Consumer Power Report: Downfall of the Old Order

Consumer Power Report: Downfall of the Old Order
July 25, 2011

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)

Robert Samuelson writes today on the “crisis of the Old Order” established by democracies in the post-World War II era – an order based in large part on the persistence of the welfare state and inevitable economic growth that fueled that entitlement structure.

Samuelson notes, rightly, that while the financial crisis and housing bubble accelerated this problem as a global issue, the common factors are impossible to ignore – and when you drill it down, the cause is the redistributional basis of a half-century of social policy:

Start with the welfare state. A blessing to many, it’s also a common burden. Its expansion was huge. In 1950, government spending as a share of a nation’s economy (gross domestic product) was 28 percent in France, 30 percent in Germany and 21 percent in the United States. By 1999, figures were 52 percent of GDP in France, 48 percent in Germany and 30 percent in the United States, according to the late economics historian Angus Maddison. Aging societies would boost future costs for social security and health care. From 2008 to 2050, the 65- plus population is projected to rise 40 percent in Germany, 77 percent in France and 121 percent in the United States.

Given this outlook, even countries without immediate crises are embracing austerity measures. All face a ruinous choice: The higher taxes or deficits needed to finance more welfare spending might further damage the economy, but cutting benefits stirs popular backlash. Still, benefits are now vulnerable. Ireland cut benefits for the unemployed by about 10 percent, reduced child payments by 16 percent and, beginning in 2014, will gradually raise the retirement age from 65 to 68.

Samuelson maintains that the idea that faster economic growth as a lifeline to governments and a way out of this quicksand is mostly an illusion – that routine economic growth is vastly overestimated. If he’s correct, this means a number of things, all of them difficult in terms of domestic politics: If our economy cannot grow fast enough, nor tax high enough, to fund the liabilities of past promises, then it is the promises that must be reconsidered.

There are two ways to cut back on the high costs of these entitlement promises. One can reconsider the promises by having a top-down, Washington-based methodology where White House-selected experts with the proper political connections are hand-picked to select which promises are kept and which ones adjusted, as the Independent Payment Advisory Board would do, lowering costs by force of law and underpaying for services from the private sector; or, on the other hand, one can give people less money overall, and delay that money – as Ireland has – but give them more freedom to do with it what they will, based on the presumption that market forces will lower costs and compete as consumers make decisions.

The endgame for the old order of entitlements is already here. The question, moving forward, is all about who picks winners and losers: unelected political appointees, or empowered citizens.

-- Benjamin Domenech


IN THIS ISSUE:

  • How Dare Analysts Point Out Employer Shedding Reality
  • Medicaid Investigation Finds Widespread Opportunities for Fraud
  • The Feds Are Bailing Out Romneycare, So Who Will Bail Us Out?
  • Kasich Endorses Exchange, While Others Resist
  • It’s Time to End the War on Salt
  • Survey Illustrates ACO Divide
  • Hearing on Small Businesses and PPACA

HOW DARE ANALYSTS POINT OUT EMPLOYER SHEDDING REALITY

An excellent editorial from the Wall Street Journal this morning:

McKinsey & Co. made itself the White House’s public enemy number – well, we’ve lost count – after releasing a survey last month showing that nearly one in three businesses may drop insurance coverage as a result of the new health-care law. The real offense of the management consultants seems to be accurately portraying reality.

Consider a suggestive new survey to be released today by the National Federation of Independent Business, the trade group for small businesses. William Dennis, a senior research fellow who has conducted the study for 35 years, reports that 57% of a cross-section of companies that employ 50 or fewer workers and offer coverage may stop doing so. Look out below.

About two of five small companies sponsor insurance – a share that, according to NFIB, has on net held mostly stable or declined very slightly since the passage of the Affordable Care Act. Yet 12% of these companies – one of eight – have either had their plans cancelled or have been told that they will be in the future. This churn in the private small-group market is a direct result of ObamaCare’s new rules and mandates – but a far larger destabilization could be in the offing, what Mr. Dennis calls “the flight to the exchanges.”

Those would be the dispensaries of heavily subsidized insurance, and the NFIB finds that 26% of small businesses today sponsoring insurance are “very likely” to drop it should their employees start to flood government coverage. Another 31% of the 750 firms surveyed report they are “somewhat likely.”

Small-business workers are eligible for exchange subsidies even if they can get job-based coverage. The incentive is for them to take it – given that the new government payments will be so generous, small-group coverage is generally costly and the insurance tax break for employers usually doesn’t go very far when the employer is small.

Read the NFIB study here, and read more on the employer-shifting in this Health Affairs piece.

SOURCE: The Wall Street Journal


MEDICAID INVESTIGATION FINDS WIDESPREAD OPPORTUNITIES FOR FRAUD

James O’Keefe’s Project Veritas investigation targets Medicaid offices in Virginia, New York, South Carolina, and Ohio, and comes up with widespread opportunities for fraud:

Project Veritas embarked on a multi-state investigation to uncover the fraud, waste and abuse that takes place in America’s Medicaid system.

Posing as drug smugglers, and other criminals, Project Veritas’ bold volunteers visited state Medicaid offices to request assistance for family members, themselves and even illegal aliens.

