Obameter #58: Expand SCHIP

After the failure of the Clinton health care plan of 1993, First Lady Hillary Clinton was looking for a smaller health care plan that would be more acceptable to Republicans and, thus, could potentially be passed into law. Specifically, she wanted a program to insure children whose families were only barely ineligible for Medicare. At the same time, Senator Ted Kennedy (D-MA) was looking to expand his home state's children's health care plan to a national scale, paying for it with an increase in cigarette taxes. Having convinced his friend from the other side of the aisle, Orrin Hatch (R-UT), to co-sponsor the bill (something which conservatives nationally wouldn't forgive him for until his adamant defense of Supreme Court Nominee John Roberts in 2005).

One criticism of the bill at the time was that such a steep cigarette tax increase (from 23¢ per pack to 67¢) would reduce sales to the point where no revenue would actually be produced to offset the $24 billion cost of the bill. Orrin Hatch responded, "If we can keep people healthy and stop them from dying, I think most Americans would say 'Amen; isn't that a great result?' If fewer people smoke, states will save far more in lower health costs than they will lose in revenues from the cigarette tax." Then Senate Majority Leader Trent Lott (R-MS) argued against it, calling it a "big government program" and claiming it did not qualify under the Balanced Budget agreement between the Senate and the White House. Then-President Bill Clinton, who was responsible for compliance to the balanced budget agreement, called up many Senators to personally dissuade them from voting for the bill. On May 22nd, the bill failed in a vote of 55 to 45.

Senator Kennedy considered it a personal betrayal by a White House that cared more about the tobacco lobby than children's health. He and Hatch proposed the bill again a month later, this time as an amendment to the Balanced Budget Act of 1997 and with Hillary Clinton advocating for it in the White House. This time it passed. It passed in the House of Representatives easily, along party lines, and with relatively little drama.

The program was named "the State Children's Health Insurance Program" (abbreviated SCHIP or sometimes CHIP), and works by giving federal funds and a loose template for regulation of the program to states, who then apply the money to health insurance for children who might otherwise be uninsured or underinsured. Though originally aimed at children in families who were had only barely enough income to disqualify them for Medicare, some states have been given exceptions allowing dual coverage by Medicare and SCHIP.

Researchers from Brigham Young University (from Orrin Hatch's home state) and Aizona State University found that children removed from SCHIP tended to cost their states more money due to their care taking place as expensive emergency care rather than relatively cheap preventative care. Researchers from the Congressional Budget Office and the libertarian Cato Institute show that approximately half of children covered by SCHIP moved there from private insurance coverage -- in other words, that the program is "crowding out" private insurance coverage as much as it is covering the uninsured. Also, the expected ten-year cost of $24 billion ballooned to an actual cost of $40 billion.

After the 2006 election, the Democrats jumped to a near-2/3rds majority in both the House and Senate, just shy of what is necessary to override a Presidential Veto. Given their new-found influence, they sought to expand and extend the SCHIP program. In the Senate, they passed a bill intended to increase the planned $25 billion 5-year cost to $60 billion and loosen the federal restrictions on State implementation of the program. In the House they also voted to extend $6.5 billion in Medicare coverage to illegal immigrants. George W. Bush vetoed this SCHIP expansion, saying he opposed centralized, "federalized health care" on principle. Though some Republicans voted to override the President's veto, the overall vote was 13 votes shy and the veto was final.

Within a week, Democrats proposed the plan again, claiming they had improved the restrictions to keep the wealthy and non-citizens from gaining coverage. Bush vetoed it again, and the attempt to override his veto again failed.

By December 21, 2007 the Democrats had managed to find a sufficiently weakened extension of SCHIP that President Bush was willing to sign it into law. Rather than five years of an expanded program, it simply extended the existing plan until March of 2009. Essentially, it was an agreement to put off the question of SCHIP expansion until after the next election.

After Obama's election and the Democrat legislative gains of 2008, the issue was brought up once again. This time, the Democrats proposed to spend $32.8 billion (rather than $35 billion) and raise taxes on a variety of tobacco products to pay for it. 4 million more children are expected to be covered than under the old plan

The drama of the story is more interesting to me than the pros and cons of the policy itself, especially early on when it pitted Orrin Hatch against Trent Lott and Ted Kennedy against Bill Clinton. That was high drama, and I always favor the dissolution of party loyalty in favor of personal ideology. But the policy falls back on the usual, boring issues of government health insurance, "sin taxes", and Washington's complete disregard for budget balancing in name or spirit.

