Tag: health care providers

A Response to Jonathan Gruber on ObamaCare & Health Care Costs

In this week’s New England Journal of Medicine, MIT health economist and Obama administration consultant Jonathan Gruber responds to claims that ObamaCare will increase health care costs.  Gruber acknowledges the Obama administration’s estimates that ObamaCare will increase health care spending, but compares that to the administration’s estimate that 34 million otherwise uninsured U.S. residents will obtain coverage under the law:

[B]y 2019, the United States will be spending $46 billion more on medical care than we do today. In 2010 dollars, this amounts to only $800 per newly insured person — quite a low cost as compared (for example) with the $5,000 average single premium for employer-sponsored insurance.

What a bargain!  Of course, Gruber is being sneaky.  The cost per newly insured person is not $800.  It will be higher than $5,000.  But only $800 of that cost will appear as new health care spending.  The rest of that cost will be borne largely by people who already had coverage, but find their access to care reduced.  These include Medicare enrollees who will receive fewer benefits through (or who will be ousted from) their private Medicare plans; Medicare enrollees who will have a harder time accessing care because some hospitals, skilled nursing facilities, home health agencies and other providers “might end their participation in the program,” according to the Obama administration; and maybe even some (currently) privately insured people who find themselves in Medicaid.  (The administration itself says it is “probable” that ObamaCare “could result…in some of this demand being unsatisfied.”)  Other costs include the economic growth and opportunity that is destroyed by ObamaCare’s tax increases, and the costs associated with trapping workers in low-wage jobs.

And that’s if everything goes as planned.  Gruber remains convinced that future Congresses will not undo ObamaCare’s tax increases or downward adjustments to Medicare’s price controls, as Congress has consistently undone scheduled reductions in the prices that Medicare pays physicians.  Gruber’s sometime employer – the Obama administration – itself contradicts his argument when it writes that the bulk of those reductions in Medicare spending are “doubtful” and “unrealistic.”  Gruber inadvertently shows why critics are right to be skeptical about the tax increases and spending reductions when he writes:

The cuts in spending and increases in taxes are actually “back-loaded,” with the revenue increases rising faster over time than the spending increases, so that this legislation improves our nation’s fiscal health more and more over time.

The fact that the austerity measures had to be backloaded is a sign of their implausibility.  If they were popular, they could take full effect tomorrow.  But their implementation had to be delayed to head off significant political resistance – resistance that will express itself between now and when those austerity measures take effect.

On the broader issue of reducing the growth of health care spending, Gruber claims that ObamaCare “cautiously pursue[s] many different approaches toward cost control and stud[ies] them to see which ones work best.” Yet each approach is all but guaranteed to fail. The tax on high-cost health plans? Unlikely to survive. (But at least Gruber now admits it is a tax.)  The rationing board designed to curtail each congresscritter’s ability to keep the money flowing to health care providers in their districts? Also unlikely to survive, for obvious reasons.  Pilot programs experimenting with different government price and exchange controls? Even successful pilot programs get nixed.  Comparative-effectiveness research?  A pipe dream that fails every time the government tries it.

To the extent that these spending cuts fail to materialize, health care spending will rise, and deficits will deepen. Congress will need to impose additional tax increases, and/or find sneakier ways to ration medical care curb health care spending.  Gruber’s Massachusetts enacted ObamaCare four years ago, and that’s exactly what state officials are doing.

Since President Obama signed this law, the Congressional Budget Office has announced that its cost, including the so-called “doc fix” and spending subject to appropriations, is already about $200 billion higher than previously believed.  As I’ve written elsewhere:

ObamaCare would create new constituencies for government spending, hook existing constituencies on even more government spending, and promise implausible cuts in existing subsidies to constituencies that are highly organized and vocal.

Gruber gets chutzpah points for arguing that the same law would actually contain health care costs.

Whip (Health Care) Inflation Now?

During the runaway inflations of 1974 and 1979, Presidents Ford and Carter suggested that inflation was caused by the profligacy of American households. President Ford’s infamous “Whip Inflation Now” speech, for example, said, “Here is what we must do, what each and every one of you can do: To help increase food and lower prices, grow more and waste less; to help save scarce fuel in the energy crisis, drive less, heat less.”

Much of the recent discussion of health care costs likewise treats this as a problem caused by a demonic private insurance industry, and therefore requiring such “reforms” as expanding Medicaid to the non-poor and Medicare to the non-old.

The facts are quite different, as shown in “The Evolution of Medical Spending Risk” by Jonathan Gruber of MIT and Helen Levy of the University of Michigan, in the latest Journal of Economic Perspectives.

Gruber and Levy calculate that real private health care spending per person (in 2007 dollars) “increased from about $700 to $3,500 between 1960 and 2007, a five-fold increase.” They note that “private out-of-pocket spending has not quite doubled.” Yet “government health spending over the same period … increased from about $250 to $3,5000, a 13-fold increase.”

In fairness, the quality of health care has been hugely improved since 1960. And prices of physician services (which are often incorrectly compared with the overall consumer price index) have risen no faster than prices of non-medical services.

In any case, President Obama’s claim that the pace of total public and private spending on health care could somehow be “contained” by greatly increasing government spending clearly flunks 3rd grade arithmetic.

Unless the hidden agenda is to impose draconian wage and price controls and political rationing on health care providers, all the rhetorical pretense about proposed health care legislation being a way to hold down overall spending on health care is like saying the solution to chronic drunkeness is more booze.

Cato on Health Care Reform

We are now facing some of the most sweeping changes health care has seen in decades. Reform is needed, but increasing government control over one-sixth of the economy and over important personal and private decisions – as many of the proposals aim to do – would harm American taxpayers, health care providers, and patients.

This week, the Cato Institute launched Healthcare.Cato.org, which highlights Cato’s contributions to the health care debate. The resources provided on the site provide in-depth analyses of health care issues and reform initiatives, and underscore the ways in which free-market reforms, increased consumer choice, and energized competition – not more government control – improve the quality and cost-efficiency of health care.

Please check back regularly for updates and new resources!

Update: The Cato Institute Conference on Health Care Reform will be Webcast live from 9:00-5:00 PM Wednesday.

Featured speakers:

  • Rep. Paul Ryan (R-WI)
  • Rep. Michael C. Burgess, M.D. (R-TX)
  • Rep. Jason Altmire (D-PA)
  • Karen Davenport, Director of Health Policy, Center for American Progress
  • Douglas Holtz-Eakin, Former Director, Congressional Budget Office, and Director of Domestic and Economic Policy for the McCain presidential campaign
  • Tom G. Donlan, Barron’s
  • Karen Tumulty, Time Magazine
  • Susan Dentzer, Health Affairs
  • John Reichard, Congressional Quarterly

Full schedule of events and Webcast, here.