Tag: jagadeesh gokhale

Roy: “The Arkansas-Obamacare Medicaid Deal: Far Less Than It First Appeared”

At Forbes.com’s Apothecary blog, the Manhattan Institute’s Avik Roy is cool to the idea of states implementing ObamaCare’s Medicaid expansion by putting those new enrollees in ObamaCare’s health insurance “exchanges”: 

When Arkansas Gov. Mike Beebe (D.) first announced that he had reached a deal with the Obama administration to use the Affordable Care Act’s private insurance exchanges to expand coverage to poor Arkansans, it seemed like an important, and potentially transformative, development. The myriad ways in which the traditional Medicaid program harms the poor have been well-documented, and it looked like Beebe had come up with an attractive—albeit expensive—way to provide the poor with higher-quality private insurance. A Good Friday memo from the U.S. Department of Health and Human Services, however, splashes cold water on that aspiration. It’s now clear that the Beebe-HHS deal applies a kind of private-sector window dressing on the dysfunctional Medicaid program, and it’s not obvious that the Arkansas legislature should go along.

The first reason states should not pursue the Beebe plan is that, like a straight Medicaid expansion, it would inhibit the pursuit of low-cost health care for the poor. 

The second reason is that it would cost even more than putting those new enrollees in the traditional Medicaid program. Economist Jagadeesh Gokhale, who advises the Social Security program on how to make these sorts of projections, estimates a straight Medicaid expansion would cost Florida, Illinois, and Texas about $20 billion in the first 10 years. And that’s in the wildly unrealistic event that the feds honor their committment to cover 90 percent of the cost. President Obama has already proposed abandoning that committment. Congressional Budget Office projections suggest the “Beebe plan” would increase the cost of the expansion by 50 percent. That too should be enough reason to reject the Beebe plan. Neither the state nor the federal government have the money to expand Medicaid at all. Volunteering to make the expansion even more expensive is lunacy. 

The Beebe administration is trying to make its plan seem no more expensive than a straight Medicaid expansion. How? By simply assuming state officials would voluntarily make a straight Medicaid expansion so expensive that the Beebe plan wouldn’t cost a penny extra. The illogic goes like this. If Arkansas were to expand traditional Medicaid, the state would likely need to increase Medicaid payments to doctors and hospitals in order to secure adequate access to care for new enrollees. That would make a straight Medicaid expansion so expensive that the Beebe plan would be no more costly, and might even cost less. 

It’s true, states that implement ObamaCare’s Medicaid expansion would have to increase provider payments to give new eligibles decent access to care. The problem is that Medicaid never does that. Medicaid is notorious for paying providers so little that it access to care is lousy. Medicaid does so year after year, even if people sometimes die as a result. The Beebe administration simply assumed that state officials would magically change such behavior, increase Medicaid’s provider payments to the same levels private insurers pay, and thereby volunteer to make an already-expensive Medicaid expansion even more unaffordable. In that fantasy world, the Beebe plan would be no more expensive. As an indication of how implausible that assumption is, no one had been talking about combining a straight Medicaid expansion with higher provider payments until the Beebe administration needed to make the governor’s plan seem slightly less unaffordable. 

Roy has soured on Beebe-style plans since reading some of the terms and conditions the Obama administration issued on Friday. Yet he still imagines there might be free-market-friendly ways to implement a massive expansion of the entitlement state. Thus he counsels states only to expand Medicaid in exchange for real reforms. We’ve heard that song and dance before. Republicans said the State Children’s Health Insurance Program and Medicare Part D – two Republican initiatives – would lead to Medicaid and Medicare reform. Instead, government got bigger and reform went nowhere. Lucy is going to pull the football here, too. If it is Medicaid reform you seek, the only free-market Medicaid reforms are Medicaid cuts. Roy’s criticisms of the Beebe plan are welcome, though it’s odd to find him to the left of officials in the 15 or more states that are flatly rejecting the expansion.

Rick Scott’s ObamaCare Flip-Flop

Word is that Florida Gov. Rick Scott (R) has decided to throw his support behind, or at least drop his opposition to, ObamaCare’s Medicaid expansion. His formal announcement, which may come tomorrow, will receive much attention. Scott was an early opponent of ObamaCare. He parlayed that opposition into a bid for governor in 2010, and rode the anti-ObamaCare wave into office. Shortly after becoming governor, he announced he would not lift a finger to help the federal government implement the law. I followed all this pretty closely. I served on Scott’s gubernatorial transition team, at his invitation.

Now, it appears Scott doesn’t see the point in opposing the Medicaid expansion. Never mind that – according to my colleague Jagadeesh Gokhale, whom the Social Security Administration consults when making these types of projections – the expansion will cost Florida $20 billion over the first 10 years, and add 3 million Floridians to the Medicaid rolls. Never mind that many of those Floridians currently have private health insurance. Never mind that Medicaid will provide them inferior access to care. Never mind that expanding Medicaid would make those millions of voters dependent on government for their health care, and thus would expand the constituency for more government spending and higher taxes.

