Back to Work: Why We Need Smart Government for a Strong Economy

by Bill Clinton

  The big problem with the first argument is that Medicare is already less costly than private insurance. One of the big talking points for the voucher plan is that the senior drug plan, Medicare Part D, costs less than its original estimates because of competition among drug providers. This is probably not a good analogy for two reasons. First, there was a large increase in the availability of generic drugs after the senior drug program was enacted that was not factored into the original cost estimates. Second, the more pills you produce, the less it costs to produce one more, and the drug program created new customers for more medicine. So there was a lot of competition to provide the drugs at lower-than-expected prices to millions of new customers. By contrast, the Medicare voucher proposal just switches the same people to a different system that already costs more for the same services.

  As to the second argument, let’s concede that some seniors’ visits to the doctor are unnecessary, and many of them could afford to pay a little for the visits they do need to prevent even higher medical expenses later and give them more healthy years. What about those who can’t afford it? For them, raising out-of-pocket costs will reduce the numbers of both unnecessary and needed visits. So if seniors are asked to contribute more to the cost of their doctor visits, it has to be done carefully to avoid hurting those who don’t have much flexibility in their budgets.

  To get to the bottom of the Medicare riddle, we have to look at the program’s role in the overall health-care system in the United States and at the innovative practices that are already lowering costs and improving quality. I know it’s hard to believe we could get better health care at lower costs per person, and I don’t deny for a second that those of us who have adequate coverage or can otherwise afford it can get the finest care for many severe problems, including cancer and heart disease.

  For example, we rank first in the world in breast cancer survivor rates, a real tribute to the advocates who have worked tirelessly for years for better detection and treatment. And if we didn’t have great people fixing heart problems, someone else would be writing this book! Still, the evidence from our own experience and that of other wealthy nations that spend a far smaller percentage of their national incomes on health care than we do and get overall results that are better than ours shows that we can do it too.

  How?

  Because our population is aging and older people consume, on average, more health care than younger ones, and because health-care costs are projected to continue to rise much faster than inflation, Medicare and Medicaid are projected to increase their already large percentage of the government’s budget over the next decade. Yet, costly as they are, these programs are less expensive than private insurance coverage.

  According to the Simpson-Bowles Commission, total costs for Medicare, Medicaid, and the Children’s Health Insurance Program equaled 6 percent of GDP, or about 35 percent of total health-care spending, which is 17.4 percent of GDP. That’s a lot, but it’s still cheaper than the same coverage would be under private plans. For one thing, administrative costs are far lower—less than half of what private plans cost. Overall health-care spending is $35 to $40 billion lower than it would be if the government’s administrative costs were equal to those of private insurance companies. Even more important, the inflation rate in the government programs, though high, has been lower than the rate of increase in private coverage. As the New York Times economics columnist Paul Krugman has pointed out, Medicare spending per person has increased 400 percent since 1970, while private insurance has skyrocketed 700 percent.10

  You can see the problem. Medicare, Medicaid, and the Children’s Health Insurance Program cost the taxpayers a lot of money and will add to our budget woes over the next decade. On the other hand, they cost less than the same services would if their beneficiaries were covered by private insurance. So privatization would either lead to more overall health spending or less coverage and its consequences.

  That is why the voucher plan passed by the House of Representatives is such a bad idea. It will force seniors into a more expensive market, with more rapidly rising prices, requiring many of them to lower their standard of living or forgo needed health care.

  The Simpson-Bowles Commission took a different approach, recommending a number of cost-cutting measures and much more modest cost shifting to beneficiaries, setting a budget cap for total health spending, and urging a dramatic acceleration in implementing reforms that would both save money and improve the quality of care.

  Before you roll your eyes and say that’s not possible, consider these examples. First, remember the one I cited earlier of the tens of billions of dollars hospital-acquired infections add to health-care costs every year, and the very inexpensive sterilization practices that will prevent the vast majority of them if all hospitals do what the VA system has already begun to do. Second, the Geisinger medical group in northeastern Pennsylvania, with more than seven hundred doctors, promises people who enroll that if someone hospitalized under its care has to return to the hospital within ninety days of release, the group will bear the entire cost of care, with no effect on the insured’s premiums or related costs. The group made the guarantee after all the doctors agreed to follow the latest “best practices” in treating every condition. The best practices are provided to all the group’s doctors in a continuously updated manual. Since adoption of the best-practices model, medical errors, hospital readmissions, and costs have dropped dramatically.

  Third, the Mayo Clinic pioneered a system now being adopted by other providers. To further reduce the incentives to increase revenue with unnecessary procedures, all the doctors are on salary. Therefore their incomes are unaffected by how many tests they run. As everyone knows, the quality of Mayo Clinic health care is high. But not everyone knows that the Mayo system keeps costs lower than many other providers.

