More evidence that the Federal Budget is about Health Care spending and not much else.

How times have changed regarding the Federal Budget.  In 1960, 50% of the Federal budget was allocated to National Defense. In the 2010 budget it accounted for 19%. 

Like squeezing a balloon, virtually all of the difference has been a movement from Defense to Federal spending on Health Care programs. 

Source: Color coded pie charts copied from AEI but from a study by the Philadelphia Federal Reserve

To put this in perspective I will adjust for inflation and put 1960 spending in terms of what that means in today's dollars.  I think that will be helpful in understanding the scope of issue

Defense spending in 1960 dollars was $53 Billion dollars (source HERE). Adjusting for inflation, that would be equivalent to $390 billion in today's dollars. Actual Defense spending in 2010 was $872 Billion---a 2.25 fold increase OVER inflation.

Health care spending in 1960 was $1.5 Billion dollars (source HERE). Adjusting for inflation, that would be equivalent to $11 Billion in today's dollars. Actual Federal spending on health care in 2010 was $846 Billion----a 77 fold increase OVER inflation. YIKES!! But hold on...

 Caveat:  The Federal program Medicare did not kick in until 1965-66 time period so spending in 1960 on health care might be considered low.  Let's use 1970 for Federal health care spending and use that as the base.

Health care spending in 1970 was $12.1 Billion dollars. Adjusting for inflation, that would be equivalent to $68 billion today. Given health care spending in 2010 was $846 billion that would be a 12.5 fold increase over inflation.

Defense spending in 1970 was $95 billion. In today's dollars that is equivalent to $534 billion, Given actual Defense spending in 2010 was $872 billion, that is a 1.6 fold increase over inflation.

To be more accurate and relevant, the economist who wrote this report probably should have used a post-Medicare implementation time period to use as a base.  Given the realities of the Baby Boom generation, that would have been more helpful.

Hans Rosling as a "Myth Buster" on the issue of Child Mortality Rates. Worth a couple of minutes of your time.

Here is Hans Rosling "clarifying" the issue of historical Child Mortality Rates around the world. 

This is really terrific!  Watch and Learn.  The world is getting BETTER in so many categories of quality of life. Yes, even for the most poorest amoung us.

Dispelling the myth of the low US ranking in Infant Mortality. It depends on the definition of what a "Live Birth" is. See the distortion here...

Below you will see a chart with a partial list of the 2011 Global Infant Mortality Rates/Rankings .  The US is ranked 41st (tied with Faeroe Islands!?) in the world. This has to be bad, right?

Click HERE to see chart in larger format.



Source:Kaiser Foundation

It depends on what your definition of a "Live Birth" is. In this case it matters.

The World Health Organization (WHO) gives the following definition of a "Live Birth" for the purposes of collecting data on Child Mortality rates:

""Live birth refers to the complete expulsion or extraction from its mother of a product of conception, irrespective of the duration of the pregnancy, which, after such separation, breathes or shows any other evidence of life - e.g. beating of the heart, pulsation of the umbilical cord or definite movement of voluntary muscles - whether or not the umbilical cord has been cut or the placenta is attached. Each product of such a birth is considered live born.""

The US and a relatively small selection of other countries follow this definition closely, but many of the others on this list AHEAD of the US do not, to varying degrees.

In their comments section they add this caveat:

"The reliability of the neonatal mortality estimates depends on accuracy and completeness of reporting and recording of births and deaths. Underreporting and misclassification are common, especially for deaths occurring early on in life."

Here are some examples of the LOWER BOUNDS of what many counties ahead of the US use as standards for reporting "Live Births".  In other words, infants born alive and then die that are LESS than these time and weight (i.e "Preemies") requirements are NOT counted in the statistic. The US records ALL live births no matter how short lived and small in stature.  In this chart, the US would have "No Limit" in both categories.

I cannot find reliable definitions of Live Births that some of the other countries on the list ahead of the US might use.  But I have to guess many/most of them are not as strict as the US and other developed countries.

Bottom line: If ALL countries used the same standard, the US would not be anywhere near a tie for 41st place.  Can there be any doubt about that???

A pretty shocking graph of the distribution of health care spending in the US. Gives new meaning to the term "1%-ers"--A must see to understand our situation.

Nice illustration of the distribution of health care dollars in the US.  This gives new meaning to the term "1%-ers". 

