Topic: General

Medicare Reform: It’s All about Control

Matthew Holt of The Health Care Blog takes a thoughtful stab at my recent paper on “pay-for-performance” and Medicare. 

Pay-for-performance is one of those hip health policy buzzwords that comes with a catchy acronym: P4P. The idea is that private insurers or the government can improve health care quality through financial rewards for providers who deliver what the payer considers “quality” care. P4P stands in contrast to “pay-for-volume,” which is how third-party payers have traditionally paid providers.

My thesis is that P4P has promise, but is very, very tricky. A bureaucracy that rewards providers for what it considers high-quality care can actually encourage low-quality care for the poor saps who happen not to be the average patient. 

There’s nothing wrong with P4P, so long as patients who are getting short-changed have the right to opt out (i.e., switch insurers). P4P’s potential is sure to be lost if the Centers for Medicare and Medicaid Services (CMS) get into the game. For example, since Medicare’s P4P scheme would be emulated by Medicare Advantage plans and other private insurers, many patients would have no escape.

Holt tries to link (reconcile?) my opposition to P4P in traditional Medicare (and support for P4P in Medicare Advantage plans) with my suggestion that Medicare should subsidize seniors with a risk-adjusted voucher rather than coverage. Let me see if this helps thread the two together:

There’s a difference between helping someone in need and making all her decisions for her. Medicare has traditionally tried to do both, offering subsidies to seniors but also dictating what their coverage looks like, payment rates, etc.  If CMS starts defining “quality” for 45 million seniors (and by extension, millions of non-seniors), the government will be making even more decisions that it’s really not qualified to make. Better that Congress just give seniors the cash and let them make their own decisions about coverage and care and quality. Markets have a funny way of helping people make those decisions.

Yes, there will still be some seniors who are ill-equipped to do that. But that small minority of seniors already needs — and gets — similar assistance. They can be taken care of without turning the rest of the health care sector into a high-cost, iffy-quality, rent-seeking cesspool. 

Not as Easy as Right and Wrong

Over at The American Prospect, Matthew Yglesias takes issue with the assertion I made yesterday that if Kansas is ever going to have peace over creationism and evolution, parents must be given the right to take their public education dollars and choose their children’s schools. Instead of forcing parents to support – and constantly fight to control – one school system, why not let them choose the institutions they want?

Yglesias argues that whether it’s parents or government that decides what children will be taught, kids will have no choice in the matter. The question to him, then, is “who is likely to teach most children the right stuff?” If it’s government, then there’s no need for choice.

That sounds reasonable enough. That is, until you consider how incredibly hard it often is to know, and to get people to agree on, what constitutes “the right stuff.” Creationists, after all, are just as sure that they are right about Darwin as evolutionists think themselves to be.

Of course, in education, Darwin is just the beginning: Is phonics-based instruction the right or wrong way to teach reading? Should American history be taught in a “traditional” way that focuses on the nation’s great achievements, or is it right to focus on the country’s flaws? What amount of time should students spend studying fine art instead of, say, physics?  Is it wrong for a student newspaper to run an article critical of the school’s principal? And so on…

Clearly, when it comes to countless disputes in education, what is truly right or truly wrong is very difficult to know. With that in mind, we must answer the question: Is it better that government impose one idea of what’s right on all children, or that parents be able to seek freely what they think is right for their own kids?

At the risk of contradicting myself, I think the latter is the obvious right answer.

Republicans for Big Brother

The Cato Institute has noted for some time that conservatives and Republicans have abandoned their limited-government principles when it comes to health policy.  Examples can be found here, here, here, here, and here

The New America Foundation just made our job a little easier, by producing a paper titled, “Growing Support for Shared Responsibility in Health Care.”  In this context, “shared responsibility” means allowing the government to force all Americans to purchase health insurance – a power the Left has craved but no government had dared assume until Massachusetts did so this year.

The paper helpfully compiles a list of comments that Republicans and Democrats have made in support of this new expansion of government power.  The Republicans included:

  • Massachusetts Gov. Mitt Romney (no surpise there)
  • Former Bush HHS Secretary Tommy Thompson
  • California Gov. Arnold Schwarzenegger
  • Former Bush Treasury Secretary Paul O’Neill
  • Former House Speaker Newt Gingrich

One might add to that list the Heritage Foundation (whose health policy scholars wrote the Massachusetts mandate) and Ronald Bailey of Reason magazine. 

Next to those, Schwarzenegger is probably the biggest disappointment, having once bragged that Milton & Rose Friedman’s PBS series Free to Choosehas changed my life,” and that “Being free to choose for me means being free to make your own decisions, free to live your own life, pursue your own goals…without the government breathing down on your neck or standing on your shoes.”  Now that he’s governor, “being free to choose” presumably means being free to choose for you.

