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2018-01-01 01:00 by Karl Denninger
in Health Reform , 358 references Ignore this thread
The Impossible Mismatch
[Comments enabled]

It's really not all that complicated when you dig into the headline that has just started showing up -- and which I predicted would bite before the end of Trump's first term.

2018 could be the year the dam bursts on the federal deficit.

Back in June, the Congressional Budget Office projected that the budget deficit — government expenses exceeding revenues — would drop to $563 billion in 2018 from the $666 billion shortfall the Treasury Department declared in the 2017 fiscal year, which ended Sept. 30.

Now budget experts outside government say the 2018 total could exceed $1 trillion because of series of bills being passed in quick succession, and decisions to scrap what were already weak limits on spending.

The CBO is always off -- on the low side.  That's not because they try to be off, it's just a function of how the CBO works; they are constrained by the rules Congress sets for them on how to evaluate things, which forces them to use existing law projected forward without any likely, or even nearly-certain, legislative changes.

In other words if a budget change expires in 5 years they're required to assume that it will indeed expire, even if the legislative history strongly suggests it will not.  If the Medicare "Doc Fix" has taken place every year (and expanded the deficit) they may not consider that in the following years because it has not "yet" passed -- even though historically it has passed every year in the previous decade.

Last fiscal year, by the way, was the first one in a long time when the debt addition actually was close to the "official" deficit; it was just over $670 billion (where the claimed deficit was $666.)

What does a trillion dollar deficit mean?

In a $20 trillion GDP economy (assuming you believe GDP actually captures economic activity) it means a 5% devaluation of the purchasing power (that is, inflation) of every single dollar in existence.  In other words if we put up a 3% GDP number it's actually -2%.

The problem all comes from Medicare and Medicaid.  To recap -- Medicaid is a pure entitlement; there is no offsetting tax.  There is for Medicare, which is 2.9%. 

Politicians always lump "Social Security" and "Medicare" in together when talking about "entitlements" but this is an intentional fraud run upon you and when they do so you should either insist they cut that crap out or force them office whether peacefully or piecefullyas there is no Social Security problem.

That's because Social Security has a "buffer" of Treasuries that are issued against the "excess" tax receipts.  The system was designed this way so that when there were "lumps" of people (e.g. the Boomers) the money would be there to pay their benefits.  Those people will die, and when they do that drag on the system will dissipate.  I remind you that this is 12.4% on earnings, from the first dollar, up to the cap -- and that benefits are capped as well, and in fact you get more back for lower-earning dollars than higher ones.  That is, Social Security is a progressive tax in that those who earn more get less for each dollar contributed.  While the Boomers will indeed deplete the Social Security bond stash as it is cashed in and spent they will then die and the drain on the system will stop.  In short there is no issue with the retirement fund -- there is, however, an issue with Congress raiding retirement funds in order to support ridiculous expansion of unearned Social Security disability payments, and this must be halted.

Medicare, on the other hand, is funded with a 2.9% tax on earnings (and has no cap.)  The problem is that this was designed to mesh with an economy in which health care spending was about 4% of GDP.

Today health care is almost 20% of GDP, or five times larger on a proportional basis, despite technological innovation that should drive down cost.

That hasn't happened because of monopolies and racketeering all of which is illegal under more than 100-year old law.  It starts with the American Medical Association (AMA) which has built itself a monopoly business in the ICD and CPT "code lists" for diagnostics and just gets worse from there.

What this imbalance has done, along with the government trying to cap Medicare spending (by setting "reimbursement rates") is force that spending into the "private sector" -- that is, on you.   This is only partially effective, particularly in the area of drugs where Medicare Part "D" was forbidden to negotiate drug prices when it was passed by Congress.

Then came Obamacare, and suddenly the soft underbelly and truth became exposed.  If you made less than about $40,000 (whether intentionally or not) you got subsidies that, in many cases now, exceed $700 a month for a single person.  In other words you get "free" health insurance.  If you actually use health care this is robbery of the public on a grand scale to the tune of more than $10,000 a year but if not you can "opt out" of the scam -- for now -- at near-zero or zero cost by reducing your income to the roughly $20,000 a year level.

