OP-ED

There Aren’t Enough Rich People To Pay For Medicare And Medicaid

I hear more and more of my progressive friends arguing, in the context of deficit reduction, that we should be raising taxes before getting aggressive about reducing the cost of Medicare and Medicaid — as well as Social Security.

To a point, I agree.

This country is in such a hole that it is senseless to deny that at least some new taxes will be needed to pay for all of the nation’s bailouts and accumulated debts.

For instance, progressives would like to end the $1 trillion cost over ten years of the Bush tax cuts for those making more than $250,000 a year.

I also believe that ending those tax cuts is necessary.

But if you’re looking to better understand the budget policy choices we face, I highly recommend the March 2011 Congressional Budget Office study, “Reducing the Deficit: Spending and Revenue Options.” The CBO prices out about all of the budget options.

Here’s a chart from that study:

It says that federal revenue, as a percentage of gross domestic product , has averaged 18 percent since the 1970s — a level that sustained both economic growth and a big government pretty well. At least, until entitlement costs, for which health care is one of the main drivers, started to skyrocket.

If you believe that it is appropriate to pay what we now pay for health care in this country, then yes, we will need lots more taxes. But, on the other hand, why would you raise taxes to pay for something everybody says has a cost that is unnecessarily sky-high? Wouldn’t the solution be to fix the cost problem?

Raising taxes is not going to solve the problem of out-of-control entitlement costs. Even huge tax increases on the rich won’t get the job done.

After the 1990s combination of the hot economy and President Bill Clinton’s tax increase, federal revenue as a percentage of GDP rose to about 21 percent — high by historic standards. Then the policies of President George W. Bush came along and dropped that share to about 16 percent — low by historic standards, and arguably either boosting the economy or helping to create the economic bubble and big deficits. The Great Recession then further pushed federal revenue to a modern-era low — about 15 percent.

According to the CBO, federal revenue will again rise to the Clinton-era level of about 21 percent of GDP — but that is when the two-year extension of the Bush tax cuts expires for everybody.

Looks to me like those who argue the Clinton-era taxes were too high are right. Looks to me like those who argue the Bush-era tax cuts are unsustainable are right. Looks to me like those who argue that our current deficit is partly driven by lower revenue because of the recession are right.

To keep federal revenue at the apparently reasonable historic level of about 18 percent of GDP, we probably do have to give back at least some of those Bush tax cuts — but it should not be necessary to end the Bush reductions that benefitted the middle class. And, we should also expect that some part of this revenue shortfall would be solved when the economy gets back on track.

If all of these steps were taken, it appears that we would be on the way to striking the right balance.

But, for those who think the deficit problem can be solved by just taxing the rich, let me point out another piece of startling information backed up by the CBO’s study of policy choices. Replacing the 10-year, $1 trillion Bush tax cut for those people making more than $250,000 a year with a combination of lower income and capital gains taxes would still be worth $1 trillion! As the CBO options paper points out, that works out to an average of about $100 billion a year during each of the next 10 years.

That is a lot of money — but not compared to the 2011 deficit that is estimated to be $1.6 trillion. Or the many $1 trillion deficits still to come.

Even if we were to raise the top rate to 45 precent for people making at least $1 million a year, and 49 percent on incomes of $1 billion, we would raise only $900 billion over the next decade, according to Citizens for Tax Justice — again only a small part of the projected deficits.

So, raising taxes on rich people, by itself, hardly makes a dent.

What is making a dent — really a fiscal train wreck — is the out-of-control cost of our entitlements, particularly the health care entitlements.

Here is another chart based upon CBO numbers (that appeared in the recent Ryan Budget proposal:

This chart shows the impact the entitlements — particularly Medicare — will have on the federal budget if federal revenue were to hold at the historic level of about 18 percent of GDP. Anything above the black line is a deficit.

Now, remember, this is just entitlement spending. The rest of the federal budget — interest on the debt, defense spending and every other department and agency would have to get loaded on top of this mountain!

Folks, we can’t tax our way out of this mess.

There aren’t enough rich people to do it.

This post first appeared at Kaiser Health News.

Robert Laszweski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. Before forming HPSA in 1992, Robert served as the COO, Group Markets, for the Liberty Mutual Insurance Company. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog.

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Bobby BlackwellPeterMike VpcpJeff Recent comment authors
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Peter
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Peter

Nate, you picked a video that stops analysis in 1991. Got some data from 1991 to 2010?

