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Why Obama Picked Hagel: Reduction of the Military Budget

Posted Jan 18 2013 12:00am

I think that David Brooks got in right in a recent op-ed piece. He asserts that Obama picked the Republican Chuck Hagel for the Secretary of Defense to spearhead the effort to reduce the military budget (see: Why Hagel Was Picked ). The cost of Medicare also needs to be reduced but it's a very popular program with nearly universal support among voters. It is anticipated that much of the Medicare savings will be obtained from providers and, hopefully, from the drug companies. Because of this, healthcare consumers will be spared some of the major effects of the reductions. Here's an excerpt from the Brooks piece:

Americans don’t particularly like government, but they do want government to subsidize their health care. They believe that health care spending improves their lives more than any other public good. In a Quinnipiac poll, typical of many others, Americans opposed any cuts to Medicare by a margin of 70 percent to 25 percent....Medicare spending is set to nearly double over the next decade. This is the crucial element driving all federal spending over the next few decades and pushing federal debt to about 250 percent of G.D.P. in 30 years.There are no conceivable tax increases that can keep up with this spending rise....As a result, health care spending, which people really appreciate, is squeezing out all other spending, which they value far less.....So far, defense budgets have not been squeezed by the Medicare vice. But that is about to change....The current budget calls for a steep but possibly appropriate decline in defense spending, from 4.3 percent of G.D.P. to 3 percent, according to the Congressional Budget Office....As the federal government becomes a health care state, there will have to be a generation of defense cuts that overwhelm anything in recent history....As this sort of crunch gradually tightens, Medicare will be the last to go. Spending on things like Head Start, scientific research and defense will go quicker. These spending cuts will transform America’s stature in the world, making us look a lot more like Europe today....Chuck Hagel has been nominated to supervise the beginning of this generation-long process of defense cutbacks. If a Democratic president is going to slash defense, he probably wants a Republican at the Pentagon to give him political cover, and he probably wants a decorated war hero to boot. All the charges about Hagel’s views on Israel or Iran are secondary. The real question is, how will he begin this long cutting process? 

Health spending rose to $2.7 trillion in 2011 and remained steady at 17.9% of the economy (see: Slower Growth in Health Spending ). The rapid growth seems to be tailing off but we are still left with health spending as a huge percentage of the economy. For young people seeking a career, the healthcare system is a good news-bad news story. There will continue to be plenty of job in this sector but I am sure that I lot of fat will be squeezed out of the system so there will be lots of screaming (see:  Can In-Office Pathology Labs Survive a 52% Cut of the Technical Component? ;   New Palmetto GBA Prostate Billing Guideline: A Foretelling of Healthcare’s Future? ). Pathology societies like the CAP and ASCP are trying to push back on some of the cuts that are hitting pathologists in the wallet (see:  ASCP and CAP ask CMS to reconsider 88305 and molecular pathology decisions ).

The major problem that I foresee with reductions in healthcare spending is that the companies that will be spared the Draconian cutes will probably be those with the most politicians in their pockets which means, in part, the pharmaceutical companies (see:  Study in crony capitalism: ObamaCare and Big Pharma ). Here's a short quote from this latter article:

According to the trove of e-mails that the WSJ published ..., there appears to be a direct quid pro quo payoff to the drug companies for some badly-needed PR efforts on behalf of the administration, in exchange for limiting the amount that Congress would seize from drug companies....

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