  Still not convinced we can save money and improve health care? Every year Pennsylvania requires hospitals to report what they charge for various services and what the results are. So far, this information has shown that there is a dramatic difference in the costs of the same procedure from hospital to hospital and no connection between the higher costs and better results. The health-care reform law requires the release of statistical information by hospitals and doctors nationwide on Medicare patients. This provision, originally supported by then senator Judd Gregg, Republican of New Hampshire, and Hillary, when she was a senator from New York, would allow the analysis of hospitals’ and doctors’ decisions and performance in a way that protects patient privacy but has the potential to save a lot of money and improve care. According to the Dartmouth Atlas of Health Care, more than 40 percent of Americans don’t receive the best available care, and the care they do get is often needlessly expensive.

  One of the most important recommendations of the Simpson-Bowles Commission is that the secretary of health and human services, Kathleen Sebelius, expedite testing and evaluation of promising reforms that lower costs and improve quality and use the leverage of Medicare and Medicaid payments to get them universally adopted as quickly as possible. The commission doesn’t “score” the changes, but we can estimate their potential. While the United States spends 17.4 percent of GDP on health care, the next most expensive system in a large, wealthy country is France at 11.8 percent. The other wealthy countries spend as little as 8.5 percent (Japan) of GDP. The Netherlands has a completely private system, with an individual mandate to buy insurance, subsidies for low-income individuals, and an overall spending cap, a system many Republicans supported before antigovernment activists convinced them the mandate was an unconstitutional infringement on Americans’ freedom to get sick or have an accident and require all the rest of us to pay for it.

  To be fair to the antigovernment advocates, there’s another option: people who don’t buy insurance could be denied any care they couldn’t pay for. On September 12, 2011, in a televised GOP presidential debate, Representative Ron Paul responded to a question from Wolf Blitzer about what happens when
people who don’t buy insurance need lifesaving care. He said, “That’s what freedom is all about—taking your own risks.” When Blitzer asked if society “should just let him die,” many members in the crowd cheered. Is this the America you want?

  There are better and healthier ways to deal with the problem. If the United States spent 11.8 percent of GDP, the same as France does, on health care, we would save $870 billion a year, money that could go into new investment, new jobs, and pay raises.11

  We can’t close the whole gap by moving away from pay-for-procedure to pay-for-performance health care and cutting the excess costs of for-profit insurance companies. We also have to improve our lifestyles to stay healthier. We spend $150 billion each year just to treat diabetes and other conditions related to obesity. A lot of people are working on that, including First Lady Michelle Obama and the Alliance for a Healthier Generation, a partnership between the American Heart Association and my foundation.

  If we could close just half the gap between ourselves and our major competitors, it would cut health-care costs about $435 billion a year below what they otherwise would be, and the government’s programs would cost about $140 billion less. We need to work hard on this. Remember, the Simpson-Bowles Commission proposal saves $200 billion over a decade. If we closed just 25 percent of the gap in health-care spending between the United States and other wealthy nations, it would save $700 billion, three and a half times as much.

  We have to achieve savings that don’t erode the quality of health care or the living standards of Americans of modest means. For-profit insurance companies, with their obligations to shareholders, and medical providers, with their profits enhanced by the current pay-for-procedure system, don’t have the incentives to do it.

  Of course, reform-minded hospitals, non-investor-owned insurance companies, innovative health-care providers, and creative employers can make their own changes, and many are doing so. For example, more and more health-care providers are controlling costs better and improving quality with coordinated care systems. And about 15 percent of U.S. companies with five hundred or more employees have already set up on-site clinics to provide primary and preventive care to employees. They’re finding it increases worker productivity and saves money on health-care costs. But if we want the United States to move as quickly as possible to more cost-effective, higher-quality health care, government will have to lead the charge, offering incentives to providers to lower delivery costs and using its market power to implement reforms that prove to be effective.

  The much-derided health-care reform law is already having a positive effect. Aetna has applied to the Connecticut Insurance Department for approval to lower its rates 10 percent because of the law’s requirement that 85 percent of premiums go to pay for health care, not to profits and marketing. In 2012 the price for Medicare Advantage plans will drop 4 percent, and the costs of buying drugs will be flat.

  So where does all this leave us with the debt? The Simpson-Bowles Commission says that if nothing changes in the way we now tax and spend, the return of normal economic growth will give us more revenues and lower costs for unemployment-related expenses. Today our annual spending is about 24 percent of GDP, and we’re taxing at 15 percent, the lowest percentage in sixty years. If we had normal growth of 2.5 to 3 percent, the numbers would be more like 22 and 17 percent, leaving us with a “structural” deficit of $650 to $700 billion a year, not $1.2 trillion.

  Unfortunately, over the next few years, the deficit reductions brought by the return of normal growth will be more than offset by dramatic increases in annual outlays for Social Security and health care, and over the decade, a fourfold increase in interest payments on the debt. These factors are projected to increase the debt another $9.5 trillion by 2020.

  The Simpson-Bowles Commission recommended shaving $4 trillion off that over the next decade by reducing spending by $3 trillion, with more than two-thirds coming from discretionary cuts and reduced interest payments on the debt, less than a third from Social Security, health, and other mandatory programs. The other $1 trillion in debt reduction in the commission plan comes from new tax revenues.

