Equalizing Payments for Medical Care

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

For some time now, health policy makers around the world and the analysts who advise them have been exploring reforms of the methods by which the providers of health care are paid or, as the latter prefer to call it, are “reimbursed” – an unfortunate, mind-altering expression on which I have already commented in an earlier post.

Today’s Economist

Perspectives from expert contributors.

Several papers in the current issue of Health Affairs are devoted to that topic. They include one by me, another by David Miller that addresses large variations in Medicare payments for surgery and one by Peter Hussey about bundled payments for treatments of an entire episode of illness.

Perspectives from expert contributors.

My paper focuses on the fact that every private health insurer in this country pays different physicians, hospitals and other providers of health care different prices for identical services. The flip side of this practice is that a given provider charges different payers – insurers or patients – different prices for identical health service. Economists call that practice “price discrimination.”

Figure 1 below illustrates this phenomenon from the insurer’s perspective for colonoscopies in New Jersey. Figure 2 shows payments in 2007 by one large private insurer for appendectomies (then code DRG 107) and coronary bypass grafts with cardiac catheterization (code CABG, then DRG 107) in California at what are known as “tertiary hospitals” — those with the ability to support medical specialists in medicine, pediatrics, obstetrics and gynecology, surgery, their subspecialties and ancillary services.

While there evidently is pervasive price discrimination within the private health-care sector, there are also sizable price differentials between public payers on the one hand and private payers on the other. Figure 3 illustrates this phenomenon by means of the so-called payment-to-cost ratio paid to hospitals by Medicare, Medicaid and private health insurers. This ratio is calculated as a fraction of the full costs that hospitals report to have incurred for patients covered by these three payers.

We can see that in many years, hospital report that the two public payers have covered the full cost (including presumably allocated fixed-overhead costs) of the care for the patients covered by these programs. Private payers, on the other hand, pay a sizable margin on top of the full costs of treating their covered clients.

Private health insurers and their principals, private employers, deplore this phenomenon as a “cost shift” from public payers to them. Of course, by similar reasoning, private insurers and individual self-paying patients who pay relatively high prices for given services can lament that they are the victims of a cost shift from private insurers with stronger market power vis à vis hospitals, which enables them to bargain for lower prices for identical services.

Many economists do not buy into this contention, asserting that price discrimination can exist without a cost shift. Explaining how economists arrive at that conclusion goes beyond the limit of this post. Interested readers, however, might consult my previously cited paper in Health Affairs, or, if they are not daunted by more formal economic analysis, read Austin Frakt’s critique of the cost-shift theory.

Whether or not one accepts the cost-shift premise, the question arises of whether price discrimination in health care has served the United States well. On this point, the business school professors Michael Porter and Elizabeth Teisberg have this to say in their book “Redefining Health Care”:

This administrative complexity of dealing with multiple prices [for the same service] adds costs with no benefit. The dysfunctional competition that has been created by price discrimination far outweighs any short-term advantages individual system participants gain from it, even for those participants who currently enjoy the biggest discounts. The lesson is simple: skewed incentives motivate activities that push costs higher. All these incentives and distortions reinforce zero-sum competition and work against value creation.

Similarly, in commenting critically in The New England Journal of Medicine on another study of administrative costs of Canadian and American health care, Henry Aaron of the Brookings Institution offered this preamble to his critique:

I look at the U.S. health care system and see an administrative monstrosity, a truly bizarre mélange of thousands of payers with payment systems that differ for no socially beneficial reason, as well as staggeringly complex public systems with mind-boggling administered prices and other rules expressing distinctions that can only be regarded as weird.

Other nations with multiple insurance carriers – for example, Germany and Switzerland – avoid price discrimination in health care through negotiations over prices between regional associations of health insurers and counterpart associations of health care providers, subject to some overall budget constraint informed by macroeconomic conditions (e.g., growth of the payroll on which premiums are based or per capita income). The negotiated prices then apply uniformly to all insurers and all providers in a region (states in Germany and cantons in Switzerland). In the United States, Maryland has operated such an “all payer” system for hospitals for several decades.

An all payer system has the potential to reduce health care costs in several ways, including the discipline of a fee schedule on providers, the schedule to be negotiated with providers on a regional basis, and a reduction in the enormous complexity and high administrative costs of the current system.

