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ORIENT: Doctors at risk from fiscal cliff
Government can’t pay in IOUs
The R Team and the D Team are deep in negotiations over making the imaginary numbers in Washington work out, to delay the day of reckoning for a time. The method is to suck more tax revenue out of the remaining deep pockets in the economy, and spread it out to the government’s dependents — the growing masses of beneficiaries of entitlements, the companies relying on corporate welfare, and the bureaucrats directing thousands of programs. Promises will be made to reduce some of the outflow, someday.
In mathematics, you can do a lot with complex numbers, which involve the imaginary number “i,” the square root of minus one (-1). The most elaborate fiscal calculations involving negative numbers eventually confront a reality barrier. When your credit rating is destroyed, you can’t buy a loaf of bread with an IOU. The State of California has already tried paying some folks with IOUs. The banks balk at accepting them.
Politicians may argue about increasing the debt limit before the federal government exceeds it, but we already exceeded it long ago — if you count promises made by past Congresses and not just legal instruments like Treasury bills, which are backed by the “full faith and credit” of the government. There are the Social Security and Medicare “trust funds,” funded by unmarketable obligations on the U.S. Treasury, and beyond that, tens of trillions of dollars in unfunded liabilities. The debt they comprise brings to mind Hollywood’s “The China Syndrome,” in which a nuclear reactor melts through its containment structure creating a hole supposedly “all the way to China.” The government doesn’t acknowledge these obligations on the official books, suggesting that it doesn’t ever intend to pay them. In fact, it can’t. The result is likely to be a total economic meltdown, not a mere cliff.
Our currency, made up of Federal Reserve notes, is a debt instrument, which Congress has declared to be legal tender for all debts, public and private. It appears that many, especially the government‘s, are relying on inflation — which is the depreciation of the currency — to “pay” their nominal debt while stiffing their creditors.
What happens when people need something real, like a medical service, which they’re entitled to at government expense, and the government has only imaginary dollars? It doesn’t even have deteriorating Federal Reserve notes, but only a credit card with no remaining credit? What will doctors do?
When the money was flowing freely, most doctors willingly became dependent on Medicare and Medicaid for a significant portion of their revenue. Government imposed price controls back in the 1980s, and has been constantly whittling down fees while piling on costly administrative burdens. Doctors have continued working. Some take home less and less money. Some have learned to game the system, doing more of what they get paid for and providing fewer of the services that do not turn a profit or break even. Providers have hired consultants to teach them how to maximize revenue while attempting to avoid draconian fines or imprisonment.
It seems that the main reason for the American Medical Association’s existence these days is to fight to postpone the big “sustainable growth rate” cliff, a sudden cut of 27 percent agreed to by Bill Clinton and Newt Gingrich. Compared to the size of “The China Syndrome” hole, it doesn’t make that much difference.
Current Medicare payments funnel Medicare payroll tax receipts directly to “providers.” Already the take is not enough, and as unemployment rises and wages fall, the government will have to dip further into general revenues or borrow money to redeem the IOUs in the “trust fund.”
Those who refuse to see the cliff will go over it. Doctors and patients need to think about what they will do when the government’s checks start bouncing. Will they imitate the Staten Island woman, captured on video after Superstorm Sandy, pleading with President Obama to send a government truck to keep her from freezing? Or will doctors throw out 140,000 pages of government busywork and restrictions and figure out how they, their patients and their communities can work together to preserve real value while the imaginary numbers vanish?
Dr. Jane M. Orient practices internal medicine in Tucson, Ariz., and is executive director of the Association of American Physicians and Surgeons.
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