StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between


Posted by Stan Collender
Posted by Andrew Samwick

Shailagh Murray of The Washington Post gives us yet another reason to despise the way Congress conducts its affairs:

Setting reimbursement rates for local hospitals, doctors, home health-care centers and other providers is a legislative ritual that amounts to one of the most effective and lucrative forms of constituent service. Delivering federal money through Medicare, the country's largest insurance program, can be a powerful tool on the campaign trail, allowing lawmakers to argue that they are creating jobs and improving the quality of health care for voters.

Posted by Pete Davis

Every year at this time, the Social Security and Medicare Trust Fund Trustees report on the current and projected financial conditions of the two funds.  The news released Tuesday was not good, and it's likely to get worse over the next few years.

Medicare went cash-flow negative last year, and the Trustees estimate it will be insolvent in 2017 -- only eight years from now.  Social Security will go cash-flow negative in 2024 and will be insolvent in 2037 -- a more manageable 18 years from now, but four years earlier than last year's estimate.  I'm not too worried about Social Security.  Although it's long-run deficit equals 2% of taxable payroll ($111 b. per year in current dollars), a combination of indexing modifications, increased retirement age, and modest payroll tax increases can keep it solvent indefinitely.  Medicare is a different story.  It will require major surgery.  The trustees estimated its long-run deficit to be 3.88% of payroll ($214 b. per year in current dollars).  If Congress passes a major health care reform this year, that will help, but we will still be far away from long-run solvency.

Posted by Andrew Samwick

I have been very careful to stay away from making a link between the current explosion in the deficit and the reform of entitlement programs like Social Security and Medicare.  It's not that I don't think that a link exists -- it's that I don't think that the case for entitlement reform depends on what part of the business cycle we are in.  The case makes sense to me based on the long-term cost projections for those programs.

In today's Washington Post, Robert Kuttner laments that so-called* deficit hawks in Congress are trying to make the link.  He opens with:

With the enactment of a large economic stimulus package, fiscal conservatives are using the temporary deficit increase to attack a perennial target -- Social Security and Medicare.

It may be that the recent increase to the deficit is temporary.  But even a temporary increase in the deficit is a permanent increase in the debt unless there is enacted some way to specifically repay that debt in the near future. 

Posted by Stan Collender

Andrew's post this morning about Dan Rostenkowski's being attacked by his own constituents after telling them that they would have to pay for their own catastrophic health care coverage isn't just a long-forgotten event from a bygone era.  To this day, it's something that members of Congress cite chapter and verse when discussing the budget.  Like a story passed down from generation to generation, this includes current representatives and senators, the vast majority of who weren't in office when the event occurred.

I can't tell you the number of times the Rostenkowski incident has been mentioned by members of Congress at meetings I've attended.  Usually it's mentioned as a throw away line ("I don't want my constituents chasing me down the street").  But it's also often been the start of a statment ("Dan Rostenkowski found out the hard way what happens when...").  I've heard the story used by Democrats and Republicans, liberals and conservatives, and representatives and senators.

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