Andy Stern’s Angle on Universal Coverage

Last night, I debated Andy Stern on the Jim Bohannon radio showStern is president of the Service Employees International Union, which represents 1.8 million nurses, health care workers, janitors, security officers, and public employees. He is definitely not a member of the Anti-Universal Coverage Club.

I was pleased to find that we agree that the employment-based health insurance system cannot last. What I found most interesting, though, were two weaknesses in the case he makes for universal coverage.

First, Stern argues that unless we have universal coverage, American firms won’t be able to compete with foreign firms. To me, that claim is economic nonsense, as I explained in our debate and in Health Care News:

Employers don’t need the government to save them from the rising cost of health benefits. Just as Dorothy always had the power to return to Kansas by clicking her heels, employers have always had the power to pare back their health benefits…

All else being equal, firms that contain their labor costs this way will beat the firms that don’t. Those companies that support ‘universal coverage’ want to increase the labor costs of their competition, whether through higher taxes or health premiums. Universal coverage won’t make America more competitive — it will cripple America’s most competitive firms to protect its least competitive firms.

And, of course, that’s the entire point…. Companies that support ‘universal coverage’ never bother to mention that covering all the uninsured would cause health spending to explode, because they don’t really care about overall health spending. All they care about is that their competitors spend as much as they do.

Nor does Stern seem to mind if health spending explodes. I think that may be because…

Second, Stern argues that we could get a better deal on prescription drugs if Medicare were allowed to negotiate with drug companies. But seeing as how he represents so many health care workers, I don’t think he’s going to be leaning on Medicare to be that tough a negotiator. During our debate, I invited him to discuss SEIU’s role in helping Medicare set the payment rates that affect his members. He didn’t take the bait.

Thank Senator Hatch for This MediKid Nightmare

My latest post reminded me that back in 1997, I actually produced a number of papers surrounding the creation of the State Children’s Health Insurance Program — also known as SCHIP, but which I prefer to call MediKid.

One of those papers is a two-pager titled, “Congress Can’t Help Uninsured Kids If it Doesn’t Understand Them.” The data are old, but the argument is still relevant to the current debate over MediKid reauthorization.

But what I really wanted to share was this paper: “Top Twelve False Claims Made about the Hatch-Kennedy Children’s Health Coverage Bill.” You see, Sen. Orrin Hatch (R-Utah) was a principal sponsor of MediKid, which was enacted by a Republican Congress. (That’s right.  MediKid — like Medicare Part D — is a Republican health care entitlement.)

In that paper, you will find documented refutations of the following claims supporters made about the Hatch/Kennedy/MediKid/SCHIP bill. Some of the claims may seem familiar to those watching the current reauthorization debate. See if you can guess which one was made by Sen. Hatch himself:

  1. “This is not an entitlement.”
  2. “It’s fully financed.”
  3. “The [tobacco] tax is a user fee.”
  4. “It will not create massive new bureaucracies.”
  5. “It relies on the marketplace, with coverage provided through private insurance and the existing network of local community health centers.”
  6. “This legislation clearly represents a free-market approach at solving an important national problem.”
  7. “The fact is that this bill is a far cry from the Kennedy-Kerry bill.”
  8. “Children that are not covered should be covered, and that is what the Hatch-Kennedy bill will do.”
  9. “This is going to be a state program, run through the private sector.”
  10. “It gives the states the flexibility to decide whether to participate and how to target benefits.”
  11. “The states set their own eligibility.”
  12. “It’s about as moderate to conservative a bill as you can get.”

Have you made your guess? If so, click here:

Aha! Trick question! All claims came from the conservative Sen. Hatch, except for #3, #8, and #9.

My insincere thanks to Sen. Hatch for moving America that much closer to socialized medicine. And my sincere thanks to the Heartland Institute for giving those old papers a home on the web.

$1.4 Trillion and Counting

Last October we estimated that unfunded costs for state and local government health care plans were about $1.4 trillion nationwide. That is the amount that taxpayers will be hit unless governments cut excessive benefits for teachers, firemen, and other workers.

Some new estimates have been released since our report, and it appears that we were conservative.

  • Credit Suisse has put nationwide unfunded costs at $1.5 trillion.
  • We estimated New Jersey at $20 billion, but the NYT reports today that unfunded costs for the state are now estimated to be $58 billion.
  • San Francisco has reported a $4.9 billion cost, Los Angeles County $16 billion, and the LA School District $10 billion
  • In December, Pennsylvania reported a $34 billion cost, which is one of the highest figures we’ve seen for the states.

