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Medicare in the State of the Union

Saturday, February 16th, 2013

According to the Nielsen Company, 33.5 million viewers watched the State of the Union speech this week. If you weren’t one of them — or if you were but weren’t paying close attention — you may have missed what President Obama said about Medicare.

The President made three Medicare proposals, which the Congressional Budget Office estimated would bring about $337 billion in savings to the federal budget over the next ten years. The Medicare proposals were contained in this part of the speech –

“We’ll reduce taxpayer subsidies to prescription drug companies and ask more from the wealthiest seniors. We’ll bring down costs by changing the way our government pays for Medicare, because our medical bills shouldn’t be based on the number of tests ordered or days spent in the hospital – they should be based on the quality of care that our seniors receive. And I am open to additional reforms from both parties, so long as they don’t violate the guarantee of a secure retirement.”

Let’s look at these one at a time.

First, “We’ll reduce taxpayer subsidies to prescription drug companies” refers to the Medicare prescription drug program, or Medicare Part D. As we’ve explained here before, Medicare Part D is a cash cow for drug companies. Why? Because the law that created the program forbids the government from negotiating directly with drug companies to get lower prices.

Other parts of the government that do negotiate prices, such as the Veteran’s Administration and Medicaid, pay a fraction of the amount that Medicare pays for the same drugs. Medicaid pays about 45 percent less, on average. If Medicare could cut its drug costs to be in line with Medicaid’s, it easily would save the government billions of dollars every year.

Second, “Ask more from the wealthiest seniors” refers to means testing, or asking higher income seniors to pay higher premiums. This may sound like a good idea, but it’s not without controversy. People who have run the numbers say it wouldn’t generate that much money and it would make the program more complicated.

People applying for Medicaid would have to fill out financial forms, for example, to determine what premium they will pay. Economist Paul Krugman says if you want wealthy seniors to pay more, it would be simpler to leave Medicare alone and just raise taxes on the wealthy.

Third, “We’ll bring down costs by changing the way our government pays for Medicare, because our medical bills shouldn’t be based on the number of tests ordered or days spent in the hospital – they should be based on the quality of care that our seniors receive.”

The Obama Administration has already taken some steps in this direction. At the beginning of this year, Medicare began to phase in a “bundled payment” reimbursement program. Instead of reimbursing doctors and hospitals for every test and treatment procedure, the provider will receive a lump sum to treat the patient’s illness. In pilot programs, it was found that bundled payments discouraged unnecessary procedures without reducing quality of care.

Finally, the President said he was open to other suggestions for reducing Medicare cost. But as he said elsewhere in the speech, the real problem is not that Medicare is too expensive, but that health care is too expensive. There are indications that the Affordable Care Act is beginning to slow the increase in health care costs, but it may take a few years before we see a substantial effect.

Keep in mind that little of what the President said he hoped to do can be done without the approval of Congress, and these days Congress seems unable to approve so much as a lunch menu. The President’s speech did tell us what he’d like to do, however, and it wouldn’t hurt to let your senator and representative know what you think. Whether you are in good health or have a life-threatening illness like mesothelioma, what goes on in Washington does affect you.

Company Profits Versus Consumer and Worker Protection

Monday, February 11th, 2013

Last week, Massachusetts shut down eleven specialty drug labs that failed to pass safety inspection. The drug labs, called “compounding pharmacies,” came under scrutiny after contaminated steroid injections caused an outbreak of meningitis that killed at least 35 people.

Compounding labs are supposed to compound drugs for individual patients, at a doctor’s request. But because they are lightly regulated, the pharmaceutical industry has been using them to make mass-produced drugs on the cheap. And sometimes, those drugs kill people.

According to the Boston Globe, surprise state inspections of 37 of these specialty labs in Massachusetts found only four in complete compliance with state law.  Of the remainder, eleven were shut down temporarily, and twenty-one received citations.

The Washington Post reported that “Compounding pharmacies have been linked to deaths, illnesses and safety failures for years.”

“A Washington Post analysis found that state and federal authorities did little to systematically inspect and correct hazards posed by specialty pharmacies, which custom-mix medications for individual patients, hospitals and clinics. In the lightly regulated industry, pharmacies were rarely punished even when their mistakes had lethal consequences.”

