Tuesday 8 October 2013

The Wealth and Health of Nations

"Blessed are the young for they shall inherit the national debt."
-Herbert Hoover

Or maybe they won't. Considering the US government's current position on paying their debts, it's kinda hard to tell. As of Oct.17th, there will be only about $30 billion left in the US treasury while the government's daily spending can be as much as $60 billion. There are also $120 billion worth of short-term bonds due on that day and a total of $417 billion worth of interest payments due by Nov. 7th. The Republican-controlled House of Representatives has so far refused to raise the debt ceiling to borrow the money needed to meet these commitments until their concerns regarding government spending and Obama's Patient Protection and Affordable Care Act are alleviated.

As of Oct.1st, the US government has already undergone a partial shutdown due to lack of funds and has given unpaid, involuntary leave to about 800,000 "non-essential" federal employees although the Pentagon is ordering 350,000 of its employees back to work. This means about 450,000 of the 2.9 million federal employees will still not be allowed to fulfill their duties. Active-duty military personnel and civilian pentagon workers on the job will continue being paid on time under a new law passed by Congress last week. Other federal workers will need to wait for the government to be reopened whether they are required to work through the shutdown or not.

Strangely, the Republican-led House of Representatives has passed a bill that will provide all federal workers with back pay for their time off, even if they are considered unessential and stay home. The Democratic Senate followed suit although questioned the logic behind such action. Honestly, why send them home then? It seems to make more sense to keep them working and just pay them once the debt ceiling is raised instead of having them sit on their butts. It's a confusing method that allows the Republicans to keep the government technically closed while still spending the money it would cost to be open, all without the benefit of any work actually being done.

If this whole situation seems familiar to you, it's because it is. There have been 18 government shutdowns since 1976 although the US hasn't actually defaulted since 1790. More recently was the 2011 showdown over the debt ceiling which seems painfully like the one occurring today. The government didn't shutdown but the United States got extremely close to defaulting on their debt which freaked out financial markets. Standard and Poor's, a major credit-rating agency, would downgrade US bonds for the first time ever and stock-markets around the world would take a hit as $6 trillion worth of stock-value was wiped. The Dow Jones fell 5.6% in one day, the worst since the 2008 financial crisis.

If getting close to a default is quite bad, let's just say that the US actually defaulting would be nigh-apocalyptic. Which is why it probably won't happen. But if ideology somehow wins out over common sense on this one, it could be many magnitudes worse than the 2008 crisis when Lehman Brothers was allowed to go belly-up. If it remains unclear for any length of time after the initial default whether the US will pay its debts, trust in the dollar could collapse and the world would likely fall into recession and depression. The US owes $12 trillion, 23 times more than the $517 billion the Lehman Brothers owed when they filed for bankruptcy. Considering the stock-market fell by almost 50% and unemployment raged after that as credit seized up, it's troubling to predict what would happen following a US default. Borrowing would certainly be much more expensive in the future which would make getting out of a recession far harder. It's even possible the US dollar could lose its status as the world's reserve currency and at the very least, other countries would do their best to work out trade deals amongst themselves in their own currencies.

Funnily enough, the group that brought the US to the brink in 2011 are basically the same group doing it today. The Tea Party faction of the Republican Party consists of about 50 members of the House of Representatives who are adamantly opposed to Obamacare and are using the threat of default as a last-ditch effort to defund it. This is quite an unorthodox maneuver considering the act has already passed both houses and been confirmed as constitutional by the Supreme Court. Obama would go on to win the election over Mitt Romney, further entrenching the bills legitimacy.

Republican Texas Senator Ted Cruz has been extremely vocal on the issue, building up emotional pressure amongst constituents who voted in Tea Party members. There has been some argument that he is looking forward to a presidential run in 2016 and is just wanting to earn his credentials with the far-right. Some people have noted he's a little bit crazy considering how he engaged in a 21-hour, filibuster-style rant, to a basically empty Senate chamber, about how bad the Affordable Care Act is The reading was complete with a rendition of Green Eggs and Ham by Dr. Seuss because he obviously didn't get the moral of that story. A filibuster is used to delay the voting on a piece of legislation, either to simply stall or to get time to get enough votes on your side to win. However, this wasn't technically a filibuster and couldn't stop legislation, thus making it basically a long, crazy rant. It even compared the fight against Obamacare to the fight against the Nazis because expanding healthcare and Nazis are pretty similar now that I think about it. 

Essentially, Obamacare has been made into a line in the sand that the Tea Party will fight to the death of the country over, even if they get blamed for it. More moderate Republican congressmen justifiably see this attempt as counterproductive and dangerous for Republican chances of holding onto the House in 2014. Polls have indicated that more people blame Republicans for shutting down the government than the Democrats. Still, Republicans have been forced to tow the line by the wealthy Tea Party backers who can fund primary challengers to have them replaced.