In 2009 the total spent on "personal" health care in the US was $1.259 Trillion dollars. If you look in the middle of the horizontal axis you will see that 50% of the US "non-institutionalized" population (excludes military, those in prison, schools, etc) account for just $36 Billion in spending and the other 50% account for $1,223 Billion (read that $1.223"trillion")

As you move from left to right on the graph line, you see that an ever smaller percentage of the population consume a larger part of the spending.  The Top 5% account for $623Billion of the $1.223Trillion (51% of the total) and just 1% account for $275B (23% of the total).

 A little over 50% of health care dollars in the US are spent on just 5% of the non-institutionalized population, which is roughly 235 million people in 2009, the year of the data in the graph. 

Sobering. What do you think?

Source: The Big Picture Blog

In this post I explain in 7 easy steps the "Obamacare" side of how those $700 Billion in Medicare savings are attained. No old person dies, I promise (OR do they??).

This is a complicated issue and I have tried to boil it down to its bare bones so you can have some idea of what the debate over the dueling proposals for Medicare are.

First I will explain what the Affordable Care Act  ("Obama-Care") plan does for/to Medicare and then after studying up a little more on the Romney/Ryan plans I will try to break them down too.

I am just presenting the facts as I know them and I know there are a jillion interpretations and opinions.  KINDLY let me know where I am going wrong on the BASIC facts.  Don't stray too far into the weeds and argue the minutiae, please.

1.  Medicare is a Federal entitlement program that pays for the healthcare of its recipients---old people.  It is (mostly) financed by a 1.45% payroll tax on your earned income.

2.  Because of changing demographics, the US has and is about to get a whole heaping new batch of old people in the coming decades.

3.  Spending on these folks is expected to grow at a somewhat predictable and projectable (my made up word) amount for the next decade or two.  Lets call that amount "X".  Most people consider this amount unsustainable relative to the amount of money brought in through the above mentioned payroll tax.

4.  The Affordable Care Act ("Obamacare) has a provision for controlling that projected cost ("X") to the tune of approx $700 Billion dollars (the figure cited in the media at the moment). In other words over the next 10 years the ACTUAL amount spent relative to the projected amount  ("X") will be $700 Billion LESS--A "savings" of $700 Billion.  Got that?

5. How does this $700 B in savings from "X" occur? This is important, pay attention:  Reducing the amount paid/reimbursed to individual doctors and hospitals for the care they provide patients is the biggest part of the "savings". In other words, if a doctor was getting, say $100 to treat a patient today, under the new law that would be, say, $75.  I DO NOT KNOW the percentage change, BUT I have seen somewhere in the neighborhood of an average of  27% reduction in payments to doctors, so don't hold me to that number, please.  The rest comes from reducing payments to insurers.  This serves as an incentive for insurers to crack down on waste, fraud, abuse, over payments, etc---get  paid less, have to watch out for every dollar.  If you remember, insurance companies supported this because in return they would potentially get lots of new customers paying premiums as a result of the "Individual Mandate". 

6.  KEY POINT.  NO defined benefit to the "Olds" has been decreased by the ACA accounting. Please repeat that.  It is important to understanding this side of the argument.

7.  The ACA proposes to use that $700B in savings to (1) enhance benefits to Medicare recipients and (2) finance a large portion of the many provisions for expanded healthcare in the ACA.

Clear as mud??

I think Point 5 is the MOST important one to understand and the one I don't hear/see talked about much in the media---in regards to the ACA and Medicare.

Point 5 leads to a discussion as to whether it affects Point 6.  ACA says no.  I believe the Ryan plan says yes---I will try to explain that one next.

Some say the savings in Step 7 are an illusion.  Don' ask me---I dunno...

Let me know if this is helpful.  I tried to make it as easy to digest as possible.  :)

Thanks.

Reality Check for the Left and Right on Healthcare spending in the US---We already have a de facto single payer system. Question is: How do we make it better?

Medicare and Medicaid spending since the beginning of 2008 (that is only 2 1/2 years ago) has gone from $748 billion to $992 billion, a 33% increase. The Federal government already pays a majority of the healthcare bills due in the US (USA TODAY):

""Medicare and Medicaid paid a record 57.5% of patient bills for hospital, doctors, drugs and other care in the last quarter, up from 49.3% in 2005.""

Source: USA Today

What accounts for this increases in Mandatory spending in the Federal Budget?

""The latest spending surge in federal health care is driven by more people getting more treatment, not by price increases. Health care inflation is at its lowest level in more than a decade — a 1.7% annual rate — but the aging population and the weak economy are sending more patients to government-financed care.""

