Tag: Health Affairs

Distrust of Justice System also Affects Black Americans’ Views on Public Health Measures

The Washington Post’s Wonkblog “interviews political scientists Jon Hurwitz and Mark Peffley about their book on how blacks and whites perceive the criminal justice system, and what it implies for Trayvon Martin’s death, George Zimmerman’s acquittal, and the aftermath.” An excerpt, quoting Hurwitz/Peffley:

We asked whether it’s a “serious problem” in their community that police “stop and question blacks far more often than whites” or that police “care more about crimes against whites than minorities.” On average, 70 percent of blacks, but only 17 percent of whites, considered these serious problems…[W]hile about 25 percent of whites disagreed with the statement that the “courts give all a fair trial,” more than 60 percent of African Americans disagreed. Repeatedly, using every possible barometer, we found that blacks doubted the fairness of the justice system much more than whites…

Much of the difference comes down to either personal or vicarious experiences that people have with police and the courts. We found that African Americans, especially younger black men, were far more likely than whites to report being treated unfairly by the police because of their race. In fact, a recent Gallup Poll found that one of every four black men under age 35 said that the police have treated them unfairly during the last 30 days.

This excerpt reminded me of a data point I included in the health care chapter I wrote for the Encyclopedia of Libertarianism:

A 2004 survey published in the journal Health Affairs hints at one way [public-health] powers could be abused. Amid widespread concern about bioterrorism, roughly equal shares of white and black Americans expressed support for quarantines to contain a serious contagious disease. When subsequently asked whether they would support a compulsory quarantine, where the authorities would have the power to arrest violators, 25% of whites changed their minds, whereas 51% of blacks did, indicating an awareness that these policies would not necessarily be fairly implemented.

It also reminded me of this John McWhorter speech, reprinted in the Winter 2011 issue of Cato’s Letter, where he argues the war on drugs is behind “the strained relationship between young black men and police forces,” and racial progress requires ending the drug war.

The Illegal IRS Rule to Increase Taxes & Spending under ObamaCare: Our Response to Timothy Jost

Jonathan Adler and I have a post at the at the Health Affairs blog where we respond to Timothy Jost’s critique of our working paper, “Taxation without Representation: the Illegal IRS Rule to Expand Tax Credits under the PPACA.” Jost has been our most tenacious (if not most consistent) critic.

Here’s an excerpt. Keep in mind that although we say “tax credits,” government spending accounts for about 80 percent of the money involved. Which is a lot: the cost of this illegal IRS rule could be in the hundreds of billions of dollars.

The dispute is over whether the [Patient Protection and Affordable Care] Act authorizes the IRS to provide tax credits only in Exchanges established by states (under Section 1311) or also in Exchanges established by the federal government (under Section 1321). Three facts are key to this dispute.

First, both sides acknowledge that the statutory language governing eligibility for tax credits is clear and unambiguous. The Act provides that taxpayers are eligible for tax credits if they purchase a health plan through “an Exchange established by the State under section 1311.” That language clearly authorizes tax credits only in state-established Exchanges, and the Act employs or refers to that language no less than six times when authorizing tax credits. There is no parallel language anywhere in the statute authorizing the IRS to offer tax credits through federal Exchanges established under Section 1321.

Second, there is nothing in the statute that conflicts with the plain meaning of that language. Indeed, the rest of the statute supports that plain meaning. Nor has anyone identified anything in the law’s legislative history that conflicts with that language. The only statement anyone has found on this point shows the statutory language was intentional. During congressional debate, the bill’s lead author, Senate Finance Committee chairman Max Baucus (D-MT), explained that the bill conditions tax credits on the establishment of a state-run Exchange.

Third, even though some members of Congress and the President might have preferred a law that authorized tax credits in federal Exchanges, they nevertheless enacted a law that did not. Many advocates of health care reform urged passage of the Senate bill even though there were parts of the bill they did not like, and knowing full well that not all defects could or would be fixed through the reconciliation process. Congress amended the sections of the Senate bill that authorize tax credits and cost-sharing subsidies a total of 12 times through the reconciliation process, but left the language limiting tax credits to state-established Exchanges undisturbed. Again, many of those amendments support the clear meaning of that language, and none of them conflict with it.