The “lethal consequences” included deaths by drugs contaminated with bacteria and mold as well as drugs that were mixed incorrectly, giving patients a deadly overdose.

It’s not surprising that business hates regulation, because regulations often add to the cost of doing business. And nobody is claiming that all regulations are wise and effective. But what this shows us that at least some regulations are necessary. Because, time and time again, we see that when businesses finds a way around outside oversight and regulation, either their customers or their employees get hurt.

When mine owners are allowed to skirt regulations, miners die. Asbestos manufacturers continued to expose workers to asbestos, putting them at risk for mesothelioma, until most such manufacturing was shut down. And lax regulation of drug manufacturers kills patients.

There’s a common libertarian argument that companies don’t need to be regulated, because a good businessman wouldn’t do anything reckless or careless that would ruin his company’s reputation or make customers wary of his products. And that makes a lot of sense. But in the real world, businesses take chances all the time. It’s too tempting to cut a corner here or there to squeeze more profit out of the products.

You might ask, is the problem the regulation or the regulators. The answer is, probably a little of both. In the case of the Massachusetts pharmacy that caused the meningitis outbreak, federal and state officials said they lacked clear authority to take action. The regulatory laws are archaic and don’t fit the realities of the modern pharmaceutical industry, they said.

Another common problem is that the people appointed to head regulatory agencies often are from the industries they are supposed to be regulating.  This creates a phenomenon called “regulatory capture.” Through capture, regulatory agencies come to be dominated by the industries they are regulating. Then the agencies tend to work on behalf of the industries rather than the public. The result is that the agencies tend to look the other way as the industry takes chances with peoples’ lives and health.

Will Health Insurance Premiums Get More Expensive?

Wednesday, February 6th, 2013

The last post described panic over the cost of health insurance. If you get your heath insurance through an employer or Medicare, you may not realize that most of the cost of your policy is picked up by someone else, either your employer or taxpayers. Believe it or not, in 2012 the average cost of an employee benefit health insurance policy for a family of four approached $16,000 a year.

A few weeks ago, Aetna CEO Mark Bertolini caused a stir when he said “Obamacare” would push the cost of health insurance even higher. “In some markets,” he said, premium increases could “go as high as 100 percent. And we’ve done all that math. We’ve shared it with all the regulators. We’ve shared it with all the people in Washington that need to see it. And I think it’s a big concern.”

Writing for Forbes, Rick Ungar says Bertolini based his prediction on three factors: First, a new tax is being placed on health insurance company sales. Second, Obamacare limits insurance rating, meaning the insurance companies can no longer charge a 50-year-old as much as ten times more in premiums than a 20-year-old, just because of age. And third, insurance offered on the insurance exchanges must contain a minimum standards of benefits.

Let’s look at these one at a time. First item: The sales tax would amount to 1.9 percent to 2.3 percent of premiums in 2014, going up to 2.8 percent to 3.7 percent by 2023. Not exactly ruinous, however much the insurance industry might object.

Now, on to the second item. Beginning next year, insurers selling personal or small group policies must use an adjusted community rating system, or ACR, to set the cost of policies. This means the cost of the insurance must be spread out equally among a community, which would be the area in which that insurance is offered. Within the community, a healthy 55-year-old nonsmoker and a 55-year-old nonsmoker with mesothelioma would pay the same amount for their premiums.

Policy prices may be adjusted depending on family size, where the individual lives, and whether he or she smokes. Insurers may also adjust policy prices for age, but within limits. Right now, in some states older policy holders pay as much as ten times more than younger ones, just because of age. Beginning next year, the oldest policy holder cannot be charged more than three times what the youngest one pays for premiums.

The insurance industry has flooded the nations op-ed pages with warnings that insurance premiums for some younger people will go up. Yes, but by the same token, insurance premiums for some older people will go down.

Now for the third item — this applies to insurance purchased on the exchanges, which is estimated to be fewer than 9 percent of all policies. Most of us will still get our insurance through employers, or from a program like Medicare or Medicaid. Many states already regulate what minimum coverage a health insurance policy must provide. However, some do not, and in those states insurers have been making a tidy profit selling policies with big holes in coverage — for example, “obstetric benefits” that don’t pay for the mother’s hospital costs, leaving the new parents with a five-figure bill to pay. Yes, that happens.

