In The New Republic, Jonathan Cohn makes some interesting observations about how Barack Obama's campaign and administration approach policy issues, particularly health care.
In early January, most of Barack Obama's senior staff assembled with the president-elect . . . It was a pivotal moment in Obama's transformation from candidate to commander-in-chief. Obama's advisers had taken all of his campaign pledges, factored in his promise to reduce the deficit, and put together a provisional blueprint for governing. For the first time, Obama would get a sense of how his proposals fit together in the real world.
Does Cohn suggest that candidate Obama just threw out proposals without considering their cumulative, real-world impact? That Obama launched a new administration with insufficient planning?? Perish the thought.
Obama . . . said he was mostly happy with what his advisers had produced. Investments in energy and education, plus real progress on reducing the deficit--it was all in there, Obama noted. But then the president-elect turned to his one major concern: a key item that was not, in his opinion, sufficiently funded. "Here's my guidance to you," one participant recalls Obama saying to the group. "Protect health care."
It wasn't the first time that health care had seemed to get short shrift from Obama's advisers. Nor would it be the last. Indeed, there were moments during the transition and the early weeks of the administration when it appeared that the push for comprehensive health care reform might collapse before it had even begun. During this time, a debate raged inside the administration, with some senior officials arguing that the new president should wade into health care gingerly--or even postpone it altogether--because it would cost too much, distract from other priorities, and carry huge political risks.
Ultimately, however, these arguments failed to carry the day, and health care reform, against what occasionally seemed like long odds, managed to find a sizeable place in Obama's budget...
The divide among Obama's counselors was never over whether to pursue health care reform or even what it should look like in the end . . . What divided Obama's team was the question of how to pursue reform--in particular, how quickly.
That tension stretched back to the campaign, when Obama's political strategists advised him to soft-pedal the topic. One of them was David Axelrod. Although personally acquainted with the flaws in our health care system because of his disabled daughter, he also understood public opinion: The middle-class voters whose support politicians covet were worried about the cost of insurance, but their enthusiasm for universal coverage seemed shallow. Obama, though, always insisted on keeping health care prominent in the election.
Why so much dissension in the ranks? Partly because the nation faces much more immediate problems.
Axelrod's anxiety hadn't dissipated since the election. And now he had a new ally in Larry Summers, whom Obama had appointed to head the National Economic Council. One concern for Summers was the diversion of presidential and staff attention from other issues, like the economy.
But the dissension is also because Obama's advisers understand just how difficult it will be to achieve universal coverage.
Mostly, though, Summers worried about money. Experts generally believe it will take years before better use of information technology, more preventive care, and other reforms start to yield serious savings. At least in the short run, health care reform is therefore likely to add to the government's financial burden--during a time of rising deficits. This made Summers uncomfortable.
How bad was the dissension?
Particularly in Obama's absence, the voices of the skeptics often predominated. "It was scaring the hell out of the rest of us," says one of the advisers who favored more aggressive action.
Ultimately, Obama insisted on putting $634 billion in his budget to fund health care reform. But Cohn acknowledges that Obama may be over-reaching.
At a time when the economy is collapsing, perhaps Obama can't afford the distraction of such a major policy effort; at a time when the government is pumping out so much money for other priorities, perhaps it's foolish to incur a new obligation that, if carried out by the book, still may not pay for itself in under ten years. And, even if it makes sense to seek health care reform this year, Obama's decision to allocate health care money now could make the budget tougher to pass--inviting an extra political fight that might make reform even harder to achieve.
Amid reports that the Obama administration, congress, and some conservative groups still consider Massachusetts to be a model for health care reform, the New York Times reveals that despite assessing insurers and hospitals, raising the penalty on noncompliant businesses, increasing premiums and co-payments for consumers, and raising the state tobacco tax, the program’s financing remains unsustainable.
Massachusetts has significantly reduced the number of people in the state who lack health insurance. However, it has not achieved, nor does it expect to reach, universal coverage. (The best estimates suggest that more than 200,000 state residents remain uninsured). And, significantly, roughly 60 percent of newly insured state residents are receiving subsidized coverage, suggesting that the increase in insurance coverage has more to do with increased subsidies (the state now provides subsidies for those earning up to 300 percent of the poverty level or $66,150 for a family of four) than with the mandate.
The cost of those subsidies in the face of predictably rising health care costs has led to program costs far higher than originally predicted. Spending for the Commonwealth Care subsidized program has doubled, from $630 million in 2007 to an estimated $1.3 billion for 2009.