  If you assume that we could get another $1 to $1.5 trillion over ten years by making health-care delivery changes and implementing more of the GAO report’s recommendations (most people don’t think we can, but I do) and that if the antitax forces prevail in preventing any new revenue, the debt could still increase another $5 trillion by 2020, and the budget couldn’t be balanced. Even with new revenues, the Simpson-Bowles Commission plan doesn’t balance it until 2035.

  Also, the big cuts in discretionary spending may well not be achievable, and in some areas would be a big mistake. Even before the budget agreement, defense was projected to be 15 percent of the federal budget by 2016, the lowest percentage since the onset of the Cold War. Much more troubling is that our nondefense discretionary spending will fall to its lowest level as a percentage of the overall economy since 1960. That’s hardly good news if you agree that nondefense discretionary spending, investments in education, infrastructure, clean air and water, are critical to our future growth and our quality of life.

  In Chapter 3, I mentioned some of the discretionary cuts in the GAO report that we should make, but a good portion of that money should be reinvested by the government to further increase our economic productivity, our quality of life, and America’s impact beyond our borders. First, for our own national security, we should be making larger, not smaller, investments across the world to reduce poverty, improve health and education, and advance freedom and democracy. Our military leaders, including Admiral Michael Mullen, the recently retired chairman of the Joint Chiefs of Staff, often remind us that making friends is cheaper than fighting wars. The politicians like to cut foreign aid, as I said earlier, because Americans think we spend a lot more on it than we do, and, unlike Medicare or farm supports, those who get it don’t vote here. Second, the defense cuts are pretty steep unless the Pentagon fully implements the GAO recommendations, gets a better deal on the huge number of contracts it signs every year, and becomes more energy efficient and less dependent on imported oil. It’ll do a better job of implementing these changes if it knows it can keep at least some of the money it saves to meet legitimate security needs. Even though we are winding down our involvement in Iraq and Afghanistan we can’t assume we won’t be involved in other conflicts in the future.

  Third, and most important to our daily lives, if we’re going to stay ahead of our wealthy competitors and rapidly growing nations like China, India, and Brazil, we’re going to have to invest more in twenty-first-century infrastructure—in faster broadband, a modern national electrical grid, more well-distributed clean-power generation, modernized water and sewer systems, ports and airports, trains, roads, and bridges. We’ll have to do a better job of educating and training a higher percentage of our people to fill the best jobs. Finally, we’ll have to redouble our efforts to remain the world’s best center of innovation by making continuous investments in scientific and technological research and development and by providing the infrastructure and incentives for private companies to do the same in the United States rather than some other nation.

  B. More Tax Revenues

  That means we can’t cut the debt substantially, much less balance the budget in a reasonable time frame, without raising more revenue. The Simpson-Bowles Commission recommended lowering the corporate tax rate and eliminating most of the deductions and credits that allow many very profitable companies to avoid a large percentage of the taxes they would otherwise pay, while others pay the legal maximum of 35 percent. The 35 percent rate is now second-highest among wealthy nations, but the actual amount paid on corporate income is 23 percent, ranking us in the middle. We can raise the same amount of money or more with lower rates applied more fairly to all corporations. For example, with oil prices so high and the oil companies making record profits, we could reduce the deficit $4 billion this year alone and an estimated $77 billion over the
coming decade by eliminating their tax advantages. ExxonMobil, with a second-quarter profit of $10.7 billion, has an effective tax rate of 17.6 percent, well below both the average American’s rate of 20.4 percent12 and the average corporate tax “take” of 23 to 25 percent.

  The simplest way to generate more revenue from personal income taxes is to let the Bush tax cuts on upper-income and wealthy Americans expire in 2013. They will do so automatically if not renewed. This would raise $700 billion over a decade, more than half of it from the wealthiest 10 percent of Americans, who reaped 90 percent of the income gains in the last decade and got the large tax cuts on top of that. This is not class warfare but a reflection of our values of fairness and shared responsibilities, asking those of us who benefited from an economy that left most Americans standing still or falling behind to help put our country back on the right track to the future.

  If we wanted the economic independence and strength an earlier balanced budget would bring, and the economic benefits smart, targeted investments would generate, we could restore the tax rates of the 1990s to everyone. That would net about $3.5 trillion over a decade. Of course, the anti-taxers would howl that it would be the largest tax hike in history. But in the 1990s, with unemployment low, incomes rising, and poverty declining, most Americans seemed pretty happy with a budget surplus and increased investments to keep the economy growing.

  The Simpson-Bowles Commission recommended that we also lower personal rates but collect more money by restructuring and limiting the availability of credits and deductions claimed by wealthier Americans. Under its plan, instead of six rates, there would be three, at 12 percent, 22 percent, and 28 percent, with tax breaks targeted more tightly to people who need them. For example, the mortgage-interest deduction would be capped at $500,000, not $1 million. The child tax credit, employer-provided health insurance deduction, provisions governing charitable gifts, retirement savings, and pensions, and the Earned Income Tax Credit for lower-income working families would be maintained. The commission plan would require that any new deductions, or additional breaks, like a lower capital-gains rate or the tax credit for research and development (which I favor), be paid for by higher rates.