If it is desired, an all payer system can also serve as a way to constrain the future growth of health care to some desired path – e.g., with total national health spending growing annually only 0.5 percentage points faster than the growth of the rest of gross the domestic product, rather than the traditional two percentage points faster that prevailed over the last four decades. A two percentage point differential is simply not sustainable.

In my above-cited paper, I advocate an all payer system for the United States to eliminate the pervasive price discrimination inherent in American health care and, to the extent it exists, the much-lamented cost shift. For readers of this blog, Health Affairs has graciously provided access to the paper until Nov. 16. I invite readers to take a look at my argument for an all-payer approach and share with us their reaction to it.

Make-Work and the G.D.P.

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

Suppose some evening a group of bored and mischievous teenagers slash tires on a number of cars in the parking lot of a shopping center. Distraught car owners call sundry nearby garages to send someone to fix the damage on the spot or tow the cars in for repairs. That work is speedily done, and the cars are ready for use again. The car owners pay the garage owners sizable repair bills.

This fictitious event leads to a number of questions:

1. Did the garages deliver value to the car owners?
2. Was gross domestic product increased or decreased?
3. Were the car owners better off, after paying the repair bill?

Today’s Economist

Perspectives from expert contributors.

My answer to the first question is yes and to the second yes, as well, unless the garages had to give up other jobs with revenue equal to or greater than what they earn coming to the car owners’ rescue. To the third question, my answer is, it depends.

Perspectives from expert contributors.

If we take as the baseline the position of the car owners after the tires had been slashed, they would be better off, unless for some the repair bill turned out to be so high that, in retrospect, these owners would have preferred to abandon their cars. If we take as the baseline the situation before the tires were slashed, the entire affair left the car owners worse off. It reduced what economists would call social welfare.

Why is this vignette in so serious a blog as Economix? Because it illuminates a phenomenon not always fully appreciated when we talk about value added or G.D.P.

In many instances, Person (or Enterprise) A delivers great value to Person (or Enterprise) B to extract the latter from a situation into which B should not have been put in the first place. We count in G.D.P. the value added by the extrication but do not detract the value destroyed by being driven into a precarious situation.

Quite a few economic transactions included in our G.D.P. parallel this vignette. Think of reconstruction after a natural disaster. We count the money paid for reconstruction in G.D.P. but do not deduct the value destroyed by the disaster.

Suppose a country developed long-range missiles that made our aircraft carriers sitting ducks for attack or developed the ability to paralyze our country with cyberattacks. To extract ourselves from that threat with possibly expensive countermeasures, we would give up enjoyable consumption or investments yielding future enjoyable output in order to increase military spending.

Now think about the almost incomprehensible tax code that Congress has imposed. Think of it as a disaster of human making. To cope with it, individuals and businesses hire legions of lawyers and accountants who have deployed their human capital to understanding this bewildering code. These tax experts work hard and often brilliantly to shield their clients from taxes, usually achieving tax savings that are multiples of what they charge for their services.

For the clients, it is a highly valuable service. Indeed, the more confusing the tax code, the more of these experts we need, the harder they work, the greater the value of their services to their clients and the more income they earn. That income, of course, is part of the G.D.P. But for the most part, their work collectively amounts to one giant zero-sum game, because taxes not paid by one client will have to be paid by other taxpayers now or in the future to bring in the revenue needed to sustain the spending level Congress has set. It does not enhance overall well-being for society as a whole.

We can doubt that these professionals’ work creates a more efficient incidence of taxation, because much of their work is to know and take advantage of complicated and inherently inefficient tax loopholes that Congress should not have established in the first place.

In many ways, our health care system mirrors our tax code — especially in its financing and health insurance facets. These can be made so complex and have been made so complex in the health care system in the United States that many decision makers in health care — patients, physicians, hospitals, employers and so on — need in-house or external consultants to find their way through the maze.

A few months ago, I asked a Canadian hospital executive how many employees he had in his hospital’s compliance department. “Compliance?” he responded. “What do you mean by that?”

Somehow the Canadian provincial government-insurance plans manage to pay Canadian hospitals without requiring them to have the large compliance staff or outside compliance consultants engaged by hospitals in the United States whose task it is to ensure that the hospital does not violate the hugely complex, ever-changing terms of Medicare, Medicaid and other government programs or regulations. An academic health center may have a dozen or two dozen employees devoted to compliance. Such a center may employ several hundred billing clerks to cope with the myriad of private health insurance plans and policies, each with its own coverage, nomenclature and payment rules and requirements for prior authorizations.

