Trump's Medical Plan, By The Numbers
The Market Ticker - Commentary on The Capital Markets
2016-03-06 06:00 by Karl Denninger
in Health Reform , 4734 references Ignore this thread
Trump's Medical Plan, By The Numbers*
 

Let's update one of my Tickers from a few years ago.

We're going to use official government figures hereignoring, for now, the private sector.

The figures of note are the following (figures to the nearest billion), out of a total of $3,688 billion.

Military programs: $563 billion or 15%

Social Security Old Age: $741 billion or 20%

Social Security Disability: $146 billion or 4%

Medicare and Medicaid: $1,297 billion or 35% (Medicaid amounts to $350 billion granted to the States (no breakdown on what part is drugs), Medicare Part D (drugs) is $75 billion; the rest is clinical services for the most part -- hospitals, doctors and similar.  S-CHIP, the children's portion, is $9 billion (insignificant) and administrative expenses are about $14 billion total, which is damned efficient -- only 0.4%.  Incidentally I don't believe that figure, but even if it's three times as much it's still damned impressive.)

VA (Veterans Health) approximately $61 billion or 1.7%

SNAP - food stamps -- is $104 billion and is up from last year, despite so-called "improvements" in the job market.  TANF is a separate line item, $16 billion.  Together, 3.3%.

That's where the money goes.  Conflating Social Security and Medicare/Medicaid is the common horsecrap line run by both parties, but it's intentionally dishonest.  Disability is a fraud-riddled mess, but the "old age" part of Social Security is neither going to bankrupt the nation nor is it an immediate budgetary problem.

But the $1,297 billion in Medicare and Medicaid is.

Now let's look at what Trump is proposing against this.

Price transparency in the pharmaceutical area alone would be a monster.  Let's assume that of the $350 in Medicaid 10% is drugs.  That makes drugs a roughly $110 billion annual federal expense.

What happens if you ban the gouging that is done today across the entire medical industry?

Well, let's remember that Medicare is an 80/20 program.  That is, the government pays 80%, you pay 20%.  If you look at the cost of procedures at the Surgery Center of Oklahoma, which I have posted multiple times, you'll find that many of them are about 1/3rd to 1/5th the price of local hospitals.

In other words a very material percentage -- perhaps as much as 80% -- of Medicare's non-drug spending would disappear and your bill as a Senior would drop by the same amount.

That is, of the $872 billion spent now on non-drug services on Medicare, not Medicaid, and we manage only to cut the cost in half, which just takes us to where socialized medicine manages to get in other G8 nations, $436 billion of spending by the Federal Government would disappear each and every year.

In reality competitive markets outperform socialized ones in virtually every case where there are multiple and diverse providers of products and services.  As a result that 50% decrease is ridiculously conservative; I expect we'd achieve 70%, leaving us with just over $600 billion less in Federal spending every year.

Now take the drug side, which is $110 billion and presume that by leveling prices on an international basis (by ripping down the barriers) we also get a 50% savings there.  That's another $50 billion every year and again, that is probably conservative; the actual drop would likely be higher.

Now let's turn to Medicaid.  If we save half under the same approach, and do not drop any of the poor from the rolls (which we should be able to do for the same reason; some currently on Medicaid with this very large drop in price would be able to pay cash) we'd save another $157 billion.

We just generated $800 billion, or $8 trillion over the usual "10 year" period that is quoted, in spending cuts and not one person had one benefit they currently enjoy from the Federal Government touched in real terms.

What's even better is that we did it in one literal day starting on the first day rather than some mythical Unicorn-style belief of savings a decade hence (that have never materialized, incidentally) that the GOP typically puts out in their "budget projections."

It gets better.  The Federal Government, as noted, spent $1,300 billion last year on medical care (ex the VA.)  The economy as a whole spent about $3,420 billion; the other $2,100 billion or so was spent by the private sector.

These same ratios would apply to the private sector and thus you, as a consumer, would see an approximate 10% immediate and permanent increase in your real purchasing power because you would no longer be spending it on health care, either through "insurance" or directly.  If your "health insurance" is through your job you'd get that 10% in the form of a raise as the cost of said insurance to your employer would drop precipitously.

Even better, the benefit would skew wildly toward those in the lower income but insured income brackets (e.g. full-time middle-class workers) because the percentage of your pay that goes to health insurance is much higher than it is for someone who is making $300,000 a year.

Of course the medical, pharmaceutical and insurance industries will scream.  But there's really nothing to scream about; the claim of "charity care" is nonsense in a world where Obamacare and expanded Medicaid exists; you either have one or the other, right?  As for pharmaceutical companies if they charge $2,000 everywhere for Sovaldi or $1,000 in Pakistan and $80,000 here in the United States they make the same money; what they can't do any more, nor can other nations, is soak the United States, effectively forcing our citizens to fund 100% of the development costs for drugs they then get to use.

If you're middle class these changes would mean you would be able to pay cash for anything routine and normal, and catastrophic insurance against the unthinkable (e.g. cancer, etc) will now cost a tiny fraction, 10-20%, of what it does now.  That in turn means you can afford to buy it on the open (cross-state, in Trump's case) market so if Obamacare is repealed even the modest-income household can pay for said catastrophic coverage and cover the rest in cash.

Even having done so you will still be ahead on purchasing power by about 10% if you're in the middle class and quite-possibly materially more if you're in the lower income brackets and have a chronic illness.  If you're wealthy you'll see a benefit too, but on a percentage basis it will be quite a bit less.

And that's just the direct impact on your personal budget that you will see immediately.

The real benefit is the long-term macro-economic benefit that comes from getting rid of federal deficit spending on an immediate and permanent basis.

Because the United States will now be running a roughly $350 billion a year surplus instead of a deficit we will start to retire the national debt.  Yes, it will take decades; four or five to be exact.  But that $350 billion in debt reduction every year means your purchasing power goes up even more; that is, there are fewer dollars in circulation and so each is worth more in goods and services.

This is the invisible benefit but it will accrue to everyone in the United States equally.  Rich, poor, white, black, yellow, green, young, old, doesn't matter -- everyone will see an exactly identical percentage benefit.

How much?  About 2% a year, every year, until the debt is retired.

That's right -- instead of you suffering inflation of the mythical 2% a year and your purchasing power being destroyed you will instead be able to save for retirement and see a 2% compounded improvement in what that money buys without taking any risk in the stock market or even being paid interest at the bank!

Finally, at the same time all of these really good things happen to you personally and the federal budget, state and local budgets, which are under severe pressure due to these spiraling costs embedded in their pension expenses, will all be immediately and permanently returned to a stable state as well.

Now this is, admittedly, assuming that Trump is actually able to implement his proposal and you can bet that there will be a lot of corporations and pressure groups that are going to do everything they can to derail it, especially when it comes to anything that has to pass through Congress.

But I will remind you that while the Executive (which is the part of the government the President controls) cannot make laws it is the Executive's job to enforce laws and there is a large body of law, specifically 15 USC, that makes felonious any attempt to monopolize a market or fix prices.

The executive is empowered to enforce existing laws without any act of Congress whatsoever.

In fact, barring passing a new law there is absolutely nothing Congress -- or the lobbyists -- can do to stop him or any other President from doing so.

The reason none of the recent Presidents have done so ought to be obvious; they, along with Congress, have all been bought and paid for.

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