One Hundred Trillion Dollars
Q: Was the health care bill better or worse than doing nothing? What do you think?
A: Worse. It does some good and some harm, but I think the harm predominates. If we're very lucky, maybe it won't predominate by much.
Q: What good does it do, and what harm?
A: Well, just after the bill passed in March I wrote a long rumination-with-links, including links back to a February rumination-with-links about what is and isn't wrong with our current system and a January rumination-with-links about what I'd really like, and what worries me, and all that---
Q: No. I don't want a long rumination-with-links, and certainly not three of them. Can't you summarize? What good will the bill do, and what harm?
A: I'll try.
- The bill helps more people get health care services, at other people's expense; that, of course, is what the bill is for, and I expect that several million people will be happier for a while because they don't have to worry as much about price, they can just ask and it shall be given. Yay!
- The direct bad part then splits into two:
- the people receiving services will worry less about price, which will make prices go up even faster than they have been. (The bill says there will be people authorized to save money, but they're not authorized to say "no" which is the only way they could save money.) And then,
- the people providing the money will no longer have the money that has been taken from them.
Q: So it saves lives and costs money. Why is that a bad trade-off?
A: Actually, no, I don't expect it to save lives in the long run. Even in the short run, the evidence that expanded health-care coverage saves lives on net, at the current margin, is astonishingly weak. (Making people happier is important, but it's not the same as saving lives.) I hope our age-adjusted mortality rates will continue declining under the new system, but they will not drop as fast as they would have even under the old system because the incentives and resources for innovation are reduced. In the longer run the new system will cost lives, partly because it will cost money and money fuels innovation which saves lives, and partly because it is an addition to a collection of promises that will not be kept -- cannot be kept.
Q: What promises, and why can't they be kept?
A: Did you notice the title of this blog post? "One Hundred Trillion Dollars".
Q: You can't mean that's the cost of the bill -- can you?
A: Nope. That's the context of the bill. That's what we already owed -- more precisely, it's what we had already promised to pay apart from what we "owed."
A: We have a GDP, sort of a sum-of-all-incomes, of about 14 trillion dollars each year, which grows at a few percent each year (partly from population growth, partly from productivity growth.) We have an overall or "gross" debt of almost 13 trillion dollars. That includes government borrowing from Social Security payments and things like that; without those it's getting close to 9 trillion or so. That's a lot, but it's easy to imagine growing out of those debts, unless we spend so much money now that growth is slowed down even more than predicted. But...well, here's the one real link of this post, the Word from the Dallas Fed two years ago:
Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion over the infinite horizon. Traditional Medicare composes about 69 percent, the new drug benefit roughly 17 percent and Social Security the remaining 14 percent. ... all we would have to do to fully fund our nation’s entitlement programs would be to cut discretionary spending by 97 percent....defense and national security, education, the environment ... All of them [forever]... No combination of tax hikes and spending cuts, though, will change the total burden borne by current and future generations. For the existing unfunded liabilities to be covered in the end, someone must pay $99.2 trillion more or receive $99.2 trillion less than they have been currently promised. This is a cold, hard fact. The decision we must make is whether to shoulder a substantial portion of that burden today or compel future generations to bear its full weight.These are not "debts", and they are particularly not part of the federal debt. They are merely, ah, how shall I say this? They are merely "legally binding promises to pay".
Now, think about the health care bill in that context. We came up to that decision about what to do with the unmanageable burden of entitlements, and we decided, umm, to expand the entitlements. We, mainly my own Baby Boomer generation, have promised each other that our kids will pay for the care that we wish we deserved. These promises are actually expanding promises: if improved productivity raises wages then the Social Security promise expands, while if improved medical tech provides more expensive ways to treat whatever ails us then the Medicare promise expands. So far as I can see, these promises will not be kept. If we're very lucky, improved technology will let us say "we're not keeping the promises, but you're very well off anyway." On the other hand, extra promises like this bill make it likely that the breakage will start before technology can improve that much.
Q: But I thought that the CBO said the health care bill actually reduces the deficit. Doesn't it?
A: In a way -- but not in a way that helps much, even if the assumptions turn out right. The bill is "paid for" in the sense that Congress has named funding sources for its parts. Medicare payments are to be cut -- well, Congress has made that promise before, and broken it repeatedly: maybe they mean it this time. If they don't, it's bad. If they do, we are not only using up the flexibility we needed to pay for the promises we already made, but also discouraging doctors (some of whom already turn away Medicare patients as money-losers. And discouraging doctors of course tends to raise prices.) It's bad either way. Corporations will have to pay, which reduces employment (and growth). States have to take on extra Medicaid expenses; that's not part of the federal deficit scoring, and the states can't afford their existing entitlement programs, but so it goes. My kids will have to pay premiums adjusted to subsidize my premiums (realistic age-based premium ratios are not allowed.) There will be extra Social Security taxes, which help pay for this bill but by existing law they add to the unfunded Social Security liability. It's a mess, but it's a mess which has been carefully set up so that if you accept the assumptions then the officially budgeted part of the federal deficit is not expanded. Individual costs rise, corporate costs rise, state costs rise and unfunded liabilities rise -- we're using resources which we need. That cuts growth (and innovation.)
Q: But you're always saying that exponentially improving technology is going to make us all rich, immortal, smart -- all that good stuff. Are you taking that back?
A: Not yet, but this bill makes me less confident of it. When you look at good trends and bad trends, it always seems like a race to see whether we end up in Heaven or Hell. Here we have trends towards a productivity-spike with health and wealth and longevity for all, and there we have trends towards a financial collapse which leads to a collapse of the health system, environmental everything, etc. This bill slows what I want to speed, speeds what I want to slow. But maybe in the end it won't hurt too much.
Q: I'm still having a hard time with the doesn't-save-lives bit. Are you sure of that?
A: It's very odd and surprising, but the evidence that increases in healthcare delivery lead to increased lifespans at the margin is extremely weak. Remember that emergency care is already available, that poor people are mostly entitled to Medicaid, and that the main lifespan issues are not healthcare anyway: there's a lifestyle battle between declining smoking rates and rising obesity. The bill will certainly extend some lives and shorten others -- about 100,000 people per year die from medical errors as it is. Intuition tells me that it's gotta be a net positive at first, but I'm not sure. I am reasonably confident that it will cost lives in the end, and it adds a bit to the chance that the U.S. will eventually play Greece, with nobody to bail us out.
Or then again, maybe not. I hope not, anyway. There are times when I'm happy to think how often I've been wrong, and this is one of them.