Commentary Magazine


Topic: Congressional Budget Office

Maybe They Should Read the Fine Print

The Democrats have long insisted that ObamaCare can be sold to the public if only the poor, uninformed masses understood what was in it. But with every revelation about the specifics of ObamaCare, one is obliged to exclaim, “How could they vote for that?” A case in point is Medicare Advantage. Jeffrey Anderson explains:

According to Congressional Budget Office (CBO) projections, in its real first ten years (2014 to 2023), Obamacare would cut Medicare Advantage benefits by $214 billion. Medicare Advantage plans vary by company and region, so cuts would vary from person to person. But, on average, Obamacare would cut Medicare Advantage enrollee’s benefits by $21,000 — per person.

As Anderson notes, Medicare Advantage — which allows patients to choose their own private providers — won’t be fairly and equally administered if the Cash for Cloture backroom deals go into effect. “Thanks to the ‘Gator Aid’ deal that Sen. Harry Reid struck behind closed doors with Sen. Bill Nelson, seniors in South Florida would be exempt.” So seniors in California represented by Sen. Barbara Boxer and those in Pennsylvania who rely on Sen. Arlen Specter to look out for them will get a worse deal, and worse health-care coverage, than the Gator Aided seniors. Where’s the “reform” in that?

This deal-making tells us two things. First, the deal that California, Pennsylvania, and other non-Gator Aided seniors got is a bad one. Otherwise Bill Nelson would not have fought to get his constituents out from under the new regime. And second, any senator who voted for ObamaCare without getting a special deal was, bluntly speaking, asleep at the legislative wheel. Even if they like the idea of health care Obama-style, voters are going to want to know why their own senator wasn’t as adroit as Bill Nelson.

Now, one “solution” could be — if ObamaCare survives the Massachusetts Senate vote count — to strip out all the special deals. That would at least put everyone on the same footing. And then voters would get an inkling of just what a rotten deal ObamaCare is for seniors.

So those intent on “selling” ObamaCare to wary voters might want to read what’s in it before they go out selling. It could be that once more and more details are revealed, ObamaCare, if it manages to squeak through, will prove to be even more unpopular than it is now.

The Democrats have long insisted that ObamaCare can be sold to the public if only the poor, uninformed masses understood what was in it. But with every revelation about the specifics of ObamaCare, one is obliged to exclaim, “How could they vote for that?” A case in point is Medicare Advantage. Jeffrey Anderson explains:

According to Congressional Budget Office (CBO) projections, in its real first ten years (2014 to 2023), Obamacare would cut Medicare Advantage benefits by $214 billion. Medicare Advantage plans vary by company and region, so cuts would vary from person to person. But, on average, Obamacare would cut Medicare Advantage enrollee’s benefits by $21,000 — per person.

As Anderson notes, Medicare Advantage — which allows patients to choose their own private providers — won’t be fairly and equally administered if the Cash for Cloture backroom deals go into effect. “Thanks to the ‘Gator Aid’ deal that Sen. Harry Reid struck behind closed doors with Sen. Bill Nelson, seniors in South Florida would be exempt.” So seniors in California represented by Sen. Barbara Boxer and those in Pennsylvania who rely on Sen. Arlen Specter to look out for them will get a worse deal, and worse health-care coverage, than the Gator Aided seniors. Where’s the “reform” in that?

This deal-making tells us two things. First, the deal that California, Pennsylvania, and other non-Gator Aided seniors got is a bad one. Otherwise Bill Nelson would not have fought to get his constituents out from under the new regime. And second, any senator who voted for ObamaCare without getting a special deal was, bluntly speaking, asleep at the legislative wheel. Even if they like the idea of health care Obama-style, voters are going to want to know why their own senator wasn’t as adroit as Bill Nelson.

Now, one “solution” could be — if ObamaCare survives the Massachusetts Senate vote count — to strip out all the special deals. That would at least put everyone on the same footing. And then voters would get an inkling of just what a rotten deal ObamaCare is for seniors.

So those intent on “selling” ObamaCare to wary voters might want to read what’s in it before they go out selling. It could be that once more and more details are revealed, ObamaCare, if it manages to squeak through, will prove to be even more unpopular than it is now.

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Flotsam and Jetsam

Bill Kristol on enjoying the festivities in Copenhagen: “Hugo Chavez, Ahmadinejad giving anti-American speeches, huge applause from the delegates, snowing during this global warming conference. And I’m glad that it has done limited damage to the U.S. economy.” Mara Liasson (emboldened perhaps by the “Free Mara!” campaign) agrees: “I think, obviously, it was a disappointment for environmentalists who wanted something binding and wanted more firm targets, but I think what this means is that a very small step has been taken, and now we’ll see if the Senate will pass this treaty.”

In the rush to pass hugely unpopular and controversial legislation, errors are made: “The Congressional Budget Office (CBO) corrected its estimate of the Senate health bill’s costs on Sunday, saying it would reduce deficits slightly less than they’d predicted.”

The bill was so awful the payoffs had to be very high: “Nelson’s might be the most blatant – a deal carved out for a single state, a permanent exemption from the state share of Medicaid expansion for Nebraska, meaning federal taxpayers have to kick in an additional $45 million in the first decade. But another Democratic holdout, Sen. Bernie Sanders (I-Vt.), took credit for $10 billion in new funding for community health centers, while denying it was a “sweetheart deal.”

Megan McArdle: “Democrats are on a political suicide mission; I’m not a particularly accurate prognosticator, but I think this makes it very likely that in 2010 they will lost several seats in the Senate–enough to make it damn hard to pass any more of their signature legislation–and will lose the House outright.  In the case of the House, you can attribute it to the fact that the leadership has safe seats.  But three out of four of the Democrats on the podium today are in serious danger of losing their seats. No bill this large has ever before passed on a straight party-line vote, or even anything close to a straight party-line vote.  No bill this unpopular has ever before passed on a straight party-line vote.”

When do we get “change“? “The Senate Majority Leader has decided that the last few days before Christmas are the opportune moment for a narrow majority of Democrats to stuff ObamaCare through the Senate to meet an arbitrary White House deadline. Barring some extraordinary reversal, it now seems as if they have the 60 votes they need to jump off this cliff, with one-seventh of the economy in tow. Mr. Obama promised a new era of transparent good government, yet on Saturday morning Mr. Reid threw out the 2,100-page bill that the world’s greatest deliberative body spent just 17 days debating and replaced it with a new ‘manager’s amendment’ that was stapled together in covert partisan negotiations.” Well, voters may see their chance on Election Day 2010.

Harry Reid’s precarious position with Nevada voters may get worse. Even the new Newsweek has figured out that much: “As the approval ratings of both Obama and Congress fall, Nevada’s political dynamics spell trouble for many incumbent Democrats. When you’re the majority leader, that’s seriously bad news. ‘Any politician who gets into a leadership role like that has a tough time because they have to balance the needs of their leadership role against their representation of a state,’ [Scott] Rasmussen says. Reid’s job as leader requires him to be a strict partisan even though he comes from a purple state.”

To no one’s surprise, James Webb falls in line with ObamaCare despite all his supposed “disappointment with some sections of the bill.” His Virginia constituents, who elected Bob McDonnell and are running against the Obama agenda by twenty points, are no doubt even more disappointed. That’s what the 2012 election will be all about.

Eric Cantor explains where health care will be decided: “Cantor predicts that abortion would be the key issue in the House’s debate of the Senate’s bill. Pro-life Rep. Bart Stupak (D., Mich.) ‘has outlined very clear language’ on abortion and ‘has made it clear that if it’s not included then he will vote against the bill,’  he says. ‘. . It’s unfathomable to think that pro-life Democrats would go for the Senate version. They know that the Senate’s bill is a 30-year record-breaking move to allow taxpayer dollars to fund abortion. I can’t imagine any of them supporting it.” We’ll see.

We are still “bearing witness,” I suppose: “Iran’s opposition on Sunday seized upon the death of one of the Islamic republic’s founding fathers — a revered ayatollah who was also a fierce critic of the nation’s leadership — to take to the streets in mourning. Fearing that mourners could quickly turn into antigovernment protesters, Iranian authorities tightened security across the country.”

Bill Kristol on enjoying the festivities in Copenhagen: “Hugo Chavez, Ahmadinejad giving anti-American speeches, huge applause from the delegates, snowing during this global warming conference. And I’m glad that it has done limited damage to the U.S. economy.” Mara Liasson (emboldened perhaps by the “Free Mara!” campaign) agrees: “I think, obviously, it was a disappointment for environmentalists who wanted something binding and wanted more firm targets, but I think what this means is that a very small step has been taken, and now we’ll see if the Senate will pass this treaty.”

In the rush to pass hugely unpopular and controversial legislation, errors are made: “The Congressional Budget Office (CBO) corrected its estimate of the Senate health bill’s costs on Sunday, saying it would reduce deficits slightly less than they’d predicted.”

