Tag: private insurers

Obama: CEO of America, Inc.

Today Politico Arena asks:

Will President Obama’s proposal to block excessive rate increases by insurers help get a health care package through Congress?

My response:

Just where does President Obama think Congress finds the power to authorize the HHS secretary “to review, and to block, premium increases by private insurers, potentially superseding state insurance regulators”?  My colleague David Boaz addresses the politics of this unseemly proposal just below.  And elsewhere our colleague Michael Cannon offers a devastating economic critique of the proposal, citing White House economic advisor Larry Summers, no less, on the folly of it all.  But the constitutional question is what concerns me.

No doubt Obama, a former lecturer in constitutional law, believes that the power of Congress to regulate interstate commerce suffices to allow it to set private heath insurance premiums.  After all, once delegated to him, that same power allowed him, he believes, to take over auto companies, to fire corporate executives, to set their salaries, and to do, well, pretty much what he wanted in so many other areas.  That’s the modern executive state – the president as CEO of America, Inc.  The irony, however, is that the commerce power was given to Congress for precisely the opposite reason – to ensure economic liberty, not to restrict it. 

Facing state impediments to free interstate commerce, which had arisen under the Articles of Confederation, the Framers empowered Congress to check such restraints and to do the few other things needed to ensure a free national market.  In fact, early in our history a Hamiltonian proposal that Congress undertake a national industrial policy – ObamaCare is a stark example of such a policy – was rejected outright by the Congress as beyond its authority.  Obama’s proposal speaks directly to how thoroughly we’ve turned the Constitution on its head.  And as recent elections give evidence, the American people are coming increasingly to understand that.  This proposal, I predict, will go nowhere.

HHS Bureaucracy Is Not up to the Task

One aspect of the health care debate that has not been sufficiently addressed is how the Department of Health and Human Services will handle all its new responsibilities given the massive fraud and abuse that already plagues its existing programs.

It seems that every week there’s a new report of government health care being bilked. Since what’s reported is typically only what is caught, one can only imagine how much isn’t being caught. Harvard’s Malcolm Sparrow, a top specialist in health care fraud, estimates that up to 20 percent of federal health program budgets are consumed by improper payments, which would be a staggering $150 billion a year for Medicare and Medicaid.

New York Times columnist David Leonhardt did raise the question this week of whether the HHS bureaucracy is up to the task. He notes that the president is yet to choose a nominee to head the HHS’s Centers for Medicare and Medicaid Services (CMS), and he suggests that “the lack of a Medicare nomination suggests that the White House is not giving enough attention to what will happen once Mr. Obama signs a bill.” Well that’s because most politicians are primarily concerned with getting accolades for passing bills, but don’t worry too much about how programs actually work.

As I mentioned in an earlier post on this subject, CMS is the reincarnation of a previous HHS bureaucracy with a poor reputation. David Hyman recounts in his book, Medicare Meets Mephistopheles, that in 2001 HHS’s Health Care Financing Administration became CMS in an attempt to rebrand the universally disliked HCFA. CMS Administrator Tom Scully told Congress in 2003:

The fact is, the health care market…is extremely muted and extremely screwed up and it’s largely because of my agency. For those of you who don’t follow CMS, which used to be called HCFA, we changed the name because it was so well loved. I always say it’s kind of like when Enron comes out of bankruptcy, they’ll probably change their name. So, HCFA—Secretary Thompson and I decided to confuse everybody. We changed the name to CMS for a couple of years so people wouldn’t realize we’re actually HCFA. So far, it’s worked reasonably well.

Oh sure, the president is promising that this time it will be different. But Leonhardt relates a story from former CMS administrator Mark McClellan that shows why the president’s promise will be impossible to keep:

[Mark McClellan] likes to tell the story of a Medicare demonstration project that Congress approved in 2003. Once the bill passed, officials had to devise the project’s details, decide how to measure the results and choose the locations. All of that took until 2009. The first round of projects — coordinating care across medical specialties, in Indiana and North Carolina — has only recently started. Years more will pass before the results are in.

Sadly, McClellan’s solution is “adding in a few billion dollars to give Medicare the resources to act more quickly.” In other words, more bureaucracy.

Leonhardt concludes by comparing the HHS bureaucracy to “old-line” private companies:

The agencies that will be managing health reform are often the same ones that have helped build the current system. Many talented people work in these agencies, and unlike the Medicare administrator, they are already in place. But there are all sorts of reasons to be skeptical of how easily a sprawling, existing organization can innovate.

People at old-line organizations tend to rationalize the usual ways of doing business and to worry about the downsides of change. I.B.M. didn’t invent Windows or the Mac. Newspapers didn’t invent Craigslist. Medicare and Medicaid will, to a significant degree, have to reinvent government-provided medical care and, in the process, help create a template for private insurers.

Although I’m sympathetic to this comparison, I’m not completely buying it. Market forces demand that private companies innovate to satisfy customers; otherwise they’re apt to disappear, assuming they don’t get government bailouts. Government bureaucracies face no such forces. As I mentioned, HHS’s previous bungling Medicare/Medicaid bureaucracy simply changed its name and kept right on losing taxpayer money.

Also, in a new CNN.com article, the chief of the FBI’s Health Care Fraud Unit, Rob Montemorra, explains why big government administered healthcare programs are more susceptible to fraud than their private sector counterparts:

One key reason having Medicare information is a virtual “gold mine” for fraudsters, according to Montemorra, is the system’s “pay and chase” system – under the law, Medicare must send out payments within a very short time period.

He said private insurers are better at preventing fraud – although not immune from it – because they’re so much smaller.

Montemorra said the process heightens the potential for fraud and other forms of abuse because the government is more often reacting to cases of abuse instead of preventing them before they happen.

For more on fraud and abuse in government programs, see this Cato essay.

Crist and Cato

Florida’s airwaves are alive with the sound of Governor Charlie Crist’s radio advertisement trumpeting his grade of “A” on Cato’s “Fiscal Policy Report Card on America’s Governors.”

I am pleased that Gov. Crist values Cato’s ratings because we work hard to make them accurate and nonpartisan. But the radio ad is making many fiscally conservative Floridians scratch their heads because of the governor’s recent policy actions.

The governor earned his Cato grade in last year’s report mainly because of his large property tax cuts and moderate spending approach. The grade was based purely on quantitative data on revenues, general fund spending, and tax rate changes.

However, since I wrote the report in mid-2008, the governor seems to have fallen off the fiscal responsibility horse.

In particular, Crist approved a huge $2.2 billion tax increase for the fiscal 2010 budget, even though he had promised that $12 billion in federal “stimulus” money showered on Florida over three years would obviate the need for tax increases.

About $1 billion of the tax increases are on cigarette consumers, which will particularly harm moderate-income families. The rest of the increases are in the form of higher costs for often mandatory services, such as automobile registration, which is really just a sneaky form of tax increases.

These tax increases will be particularly painful to Floridians in the short-term because of the recession. But Crist has also jeopardized the state’s long-term finances with his expanded subsidies for hurricane insurance. Hurricanes are a major challenge in Florida, but giving big subsidies to coastal property owners, driving private insurers out of the state, and guaranteeing a massive state bailout when the next hurricane hits strikes me as the height of fiscally irresponsibility.

More on the Crist campaign here.