Barry Carol
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Barry Carol

Mark – As I’m sure you know, Dr. Himmelstein is a single payer zealot with an obvious agenda. It would be interesting to see the full list of liabilities including non-medical credit card debt and defaulted car and home mortgage loans, of people who file for personal bankruptcy and how much of the total was medical costs. For most people, a job and its salary provide the cash flow they need to pay for their living expenses. Lose that or a big part of it, and they would probably file for bankruptcy if they couldn’t replace all or most of… Read more »

Bobby Blackwell
Guest

Medicare is a need and not luxury. It should be made available to all and not only rich people. I understand it could now be given for free but as the title suggest there aren’t enough rich people who are capable of paying up Medicare.

Peter
Guest
Peter

“For those currently under 55 – as they become Medicare-eligible – it creates a Medicare payment, initially averaging $11,000, to be used to purchase a Medicare certified plan. The payment is adjusted to reflect medical inflation, and pegged to income, with low-income individuals receiving greater support. The plan also provides risk adjustment, so those with greater medical needs receive a higher payment.”

Ok, fair enough Nate. Can you show me details?

Nate Ogden
Guest
Nate Ogden

Peter and Margalit let me know what you think of this;

http://www.youtube.com/watch?v=vDhcqua3_W8&feature=player_embedded

Mark Spohr
Guest

This video does an interesting sleight of hand with statistics. Some people who were poor got richer (this was mentioned), however, more people got poorer (not mentioned in the video). The census tracks poverty: Government figures released Thursday provided a new window on the deep pain inflicted by the recession, with the U.S. poverty rate rising to its highest level in 15 years in 2009 and a record 43.6 million Americans officially labeled poor. The Census Bureau, in its annual report on income, poverty and health insurance, said the poverty rate hit 14.3 percent in 2009, the third consecutive annual… Read more »

Nate Ogden
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Nate Ogden

Mark watch it again. You seem to have missed the last half of it. 95% of poor people are no longer poor, this fact totaly destroys your poor getting poorer dogma. Poor people move up and are no longer poor, those poor are repalced by immigrants and young people who are just entering the workforce, they soon will also work their way out of poverty. As population increases and our rank of illegals goes from 500,000 to 12 million wouldn’t you expect an increase in the poor? ” The share of immigrants below the poverty line (17.8 percent) is much… Read more »

Mark Spohr
Guest

I did get the message. Some people who were poor are no longer poor (this is good). However, the video ignores the fact that there are now more poor people than ever due to the recession (this is bad).

Nate Ogden
Guest
Nate Ogden

“However, the video ignores the fact ”

No Mark it does not ignore the fact. It not only acknowledges it, it also said where they are comming from.

Mark Spohr
Guest

The video blames poverty on immigrants but as it points out, immigrants start out poor and tend to work their way out of poverty. However, the greatest cause of bankruptcy is having a serious illness without health insurance. One of the biggest reasons people are moving into poverty and they get sick and/or lose their job and health insurance and this is why we now have more people under the poverty line than ever before. The best thing we can do to prevent people moving into poverty is to provide universal health care.

Nate Ogden
Guest
Nate Ogden

“The video blames poverty on immigrants”

Video doesn’t blame poverty on anyone, your making that up, it learly cites the number of immigrants who are poor.

“However, the greatest cause of bankruptcy is having a serious illness without health insurance.”

Also not true, the greatest cause of BK is losing work. Healthcare is now where close, uninsured or insured.

Mark Spohr
Guest

Harvard study published in Health Affairs cites health problems/costs:
BOSTON — Costly illnesses trigger about half of all personal bankruptcies, and most of those who go bankrupt because of medical problems have health insurance, according to findings from a Harvard University study to be released Wednesday.
“Unless you’re Bill Gates, you’re just one serious illness away from bankruptcy,” said Dr. David Himmelstein, the study’s lead author and an associate professor of medicine. “Most of the medically bankrupt were average Americans who happened to get sick.”

Nate Ogden
Guest
Nate Ogden

“Harvard study published in Health Affairs cites health problems/costs:
BOSTON — Costly illnesses trigger about half of all personal bankruptcies,”

This study and the entire argument have been discredited so many times most liberals don’t even try playing it anymore. Complete junk science by a hack with a political agenda.

If you look at the amount of medical debt in BKs it was a small fraction of total liabilities. Couple thousand, its been discredited on here numberous times.

Nate Ogden
Guest
Nate Ogden

“The Office for United States Trustees (in the US Department of Justice), on the other hand, found that medical debt was not a major factor in the majority of bankruptcy cases filed in 2000.9 More than 50 percent of filers reported no medical debt at all, while only 11 percent had medical debt in excess of $5000. Further, only in 5 percent of the cases was medical debt one-half or more of total unsecured debt. On average, medical debt was only about 6 percent of all unsecured debt.”