The bill was so awful the payoffs had to be very high: “Nelson’s might be the most blatant – a deal carved out for a single state, a permanent exemption from the state share of Medicaid expansion for Nebraska, meaning federal taxpayers have to kick in an additional $45 million in the first decade. But another Democratic holdout, Sen. Bernie Sanders (I-Vt.), took credit for $10 billion in new funding for community health centers, while denying it was a “sweetheart deal.”

Megan McArdle: “Democrats are on a political suicide mission; I’m not a particularly accurate prognosticator, but I think this makes it very likely that in 2010 they will lost several seats in the Senate–enough to make it damn hard to pass any more of their signature legislation–and will lose the House outright.  In the case of the House, you can attribute it to the fact that the leadership has safe seats.  But three out of four of the Democrats on the podium today are in serious danger of losing their seats. No bill this large has ever before passed on a straight party-line vote, or even anything close to a straight party-line vote.  No bill this unpopular has ever before passed on a straight party-line vote.”

When do we get “change“? “The Senate Majority Leader has decided that the last few days before Christmas are the opportune moment for a narrow majority of Democrats to stuff ObamaCare through the Senate to meet an arbitrary White House deadline. Barring some extraordinary reversal, it now seems as if they have the 60 votes they need to jump off this cliff, with one-seventh of the economy in tow. Mr. Obama promised a new era of transparent good government, yet on Saturday morning Mr. Reid threw out the 2,100-page bill that the world’s greatest deliberative body spent just 17 days debating and replaced it with a new ‘manager’s amendment’ that was stapled together in covert partisan negotiations.” Well, voters may see their chance on Election Day 2010.

Harry Reid’s precarious position with Nevada voters may get worse. Even the new Newsweek has figured out that much: “As the approval ratings of both Obama and Congress fall, Nevada’s political dynamics spell trouble for many incumbent Democrats. When you’re the majority leader, that’s seriously bad news. ‘Any politician who gets into a leadership role like that has a tough time because they have to balance the needs of their leadership role against their representation of a state,’ [Scott] Rasmussen says. Reid’s job as leader requires him to be a strict partisan even though he comes from a purple state.”

To no one’s surprise, James Webb falls in line with ObamaCare despite all his supposed “disappointment with some sections of the bill.” His Virginia constituents, who elected Bob McDonnell and are running against the Obama agenda by twenty points, are no doubt even more disappointed. That’s what the 2012 election will be all about.

Eric Cantor explains where health care will be decided: “Cantor predicts that abortion would be the key issue in the House’s debate of the Senate’s bill. Pro-life Rep. Bart Stupak (D., Mich.) ‘has outlined very clear language’ on abortion and ‘has made it clear that if it’s not included then he will vote against the bill,’  he says. ‘. . It’s unfathomable to think that pro-life Democrats would go for the Senate version. They know that the Senate’s bill is a 30-year record-breaking move to allow taxpayer dollars to fund abortion. I can’t imagine any of them supporting it.” We’ll see.

We are still “bearing witness,” I suppose: “Iran’s opposition on Sunday seized upon the death of one of the Islamic republic’s founding fathers — a revered ayatollah who was also a fierce critic of the nation’s leadership — to take to the streets in mourning. Fearing that mourners could quickly turn into antigovernment protesters, Iranian authorities tightened security across the country.”

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RE: Reid Panics

Now it’s the White House’s turn to panic. The Obami are apparently unimpressed with Harry Reid’s attempt to pin the collapse of health-care reform on Sen. Joe Lieberman. So they are throwing Reid and his “unnamed senatorial leadership aides” under the bus and telling them to figure out how to make a deal, if needed, without a nonsensical Medicare buy-in concoction. But Reid is having none of that:

Reid is described as so frustrated with Lieberman that he is not ready to sacrifice a key element of the health care bill, and first wants to see the Congressional Budget Office cost analysis of the Medicare buy-in. The analysis is expected early this week.

He really wants that CBO scoring? Well, that’s what he says. But now we’re into face-saving on the face-saving deal (Medicare buy-in), so every day Reid’s strategy makes less and less sense. Benjamin Zycher points out the irony here:

[T]he Left could have had health-care socialism passed on a bipartisan basis months ago, if only they had suppressed their hubris. Republicans were (and remain) perfectly willing to approve community-rating and guaranteed-access regulations for private insurers; and if those were implemented, no one would need a government option or any of the other nostrums: Coverage would be transformed into a public-utility-type service, the insurers would remain “private” in only the most superficial of senses, and the government control and wealth transfers that represent the Holy Grails of the Left would be achieved.

But the Democrats, as Zycher observes, “just could not resist the temptation to shove it all down our throats.” And now Reid can’t bring himself to give up his Medicare buy-in Ponzi scheme. Conservatives should count themselves very fortunate to have Democratic leadership this inept.

UPDATE: This now from Greg Sargent suggests the legislative buffoonery continues. He received an email from the White House senior communications adviser “The report is inaccurate. The White House is not pushing Senator Reid in any direction. We are working hand in hand with the Senate Leadership to work through the various issues and pass health reform as soon as possible.” Sargent’s interpretation: “Whatever the case, it doesn’t seem unlikely that the Medicare buy-in will be dropped if that’s what is necessary to get to 60 votes. But the White House insists it’s not pushing for any such thing, at least for now.” For now. But the day is not done. The comedy isn’t over.

Now it’s the White House’s turn to panic. The Obami are apparently unimpressed with Harry Reid’s attempt to pin the collapse of health-care reform on Sen. Joe Lieberman. So they are throwing Reid and his “unnamed senatorial leadership aides” under the bus and telling them to figure out how to make a deal, if needed, without a nonsensical Medicare buy-in concoction. But Reid is having none of that:

Reid is described as so frustrated with Lieberman that he is not ready to sacrifice a key element of the health care bill, and first wants to see the Congressional Budget Office cost analysis of the Medicare buy-in. The analysis is expected early this week.

He really wants that CBO scoring? Well, that’s what he says. But now we’re into face-saving on the face-saving deal (Medicare buy-in), so every day Reid’s strategy makes less and less sense. Benjamin Zycher points out the irony here:

[T]he Left could have had health-care socialism passed on a bipartisan basis months ago, if only they had suppressed their hubris. Republicans were (and remain) perfectly willing to approve community-rating and guaranteed-access regulations for private insurers; and if those were implemented, no one would need a government option or any of the other nostrums: Coverage would be transformed into a public-utility-type service, the insurers would remain “private” in only the most superficial of senses, and the government control and wealth transfers that represent the Holy Grails of the Left would be achieved.

But the Democrats, as Zycher observes, “just could not resist the temptation to shove it all down our throats.” And now Reid can’t bring himself to give up his Medicare buy-in Ponzi scheme. Conservatives should count themselves very fortunate to have Democratic leadership this inept.

UPDATE: This now from Greg Sargent suggests the legislative buffoonery continues. He received an email from the White House senior communications adviser “The report is inaccurate. The White House is not pushing Senator Reid in any direction. We are working hand in hand with the Senate Leadership to work through the various issues and pass health reform as soon as possible.” Sargent’s interpretation: “Whatever the case, it doesn’t seem unlikely that the Medicare buy-in will be dropped if that’s what is necessary to get to 60 votes. But the White House insists it’s not pushing for any such thing, at least for now.” For now. But the day is not done. The comedy isn’t over.

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Flotsam and Jetsam

What a difference less than a year of one-party liberal rule makes: “Republicans can take a bit of satisfaction from a new survey by Democracy Corps. … The survey found that voters now say, by a three-point margin (45% to 42%), that Republicans would do a better job on the economy than Democrats. That’s a change from the 16-point lead Democrats had in May on the question of managing the economy, and marks the first time since 2002 that Republicans have had a lead on the issue in Democracy Corps polling.”

The Afghans, I think, have reason to worry: “Afghan officials hope President Barack Obama’s address on Afghanistan won’t be weighted too heavily on an exit strategy — even though that’s the message many Americans and Democrats in Congress want to hear. If he talks extensively in his speech Tuesday night about winding down the war, Afghans fear the Taliban will simply bide their time until the Americans abandon the country much as Washington did after the Soviets left 20 years ago.”

The latest on radical jihadism at a taxpayer-supported college: “Siraj Wahhaj, a radical Muslim cleric who authorities in 1995 identified as an unindicted co-conspirator in the 1993 World Trade Center bombing, was last week invited to Queens College to speak on the subject ‘How Islam Perfected Thanksgiving.’ Wahhaj testified in 1996 for convicted terror plotter Omar Abdel Rahman, who was charged with attempting to bomb New York’s Lincoln Tunnel and the United Nations.” He was invited by the Muslim Student Association, a member of which was reported to have declared after the showing of a radical Muslim film: ‘If I had enough money I would be part of the jihad army, I would kill all the Jews.’ … Another spoke of getting a ‘bomb.'” Read the whole outrageous account.

The CBO’s latest: “Individual insurance premiums would increase by an average of 10 percent or more, according to an analysis of the Senate healthcare bill. The long-awaited report by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) also concluded that subsidies provided by the legislation would make coverage cheaper for those who qualify.” And more expensive for everyone else.

