Tag: Health

The Economic Case for Health Care Reform

There’s an old Yiddish saying that, “If my bubba had wheels she’d be a trolley.” So goes the logic of the Obama administration in their paper released yesterday, “The Economic Case for Health Care Reform.” Their claim is that reducing health care costs would help the economy. Yes, if health care costs were reduced it would likely help the economy, though we should remember that the health care industry is part of the economy.

There is nothing in Obamacare, however, that will reduce costs. In fact, expanding coverage may cause costs to rise. One study by MIT’s Amy Finkelstein suggests that the prevalence of insurance itself has roughly doubled the cost of health care. So, if Obama succeeds in expanding insurance coverage, it’s very likely to increase the cost of care.

Take Massachusetts for example. Three years ago, Massachusetts governor Mitt Romney signed into law one of the most far-reaching experiments in health care reform since President Bill Clinton’s ill-fated attempt at national health care. Proponents promised the reforms would reduce health care costs, suggesting the price of individual insurance policies would be reduced by 25-40 percent. In reality, however, insurance premiums rose by 7.4 percent in 2007, 8-12 percent in 2008, and are expected to rise 9 percent this year. This is compared to a nationwide average increase of 5.7 percent over the same three years. Nationally, on average, health insurance for a family of four costs $12,700; in Massachusetts, coverage for the same family costs an average of $16,897.

In fact, since the bill was signed, health care spending in the state has increased by 23 percent. Thus, despite individual and employer mandates, the creation of an insurance connector and other measures that increase insurance regulations, Massachusetts has failed to bring costs down.

President Obama and Congressional leaders have endorsed expanding coverage in similar ways to Massachusetts. The proposals would undoubtedly make it easier for some people to get coverage, but would also raise insurance costs for the young and healthy, making it more likely they would go without coverage. This leaves two choices: revert to the individual mandate (President Obama opposed the mandate as a candidate) or increase subsidies to try to cut costs to young and healthy individuals, thereby adding to the already substantial cost of the proposed plans.

Ultimately, controlling costs requires someone to say “no,” whether the government (as in single-payer systems with global budgets), insurers (managed care) or health care consumers themselves (by desire or ability to pay). In reality, any health care reform will have to confront the fact that the biggest single reason costs keep rising is that the American people keep buying more and more health care.

The Health Care Battle Begins

Sen. Edward Kennedy (D-Mass.) has begun circulating drafts of his proposed health care reform legislation. Initial reports, including an op-ed in the Boston Globe by Kennedy himself, suggest that the bill will contain every one of the bad ideas that I outlined in my recent Policy Analysis on what to expect from Obamacare.

Among other things, the Kennedy bill will call for:

  • An employer mandate;
  • An individual mandate;
  • A so-called “Public Option,” a Medicare-like plan that will compete with private insurance;
  • The use of comparative-effectiveness/cost-effectiveness research to restrain costs;
  • Subsidies for families earning as much as 500% of the poverty level ($110,250 for a family of four).
  • Insurance regulation, including guaranteed issue and community rating. (He would also establish a Massachusetts-style Connector); and
  • Government-directed health IT.

There’s no indication yet of how much the plan would cost or how Sen. Kennedy plans to pay for it.

The bill will be formally presented to Senator Kennedy’s Committee on Health, Education, Labor & Pensions (HELP) sometime next week. Hearings could be held around June 10, and committee “mark up” could begin on June 17.

Senate Finance Committee chairman Max Baucus (D-Mont.) is expected to introduce his health care bill shortly before the Finance committee begins its scheduled mark up on June 10.

Meanwhile President Obama’s campaign apparatus is planning rallies and demonstrations around the country to build support for health care reform.

The battle over the future of health care in this country has begun.

Cohn vs. AFP

The New Republic’s Jonathan Cohn accuses Americans for Prosperity (AFP) of “lies” for running an ad that claims “Washington wants to bring Canadian-style healthcare to the U.S.”

AFP’s ad is more defensible than Cohn’s criticisms of it.

Cohn elides the question of whether Shana Holmes (the woman featured in the ad) was almost killed by Canada’s Medicare system.  For a supporter of single-payer like Cohn, that is tantamount to admitting that, yeah, socialized medicine sometimes kills people.