There is speculation that Scott made a deal with the Obama administration: he would drop his opposition to the Medicaid expansion in exchange for HHS approving Florida’s plan to put its Medicaid enrollees in managed care plans. HHS approved Florida’s plan today. But economists have shown that moving Medicaid enrollees into managed care increases state and federal spending because it lures more people into the program. So it appears that Scott supported ObamaCare’s Medicaid expansion so that the Obama administration would support his.

Scott says he still opposes having Florida create a health insurance Exchange. Then again, he said the same thing about the Medicaid expansion. So in addition to whatever other damage his flip-flop does, he has squandered his credibility as an opponent of ObamaCare.

To reclaim any credibility on this issue, Scott would have to file an Oklahoma-style lawsuit to block the illegal taxes that the Obama administration is trying to impose on employers in Florida and the other 33 states that have opted for a federal Exchange. Or will he sell out Florida’s job creators too?

Personal Accounts—for Medicare

Last night, Newt Gingrich praised the Chilean Social Security system, which allows workers to save for their retirements in personal accounts, rather than contribute to the government pension scheme. Several of my Cato colleagues are far more qualified than I am to comment on that system, including Mike Tanner, Jagadeesh Gokhale, and Jose Pinera–who designed and implemented it. But personal accounts are as important for reforming compulsory health insurance schemes like Medicare as they are for reforming compulsory pension schemes.

In 2010, I traveled to Chile to deliver an address to the International Federation of Pension Fund Administrators (FIAP).  I detailed the harms caused by compulsory health insurance schemes and explained how personal medical accounts would improve health care and generate wealth even for the poor:

In designing health care markets, perfection is not an option. Under any system, whether state-run or the free market, some patients will inevitably fall through the cracks.

Personal medical accounts can help fill in those cracks by enabling innovations that improve medical care and bring it within reach of the poor. Yes, some will not earn enough to provide for themselves. And when we are free to make our own decisions, a small number of people will make poor decisions. I believe we have a moral duty to care for patients who could not or would not provide for themselves. Personal medical accounts will make it easier for us to meet that moral duty.

Under compulsory health insurance schemes, those cracks widen, and more people fall through. Price and exchange controls block innovation. Governments waste resources on low-value medical care. Some would describe these as the unavoidable costs of creating an equitable society. But those wasted resources do not purchase solidarity. They purchase sickness and poverty.

FIAP turned my address into this book chapter, which also explains how to craft a system of personal medical accounts.

For current enrollees, who have not built up savings in a personal medical account, Congress should make Medicare look more like Social Security. That is, the government should subsidize Medicare enrollees by giving them cash, rather than creating a complex health-insurance scheme that effectively lets government officials shape the entire health care sector.

Fiscal Imbalance and Global Power

Over at National Journal’s National Security Experts blog, this week’s question revolves around the health of the U.S. economy, and its relationship to U.S. power. 

The editors ask

How serious a threat is the mounting debt to the nation’s standing as the world’s only superpower? Can the U.S. continue to spend more than all other countries combined on its military forces given burdensome debt levels? In what other ways does the mounting debt undermine the country’s strategic position? […]

My response:

Our long-term fiscal imbalance, which increasingly amounts to a massive intergenerational wealth transfer, is clearly a sign of our decline. But it is a decline that has been a long time coming. (I first wrote about the insolvency of the Social Security system as a college sophomore, 23 years ago.) As such, it is tempting for people to assume that we’ll figure our way out of this mess before a complete collapse. Let’s call them, at the risk of a double negative, the declinist naysayers. And, even if they are willing to admit to the problem in the abstract, the naysayers can point to the more serious, and urgent, imbalances between pensioners and those who pay the pensions in Europe or Japan and say “At least we aren’t them.”

That is a pretty shoddy argument, but it seems to be ruling the day. We can talk about the obvious unsustainability of using taxes on current workers to pay benefits for retirees until we’re blue in the face. And my second grader can do the math on a system that was designed when workers outnumbered beneficiaries by 16.5 to 1, and in which, by 2030, that ratio will fall to 2 to 1. It simply doesn’t add up. (For more on this, much more, see my colleague Jagadeesh Gokhale’s latest.)

But this isn’t a math problem; this is a political problem. The incentive to kick the can down the road is overwhelming. The pain in attempting to deal with the problem in the here and now is, well, painful. It is hardly surprising, therefore, that members of Congress / Parliament / Bundestag / Diet, etc, have become very good at avoiding the issue altogether. And many of those who have chosen to tackle it are “spending more time with their families.”

What does all this mean for the United States’s standing as the world superpower? Less than you might think. Our difficulties in two medium-sized countries in SW/Central Asia have done more to puncture the illusion of American power than our political inability to deal with domestic problems. Our fiscal insolvency might convince other countries to play a larger role, if they genuinely feared for their safety. But other countries, especially our allies, are cutting military spending, while Uncle Sam continues to bear the weight of the world on his shoulders. In other words, our ability to maintain our global superpower status isn’t driven by our economic problems. But it is strategically stupid.

It is here that I take issue with Ron Marks’s contention that we spend less today than during the Cold War. While technically accurate, measuring military spending as a share of GDP is utterly misleading (as I’ve argued elsewhere.) If the point is to argue that we could spend more, I agree. But the measure doesn’t address whether we should do so.

