CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press The Washington Post Wants Seniors to Take a Hit to Keep Doctors and Drug Companies Rich

The Washington Post Wants Seniors to Take a Hit to Keep Doctors and Drug Companies Rich

Thursday, 10 October 2013 07:29

The Washington Post ran an editorial endorsing Republican House Budget Committee Chairman Paul Ryan's proposal for ending the shutdown/debt ceiling standoff. It is apparently anxious to seize on yet another route to try to cut Social Security and Medicare benefits for seniors.

While the obvious crisis facing the country is a government that is not doing its job and an economy that is suffering enormously from a shortage of demand (i.e. too little government spending), the Post sees this as an opportunity to fix its invented crisis about the long-term budget deficit. This is in keeping with the Post's basic philosophical principle that a dollar in the pockets of ordinary workers is a dollar that could be in the pocket of a rich person. The editorial therefore insisted once again that we have to cut Social Security and Medicare.

The story on Social Security is of course bizarre. Few people think that seniors have too much money. Most must face sharp reductions in living standards when they reach retirement. The median income for a person over age 65 is less than $20,000 a year, that's a day or two's pay for your typical Wall Street high flyer. Furthermore, Social Security is entirely funded from its dedicated tax for the next two decades. Even after the trust fund faces depletion in 2033 the overwhelming majority of benefits would still be payable from the tax. Eliminating the cap on income subject to the tax would fill most of the remaining gap.

The real story of budget deficits is in health care. And here the problem is that people in the United States pay way too much for the care we get. Although the quality of health care is no better in the United States than in other wealthy countries we pay more than twice as much per person as the average in other countries. If this gap persists, in the long-term it will create serious budget problems, since more than half of our health care is paid by the government.

There are two ways to reduce costs. One is to get our costs in line with what people pay in every other country. This would mean taking on the health care industry. Our doctors (who comprise close to 20 percent of the country's richest 1 percent) would see their pay cut by roughly 50 percent, on average. We would cut what we pay for drugs and medical equipment by roughly the same amount. This could be done if we were prepared to eliminate the government protections that keep these prices so out of line with prices in the rest of the world.

This would mean opening our borders to more qualified foreign doctors and also educating more at home. (The reason free trade in physicians' services is not being discussed in current trade agreements is that the doctors' lobbies are too powerful and folks like the Post's editors are happy with protectionism that redistributes money to the rich.) It would mean paying less to drug companies and medical equipment companies. It would also mean ending the massive waste of our private health insurance system.

If we got our health care costs in line with the rest of the world, there is no budget problem whatsoever. We would be projecting large budget surpluses for the rest of the century. The figure below shows the Congressional Budget Office's most recent projections for the primary budget deficit. (This includes all spending except interest on the debt. If this is in balance, then it generally will mean that the debt to GDP ratio is stable or declining.)

As can be seen, the baseline shows modest primary budget deficits of less than 1.0 percentage point of GDP (@$160 billion a year in today's economy) for the next 15 years. These rise to about 1.5 percent of GDP in the 2030s and eventually exceed 2.0 percent.


Source: Congressional Budget Office and OECD.

It is worth noting that even these baseline projections are not terribly scary.(You get those huge deficits that Ryan-Post types like to hype by assuming that we get large deficits and therefore large debt and then huge interest burdens. This can make for scary numbers, but it is not the sort of thing that serious people need waste their time on.) We reduced the deficit by around 5 percentage points of GDP with deficit reduction packages in 1990 and 1993. It doesn't seem ridiculous to think that in the course of the next two decades we couldn't find a combination of tax increases and spending cuts that would cut the deficit by 2 percentage points of GDP (40 percent as much as the 1990-1993 reductions), if that proved necessary. Since we are needlessly losing $1 trillion a year in output at present, with tens of millions of people unemployed, underemployed, or out of the work force altogether, these projections of long-term budget deficits might seem a relatively minor and distant concern. 

But suppose we humor our friends at the Post. If our per person costs were the same as Canada's, or 53.1 percent of U.S. costs ($4,521.6/$8507.6) , then we would be looking at primary budget surpluses of more 2.0 percent of GDP over the next decade. These rise to more 3 percent of GDP in the 2040s and would eventually exceed 4 percent of GDP ($640 billion a year in today's economy).

If our per person health care costs were the same as in the U.K. then we would be spending just 40.0 percent as much on health care ($3,405.5/$8507.6). In this case our primary budget surplus would be over 3 percent of GDP for the next 15 years, rising to over 4 percent of GDP in the 2040s and eventually exceeding 6 percent of GDP by the end of the forecast period ($960 billion in today's economy).

