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Posts Tagged ‘Medicaid’

Check Please

November 1, 2012 1 comment

The Congressional Research Service  issued a report to the Senate Budget Committee outlining the federal spending for benefits to lower income people in the U.S. during Fiscal 2011 (year ending September 30, 2011).  The U.S. government spent $746 billion on programs for lower income people.  If you add in state spending, the total exceeds $1 trillion.

According to the Census Bureau, there were 16.8 million families living below the poverty level in 2011 ($23,000 for a family of 4).  By simple math, this means the federal and state government spent nearly $60,000 for each family in poverty, which is nearly three times the amount they earned during the year.

Less than 10% of the support is in the form of direct cash payments.  Of the $746 billion spent by the federal government, $318 billion is for Medicaid and prescription drug subsidies.  Approximately $66 billion is in the form of direct cash assistance and $73 billion is in the form of tax credits.  The remaining $290 billion of support is delivered through 80 different programs designed to help lower income families.

Given the choice, a number of families might choose to ask for a $17,000 in lieu of the other programs.

It might seem crazy, but do you think it’s efficient to have 84 different programs to help needy people?  Each program has its own objective and purpose, but there is a cost for employees, office space, computers, etc.   The more money spent on overhead, the less is being spent on actually helping people.

A few years ago I helped a school with a grant for an afterschool educational program.  I was surprised and dismayed to discover that over 20% of the grant money was going to be spent for a grant administrator, who would do nothing but complete reports and monitor the work of others.  Sadly, I think that grant is indicative of how many government programs and grants operate; a large chunk of the money is gobbled up in administrative costs.

I’m not against helping lower income families.  In fact, I think we have an obligation to help those who are most vulnerable and in need.  The issue is how the assistance is delivered.

It has been nearly 50 years since Lyndon B. Johnson declared a war on poverty and introduced the Great Society.  Trillions of dollars have been spent over the past 5 decades, yet the poverty rate in the U.S. is almost exactly the same as when this great endeavor began. 

Maybe we should consider eliminating a number of programs and giving more cash to those who are in need.  This seems outrageous to most conservatives, who often think people are abusing the system.  Many of us have witnessed people using their food stamps to purchase cigarettes and alcohol.  There will always be people who abuse the system, and they should be punished when possible.  I also believe the current bureaucratic morass often aids them in taking advantage of the system.

Conservatives frequently complain about people being dependent upon the system.  Part of the solution may be giving people more money, which will allow them to be more independent and self-sufficient.  However, this independence must be coupled with more responsibility for their choices.

Your willingness to embrace such an idea is probably influenced by your view of people.  Do you see them as lazy and untrustworthy, requiring a rigid bureaucracy to monitor and keep them in line, or do you trust people to be independent, make good decision and do what’s right when given the opportunity?  Personally, I would rather be trusted to do the right thing, than have some bureaucrat watching over me.  Given the choice, I would prefer to forego all the programs and simply say… “Check Please.”

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The Supreme Court Rules on Obamacare

In a 5-4 decision, the U.S. Supreme Court upheld the constitutionality of Obamacare (the Patient Protection and Affordable Care Act).  Lawyers, politicians, journalists and citizens are scouring the judicial rulings to understand its implications.  The law is exceptionally complex, so it will take time fully comprehend the ramifications of the ruling.

Here are a couple of the most significant elements of the Court’s ruling.

  • The penalty for failing to purchase health insurance is equivalent to a tax, which Congress has the authority to assess.  Thus, the individual mandate is Constitutional.
  • Congress does not have the power under the Commerce Clause to force you to purchase insurance.
  • Congress can require states to increase their Medicaid roles and provide financial incentives to do so, but it can’t withhold all Medicaid funding if it doesn’t.  It seems confusing and contradictory and will likely lead to further litigation.

Here are a couple of quick thoughts and observations.

  • The logic of the Court regarding the individual mandate was interesting.  Apparently, Congress can’t force you to purchase something, but they can tax or penalize you if you don’t.
  • The Medicaid issue is one of the most unclear parts of the ruling.  Unlike the individual mandate, it seems Congress can require the states to increase their Medicaid roles, but can’t penalize them if they don’t.  The issue hinges on state sovereignty, and it will be interesting to see how this plays out, especially since several states have already passed legislation opting out of Obamacare or the individual mandate.
  • The split ruling was no surprise, but it was a shock that Chief Justice John Roberts upheld the constitutionality and Justice Anthony Kennedy did not.  The unpredictability of judges and juries is what’s often referred to as the hazards of litigation.  No matter how strong you think your case is, a judge or jury may see it differently.