However, make more than about $20,000 and the effective tax rate on your earnings until you reach the $40,000 threshold is in the neighborhood of 80%!  Do the math -- first you lose the entire subsidy, so that's now about $10,000 you must pay for said "insurance" right off the top.  That's a 50% effective tax rate to which you must add Social Security and Medicare (15.3%) and then income tax (~15% bracket, plus whatever your state has, if you have a state income tax.)  The effective tax rate thus is 80% on that next $20,000 in income if you live in a zero-state income tax state like Florida and for most states where income tax in the $20-40k bracket has hit the "nominal" rates in the 5% range it's 85%!

In other words earn one dollar, get to keep 15 cents.

Do these people think I'm nuts?  More to the point $40,000 is hardly a "rich" lifestyle and it's much worse when you work hard enough to "make" $40,000 but only live as if you made $23,000 because the rest is taxed away with $10,000 of that taxing coming from the loss of Obamacare subsidies!

I can easily surpass the point where that "knee" drops back off, but realize that until you get into the hundreds of thousands of income that nasty in the $20-40k range is an extremely ugly marginal tax boost.  At the $100,000 level it adds a full ten percent to your effective tax rate.  Those who think they're in the 20% bracket are not -- they're paying 30%.

The worst part of this is that virtually everyone who works for someone else and has a full-time job is paying this tax too but it's hidden from them and exactly none of Trump's so-called "tax cut" helps in this regard.  That's because their employer is "required" to provide said health insurance or get fined, so they pay.  You don't see it, the CPI index doesn't capture it but it's there.  We were seeing this at MCSNet in the 1990s with 10%+ escalations annually and it's still going on.  Employers inevitably cut back the plans to try to manage that cost but that eventually runs into the mandatory coverage requirements and thus there's only so much you can do.

There is only one way to stop this and prevent the escalation from detonating the Federal Government's budget -- and that is to return medicine to 4% of GDP.  If we do that then the Federal Government never runs a deficit and in fact runs a surplus immediately and permanentlyState and Local governments stop getting hammered and thus your property taxes go down instead of up, pension plans that include health benefits prior to Medicare stop being bankrupted in an afternoon and you get a real pay raise of about 15% immediately as well.

But there's a problem -- all that theft and scam comes out of the economy and millions of people who profit from and in fact are employed as a direct result of it now are temporarily unemployed.  In the year you fix it GDP plunges by that same 15%.  A 10% decline is the formal definition in economics of a Depression, so we get one.

It doesn't last long -- in fact it lasts for mere months before the economy will adjust -- but those months, if you're one of the people who make their living as a result of this robbery, are very bad for you.  It's also bad for the stock market and any business that is on the public markets and exists only because of these scams; those firms are all literal zeros.

Of course politicians would get blamed, which is why they won't do it.  But if we don't as a body politic demand that this scam be kneecapped, now, the increasing cost escalation will destroy the federal budget, will destroy state and local budgets and will destroy you financially if you're not super-wealthy -- and no, the "ordinary wealthy" with a million or two will not escape this.

You may think we can get away with trillion dollar deficits because the economy and stock market are doing "well" today.  You're wrong because if it's a trillion now when the next recession comes, and it will, it won't be one trillion -- it will be two or three trillion at which point the federal government's ability to fund itself will collapse.  There are plenty of people who believe The Fed can "QE" its way out of this again, but that's false -- there is a limit to that chicanery where you no longer are in the market but effectively are the market, and The Fed has already tickled that dragon's chin.

Wake him up and he eats you.

Time's up folks; if you expect Medicare to be around 10 years from now and beyond this has to be fixed right now or the outcome is certain: Medicare and Medicaid will collapse.  It is a mathematical certainty.

Medicare is in fact self-funding and perfectly ok if we collapse medical spending back to 4% of GDP.  We can do this without losing access to medical care or destroying the industry by enforcing 100+ year old anti-trust law against all medical providers and throwing those who refuse to comply in prison.  We can start here, and then pass this immediately following and the problem will be immediately and permanently solved.

If we do not demand this now as Americans then the outcome is certain -- and it's going to suck.

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Dennisglover
Posts: 954
Incept: 2012-12-05

Huntsville, AL
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I've got people telling me that 2018 is going to be a signal-banner year.

I'm telling them that unless we get an actual Attorney General who has some actual yarbles, it's just going to be the same old SSDD.