The Congressional Budget Offices continues to estimate that the cost of larger group policies won’t be much affected by the new law, and that the cost of small group and individual policies will be affected only slightly. Next year, we will see who is right.

People Are Panicking Over Obamacare

Monday, February 4th, 2013

The Affordable Care Act, or “Obamacare,” goes completely into effect in less than a year. Unfortunately, large parts of the American public still don’t know what’s going to happen.  As a result, rumors and misleading news stories are sending people into panics.

For example: Last week CNS, Conservative News Service, released a story headlined “IRS: Cheapest Obamacare Plan Will Be $20,000 Per Family.” Countless websites and internet forums promptly caught on fire, so to speak. Many people assumed the story was telling them they would be forced out of whatever insurance they already had and compelled to spend $20,000 a year for the “Obamacare” policy. Is that true?

The $20,000 figure came from an IRS brochure explaining how penalties for not purchasing insurance will be calculated. The $20,000 figure is a round number used to explain the calculation, not a determination that’s what the insurance would cost. The brochure assumed that in 2016, an average individually purchased policy for a family with two adults and three children would cost about $20,000 a year.

If that sounds like an outrageous amount of money, you are right. But that’s because health care in the United States costs an outrageous amount of money. And in some states the cost of privately purchased family HMO plans already far exceed $20,000 a year.

Nearly a year ago, the consulting firm Milliman reported that in 2011, healthcare costs for a family of four covered by a preferred provider plan (PPO) were $19,393, and projected those costs would exceed $20,000 in 2012.

Workers with health care benefits paid an average of $360 a month in premiums for a family of four in 2012, according to the Kaiser Family Foundation. But the actual cost of an average policy for a family of four in 2012 was $15,745 a year; employers paid for most of the costs of the policies (which is why it’s called an “employee benefit”).

Many employees are unaware that their employers are paying 75 to 85 percent of the cost of their health benefits. So panicky bloggers feared “Obamacare” would take away their $360-a-month benefits and make them pay $1,666-a-month for an “Obamacare” policy.

But “Obamacare” won’t be selling health insurance policies. These are the prices the private market is setting for insurance, not the government. And in spite of a lot of other rumors to the contrary, most employers offering health care as a benefit this year will still be offering it next year, and for the foreseeable future.

The fact is, people who don’t get health insurance through employers or through some other group plan already are paying as much as $20,000 or more for private family insurance. Right now, a family of two adults and three school-age children living in Westchester County, New York, must pay a whopping $4,754.66 a month — $57,056 a year — for an Empire Blue Cross HMO plan.

Costs of private plans usually are much higher than group plans, although by how much varies by state. One reason New York insurance is expensive is that under most circumstances companies selling health insurance in New York cannot refuse to insure someone with a pre-existing condition (although costs to treat the pre-existing condition may not be paid by insurance for the first few months of the new policy). But even someone with a life-threatening condition such as mesothelioma usually cannot be turned down for private health insurance in New York. In other states, even comparably trivial and temporary medical conditions can make one un-insurable.

However, beginning January 2014, insurers throughout the United States will no longer be able to refuse to insure people with pre-existing conditions. Does that mean your insurance will go way up, too? We’ll look at that in the next post.

Texas Tort Reform Is Hurting Texans

Friday, January 25th, 2013

By most measures, no state has embraced the “tort reform” cause more than Texas. There’s not much further Texas can go, short of banning personal injury lawsuits altogether. Now some Texans are paying a price.

In 2010, Texan Connie Spears sought relief from leg pain at a south Texas hospital emergency room. She told the ER doctors she had a history of blood clots. The doctors decided something else was causing her pain and sent her home without treatment for blood clots.

Ms. Spears’s condition grew worse, however, and a few days later she was admitted to another hospital with severe damage caused by a blood clot. The doctors had to amputate her legs to save her life.

As reported in the Texas Tribune, Ms. Spears life was upended by more than the loss of her legs. Medical negligence took her legs, and now Texas “tort reform” laws have taken her retirement savings and possibly her home.

Struggling with her new life in a wheelchair, Ms. Spears understandably wanted to receive some compensation from the hospital that failed to give her the treatment she needed. But because of Texas law, one lawyer after another refused to take her case.