Cohn argues that the ad is unfair because Canada has many advantages over the U.S. health care sector.  That may be true, but the ad doesn’t appear to defend American health care.  It merely says, “government should never come in between your family and your doctor” and “Don’t give up your rights.”  That’s not pro-American health care or anti-reform.  It’s just anti- the type of reform that Cohn wants.  And it points to one area where our semi-socialized U.S. health care sector appears to be superior to Canada’s: quicker access to intensive treatments.  Sometimes, that saves lives.  In fact, AFP could go farther and say that the United States has another edge over Canada, in that we develop nearly all of the best new medical technologies.  In fact, our medical technologies save Canadian lives, but Canada’s health care system (and its supporters) steal the credit.

Yet “the real lie,” Cohn claims, is that the ad suggests that “Washington” wants to impose a Canadian-style system on the United States.  Cohn calls that claim “demonstrably false.” But consider:

  • President Obama has said he would prefer single-payer and has hinted that he would like to make incremental changes in that direction.
  • Many people who support a new public plan (e.g., Paul Krugman) do so because they believe it will lead to single-payer.
  • Massachusetts, which has already implemented most of the reforms that Obama and congressional Democrats are considering, is now contemplating a large leap toward Canadian-style health care by imposing capitation on its entire health care sector.
  • Government rationing becomes increasingly likely as government revenues fail to keep pace with the cost of government’s health care promises.  (See again, Massachusetts.)
  • The Left wants government to ration care.  That’s the point of the comparative-effectiveness research funding.  That draft House Appropriations Committee report committed a classic Washington gaffe when it said that certain treatments “would no longer be prescribed,” because it was admitting the truth.

Cohn is correct that no politician of influence is saying she wants to impose a Canadian-style system on the United States.  But I prefer to pay attention to what they’re doing.

AFP: 1.  Cohn: 0.

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.

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.

Obamacare to Come: Seven Bad Ideas for Health Care Reform

President Obama has made it clear that reforming the American health care system will be one of his top priorities, and congressional leaders have promised to introduce legislation by this summer.

In a new study, Cato scholar Michael D. Tanner breaks down the key components of any plan likely to emerge from Congress, and explains how those proposals would “dramatically transform the American health care system in a way that would harm taxpayers, health care providers, and — most importantly — the quality and range of care given to patients.”

At National Review online, Tanner explains the different aspects to Obama’s plan, all of which could be coming to a hospital near you.  In today’s Cato Daily Podcast, he expands on his paper, describing what health care will look like in years to come.

GOP Health Care Alternative: Drinking the Massachusetts Kool-Aid

Earlier this morning, my colleague, Michael Cannon, blogged a devastating critique of the Coburn-Burr-Ryan-Nunez alternative to the Obama health plan. As he shows, while the bill has some good features (changing the tax treatment of health insurance, expanding HSAs), the good is swamped by a bizarre collection of regulation, mandates, and hidden taxes.

In fact, the bill appears to be based, in large part, on what its sponsors call “the well-known, bi-partisan achievement of universal health care through a private system in Massachusetts.” But the Massachusetts model has failed to either achieve universal coverage or control health care costs. Rather, as I noted in this recent blog, it has led to more regulation, less consumer choice, and increased insurance premiums, while running huge budget deficits that have already led to one tax increase and are now causing the state to consider premium caps and global budgets. One wonders why congressional Republicans would want to head down that road.

Notably, Coburn-Burr-Ryan-Nunez abandons Rep. John Shadegg’s proposal to allow Americans to buy insurance across state lines in favor of a requirement that states establish Massachusetts-style connectors. But the Massachusetts Connector has been one of the worst aspects of that state’s reform, acting as a super-regulatory body, adding new mandated benefits, restricting consumer’s choice of plans, and adding both regulatory and administrative costs to insurance. (In fact, the Connector adds its own administrative costs, estimated at 4 percent of premium costs, for plans that are sold through it.) What the Connector has not done is live up to its promise of breaking the link between employment and insurance, giving workers personal, portable insurance that they could take with them from job to job, and which they would not lose when they lost their jobs. Unfortunately, the Connector has not lived up to its promise in the latter regard. In fact, as of May 2008, only 18,122 people had purchased insurance through the Connector. That’s very little gain for so much pain.

Since there is virtually no chance that the Coburn-Burr-Ryan-Nunez will actually be enacted, perhaps one shouldn’t get too excised about its failings. No doubt it is far superior to Obamacare. And, it is understandable that congressional Republicans want to appear as more than the “party of no.” Still, this looks like a sadly missed opportunity.