Now the state is turning to a variety of gimmicks to try to hold down costs, including possibly cutting payments to physicians and hospitals by 3-5 percent. However, the Times quotes health reform experts who have studied the Massachusetts system as warning “the state and federal governments may need to place actual limits on health spending, which could lead to rationing of care.”
The more one looks at the Massachusetts “model,” the stronger the argument for keeping the government out of health care.
Choice and Security: Professor John Cochrane's advice to President Obama
Last week, at a White House forum on reforming health care, President Obama issued a challenge to advocates of less government control of the medical marketplace.
"If there is a way of getting this done [i.e., reforming health care] where we're driving down costs and people are getting health insurance at an affordable rate and have choice of doctor, have flexibility in terms of their plans, and we could do that entirely through the market, I'd be happy to do it that way."
More to the point, Obama added that he'd be just as happy to pursue an approach that involved more government control as well, and that seems to be the tack he's taking...
Congressional Republicans have criticized Obama's approach, and they've been particularly hostile to the idea of a new public insurance plan. They argue that Obama's reforms will eventually lead to a nationalized health care system. But as of yet they've failed to offer an alternative that meets Obama's criteria for a successful health care reform.
Enter John Cochrane, an economist at the University of Chicago Booth School of Business. Professor Cochrane has long advocated a proposal he calls "health-status insurance," an approach that could guarantee long-term health security while also freeing medical insurers to compete for customers. To most health care reformers, this sounds like a contradiction in terms.
Cochrane's paper is, "Health-Status Insurance: How Markets Can Provide Health Security."
At Reason Online, Ronald Bailey reviews John Cochrane's recent Cato Policy Analysis, "Health-Status Insurance: How Markets Can Provide Health Security."
Writing in advance of last week's health care summit held by President Obama, Bailey explains:
Summit attendees will break into various working groups that are supposed to engage in "outside-of-the-box" thinking. As it happens, they now have some fascinating "outside-of-the-box" thinking on health insurance reform to draw on. Earlier this month, University of Chicago economist John Cochrane published an intriguing policy analysis for the libertarian Cato Institute that looked at how "health-status insurance" can provide health security for Americans. Cochrane claims that with health-status insurance, free markets can solve the vexing problem of how to insure people with pre-existing medical conditions and "provide life-long, portable health security, while enhancing consumer choice and competition."...
Creating and selling separate health-status insurance policies would mean that medical insurance companies would no longer have an incentive to offload sick people. Instead, because those with pre-existing conditions would have the funds to pay higher premiums, insurers would compete for their business. "Constant competition for every consumer will have the same dramatic effects on cost, quality, and innovation in health care as it does in every other industry," argues Cochrane.
Health-status insurance also helps delink medical insurance from employment because...a worker diagnosed with diabetes...can switch jobs without worrying about whether or not he can obtain medical insurance...
While Cochrane acknowledges that his proposal is not a comprehensive health care reform program, adopting it would go a long way toward satisfying President Obama's eight health care reform principles, especially affordability, aiming toward universality, portability, and choice, and being fiscally sustainable. "Health-status insurance can simultaneously give us complete and portable long-term insurance, great individual choice, and cost-containment beyond the dreams of any health policy planner," concludes Cochrane. Asked if he has been invited to the president's health care reform summit this week, Cochrane said no, but quickly added, "If I got the phone call, I would definitely be there." Mr. President, there's still time for your summiteers to hear about this outside-of-the-box thinking.
Over at The Corner, Harvard Business School professor and Manhattan Institute scholar Regina Herzlinger urges conservatives to support universal coverage -- but in a market-oriented way. That is an absurdity. Once the government adopts a policy of universal health insurance coverage, a free market is impossible and the casualties begin to mount.
As a model, Herzlinger points to Switzerland, "which enables universal coverage without any governmental insurance through this system." Switzerland requires all residents to purchase "private" health insurance; dictates the content of that insurance; and dictates the price. As I explain in a recent Cato paper, once the government controls those decisions, you've got socialized medicine.
My colleague Mike Tanner observes that the Swiss government's power to control the content of "private" health insurance allows special interests to lard up people's health insurance with their services -- whether Swiss consumers want them or not:
The expansion of benefits has driven up the cost of insurance...As Uwe Reinhardt has noted, “Over time, the growth in compulsory benefits has absorbed an increasing fraction of the consumers’ payment, thus compromising the consumer-driven aspects of the Swiss system.”
Tanner also reports that the government's power to dictate health insurance premiums is harming the sickest Swiss:
Evidence shows that the community rating requirements are...leading to the over-provision of care to the healthy and the under-provision of care to the sick. In addition, the prohibition on risk management discourages the development of new and innovative products.