The epidemic of BRIs (Bagel Related Injuries): “In 2008, according to an analysis of fingers cut by knives as reported in the government’s National Electronic Injury Surveillance System, 1,979 people appeared in ERs with a BRI. Chicken-related injuries (3,463) led the category, but recorded bagel injuries were otherwise exceeded only by potato, apple and onion injuries. Bagels, in fact, were implicated in more finger cuts than pumpkins (1,195) or cheese (1,236). … (Of course, many BRI victims skip ERs and go to urgent-care offices. Or they stay home and eat breakfast anyway.)”

Jeffrey Goldberg acknowledges that in objecting to building in Gilo, within Jerusalem, Obama “doesn’t seem to understand that all settlements are not created equal. Palestinian negotiators have fairly consistently recognized that Gilo, a Jerusalem suburb built over the 1967 Green Line, but south, not east, of the city, would remain inside Israel in a final-status peace deal.” What’s worse is Obama’ justifying, or at the very least predicting, Palestinian violence. (“Obama’s statement reads almost as a kind of preemptive rationalization for violent Palestinian protest.”) Is there anyone who thinks the Obami haven’t made the Middle East “peace process” worse?

Not so fast: “Senators may have agreed to have the debate; but the parameters of the debate have not been set. The leaders have to agree on which amendments to consider when. The first two amendments were formally introduced Monday afternoon, but when votes will occur remains unclear.” One of those is an amendment by Sen. John McCain to strip out the Democrats’ draconian Medicare cuts: “Stripping the Medicare cost savings (cuts) would essentially kill the bill and send it back to committee.” Because the bill, you see, depends on hundreds of billions being slashed from Medicare. So don’t expect a vote too soon.

Well, he did say he was leaning against running: “The conservative blogosphere unleashed a torrent of criticism against Mike Huckabee Monday after a man whose sentence he commuted as Arkansas governor was suspected of gunning down four police officers in Washington state over the weekend.”

What a difference less than a year of one-party liberal rule makes: “Republicans can take a bit of satisfaction from a new survey by Democracy Corps. … The survey found that voters now say, by a three-point margin (45% to 42%), that Republicans would do a better job on the economy than Democrats. That’s a change from the 16-point lead Democrats had in May on the question of managing the economy, and marks the first time since 2002 that Republicans have had a lead on the issue in Democracy Corps polling.”

The Afghans, I think, have reason to worry: “Afghan officials hope President Barack Obama’s address on Afghanistan won’t be weighted too heavily on an exit strategy — even though that’s the message many Americans and Democrats in Congress want to hear. If he talks extensively in his speech Tuesday night about winding down the war, Afghans fear the Taliban will simply bide their time until the Americans abandon the country much as Washington did after the Soviets left 20 years ago.”

The latest on radical jihadism at a taxpayer-supported college: “Siraj Wahhaj, a radical Muslim cleric who authorities in 1995 identified as an unindicted co-conspirator in the 1993 World Trade Center bombing, was last week invited to Queens College to speak on the subject ‘How Islam Perfected Thanksgiving.’ Wahhaj testified in 1996 for convicted terror plotter Omar Abdel Rahman, who was charged with attempting to bomb New York’s Lincoln Tunnel and the United Nations.” He was invited by the Muslim Student Association, a member of which was reported to have declared after the showing of a radical Muslim film: ‘If I had enough money I would be part of the jihad army, I would kill all the Jews.’ … Another spoke of getting a ‘bomb.'” Read the whole outrageous account.

The CBO’s latest: “Individual insurance premiums would increase by an average of 10 percent or more, according to an analysis of the Senate healthcare bill. The long-awaited report by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) also concluded that subsidies provided by the legislation would make coverage cheaper for those who qualify.” And more expensive for everyone else.

The epidemic of BRIs (Bagel Related Injuries): “In 2008, according to an analysis of fingers cut by knives as reported in the government’s National Electronic Injury Surveillance System, 1,979 people appeared in ERs with a BRI. Chicken-related injuries (3,463) led the category, but recorded bagel injuries were otherwise exceeded only by potato, apple and onion injuries. Bagels, in fact, were implicated in more finger cuts than pumpkins (1,195) or cheese (1,236). … (Of course, many BRI victims skip ERs and go to urgent-care offices. Or they stay home and eat breakfast anyway.)”

Jeffrey Goldberg acknowledges that in objecting to building in Gilo, within Jerusalem, Obama “doesn’t seem to understand that all settlements are not created equal. Palestinian negotiators have fairly consistently recognized that Gilo, a Jerusalem suburb built over the 1967 Green Line, but south, not east, of the city, would remain inside Israel in a final-status peace deal.” What’s worse is Obama’ justifying, or at the very least predicting, Palestinian violence. (“Obama’s statement reads almost as a kind of preemptive rationalization for violent Palestinian protest.”) Is there anyone who thinks the Obami haven’t made the Middle East “peace process” worse?

Not so fast: “Senators may have agreed to have the debate; but the parameters of the debate have not been set. The leaders have to agree on which amendments to consider when. The first two amendments were formally introduced Monday afternoon, but when votes will occur remains unclear.” One of those is an amendment by Sen. John McCain to strip out the Democrats’ draconian Medicare cuts: “Stripping the Medicare cost savings (cuts) would essentially kill the bill and send it back to committee.” Because the bill, you see, depends on hundreds of billions being slashed from Medicare. So don’t expect a vote too soon.

Well, he did say he was leaning against running: “The conservative blogosphere unleashed a torrent of criticism against Mike Huckabee Monday after a man whose sentence he commuted as Arkansas governor was suspected of gunning down four police officers in Washington state over the weekend.”

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Memo to the U.S. Senate: Wake Up!

In 2009 the federal deficit was 11.2 percent of GDP. And that was the deficit if you count the Social Security and other trust-fund surpluses as income, which the government does. The national debt in 2009 increased by 11.7 percent of GDP.

The reasons given for this enormous deficit are the financial crisis and the recession it caused. But the last year in which unemployment hit its current level of 10.2 percent, in 1982, the deficit was only 5.5 percent of GDP. In 1933, when a financial crisis was so severe that the president closed the country’s banks and the stock exchange remained closed for 10 days, the deficit was 4.61 percent of GDP. Only when the nation was fighting a great war has the deficit hit anything like its current level. In 1942, the deficit was 11.6 percent of GDP and reached 27.5 percent in 1943. Beginning in fiscal 1947, the first year of peace, the government began running surpluses (4.6 percent of GDP in 1948).

That’s not going to happen in the near future. The Congressional Budget Office projects that the federal deficit will decline from 11.2 percent of GDP this year to 9.6 percent in 2010, 6.1 percent in 2011, and 3.7 percent in 2012. The CBO foresees its remaining above 3 percent for as far as the green-shaded eye can see. If the economic projections of the CBO turn out to be even a little too optimistic (and they are, in reality, only guesses), it could be far worse.

In a new Newsweek article that is well worth reading, the distinguished economic historian Niall Ferguson discusses the possible consequences of a national debt that rises to a dangerous level. Those consequences aren’t pretty. As he points out, when interest payments on the debt of Great Powers have risen above 20 percent of government revenues, trouble has always been on the way. Thanks to very low interest rates right now, interest on the debt will be 8.38 percent of the budget in fiscal 2009. But interest rates are sure to rise if economic recovery is robust and the federal government (and other national governments) continues to run up big deficits. It is by no means unlikely that we could find ourselves at the danger level in another decade. In a decade after that, we could be going the way of 17th-century Spain, 18th-century France, and 20th-century Britain, with our power to protect American interests severely curtailed.

The public is aware of the situation and in poll after poll puts deficit reduction as its No. 1 priority. So what will the greatest deliberative body in the world — as the U.S. Senate loves to call itself — spend the month of December deliberating about? The greatest expansion of the federal government’s responsibilities since Lyndon Johnson left the White House 40 years ago.

The best argument against the health-care bill now before the Senate is, simply, that we can’t afford it. The public increasingly knows that. Why doesn’t the Senate?

In 2009 the federal deficit was 11.2 percent of GDP. And that was the deficit if you count the Social Security and other trust-fund surpluses as income, which the government does. The national debt in 2009 increased by 11.7 percent of GDP.

The reasons given for this enormous deficit are the financial crisis and the recession it caused. But the last year in which unemployment hit its current level of 10.2 percent, in 1982, the deficit was only 5.5 percent of GDP. In 1933, when a financial crisis was so severe that the president closed the country’s banks and the stock exchange remained closed for 10 days, the deficit was 4.61 percent of GDP. Only when the nation was fighting a great war has the deficit hit anything like its current level. In 1942, the deficit was 11.6 percent of GDP and reached 27.5 percent in 1943. Beginning in fiscal 1947, the first year of peace, the government began running surpluses (4.6 percent of GDP in 1948).

That’s not going to happen in the near future. The Congressional Budget Office projects that the federal deficit will decline from 11.2 percent of GDP this year to 9.6 percent in 2010, 6.1 percent in 2011, and 3.7 percent in 2012. The CBO foresees its remaining above 3 percent for as far as the green-shaded eye can see. If the economic projections of the CBO turn out to be even a little too optimistic (and they are, in reality, only guesses), it could be far worse.

