How to cut entitlements

(As submitted as a letter to the editor of the Leavenworth Times, February 2011 )

How to cut entitlement costs.

Like a married couple with ten maxed-out credit cards, where both are big spenders and ran up the bills, but each blames the other – Democrats and Republicans in Congress are going to battle over money this year. A lot. President Obama’s 2011 annual budget contains no real cuts, and is nothing but a political football tossed into the game between parties. He’s simply going to stand back and watch them battle. He’ll let Congress take the damage that comes with attempts to make serious reductions. He’ll follow the Politician’s Handbook and say his proposed reductions are meaningful, but 40 billion dollars isn’t even a rounding error compared to the expected 1,600 billion dollar deficit.

About 56 percent of the budget will fund entitlementsMedicare,/Medicaid, Safety Net Programs, and Social Security, or around 2,129 billion dollars. Something needs to be done about those, not that anything will be.

We need to go after these costs with a hatchet. But what can we do? Several ideas are floating around. Let me describe some of them, and maybe include some of my own:

Social Securitycurrently, it’s almost entirely funded by the payroll tax. But, demographics are changing, and soon there won’t be enough tax-paying workers to support the growing number of retired people. We’re already running a Social Security deficit.

  • Eliminate the income limit on the tax. That will raise more money, at the expense of those who make more.
  • Raise the retirement age, for those who are at least ten years away from retirement, by a couple of years.
  • Don’t pay Social Security to those who don’t really need it. The average income is only around $1200 a month, chickenfeed for some retirees. It rarely goes above $2000, and then only for those who paid a great deal into it. When Bill Gates retires, as it stands now, he will be eligible for Social Security. That is a waste. Use a means test (My idea). As an example, when a person’s taxable income for a year exceeds $50,000, start reducing benefits by 2% for each thousand above that, until at or above $100,000 no benefits are paid in the next year. Adjust that for a married couple to say, $60,000 to $110,000. People would have to qualify for each new year. If income falls, benefits could go back up.

Medicarea very important program for the elderly, but very expensive. Some of these ideas also apply to Medicaid. Basic health care reforms are needed.

First, let’s look at what’s wrong with the current system:

  • Patients always pay with other people’s money, with the Federal Government as the 3rd party, so they don’t care whether a test or consultation is necessary or not.
  • Medical costs are spiraling out of control. Part of this is due to the games doctors and hospitals play in billing the government. They deliberately overbill because the Medicare only pays a percentage of the charges, usually less than the provider’s costs. The patient is billed only a small part of what’s left. The government is always trying to reduce the payment so the physicians and hospitals try to raise it.

Another part of increasing medical costs is the fact that patients don’t know the charges in advance, or even how many and which specialists will be called in to consult on their case.

Before my recent cataract surgery, my doctor actually told me in advance what his charges would be and gave me options. That was truly refreshing.

  • Liability reforms are needed. Doctors pay enormous malpractice insurance premiums, which raise the costs for everyone. Obstetricians seem to be an easy target for lucrative lawsuits. As a lawyer, John Edwards made millions with lawsuits against them, before he became a US Senator, and now, in some states it’s really hard to find them.

Doctors are like the auto mechanic who replaces the carburetor and gets the car running, only to have a tree fall on it. Life and health aren’t guaranteed rights. If the doctors make a really bad mistake, like prescribing ten times the safe drug amount or amputating the wrong leg, then malpractice should apply, but if they do their best and follow proper science, that’s really all we should expect of them.

  • The government has no control of costs of Medicare/Medicaid. It’s non-discretionary spending, and depends only on population size and age. The population is growing and aging.

Addressing Medicare/Medicaid costs.

  • Again, a means test, using the same numbers. Prorate benefits paid when taxable income is between $50,000 and $100,000, and don’t pay any when the upper limit is reached.
  • Have doctors act more like most veterinarians, who tell you ahead of time what a procedure will cost, or how much a specialist will charge and why you should see him, and let you make the decisions, knowing what you will have to pay for. Publish doctor fees and costs, and don’t let them charge more because the government is paying for it.
  • Raise the Medicare annual deductible from $100 to at least $250. The government shouldn’t pay for routine medical care. Protection is needed against the high-end costs which really affect people. Consider raising the copayment to 30% from the current 20%.
  • This is the really important change: Take the third party out of medical costs. As long as you’re spending other people’s money, or Uncle Sam’s money, you don’t care how much it costs them. If it’s your money, you care a lot. A voucher system, limiting how much a patient can spend, would truly bring costs down. It would also make them much more predictable. The government should set up a pilot program to test this idea. Many believe it has the potential to bring medical costs under control, without harming the effectiveness of health care.
  • For medical malpractice liability lawsuits, set a limit on how much people can collect – eliminate punitive damages, which can be outrageous. Make the loser of the suit pay all judicial costs. Also, since doctors are only as good as the science, eliminate all liability for them as long as they follow proper procedures.

Across the board:

  • Increase the penalties for fraud in these programs. Fraud is said to cost billions.
  • Increase the federal staff looking for fraud.

Final word:

Some of these ideas are controversial, and you may not like them, but change is really needed to avoid a fiscal catastrophe in the coming years. We are about to suffer the 4th straight year of more than trillion dollar deficits, and unless we change things drastically, no end is in sight.

Unfortunately, there’s an easier way, and there may be no way to avoid it. The national federal sales tax. I hope it’s that rather than the dreaded Value Added Tax, the VAT, which greatly retards the economy of many European countries by collecting the tax on products at several stages from manufacture to warehousing to retail store.

If we must have a sales tax, I hope food and utilities are exempted, and taxes on houses and cars will be limited so people can still afford them. The tax might start out low, such as three per cent, but once passed, future politicians can raise it to unbearable levels. I fear that if we can’t find a way to cut entitlement costs, we’re doomed.


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