Consulting firms help physicians bill private and public insurers or help patients submit claims to insurers after an illness. Legions of insurance brokers help prospective clients through the maze of the nongroup or small-group health insurance market. Large employee-benefit consulting firms, helping large companies, establish what amount, in effect, to analogues of the health-insurance exchanges in the Affordable Care Act, and many more consultants of many stripes are involved.

One does not find legions of expert consultants helping individuals and businesses through the administrative maze of the health care system in, say, Switzerland, Germany or other European countries, or Canada, or Taiwan. It seems to be a uniquely American phenomenon — part of American exceptionalism, I suppose.

All of these consultants perform highly valuable services to their clients, but taken together their work consists for the most part of helping Americans extricate themselves from an administrative nightmare into which they should not have been put in the first place.

At Yale University I had the privilege of sitting in the classroom of the late James Tobin, an early Nobel laureate in economics and one of our profession’s greats. He distinguished between “enjoyable” and “nonenjoyable” G.D.P., with the latter including military spending or other “value added” from coping with either externally inflicted or self-inflicted damage done to our society. I often think of our revered professor when I contemplate the composition of this country’s G.D.P.

The Money Flow From Households to Health Care Providers

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

My last post, “The Role of Prices in Health Care,” contained a chart connecting health spending with health income. One reader commented:

The graph misses a very major, and growing, component of the U.S. health care system. In between “the rest of society” and the “owners of health care resources” there is not only the “health care system” but also the United States government (unless we view the government as one of those resources). This is sapping a not insignificant portion of the resources that could and should otherwise be devoted to the provision of actual health care services.

Today’s Economist

Perspectives from expert contributors.

I am not sure just what to make of this. Is the argument that government is a sinkhole that absorbs “a not insignificant portion of the resources” that could otherwise be devoted to health care proper? Are there not other intermediaries, such as private insurers? Or is the argument that government as a public provider of health insurance to millions of Americans siphons off financial resources and returns no benefits to society, while private insurers do?

Consider the chart below. It illustrates that the flow of money through health care in the United States is complicated, with many detours on the way from households, which ultimately pay for all of the nation’s health care, to providers. Along the way are a number of pumping stations, employers among them.

Perspectives from expert contributors.

Naturally, the providers of health care receive less than what households originally contributed to finance health care. Like private insurers, public insurers are pumping stations along the way that keep some of the money to finance their own operations. And both the public and private pumping stations provide society benefits in return, namely, access to health care when needed and the peace of mind that the family will not go broke over medical bills from a major illness.

Readers who seek to get a feel for the dollars flowing through this piping system — $2.6 trillion in 2010 — can find insight in Table 16 of the most recent National Health Expenditure Projections published by the Centers for Medicare and Medicaid Services of the Department of Health and Human Services (referred to hereafter as C.M.S. data).

This next chart conveys an idea of changes over time in the money flow through major public and private insurance programs and through out-of-pocket payments by patients. It should be noted that the fraction of Medicaid in this chart includes the federal match, which is about two-thirds of total Medicaid spending. It is a fact that government insurance programs have played an increasing role in the overall health care money flow. Their role in the future is now a fiercely debated issue in the political arena.

To get a rough indication of what fraction of the money flow is retained by the various pumping stations in the money flow, it is helpful to compare what the C.M.S. actuaries call National Health Expenditures, or N.H.E., with what they call Personal Health Care Expenditures, or P.H.C., a component. N.H.E. includes all outlays on health care, including research and construction. It also includes what the intermediate pumping stations (i.e., public and private health insurers) retain for their operations. P.H.C., on the other hand, represents only what the providers of health care received from the various intermediaries and directly from patients.

This next chart exhibits personal health spending as a percentage of total national health spending for three health insurers: private insurers, Medicare and Medicaid. These data are calculated from Tables 3 and 5 of the C.M.S. data. These percentages suggest that a relatively high share of the funds Congress and state legislators appropriate for the two largest government programs, Medicaid and Medicaid, becomes revenue for the providers of health care.

According to a C.M.S. actuary, for the traditional Medicare program excluding money contributed by Medicare to private Medicare Advantage plans on behalf of beneficiaries choosing those plans, as much as 98 cents is paid to providers for every $1 appropriated by Congress for Medicare. (The 93.8 percent shown in the next chart includes Medicare dollars channeled through Medicare Advantage plans.)

