Archives: 05/2009

How Much Will Universal Coverage Cost?

President Barack Obama has declared that his goal in health care reform is “expanding coverage to all Americans.”  So what’s the price tag on universal coverage?

Some reformers are throwing around numbers like $1 trillion or $1.5 trillion.  But according to the Urban Institute, the cost would be closer to $2 trillion.

Jack Hadley and his colleagues estimate, “If all uninsured people were fully covered [in 2008], their medical spending would increase by $122.6 billion.”  If we assume that the cost of covering the uninsured will grow at the same rate the federal government assumes for all health spending growth (6.2 percent), then from 2010 through 2019, the cost of covering the uninsured would be $1.8 trillion.

That’s at a minimum.  According to Hadley et al., their estimate “is neither the cost of a specific plan nor necessarily the same as the government’s costs, which could be higher, depending on plans’ financing structures and the extent of crowd-out.”  Crowd-out is like collateral damange.  When you’re dropping money from the sky, some will inevitably strike innocent bystanders (i.e., the insured).  To ensure you hit the uninsured with $122.6 billion, you need to drop a lot more than that amount.

Thus the full cost of covering the uninsured would be closer to – and possibly well over – $2 trillion.

Richard Epstein on Sotomayor

Cato adjunct scholar Richard Epstein of the University of Chicago and New York University, finds much to worry about in Judge Sonia Sotomayor’s nomination to the Supreme Court:

The treatment of the compensation packages of key AIG executives (which eventually led to the indecorous resignation of Edward Liddy), and the massive insinuation of the executive branch into the (current) Chrysler and (looming) General Motors bankruptcies are sure to generate many a spirited struggle over two issues that are likely to define our future Supreme Court’s jurisprudence. The level of property rights protection against government intervention on the one hand, and the permissible scope of unilateral action by the president in a system that is (or at least should be) characterized by a system of separation of powers and checks and balances on the other.

Here is one straw in the wind that does not bode well for a Sotomayor appointment. Justice Stevens of the current court came in for a fair share of criticism (all justified in my view) for his expansive reading in Kelo v. City of New London (2005) of the “public use language.” Of course, the takings clause of the Fifth Amendment is as complex as it is short: “Nor shall private property be taken for public use, without just compensation.” But he was surely done one better in the Summary Order in Didden v. Village of Port Chester issued by the Second Circuit in 2006. Judge Sotomayor was on the panel that issued the unsigned opinion–one that makes Justice Stevens look like a paradigmatic defender of strong property rights.

I have written about Didden in Forbes. The case involved about as naked an abuse of government power as could be imagined. Bart Didden came up with an idea to build a pharmacy on land he owned in a redevelopment district in Port Chester over which the town of Port Chester had given Greg Wasser control. Wasser told Didden that he would approve the project only if Didden paid him $800,000 or gave him a partnership interest. The “or else” was that the land would be promptly condemned by the village, and Wasser would put up a pharmacy himself. Just that came to pass. But the Second Circuit panel on which Sotomayor sat did not raise an eyebrow. Its entire analysis reads as follows: “We agree with the district court that [Wasser’s] voluntary attempt to resolve appellants’ demands was neither an unconstitutional exaction in the form of extortion nor an equal protection violation.”

Maybe I am missing something, but American business should shudder in its boots if Judge Sotomayor takes this attitude to the Supreme Court. 

Obama’s Sotomayor Nomination: Identity Politics over Merit

In picking Sonia Sotomayor, President Obama has confirmed that identity politics matter to him more than merit.

Judge Sotomayor is not one of the leading lights of the federal judiciary and would not even have been on the shortlist if she were not Hispanic.

She has a mixed reputation, with a questionable temperament and no particularly important opinions in over 10 years on the Second Circuit. Most notably, she was part of the panel that summarily affirmed the dismissal of Ricci v. DeStefano, where the City of New Haven denied firefighter promotions based on an admittedly race-neutral exam whose results did not yield the “correct” racial mix of successful candidates. Sotomayor’s colleague José Cabranes—a liberal Democrat—excoriated the panel’s actions and the Supreme Court will likely reverse the ruling next month.

If this is the kind of “empathy” the president wants from his judges, we are in for a long summer—and more bitter confirmation battles in the future.

Obama Chooses Sotomayor for Supreme Court Nominee

soniaIn nominating Second Circuit Judge Sonia Sotomayor to fill the seat of retiring Supreme Court Justice David Souter, President Obama chose the most radical of all the frequently mentioned candidates before him.

Given the way her panel recently summarily dismissed the Ricci case –- involving the complaint by New Haven, Connecticut, firefighters that the city had thrown out the results of an officers exam because the results did not come out “right” –- and the expectation, based on oral argument, that the Supreme Court will reverse the Second Circuit decision, there will likely be an extremely contentious confirmation battle ahead. If confirmation hearings are scheduled for summer, they will follow shortly upon the Court’s decision in that explosive case.