This is a problem since it means Republicans need some victory to take home, even if it's just symbolic, to justify voting to fund the government without killing Obamacare. Obama has fully stated he is refusing to re-fight the health-care battle and considering the Republicans are blocking any changes he wants to make to immigration and gun control, it seems clear he is not planning on budging on his main achievement. Doing so could make what is essentially extra-legislative extortion into a routine part of negotiations. Obama knows he'll be blamed less if a default did happen but extreme ideology may mean the Tea Party are willing to shoulder that blame anyway. Considering the lack of support for Obamacare amongst Republicans, many of them really are doing what their constituents want by taking this approach. This explains their 42 votes to defund the law in the House of Representatives, well-aware that the Senate would never pass it themselves.

Republican Speaker of the House John Boehner has been put in a tough spot. He knows he's being blamed for the shutdown but he's unwilling to look weak to the far-right. This means he's still refusing to hold a clean vote to refund the government without some concessions, saying that it wouldn't pass anyway. He may be right but there are at least 20 Republicans who have already agreed to side with the House Democrats in such a vote. Trying the vote makes sense and I don't think it is personally helping his position to wait until the last minute to cave. And let's be serious, he will take the blame for any economic problems that occur from spooking the markets with a last minute ceiling raise, regardless of how he feels, if he fails to try a vote. Obama has already called him out to quit being a wuss:

"The only thing that is keeping the government shut down, the only thing preventing people from going back to work…is that Speaker John Boehner won’t even let the bill get a yes or no vote because he doesn’t want to anger the extremists in his party. That’s all. That’s what this whole thing is about.”

I might as well make my own position clear here. I am adamantly opposed to this method of shutting down the government and trying to kill legislation they don't like in this undemocratic way. In a healthy political environment, they should take control of government via elections and then repeal the law. That being said, I'm am opposed to Obamacare as it stands. Not because I don't think the US health system needs an overhaul. It does. Badly. In 2010, per-capita spending for health care in Canada was $4,445 per person. This is compared to $8,233 in the US. And it's not even like Canada's health care system is very well ran. Of course if you're rich in the US, your health care will be better than in Canada. Still, for the vast majority of people, it's not.

I think most people agree it makes economic sense to provide at least limited healthcare, just like it's good sense to feed hungry children. The stresses and disadvantages associated with lacking these basic things saps a lot of energy and creates damaged people who then make up a damaged society. Essentially all developed countries acknowledge this with the exception of the US. However, assuming Obamacare will improve the situation may be premature. Obama sold out early on a single-payer system like we have here in Canada. He also sold out on a public-option like they have in most European countries where you can get your own health care from private companies but there is also a basic government option available for those who can't afford it. France uses this system and was rated as having the best healthcare system in 2000 by the World Health Organization. The US ranked 37th, right behind Costa Rica. Canada did fairly poorly also, coming in 30th.

Obamacare is instead entirely private and actually creates a mandate requiring people to buy from private-insurers. This sounds unconstitutional to me but apparently it's not. The question of why Obama stuck with private health care can probably be best answered by Otto von Bismarck's quote that, "Politics is the art of the possible, the attainable..." Considering that the health care industry spends more money lobbying Washington than any other sector of the economy, it's probably not surprising that they were never at risk of losing their cash-cow. During the health-care debates in 2009, the industry was spending $1.4 million per day on influencing politicians. This emphasis on the private-sector means that they won't get to enjoy some of the benefits of a single-payer system like we do in Canada. These are savings on administrative overhead, increased bargaining leverage for drugs and medical gear, savings on advertising, savings on shareholder dividends, reduced burden on employers to provide health coverage, savings on excessive executive pay, and no incentive for providers to weasel out of providing care owed.

So what does the act actually do? Well, on the plus side, it subsidizes the very poor/unemployed in order to get insurance and forces companies to cover people with pre-existing conditions. It also allows young adults to stay on their parents plan until age 26 and provides some preventative care in the form of free mammograms, colonoscopies, and check-ups for seniors. Very importantly, it got rid of insurance companies ability to pull your coverage for technical reasons like spelling mistakes on your forms. Insurers are also forced to provide insurance premium rebates if they spend less than 85% of premiums on health-care services or quality improvement. All of these are noble and useful things that may justify the system on their own.

On the negative side, there are as many as 20 new taxes that will be applied to help pay for it. Americans generally don't like taxes and Republicans have traditionally preferred running massive deficits instead of raising them so you can see why this makes it a tough sell. Another problem is a reduction of hours for employees. Under the act, companies with 50 or more employees have a mandate to offer health care to workers who do at least 30 a week or else face a $2000 dollar fine per employee per year. This means many of them are cutting down below 50 employees if they can and are reducing hours if they cannot. Actual unemployment in the US ranges between 14% and 24%, depending on which measurement you choose, so people will take whatever work they can get.