In this Cato paper, University of Chicago business school professor John Cochrane explains how such price controls harm sick patients and suppress innovative new products.
Herzlinger is an extremely passionate and knowledgeable advocate of market-based health care. But when it comes to universal coverage, readers of National Review are better counseled by the magazine's editors, who write:
to achieve universal coverage would require either having the government provide it to everyone or forcing everyone to buy it. The first option, national health insurance in some form or other, would either bust the budget or cripple medical innovation, and possibly have both effects. Mandatory health insurance, meanwhile, would entail a governmental definition of a minimum package of benefits that insurance has to cover...
Republicans should go in a different direction, proposing market reforms that make insurance more affordable and portable. If such reforms are implemented, more people will have insurance.
Some people, especially young and healthy people, may choose not to buy health insurance even when it is cheaper. Contrary to popular belief, such people do not cause everyone else to pay much higher premiums. Forcing them to get insurance would, on the other hand, lead to a worse health-care system for everyone because it would necessitate so much more government intervention. So what should the government do about the holdouts? Leave them alone. It’s a free country.
Herzlinger is correct that "it is 2009, not 1992." If we want America to remain a free country in 2009 and beyond, we must reject universal coverage.
I was invited to participate in an email/online/sorta exchange for the Washington Post yesterday. Unfortunately, the effort was spiked after just a few rounds of emails. But rather than let my participation go to waste, I thought I'd post one exchange that I think highlights why I'm not just being colorful when I describe supporters of universal health insurance coverage as the Church of Universal Coverage. I could summarize the exchange, but I'm lazy. So I'll just copy and paste.
All the interest groups are meeting with all the right politicians and making all the right noises, thus the Church of Universal Coverage says the stars have aligned for fundamental reform... Everyone is at the table right now because no one wants to be on the menu. But when the Democratic leadership makes its intentions clear, today's love-fest will turn into a bloodbath.
Andres Martinez of the New America Foundation (who owes me a taco al pastor) responded:
I am a proud member of the church, Michael. As New America's own recent study on the urgency of reform -- which reads like a strong courtroom closing argument -- noted, how can the world's most prosperous nation afford to have tens of thousands of its citizens die each year because they lacked access to health care? Health care reform is a moral imperative, so your reference to a church (um, even if sarcastic) is appropriate...
The Institute of Medicine estimates that every year, about 20,000 Americans die because they lacked health insurance, but as many as 100,000 die from preventable medical errors. What moral code compels the Church of Universal Coverage to solve the first problem before addressing the second?
Elise Gould of the Economic Policy Institute (whose working paper, "Who is Adversely Affected by Limiting the Tax Exclusion of Employment-Based Premiums?", I am keen to read) chimed in:
In an answer to Michael's post about the deaths caused by lacking health insurance as compared to those from preventable medical errors, I'd argue that it's much easier to solve the second when you have people in a common system (i.e., solving the first).
To say that universal coverage will make it easier to reduce medical errors is pure fantasy.
The principal reason we have too many medical errors is that fee-for-service payment dominates America's health care sector, and fee-for-service rewards medical errors and punishes efforts at error reduction. The reason fee-for-service dominates is government. Medicare -- the single-largest purchaser in the world -- pays largely on that basis. Ditto Medicaid. And the federal tax code encourages fee-for-service by insulating consumers from the cost of their health coverage. If you think it's hard for government to change payment systems now, just wait until universal coverage gives government even more control over payment systems and makes even more providers dependent on those decisions for even more of their income. (As an aside, when consumers control their health care dollars and choose their health plans, they can change payment systems in a heartbeat.)
This is why universal coverage is a religion: supporters believe that universal coverage has magical, supernatural powers to suspend political reality and the laws of economics. I do not exaggerate. See here and here.
Health care reform is a moral imperative. But universal coverage is not a moral imperative, nor is it about compassion or saving lives.
For those who are interested, the Anti-Universal Coverage Club is still accepting new members.
At yesterday's White House Summit on Health Care Reform, President Obama had this to say:
If there is a way of getting this done, where we’re driving down costs and people are getting health insurance at an affordable rate and have choice of doctor, have flexibility in terms of their plans, and we could do that entirely through the market, I’d be happy to do it that way.
Well, Mr. President, may I recommend Healthy Competition: What's Holding Back Health Care and How to Free It for a detailed proposal for how to accomplish this without turning one-seventh of our economy and some of our most important, personal, and private decisions over to the tender mercies of the federal government.
Of course, as my colleague Michael Cannon points out, no one who supports free market proposals to drive down costs and give consumers greater choice of providers and insurers was actually invited to the summit.
The ball is back in your court, Mr. President.