We should think of military spending not as a share of the American economy, but rather relative to the threats we face. In real terms (constant current dollars), we spend today more than when we were facing down a nuclear-armed adversary with a massive army stationed in Eastern Europe and a navy that plied the seven seas from Cam Ranh Bay to Cuba. We spend more than during the height of the Vietnam or Korean Wars. Today, terrorist leaders are hunkered down in safe houses somewhere in, well, somewhere. In other words, what we spend is utterly disconnected from the threats we face, a point that is easily obscured when one focuses on military spending as a share of total output.

We spend so much today not because we are facing down one very scary adversary, but because we are facing down dozens or hundreds of small adversaries that should be confronted by others. After the Cold War ended, our strategy expanded to justify a massive military. Since 9/11, it has expanded further. Our fiscal crisis alone won’t force a reevaluation of our grand strategy. It will take sound strategic judgement, and a bit of political courage, to turn things around.

In the cover letter to his just-released National Security Strategy, President Obama acknowledged that it doesn’t make sense for any one country to attempt to police the entire planet, irrespective of the costs. Unfortunately, the document fails to outline a mechanism for transferring some of the burdens of global governance to others who benefit from a peaceful and prosperous world order. We should assume, therefore, that the U.S. military will continue to be the go-to force for cleaning up all manner of problems, and that the U.S. taxpayers will be stuck with the bill.

Ed Morrissey on The Struggle to Limit Government

Ed Morrissey kindly mentioned The Struggle to Limit Government and responds to the advice for Tea Partiers in my video.

Morrissey says:

I don’t think it’s accurate to say that some Tea Partiers “like” big government; it’s more like some aren’t enthusiastic about dismantling as much of the federal government as others, especially the more doctrinaire libertarians.

In the video I noted that polls showed a majority of the people who identify with the Tea Party movement also thought the entitlement programs were worth their cost. My colleague, Jagadeesh Gokhale, has estimated that paying for current entitlements would require 9 percent of GNP in perpetuity. This is unlikely. Entitlements will have to be changed since too much has been promised. People who think the programs have been worth their cost are not likely initially to support reining in the entitlements. In saying that, I expressed a concern, not a prediction. It may be that Tea Party people will also come to recognize, as Ed Morrissey does, that the entitlement state cannot continue.

I said in the video that Tea Party people should recognize that “Democrats are not always the enemy.” Morrissey rightly says I should not talk about enemies in domestic politics. He adds that the current House Democratic caucus does not deserve support because its leaders favor expanding government. He’s right. Divided government is what we need now. However, I had in mind the more centrist Democrats that supported the tax and spending cuts of 1981 and the tax reform of 1986. I am urging Tea Party people to avoid becoming too partisan. Perhaps some of them will still be in Congress in 2011.

Then there’s the question of foreign policy and defense spending. In the video I said that a limited government movement like the Tea Party should start thinking outside the box on spending. I suggested rethinking America’s expansive commitments in foreign affairs as a way to reduce our military spending.  I did not deny – who could deny it? – that the Constitution entrusts the common defense to the federal government. I also recognize that the United States continues to have enemies. The question is: what should the government do to provide the common defense consistent with limited government?

In the past decade, we have spent enormous sums trying to transform two nations and the entire Middle East into liberal democracies. This was our “forward strategy” for dealing with terrorism. It reminded me of past Progressive crusades at home and abroad.   The strategy was a domestic political disaster, and we shall see whether our massive outlays eventually produce stability in Iraq or Afghanistan. For my part, I remain partial to the conservative virtues of realism, restraint, and prudence in dealing with other nations.

The United States is currently spending about half of all military spending in the world. We have some room for restraint without endangering American lives. We will still have a Navy that protects trade routes to the extent they are threatened. As I said in the video, we need to rethink our overall place in the world if we are to corral the big government beast. The Tea Party folks can lead the way here.

The Pentagon is not most of the federal budget. It is the only part historically, however, that can vary downward as well as upward. Sometime soon, the non-defense parts of the budget are going to have to vary downward rather than just upward.  Being serious about limiting government, however, requires that all spending be considered. Since I think the Tea Party movement is serious about cutting government, it would be better if they had a look at all spending from the start.

Globalization: Curse or Cure?

Globalization holds tremendous promise to improve human welfare but can also cause conflicts and crises. How will competition for resources, employment, and growth shape economic policies among developed nations as they attempt to maintain productivity growth, social protections, and extensive political and cultural freedoms?

In a new study, Cato scholar Jagadeesh Gokhale offers policy recommendations for developed nations to reduce globalization’s negative effects and, indeed, harness it for solving economic challenges.

New Paper: Would a Stricter Fed Policy and Financial Regulation Have Averted the Financial Crisis?

Many commentators have argued that if the Federal Reserve had followed a stricter monetary policy earlier this decade when the housing bubble was forming, and if Congress had not deregulated banking but had imposed tighter financial standards, the housing boom and bust—and the subsequent financial crisis and recession—would have been averted.

In a new study, Cato scholars Jagadeesh Gokhale and Peter Van Doren investigate those claims and dispute them.