Why? Texas law has made it nearly impossible to find emergency room personnel guilty of malpractice. To win a lawsuit, the plaintiff has to prove that an emergency room physician intended to cause harm. Just being negligent or careless or incompetent or incapacitated doesn’t count. And, obviously, it’s just about impossible to prove what the doctor intended, since it is unlikely anyone would write “let’s harm this patient” on a chart.

Emily Ramshaw wrote for the New York Times (”State’s Tort Reform Makes Lawyers Wary of Taking on Patients“), “Malpractice lawyers say this is a near-impossible threshold to meet. ‘You’d have to be a Nazi death camp guard to meet this standard,’ said Jon Powell, a malpractice and personal injury lawyer based in San Antonio.”

Eventually Ms. Spears found a lawyer who would take the case. But the case stumbled over another provision in the Texas tort reform law.

Texas tort law says the plaintiff must find a practicing or teaching physician in the same specialty as the defendant to serve as an expert witness.  If the plaintiff fails to produce such a witness within 120 days of filing a suit, the plaintiff not only loses the case but must also compensate the defendant for his legal expenses.

Ms. Spear’s attorney produced an expert witness report that, apparently, failed to meet the requirements of the law. And he could not produce another one within the 120 days. And a judge ordered Ms. Spears to pay thousands of dollars in compensation to the defendants in the case. Now her retirement savings are gone, and she is afraid she will lose her home.

Texas politicians and “tort reform” organizations — largely “astroturf” groups funded by industries trying to evade liability — claim that tort reform has reduced health care costs and brought more physicians into Texas. Independent analysts say both claims are false. Texas tort reform laws have not lowered health care costs and have not increased the number of physicians opening practices in Texas. And you can bet that it isn’t improving the quality of medicine, either.

Tort reform laws are not just about malpractice. Any of us might be injured by a product we buy or in an unsafe workplace. The most injured, such as people who suffer mesothelioma from exposure to asbestos, really need what damages they might receive to take care of themselves and their families.

Ms. Spears says she used to take care of her elderly mother. Now she needs assistance herself, just to shower and go to the bathroom. Texas is taking that away from her.

What If Your State Doesn’t Expand Medicaid?

Monday, January 21st, 2013

The last post was about state governors who are refusing to expand Medicaid. The Medicaid expansion is part of the Affordable Care Act, or “Obamacare,” although states cannot be compelled to take part in it.

If you live in one of those states — Alabama, Georgia, Idaho, Louisiana, Mississippi, Oklahoma, South Carolina, South Dakota, and Texas, with possibly more to come — you may think this decision won’t affect you if you aren’t on Medicaid. But it will.

For example, hospitals and nursing homes in the “no expansion” states are going to be heavily penalized. As part of the 2010 negotiations over “Obamacare,” hospitals and other providers agreed to lower Medicare reimbursement payments. In return, it was promised that most people will have insurance, either private or provided my Medicare, Medicaid, or other program.

Uninsured people who can’t pay their hospital bills are a big driver of hospital costs, because hospitals jack up everyone else’s bills to pay for the uncollected ones. This is a particularly acute problem in Texas, where a full 25 percent of the population is uninsured. If the uninsured rate in Texas remains high after reimbursement rates go down, hospitals will be in big trouble.

So even if you are not a Medicaid patient, a state’s turning down the Medicaid expansion program could compromise the work of hospitals, nursing homes, and other facilities in ways that could result in poorer care for all patients — smaller staffs, fewer new technology whiz-bangs, etc. Whether you are currently healthy or have a severe medical condition such as mesothelioma, somewhere down the line this could impact you or those you love.

Jonathan Cohn wrote in The New Republic, “If states decline the new Medicaid money, as Perry is threatening, providers will get absolutely hammered, with consequences not just for them but for their patients and for the people whose taxes and premiums finance them.”

Taxes? Premiums? Yes, the more uninsured, the higher the premiums for those with insurance, and the more hospitals and other health care facilities have to rely on taxes to keep going. Rick Ungar wrote in Forbes that Texas governor Rick Perry’s refusal to comply with the Medicaid expansion will result in increased health insurance premiums for all Texans and increased property taxes for home owners.