Each individual point is easy. I support healthy children. I oppose government insurance plans. I prefer state implementation over centralized, national programs. I oppose sin taxes, but not so much as I oppose most other forms of taxation. And the lack of balanced budgeting in Washington is the biggest, most publicly harmful disgrace in politics today.

Beyond all that, my greatest criticism is the great casino of health insurance. Public option, private option, however you slice it the design of health insurance is inherently a scam, a black hole which sucks away money from everyone.

Okay, I need to back up. That's a hugely controversial claim that needs better explication than that.

In a world without health insurance of any kind, a person like me would either save money or not and, in a medical emergency, would either be able to pay or not. Thus they would either live or not. It's a harsh world. People live or die based on how much money they have, or how much they can borrow or beg from banks, friends, and family. It's not a world I especially like.

The basis of medical insurance comes from people seeing the harshness of this world and seeking relief from it. Thus, they set up small, local groups dedicated to taking small, voluntary donations from many people to create a fund from which they can pay for emergency medical care. Ten people each give $10 a month to a central fund so that, on their 5th anniversary, they can pay $60,000 for heart bypass surgery for one of them. Ten people just paid for one person's life. That's fine, they're all friends and they feel heroic to be able to save their friend. It's a good thing for everyone.

It works so well, in fact, that big thinkers decide to do the same thing on a bigger scale. They establish charities, corporations, or government programs to provide such peace of mind to a great many people.

Voluntary donations to charities work great - people expect their money to help the unhealthy, and don't much care whether they personally benefit or not. They likely won't personally witness the results of their donations and, thus, won't be as willing to donate. But it works. It's worst fault is a tendency toward the impersonal, including the possibility that your money will go to help someone you wouldn't personally approve of helping. But that's pretty minor, espeically when compared the next few options.

Payments to Insurance Corporations are expected to pay for themselves, which pits customer and provider inherently against each other in a zero-sum game: either the company survives because the customers lose money, or the company goes bankrupt. Any insurance company that still exists gets more than it loses and, thus, it's customers lose more than they get. If that means they charge too much, or reject claims they should approve, or whatever means it takes the company will try to be profitable which is necessarily at the customers' expense. It's Las Vegas Insurance: the house always wins. But who knows? Maybe the peace of mind is worth more money than the customer loses. Maybe, for people besides me, especially people with worse than average health, maybe it's a worthwhile thing. Of course it's good for the big lotto winners who get their cancer care or open heart surgery paid for. But just like Vegas, the system only works when winners are an extreme minority.

Then comes the government option. In true socialized medicine is where everyone pays to one big pot and the pot pays for everyone's insurance. If you're healthy, you don't know who is benefiting from the money you pay in. If you're sick, you don't know who's saving you. And if you're too sick and the government bureaucracy sentences you to die because the cost/benefit ratio of saving you is just too high. It's just as harsh as the insurance-free world, but without any element of self-determination.

And lastly, the public option. The great government opt-in plan, paid by everyone for a select, needy few. The few certainly win - the get more health care paid for them than they can otherwise afford. But the many are paying for medical care twice - once for the public option of the few, and again for their own care. Thus, there is always a financial incentive to join the few. Either a line is drawn saying "This is all those who qualify," or the many continue to join the few until there is no one left to pay for the program. Covering more people inherently means more weight on the many or fewer benefits for the few. And that is exactly what Obama's SCHIP promise was to do: cover more children.

4 million children will step up from the lowest medical care demographic in the country to the SCHIP level, which is quite good. And the rest of the country will fall a tiny, imperceptible bit to pay for it. Does that improve the average? It doesn't improve my life, I know that. It doesn't improve my infant nephew's life; he doesn't qualify for SCHIP. All my family and friends will be hurt a teeny, tiny bit. But I shouldn't care. It's for the children, right? A small subset of the children are worth a broad, shallow layer of financial suffering over the rest of us. It's not so bad.

