Thursday, March 10, 2011

If I were king of the forest

To while away an hour, and not straining to increase my present level of knowledge before amusing myself, let me consider: how would I tackle the United States' budget problems if I could make policy by fiat?

My broad fiscal goals would be to reduce the rate of medical inflation while expanding coverage and improving outcomes, reduce defense spending without compromising U.S. security, make the tax code fairer and more efficient, create incentives to reduce fossil fuel consumption, increase government revenue without crimping sustainable economic growth, make social security solvent, and let discretionary domestic spending levels be determined on a cost/benefit basis, without arbitrary spending reduction targets.

First, I would find a way to give the government (probably federal but possibly state, or some hybrid) the sole power to set uniform prices for all medical procedures.  Every other wealthy nation on earth provides universal healthcare to its citizens, and virtually all of them accord sole pricing power to the government (provincial governments in Canada's case), whether or not they strain those payments through some form of private insurance. In the U.S., we pay far more per procedure than any other country, primarily because the government lacks this pricing power.  Our doctors -- specialists, in any case -- are overpaid, an advantage (to them) partly offset by the ridiculous administrative costs of dealing with multiple insurers, the outsized cost of malpractice insurance, and the huge financial burden of unsubsidized medical school. I would seek to ease those burdens while also reducing most specialists' profit margins and perverse incentives to provide expensive care whether or not it's warranted.

Second, I would empower the medical payment system's overseers to condition coverage for specific procedures on outcomes research. I would do this cautiously, since such research is often ambiguous, and one size does not fit all; expensive procedures that do not seem to be more effective than cheaper alternatives might be covered under certain circumstances, or less fully. But broadly, former U.K. health minister John Reid's watchword would be mine: we cover everybody, but not everything. Also, I would fully resource all of the cost containment measures in the Affordable Care Act.

Third, I would reduce the United States' military commitments -- not precipitously, but steadily. I would seek to replicate the peace dividend of the early nineties -- defense spending was cut by somewhere between 20-25% in real terms between 1989 and 1994.  I can't see how the attacks of al Qaeda have rendered our military needs (as opposed to commitments) greater than they were in 1994, except perhaps in homeland security and intelligence, where we are doubtless wasting huge amounts of money but did need to bolster our capabilities. While I gather that reducing military spending s would mainly entail reducing personnel, I can't say what I would do in Afghanistan at this point.

Fourth, I would raise tax revenues as a percentage of GDP perhaps one percent per year to at least 20% of GDP.  I would phase in heavy energy taxes until they touched European levels. I would reduce "tax expenditures," that is, the smorgasbord of targeted tax breaks for individuals and corporations, as every rational budget plan presented by commission or think tank has recommended. I don't think I buy the frequently-bruited corollary that rates should be flattened; in fact, I would need to be convinced that it is a bad idea to create new tax brackets at yearly incomes of, say, $500k, $1 m and $2 million per year. I would not kill the golden goose, i.e., I would not raise marginal  rates higher than 50% for any bracket.

To fix Social Security, I would rely mainly on raising the FICA cap as high as necessary, perhaps also reducing the return on average indexed monthly earnings (AIME) at higher income levels (at present, one gets only 15% of AIME that exceed $4586 per month, as opposed to 90% of the first $761 of AIME).

I would not aim to cut domestic discretionary spending below current levels.  

And that should do it!


  1. Can't argue with any of this-it's the most sensible plan I've seen anyone put forth. The only thing I would add is a phase out of most of the weapon development-nuclear subs, aircraft, aircraft carriers-that is a legacy of the cold war. Too bad we can never, ever have it come to pass.

  2. Oh, and I'd simplify the tax code further by reducing/eliminating "capital gains" back to legitimate return on creative capital, rather than stuff like dividends and short-term stock trading. Treat income from these items like income.

  3. Brilliant. Could never happen...makes too much sense.

  4. What about means-testing medicare, especially for drugs, by giving higher co-pays and higher amounts to pay before the insurance coverage kicks in?

  5. Part (1) has been tried. It's called RBRVS and it's been a disaster for the medical profession and is one the principle reasons why specialists are so disproportionately reimbursed.

  6. 1. I'm sorry to burst your bubble, but Medicare and Medicaid already set the prices that they will pay for all procedures. Where have you been?

    2. Agree with paying only for proven therapies.
    3. Agree, but would go faster and further.
    4. Raising taxes will kill whatever recovery we have. The govt spends too much. period.


  7. Yeah about Medicare/Medicaid. I am a doctor in NYC. My rent happens to be extremely reasonable, my office is paperless saving me one full time employee, my specialty has very low malpractice rates and I have little in the way of expensive supplies. Yet if I multiply Medicare's reimbursement rate times the number of patient visits for last year, my net income is less than $4000 per year! Are there specialists commanding higher rates from medicare? Most certainly but I think my situation is representative of most doctors.