Deficits, Dollar, Game Theory, Individual v. Collective, Live and Learn, Treasury

Dr. Drew Discusses Medicare Reimbursement Cuts, Health Care

Dr. Drew paid a visit to The Adam Carolla Show, broadcast on November 25th, 2010, to riff with his former Loveline co-host. Among the topics were Dr. Drew’s continual gravitation towards libertarianism and both men’s frustration with oppressive government. Carolla constantly complains on his show about the Santa Monica and Burbank police departments writing “chicken shit” tickets and the substantial hoops to jump through just to build anything at your own house. The “97,000 pages” of federal regulations came up, Adam Smith’s invisible hand, as well as discussion about the health care system. Here is one of Dr. Drew’s offerings:

But the question, though, is ‘what do we do about this?’ I’m thinking about the health care system and I’m more convinced than ever how it’s going to go down … You know there’s about to be a 22% cut in Medicare reimbursements to doctors & there are a bunch of doctors on January 1 that are just gonna bail out. They’re either going to leave the profession or leave Medicare. That’s the beginning of the exodus, guys, that…is…the…beginning. And the best ones are the ones leaving first. Because they could do other things. Why should they bother with this?

And actually, the scheduled Medicare reimbursement cut is 23%. Dr. Drew never explained what the health care system “going down” really means in this context, but I will extrapolate for him. Any health care system that incentivizes doctors to practice less medicine, see fewer patients, or exit the profession entirely, lowers the supply of health care. All else equal (ceteris paribus) on the demand side, this will increase prices for the consumer. And health care demand hasn’t been flat; rather, it has done nothing but climb. Any health care reform that is implemented which vastly increases the number of people entering insurance pools, often expensive, high-risk individuals who were previously denied, will only do two things: 1) further increase insurance costs for all consumers and 2) further drive up demand increasing prices on the patient bill. Expect US national health care expenditures to keep growing rapidly.

Now if increasing costs for everyone, and probably substantially increasing costs, in order to get more people access to health care is what the country wants, then fine. But to say health care reform or Medicare reimbursement cuts is a path to more affordable health care, well, then we have a problem.

Obama announced recently that he will freeze wages for federal employees over the next two years. There is also discussion on Capitol Hill to negotiate whether the Bush tax cuts will be kept in place, and for whom. Treasury Secretary Timothy Geithner has brought a list of so called “Obama tax cuts” into the negotations which include:

  • The Alternative Minimum Tax;
  • The Making Work Pay Tax Cut – this is the “invisible payroll deduction” – the part of the stimulus bill everyone said the White House should have just written big checks for;
  • The American Opportunity Tax Credit (higher education tax credit);
  • The Earned Income Tax Credit;
  • Extenders for the Research & Experimentation tax credit;
  • Bonus depreciation (expensing) – this doesn’t expire but the White House thinks it’s good for the economy;
  • The HIRE Act – a tax credit for hiring people;
  • Build America Bonds, which changes the tax treatment for municipal and state financing, allowing them to raise money for projects; and
  • Energy tax credits (solar and wind energy tax credits are set to expire).

All of these tax issues need to be dealt with before year’s end as well. Expect some kind of compromise from Republicans and Democrats to somehow get most or all of this extended.

So the plan is to hold federal wages flat, keep passing all kinds of tax cuts and tax credits, and cut the aforementioned Medicare reimbursement; all during sluggish economic times with unprecedented quantitative easing from the Fed while military spending goes unaccounted for. And I’m supposed to believe the health care system will be fixed and the deficit will get under control? This can’t miss.

These are attempts to deal with the deficit, which is nice, but it’s not enough. Federal wages have been growing throughout the recession while the private sector has been contracting significantly. How about cutting federal wages and slashing the size of federal departments to actually share in the pain? We need entrepreneurs to start and grow businesses, banks to lend, and government to shrink. Tax cuts and tax credits frankly just annoy me because they represent the oppressive tax code and the desire to manipulate capital flows. We need to cut spending and simplify the tax code (I have supported the FairTax). I don’t know about you, but I’m not looking forward to the inflation of my health insurance premiums and medical bills.


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