MediKid

That was the name I gave the State Children’s Health Insurance Program (SCHIP), before it even had a name, 10 years ago this month.

It appeared in a paper I wrote for Citizens for a Sound Economy Foundation titled “MediKid: Whose Idea Was This, Anyway?” At the time, I foolishly hoped the paper would head off this Orrin Hatch/Ted Kennedy love-fest. CSEF issued the paper just as the House and Senate were about to go to conference on different versions of the program.

Ten years later, MediKid is about to expire. As Congress and the president are trying to figure out just how much more to spend on this ill-advised program, I thought it would be fun to share a few gems from my 1997 paper:

Congress is about to cast one of its most damaging votes ever against children’s health. Taking a page from the Clinton administration’s playbook, Congress will soon vote to expand government-run health care for children and continue the slow march toward imposing government-run health care on everyone. Instead of wasting over $8 billion on “MediKid” proposals, Congress should help parents protect their children’s health by providing additional tax relief to families…

Congress has debated the issue of uninsured children under the premise that 10 million American children are unable to obtain health coverage — a premise that is utterly false. In fact, fewer than two million children in the U.S. are chronically uninsured.

Acting on this false premise, Congress has designed new government programs to give health coverage to low-income children. Over five years, these programs will waste more than $8 billion duplicating services already provided by the private sector. Worse, MediKid will actually harm children’s health by making parents less able to meet their children’s basic health needs.

In 1993, the Clinton administration’s Health Care Interdepartmental Working Group conceived of a strategy to nationalize health insurance by providing government coverage to children first and later phasing in the adult population. Ironically, a Republican Congress’ MediKid proposals are now implementing that strategy.

About the number of uninsured children:

This poor understanding of the dynamics of the health coverage market has led to inane solutions. The Senate MediKid proposal targets children too affluent to be eligible for Medicaid yet below 200 percent of the poverty level. The [Census Bureau’s Survey of Income and Program Participation] reveals there are only 1.4 million chronically uninsured children in this income category. Nevertheless, the Senate designed a program to cover 2.8 million such children.

About the slow march toward government-run health care:

Congress’ MediKid proposals are a step toward nationalized health coverage. In 1993, the White House Health Care Interdepartmental Working Group devised a number of strategies for nationalizing health insurance. What the task force called “Option 3: Kids First Coverage” was a plan to move children out of the private health insurance market into government-run coverage as “a precursor to the new system” of national health insurance. The task force wrote:

This proposal is designed in two parts which will be implemented simultaneously: 1) The quick coverage of children — “Kids First”; and 2) the development of structures for transitioning to the new system and the phasing in of certain population groups.

Does anyone actually doubt that that’s the whole point?

The Laffer Curve: Separating Fact from Fiction

Critics of pro-growth tax policy are perpetually vigilant for opportunities to condemn the Laffer Curve as a free-lunch scheme pushed by political hacks who want to claim that all tax cuts pay for themselves. And while it is true that some tax-cut advocates are too aggressive in their assertions, the critics often are guilty of knocking down straw men (while dodging the real issue, which is whether the right kind of tax rate reductions lead to growth and the degree to which that higher growth leads to revenue feedback).

The latest skirmish in this long-running battle revolves around a Wall Street Journal editorial on corporate tax rates. The WSJ’s editorial included a graph showing corporate tax rates and corporate tax revenue and included a line purporting to show that the revenue-maximizing corporate tax rate is somewhere between 25 percent and 30 percent, a bit of artwork that has been criticized by Brad DeLong and Mark Thoma.

But if the Laffer Curve is an absurd notion, why did the World Bank (hardly a bastion of supply-side thinking) report that “high tax rates do not always lead to high tax revenues. Between 1982 and 1999 the average corporate income tax rate worldwide fell from 46% to 33%, while corporate income tax collection rose from 2.1% to 2.4% of national income. … A better way to meet revenue targets is to encourage tax compliance by keeping rates moderate.” And if the Laffer Curve is discredited, someone needs to tell the European Commission (a bureaucracy infamous for trying to harmonize corporate rates at high levels), which recently admitted that “it is quite striking that the decline in the corporate income tax rates has not resulted, so far, in marked reductions in tax revenue, both the euro area and the EU-25 average actually increasing slightly from the 1995 level.”