Already, the administration in Virginia is responding, with Gov. McDonnell asking police to review the tapes and investigate. I’m sure there’s more fallout to come from these videos, which are pretty incredible viewing. Read more about the issue at ReformMedicaid.org.

SOURCE: The Project Veritas


THE FEDS ARE BAILING OUT ROMNEYCARE, SO WHO WILL BAIL US OUT?

Cato’s Dan Mitchell writes on a new study in Massachusetts, and what it means for the national health care program:

The Beacon Hill Institute in Massachusetts has just released a very good – but very depressing – study. The research finds that costs have jumped under Romneycare, but that’s not surprising. After all, politicians always underestimate the cost of new entitlements.

The important revelation in this new research is the degree to which the system has been propped up by the federal government (i.e., taxpayers in the rest of the nation).

That’s probably good news for Bay State politicians, who get to shift a fiscal burden to people outside the state. And it’s probably good news for Mitt Romney, because it somewhat disguises the magnitude of the disaster he imposed on the taxpayers of his state.

But it doesn’t bode well for the United States. Who will be available to bail out Obamacare? The Chinese? Martians? The Federal Reserve creating money out of thin air?

Read the Beacon Hill study here.

Source: International Liberty


KASICH ENDORSES EXCHANGE, WHILE OTHERS RESIST

Add Ohio to the list of collaborator states – still a short one among Republicans – for the unsustainable health insurance exchange regime.

Ohio’s John Kasich has joined a short list of Republican governors who oppose the national health law but have decided to follow through on one of its key components – creation of a health insurance exchange where small businesses can compare policies.

The Republican governors of Louisiana, Florida, Texas, and New Mexico have all expressed their opposition to any exchange legislation.

So far, only 10 states have enacted exchange legislation – all signed by Democratic governors, except in Nevada. In some Republican-led states, governors have seized the initiative away from legislators. Indiana’s Mitch Daniels issued an executive order authorizing an exchange. Georgia’s Nathan Deal and Alabama’s Robert Bentley set up exchange study groups. GOP governors in Virginia and North Dakota signed laws establishing their intention to run an exchange.

States that enacted fully compliant exchange legislation include California, Connecticut, Colorado, Hawaii, Maryland, Nevada, Oregon, Vermont, Washington State and West Virginia. In all, legislative attempts to create exchanges were defeated in 11 states, including New Mexico, where Republican Governor Susana Martinez vetoed a bill the Democratic legislature had passed.

For more on this, read my Research & Commentary on the health exchange regs.

SOURCE: Stateline


IT’S TIME TO END THE WAR ON SALT

Scientific American runs down all the reasons why Michael Bloomberg’s salt campaign is foolhardy and anti-science:

For decades, policy makers have tried and failed to get Americans to eat less salt. In April 2010 the Institute of Medicine urged the U.S. Food and Drug Administration to regulate the amount of salt that food manufacturers put into products; New York City Mayor Michael Bloomberg has already convinced 16 companies to do so voluntarily. But if the U.S. does conquer salt, what will we gain? Bland french fries, for sure. But a healthy nation? Not necessarily.

This week a meta-analysis of seven studies involving a total of 6,250 subjects in the American Journal of Hypertension found no strong evidence that cutting salt intake reduces the risk for heart attacks, strokes or death in people with normal or high blood pressure. In May European researchers publishing in the Journal of the American Medical Association reported that the less sodium that study subjects excreted in their urine – an excellent measure of prior consumption – the greater their risk was of dying from heart disease. These findings call into question the common wisdom that excess salt is bad for you, but the evidence linking salt to heart disease has always been tenuous.

SOURCE: Scientific American


SURVEY ILLUSTRATES ACO DIVIDE

A survey of health executives at the 2011 Health Forum-AHA Leadership Summit in San Diego finds disagreement on ACOs:

With an almost even split between joiners and non-participants or undecided respondents, healthcare executives this week revealed their intentions to participate or forgo the accountable care organization (ACO) Shared Savings program at the 19th Annual Health Forum and the American Hospital Association Leadership Summit.

Respondents reported 45.5 percent will definitely join (18.2 percent) or probably will join (27.3 percent). On the flip side, 36.4 definitely will not join (11.4 percent) or probably will not (25 percent). The other 9.1 percent were unsure.

Here’s FierceHealthcare’s brief story. For more on this topic, The Hill has gotten ahold of a copy of a draft proposal for Pioneer Accountable Care Organizations under consideration by CMS.

SOURCE: Hospitals and Health Networks


HEARING ON SMALL BUSINESS AND PPACA

Steve Larsen from CMS and American Action Forum’s Douglas Holtz-Eakin, rapidly becoming the Hill’s favorite testimony-giver, are testifying on Thursday morning at 10:00 am before a House Small Business Committee Subcommittee on Healthcare and Technology hearing titled, “Small Businesses and PPACA: If They Like Their Coverage, Can They Keep It?” It’s being held in room 2360 of the Rayburn House Office Building and will focus on “whether small firms will be able to maintain their existing coverage under [PPACA].”

SOURCE: House Committee on Small Business

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)