In a new Newsweek article that is well worth reading, the distinguished economic historian Niall Ferguson discusses the possible consequences of a national debt that rises to a dangerous level. Those consequences aren’t pretty. As he points out, when interest payments on the debt of Great Powers have risen above 20 percent of government revenues, trouble has always been on the way. Thanks to very low interest rates right now, interest on the debt will be 8.38 percent of the budget in fiscal 2009. But interest rates are sure to rise if economic recovery is robust and the federal government (and other national governments) continues to run up big deficits. It is by no means unlikely that we could find ourselves at the danger level in another decade. In a decade after that, we could be going the way of 17th-century Spain, 18th-century France, and 20th-century Britain, with our power to protect American interests severely curtailed.

The public is aware of the situation and in poll after poll puts deficit reduction as its No. 1 priority. So what will the greatest deliberative body in the world — as the U.S. Senate loves to call itself — spend the month of December deliberating about? The greatest expansion of the federal government’s responsibilities since Lyndon Johnson left the White House 40 years ago.

The best argument against the health-care bill now before the Senate is, simply, that we can’t afford it. The public increasingly knows that. Why doesn’t the Senate?

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Flotsam and Jetsam

The debate has begun: “Republican senators went on the offensive against the Democratic healthcare initiative the morning after the bill moved forward on a procedural vote, blasting the bill as a job-killer and mechanism of ‘excessive government control.’ … ‘We don’t often ignore the wishes of the American people,’ [Mitch] McConnell (R-Ky.) said, noting ‘it’s hard to handicap’ the outcome.”

Sen. Ben Nelson has started things rolling: “Sen. Ben Nelson (D-Neb.), who is uncommitted moving forward, said he has delivered two pages of proposed changes to Majority Leader Harry Reid. … ‘There will be a lot of discussion back and forth about what might get enough votes,’ Nelson said after the vote. ‘There will have to be fairly significant changes for others as well, not just me. Nuance will not be enough.”

Sen. Chuck Schumer says there aren’t any new taxes. Sen. Jon Kyl disagrees: “If you have insurance you get taxed. If you don’t have insurance you get taxed. If you need a lifesaving medical device like a stint or a diabetic pump you get taxed. … The Congressional Budget Office says and the Joint Tax Committee says that these taxes imposed on others will be passed through.”

Republicans are focusing on the controversy over mammography guidelines to make their point about ObamaCare: “GOP lawmakers said the Democratic health care plan, which the Senate allowed to inch forward Saturday night and remains President Barack Obama’s top domestic priority, would set the nation toward massive government control. ‘Do these recommendations make sense from a cost standpoint? Absolutely, from a cost standpoint, they’re right,’ said Rep. Tom Coburn, an Oklahoma Republican who is a medical doctor. ‘From a patient standpoint, they’re atrocious. And that’s the problem with a bureaucracy stepping between a physician and their patient.'”

In case you had any doubt about the three-ring circus: “The five men facing trial in the Sept. 11 attacks will plead not guilty so that they can air their criticisms of U.S. foreign policy, the lawyer for one of the defendants said Sunday. Scott Fenstermaker, the lawyer for accused terrorist Ali Abd al-Aziz Ali, said the men would not deny their role in the 2001 attacks but ‘would explain what happened and why they did it.'”

Another new low for Obama in the Gallup poll.

John McCain on cap-and-trade: “‘Their start has been horrendous,’ McCain said Thursday. ‘Obviously, they’re going nowhere.’ McCain has emerged as a vocal opponent of the climate bill — a major reversal for the self-proclaimed maverick who once made defying his party on global warming a signature issue of his career.”

Bradley Smith: “Harry Reid actually said this debate is about whether Americans will live ‘free from the fear of illness and death,’ and says these things can be prevented by the Pelosi/Reid/Obama approach to healthcare. This must be a really good plan! Of course, you won’t be able to live free from the fear of being thrown in jail for buying the wrong health insurance coverage, but hey, there are trade-offs in life.”

Another bad news item on hiring: “Employers already are squeezed by tight credit, rising health care costs, wary consumers and a higher minimum wage. Now, the surging jobless rate is imposing another cost. It’s forcing higher state taxes on companies to pay for unemployment insurance claims. Some employers say the extra costs make them less likely to hire. That could be a worrisome sign for the economic recovery, because small businesses create about 60 percent of new jobs. Other employers say they’ll cut or freeze pay.” Which suggests that we should be lowering, not raising, taxes and reducing mandates, not increasing them, on business.

The debate has begun: “Republican senators went on the offensive against the Democratic healthcare initiative the morning after the bill moved forward on a procedural vote, blasting the bill as a job-killer and mechanism of ‘excessive government control.’ … ‘We don’t often ignore the wishes of the American people,’ [Mitch] McConnell (R-Ky.) said, noting ‘it’s hard to handicap’ the outcome.”

Sen. Ben Nelson has started things rolling: “Sen. Ben Nelson (D-Neb.), who is uncommitted moving forward, said he has delivered two pages of proposed changes to Majority Leader Harry Reid. … ‘There will be a lot of discussion back and forth about what might get enough votes,’ Nelson said after the vote. ‘There will have to be fairly significant changes for others as well, not just me. Nuance will not be enough.”

Sen. Chuck Schumer says there aren’t any new taxes. Sen. Jon Kyl disagrees: “If you have insurance you get taxed. If you don’t have insurance you get taxed. If you need a lifesaving medical device like a stint or a diabetic pump you get taxed. … The Congressional Budget Office says and the Joint Tax Committee says that these taxes imposed on others will be passed through.”

Republicans are focusing on the controversy over mammography guidelines to make their point about ObamaCare: “GOP lawmakers said the Democratic health care plan, which the Senate allowed to inch forward Saturday night and remains President Barack Obama’s top domestic priority, would set the nation toward massive government control. ‘Do these recommendations make sense from a cost standpoint? Absolutely, from a cost standpoint, they’re right,’ said Rep. Tom Coburn, an Oklahoma Republican who is a medical doctor. ‘From a patient standpoint, they’re atrocious. And that’s the problem with a bureaucracy stepping between a physician and their patient.'”

In case you had any doubt about the three-ring circus: “The five men facing trial in the Sept. 11 attacks will plead not guilty so that they can air their criticisms of U.S. foreign policy, the lawyer for one of the defendants said Sunday. Scott Fenstermaker, the lawyer for accused terrorist Ali Abd al-Aziz Ali, said the men would not deny their role in the 2001 attacks but ‘would explain what happened and why they did it.'”

Another new low for Obama in the Gallup poll.

John McCain on cap-and-trade: “‘Their start has been horrendous,’ McCain said Thursday. ‘Obviously, they’re going nowhere.’ McCain has emerged as a vocal opponent of the climate bill — a major reversal for the self-proclaimed maverick who once made defying his party on global warming a signature issue of his career.”

Bradley Smith: “Harry Reid actually said this debate is about whether Americans will live ‘free from the fear of illness and death,’ and says these things can be prevented by the Pelosi/Reid/Obama approach to healthcare. This must be a really good plan! Of course, you won’t be able to live free from the fear of being thrown in jail for buying the wrong health insurance coverage, but hey, there are trade-offs in life.”

Another bad news item on hiring: “Employers already are squeezed by tight credit, rising health care costs, wary consumers and a higher minimum wage. Now, the surging jobless rate is imposing another cost. It’s forcing higher state taxes on companies to pay for unemployment insurance claims. Some employers say the extra costs make them less likely to hire. That could be a worrisome sign for the economic recovery, because small businesses create about 60 percent of new jobs. Other employers say they’ll cut or freeze pay.” Which suggests that we should be lowering, not raising, taxes and reducing mandates, not increasing them, on business.

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Iceberg Dead Ahead, Captain Orders “All Engines Ahead Full”

Douglas Holtz-Eakin, a former director of the Congressional Budget Office, has an article in today’s Wall Street Journal, in which he predicts — correctly in my opinion — that we are headed for a fiscal iceberg.

Our fiscal situation has deteriorated rapidly in just the past few years. The federal government ran a 2009 deficit of $1.4 trillion — the highest since World War II — as spending reached nearly 25% of GDP and total revenues fell below 15% of GDP. Shortfalls like these have not been seen in more than 50 years.

Going forward, there is no relief in sight, as spending far outpaces revenues and the federal budget is projected to be in enormous deficit every year. Our national debt is projected to stand at $17.1 trillion 10 years from now, or over $50,000 for every American. By 2019, according to the Congressional Budget Office’s (CBO) analysis of the president’s budget, the deficit will still be roughly $1 trillion, even though the economic situation will have improved and revenues will be above historical norms.

This is also nothing new. The national debt was for most of American history, as Hamilton said it would be, a “national blessing.” It allowed us to fight and win our wars and to relieve suffering in an economic depression far worse than what the country is experiencing now. But in the last thirty years — the most prosperous and relatively peaceful thirty-year period in American history — liberals and “conservatives,” Democrats and Republicans alike in Washington have allowed the debt to explode for their short-term political benefit while they hid the truth with phony accounting.