This new expansion of state power would be less frightening if it delivered more affordable or higher-quality health care.  But as Mike Tanner demonstrates in two papers on the idea (here and here), it will do neither of those things. 

Unfortunately, there has been too little debate within the limited-government camp over this idea.  This is in part because Heritage Foundation scholars have repeatedly declined to debate Cato scholars or other free-market critics of their proposal.

Until we’re able to have that fuller debate, here’s a helpful algorithm for judging this and other health care proposals:

  1. Does it limit government power?
  2. If not, move on to the next proposal.

Ned Lamont, Fiscal Conservative?

A Washington Post feature says that Connecticut Senate challenger Ned Lamont’s website shows him to be “a fiscal conservative, a social liberal and a foreign-policy moderate.” (The Post also refers to Lamont’s 150-word statements on the issues as “elaborate position papers,” which seems to reflect low expectations for political discourse.) Since I expressed doubt a couple of days ago about the existence of fiscally conservative Democrats, I was intrigued.

So what does the website show? Lamont is indeed socially liberal, for better (opposition to gay marriage bans, creationism, the Terri Schiavo intervention, stem cell restrictions, and other schemes to impose conservative moral values on other people) and worse (support for hate crimes laws, affirmative action, and other schemes to impose his moral values on other people).

But “fiscal conservative”? Let’s go to the tape. On his website he promises to spend more money on national health insurance, universal preschool, all-day schools, “an overarching plan for clean energy and energy independence,” and “a serious, long-range infrastructure plan to upgrade our schools, public transportation, highways, our sewage treatment, and our levees in below sea-level areas [and] a transportation strategy which interconnects cities and suburbs, inner cities and jobs and affordable housing, and ports and airports.” Sounds expensive.

(As a good big-government liberal, he’s also opposed to school choice, private Social Security accounts, and free trade. But our subject today is taxes and spending.)

Virtually all the references to “budget” on Lamont’s site are boasts of how he increased various budgets as a city councilman. He has declared his opposition to earmarks, but of course earmarks – while notorious – are only a tiny part of the federal budget. Nowhere does he promise a balanced budget. He does promise to roll back Bush’s tax cuts – that is, to raise taxes – but that would hardly be sufficient to close the current deficit and pay for his sweeping spending plans, even if higher marginal tax rates did not reduce work, investment, and tax revenue.

Alas, the search for a fiscally conservative Democrat continues.

The Welfare Kings of Farming

There is an excellent op-ed in today’s LA Times on the special kind of corporate welfare given to farmers. David Boaz and I have both written blog entries (here and here) and done podcasts on the topic (mine on 05/30/06 and David’s on 07/25/06). As the farm bill comes up for extension/review/obliteration (okay, that last one was a bit optimistic), this topic is one to watch.

New Milestone for Federal Pay

New data was released today by the U.S. Bureau of Economic Analysis on federal employee wages and benefits. The data for 2005 shows that compensation for the average federal civilian worker ($106,579) is now exactly double the average compensation in the U.S. private sector ($53,289).

(See Tables 6.2D, 6.5D, and 6.6D here,

The federal pay advantage has been soaring in recent years. The ratio of average federal to average private compensation increased from 1.51 in 1990, to 1.68 in 2000, to 2.00 today.

Both federal wages and benefits have been galloping ahead. The new data shows that the average federal civilian worker earned $71,114 in wages in 2005, compared to an average $43,917 in the private sector.

I discussed the federal pay advantage based on data for 2004 in a recent bulletin. I thought that new data for 2005 would show the federal advantage narrowing due to strong private sector growth. Instead, the federal advantage increased once again. Average federal wages rose 5.8 percent in 2005 compared to an increase of 3.3 percent in the private sector.

See the full details in a summary spreadsheet here [.xls].

Federal Education Tax Credits. So Close, and yet…

Senator Rick Santorum (R-PA) has introduced a federal education tax credit bill (“America’s Class Act”) modeled on a program in his home state. The Pennsylvania program is indeed an excellent concept, allowing businesses to make tax-creditable donations to private scholarship funds that in turn help low income families gain access to independent schools. Donation tax credit programs such as this are one of the two critical components in an ideal market education policy (the other being a personal tax credit for parents who choose independent schools for their children).

Unfortuntalely, the unmitigated merits of this policy at the state level are heavily mitigated at the federal level. First, because the Federal government is accorded no role in education whatsoever by our Constitution (“oh, that old thing?!”). And second, because any regulatory encroachment of the independent education sector by the federal government will suffocate schools from sea to sea, leaving nowhere for truly independent schools to thrive.

I’ve already made this case with respect to vouchers, and while I’m more fond of tax credits as a market education reform, federal involvement in this area is still problematic.