If you are opposed to big “entitlement” programs on principle, refusing to expand Medicaid may seem like a good idea. You may think this will save you from paying more taxes. But if you are a taxpayer with health insurance, you’ve been paying for the care of indigent patients for many years, in a grossly inefficient way. And if hospitals will be getting less Medicare money without a reduction in the number of uninsured patients, you could end up paying more.

And, so far, we haven’t talked at all about the poor, who will pay the biggest burden. The “working poor” will be especially hard hit. These are people in low-wage jobs with no insurance benefits; they can’t afford private insurance but aren’t poor enough to qualify for Medicaid. The Medicaid expansion, which raises the income level at which one may qualify, is meant to help this group in particular.

What makes this situation especially frustrating is that the Medicaid expansion actually is a sweet deal for states. Awhile back Ezra Klein wrote for the Washington Post website that the federal government was making an offer states could not refuse. The “feds will cover 100 percent of the difference between wherever the state is now and where the law wants them to go for the first three years, and 90 percent after 2020.”

In other words, the states are turning down a program that will cost them nothing for at least three years, and in doing so they will cause their citizens to pay higher taxes and insurance premiums. Way to go.

Pushback Against Medicaid Expansion

Wednesday, January 16th, 2013

The Affordable Care Act (ACA) — or “Obamacare” — goes fully into effect in January 2014. The bill is expected to slow the rate of increase in health care costs and enable more than 30 million Americans to obtain health insurance who don’t have it now.

Republicans trying to stop Obamacare have been stymied at every turn. Now there is nothing to stop the law from going into effect next year. However, Republicans may be able to sabotage Obamacare to be sure it fails to deliver what it promises. As part of this strategy, some Republicans governors are refusing to comply with the ACA’s expansion of Medicaid.

The ACA is something like a complex machine with many parts that have to work together for maximum efficiency. For example, beginning next year insurance companies will no longer be able to refuse to insure people with pre-existing conditions. This is a benefit many people have needed for a long time. Even if you’ve been diagnosed with a life-threatening disease such as mesothelioma, you will still be able to get insurance.

In order to make this possible, it was necessary to mandate that most people obtain insurance, because otherwise everyone would wait until they got sick to get a health insurance policy. That would be ruinous to the insurers.

For the individual mandate to work, some provision has to be made for poor people who can’t afford insurance. So, the ACA includes several ways  to help low-income people, and among these is an expansion of Medicaid. The ACA provides that people under 133% of the federal poverty level (about $14,050 a year income for a single adult) are eligible for Medicaid.

Medicaid is administered jointly by the states and the federal government, and states have had some leeway to decide who among their citizens is eligible. In most states low-income adults with no dependent children have not been able to qualify, no matter how poor they were. About 45 percent of Americans living below the poverty line have no insurance.

So states have to comply with the expansion, right? Well, no, they don’t. Last year’s Supreme Court decision that upheld most of the Affordable Care Act said that the federal government could not compel a state to expand its Medicaid program.  So, as of this writing, the following states have announced they will not expand Medicaid –  Alabama, Georgia, Idaho, Louisiana, Mississippi, Oklahoma, South Carolina, South Dakota, and Texas. Several other states are leaning toward refusing to expand.

This means that not as many people as expected will be able to obtain insurance. This also means that the cost of insurance will be higher for everyone. Why? When poor people eventually do go to emergency rooms to get treatment, everyone else’s bills are padded to cover the cost of their care. If enough state governors refuse to expand Medicaid, this means the ACA will work far less efficiently to cover more Americans and keep health costs under control.

And if the sabotage works well enough, then maybe Republicans can scrape together the political capital to get rid of the law.

The states complain that expanding Medicaid costs too much. But the ACA says that the federal government will pay 100 percent of the cost of expansion until 2017, and 90 percent after that.  This pumps a lot of money into state economies, and much of that money will go to hospitals and nursing homes. It also helps to pay for training new doctors. States refusing this money are being very foolish, and their citizens will pay for their foolishness.

The New Nullification Crisis

Friday, January 11th, 2013

After Republicans failed to prevent the Affordable Care Act — “Obamacare” — from passing into law in 2010, they hoped the Supreme Court would find it unconstitutional. However, last year in a 5-4 decision the Court refused to overturn all but a small part of the health care law.