How bad was it? Consider this: In 1980, the debt was 33.3 percent of the country’s GDP. By 1990 the GDP had increased by 37.6 percent in real terms. But the debt had grown much faster. It was 55.9 percent of the much larger GDP. In the 1990’s GDP increased by 39.7 percent, and the debt more than kept pace. It was 58 percent of GDP in 2000. At the end of 2008, GDP had grown 18.5 percent over 2000, and the debt was fast approaching 80 percent of GDP.  And the debt, being denominated in dollars, is made smaller by inflation while GDP is enlarged.

No one believes that the debt can be kept under 100 percent of GDP in the near future. And if Obamacare gets passed in anything like its present form, it will only makes matters far worse. As Mr. Holtz-Eakin explains, President Obama’s promise not to sign a bill that adds to the deficit is false:

. . . the bills are fiscally dishonest, using every budget gimmick and trick in the book: Leave out inconvenient spending, back-load spending to disguise the true scale, front-load tax revenues, let inflation push up tax revenues, promise spending cuts to doctors and hospitals that have no record of materializing, and so on.

If you’re disturbed by the long-term outlook for the country’s fiscal health, you shouldn’t be. You should be terrified.

Douglas Holtz-Eakin, a former director of the Congressional Budget Office, has an article in today’s Wall Street Journal, in which he predicts — correctly in my opinion — that we are headed for a fiscal iceberg.

Our fiscal situation has deteriorated rapidly in just the past few years. The federal government ran a 2009 deficit of $1.4 trillion — the highest since World War II — as spending reached nearly 25% of GDP and total revenues fell below 15% of GDP. Shortfalls like these have not been seen in more than 50 years.

Going forward, there is no relief in sight, as spending far outpaces revenues and the federal budget is projected to be in enormous deficit every year. Our national debt is projected to stand at $17.1 trillion 10 years from now, or over $50,000 for every American. By 2019, according to the Congressional Budget Office’s (CBO) analysis of the president’s budget, the deficit will still be roughly $1 trillion, even though the economic situation will have improved and revenues will be above historical norms.

This is also nothing new. The national debt was for most of American history, as Hamilton said it would be, a “national blessing.” It allowed us to fight and win our wars and to relieve suffering in an economic depression far worse than what the country is experiencing now. But in the last thirty years — the most prosperous and relatively peaceful thirty-year period in American history — liberals and “conservatives,” Democrats and Republicans alike in Washington have allowed the debt to explode for their short-term political benefit while they hid the truth with phony accounting.

How bad was it? Consider this: In 1980, the debt was 33.3 percent of the country’s GDP. By 1990 the GDP had increased by 37.6 percent in real terms. But the debt had grown much faster. It was 55.9 percent of the much larger GDP. In the 1990’s GDP increased by 39.7 percent, and the debt more than kept pace. It was 58 percent of GDP in 2000. At the end of 2008, GDP had grown 18.5 percent over 2000, and the debt was fast approaching 80 percent of GDP.  And the debt, being denominated in dollars, is made smaller by inflation while GDP is enlarged.

No one believes that the debt can be kept under 100 percent of GDP in the near future. And if Obamacare gets passed in anything like its present form, it will only makes matters far worse. As Mr. Holtz-Eakin explains, President Obama’s promise not to sign a bill that adds to the deficit is false:

. . . the bills are fiscally dishonest, using every budget gimmick and trick in the book: Leave out inconvenient spending, back-load spending to disguise the true scale, front-load tax revenues, let inflation push up tax revenues, promise spending cuts to doctors and hospitals that have no record of materializing, and so on.

If you’re disturbed by the long-term outlook for the country’s fiscal health, you shouldn’t be. You should be terrified.

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Hillary and Terror

On Thursday in New Hampshire, Senator Hillary Rodham Clinton speculated on the electoral effect of a terrorist attack on the United States. The New York Post reported her as saying,

It’s a horrible prospect to ask yourself, “What if? What if?” But if certain things happen between now and the election, particularly with respect to terrorism, that will automatically give the Republicans an advantage again, no matter how badly they have mishandled it, no matter how much more dangerous they have made the world.

The statement is so obviously inappropriate that I will not criticize her for it, especially because her rivals for the Democratic presidential nomination lost no time in doing so. Nonetheless, the fact that she would raise the subject merits discussion. This is unlikely to have been an off-the-cuff blunder: Clinton, the carefully-controlled front-runner, is not known for spontaneity. It’s much more likely she thought long and hard about making such a risky comment. This means she—and her superb political team—think that another terrorist strike on the American homeland in the next several months is possible, even likely.

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On Thursday in New Hampshire, Senator Hillary Rodham Clinton speculated on the electoral effect of a terrorist attack on the United States. The New York Post reported her as saying,

It’s a horrible prospect to ask yourself, “What if? What if?” But if certain things happen between now and the election, particularly with respect to terrorism, that will automatically give the Republicans an advantage again, no matter how badly they have mishandled it, no matter how much more dangerous they have made the world.

The statement is so obviously inappropriate that I will not criticize her for it, especially because her rivals for the Democratic presidential nomination lost no time in doing so. Nonetheless, the fact that she would raise the subject merits discussion. This is unlikely to have been an off-the-cuff blunder: Clinton, the carefully-controlled front-runner, is not known for spontaneity. It’s much more likely she thought long and hard about making such a risky comment. This means she—and her superb political team—think that another terrorist strike on the American homeland in the next several months is possible, even likely.

An imminent attack would justify many of the Bush administration’s anti-terrorism measures that Clinton and her party normally oppose. Yet, it would also make some of the White House’s recent efforts to protect the nation seem, well, inadequate. For instance, President Bush opposed the overseas screening for nuclear materials of all 10 million cargo containers entering America by ship each year. This screening, we are told, “is neither executable nor feasible.” Although cargo-screening issues are complex, the administration’s notions of feasibility betray a troubling laxity. In reality, the administration simply does not want to hinder commerce and ruffle foreign governments, as its recent statement on the matter shows. The cost for needed scanning equipment? The Congressional Budget Office estimates a grand total of about $1.5 billion.

The President this month signed a bill requiring complete screening, but he’s unlikely to implement the law, especially in light of what his administration has said on the matter. Then again, he should think about the consequences of a nuclear detonation in, say, Manhattan. On Friday, China announced that four men trying to sell uranium illegally had lost eight kilograms of it. The missing material, unfortunately, appears already to be in the hands of potential buyers. I may never vote for Mrs. Clinton, but she now has my attention. The big question is: does she have President Bush’s?

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Sound and Fury on the Economy

For all the hubbub about the innovative format of last night’s debate among Democratic presidential candidates, what was striking was how little effect the new format actually had. The debate was still, essentially, a group press conference in which—a few brief exchanges aside—the candidates displayed their placards. Take their rhetoric on the economy. As in earlier gatherings, the candidates handed out the same semi-populist doom and gloom about a country losing economic hope while only the very wealthy improve their lives. To listen to the candidates, you’d think the poor were sinking deeper into poverty due to predatory lending practices, while a cabal of insurance, pharmaceutical, and oil companies were conspiring to turn the U.S. into a giant New Orleans.

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For all the hubbub about the innovative format of last night’s debate among Democratic presidential candidates, what was striking was how little effect the new format actually had. The debate was still, essentially, a group press conference in which—a few brief exchanges aside—the candidates displayed their placards. Take their rhetoric on the economy. As in earlier gatherings, the candidates handed out the same semi-populist doom and gloom about a country losing economic hope while only the very wealthy improve their lives. To listen to the candidates, you’d think the poor were sinking deeper into poverty due to predatory lending practices, while a cabal of insurance, pharmaceutical, and oil companies were conspiring to turn the U.S. into a giant New Orleans.

But, as David Brooks notes in his column today, “after a lag, average wages are rising sharply. Real average wages rose by 2 percent in 2006, the second fastest rise in 30 years.” Similarly, he observes, “according to the Congressional Budget Office, earnings for the poorest fifth of Americans are also on the increase.” Nor, says Arthur Brooks, writing in the Wall Street Journal, are Americans sinking into a slough of economic despond. They continue to be optimistic about their chances for a better life. The National Opinion Research Center’s General Social Survey shows that in 1972, 30 percent of the population said that they were “very happy” with their lives; in 1982, 31 percent; in 1993, 32 percent; and in 2004, 31 percent. “In other words, no significant change in reported happiness occurred—even as income inequality has increased significantly.” “The data,” Arthur Brooks concludes, “do tell us that economic mobility—not equality—is associated with happiness.”

The Democrats definitely have some things right. They are leading the effort to expand the Trade Adjustment Assistance program—which aids workers who have lost their manufacturing jobs to foreign competition—to include service workers as well. But the Deomcrats are also looking to sink well-wrought trade agreements with South Korea and Colombia.