Are we to imagine that President Obama chose as he did because he wants that battle?

GOP Health Care Alternative: Not as Bad as Advertised

Like my colleague, Michael Cannon, I was convinced by the staff summary and general spin accompanying the Republican health care bill introduced by Sens. Tom Coburn (R-OK) and Richard Burr (R-NC), and Reps. Paul Ryan (R-WI) and Devin Nunes (R-CA) that the bill headed, albeit more slowly, down the same road to government-run health care as expected Democratic proposals. However, a closer reading of the actual bill shows that, while there are still reasons for concern, it may be much better than originally advertised.

First, it should be pointed out that the centerpiece of the bill is an important change to the tax treatment of employer-provided health insurance. The Coburn-Burr-Ryan-Nunez bill would replace the current tax exclusion for employer-provided health insurance with a refundable tax credit of $2,300 per year an individual worker or $5,700 per year for family coverage. This move to personal, portable health insurance has long been at the heart of free market healthy care proposals. The bill would also expand health savings accounts and make important reforms to Medicaid and Medicare.

And, the bill should receive credit for what it does not contain. There is no individual or employer mandate. (I could live without the auto-enroll provisions, but they look more obnoxious than truly dangerous). There is no government board determining the cost-effectiveness of treatment. There is no “public option” competing with private insurance. In short, the bill avoids most of the really bad ideas for health reform featured in my recent Policy Analysis.

Other aspects are more problematic. The authors still seem far too attached to the idea of an exchange/connector/portal. The summary implied that states would be required to establish such mechanism. In reality, however, the bill merely creates incentives for states to do so. Moreover, I have been repeatedly assured that the bill’s authors are aiming for the more benign Utah-style “portal,” rather than the bureaucratic nightmare that is the Massachusetts “connector.” Still, I would be more comfortable if the staff summary had not singled out Massachusetts as the only state reform worthy of being called “an achievement.”

And, if states choose to set up an exchange, a number of federal requirements kick in, such as a requirement that at least one plan offered through the exchange provide benefits equal to those on the low cost FEHBP plan. There is also a guaranteed issue requirement.

Elsewhere, there are also requirements that states set up some type of risk-adjustment mechanism although the bureaucratic ex-post option that I criticized previously, appears to be only one option among many for meeting this requirement. And, I wish the authors hadn’t jumped on the health IT bandwagon. Health IT is a very worthy concept, but one better handled by the private sector.

And, if we should praise the bill for what it doesn’t include, we should criticize it in the same way. The bill does not include one of the best free market reform proposals of recent years, Rep. John Shadegg’s call for letting people purchase health insurance across state lines.

The bills (there are minor differences between the House and Senate versions) run to nearly 300 pages, and additional details, both good and bad, may emerge as I have more opportunity to study them. But for now, the bill, while flawed, looks to have far more good than bad.

Troublesome North Korea Strikes Again

The North Koreans have been busy, testing a nuclear weapon and shooting off missiles.  It seems that nothing upsets North Korea more than being ignored.

President Barack Obama expressed the usual outrage:

These actions, while not a surprise given its statements and actions to date, are a matter of grave concern to all nations. North Korea’s attempts to develop nuclear weapons, as well as its ballistic missile program, constitute a threat to international peace and security.

However, this really is all old news.  Although the nuclear test reinforces the North’s irresponsible reputation, the blast has little practical importance. North Korea has long been known to be a nuclear state and tested a smaller nuclear device a couple years ago. The regime’s missile capabilities also are well-known.

Contrary to the president’s excited rhetoric, the North has little ability to project force beyond the Korean peninsula.  So Washington should treat the North’s latest offense as an opportunity to reprogram the latter’s negotiating formula.

The U.S. should not reward “Dear Leader” Kim Jong-il with a plethora of statements beseeching the regime to cooperate and threatening dire consequences for its bad behavior. Rather, the Obama administration should explain, perhaps through China, that the U.S. is interested in forging a more positive relationship with North, but that no improvement will be possible so long as North Korea acts provocatively. Washington should encourage South Korea and Japan to take a similar stance.

Moreover, the U.S. should step back and suggest that China, Seoul, and Tokyo take the lead in dealing with Pyongyang. North Korea’s activities more threaten its neighbors than America. Even Beijing, the North’s long-time ally, long ago lost patience with Kim’s belligerent behavior and might be willing to support tougher sanctions.

Washington should offer to support this or other efforts to reform North Korean policy.  But without Chinese backing there is little else the U.S. can do.  War on the peninsula would be disastrous for all, and Washington has few additional sanctions to apply.  Beijing has the most leverage on Pyongyang, but whether even that is enough to moderate North Korea’s behavior is anyone’s guess.

North Korea is a problem likely to be long with us. The U.S. has limited ability to influence the North. Washington should offer the prospect of improved relations as a reward for improved North Korean behavior, but should let the North’s neighbors, most notably China, take the lead in managing this most difficult of states.