Or, shifting from corporate taxes to broader measures, how about new research from two German economists (neither of whom are known as supply-siders), which reported that, “We find that for the US model of a labor tax cut and of a capital tax cut are self-financing in the steady state. In the EU-15 economy of a labor tax cut and 85% of a capital tax cut are self-financing.”

Or what about the experience of Ireland? Would critics deny that that there has been a Laffer Curve effect in Ireland, where corporate tax revenues have jumped from less than 2 percent of GDP to more than 3 percent of GDP (a result that is all the more impressive considering the rapid growth of GDP in the Emerald Isle)? And are they really willing to categorically deny any supply-side response following the Reagan tax rate reductions? The 1997 capital gains tax cut? The 2003 tax rate reductions?

Tax-cut advocates should be careful not to over-state the revenue feedback caused by tax cuts – especially for tax cuts that are poorly designed (such as the Keynesian rebates and credits adopted in 2001). But opponents of lower tax rates are equally misguided (or disingenuous) if they blindly assert that changes in tax policy never impact economic performance, and thus never cause revenues to rise or fall compared to static estimates.

Unfortunately, revenue estimating today is based on the absurd notion that tax policy does not affect macroeconomic performance. During 12 years of GOP rule in Congress, Republicans failed to modernize the revenue-estimating process at the Joint Committee on Taxation. No wonder they deserved to lose.

Darn Those Stubborn Market Failures

Queues in Massachusetts! A fascinating article [$] in today’s Wall Street Journal reveals that Massachusetts residents wait an average of seven weeks for an appointment with a primary-care physician. The queues apparantly have nothing to do with the new Massachusetts health plan – aside from illustrating that a paper guarantee of “health coverage” does not necessarily translate into health care:

“Health reform won’t mean anything for the state’s poor if they can’t get a doctor’s appointment,” says Elmer Freeman, director of the Center for Community Health, Education, Research and Service in Boston…

“Health-care coverage without access is meaningless,” Gov. Deval Patrick said in March…

“I thought insurance was supposed to be some kind of great thing, but it hasn’t changed” anything, [newly insured hairdresser Tamar Lewis] says.

No, the big question that article raises is, why is the market not resolving the shortage of primary-care physicians?

One hint can be found in the first two sentences of the article:

“Tamar Lewis runs a makeshift hair salon out of her one-bedroom apartment in Roxbury, a low-income neighborhood [in Boston]. She’s 24 years old and has been cutting hair since she dropped out of high school in 2002.”

There’s a good chance that Ms. Lewis is breaking the law. Massachusetts requires hairdressers – yes, hairdressers – to be licensed by the government. Asipiring hairdressers must (a) complete “a course of at least six months, which course must have included 1000 hours of professional training in a cosmetology school approved by the Board,” (b) pass an examination, and (c) pay a fee before they may become an apprentice hairdresser. After completing two years as an apprentice, the aspiring hairdresser must pass another exam and pay another fee to become a licensed hairdresser. Licensing a salon requires paying a fee, having an approved floor plan, and other restrictions that make it unlikely that Ms. Lewis’ salon is up to code. In all likelihood, the enlightened Commonwealth of Massachusetts could nail young Ms. Lewis for cutting people’s hair without a license, operating an unlicensed salon, and employing an unlicensed hairdresser (herself).

Too subtle? Another, much bigger hint can be found in an oped titled “Our Soviet Health System” [$] that the Wall Street Journal ran last month:

The limited number of endocrine specialists is a not a consequence of limited demand – everyone is aware of the epidemic of diabetes we are facing. There are also shortages of generalists and other specialists, and the reason is the absence of market signals – i.e., market-based prices – for influencing the supply of physicians in various specialties…

The essential problem is this. The pricing of medical care in this country is either directly or indirectly dictated by Medicare; and Medicare uses an administrative formula which calculates “appropriate” prices based upon imperfect estimates and fudge factors. Rather than independently calculate prices, private insurers in this country almost universally use Medicare prices as a framework to negotiate payments, generally setting payments for services as a percentage of the Medicare fee structure.

Many if not most administratively determined prices fail to take into consideration supply and demand. Unlike prices set on the market, errors are not self-correcting. That is why, despite an expanding cohort of patients with diabetes, thyroid disease and other endocrine disorders, the number of people entering this field is actually dropping. Young physicians are accurately reading inappropriate price signals.

Darn those stubborn market failures.