The Republicans definitely miss the mark at times, too, particularly on the genuine (and justified) anxieties of the public about the effects of globalization. Talk of the beauty, efficiency, and long-term benefits of markets is not enough; the public expects government to help balance large-scale risk and rewards in the here-and-now. The GOP would make a profound mistake, for both the future of free trade and for their own political future, if, as the White House seems inclined, they were to block the expansion of the Trade Adjustment Assistance program to include service workers.

“Feeding off pessimism about the war and anger at Washington, the candidates,” says David Brooks, “now compete to tell dark, angry, and conspiratorial stories about the economy.” This is not just a matter of rhetoric; these overheated arguments present a real danger. They might conflate the legitimate need to help cushion Americans from the increased risks of the global economy with an attempt to roll back the growth of free trade that has underwritten precisely the economic mobility so important to economic happiness. And that really would be bad news.

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Fiscal Chicken Littles

Some news about the federal budget deficit: the sky still isn’t falling.

It was only a few short years ago that the deficit was held up as evidence of the Bush administration’s fiscal recklessness. From nearly every corner, someone was arguing that the end was nigh. Fortune called the deficit “staggering.” Tim Russert, while interviewing the President, referred to his “deficit disaster.” Andrew Sullivan was convinced that “soaring deficits” necessitated a new gas tax. Even Alan Greenspan went to Europe and told reporters that the U.S. budget deficit was “out of control.”

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Some news about the federal budget deficit: the sky still isn’t falling.

It was only a few short years ago that the deficit was held up as evidence of the Bush administration’s fiscal recklessness. From nearly every corner, someone was arguing that the end was nigh. Fortune called the deficit “staggering.” Tim Russert, while interviewing the President, referred to his “deficit disaster.” Andrew Sullivan was convinced that “soaring deficits” necessitated a new gas tax. Even Alan Greenspan went to Europe and told reporters that the U.S. budget deficit was “out of control.”

Yesterday, with little fanfare, the Treasury Department reported that the federal deficit fell from October to February, down 25.5 percent from the same period last year. This is consistent with the dramatic fall in the budget gap over the past two years. The White House projects the deficit will be $244 billion by the end of the year. The Congressional Budget Office is even more optimistic, forecasting a deficit of $214 billion. If the White House’s more conservative estimate is right, the deficit will be around 1.7 percent of GDP. The average federal budget deficit over the past 40 years has been 2.4 percent.

I won’t pretend that a single quarterly announcement on deficit figures means that much. But surely it’s time for the legions of economic doomsayers to admit that they were wrong. Or maybe it’s simply an evergreen of American politics to talk about budget deficits as if they were a sign of the end of life as we know it. The country was full of such talk during the 1992 election, when the Concord Coalition was predicting all sorts of horrible fiscal scenarios. Four years later, the country was running a budget surplus. And here is an article from Time that does all the usual hand-wringing on the subject. It is a classic of the genre, peppered with generous citations of the Brookings Institution and containing the apparently essential line: “Some economists are frankly afraid that the nation’s budget is out of control.” The article appeared in 1972.

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From COMMENTARY: Health Care in Three Acts

As President Bush prepares to address the issue of health care in his State of the Union address, COMMENTARY is fortunate to have a trenchant analysis of the wider problem, “Health Care in Three Acts,” by Eric Cohen and Yuval Levin, coming out in the February issue. Here is an advance look.

Americans say they are very worried about health care: on generic lists of voter concerns, health issues regularly rank just behind terrorism and the Iraq war. And politicians are eager to do something about it. To empower consumers, the White House has advanced the idea of Health Savings Accounts; to help the uninsured, it has explored using Medicaid more creatively. Senator Edward Kennedy of Massachusetts, the Democrats’ leader on this issue, has backed “Medicare for all.” The American Medical Association has called for tax credits to put private coverage within reach of more Americans. A number of recent books have proposed solutions to our health-care problems ranging from socialized medicine on the Left to laissez-faire schemes of cost containment on the Right. In Washington and in the state capitals, pressure is building for serious reforms.

But what exactly are Americans worried about? Untangling that question is harder than it looks. In a 2006 poll, the Kaiser Family Foundation found that while a majority proclaimed themselves dissatisfied with both the quality and the cost of health care in general, fully 89 percent said they were satisfied with the quality of care they themselves receive. Eighty-eight percent of those with health insurance rated their coverage good or excellent—the highest approval rating since the survey began 15 years ago. A modest majority, 57 percent, were satisfied even with its cost.

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As President Bush prepares to address the issue of health care in his State of the Union address, COMMENTARY is fortunate to have a trenchant analysis of the wider problem, “Health Care in Three Acts,” by Eric Cohen and Yuval Levin, coming out in the February issue. Here is an advance look.

Americans say they are very worried about health care: on generic lists of voter concerns, health issues regularly rank just behind terrorism and the Iraq war. And politicians are eager to do something about it. To empower consumers, the White House has advanced the idea of Health Savings Accounts; to help the uninsured, it has explored using Medicaid more creatively. Senator Edward Kennedy of Massachusetts, the Democrats’ leader on this issue, has backed “Medicare for all.” The American Medical Association has called for tax credits to put private coverage within reach of more Americans. A number of recent books have proposed solutions to our health-care problems ranging from socialized medicine on the Left to laissez-faire schemes of cost containment on the Right. In Washington and in the state capitals, pressure is building for serious reforms.

But what exactly are Americans worried about? Untangling that question is harder than it looks. In a 2006 poll, the Kaiser Family Foundation found that while a majority proclaimed themselves dissatisfied with both the quality and the cost of health care in general, fully 89 percent said they were satisfied with the quality of care they themselves receive. Eighty-eight percent of those with health insurance rated their coverage good or excellent—the highest approval rating since the survey began 15 years ago. A modest majority, 57 percent, were satisfied even with its cost.

Evidently, though, this widespread contentment with one’s own lot coexists with concern on two other fronts. Thus, in the very same Kaiser poll, nearly 90 percent considered the number of Americans without health insurance to be a serious or critical national problem. Similarly, a majority of those with insurance of their own fear that they will lose their coverage if they change jobs, or that, “in the next few years,” they will no longer be able to afford the coverage they have. At least as troubling is what the public does not seem terribly bothered about—namely, the dilemmas of end-of-life care in a rapidly aging society and the exploding costs of Medicare as the baby-boom generation hits age sixty-five.

All of this makes it difficult to speak of health care as a single coherent challenge, let alone to propose a single workable solution. In fact, America faces three fairly distinct predicaments, affecting three fairly distinct portions of the population—the poor, the middle class, and the elderly—and each of them calls for a distinct approach.

For the poor, the problem is affording coverage. Forty-six million Americans were uninsured in 2005, according to the Census Bureau. This is about 15.9 percent of the population, which has been the general range now for more than a decade, peaking at 16.3 percent in 1998.

But that stark figure fails to convey the shifting face and varied make-up of the uninsured. On average, a family that loses its coverage will become insured again in about five months, and only one-sixth of the uninsured lack coverage for two years or more. In addition, about a fifth of the uninsured are not American citizens, and therefore could not readily benefit from most proposed reforms. Roughly a third of the uninsured are eligible for public-assistance programs (especially Medicaid) but have not signed up, while another fifth (many of them young adults, under thirty-five) earn more than $50,000 a year but choose not to buy coverage.

It is also crucial to distinguish between a lack of insurance coverage and a lack of health care. American hospitals cannot refuse patients in need who are without insurance; roughly $100 billion is spent annually on care for such patients, above and beyond state and federal spending on Medicaid. The trouble is that most of this is emergency care, which includes both acute situations that might have been prevented and minor problems that could have been treated in a doctor’s office for considerably less money. The real problem of the uninsured poor, then, is not that they are going without care, but that their lack of regular and reliable coverage works greatly to the detriment of their family stability and physical well-being, and is also costly to government.

For the middle class, the problem is different: the uncertainty caused in part by the rigid link between insurance and employment and in part by the vicissitudes of health itself. America’s employment-based insurance system is unique in the world, a product of historical circumstances and incremental reforms that have made health care an element of compensation for work rather than either a simple marketplace commodity or a government entitlement. This system now covers roughly 180 million Americans. It works well for the vast majority of them, but the link it creates between one’s job and one’s health coverage, and the peculiar economic inefficiencies it yields, result in ever-mounting costs for employers and, in an age of high job mobility, leave many families anxious about future coverage even in good times.

The old, finally, face yet another set of problems: the steep cost of increasingly advanced care (which threatens to paralyze the government) and the painful decisions that come at the limits of medicine and the end of life. Every American over sixty-five is eligible for at least some coverage by the federal Medicare program, which pays much of the cost of most hospital stays, physician visits, laboratory services, diagnostic tests, outpatient services, and, as of 2006, prescription drugs. Established in 1965, Medicare is funded in part by a flat payroll tax of 2.9 percent on nearly every American worker and, beyond that, by general federal revenue. Most recipients pay only a monthly premium that now stands at $88.50, plus co-payments on many procedures and hospital stays.

But precisely because Medicare is largely funded by a payroll tax, it suffers acutely from the problems of an aging society. In 1950, just over 8 percent of Americans were over sixty-five. Today that figure stands at nearly 15 percent, and by 2030 it is expected to reach over 20 percent, or 71 million Americans. Moreover, the oldest of the old, those above the age of eighty-five, who require the most intense and costly care, are now the fastest growing segment of the population; their number is expected to quadruple in the next half-century.

