Medicare Blog 4: Learning from the Experience of Others

This week, my blogs are focused on Medicare and the serious crisis we face in coming years. The thoughts in this series will be submitted as part of the minutes of the Medicare Trustee's Meeting. In my last post, I outlined the current course for Medicare as it is drifting toward disaster.

Would it be a stretch to say 20 years hence, we would likely have accumulated a substantially larger national debt than we have now; and that a significant portion of that debt would be in the hands of foreign capital sources? Again, that’s our current course.

What will the impact be of continued trade deficits, and new global competitors who spend a fraction of what we do on health care, yet produce similar or better big picture health results?

We factor continued growth into our scenario like it is certainty. Without continued investment from private and public sources, our prosperity would be taken away.

Other nations, of course, have scouted out the river. I was in Singapore in April 2008. Their health care system consumes four percent of their gross domestic product. Rather than a Medicare-like government system, they require citizens to save. Incidentally, the Singaporean life expectancy is slightly longer than it is in the United States.

I would simply ask this question. If you were considering between an investment in two organizations and one spent four percent on health care with no future liability and the other spent 16 percent and had trillions of dollars of unfunded obligations, which one would you be most interested in?

In the late 1990s, I was Governor of Utah, and went to Argentina to develop trade relationships. I met various Ministers of the Argentine Government who, at the time, were proposing some aggressive and controversial changes. Among these was an attempt to transition their country away from a constitutionally protected pension system, their version of entitlements.

I remember thinking, “These are the most courageous political leaders I’ve ever met.” I soon found it was not just courage. They were compelled.

At the beginning of the 20th Century, Argentina was one of the wealthiest countries in the world — wealthier even than the United States. Over the next 50 years, successive governments constructed, and then expanded an ever-generous system of social benefits, nationalized industries, and created a vast and bloated public administration. Yet protectionist policies and a failure to invest in innovation in agriculture and other key industries meant the world economy began to change while Argentina’s didn’t. Its productivity suffered. But the country kept on spending, content and confident it was better-off than its neighbors.

As it turns out, Argentina had been operating for many years on money borrowed from the financial markets and organizations like the World Bank and the International Monetary Fund. By the 1990’s, the mortgage outstripped the country’s ability to pay. Creditors told Argentina, “no more, unless you fix your entitlements.”

Frankly, Argentina had started down the path of reform late, and once the government started, the political pain was too much—the nation could not sustain it. The government developed a solid monetary policy, but could not change its fiscal or spending practices.

A few years later, Argentina was in political turmoil with a rapid succession of governments, a currency in free-fall, and a rapid spike in unemployment. The country teetered on the verge of civil unrest. Why? Because Argentines had put off hard choices for so long that they were forced to make change too quickly, and they simply didn’t have the political strength to do it.

It seems inconceivable that the United States of America, the strongest economic power in human history, the land of the free and the home of the brave, could ever be in a situation like the one Argentina faced a decade ago. But, is it?

Let’s think on a horizon of 20 years.

Is it hard to conceive of a severe productivity dip in the United States as labor markets become more sophisticated in nations like China, Vietnam, India, and Brazil? They are increasingly competing not only with our manufacturing sectors, but also with our more dynamic knowledge sectors.

Is it really difficult to imagine world credit markets saying to the United States of America—as the world did to Argentina: “Given your lack of action in dealing with your deficit and the entitlements causing the problem, we are beginning to lack confidence in you.”

When we talk about the metaphoric torrent we are navigating, it is much more than just Medicare, of course. The massive burden we are feeling is created by a full 16 percent of our Gross Domestic Product rushing through a single sector of the economy.

We need changes that can affect this entire sector we call health care. Tomorrow, I will share what kind of changes might be possible to reposition Medicare and avoid the whirlpool effect that awaits us.

Comments

I just found your blog and have been wandering around for a few minutes, I find many of your posts pretty engaging. I want to invite you and your visitors to visit www.MonitorARGENTINA.org, there, I try to answer the question "will Argentina default again?" with support of a quant model and some qualitative analysis of current news and reports. Take a look and please stay in contact.
Regards,
Lucas Wall

Posted by: Lucas Wall | June 19, 2008 at 12:53 PM

Dear Mr. Secretary,

It sounds like Congress is reading your blog:

"House committee hearing to discuss possible commission focused on Medicare, Social Security costs"

Congressional Quarterly (6/23) reported, "On Tuesday, the House Budget Committee will hold a hearing on" a proposal introduced in legislation by "several key lawmakers from both parties" that would "create a commission composed of members of Congress and administration officials to produce tax and entitlement program changes that Congress would have to vote up or down, without amendment." The commission would be focused on "the looming fiscal threat to Medicare and Social Security." While "the legislation is not expected to advance this year, it remains a vehicle for debate and discussion," according to CQ.

This was taken from "Health and Life Sciences Law Daily," a news digest put together by AHLA, the American Health Lawyers Association. Available at: http://recp.mkt32.net/servlet/MailView?ms=MTg3OTkxOAS2&r=MTAzMzU2NTExMAS2&j=OTUzMTg3NDcS1&mt=1

Posted by: Daniel Kahane | June 24, 2008 at 10:19 AM

You are right, it is drifting towards disaster as you say. I saw a report that said the USA is around 47th in the world. Many people I know from foreign countries elect to travel back there and get their dentistry and medical procedures.
Will we come back ? I don't know. It has to come from medical staff and the suppliers showing genuine care instead if greed and profit.

Posted by: Adam | June 27, 2008 at 11:16 PM

A disaster whioh is close to home is the problems I'm experiencing with Medicare. I practice General Medicine with an interest in Geriatrics. I have been treating Medicare patients for 16 years. In the past 10 months almost all of my claims have been unpaid.The only info I'm given is that they are doing a random audit which may last another 14 months.Since I also have to pay bills like everyone else,I have no other recourse but to close my office to Medicare patients. This is the saddest moment in my career.
Robert Odell, M.D.

Posted by: Robert Odell, M.D. | June 30, 2008 at 06:01 PM