In fairness, it must be added that traditional Medicare basically sets prices and then just pays bills. It makes no active attempt to manage care (utilization controls, disease management, coordinating care and so on), because it has not been allowed by Congress to do so. It is almost as if Congress did not want traditional Medicare to be a prudent purchaser of heath care for the elderly.

From the viewpoint of prudent purchasing, most economists would probably judge these prices too low. On the other hand, the fact that traditional Medicare just pays bills more or less passively may be precisely the reason that it is still so popular among the elderly. Traditional Medicare still offers beneficiaries completely free choice of providers and therapy — a degree of freedom that many younger Americans in insurance plans with limited networks of providers no longer enjoy.

The ratio of P.H.C. to N.H.E. for private insurance reflects what is known as the medical loss ratio, or M.L.R., on which I have written a post previously. It is the fraction of the premium an insurer pays out for “health benefits.” The overall average of 88.3 percent for private insurance includes M.L.R.’s ranging all the way from a low 55 percent for small insurers selling policies to individuals and small employers, mainly through insurance brokers, to M.L.R.’s above 90 percent for large insurers performing merely administrative services (e.g., negotiating fees or claims processing) for self-insuring large employers.

The ratios in the last chart should not be confused with the overall administrative overhead of health care in the United States, a topic already touched on in an earlier post. A public or private health insurance program not only has its own operating costs but visits substantial administrative costs on the providers of health care, mainly on billing properly for services rendered.

I shall comment on these additional overhead costs in a future post.

The Role of Prices in Health Care Spending

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

The term “health care” evokes different images in people’s minds. To patients who find a miraculous cure, health care may be almost sacred. For physicians, nurses and other health care professionals it is a compassionate human activity. To hard-nosed economists, health care represents just another exchange of favors embedded in a wider market economy that consists of exchanging favors.

Today’s Economist

Perspectives from expert contributors.

The chart below illustrates this exchange. Some members of society surrender real resources — their time, amplified by their skill or the health care products they produce — to the process of patient care, which is meant to improve the patients’ quality of life. In return, society issues these providers of real health care resources generalized claims (money) on all the things included in gross domestic product.

Perspectives from expert contributors.

Thus, the health care sector of any country always has the dual goals of enhancing the quality of life of patients as well as enhancing the quality of life of the providers of health care, and, charity care aside, patients are at once objects of compassion and biological structures yielding cash.

We express the generalized claims given to the providers of real health care resources either in dollar terms per-capita or as a percentage of G.D.P. The chart below illustrates the fraction of G.D.P. ceded to the providers of health care in a number of different countries over the last three decades.

Although not all countries can be featured in such a chart, the fact is that no other country cedes quite the slice of its G.D.P. to the providers of health care as does the United States. Current projections are that health care will claim every fifth dollar (19.8 percent to be precise) of G.D.P. in the United States by 2020.

It follows from the first chart that the claim on G.D.P. that a nation cedes to its providers of real health care resources does not tell us what real resources patients receive in return, let alone what value these resources have to patients (see, for example, this report).

That is because the size of the claim on G.D.P. depends not only on the quantity of real resources surrendered to the process of health care, but also the price paid the providers per unit of real resource. In theory, it would be quite possible that in two otherwise identical countries exactly the same real resources are surrendered to health care and yet the slice of G.D.P. ceded to the providers of these resources in return could differ.

In this regard, a study by Miriam Laugesen and Sherry Glied, published last week in the health-policy journal Health Affairs warrants careful review. The authors assert:

Higher health care prices in the United States are a crucial reason that the nation’s health spending is so much higher than that of other countries. Our study compared physicians’ fees paid by public and private payers for primary care office visits and hip replacements in Australia, Canada, France, Germany, the United Kingdom and the United States. We also compared physicians’ incomes net of practice expenses, differences in financing the cost of medical education and the relative contribution of payments per physician and of physician supply in the countries’ national spending on physician services.

Public and private payers paid somewhat higher fees to United States primary care physicians for office visits (27 percent more for public, 70 percent more for private) and much higher fees to orthopedic physicians for hip replacements (70 percent more for public, 120 percent more for private) than public and private payers paid these physicians’ counterparts in other countries. U.S. primary care and orthopedic physicians also earned higher incomes ($186,582 and $442,450, respectively) than their foreign counterparts. We conclude that the higher fees, rather than factors such as higher practice costs, volume of services or tuition expenses, were the main drivers of higher U.S. spending, particularly in orthopedics.

