–Monetary Sovereignty for Young People, Part 5. Medicare

Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

Much of what I told you about Social Security, also applies to Medicare.

–The U.S. federal government became Monetarily Sovereign on August 15, 1971.

–Our Monetarily Sovereign government has the unlimited ability to create dollars (that’s part of what “Monetarily Sovereign” means)

–So, the government neither needs nor uses dollars sent to it by anyone. It doesn’t need or use tax dollars; it doesn’t need or use borrowed dollars. Taxing and borrowing are relics of our monetarily non-sovereign, pre-1971 days.

–The 1.45% of your salary you pay for Medicare, and the 1.45% your employer pays, are wasted. You and your employer might as well burn a week an a half’s worth of your salary. Federal taxes do not pay for federal spending (though state and local taxes do pay for state and local spending. The states, counties and cities are not Monetarily Sovereign.)

In Part 4, I referred to Social Security as “one of the crown jewels of American society. Medicare is another such jewel, a vital benefit to Americans.

Only the wealthiest among us can afford to pay for health care, particularly for serious illnesses, and particularly as we move into our more senior years. Then, not only are we weaker and more subject to disease, but our incomes usually are lower.

It is difficult to imagine anyone in America believing Medicare should be eliminated or even cut, although the Tea/Republican party wishes to cut federal payments, which inevitably will cut services, both in quality and quantity.

The alternative to having health care insurance is:

1. Poorer health, when people cannot afford regular visits to doctors, and cannot afford to take timely tests and cannot pay for suggested procedures and/or

2. More costly health care, as untreated diseases become more serious and more costly to treat. Also, the poor, instead of visiting doctors, are forced to visit free emergency rooms, which not only are more expensive, but move the cost to the bill-paying public.

“One measure of a government is how well it provides for its citizens.” Yet, the wealthiest nation on earth, neither provides the best health care, nor the most comprehensive health care.

In 2000, the The World Health Organization ranked the health care of 190 nations. Frankly, I don’t know their criteria, and I always am suspicious of such rankings, but the United States was ranked #37, just behind Dominica and Costa Rica, and just ahead of Slovenia and Cuba.

Our Medicare doesn’t cover all medical bills. Many Americans purchase Medicare supplement policies as well as Part D for prescription drugs. And coverage is limited to older people.

Younger people must be employed by a company that offers group health care insurance or must purchase it on their own. Most companies require employees to pay for part of the group policy, a significant expense for working people.

Purchasing health care insurance, when not part of a group, is expensive. Losing your job means losing your coverage as well as the income to pay for it – a double problem.

People who have a “pre-existing condition,” either from sickness or accident, are precluded from buying their own health care insurance. The Patient Protection and Affordable Care Act (Obamacare) is designed to help these people. However the Supreme Court, which has a conservative majority, either may eviscerate or completely destroy this program. As this is written, we are awaiting results of its deliberations.

It commonly is believed the threat of lawsuits raises the cost of healthcare, by increasing malpractice insurance premiums and by forcing doctors to order unnecessary tests. I’ve not seen data to support either, though I won’t deny both possibilities.

But, if a doctor’s malpractice causes physical injury, what is the correct settlement? How much would you accept to lose a leg? An eye? Your life? And which tests are “unnecessary”? There are no simple answers to these questions.

So, in summary:
1. Many Americans cannot afford to pay for health care insurance.
2. Many Americans have pre-existing conditions, so are refused coverage by insurance companies.
3. Available health care insurance, including Medicare, does not provide full coverage of all costs. These costs may be unaffordable for many Americans.
4. The population is aging, which increases the nation’s need for health care insurance.
5. Health care costs are increasing.
6. Businesses have begun to charge employees more and more for group coverage, an increasing burden on the average American.
7. The cost of malpractice insurance can be high, a burden that doctors and hospitals must pass on to their patients.
8. The Supreme Court may overrule some or all of “Obamacare,” because the program requires all Americans to pay for health care insurance.

There is a simple answer to every one of the above problems: The United States government should provide free, comprehensive Medicare coverage to every American, regardless of age or even citizenship.

This would have the following benefits:

–It would this solve #1 – #8, above.
–It would end the need for Medicaid, a huge burden on our financially weak, monetarily non-sovereign states.
–It would eliminate the requirement that hospitals provide free service to patients who cannot afford to pay, and pass these costs on to the bill-paying public.
–It would put dollars into the pockets of the poor and middle classes.

Here are very rough calculations of costs:

–The U.S. has 313 million people, of which 272 million (87%) are 65 years old or less (Census Bureau).

–Medicare will cost the federal government $480 billion in 2012. (http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/health.pdf).

–Medicaid will cost the federal government $265 billion this year, which accounts for 55% of total Medicaid costs (the states pay 45% on average). Total Medicaid cost: $480 billion.

–The total cost of Medicare and Medicaid (including the states’ share) is $960 billion.

