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Four budget calculators, one story

By Ezra Klein

The New York Times' deficit-reduction calculator is worth playing around with, though the Center for a Responsible Federal Budget's calculator is more comprehensive, and the calculator from the Center for Economic and Policy Research works harder to include policies that are too often left out of the mainstream debate. But they're all good, clean fun, and they all make the same basic point: It's the health-care system, stupid.

In the Times' calculator, the single biggest thing you can do is add a "magic asterisk" to the health-care system. We don't know how exactly we're going to hold Medicare's spending growth to GDP+1%, but if we manage it, we'll save $560 billion by 2030. No other option in their calculator -- and no other option in the Simpson-Bowles report -- is even close to those savings. If we get that growth rate, or something close to it, we can get the budget into balance. If we can't, well, we can't. It's really as simple as that.

In some ways, my favorite budget calculator is an older one released by the Center for Economic and Policy Research. This calculator doesn't give you any viable choices. Instead it allows you to plug in the per-capita health-care spending of other countries and then see what happens to our deficit. I've looked at this dozens of times, and I still find it startling: If we spent what high-performing, fully universal systems like France and Germany spend, we'd have no budget deficit.

intlhealthcaredeficits.jpg

In a follow-up post, I'll look at some of the options the Simpson-Bowles report offer for cutting health-care spending. None of them get us to French, German or Dutch levels of spending. But there's more there than I think people have recognized.

By Ezra Klein  | November 15, 2010; 1:04 PM ET
Categories:  Budget, Health Economics  
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Comments

Because in the midst of a depression, the one thing you want to focus on is cutting the deficit. Oddly, I always thought you were an economist.

Posted by: stonedone | November 15, 2010 1:21 PM | Report abuse

Why did you think Ezra was an economist? He hasn't ever had any formal training in economics (its possible he took a couple courses as an undergrad, but that's hardly enough to make one "an economist.")

As for this post, when I played with the NY Times calculator, I skipped the "magic asterisk" option because its seems quite silly to just declare that you'll magically reduce future growth costs by reducing future growth costs. You actually have to specify HOW you'll do it. Its a lot like how the GOP says it'll balance the budget by removing government waste without being able to name what specifically they'd cut. Those specifics are pretty crucial!

Posted by: Nylund154 | November 15, 2010 2:10 PM | Report abuse

so Ezra with all of this being blatently obvious for so long now why don't any of us take on the doctor's lobby who drives medicare cost and utilization?

Why do doctors in the US need to make 7-10x what they make in those other countries whose costs we fantasize about when you all speak of single payer?


Here's my "magic asterisk". Find a way to capitate doctor pay at what it is currently now +.5% If you don't like that doctors you can move to Canada's system where doctors are told what they're paid by the government. Sure there's the occasional strike or threat of a strike but hey we need to control costs, right? The point is to give them the one option you want them to take along with a much more draconian option you know they'd never accept.

Posted by: visionbrkr | November 15, 2010 2:53 PM | Report abuse

You missed the point, Nylund. The idea is that all of these discussions about "making tough choices," cutting social security, earmarks, foreign aid, etc. pale in comparison to the healthcare budget gorilla.

It's like a guy behind on his mortgage cutting back on Starbucks. Maybe he should do it, but it'll make no difference in the long run.

We need to get the growth in healthcare costs under control, and that's what the ACA attempts to do. Unfortunately the Republicans cried Socialism, took their marbles and went home, proving once again that REPUBLICANS DON'T CARE ABOUT THE DEFICIT (TM - Matt Yglesias).

Posted by: CarlosXL | November 15, 2010 2:54 PM | Report abuse

Ezra,

France, Holland, and other nations with universal health care spend less than we do because their citizens have healthier lifestyles. They exercise more and their diets are lower in calories, saturated fats, sugars, and salt that drive our obesity rates sky high.

The Left confuses cause and effect. If you want a national policy to reduce healthcare costs, then you'd do the following. Increase Medicare tax rates for everyone to 10%. Then offer discounts in the tax rate to anyone who submits to an annual testing for bodyfat percentage, blood pressure, cholestorol, and nicotine. Each of these metrics is not a pre-existing condition beyond an individual's control.

Give the 50-yr. old male with 15% body fat, 110/60 blood pressure, and 160 cholestorol a 7% discount on his Medicare tax rates. Give none to the 30 yr. old female with 40% body fat, 160/100 blood pressure, and 280 cholestorol count. Charge higher co-pays and deductibles to Medicare recipients based on the same metrics.

Then we'd reduce healthcare costs below what any nation in Europe has achieved. I know this violates the left-wing canon, but healthcare starts with individual behavior, not inside a hospital or a doctor's office.

Posted by: ElGipper | November 15, 2010 3:09 PM | Report abuse

Ezra, could you add Singapore to this chart and discuss?

Posted by: justin84 | November 15, 2010 3:12 PM | Report abuse

I agree that the CEPR calculator is the best of the bunch.

But note that the point of that calculator is not to call attention to a difference in government spending levels, but to call attention to an underlying difference in per capita health care spending as such.

The sensible reaction is thus not to look for ways to cut Medicare and Medicaid. The sensible reaction is to look for ways to cut the level of per capita health care spending, regardless of payer.

In other words, the CEPR calculator is the superior one because it is the only one that shows the issue not to be a budget issue at all, but rather an issue of runaway inflation in one specific sector of the economy.

This of course inevitably leads to the usual attempts to deny the obvious, such as that by your commenter ElGipper, claiming that there must be some reasonable factor to account for this vast difference in per capita medical costs (in this case the supposedly healthier lifestyle of people in all the advanced countries save the U.S.).

But once such misconceptions are removed (and they are not hard to remove by looking at the OECD data on actual consumption of health care services), you are left with the naked fact that the entire "long term deficit problem" (so-called) is really nothing but a kind of accounting shadow effect of the fact that we in the U.S. pay vastly higher prices for our health care services than every other advanced country.

And that is real problem. Whereas the supposed long-term budget crisis, is a fake problem. This is what the CEPR calculator shows, and why it is the only one dealing with the truth of the matter.

Posted by: amileoj | November 15, 2010 4:03 PM | Report abuse

Amileoj,

The John Hopkins Bloomberg School of Public Health, 10-2007, produced a study showing radical changes in Cuba's morbidity rates from 1989-2000. With cutbacks in Soviet-aid, the Cuban diet and exercise habits underwent huge changes. These resulted in large reductions in rates of type 2 diabetes and heart disease.

Yes, lifestyle is a huge factor in healthcare costs, but not the only factor. Eliminating tax deductibility of company provided health care would also reduce healthcare costs. Eliminating state laws requiring mandatory coverage of a laundry list of ailments that drive up health care premiums would also reduce costs.

But the most important variable to reduce costs is to remove the factors that make people sick in the first place!

I know this spoils your plans to nationalize American Healthcare along the lines of the UK or Canada, but you cannot let ideological fervor ignore the facts.

Posted by: ElGipper | November 15, 2010 4:35 PM | Report abuse

There is a reason that hard-righties say no to every health care deal. They know this too. They want us drowning in debt.

News flash: they talk deficits, but they govern by 'starve the beast'.

Posted by: rat-raceparent | November 15, 2010 4:56 PM | Report abuse

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