 FYI:

•Medicare. The insurance program for the elderly and disabled grew 8.3% from a year earlier to a $554 billion annual rate in the past three months, the BEA reports. Enrollment will grow from 49 million today to 60 million in 2018.

•Medicaid. The federal-state cost of medical care for the poor and nursing homes for the elderly rose 12.3% to a $438 billion annual rate. The expiration of the stimulus law will cut the federal share of the program from about 70% to 60% in the last half of this year, shifting about $40 billion in annual costs back to the states.

Creative use of Production Possibilities Frontier in regards to heathcare outcomes vs cost between the US and Canada. Regardless of how you feel about the issue, this is informative...

I hesitate to call this a Production Possibilities Frontier (the authors of this study do) because it looks different than the one we use in introductory economics. Appears to me to be somewhat of a supply curve with the output ("Health") on the vertical axis and the inputs ("Resources"--which have a price/cost) on the horizontal axis. But they are smarter than me, so lets go with it. It is a nice illustration of Allocative and Productive Efficiency as applied to health care.

Source: David M. Cutler and Dan P. Ly write of  "The (Paper)Work of Medicine: Understanding International Medical Costs." 

The curve is upward sloping indicating that as we add resources (move to the right from the origin on the horizontal axis) we get positive health outcomes (move up from the origin on the vertical axis). The curve is steep at first, indicating that as more resources are added the returns to health outcomes increase faster relative to the added inputs---Increasing Marginal Returns(see definition). It then flattens out, indicating that as more resources are added the returns to health outcomes start to decrease---Decreasing Marginal Returns (see definition).

There are 3 points identified on the graph "Canada", "Ideal US" and "Actual US". The horizontal difference between "Canada" and "Actual US" is labeled "Allocative (in)Efficiency". This means that to get the SAME health outcomes (point of Vertical axis) as Canada, the US uses more resources to do so---identified with the brackets and labeled "Allocative (in) Efficiency". Resources have a dollar cost, hence to get the same health outcomes as Canada we spend more total dollars.  Allocative Efficiency is achieved when the value consumers place on a good or service (reflected in the price they are willing to pay) equals the cost of the resources used up in production. Condition required is that price = marginal cost. When this condition is satisfied, total economic welfare is maximised."".  All things equal, the price of heath care in the US is more expensive than comparable health care in Canada.

Going in the other direction from "Actual US" to "Ideal US", the gap represented by the bracket shows "Productive (in)Efficiency". Given the resources we allocate to health care we SHOULD be getting more/better health care output/outcomes. This is measured by going from "Ideal US" to a point on the vertical axis. We know we are not getting this level of health care outcomes given the resources used, so we are being productively inefficient in the delivery of health care. Productive Efficiency is achieved when the output is produced at minimum average total cost (AC). For example we might consider whether a business is producing close to the low point of its long run average total cost curve. When this happens the firm is exploiting most of the available economies of scale. Productive efficiency exists when producers minimise the wastage of resources in their production processes.

This graph accompanies a very interesting study (link above) on one of the reasons health care costs are high in the US. The focus is on the administrative costs of delivering health care in the US relative to other countries. Regardless of how you feel about the issue, I encourage you to read the whole thing.  We gotta get real if we want to control the cost of health care now and in the future....

HT: The Conversable Economist

Healthcare costs in the US compared to other developed countries---I AM the problem! Seriously, I AM the problem...

A visually creative way to illustrate the costs of healthcare in the US vs. European countries.  We see a separation during the 80's  The first graph shows expenditures on healthcare per person over time. The second graph shows obesity rates over time. The second graph is only for the US, 6 European countries and Japan (the so-called G-8 countries).  The third graph I put them side-by-side.  Admittedly the second graph has a smaller sample, but I assume the relationship would hold if the other European countries were added to the mix. I am not suggesting "correlation is causation" but, our pesonal health habits and responsibilities are not talked about enough in the debate about the cost of healthcare. Full disclosure: I am part of the problem too---high cholesterol, high blood pressure and about 30 pounds over "ideal" weight.  It is very easy for me to see how per person healthcare costs are considerably more in the US relative to other developed countries.  Why is it not a larger part of the debate? Just askin'... 

Source HERE

Source HERE

This last graph you have to click on it to make it bigger AND you have to visually adjust the timeline of the graph on the right.  They dont match up exactly as is, so you have to be a little creative to see the correlation I am suggesting...

An excellent, short video illustrating the economic progress the world has made in the last 200 years

Well worth a viewing. This gives you a long term view of economic progress...All boats have been lifted,some more than others, but as economists are fond of saying---it is all relative...