–The elderly (age 65 and over) totalled 13% of the U.S. population in 2002, but they consumed 36 percent of total U.S. personal health care expenses. (http://www.ahrq.gov/research/ria19/expendria.htm#HowAre)

–All else remaining the same, if the U.S. government were to provide Medicare for everyone in America, and eliminate FICA, and eliminate the Medicaid burden from the states the total Medicare cost to the federal government would be $2.7 trillion, and the total deficit would rise to $4 trillion.

–Can the federal government afford to eliminate FICA and eliminate the states’ responsibility for Medicaid, and provide Medicare for everyone in America? Clearly, the federal government, which has the unlimited ability to create dollars, can pay for anything.

So we are left with just one question and it boils down to inflation: Should the federal government pay for Medicare for everyone? Will this amount of spending cause inflation?

No one can say with certainty. Here are the federal deficits for the past six years:
2007: $0.16 trillion
Deficit triples
2008: $0.46 trillion
Deficit triples again
2009: $1.4 trillion
2010: $1.3 trillion
2011: $1.3 trillion
2012: $1.3 trillion

In 2008, the deficit tripled. The deficit tripled again, in 2009. Many people would have predicted that tripling the deficit (twice!) surely would cause massive inflation.

Instead, the economy has flirted with deflation, not inflation, and the government has had no difficulty paying its bills. This is in keeping with history, which shows that energy prices, not federal deficits, have caused inflation. And of course, our Monetarily Sovereign government never has, and never can, run short of dollars to pay its bills.

No one knows whether a $2.7 trillion addition to the budget, which once again will triple the deficit, this time will cause inflation. History says, “No.”

But we know for certain that eliminating FICA, eliminating the states’ Medicaid burden and providing Medicare for everyone will stimulate the economy, save the states from financial disaster, and improve the overall health of America.

When comparing a “maybe” with a certainty, I lean toward the certainty, and would begin the process first by eliminating FICA, then by paying for Medicaid and finally by providing Medicare to every American, by working down the age ladder, perhaps in 10-year increments.

The schedule would be dictated by inflation. If we see that the first step doesn’t cause inflation, take the next step. If inflation arises, raise interest rates. As a last resort, stop the process or increase taxes.

We should not allow the fear of a possible inflation prevent us from doing what definitely is right for the economy and for the health of Americans.

Rodger Malcolm Mitchell

No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports


8 thoughts on “–Monetary Sovereignty for Young People, Part 5. Medicare

  1. Rodger,

    I thought I read somewhere that the health insurance industry spends $300 billion in qualifying and denying coverage. That number sounds too big (horrifyingly if true), but I’m sure whatever the number is, it is quite large. Add to that all the lost productivity at every private company that must spend time managing the purchase and provisioning of coverage for all their employees. Then add to that all the individuals who stay at dead end jobs or jobs that are ill-suited to their skills or who are afraid to take that bold leap into a new venture solely because they’re afraid to lose their employer provided coverage. The potential productivity that could be unleashed if the current system were to be replaced by your suggestions seems like it would “pay for itself.” I’m sure the neo-conservatives naysayers out there would like that.


  2. I like reading you emails but I don’t agree with everything you say. I understand monetary sovereignty but this doesn’t mean unlimited amounts of money can be created.

    Why doesn’t the government just create enough money to give everyone enough so they can pay for whatever they want or need. Everyone could have a good annual income and not even have to work. Just let the government create money.

    You really believe there is a free lunch. Wrong!


  3. No one knows whether a $2.7 million addition to the budget, which once again will triple the deficit, this time will cause inflation. History says, “No.”

    Please correct to say trillion.. Sorry to pick at nits..


  4. What would the cumulative effect of the added deficit be to the economy after a few years? I understand and advocate enough stimulus/deficit spending to get the economy back onto an even keel. I can even identify with the idea of providing everyone to access to essentially free health care services. After the initial $2.7 trillion is used to pay for healthcare, where would it go? It would flow through institutions and individuals into other sectors and into savings channels. What precautions would there be against the formation of bubbles?

    We could look at that money as the personal savings of individuals who no longer have to pay out of pocket, pay Medicare/Medicaid taxes, or who contribute a portion of their salaries to their insurance coverage. What effect would that amount have on the economy?

    I started writing this response to play devil’s advocate… but now I think I’ve answered my own questions…

    People would spend more… probably a lot more. Bigger houses, more home furnishing, more cars, more vacations, and frequent more restaurants. All of this would mean many, many additional jobs. Productivity and the tax base would increase so that tax receipts may increase so much that the additional deficit may actually begin to shrink.

    It really seems obvious that the current employer-based health insurance model is a straight-jacket on the economy. It restricts employee freedom and discourages individuals to freely market their skills on the open employment market. It is a burden to all business to manage a process that is so unrelated to their core business. It is ironic that the pro-freedom, pro-business conservatives are so in favor of keeping the current set-up.


  5. broll,

    Good analysis.

    BTW, “bubbles” are not a reflection of too much money in an economy. They are a reflection of misdirected money. Even a poor nation can experience a bubble, if everyone decides to put their meager wealth into tulip bulbs.


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