The reasoning of in the previous paragraph is what will continue to strain the economy of this country until it fails. Every new program is not too bad until the sum of them is beyond endurance. Or maybe it'll never go that far. Maybe it'll just be a constant annoyance in the lives of hundreds of millions, an inconvenience they ignore and endure forever for political correctness' sake. I still don't want it. It's still wrong.

Obameter #36: Small Business Loans

Stop. It's Obamatime.

Obama believes that small businesses are the key to the economy, both for the recovery from our immediate situation and for long-term growth. In his own words, "Our recovery in the present and our prosperity in the future depend upon the success of America's small businesses and entrepreneurs." So when the US Small Business Administration (SBA) reported loans to small businesses were looking to be down $10 billion this year he felt compelled to act.

The old program said loans of up to $150,000 given to small businesses would be guaranteed for 85% of their value by the SBA. That way, the banks would get most of their money back one way or another. With the risk thus minimized, banks would be more willing to give out loans and small businesses would have a little boost from Uncle Sam. Larger loans might be guaranteed for as much as 75% of their value.

$3,600b 2009 Federal Budget

Previously discussed wasteful spending

Previously discussed worthwhile spending

$15b Small Business loan incentive expansion

Obama expanded this incentive program, just as promised. For a limited time, the government will cover 90% of the amount of small business loans. The price tag on this limited time expansion will be "up to $15 billion", according to the White House website.

What kind of measure of success is this? The government is spending less money than was expected. Thus, we must increase the amount of money government is spending to $5 billion more than was expected. The unspoken assumption in this logic is that government spending makes things better. But does it?

All through 2008 the SBA was up to it's $20 billion spending expectation, encouraging banks to lend to small businesses that were less likely to be able to pay them back. At the end of 2008, there was a huge financial crisis caused, in part, by lending money to people who probably wouldn't pay it back. Now banks aren't loaning money to risky clients even with the current SBA incentives. And Obama's solution is to increase the incentive for banks to lend money to business plans risky enough that they won't do it without government taking away 90% of the risk?

The banks learned their lesson. Why won't government?

Learn from Duke Nukem Forever: some projects are doomed to fail and do not deserve continued funding. They should be allowed to die. That's why investors aren't investing in them: they don't want to be carried down into debt with them. Government should not be spending money in support of risky lending.

Thankfully, Obama's lousy business loans plan has merely a $15 billion price tag. It's a drop in the federal bucket, less than one half of 1% of the annual budget. It's too little money to seriously worry about for it's own sake. What this example demonstrates about this administration's economic sense, though, remains a strike against them.

Obameter #34: PAYGO

PAYGO (short for "pay as you go") is the government term for actually coming up with the money to be spent on government programs. It means either cutting spending or raising taxes to pay for any new spending increase or tax cut. It's also one of the most ignored rules in Congress.

The Obama Campaign talked a pretty good game. They invoked PAYGO as an Obama priority, throwing around phrases like "fiscal discipline", "balanced budget", and "surpluses like the 1990s". But since the election there hasn't been a single bill that has strictly followed PAYGO.

First we had the stimulus bill, the whole point of which was to flood the private sector with loose cash. Draining the flood back with higher taxes would have defeated the whole purpose, so it was given an exemption to PAYGO rules.

Then we had SCHIP, the supplement to the Children's Health Insurance Program. To cover it's expense they had benefits fall off after 5 years, but kept the tax hike for 10 years. (It's a tobacco tax, an extra 62¢ a pack. Apparently for irony.) That's not really "pay as you go" in spirit when it takes you twice as long to pay as it does to go, but it technically qualifies under the existing PAYGO rules.

The next big spending bill will be the big, controversial national health care bill. The House version of the bill looks to cost $1.2 trillion, about a third of the total annual budget. If it completely replaces Medicare, Medicaid, and Social Security, that'll just about cover the cost. But not all of Social Security is health-related, that would mean a lot of people (my grandmother and mother-in-law among them) would be facing some serious financial setbacks. I'm around to catch and help my family, but it seems like political suicide for Obama to actually cut all that spending to pay for his new program. I guess we'll just have to wait and see what he does.

The unsure future of PAYGO under Obama let PolitiFact to call the promise stalled rather than broken outright. I predict that breaking this promise is inevitable.

I don't mind that part, though. PAYGO is kind of stupid.