Other studies point in the same direction. An early one, “U.S. Health Care Costs: The Untold Story,” by the health economist Mark Pauly, was also published in Health Affairs. Professor Pauly showed that a good many nations in Europe actually transferred more real human health-care resources to patients than did Americans – suggesting that the real-resource cost of European health care is higher than it is in the United States (or was, at the time of the study). But these other nations paid physicians and other health personnel less than do Americans.

Higher physician income, of course, cannot explain all or most of the total higher health spending in the United States, as payments for “physician- and clinical services” constitute only about 20 percent to total current health spending ($538 billion out of a total of $2.7 trillion in 2011) and close to half of those payments tend to go for practice expenses, including support staff, malpractice insurance and claims processing.

But prices of other, non-physician health-care services and products in the United States also seem to be higher than elsewhere, as is suggested by the annual surveys of health care prices conducted by the International Federation of Health Plans in their comparative price reports.

None of these cross-national studies are perfect, but together they do suggest that Americans pay more for individual health care services – not only physician services – than do residents of other countries, and that this must contribute to the higher level of health spending in the United States.

What one should make of this finding is another matter. Professor Laugesen and Ms. Glied refrain from going down that route. They merely present the facts as they see them.

Critics of this study will properly point out the enormous methodological hurdles one faces in making cross-national comparisons of this sort. But it is not a compelling argument to suggest that because a study of this sort cannot be done perfectly it should be ignored. My response to the critics: Try to do better!

Malpractice Anxiety

Amitabh Chandra, a Harvard economist, is a leading expert on medical malpractice, and his work does not fit neatly into either the American Medical Association’s camp or the trial lawyers association’s camp. Sometimes it comforts one side. Sometimes, it comforts the other. I used Mr. Chandra’s research extensively in writing an overview of malpractice in 2009.

DAVID LEONHARDT

Thoughts on the economic scene.

Now he and three other researchers have a new paper, published in The New England Journal of Medicine. Among its findings is that a large majority of malpractice claims do not lead to any payment from a doctor to a patient. Either the patient drops the case, or a court dismisses it.

Thoughts on the economic scene.

In every medical specialty the researchers studied, at least three out of four claims led to no payment. In many specialties, about 9 out of 10 claims led to no payment.

Over all, about 7 percent of doctors faced a claim in a given year, and fewer than 2 percent made any payment relating to a claim.

These patterns, the authors note, may help explain why doctors’ concern over malpractice suits is very high even in states that limit such suits, like Texas. As the paper notes, doctors’ self-reported worries about malpractice vary little across states, even though malpractice laws vary greatly. The researchers write:

Our results may speak to why physicians consistently report concern over malpractice and the intense pressure to practice defensive medicine, despite evidence that the scope of defensive medicine is modest. … Although these annual rates of paid claims are low, the annual and career risks of any malpractice claim are high, suggesting that the risk of being sued alone may create a tangible fear among physicians.

The perceived threat of malpractice among physicians may boil down to three factors: the risk of a claim, the probability of a claim leading to a payment, and the size of payment. Although the frequency and average size of paid claims may not fully explain perceptions among physicians, one may speculate that the large number of claims that do not lead to payment may shape perceived malpractice risk. Physicians can insure against indemnity payments through malpractice insurance, but they cannot insure against the indirect costs of litigation, such as time, stress, added work, and reputational damage.

These findings seem consistent with earlier research suggesting that malpractice reform is nothing like a magic bullet for high medical costs. But malpractice does weigh heavily enough on doctors’ minds that a more efficient accountability system for doctors — one in which avoidable errors were more likely to be punished and decent care was less likely to be subject to lawsuits — could both improve care and have some effect on costs.

In addition to Mr. Chandra, the paper’s authors are Anupam B. Jena, Seth Seabury and Darius Lakdawalla.

Which Is in Worse Shape, U.S. or Europe?

Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

The United States and Europe seem to be competing hard this summer for the title of “biggest economic problem.” Based on the latest news coverage, Europe might seem to be experiencing something of a resurgence, as last week the euro zone agreed on a deal involving mutual support and limiting the fallout from Greece’s debt problems.

