THE CHALLENGE: ADDRESSING RESPONSIBLY THE FINANCIAL DEMANDS INCURRED AS A RESULT OF THE COVID 19 PANDEMIC
On June 1, 2020, the Committee for a Responsible Federal Budget (CRFB) issued a letter in support of “…the development of a framework to help deal with the national debt once we have moved past the immediate health and economic crises caused by the COVID-19 pandemic.” CRFB CEO, Maya MacGuineas, prefaced the organization’s support by noting, “To control a dangerous virus and prevent significant economic damage, Congress made the right call in rapidly approving trillions of dollars in fiscal aid to fight the pandemic and recession. However, we entered this crisis with an already unstable debt situation, and given that we will borrow more to help deal with this emergency, it will make getting our debt under control even more important in the coming years.” [Emphasis added.]
THE OPPORTUNITY: IMPROVE THE DESIGN, APPLICATION AND AMORTIZATION OF GOVERNMENTAL COVID 19 EXPENDITURES
The Concerned Actuary Group (CAG) applauds both CRFB’s action and Ms. MacGuineas’ comments. The CAG has invested heavily in the development of a tool designed to improve holistic analysis of the American healthcare system. That tool, the Comparative Actuarial Assessment Model (CA2M), regularly indicates that one of the major systemic challenges in the healthcare system lies in the systems inability or willingness to measure actual outcomes against original goals and assumptions (see attachment). We believe that greater use of an actuarial principle proven effective in avoiding and managing debt responsibly would have a profoundly positive impact on getting governmental debt “under control.”
RELEVANT ACTUARIAL PRINCIPLE: MANAGEMENT SYSTEMS AND IMPLEMENTATION MUST BE EVALUATED AND ADJUSTED TO ASSURE ALIGNMENT WITH GOALS, ASSUMPTIONS, AND CAPACITY TO MEET EXPECTATIONS.
Compliance with accepted and proven actuarial principles is universally accepted as an essential component in the responsible management of private sector insurance companies. In today’s insurance company, for example, financial value assessments include an analysis of future earning power using models of the company’s current business and expected new business. Those models are developed and tested to assure future reliability. Assumptions related to mortality, persistency, expenses, investment earnings, etc. are measured against and aligned with past experience adjusted by any changes required in future management.
Actuarial discipline such as this underpins most successful long-term business management. The CAG believes that wider and more consistent governmental adoption of the actuarial principle that drives such discipline would significantly improve the management, alignment and outcomes of the recent multi-Trillion program designed to address the major financial and economic issues resulting from the COVID 19 pandemic.
In a managed financial (actuarial) system, for example, specific expectations related to the $2 trillion expenditure would be clearly identified along with timelines and projected outcomes. Regular examinations of performance and alignment amongst goals, assumptions and outcomes would then be undertaken and indicated adjustments in management systems and other areas could then be highlighted for discussion and appropriate action.
Mr. Neil Barofsky, the former inspector general for the Troubled Asset Relief Program (TARP) raised the issue of oversight of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), writing in April of this year, “Who will conduct oversight of this staggering amount of taxpayer money? We need to ensure that this government aid is not being stolen, wasted or given to political cronies. And we need to make sure that the public is aware of how and to whom those trillions are distributed. In short, we need watchdogs. As it prepares for more relief in the wake of vast economic ruin caused by Covid-19, Congress has leverage — and must use it.”
Congress included oversight mechanisms in the CARES Act establishing both a Special Inspector General for Pandemic Recovery and a Pandemic Response Accountability Committee comprised of existing Inspector Generals. The question now is how those designated offices will execute their responsibilities. The CAG believes that they cannot determine whether or not the trillions added to governmental (i.e., taxpayer) debt are achieving the sustainable, equitable and transparent goals of the program without actuarial discipline.