Depending on your company, part-time workers like those at Trader Joe's and Home Depot can be shifted from private-coverage through their employers to public healthcare exchanges. This will almost definitely cost them more than their previous work insurance, even with subsidies, while often resulting in them working less hours. This means unfortunately the poorest workers will likely be hit hardest as companies use the act as an excuse to relieve themselves of all responsibility for part-timers.

It might be worth remembering that in upstate New York, following a food poisoning outbreak, it cost $546 dollars to get 6 liters of saline into patients. Saline is just saltwater by the way and one of these liters goes for between $0.44 and $1.00 from the manufacturer, so that's a pretty decent markup. This means the main question really is whether Obamacare will reduce health care costs from their ridiculous levels? The answer, it seems, is quite likely no although nobody knows for sure. The law is designed more to generalize access to care and the cost of insurance for individuals. It was not really created to reduce the costs of procedures, drugs, or medical supplies that define the amount spent in total. Considering the lobbying power of the groups involved in writing the bill, this is not surprising.

Supporters say the larger pool of insured people and increased insurer competition will keep costs down. Detractors say there really won't be enough added to matter. Supporters say increased copays for drugs and the high-deductible plans being offered will keep people more cost-conscious. Detractors say expanding preventative care will cost more and the insurers will just take in more than ever through the deductibles.

In the end, I'm leaning towards the idea that it is not going to help much. I may be wrong and it already seems that some of the worst excesses, such as cutting insurance right as it's needed, won't be able to destroy lives anymore. Which is good. Still, the same group of illness-profiteers remain as the only ones to go through for most Americans and they were essentially gifted 50 million new customers through the mandate. The high deductibles will also mean that most people will be fairly limited in actually being able to take advantage of their coverage except in worse-case scenarios.

It's sad because the US could have simply dropped the age requirement for Medicare and they would have had a single-payer system while allowing the private-sector to provide extra care for those with the cash. Instead, all the political will to make such a change has been blown on this mess. Nobodies gonna want to open this issue again for quite a while except to possibly scrap it.

On the other hand, Canada would probably do good to open it again. Our health-care system is extremely expensive and wait times are getting too long. With our aging baby-boomers, this is going to only get worse. We could probably do with adding limited fees for check-ups and small procedures in order to prevent abuse of the system. Likely we could change doctor compensation to be more in line with quality over quantity. Having a discussion around limiting end-of-life care to something actual doctors and nurses feel is appropriate would probably go a long ways as well. Interesting fact is that doctors tend to have less money spent on them when they are dying since they know when the battle is lost and don't want to go through unnecessary painful and undignified treatment associated with desperately clinging to false hope.

We could also probably do with a bit of private-sector competition, especially for quality of life things like joint replacements. If the European countries can do it and get better results than us, than I suggest we take a look.

Tommy Douglas wanted all Canadians to be covered and we are. I don't believe he ever said anything about having the government monopolize that coverage.

AS


2 comments:

  1. Good points as usual Sir. I agree with our system and the idea of free medical coverage for all Canadians. It is brilliant. However, I disagree with people who are adamant that it be free and only free, nothing else.
    If one needs a lawyer and cannot afford one, one will be provided. It is one of the rights that is mandatory for police to read to someone they are arresting.
    If our Canada allowed private facilities, when you need to go to the hospital, you can choose to do it for free or pay to have it done. Hey, people will take out thousands of dollars of loans for cars and atvs and boats, so it isnt like only the rich will be able to use privatized medical facilities.

    Wow that was a rant.

    Oh yeah, i guess in that 21 hour spiel, Teddy didnt even get to the best part of that whole green eggs and ham book:

    The last few pages
    Where Sam I am convinces him to just give the green eggs and ham a try. And he finally gives them a taste. The book ends with:

    "I do so like
    green eggs and ham!
    Thank you!
    Thank you,
    Sam-I-am"

    ReplyDelete
  2. Ha, damn straight. I had originally forgotten to add that Cruz totally failed to note the irony in reading Green Eggs and Ham while condemning something new without trying it. Thanks for the reminder on that.

    Yeah, there is really no reason to only have the single-payer, equal care for all system anymore. We've seen others try different systems and seen them work better. We should mimic success instead of just trying to push our way. All that happens otherwise is wealthy people go to the US to spend their medical money instead of spending it here.

    The rich will get better care as that is the nature of capitalism. Better to have them pay their share of a system for all and still have the option of spending extra to pay for themselves.

    ReplyDelete