If the Post's primary concern were deficits then presumably it would be focused on policies that would bring our health care costs in line with those in every other wealthy country. But it has no interest in lowering the income of doctors, insurers, and drug companies. (The last group is a big advertiser at the Post: just the facts.)  Its solution to high health care costs in the United States is to make people get less health care. And, it is prepared to use any real or invented crisis to advance this end.

Comments (17)Add Comment
written by Jennifer, October 10, 2013 9:15
"The House Republicans, egged on by a couple of bomb-throwing senators, are responsible for the stalemate. Having essentially won the budget battle, when Democratic senators agreed to keep the government operating at GOP-preferred spending levels . . . "
Then of course they go on explain how cutting essential services, i.e. Social Security, Medicare, is "reasonable". This is how 99% of the MSM has presented the budget fight, they lay out the facts in a reasonable way, and then give support to a solution that is completely at odds with those facts. The impasse is the Republicans fault, they are making unreasonable and unprecedented demands, and any deviation by the President would quite obviously be a capitulation. It would be giving a small minority incredible power to enact a very damaging policy.

Street thugs and con men?
written by Anna Lee, October 10, 2013 9:36
No matter which side faces up, no matter how you sugar coat it, a pancake is a pancake.

I have been observing the flipping from tea party "kill Obamacare" to tea party "kill granny" with curiousity as to whether the American people are as easy to dupe as they appear to be. I mean, come on, Ryan is NOT the serious person in the building; he is the switch in the bait and switch. He is not giving up "kill Obamacare" for a more reasonable, even intellectual reduction in Social Security and Medicare. He is offering a trade between one entitlement and another, while using demographics to divide the nation and might I say - once again.

Is it too late. Is enough American wealth still left in the hands of people who care about Americans to turn the money-changers out of the temple that belongs to "we the people"?
written by Ryan, October 10, 2013 9:37
If we pay doctors less by nationalizing insurance, look at all that money over the long term to reduce taxes for the rich! See, socialized insurance is something you should support.

Republicans, WHICH set of rich people do you really want to help out, the doctors, or the other rich? I know, it's such a tough choice.
Dumb question...
written by David M, October 10, 2013 10:01
I'm sure there's a simple explanation that I'm missing, but here you say that the budget deficit can be explained by health care costs (seems very reasonable), but elsewhere you talk about a budget deficit as an accounting identity resulting from the US' current accounts deficit. How do the two explanations interact?
written by james rytting, October 10, 2013 10:29
Why do you keep beating the drum about importing doctors, which brain drains other countries, and exporting services, which will also divert medical resources and tend to drive up prices abroad. OECD countries with half our medical costs did not follow your suggestions. They did not use the market at all to tame costs; they got rid of it. These countries have more docs because they train more at home at zero, rather than ungodly costs, to the aspiring practitioners and they limit, as part of government policy, salaries and costs.
written by PeonInChief, October 10, 2013 11:02
It's likely that what the Tea Party wants is to force the Democrats to agree to Social Security/Medicare cuts as the ransom for the budget. Unfortunately Obama is likely to pay the ransom.
written by BillB, October 10, 2013 12:00
Rytting said: "Why do you keep beating the drum about importing doctors, which brain drains other countries, and exporting services, which will also divert medical resources and tend to drive up prices abroad."

I'll take a crack at that. Dean has said that some of the cost savings from importing doctors would be rebated to those countries to produce more doctors. Just like making T-shirts in China is cheaper than making T-shirts in the U.S., making doctors in India is cheaper than making doctors in the U.S. That is the way international trade is supposed to work -- you buy goods and services from those who can produce them most efficiently.
Why is Dean Baker Afraid of a Grand Bargain?
written by Last Mover, October 10, 2013 12:09

The incessant objective to cut SS and Medicare no matter how long it takes or how many ways to do it, is like a well trained dog who keeps learning more on how to search to get the treat, no matter how well hidden the object of search.

Political attack dogs are well trained by their masters in the 1% to focus on the prey in question. Other prey like the output gap, high unemployment and debilitating health care costs easier to take down, are ignored by the dogs - except to exploit them.

The attack dogs have learned well to take advantage of secondary prey by using it to lure primary prey into the open where it can be easily attacked.

Given the combination of a dumbed down audience, a sock puppet media run by the 1% and a phalanx of economists and pundits who will not or cannot speak up to the point that the primary prey pursued is not the problem, it's easy for the dogs to attack the primary prey by exploiting the secondary prey:

The housing bubble burst and lack of wealth demand didn't cause the output gap and unemployment, SS and Medicare did.