Sometimes there are emergencies that demand heavy spending. Conservatives should remember Reagan's defense spending and how it broke the back of the Soviet Empire, liberals would probably see the Great Depression and the current economic crisis as good examples (I disagree, but now is not the time), and everyone should remember World War 2. Occasionally emergency spending is justified, and PAYGO does not recognize that fact.

Even in stable times, PAYGO encourages zero-sum budgeting when we should be looking to continually cut spending until the national debt is paid down. In essence, PAYGO says not increasing the debt is good enough when, in fact, it's not good enough. Just short of 10% of the annual federal budget is paying the interest on the national debt! That's $360 billion dollars per year for past bad budgeting! We could pay for half of social security, half of total defense spending, or half of the bank bailout with that.

But it's not really the size of the national debt that is the big concern, but the size of the debt relative to the total national economy (GDP). If the debt stays constant but the economy does great, that's just as good. That makes cutting taxes and economic regulation spending in unison better than increasing taxes and such spending in tandem. PAYGO doesn't reflect that, either. A big balanced budget or a small balanced budget are considered equally respectable by it's flawed rules.

Ideally, we'd want to cut taxes a little and cut spending a lot, thus creating a budget surplus and improving the national economy. Debt as a proportion of GDP would drop like a rock.

But that's the opposite of what Obama's been doing. Even if the bailouts are excused as emergency spending for the financial crisis, why pass SCHIP and national health insurance at a time of financial crisis? It not only offends PAYGO, it offends the legitimate goals PAYGO incompetently pursues. That's what I mind.

Obama gets an F- on this one. Worse Than Failure. Could not be more wrong.

Obameter #15: Foreclosure Prevention Fund

In late 2006, the misses and I were considering whether to buy a house. We could afford to get a loan only if we paid interest and ignored the principle for a few years, then paid a much higher payment later. We decided it was too much of a gamble, assuming that we'd be financially well-off later without any clear plan how to make it happen. Thanks to some bad employment decisions, I now make less than I did then. If we'd decided the other way, we would very likely be among those losing their houses today.

Back in 2008, Obama promised a $10 billion program to help people facing foreclosure to refinance and probably keep their homes. Shortly after his election, he released the details of his plan. It doesn't affect investors, people who obtained their loans by fraud, and people who cannot afford their mortgages even with refinancing; assuming government had to do something, it's a well-aimed plan. The price tag jumped to $75 billion plus an option for $200 billion more for Fanny Mae and Freddie Mac (the government-backed, recently bankrupted morgage companies of Federal takeover fame). Says PolitiFact.org, "Obama exceeded the terms of his campaign promise."

That is not "keeping his promise" from all perspectives. To those who worry about government spending too much money, promising 7 to 27 times as much as originally promised looks like tens or hundreds of billions of dollars in wasteful spending.

Can saving people's homes really be a waste? If I had chosen the other way and was in an unaffordable home today, wouldn't I be first in line to get any help I could to keep my home? Yes, I probably would. Even though the decision to buy a home I couldn't afford was a bad one, I imagine I'd want to keep the home.

But the bigger concern is whether I'm entitled to that money. Making a bad decision does not earn me entitlement to other people's money; on the contrary, I should be less trusted with money due to my mismanagement of it. The Obama Forclosure Prevention Fund has promised an average of $1,250 from every adult in the USA to people who made similar risky decisions. $275 billion / 220 million adults = $1,250 per adult.

But maybe I'm being extreme. The $200 billion promise to Fanny Mae and Freddie Mac probably won't be needed. $75 billion / 220 million adults = $341 per adult. Futher, that number is an average; people who have more paid more, and people who have less paid less.

I made the right decision when I didn't buy a house I couldn't afford. Why am I being deprived of hundreds of dollars for making the right decision, which money goes to fund those who made the wrong decision? Aren't we promoting exactly the wrong behavior when we take personal consequences away from personal decisions?

$3,600b 2009 Federal Budget

$75b Foreclosure Prevention Fund

$200b option for Fanny Mae/Freddie Mac

It's a small example, though. The Obama's 2009 Federal Budget is in the neighborhood of $3.6 trillion dollars. The Foreclosure Prevention Fund is only about 2 cents per dollar of that budget. If the other 98 cents are well-spent then I have no overall criticism.