House Republicans have passed more than 30 bills repealing “Obamacare.” Representative Michele Bachmann of Wisconsin recently introduced the 35th Obamacare repeal bill. But as long as Democrats hold the majority in the Senate and Barack Obama is President, such bills don’t have a prayer of ever being law.

Now the fight to repeal Obamacare is mostly being fought by a number of Republican governors, who want to “nullify” the Affordable Care Act by refusing to comply with it. Can they do this? And if they can, how will it impact your access to health care?

Remember, the ACA provides that insurance companies can no longer refuse to insure people with pre-existing conditions, including devastating diseases such as mesothelioma. But for this to work, most people will be required to obtain affordable insurance. The nullifying governors could make obtaining insurance a lot harder.

There is a long-standing theory that states have the authority to nullify, or repeal within its borders, a federal law the state thinks is unconstitutional. This theory was supported by some of the Founding Fathers, including James Madison and Thomas Jefferson, and rejected by others. However, it is not spelled out anywhere in the Constitution, and the Supreme Court has never supported it.

In the 19th century a few states attempted nullification of laws they didn’t like, and each time the courts rules that the state must comply with the law. The most famous attempt happened in 1832, when South Carolina passed an Ordinance of Nullification. The ordinance declared that federal tariff laws of 1828 ad 1832 were unconstitutional, and those tariffs would not be collected within the borders of South Carolina.

President Andrew Jackson prepared to enforce the tariff laws with federal troops. At the same time, however, Congress negotiated a new tariff that South Carolina found less objectionable. South Carolina repealed its nullification ordinance, and both sides claimed victory.

Not counting the Civil War, which was something like nullification on steroids, after 1832 the nullification theory seemed to fade away. It was resurrected in the 1950s, however, when some southern states resisted federal school desegregation orders. As they had more than a century earlier, courts sided with federal authority and denied that the states had the power to nullify a federal law.

Now it’s 2013, and in 12 months the Affordable Care Act will be fully in effect.  Some state legislators have filed nullification bills against the ACA. For example, state Rep. William Chumley of — no surprise — South Carolina has introduced a bill that would make trying to implement the ACA in South Carolina a felony punishable by a fine and imprisonment. So far, these bills have not yet been passed into law.

However, several governors have said they will attempt to stymie Obamacare in other ways. First, they say they will make no effort to set up the state insurance exchanges intended to help people find affordable insurance. Second, they say they are refusing to expand their Medicaid programs as called for in the federal law. That last provision was one part of the law that the Supreme Court said could not be forced on the states.

The resistance to exchanges is only a symbolic gesture. If the states don’t establish exchanges, the federal government will step in and set one up for them. Ironically, this will give the federal government a bigger, not smaller, presence in that state’s insurance programs.

The refusal to expand Medicaid could have more serious effects. These states are forfeiting millions of dollars in federal funds, which not only hurts the poor but also deprives hospitals and nursing homes of needed revenue. We’ll look at this in more detail in the next post.

On to the Next Crisis

Thursday, January 3rd, 2013

President Obama has signed the “stop the fiscal cliff” bill. Because of the bill, most of us won’t see an increase in federal income tax, and physician Medicare reimbursement will not drop a ruinous 27 percent. At least, not this year.

However, for the next two months, expect Washington politicians to be fighting tooth and nail over two items the bill left unresolved — sequestration and the debt ceiling. It is yet possible that Medicare funding will be a casualty of the battles politicians will wage over these critical issues. This could create medical hardship for many seniors, including those with severe illnesses such as mesothelioma.

“Sequestration” refers to the automatic spending cuts that were to take effect January 1 as part of the “fiscal cliff.” Congress kicked that can down the road, to March 1.

The sequestration cuts were designed to enforce federal budget savings of $1.2 trillion through 2021. For 2013, this would mean a $55 billion cut in defense  spending and a $55 billion cut in non-defense spending.

The cuts in domestic spending include a 2 percent cut to the Medicare budget, which would come out of physician reimbursement, plus cuts to programs like Head Start. The defense spending to be cut includes money used for research and development as well as to keep military bases open and pay salaries. There is real concern that these cuts would damage national security.

The bill that created the sequestered spending cuts was voted into law in August 2011. By all appearances, Congress is no closer to coming to any agreements about the cuts than they were 17 months ago. Again, if nothing is done, the cuts go into effect beginning March 1.