In contrast, the United States seems to be mired in a political stalemate that becomes more complex and confused at every turn.

Today’s Economist

Perspectives from expert contributors.

But rhetoric masks reality on both sides of the Atlantic. The euro zone still faces an immediate crisis: the can was kicked down the road last week, but not far. The United States, on the other hand, is in much better shape over the next decade than you might think after listening to politicians of any stripe.

Perspectives from expert contributors.

American problems loom in the decades that follow 2021, so there is still plenty of time to sort these out; the bad news is that almost no one is talking about the real issues.

In a policy paper released by the Peterson Institute for International Economics on July 21, Peter Boone and I went through the details on the euro-zone crisis, including how this common currency area got itself into such deep trouble and what the likely scenarios are now (you can also see the discussion and contrasting views at the publication event).

In our assessment, the issue is lack of effective governance within the euro zone. Governments had an incentive to run reckless policy – either in terms of budget deficits (Greece), out-of-control banks (Ireland) or refusal to create an economic structure that would support growth (Portugal).

These policies were financed by loans from other countries, particularly within the euro zone, creating and sustaining the widely shared perception that if any country were to get into trouble, it would be bailed out by deep-pocketed neighbors (a phrase that in this context always means Germany).

At the heart of this system was a great deal of “moral hazard”; investors stopped doing meaningful credit analysis, so Greek or Spanish or Italian governments could borrow at just a few basis points above the rate for the German government (one basis point is a hundredth of a percentage point, 0.01 percent).

What has shocked investors’ thinking over the last three years are the realizations that Greece and some other “peripheral” countries have so much debt they may not be able to make all the contracted payments by themselves and that Germany and other northern countries have become convinced that foolish investors should suffer some losses.

Imposing losses on banks that made bad decisions is a sensible principle – but getting from here to there is not easy, particularly when the “periphery” includes Italy, with a far larger economy than Greece or Ireland or Portugal and with gross debt of nearly two trillion euros (about 120 percent of its gross domestic product).

Either Europe really ends moral hazard and widely restructures sovereign debts, or it keeps the bailouts coming, with the deep involvement of the European Central Bank, which will ultimately be inflationary. The package announced last week is a classic case of muddling through; it doesn’t really solve anything. (See the Economix Q. & A. on Greece’s latest debt deal.)

If Europe and the world now experience a growth miracle, these debt problems will recede in importance, because solvency is all about debt burdens relative to G.D.P. But if near-term growth is not strong, as seems increasingly likely, market participants will soon resume their contemplation of European dominoes.

In contrast, the United States has a simple fiscal problem – as I discussed in my testimony to the House Ways and Means Committee this week. Government debt surged from 2008, not because of Greek-style profligacy but rather because of an Irish-style banking disaster. When credit collapses, so does revenue. As the economy recovers, revenue comes back.

The single most interesting point about today’s debt ceiling debate is that over the 10-year forecast horizon that frames for the entire discussion, by any conventional definition no fiscal problem exists. In 2021, the United States is likely to have a small primary surplus at the federal level – meaning that the budget, before interest payments, will no longer be in deficit. (James Kwak elaborates on this point on Baseline Scenario, the blog we run together.)

The really bad budget numbers for the United States come after 2021, but these are not the focus of anyone’s current proposals on Capitol Hill. Compared with other countries, the increase in health-care spending from 2010 to 2030 is most troublesome and what will ruin us (see Statistical Table 9 in the International Monetary Fund’s Spring 2011 Fiscal Monitor; or, if you prefer a single picture that cuts to the chase, look at where the United States falls in Figure 1 on page 9 of the I.M.F.’s recent report on how to handle “fiscal consolidation” in the Group of 20 developed economies.)

The debate in Washington is both heated and off course, because no one is grappling with the difficult issue of how to control health-care costs. The Tea Party enthusiasts are intent on near-term government spending cuts as a condition of supporting any increase in the debt ceiling.

If this version of a libertarian tax revolt carries the day, the resulting fiscal contraction will slow the economy and fewer jobs will be created. It does nothing directly to address the looming budget issues beyond 2021.

In the near term, the Europeans have the bigger problem – and this will only be compounded by slower growth in the United States (home to about one-quarter of the world economy). Over the longer haul, it remains to be seen when and how politicians in the United States will take up the real budget issues.

So far, the evidence is not encouraging.