Current unemployment is not short term and cyclical from the housing bubble burst, it is long term and chronic from debt caused by SS and Medicare.

Health care costs are twice what they should be because of SS and Medicare, not in spite of SS and Medicare.

No damn wonder Dean Baker has to talk faster and faster on talk shows just to get the main points in. The attack dogs keep coming around the same race track to chase the same prey faster and Dean Baker keeps talking faster to steer them towards the real prey that's causing the problem.

Wake up America. Does every goddamn talk show and WaPo article on economics have to begin with the same loaded question about a grand bargain, When Did You Stop Beating Your Wife, SS and Medicare, Dean Baker?
written by MS, October 10, 2013 2:12
Can someone explain how the international health care cost comparisons lead to the conclusion that there is a shortage of physicians in the U.S.? The World Bank data, for example, show Canada having 2.1 physicians per 1000 people. Same for Japan. In the U.S., that figure is 2.4 (for 2010). Is the number of doctors really the problem?
Excellent Idea
written by john, October 10, 2013 3:31
Dean, why stop with doctors? Our teachers, firemen and police are paid much more than in other countries as well. I have no doubt we could import excellent math and science teachers from India and pay them half our current going rate. And I am sure there are many in the third world that would make excellent safety employees and would not require 100K per year and a full pension at age 50. Think of the savings to our states that are currently on the brink of insolvency! I think your on to something here.
written by uninsured patient, October 10, 2013 3:35
Thank you, Last Mover, for articulating it perfectly. Especially the market as the cause of healthcare cost in US. The market has taken over nearly all functions in healthcare, and my late husband, a dissenter radiologist without money (who believed making money from money was immoral, especially off the lives of sick human beings - can you imagine? what an idiot!), got that. It probably helped kill him. Importing doctors is not a fix and has already been going on. But I do love the attack dog image, because some say this (shutdown followed by threatened default) is all just Kabuki theatre, and it was planned all along, to grease the way for the Grand Bargain. And the MSM plays the band for the show.
ss not funded by its tax...
written by pete, October 10, 2013 4:19
Drawing down the "fund" when the 12.5% tax is less than the payout means that SS payments are partially funded by general revenues, as the SS "bonds" are cashed in at the Treasury, who must pay for them. This includes the "interest" on the fund. When the "fund" runs dry, then congress will have to pass a law (which they certainly will) to fund SS payments which exceed the payroll tax directly from general revenues. Ooops. All those folks like me (NOT) who thought they were paying into a system and then could draw it down....sigh...
Importing doctors is like importing shirts or farm workers
written by Dean, October 10, 2013 4:45
BillB gets the point exactly right above -- we can import doctors from developing countries and save so much money that we can easily compensate these countries so that they can educate more doctors than they lost. It's so simple even an economist can understand it.

MS, I didn't say we had a shortage of doctors. I said that a greater supply could force down their pay. They use their political power to push up their pay now. If we can't break their political power, we can use the market to overcome it.

John asked "why stop with doctors?" and then suggests bringing in a number of lower paid workers. For better or worse, we are already doing this. I would rather subject our highest paid workers to competition with low-paid workers in the developing world rather than our lowest paid workers, which is the practice now.
written by AlanInAZ, October 10, 2013 10:18
I don't think importing doctors from the existing India doctor pool is a good idea but I do think that we can look at building doctor factories in India just as we build chemical or pharmaceutical plants. Medical training staff can be imported initially until enough locals can be trained to support the extra production. These factories could undercut training centers in Europe as well as the US. This sounds like an opportunity for venture capital.
written by john, October 10, 2013 11:32
Dean says: "John asked "why stop with doctors?" and then suggests bringing in a number of lower paid workers. For better or worse, we are already doing this. I would rather subject our highest paid workers to competition with low-paid workers in the developing world rather than our lowest paid workers, which is the practice now."

Dean, I was not aware that teachers and safety employees are low-paid workers. In my state, California, most cops and firefighter make over 150K/yr in total compensation. Their lifetime total compensation per hour worked is actually much higher than primary care physicians. And this is not even factoring in the educational debt incurred by most physicians. Teachers earn somewhat less, but average total compensation is around 100K per year (adjusted for their shorter work year)......hardly "low-wage". So lets start importing them!
written by eric, October 11, 2013 5:04
Calif firefighter salaries
written by PeonInChief, October 11, 2013 11:50
Even primary care physicians (the lowest-paid) make far more than teachers or firefighters in California. Kaiser doctors here start at about $200K, and most teachers never make more than a third of that sum. Firefighters make about half that toward the end of their careers. And there are parts of California where $100K is not enough to afford even the cheapest house.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.


Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.