Nate Ogden
Guest
Nate Ogden

Just one debunking of these quacks. Obama, Himmelstein, Harvard lets anyone in as long as you believe the dogma. “Harvard professors David Himmelstein and Elizabeth Warren interviewed more than 1,700 families that were in bankruptcy courts across the country. About half of all families filing for bankruptcy did so in the aftermath of a serious medical problem, according to the findings, released in 2005. But that figure was disputed by Millenson and Northwestern University professor David Dranove, who re-examined the study at the behest of the insurance industry. They said medical bills were a contributing factor in just 17 percent… Read more »

Nate Ogden
Guest
Nate Ogden

Some facts that would help explain your poverty numbers; “Of adult immigrants, 31 percent have not completed high school, compared to 8 percent of natives. Since 2000, immigration increased the number of workers without a high school diploma by 14 percent, and all other workers by 3 percent.” Whats the expected income of millions of people who have never completed HS? “34 percent of immigrants lack health insurance, compared to 13 percent of natives. Immigrants and their U.S.-born children account for 71 percent of the increase in the uninsured since 1989.” On the positive note; “The primary reason for the… Read more »

Margalit Gur-Arie
Guest

Couple of questions:

Why is the data 35 to 20 years old?
A smaller piece of a bigger pie works equitably only if there are more people eating pie, not if someone gets most of the pie and those who had one crumb before, now have two crumbs.
Since when are the “wealthiest” defined as those making 50K?

Since according to this video most everybody is moving out of poverty, where are those professional bums and welfare queens that you are so opposed to helping out? Do they not exist?

Nate Ogden
Guest
Nate Ogden

data goes back that far, some of it is current, we can’t tell when today’s poor will leave poverty, that takes time.

Look at the increase in wealth, he gace exact numbers, the rich made an extra 4K the poor makde 26K. The poor are getting much larger increases.

95% moved out of poverty, That leaves 5%. Welfare queens wouldn’t be poor of they are collecting multiple benefits and living for free would they? Isn’t the problem with welfare queens the fact they don’t need the benefits they are collecting?

Nate Ogden
Guest
Nate Ogden

” impose draconian policies on preexisting” What is this exactly Peter? You mean telling people you can’t wait till your sick to buy insurance is draconian? When exactly did you meet with these insurers to find this out? Seeing as how pre-ex doesn’t exist in group for the most part and its illegal come 2014 I tend to think your making this up. “cash strapped seniors on fixed income” What percent of seniors is that exactly Peter, you rant about designing a system for 10% of the population, why not design something that works for the 90% then figure out… Read more »

Peter
Guest
Peter

But Nate, it is per unit pricing as well as over use. Seniors are having trouble because Medicare is paying less per unit pricing, while providers complain Medicare pays too little. Will seniors have to become doctors to assess what is too much or what is not appropriate care? When will the dropping of “unnecessary drugs” be replaced by the dropping of necessary ones? You may think that private insurance will manage fraud better, but it will also impose draconian policies on preexisting, age, co-pay/deductibles and exclusions, while waving a “cheap” policy in front of cash strapped seniors on fixed… Read more »

Peter
Guest
Peter

Read the above comments and wanted to say that if you were putting forth a policy that required shared sacrifice and wide spread support (Medicaid/Medicare) to conquer impeding doom, why would you then exempt the wealthiest of Americans from their share of the sacrifice in the same proposal? Telling all seniors, not just the richer ones, that the voucher will have to do, and after that, regardless of income and health status, you’ll have to pay the rest, only limits expenditures, it does not control costs, unless you think cash strapped seniors will be able to negotiate, against the 25%… Read more »

Nate Ogden
Guest
Nate Ogden

Peter your analysis would be applicable if our problem was per unit pricing, if an office visit cost to much seniors would struggle to get a fair price, but that is not the issue. We struggle with the amount and type of care and that seniors can control. A bogus doctor can’t bill a senior they never see. A senior isn’t going to pay for 20 of something when they are only given one. On top of that the 10%+ fraud rate would drop the first day of the program. Something that wasn’t factored into the estiamte that seniors would… Read more »