For Medicare, therefore, just as for Social Security, the number of recipients is increasing while the number of younger workers to pay the bills is declining. But Medicare faces a greater danger still. Its costs are a function not only of the number of eligible recipients but of the price of the services they use. Over the past few years, health-care spending in America has increased by about 8 percent each year, most steeply for older Americans who have the most serious health problems. As these costs continue to rise much faster than the wages on which Medicare’s funding is based, the program’s fiscal decline will be drastic, with commensurately drastic consequences for the federal budget.

Three different “crises,” then, each of a different weight and character. The crisis of the uninsured, while surely a serious challenge, has often been overstated, especially on the Left, in an effort to promote more radical reforms than are necessary. The crisis of insured middle-class families has been misdiagnosed both by the Right, which sees it purely as a function of economic inefficiency, and by the Left, which sees it as an indictment of free-market medicine. And the crisis of Medicare has been vastly understated by everyone, in an effort to avoid taking the painful measures necessary to prevent catastrophe. In each case, a clearer understanding may help point the way to more reasonable reforms.

In the case of the uninsured, the best place to begin is with the solution most frequently proposed to their plight: a government-run system of health care for all Americans.

Under such a system—which exists in some form in most other industrialized democracies—the government pays everyone’s medical bills, and in many cases even owns and runs the health-care system itself. The appeal of this idea lies in its basic fairness and simplicity: everyone gets the same care, from the same source, in the same way, based purely on need. In one form or another—actual proposals have varied widely, with Hillary Clinton’s labyrinthine scheme of 1993 merely the best known of many—this “single-payer” model remains the preferred health-care solution of the American Left. But it is ill-suited to the actual problems of America’s uninsured, and adopting it would greatly exacerbate other problems as well.

Everywhere it has been tried, the single-payer model has yielded inefficient service and lower-quality care. In Britain today, more than 700,000 patients are waiting for hospital treatment. In Canada, it takes, on average, seventeen weeks to see a specialist after a referral. In Germany and France, roughly half of the men diagnosed with prostate cancer will die from the disease, while in the United States only one in five will. According to one study, 40 percent of British cancer patients in the mid-1990’s never got to see an oncologist at all.

Such dire statistics have in fact caused many Western democracies with single-payer systems to turn toward market mechanisms for relief. The Swedes have begun to privatize home care and laboratory services. Australia now offers generous tax incentives to citizens who eschew the public system for private care. To send a message to the government, the Canadian Medical Association recently elected as its president a physician who runs a private hospital in Vancouver, actually illegal in Canada. “This is a country in which dogs can get a hip replacement in under a week,” the new president told a newspaper interviewer, “while humans can wait two or three years.”

Defenders of the single-payer concept often point out that, despite patient complaints about the quality of care, overall measures of health in countries with such systems are roughly equivalent to those in America. That may be so, but the chief reason lies in social and cultural factors—crime rates, diet, and so forth—that make life in many other Western nations safer and healthier than life in America, and that would not be altered by a single-payer health system. Besides, citizens in those other nations benefit enormously from medical innovations produced and made possible by America’s dynamic private market; if that market were hobbled by a European-style bureaucracy, their quality of care would suffer along with ours.

And quality of care, it is important to remember, is one thing that most Americans are happy with. Any reform that promises to replace immediate access to specialists with long waiting lines, or the freedom to choose one’s own doctor with restrictive government mandates, is certain to evoke deep hostility, and thereby to cut into public support for efforts to help the uninsured.

On this score, proponents of socialized medicine would do well to consult the cautionary example of the health-maintenance organization (HMO). HMO’s are insurers who contract directly with providers, often for a flat fee, reviewing physician referrals and medical decisions in order to prevent unnecessary procedures or expenses. By the mid-1990’s, this capacity for cost-containment had made HMO’s very attractive to policy-makers and families alike. And they delivered on their cost-cutting promise. In those years, as David Gratzer notes in his recent book The Cure (Encounter, 325 pp., $25.95), private health-care spending per capita grew by just 2 percent annually (today the figure is nearly 10 percent, though the reasons for this, as we shall see below, go beyond just the decline of HMO’s).*

But the public soon chafed under the authoritarian character of a system in which case managers were entrusted with decisions that often seemed arbitrary, while doctors resented having their medical judgment questioned by bureaucrats. Participation soon declined, and HMO’s themselves began to take on the characteristics of traditional insurance plans. By the middle of this decade, they had joined the bipartisan list of stock American villains: in the 2004 presidential campaign, President Bush accused Senator John Kerry of getting “millions from executives at HMO’s,” while Kerry pledged to “free our government from the dominance of the lobbyists, the drug industry, big oil, and HMO’s—so that we can give America back its future and its soul.”

In a single-payer government system, everything Americans dislike about HMO’s would be worse: rationing, top-down control, perverse incentives, and, for patients, very little say. As has happened in Europe, a single-payer approach would also turn health-care costs entirely into government costs, grossly distorting public spending and threatening to crowd out other important government functions. The result would be a political, fiscal, and social disaster.

There is a better way to assist the uninsured: not universal government health care but universal private insurance coverage. Such an effort could begin by identifying the populations in need. Those who are uninsured by their own choice could be offered incentives to purchase at least some minimal coverage, or be penalized for failing to do so. Those who cannot afford insurance could be given subsidies to purchase private coverage based on their level of income, and then pooled into a common group to give them some purchasing power and options. Their coverage would still not equal that available to people in the most generous employer-based plans, but it would offer reliable access to care without destroying the quality and flexibility of the American system.

Although such a plan might not be cheap, it would not be nearly so expensive or complex as a single-payer system. The money for it could be taken, in part, from Medicaid funds now used to pay doctors and hospitals for care already provided to the uninsured, with such “uncompensated-care” programs gradually transformed into a voucher system for purchasing private coverage. But though it might rely on some federal dollars, the reform itself would best be undertaken and managed at the state level. After all, health insurance is regulated by the states, Medicaid is largely managed by the states, and different states face different challenges and possess different resources.

In Massachusetts and Florida, ideas like these are already being tested, although it is too early to judge the results. The federal government can help other states try this more practical approach by clearing away regulatory obstacles and by providing incentives for experiments in creative reforms.

This brings us to the health-care anxieties of middle-class Americans. Although these concerns are in most respects much less pressing than those of the poor, they are real enough. Middle-class families are, besides, the heart and soul of America’s culture and economy, as well as the essential political force for any sober assessment and improvement of America’s health-care system.

Generally speaking, the worries expressed by these Americans stem from the peculiarities of our employer-based insurance market. It is, indeed, a very odd thing that more than 180 million Americans should be covered by insurance purchased for them by their employers. The companies we work for do not buy our food and clothing, or our car and home insurance. They pay us for our labor, and we use that money to buy what we want.

No less odd is the character of what we call health insurance. Insurance usually means coverage for extreme emergencies or losses. We expect auto insurance to kick in when our car is badly damaged in an accident, not when we need a routine oil change; homeowner’s insurance covers us after a fire, flood, or break-in, not when we need to repair the deck or unclog the gutters. But when it comes to health, we expect some element of virtually every expense to be covered, including routine doctor checkups and regular care.

America’s insurance system is largely a historical accident. During World War II, the federal government imposed wage controls on American employers. No longer able to raise salaries to compete for employees, companies turned instead to offering the lure of fringe benefits, and the era of employer-based health care was born. Thanks to a 1943 IRS ruling allowing an exemption for money spent by employers on health insurance, an enormous tax incentive was created as well. Rather than giving a portion of every dollar to the government, employees could get a full dollar’s worth of insurance through their company.

Of course, wage controls are long gone, but the system they inadvertently created, including the tax exemption, remains in place. Although this system has served most Americans very well, it has two significant drawbacks. First, by forging a tight link between one’s job and one’s health insurance, it makes losing a job, or changing jobs, a scary proposition, especially for parents. Second, it lacks any serious check on costs. Because insurance often pays the bulk of every single bill (instead of kicking in only for emergencies or extreme expenses), most American families do not know, or attend to, the actual cost of their health care.

Any car owner can tell you the price of a gallon of gas or an oil change. But what is the price of knee surgery? Or even a regular doctor’s visit? Does one hospital or doctor charge more than another? Most patients pay only a deductible that, while often not cheap, bears almost no relation to the price of the service they receive. As a result, they do not behave like consumers, shopping for the best price and thereby forcing providers to compete for their dollar.

Inured to such issues, families worry most about the lack of portability of their insurance, leaving it to economists to worry about the distorting effects of price inefficiencies. To gain the support of middle-class parents, any reform to the system would therefore need to address the former issue first.

Policy-makers on the Left have tended to understand this, but have over-read the anxiety of families, seeing it as a broad indictment of America’s free-market health care. They have thus offered the same bad solution to the problems of the insured as they do to the problems of the uninsured: a government-run system that will replace our present one. As for conservative policy-makers, they sometimes tend to overlook the concerns of middle-class families altogether, focusing on inefficiency before portability.