And yet, in late May the IRS finalized a rule that will issue tax credits—and therefore will trigger cost-sharing subsidies and employer-mandate penalties—through federal Exchanges, contrary to the plain language of the statute. It is our contention that this rule is illegal.

We invite everyone to read our working paper alongside Jost’s post, and our reply, and to decide for themselves whether the IRS is breaking the law.

You can also watch Jost and me testify before Congress on the IRS rule tomorrow at 9am ET in room 2154 of the Rayburn House Office Building.

Private Insurance Is More Efficient than Medicare—By Far

Diane Archer has a post at the Health Affairs blog arguing that Medicare is more efficient than private insurance.  One can only reach such a conclusion through such sleights of hand as conflating spending with cost, and by ignoring most of Medicare’s administrative costs.

As a pre-buttal, I offer this excerpt from a paper I wrote about a “public option” (emphases generally added and citations omitted):

Is Government More Efficient?

Supporters of a new government program note that private insurers spend resources on a wide range of administrative costs that government programs do not. These include marketing, underwriting, reviewing claims for legitimacy, and profits. The fact that government avoids these expenditures, however, does not necessarily make it more efficient. Many of the administrative activities that private insurers undertake serve to increase the insurers’ efficiency. Avoiding those activities would therefore make a health plan less efficient. Existing government health programs also incur administrative costs that are purely wasteful. In the final analysis, private insurance is more efficient than government insurance.

Administrative Costs

Time magazine’s Joe Klein argues that “the profits made by insurance companies are a good part of what makes health care so expensive in the U.S.and that a public option is needed to keep the insurers honest.” All else being equal, the fact that a government program would not need to turn a profit suggests that it might enjoy a price advantage over for-profit insurers. If so, that price advantage would be slight. According to the Congressional Budget Office, profits account for less than 3 percent of private health insurance premiums. Furthermore, government’s lack of a profit motive may not be an advantage at all. Profits are an important market signal that increase efficiency by encouraging producers to find lower-cost ways of meeting consumers’ needs. The lack of a profit motive could lead a government program to be less efficient than private insurance, not more.

Moreover, all else is not equal. Government programs typically keep administrative expenditures low by avoiding activities like utilization or claims review. Yet avoiding those activities increases overall costs. The CBO writes, “The traditional fee-for-service Medicare program does relatively little to manage benefits, which tends to reduce its administrative costs but may raise its overall spending relative to a more tightly managed approach.”7 Similarly, the Medicare Payment Advisory Commission writes:

[The Centers for Medicare & Medicaid Services] estimates that about $9.8 billion in erroneous payments were made in the fee-for-service program in 2007, a figure more than double what CMS spent for claims processing and review activities. In Medicare Advantage, CMS estimates that erroneous payments equaled $6.8 billion in 2006, or approximately 10.6 percent of payments… . The significant size of Medicare’s erroneous payments suggests that the program’s low administrative costs may come at a price.

CMS further estimates that it made $10.4 billion in improper payments in the fee-for-service Medicare program in 2008.

Medicare keeps its measured administrative-cost ratio relatively low by avoiding important administrative activities (which shrinks the numerator) and tolerating vast amounts of wasteful and fraudulent claims (which inflates the denominator). That is a vice, yet advocates of a new government program praise it as a virtue.

Medicare also keeps its administrative expenditures down by conducting almost no quality-improvement activities. Journalist Shannon Brownlee and Obama adviser Ezekiel Emanuel write:

[S]ome administrative costs are not only necessary but beneficial. Following heart-attack or cancer patients to see which interventions work best is an administrative cost, but it’s also invaluable if you want to improve care. Tracking the rate of heart attacks from drugs such as Avandia is key to ensuring safe pharmaceuticals.

According to the CBO, private insurers spend nearly 1 percent of premiums on “medical management.” The fact that Medicare keeps administrative expenditures low by avoiding such quality-improvement activities may likewise result in higher overall costs—in this case by suppressing the quality of care.

Supporters who praise Medicare’s apparently low administrative costs often fail to note that some of those costs are hidden costs that are borne by other federal agencies, and thus fail to appear in the standard 3-percent estimate. These include “parts of salaries for legislators, staff and others working on Medicare, building costs, marketing costs, collection of premiums and taxes, accounting including auditing and fraud issues, etc.”

