elsewhere.
To avoid or dampen the severity of the apocalyptic economic projections, the authors conclude with a number of strategies to prevent the coming catastrophe, including:
  • Address and reduce fraud and abuse within the Medicare program.
  • Enact malpractice reform.
  • Invest in information technology and comparative-effectiveness research.
  • Invest in prevention.
All this to say, "There ain't no such thing as a free lunch." Especially in a time of economic crisis, a nation simply cannot continue to recklessly increase spending--no matter how laudable the social goal may be--without significant financial consequence.
Liberal lawmakers may expect their healthcare bill to redistribute wealth. Instead, their socialistic policies stand to translate into much less wealth to redistribute. Healthcare hyper-regulation, insurance mandates and penalties will only drain the prosperity from the wealth- and job-producing sectors of the economy.
Grace-Marie Turner of the Galen Institute illustrates this effect:
As we wrote in the Chicago Tribune on Friday, the New York-based consulting firm Towers Watson conducted a study that found the tax change impacting retiree drug benefits will cost companies $14 billion in future years.
If economic projections hold true, absent true healthcare reform, the flood of joblessness will not subside, the natural curve of economic recovery will peak at a much lower point, and crippling debt will crumble our long-term economic foundation.
The next financial downturn could prove catastrophic.
Financial realities such as these explain why "liberal compassion" is an oxymoron. The liberal tendency to "tax and borrow to spend" ultimately leads to economic disintegration, and the poor suffer most in an economic meltdown.
The USA desperately needs a strong dose of fiscal tough love to turn back disastrous healthcare policies that are marching us toward a Megiddo mountain of debt. We must repeal bloated bureaucracies based on borrowing and chart a course for a future in which we can safely and surely expand care for the poor from a position of economic strength.
This is no time to wring our hands. Let's arm ourselves with the facts, educate our friends and colleagues and help elect economic realists who will take the tough and courageous steps needed to stave off the coming financial Armageddon.

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