The conservative health-care solution of the moment is the health savings account, or HSA. It has two components: a savings account to which individuals and employers can make tax-free contributions to be drawn on exclusively for routine health-care costs, and a high-deductible insurance plan to help pay for catastrophic expenses.

Since individuals can take their HSA’s with them when they change jobs (provided the new employer allows it), this option can indeed help promote insurance portability. But, generally speaking, that is neither its foremost aim nor its effect. Instead, it is seen by its proponents as helping to level the playing field by giving to individuals the same tax breaks that employers get in purchasing coverage, and as helping to train people to think like consumers, since in spending their own money they will have an incentive to spend as little of it as possible. In short, proponents of the HSA want to use market mechanisms to achieve lower costs and improved quality.

This is certainly a worthy goal—but does it meet the concerns of most Americans? David Gratzer, an advocate of the HSA, tells the story of a woman who used such an account in exactly the desired way. Needing foot surgery, and impelled to spend her own money wisely, she

took charge of the situation and thought about what she really needed. When a simple day-surgery was suggested, she looked around and decided on a local surgery center. She asked about clinic fees and offered to pay upfront—thereby getting a 50-percent discount. When she found out that an anesthetist would come in specifically to do the foot block, she asked her surgeon just to do it. She also negotiated the surgeon’s compensation down from $1,260 to $630. Finally, she got a prescription from her doctor for both antibiotics and painkillers, but only filled the former. “In the past, my attitude would have been, ‘just have all the prescriptions filled because insurance was paying for it, whether or not I need them.’”

Although Gratzer offers this as an ideal example, it will surely strike many people as a nightmare. Haggling with doctors, ignoring prescriptions, bypassing a specialist to save money—is this the solution to middle-class health-care worries? Who among us feels confident taking so much responsibility for judgments over his own health, let alone over the care of his children or his elderly parents?

If the HSA is to have wide appeal, it must be sold first and foremost as a means not of efficiency but of portability—and as part of a broader effort to expand the portability of health insurance generally. Nor should such an effort be aimed, at least at first, at undoing our employer-based system. Perhaps, given a blank slate, no sensible person would ever have designed the current system. But we do not have a blank slate. We have a system providing care that the vast majority of insured Americans are quite happy with—and that has also helped America resist the pressure for government-run health care of the kind for which every other developed nation is now paying a heavy price.

We have, in other words, a system that works but is in need of repairs, most notably in the realm of improved portability. Making this happen will require better cooperation between state and federal policy-makers. An exclusively national solution would require federalizing the regulation of health insurance, which is both undesirable and politically unachievable. Instead, states should be encouraged to develop insurance marketplaces like the one now taking shape in Massachusetts. Mediating between providers and purchasers, these would allow employers, voluntary groups, and individuals to select from a common set of private options. Whether working full-time, part-time, or not at all, individuals and families could choose from the same menu of plans and thus maintain constant coverage even as their job situations or life circumstances change. For those who cannot afford insurance and do not receive it from an employer, Medicaid dollars could be used to subsidize the purchase of a private plan.

The federal government, meanwhile, could ensure that Medicaid dollars allotted to states can be used to support such a structure of subsidies. It could also pursue other, smaller measures, like extending or eliminating the time limit on the COBRA program, which allows individuals leaving a job to keep their employment-based plan by paying the full premium. As states begin implementing marketplace reforms, the federal government could also find ways to encourage regional and eventually national marketplaces, which would enable the purchase of insurance across state lines.

In any such scheme, Health Savings Accounts would surely have a place. So would other measures of cost containment like greater price transparency. But the key to any large reform must be its promise to address the real worries of insured American families by preserving what is good about the current system while facing up to its limits and confronting its looming difficulties.

Unfortunately, when it comes to paying for the health care of older Americans, there are few attractive options. Costs have risen steeply in recent years, while the economic footing of the Medicare program has been steadily eroding. Nor are demographic realities likely to change for at least a generation; to the contrary, they may only worsen. So the solution must involve some form of cost containment.

This will not be easy. As Arnold Kling points out in Crisis of Abundance (Cato Institute, 120 pp., $16.95), costs are rising not because of increasing prices for existing medical services but because of a profound transformation in the way medicine is practiced in America. Between 1975 and 2002, the U.S. population increased by 35 percent, but the number of physicians in the country grew by over 100 percent. The bulk of these were specialists, whose services cost a great deal more than those of general practitioners. New technologies of diagnosis (like MRI exams) have also become routine, and not just for the old, and the number and variety of treatments, including surgeries, have likewise increased. We spend more because more can be done for us.

All of this spells heavier demands on the Medicare budget, to the point where the program’s fiscal prospects have become very bleak. Already accounting for roughly 15 percent of federal spending, Medicare will be at 25 percent by 2030 and growing. In David Gratzer’s words, “Medicare threatens to be the program that ate the budget.”

Worse yet, one of the most expensive and complicated burdens of an aging society is not even covered by Medicare. This is long-term care, involving daily medical and personal assistance to people incapable of looking after themselves. The Congressional Budget Office estimates that Americans spent roughly $137 billion on long-term care in 2000, and that by 2020 the figure will reach $207 billion. Longer lives, and the high incidence of dementia among the oldest of the old, are bound to impose an extraordinary new financial strain on middle-income families, whose consequent demand for government help will only worsen our already looming fiscal crisis.

Medicaid, which covers health care for the poor, does pay for some long-term care in most states. To qualify for this, and to avoid burdening their children, a growing number of the elderly have opted to spend down their assets when the need arises. But this ends up burdening their children anyway, if less directly. States already spend more on Medicaid than on primary and secondary education combined; if Medicaid comes to shoulder the bulk of long-term costs in the coming decades, it will bankrupt state coffers and place enormous strains on the federal budget.

Of course, the challenges of an aging society reach well beyond economics. As more and more Americans face an extended decline in their final years, elderly patients and their families will confront painful choices about how much care is worthwhile, who should assume the burdens of care-giving, and when to forgo additional life-sustaining treatment. Compared to this profound human challenge, fiscal dilemmas can seem relatively paltry. But they too necessitate hard and unavoidable choices.

One way or another, the Medicare program will have to be adjusted to a society with radically different demographics from the one it was designed to serve. If “seventy is the new fifty,” as a popular bumper sticker tells us, then the age of Medicare eligibility must begin to move up as well. That will inevitably impose a hardship on those who are already not vigorous in their sixties, as well as on those whose jobs are too physically demanding for even a healthy sixty-five-year-old. So hand in hand with raising the age of eligibility will need to go programs encouraging (or requiring) health-care savings earlier in life. At the same time, Medicare benefits will gradually have to become means-tested, so that help goes where it is most needed and benefits are most generous to those with the lowest incomes and fewest assets.

More fundamentally, the structure of the Medicare program will have to change. Its benefits now increase in an open-ended way that both reflects and drives the upward movement of health costs; if Medicare is to remain sustainable, constraints will gradually have to be put in place, so that benefits grow by a set percentage each year. The program will also need its own distinct and reasonably reliable funding source, which will require an adjustment in the design of the payroll tax.

Any such reforms will be politically explosive, to put it mildly. No politician in his right mind would run on a platform of limiting Medicare eligibility and capping its benefits. And yet, a decade from now, caring for aging parents will have become a burning issue for a great swath of America’s families as parents find themselves squeezed between the needs of their own parents and the needs of their children. Every politician will be expected to offer a solution, and will be subject to dangerous temptations: promising limitless care at the very moment when fiscal responsibility requires setting limits, or promising to “solve” our fiscal problems by abandoning the elderly. The least that responsible policy-makers can do now is to familiarize Americans with the realities of our aging society, so that when the time comes for difficult choices, we will not be blind-sided.

Understanding America’s three distinct health-care challenges, and the deficiencies of conventional responses to them, is the first step toward reform. Any approach we take will assuredly cost the taxpayers money. Already, nearly a third of the federal budget is spent on health-care, and that portion is certain to grow. The choice, however, is between paying the necessary price to ameliorate our genuine problems or paying far more to satisfy ideological whims or avoid politically painful decisions.

Neither socialized medicine nor a pure market approach is suited to America’s three health-care challenges, while the bipartisan conspiracy to ignore the looming crisis of Medicare in particular will return to haunt our children. Coming to grips with the true nature of our challenges suggests, instead, a set of pragmatic answers designed to address the real problems of the uninsured, of middle-class families, and of the elderly while protecting America’s private health-insurance system and looking out for the long-term fiscal health of the nation.

Even as we pursue practical options for reform, however, it behooves us to remember that health itself will always remain out of our ultimate control. Medicine works at the boundaries of life, and its limits remind us of our own. While our health-care system can be improved, our unease about health can never truly be quieted. And while reform will require hard decisions, solutions that would balance the books by treating the disabled and debilitated as unworthy of care are no solutions at all. In no small measure, America’s future vitality and character will depend upon our ability to rise to this challenge with the right mix of creativity and sobriety.

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