The other ticking political bomb is the debt ceiling.  The Treasury Department says the debt ceiling must be raised by no later than the end of February, or the nation will go into default.

The debt ceiling is a kind of accounting device that Congress created almost a century ago. The Constitution requires the Treasury Department to get approval from Congress to borrow money to pay the nation’s bills. In 1917, Congress began to give Treasury blanket approvals to borrow money up to a limit — the debt ceiling.

It’s important to understand that raising the debt ceiling does not give Congress permission to spend more money; it is an authorization that enables the Treasury Department to pay for what Congress already has spent. Not raising the debt ceiling will not stop the federal government from spending money. It would just make it impossible for Treasury to pay all the bills.

Until recently, Congress has passed debt ceiling authorizations every few months with little fanfare. In 2011, however, Republicans in the House and Senate saw an opportunity to enforce cuts in entitlement programs they oppose. They refused to approve raising the debt ceiling without big cuts in benefit programs, including Social Security and Medicare. Several days of negotiation took the nation to the wire; on the very day the nation was going to go into default, the debt ceiling was raised in August 2011.

But the price for Republican votes was the bill that created the fiscal cliff. And Standard & Poor’s downgraded the  nation’s credit rating anyway, for the first time in the country’s history.

Well, we’re about to go through the same drama again. Washington Republicans are vowing to take the economy to the brink of disaster one more time in order to get more cuts in domestic spending. And among the programs they want to cut — they call it “reform” — are Medicare and Social Security.

The Senate Makes a Deal

Tuesday, January 1st, 2013

In the early morning hours of January 1, 2013, the U.S. Senate passed a bill to stop the nation from going over the “fiscal cliff.” Strictly speaking this was a bit late, since the deadline was midnight. But quick approval of the Senate’s bill would go a long way toward softening the landing.

However, the bill needs the approval of the House of Representatives, and as of this writing it is not at all clear the House will approve. According to several news stories, conservative Republicans in the House are furious because, they say, the bill raises taxes without cutting spending. This is not entirely accurate; the bill does call for spending cuts but leaves many details to be worked out in a future bill.

In fact, the bill has received mostly negative reviews from across the political spectrum, except in the Senate, which passed it by 89 to 8 votes. Progressives  for example, are grumbling because the bill raised the upper threshold for preserving the Bush-era tax cuts from $250,000 to $400,000 ($450,000 for families).

So, while House Republicans complain that the bill amounts to a surrender to the Democrats’ demands, liberals are angry that “Obama caved” to placate Republicans.

What’s in the Senate bill? Beside the already-mentioned increase on marginal tax rates on income above $400,000, here are some of the major provisions –

The Senate bill provides for the 2013 “doc fix.” The “doc fix” is a legacy of a 1997 bill that tied Medicare physician reimbursement rates to a formula based on economic growth. Ten years ago Congress realized the formula would leave Medicare grossly underfunded, and so every year since a “doc fix” bill has been passed to override the formula for one year.

The last “doc fix” bill expired on December 31, and if the “fix” isn’t passed, Medicare payments to health care providers will be cut by a whopping 27 percent. This potentially could cut many seniors off from health care, including seniors with life threatening illnesses such as mesothelioma.

The Senate bill extends the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit for five years. These are credits that are especially helpful for low-income taxpayers. The Senate bill also extends federal unemployment insurance for another year.

What doesn’t the Senate bill do? The budget cuts scheduled to go into effect January 1 have been postponed two more months. The bill provides for some other cuts and tax adjustments to pay for the delay, but these cuts are still going to have to be addressed in another bill.

The payroll tax holiday was not renewed, so FICA deductions from paychecks will go up.

Perhaps the most troublesome omission is that nothing was done about the debt ceiling. The Treasury Department will need the debt ceiling raised soon in order to pay the nation’s bills. If the debt ceiling is not raised it would throw the nation into default and cause severe, long-term harm to the nation’s economy. House Republicans want to hold the debt ceiling hostage in order to extort cuts in “entitlements” like health care, including Medicare.

As of this writing, House Republicans are considering changing the Senate bill to include more specific spending cuts. If they do this, the bill would have to go back to the Senate for another vote, and some senators are saying they would not support a bill that changed the agreement already made.