Nate Ogden
Guest
Nate Ogden

“Single payer national healthcare is the only feasible option.” In every country it has been done its not been sustainable. Via ratioing they have been able to stretch it out but the public is becoming disatisifed with the rationing. You could take the same ratioing you do under single payor and do it with multi payor and come out with better results. ” Everybody pays 7% of their income to cover Medicare/Medicaid/social security, whether you make $12,000or $20 million annual salary. ” 7% won’t even get you close to breaking even. That would only raise $407 billion. We spend 2… Read more »

Mike V
Guest

Too many health benefits are paid out in medicaid to cover people who do not need it. How many wealthy families transfer assets to family members at the right time so they can be eligible for medicaid for long term care. It’s a financial planner/lawyer specialty. Single payer national healthcare is the only feasible option. Everybody pays 7% of their income to cover Medicare/Medicaid/social security, whether you make $12,000or $20 million annual salary. Even so called investment income which doesn’t count as income but capital gains needs to pay into the system. The wealthiest nation in the world surely can… Read more »

rbaer
Guest
rbaer

I see a difference here (I know you likely wouldn’t) – republicans really wanted to defund planned parenthood offering these services. Obama made some meek attempts with regards to separating beneficial from nonbveneficial care paid for by tax dollars, and to increase end of life care advanced planning.

The democratic rhethoric is hyperbole (that I personally dislike), the death panel smear is a clear populist lie.

Nate Ogden
Guest
Nate Ogden

Liverpool Care Pathyway doesn’t exist? Its just some made up boogeyman the right uses to scare people? The problem is the LEft’s history of saying they are passing one thing then really passing an entirly different bill. What happened to that catostrophic plan for seniors so Grandma won’t lose her shirt we were promised? Death Panels brought about by unclear regualtion implemented without a vote, exactly how LCP came about, is a legit concern with the left rights generic bills and leaves everything up to the regualtion writers, the problem is weak minded liberals can’t stomach the debate or support… Read more »

Nate Ogden
Guest
Nate Ogden

“2) there is one political side that rises populistic deception to a level that your (our) suggestion of using QALY metrics will be equated with “death panels”.” Really, just one side? Debbie Wasserman Schultz, the new chairwoman of the Democratic National Committee , said Thursday the budget plan put out by Republicans is a “death trap” for senior citizens. When asked if she really intended to say the plan would kill senior citizens, Wasserman Schultz “doubled down,” according to an article at The Hill. “That’s exactly what I’m suggesting,” she said during an appearance on CNN. Rep. Louise Slaughter, (D-N.Y.),… Read more »

rbaer
Guest
rbaer

Thanks Barry, the 2 fold was a typo, I meant to type 20 fold (and it does not matter that much whether it’s in fact 20 or 40). I was unaware of most of the facts in your 1st paragraph, interesting, thank you. Re the 2nd paragraph, however, I’d rather suggest looking at it from a different, more intuitive angle: regardless of who overpays whom, overpaid people and up with more power and ressources than desirable for a functional society. There is only so much land, raw materials and skilled and unskilled manpower on earth, and access to all these… Read more »

Barry Carol
Guest
Barry Carol

rbar – First, regarding CEO compensation, in the 1960’s and 1970’s, the typical CEO of a Fortune 500 company made about 40 times, not two times what the average worker in that company made, and most of his compensation was cash, not stock. In recent years, CEO compensation is closer to 400 times what the typical worker in the company makes and the vast majority of it is in the form of stock options and restricted stock awards, not cash. A lot of people don’t know that the value of restricted stock awards are taxed at ordinary income tax rates,… Read more »

Nate Ogden
Guest
Nate Ogden

its an ironic conversation to have when we just passed a bill that mandated 100% coverage of a long list of preventive services and implemented an appeal procedure that makes it economically impossible to deny care no matter how wasteful it is as long as it cost under 200-500.

While everyone seems to agree we need to stop paying for this stuff we get a bill that mandates it……

Jeff
Guest
Jeff

@Mike,

What is your problem? I think you would be best served living in a country that is set up differently than the United States.
You seem to have a problem with those people who make money or more money than you think is reasonable. Why don’t you advocate for those who make less money to acquire skills to make more money?

KG14
Guest
KG14

Dear Mike- Thank you for the clarification. It is necessary to state plainly your meaning in that rather curious juxtaposition of words. I, too, agree that it is not worth debating with you. Your rhetoric is distasteful and you have yet to prove a valid point regarding justification for your ‘I want to pay more taxes to support failing entitlement programs’ ideology. In fact you undermine it by referencing Bill Gates and other rich people who pledge to give at least half of their wealth to charitable organizations throughout their life. Such terrible, selfish rich folks who only care about… Read more »