Today’s ruling by the Supreme Court isn’t going to end the discussions or fights over Obamacare.  There is still a lot more to come.

I welcome your comments and thoughts regarding the Supreme Court decision.  Click here if you would like to take a quick poll on whether you agree or disagree.

Decoding the Debt Debate

If you’re following the current debate on raising the debt ceiling, you’re probably frustrated.  Your angst may be triggered by, the partisan bickering, the lack of great leadership or the uncertainty of what may happen and what it all means.

Politicians from all political persuasions and affiliations have become very adept at obfuscation.  Knowing whatever they say or do can and will be used against them in a future election, politicians have become very proficient in deflecting and dodging direct answers.  They speak in vague terms and try to boil everything down to a 30 second sound bite.

Politicians and political commentators often use terminology that is confusing and often misleading.  You almost need a secret decoder to decipher what they are saying.  I don’t all of the secret codes, but I have a few.

As you listen to the debate, the following are a few terms to keep in mind.

  • The National Debt – The cumulative amount of money owed by the U.S. government. These are actual bonds held by various investors (including the Chinese government and your friendly bank).  The total outstanding debt is approximately $14.5 trillion.
  • The Debt Ceiling – The total amount of bonds the U.S. Treasury is authorized to issue.  The debt ceiling is currently equal to the National Debt.  A law must be passed to increase the debt limit.
  • Deficit – This is the amount of money the government is spending in excess of revenues it collects in one fiscal year (October 1 – September 30).  The deficit for fiscal 2011 is projected to be $1.4 trillion.
  • Credit Rating – Every bond traded on a public market is rated by an independent credit rating agency, which assesses the financial strength of the issuer and the likelihood of default.  The lower the rating, the higher the interest rate required.  For bonds already issued, a change in credit rating will often influence the price at which the bond is traded on the market.

Aside from these terms bantered about, I believe there are a few important factors you need to pay close attention to in any deal that is reached.  These will be the types of issues our  political leaders will attempt to obfuscate.

  • Time Horizon – The time horizon for the spending cuts and additional revenues will be calculated over the next 10 years.   If Congress and the President agree to cut $1 trillion in spending, it won’t all come in fiscal 2012.  They may sound like everything is happening this year, but any plan will be adopted over the next decade.  Raising the debt ceiling is the only thing to take effect immediately.
  •  Timing – Look at the timing for when additional revenue is received and spending cuts are enacted.  If history repeats itself, the revenues will start to be received soon, and the  bulk of the spending cuts will happen in the latter years.  In the world of pork barrel politics, elected officials use government spending to buy votes, and the termination of programs will frequently cost votes.  Thus, politicians have a real incentive to defer spending cuts to another day.
  • Details –It won’t be easy, but do your best to understand the details of the plan.  Congress is trying to make major changes to the tax code, Social Security, Medicare and  Medicaid, and they’re rushing to get it done in the next few days.  I don’t think you want a repeat of Nancy Pelosi’s famous quote, “We have to pass the bill so you can find out what is in it.”

I believe this is a serious issue, and how it is resolved could have far-reaching implications for the future.  No one knows what will happen if the government defaults on its debt, since it has never happened.  As I previously wrote, I think Congress will and should raise the debt ceiling, but it also needs to curtail government spending.  Racking up over $1 trillion of debt each year is just as perilous as defaulting on the current obligations by not raising the debt ceiling.

I also have serious reservations about our leaders’ability and willingness to cut spending.  The 2011 budget compromise is a good illustration of this.  Although they supposedly agreed to $38 billion in spending cuts, most of it was accounting gimmicks and money that wasn’t going to be spent anyway.  One analyst calculated the reduction in spending on specific programs to be less than $1 billion in comparison to fiscal 2010.

As the debate continues forward, follow closely.  Here’s why.  Last week, President Obama was pushing a plan to cut spending by $3.7 trillion and add $1 trillion of new revenue, for a net decrease of $2.7 trillion over the next decade.  Sound like a reasonable compromise?  Before deciding, you may want to consider this.  When the Administration presented their 2012 budget to Congress, they also provided a 10-year budget estimate.  The Administration projected total deficits over the next 10 years to be in excess of $9 trillion.  If the current deal cuts it by $2.7 trillion, that still means we’ll add over $6 trillion to the national debt, pushing out total debt close to $21 trillion by the end of the decade.  Still think it’s a good deal?

To me this is a good example of why we must watch this closely.  Despite the political rancor, everyone in Washington is looking for a deal which will make them look good.  Let’s just make sure the American people get as good of a deal as our politicians.