Tag Archives: deficit commission

01.14.2011 | How Much Should Grandma Pay?

When your Grandma gets her yearly physical, the doctor gets a check from the government. Did you ever wonder, though, who decides how much?

Because she had to sign up for Medicare at 65, the market did not decide the price and neither did her doctor. Instead, The Wall Street Journal tells us it was RUC.

RUC????

The Relative Value Scale Update Committee

Composed of 29 physicians, RUC provides a suggested price list to the federal commission that creates the Medicare Physician Fee Schedule. The WSJ says that 90% of the recommendations are followed.

Rather than the market, a committee selects the prices that convey information and incentives. Your opinion?

The Economic Lesson

Why should we care about Grandma and the doctor? Because Medicare spending now is close to 12% of the federal budget. With 30 million or so baby boomers expected to pour into Medicare during the next 10 years, and 40 more million close behind, spending will skyrocket.

What to do? Called “The Moment of Truth,” President Obama’s deficit commission report suggests that instead of pursuing “phantom savings,” Congress should implement “common-sense reforms to physician payments, cost-sharing, malpractice law, prescription drug costs, government-subsidized medical education, and other sources.” You can look at the report here.

Posted by: adminEcon
Tags: baby boomers, deficit, deficit commission, Medicare, price system, RUC
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11.13.2010 | What Should Government Pay For?

Topping its front page with “CUT, RAISE, RAISE, LOWER, REPEAL, SCRAP, CUT, CUT,” The Wall Street Journal told readers some of the new deficit commission’s proposals. 1) For defense spending, the cut would be $100 billion. 2) The Social Security age would rise to 69 by 2075. 3) The gas tax would go up 15 cents. 4) The corporate tax rate would go down to 26%. 5) The alternative minimum tax would be repealed. 6) There would no longer be deductions for mortgages over 500k. 7) The federal work force would be cut by 10%. 8) Farm subsidies would drop by $3 billion.

For each proposal, already, a mountain of pro and con opinions is building. For example, just for changing the Social Security retirement age, the list of arguments on both sides is long because affluence, health, job history, and gender all relate to how Social Security impacts you. Supporters point out that when Social Security was passed in 1935, the average life span was, at 61.7, 3.3 years less than the retirement age. In 2035, 20% of the U.S. population is projected to be 65 or older. Responding, economist Paul Krugman says, “working until you’re 69…is a lot harder…for…Americans who still do physical labor.” Also, he says that high earners live longer.

The Economic Lesson

Defined on Planet Money, a public good is “something that we all need that will make our lives better, but the market will not and cannot provide.” Podcast examples included lighthouses and autopsies.

Should government pay only for “public goods?” We would not have a deficit problem.

Posted by: adminEcon
Tags: deficit commission, fiscal policy, retirement, social security
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