Where is Henry Bowman when I need him? Well, maybe I've got to be Henry now. (Not looking forward to that, you see...)

We'll see...

Happy New Year, just the same, denizens of this Forum! MoLON LaBE!

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TANSTAAFL
Ktrosper
Posts: 3328
Incept: 2010-04-06

ft collins co
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re: Fixing HC
TG wrote..
But there's a problem ... GDPplungesby that same 15%

Your right.
And consider how Trump has made his brand synonymous with the Record Stawk Values!!! and 3-4% GDP growth and the BOOMING economy.. There's no way in HELL he'll ever willingly take the route of depression, even if it's guaranteed to MAGA.

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The unexamined life is not worth living.-Socrates
The only stable state is the one in which all men are equal before the law.-Aristotle
Liberty exists now in the spaces government has not yet chosen to occupy.-Doc Zero
I anticipate that 10 Dallas Cowboys Cheerleaders will blow me this evening.-K.D
Rollformer
Posts: 188
Incept: 2013-02-13

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I wonder whether the risk is more acute than even what is mentioned here. You have the Fed starting to reduce its balance sheet, which means that the supply of Treasuries going onto the market is even higher than the deficit.

The Fed has printed ****loads of money, as have foreign central banks using that money to keep their currencies from appreciating against the dollar (printing local currency and buying Treasuries). If that appetite subsides, things will get really interesting really quickly.
Brendangm
Posts: 11
Incept: 2013-01-31

United States
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"Money doesn't change men, it merely unmasks them. If a man is naturally selfish or arrogant or greedy, the money brings that out, that's all."
Henry Ford

Since America is a car-culture, I propose this quotation as it's epitaph.

Since the psychological idea of "flow" exists.

What was "unmasked" was not only the usual
errors, but also the degree of self-satisfaction
brought on by the amount of the "flow experience"
the population experienced by the act of driving
a car.

And not to belabor the point but America is not
a Constitutional Republic, it is a Infiltrated
Constitutional Republic, a big difference.










Moon
Posts: 18
Incept: 2017-12-23

various
Banned
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Politicians always lump "Social Security" and "Medicare" in together when talking about "entitlements" but this is an intentional fraud run upon you and when they do so you should either insist they cut that crap outor force them office whether peacefully or piecefully,asthere is no Social Security problem.




More often than not I'm seeing Social Security referred to as an entitlement program around the web. Entitlement program? Well s*** my britches. Since when did extortion become an entitlement ?
Where the **** in the Constitution does it say that I'm suppose to make the Government a 40-50 year interest free loan?
If it's an entitlement program might I offer up a solution to relieve the government of any further liability.
Here are the requirements!
I want the loan that I have been so gracious in extending to the grossly negligible and fiscally irresponsible entity known as the general fund re-payed in full immediately.
Moreover I want the same accrued compound interest that is required by the IRS when you owe them money applied to said loan.
Until these requirements have been satisfied they can STFU and GTFO.
peacefully/piecefully


Aztrader
Posts: 7913
Incept: 2007-09-10

Scottsdale, AZ
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If medical costs dropped to where they were affordable and got rid of all the administrative fat in the system, then of course insurance rates would drop and people would have more money to spend.
In the past few years, premium costs have destroyed discretionary spending and that is part of the reason retail is getting hammered.
Had my last surgery about 7 weeks ago and got my BC statement. The surgery cost about $15,000 and the negotiated rate paid was about $4,000.00. Just think if these real costs were posted everywhere forcing competition.
Nickdanger
Posts: 681
Incept: 2011-06-12

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@Aztrader,

If medical costs dropped to where they were affordable, insurance wouldn't be needed. Another parasitic industry eliminated.

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Grammar: the difference between knowing your **** and knowing you're ****.
Bodhi
Posts: 185
Incept: 2008-02-23

Georgia
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Quote:
If medical costs dropped to where they were affordable, insurance wouldn't be needed. Another parasitic industry eliminated.


When I was a kid anytime my mom took me to the doctor's office she stroked a check right then and there. The only medical insurance in those days was for hospitalization, or what's now called a catastrophic policy.
Tickerguy
Posts: 151178
Incept: 2007-06-26
A True American Patriot!
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Ditto.