Also, Medicare’s administrative costs should be understood to include the deadweight loss from the taxes that fund the program. Economists estimate that it can easily cost society $1.30 to raise just $1 in tax revenue, and it may sometimes cost as much as $2.36 That “excess burden” of taxation is a very real cost of administering (i.e., collecting the taxes for) compulsory health insurance programs like Medicare, even though it appears in no government budgets.

Comparing administrative expenditures in the traditional “fee-for-service” Medicare program to private Medicare Advantage plans can somewhat control for these factors. Hacker cites a CBO estimate that administrative costs are 2 percent of expenditures in traditional Medicare versus 11 percent for Medicare Advantage plans. He writes further: “A recent General Accounting Office report found that in 2006, Medicare Advantage plans spent 83.3 percent of their revenue on medical expenses, with 10.1 percent going to nonmedical expenses and 6.6 percent to profits—a 16.7 percent administrative share.”

Yet such comparisons still do not establish that government programs are more efficient than private insurers. The CBO writes of its own estimate: “The higher administrative costs of private plans do not imply that those plans are less efficient than the traditional FFS program. Some of the plans’ administrative expenses are for functions such as utilization management and quality improvement that are designed to increase the efficiency of care delivery.” Moreover, a portion of the Medicare Advantage plans’ administrative costs could reflect factors inherent to government programs rather than private insurance. For example, Congress uses price controls to determine how much to pay Medicare Advantage plans. If Congress sets those prices at supracompetitive levels, as many experts believe is the case, then that may boost Medicare Advantage plans’ profitability beyond what they would earn in a competitive market. Those supracompetitive profits would be a product of the forces that would guide a new government program—that is, Congress, the political system, and price controls—rather than any inherent feature of private insurance.

Economists who have tallied the full administrative burden of government health insurance programs conclude that administrative costs are far higher in government programs than in private insurance. In 1992,University of Pennsylvania economist Patricia Danzon estimated that total administrative costs were more than 45 percent of claims in Canada’s Medicare system, compared to less than 8 percent of claims for private insurance in the United States. Pacific Research Institute economist Ben Zycher writes that a “realistic assumption” about the size of the deadweight burden puts “the true cost of delivering Medicare benefits [at] about 52 percent of Medicare outlays, or between four and five times the net cost of private health insurance.”

Administrative costs can appear quite low if you only count some of them. Medicare hides its higher administrative costs from enrollees and taxpayers, and public-plan supporters rely on the hidden nature of those costs when they argue in favor of a new government program.

Cost Containment vs. Spending Containment  

Advocates of a new government health care program also claim that government contains overall costs better than private insurance. Jacob Hacker writes, “public insurance has a better track record than private insurance when it comes to reining in costs while preserving access. By way of illustration, between 1997 and 2006, health spending per enrollee (for comparable benefits) grew at 4.6 percent a year under Medicare, compared with 7.3 percent a year under private health insurance.” In fact, looking at a broader period, from 1970 to 2006, shows that per-enrollee spending by private insurance grew just 1 percentage point faster per year than Medicare spending, rather than 2.7 percentage points. That still omits the 1966–1969 period, which saw rapid growth in Medicare spending.

More importantly, Hacker’s comparison commits the fallacy of conflating spending and costs. Even if government contains health care spending better than private insurance (which is not at all clear), it could still impose greater overall costs on enrollees and society than private insurance. For example, if a government program refused to pay for lifesaving medical procedures, it would incur considerable nonmonetary costs (i.e., needless suffering and death). Yet it would look better in Hacker’s comparison than a private health plan that saved lives by spending money on those services. Medicare’s inflexibility also imposes costs on enrollees. Medicare took 30 years longer than private insurance to incorporate prescription drug coverage into its basic benefits package. The taxes that finance Medicare impose costs on society in the range of 30 percent of Medicare spending. In contrast, there is no deadweight loss associated with the voluntary purchase of private health insurance.

Hacker nods in the direction of non-spending costs when he writes, “Medicare has maintained high levels of … patient access to care.” Yet there are many dimensions of quality other than access to care. It is in those areas that government programs impose their greatest hidden costs, on both publicly and privately insured patients.

The paper goes on to discuss how private insurance bests Medicare on quality, but this excerpt is long enough.  For more on the comparison between private health insurance premiums and per-enrollee Medicare spending, see this blog post, where I conclude, “If [this comparison] were a farm animal, and social scientists farmers, they would have to take it behind the barn and put a bullet in its head.”

