J.C. Moore Online

Current Events from a Science Perspective

With the heating up of campaign rhetoric, I’ve been hearing a lot about this $716 billion dollars that Romney is publicly saying President Obama “robbed” from Medicare. That is the exact word Romney uses. Well, if someone is stealing, I want to know how they are getting away with it so I did my research and discovered what the $716 billion is.

First, let me remind you that the Medicare trust fund does not have that much money and it’s not a piggy bank that can be raided. At the end of 2011 the Part A trust fund had only $244.2 billion.  The Part A, hospital insurance program, is financed through a payroll tax that goes into a trust fund similar to the Social Security trust funds. And that hospital insurance trust fund is being spent much more rapidly than the Social Security funds. No president can actually take money out of the Medicare trust fund as this money is in Treasury bonds which can only be cashed by Medicare at any time it is needed. As it is, with the continued increase in medical cost, Medicare can’t cover all the benefits without either more revenue (taxes) or reduced spending.

Ok, so where did the $716 billion come from? Actually this figure is for reductions in spending, so it really doesn’t take any money that is in the trust fund out of the trust fund. (Hum, isn’t that what Republicans are always saying—that we need to reduce spending?)

 Sorry Romney, there is no “robbery”. These reductions do not take any money out of Medicare, they are necessary adjustments to vendors who receive Medicare payments, and do not affect payments to beneficiaries.  They are aimed at insurance companies, hospitals, nursing homes and most of all, the Medicare Advantage companies. Medicare Advantage was started under President George W. Bush, with the idea that competition among the private insurers would reduce costs. But in recent years the plans have actually cost more than traditional Medicare. So the health care law scales back the payments to these private insurers. Medicare Advantage plans currently receive higher payments from the government on average than traditional Medicare – 9% higher than it was in 2010. The government pays Advantage companies 14-20% to manage patients health care. The Affordable Care Act cuts this fee to private companies. Romney and Ryan have a countdown clock showing how many days until Medicare (part A) is broke. The truth is that there would be even fewer days until the fund’s exhaustion if Obama’s health care law hadn’t included those $700 billion in spending reductions.

Romney’s campaign ad incorrectly claims that the “money you paid” for Medicare is being used to pay for Obama’s health care law. It is incorrect because the law doesn’t take money out of the existing hospital insurance trust fund. It cuts the future growth of spending. And in the future, seniors will still receive the benefits to which they are entitled.

Sources: Politifact.com, Factcheck.org

This is a guest post from Barbara Moore.

© 2012 Barbara Moore

Congressman Frank Lucas (R – OK) held a town hall meeting at the Bristow Library on April 18, 2011. As in his town hall meeting in Hominy , he reported that: the war in Iraq is winding down, but that Afghanistan still continues to be a quagmire without a definite ending in sight.  There is concern about our role in Libya, and in spite of the criticism, the President does have power to take limited military action without a formal declaration of war. He reported that the Legislature has become even more divided and partisan over the last year, and it is becoming very difficult to carry out the business of government.

When asked whether Social Security would go broke, Congressman Lucas explained that, over the years, the surplus collected has been put in U.S. Treasury bonds. Though the government has borrowed against the surplus, it must be repaid and will be available to make future payments.  After the trust fund is exhausted, Social Security will pay benefits as money is collected, and benefits may be reduced by 20 to 30% unless the Social Security system is changed to extend the trust fund.

Comment: A little research after the meeting showed that the trust fund is expected to be solvent until about 2034 but that a few tweaks, such as reducing benefits, raising the retirement age, or raising the cap on FICA contributions, will make this trust fund solvent to about 2080. Americans overwhelmingly support raising the cap on FICA contributions over the other options.

One gentleman was upset about the cost of his health insurance and of Medicare. He noted that the creation of the Medicare Advantage Plans had added about 14% to the cost of the program. He described a recent surgery in some detail, the point being that Medicare was charged $3000 for one small piece of tubing because Congress had voted that Medicare could not negotiate prices with pharmaceutical companies. His point was that Congressman Lucas had voted for both the Advantage plan and for the ban on negotiating prices.

One constituent complemented Congressman Lucas on the Tulsa World article where he defended raising the debt limit so that the U.S. would not have its credit rating lowered, which would be disastrous for the country. However, he also pointed out that Congressman Lucas had voted for extending the tax cuts for wealthy citizens, costing $800 billion, and also for the $610 billion in spending cuts spending cuts, which may cost 500,000 American jobs. The congressman commented that the mood in Congress was to cut taxes and reduce spending. There were several questions about  agriculture, such as whether there would be a carbon tax, whether the EPA would limit dust, and about the animal ID program. Congressman Lucas, who will be the chairman of the Farm Committee next year, said those are all things that the committee would likely examine.

Comment: Climate scientists have pointed out that there is increasing evidence that climate change is causing increasing incidences of extreme weather, such as droughts and storms, which may put our farms production and food supply at risk.  Congress has recently turned down a motion that the Agriculture Department examine the risk to our food supply and Congressman Lucas voted with the nays.