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Winding it down.
Rollformer
Posts: 188
Incept: 2013-02-13

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I grew up in Appalachia. One of the interesting things about the medical industry today is that doctors in underserved areas make more than those in cities. I think that the doctors in the under-served areas make a lot on volume; if you are not in danger, they do not care to see you.

I remember being told about fevers. Basically, the doctor said, "If it is below 103 degrees, take a day off work and sleep it off. If it is above that, turn up at the emergency room, and I will come figure out what to do." There was an understanding that the fever was there to fight the infection, and if it was too high, it was understood to be an emergency.

Now, everyone goes to the doctor if they sweat too much.
Click
Posts: 76
Incept: 2017-06-26

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"It [the depression] doesn't last long".

Radically changing or eliminating the health-care racket may or may not cause a "depression", but, if it does, I wouldn't count on the duration lasting only a few months. You might be right, Karl, and it might not last too long; that is, if you were in charge, I'd have a little more faith, then. But you're not. Trump is. So I have zero faith.

When the house of cards (a skyscraper in this case, think: Trump Tower) comes down (for whatever reason) the economic "depression" is likely to be long and painful. The reason why is because when one racket fails many others are likely to follow. In other words, one system (e.g., healthcare) fails and it pulls down other rackets which are seemingly, completely unrelated. For example, the hospitality industry ( another racket), auto industry and real estate markets would all suffer massive losses if the health-care racket collapses. And what about the education racket? That, too, would suffer in a depression brought on by the end of any number of other rackets, including the healthcare racket.

We are living in an age of "too big to fail" and too big not to fail. This is probably all going to end by looking something like a bank run. The banking system works until it becomes too "stressed" and the banking runs take over. After that point is reached the only hope is for the government to step in and declare a banking holiday in order to save the banking racket. And that's probably what will happen when the too-big-to-fail healthcare system finally stops working altogether. And if the US government fails to declare a healthcare holiday and come up with a painful fix, then, at that point, it is entirely conceivable that the entire country (and every racket from sea to shining sea) could spend a decade or more "recovering"...

And,frankly, SSI and all the rest of the so called "entitlements" are nothing more than rackets of and by themselves. Marxist rackets conceived by Marxist thinkers. But that's another discussion.



Keenan
Posts: 267
Incept: 2013-01-11

Western PA
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I'm committing to making this THE single issue in the upcoming special congressional election for PA-18th.

The 'pubbie candidate Saccone says he "was Trump before Trump was Trump" so I'll be calling him on Trump's weaseling out of his promise to promote medical price transparency & reducing medical costs. If Saccone waffles & the other guy Lamb picks up on the solutions articulated on the Tickers he gets my nod.

https://nypost.com/2017/12/09/this-elect....
Raftermanfmj
Posts: 4810
Incept: 2010-09-06

USA
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So I have Highmark insurance and was trying to set up voice therapy sessions at UPMC in Pittsburgh.

They REQUIRE that I see one of their doctors before starting therapy. So I enquired what the cost might be and received this response:

So unfortunately we dont participate with highmark insurance.

The only way you can see one of our doctors is if you bring 200 dollars day of visit and then you have to pay off the final bill within 45 days of receiving the final bill and you get a 40 % DISCOUNT.

An estimated price for the doctors visit is between 1,081.00 and 1,761.00

thanks

Feel free to provide your own commentary on this.

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I have never wished to cater to the crowd; for what I know they do not approve, and what they approve I do not know. - Epicurus
Oderint dum metuant - Caligula & Police State USA
Keenan
Posts: 267
Incept: 2013-01-11

Western PA
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"An estimated price for the doctors visit is between 1,081.00 and 1,761.00"

One visit ? That's maybe an hour or so at most. Absurd.

And that's the entry fee just to find out what a therapy program would cost you ?
And of course they charge whether or not therapy helps you, right ?

Does Highmark's Allegheny Health Network offer any such therapy ?

Supertruckertom
Posts: 1612
Incept: 2010-11-07

USA
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Does not compute, for me.

If you make your living on the evening news, teaching, or need a clear voice for sales negotiations or talking to Air Traffic Control, I can understand needing voice therapy.

Not having to say a word to anyone is a benefit of Solitude.

Even a good dog responds to hand signals and body language.




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