In addition to committing the same errors and Hacker and others, Archer fails to note that Medicare Advantage reduces spending in traditional Medicare – thereby treating us to the spectacle of an opponent of competition taking credit for one of competition’s many benefits.

Update on the Legal Challenges to Obamacare

Since I first issued my challenge to debate “anyone anytime anywhere” on the (un)constitutionality of Obamacare, a lot has happened.  For one thing, Randy Barnett and Richard Epstein, among many others, have published provoctive articles looking at issues beyond the Commerce Clause justification for the individual mandate – such as the argument that Congress’s tax power justifies the mandate penalty and that the new Medicaid arrangement amounts to a coercive federal-state bargain.  (Look for to a longish article from yours truly due to come out in next month’s issue of Health Affairs.)  For another, as Michael Cannon noted, seven more states – plus the National Federation of Independent Business and two individuals – have joined the Florida-led lawsuit against Obamacare.  Perhaps most importantly, such legal challenges are gaining mainstream credibility.

Here’s a brief look at some important legal filings from the past 10 days:

  1. On May 11, the U.S. government filed a response to the Thomas More Center’s lawsuit asking a federal court in Michigan to enjoin Obamacare on various grounds, including, distinct from other suits I’ve seen, religious liberty violations from having to pay for abortions.  The government argues that the plaintiffs lack standing because it’s unclear whether the individual mandate will harm them and in any event this provision doesn’t go into effect until 2014 at the earliest. The government also predictably argues that the mandate is a valid exercise of Congress’s power to regulate interstate commerce and to provide for the general welfare.  There is nothing surprising here and we now await the court’s preliminary ruling.
  2. On May 12, the U.S. Citizens Association (a conservative group) and five individuals filed a new suit in Ohio, as Jacob Sullum notes.  In addition to the government powers arguments that are being made in most Obamacare lawsuits (most notably the state suits), this suit claims a violation of: the First Amendment freedom of association (the government forces people to associate with insurers); individual liberty interests under the Fifth Amendment; and the right to privacy under the Fifth Amendment’s liberty provision, Ninth Amendment retained rights, and the rights emanating from the First, Third, Fourth, Fifth, and Ninth Amendments (such is the Court’s convoluted jurisprudence in this area).  I’ll add that the attorney filing this suit, Jonathan Emord, worked for Cato over 20 years ago.
  3. On May 14, Florida filed an amended complaint that, along with adding seven states, two individuals, and the NFIB – so all potential standing bases are covered – beefs up relevant factual allegations and, most importantly, shores up a few legal insufficiencies to the previous claims.  This is a solid complaint, and alleges the following counts: (1) the individual mandate/penalty exceeds Congress’s power under both the Commerce Clause and taxing power and, as such, violate the Ninth and Tenth Amendments; (2) the mandate violate’s the Fifth Amendment’s Due Process Clause; (3) the mandate penalty is an unconstitutional capitation or direct tax because it is unapportioned; (4) the Medicare expansion constitutes a coercive federal-state bargain that commandeers state officials; (5) a different formulation of coercion/commandeering; and (6) interference with state sovereignty and functions under the Tenth Amendment.   After further briefing, oral arguments on the government’s expected motion to dismiss are scheduled for September 14 in Pensacola.
  4. At least one enterprising analyst has determined that the 2,400-page bill lacks a severability clause.  This means that if one part of the bill is struck down as unconstitutional, the whole thing falls! – and would mean that the drafters committed legal malpractice of the highest order.  I guess it goes to show that nobody has read the whole thing.

Finally, if anybody is reading this is in Seattle, I’ll be debating Obamacare at the University of Washington Law School next Thursday, May 27 at 4:30pm.  This debate, sponsored by a number of groups, including the law school itself and the Federalist Society, is free and open to the public.  For those interested in other subjects, I’ll be giving a different talk to the Puget Sound Federalist Society Lawyers Chapter the day before at 6:30pm at the Washington Athletic Club ($25, rsvp to Michael Bindas at mbindas [at] ij [dot] org).  The title of that one is “Justice Elena Kagan?  What the President’s Choice Tells Us About the Modern Court and Confirmation Process.”  Please do introduce yourself to me if you attend either event.