The discussion was lively and it was good that we could ask questions and express our concerns to Congressman Lucas. The third district covers a large area, the Western two thirds of the state, and we certainly appreciate Congressman Lucas taking time to visit with us. Some of his answers were of concern to the author, as you can discern from his comments, and further information will be provided about Congressman Lucas’s views as the 2012 elections near.

Privatization. It is usually assumed that private enterprise will find efficient ways to do things and lower costs to the benefit of consumers and taxpayers.  That assumption is probably true when it comes to providing innovation and developing resources. The recent failure of some of our largest private companies have caused an  economic downturn which, along with tax cuts, have left the federal, state, and local governments with financial problems. Privatizing public services and resources is being considered as a way to reduce costs and raise money.

City Services: As a way to save money, many small towns and cities are considering turning their basic services such as water, trash and sewer over to private companies. This has not always worked out well.  As an example, Coatesville, Penn decided to sell off its drinking water and wastewater infrastructure in 2001 and invest the money in a trust fund to be used for city services. But privatization hasn’t been the economic boon the city hoped.  The residents have seen their water and sewer rates jump 85 percent since American Water, the largest water corporation in the country, took the helm. Last year the company proposed a 229 % rate hike for sewer services, forcing the city to cobble together money for legal fees to fight back. (1) Privatization doesn’t always promote efficiency. The trash in Wichita, Kansas is collected by several private trash companies, and customers in any part of town can contract with any of the companies. The result is that several large trash trucks navigate most streets of Wichita each week, resulting in increased noise, wasted energy, more exhaust fumes, and damage to the streets, which of course, the city repairs.  Even though residents of Wichita pay 30 to 50% more than residents of comparable cities with public trash services, a measure to franchise the trash system was defeated amid criticisms of “government control” and “loss of freedom to choose”.

CompSource. The state of Oklahoma gave its wealthiest citizen a nice tax cut in 2004, which, with the economic downturn,  has left the state government strapped for cash. One proposal to raise money was to sell CompSource Oklahoma, which has been providing workman’s comp to state workers for 76 years – apparently successfully. State Rep. Dan Sullivan pushed for privatization of CompSource because: “It’s a fundamental issue of what is the proper function of government . Is it to compete with private enterprise? We think not.”  He also claimed the increased competition would lower rates. That sounds good, except an expert in comp insurance pointed out it would cost more to insure state employees and 40% -70% more to insure workers in high risk categories, such as volunteer firefighters, oil field workers, and farm workers. The plan fell through, for the time being, when it was discovered that the state might not get the proceeds from the sale and that the politicians pushing the matter had ties to the insurance companies who would profit from the sale. (2)

Medicare and Social Security. Privatization of Government services for ideological reasons often fails as a practical way to lower costs. While privatizing Medicare was ostensibly done to reduce costs, the Medicare Advantage Plans created have increased the cost to the government by 14% and decreased the long term stability of the program. Also, to reduce costs, the plans created the infamous “donut hole“ that costs seniors an additional $25 billion annually. (3) The cost created by privatizing is not a mystery, as the VA and Medicare  have a 3-5% overhead while private insurance companies have an overhead of 15% or more. That is something that should be considered when thinking of health care reform.

Social Security is one of the most effective and popular government programs. It provides a safety net so that no matter how fortunate or unfortunate people are in their choices and investments, they will not be destitute when they retire.  The recent attempts to privatize SS would have been a boon to the financial services industry and money poured in for promotion and campaign donations. After the recent economic downturn, we should all be grateful that the plans to privatize Social Security failed. Some private pension accounts lost as much as 40%, while Social Security paid reliably. The idea that SS is going broke, part of the PR created to try to justify privatizing SS, still lingers on. (4)

Public Service: Our public servants, teachers, firefighters, police, military personnel, and the myriad employees that run our country, actually serve us well. Their pay is usually determined by their responsibilities, experience, and education, as in the GS ratings of federal employees that determine their compensation. Public servants seldom receive bonuses and sometimes little appreciation for doing their job well. The government does not make a profit so their services can be provided at lower cost. And, while we have little say about what goes on in the boardroom, our elected representatives are in charge of public employees.  While it may not be the role of government to compete with private industry, it is certainly not the role of government to make policies that favor private companies over the needs of our citizens. Certainly, privatization for purely ideological reasons is a bad idea that should not override practical considerations.

(1) http://www.alternet.org/story/149725/vision:_how_small,_mostly_conservative_towns_have_found_the_trick_to_defeating_corporations

(2) http://jcmooreonline.com/2009/10/01/will-privatizing-compsource-lower-costs/

(3) http://www.cbpp.org/cms/index.cfm?fa=view&id=2917

(4) http://jcmooreonline.com/2010/08/04/is-social-security-going-broke/

(C) 2011  J.C. Moore

Update on 10/26/2016: Here is another case of a privatized water system that didn’t work out well  that cities should  consider before privatizing.

Update on 10/7 /2021: Privatizing Kansas prisons has not worked out well. “For-profit Kansas prison an understaffed ‘hell hole’ of violence, death and drugs. “ … Report in Kansas Reflector