September 21, 2011 8:40AM

Private Insurance Is More Efficient than Medicare – By Far

Diane Archer has a post at the Health Affairs blog arguing that Medicare is more efficient than private insurance.  One can only reach such a conclusion through such sleights of hand as conflating spending with cost, and by ignoring most of Medicare's administrative costs.

As a pre-buttal, I offer this excerpt from a paper I wrote about a "public option" (emphases generally added and citations omitted):

Is Government More Efficient?

Supporters of a new government program note that private insurers spend resources on a wide range of administrative costs that government programs do not. These include marketing, underwriting, reviewing claims for legitimacy, and profits. The fact that government avoids these expenditures, however, does not necessarily make it more efficient. Many of the administrative activities that private insurers undertake serve to increase the insurers’ efficiency. Avoiding those activities would therefore make a health plan less efficient. Existing government health programs also incur administrative costs that are purely wasteful. In the final analysis, private insurance is more efficient than government insurance.

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April 12, 2010 12:17PM

Can Romney Lead the Fight against ObamaCare?

Media Name: romney.jpg

Both the Wall Street Journal and the New York Times have just run major stories on presidential candidate Mitt Romney's difficulties in getting people to understand the difference between his Massachusetts universal-health-care plan, which featured an individual mandate, subsidies, and forbidding insurance companies to deny coverage for preexisting conditions, and the Obama-Reid-Pelosi plan, which features an individual mandate, subsidies, and forbidding insurance companies to deny coverage for preexisting conditions.

President Obama is putting Romney on the spot by telling Matt Lauer that his bill is similar to Romney's. Daniel Gross of Newsweek recommends that Obama hire Romney -- someone who has management experience, no current job, and "relevant experience in implementing a large-scale health-care reform program, ideally one that involved using an individual mandate and the private insurance system to attain near-universal health insurance" -- to run ObamaCare.

As Romney attacks the Obama bill as an unconstitutional "government takeover," he makes two basic arguments in defending his own plan: First, that the Massachusetts law was passed on a bipartisan basis, hardly a substantive defense. Second, that his was a state plan, not a federal intrusion on state authority. He also offered a "conservative" defense of the individual mandate:

But he did so by adopting a more GOP-friendly vocabulary, declaring it a matter of "personal responsibility" for all people to buy into insurance pools so that "free riders" without insurance can't stick taxpayers with their hospital bills.

"We are a party and a movement of personal responsibility," he said at a book signing in Manchester. He invoked the same idea at the college, calling it a "conservative bedrock principle."

That's a point that Stuart Butler of the Heritage Foundation made as far back as 1992, but most conservatives didn't embrace the argument. And they've strongly opposed the mandate in the Obama bill.

Conservatives have campaigned for more than a year against the Obama health care bill, with its mandate, subsidies, and insurance regulations. Now they are backing "Repeal It!" efforts and lawsuits to have it declared unconstitutional. Yet such conservative leaders as Rush Limbaugh and the editors of National Review endorsed Mitt Romney, the man who wrote the prototype for ObamaCare, in 2008. Romney is leading Republican polls for the 2012 nomination. Romney just won the straw poll at the Southern Republican Leadership Council (with only 24 percent, to be sure, and just 1 vote ahead of Rep. Ron Paul). Can the Republican effort to defeat President Obama and repeal ObamaCare really be led by the first American political leader to impose a health care mandate on citizens?

March 4, 2010 2:59PM

Health Cost Projections to 2019: The Doc Fix Trick Again

Congressman Paul Ryan (R-WI) takes the President to task for cooking the books on projected health care costs, most egregiously with the “doc fix” -- namely, assuming Medicare slashes physician payments by 21.3% this year and subsequently lets them fall continuously in real terms.

What nobody seems to have noticed is that the same phony “doc fix” taints the new “Health Spending Projections Through 2019" from Centers for Medicare and Medicaid Services (CMS).

Drew Altman, president and CEO of the Kaiser Family Foundation, tries to downplay the CMS forecast “that the public sector will start paying more than half of the nation's health care bill starting in 2012, and that government spending will grow faster than private spending from 2009 to 2019 (an average of 7.0% per year vs. 5.2%).”

Worrying about such spending trends is a foolish “ideological battle over the role of government,” says Altman, because rapid increases in government health spending is “just the byproduct of economic and demographic trends” (recession and an aging population).   “Is government health spending out of control?” he asks; answering “NO” in capital letters.  “The report simply underscores the need to control health care costs in the public and the private sectors alike."

On the contrary, the reason government health care spending is projected to slow down to 7% a year is, the CMS explains, “due principally to the 21.3% reduction in physician payment rates . . . mandated in current law.”

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January 17, 2010 1:12PM

Obama’s Other Massachusetts Problem

Even if Democrat Martha Coakley wins 50 percent of the vote in the race to fill the late Sen. Ted Kennedy’s (ahem) term, there are other numbers emanating from Massachusetts that present a problem for President Obama’s health plan.


On Wednesday, the Cato Institute will release “The Massachusetts Health Plan: Much Pain, Little Gain,” authored by Cato adjunct scholar Aaron Yelowitz and yours truly. Our study evaluates Massachusetts’ 2006 health law, which bears a “remarkable resemblance” to the president’s plan. We use the same methodology as previous work by the Urban Institute, but ours is the first study to evaluate the effects of the Massachusetts law using Current Population Survey data for 2008 (i.e., from the 2009 March supplement). Since I’m sure that supporters of the Massachusetts law and the Obama plan will dismiss anything from Cato as ideologically motivated hackery: Yelowitz’s empirical work is frequently cited by the Congressional Budget Office, and includes one article co‐​authored with MIT health economist (and Obama administration consultant) Jonathan Gruber, under whom Yelowitz studied.


Among our findings:

  • Official estimates overstate the coverage gains under the Massachusetts law by roughly 50 percent.
  • The actual coverage gains may be lower still, because uninsured Massachusetts residents appear to be concealing their lack of insurance rather than admit to breaking the law.
  • Public programs crowded out private insurance among low‐​income children and adults.
  • Self‐​reported health improved for some, but fell for others.
  • Young adults appear to be avoiding Massachusetts as a result of the law.
  • Leading estimates understate the cost of the Massachusetts law by at least one third.

When Obama campaigns for Martha Coakley, he is really campaigning for his health plan, which means he is really campaigning for the Massachusetts health plan.


He and Coakley should explain why they’re pursuing a health plan that’s not only increasingly unpopular, but also appears to have a rather high cost‐​benefit ratio.


(Cross‐​posted at Politico’s Health Care Arena.)

December 17, 2009 11:52AM

Whip (Health Care) Inflation Now?

During the runaway inflations of 1974 and 1979, Presidents Ford and Carter suggested that inflation was caused by the profligacy of American households. President Ford’s infamous “Whip Inflation Now” speech, for example, said, “Here is what we must do, what each and every one of you can do: To help increase food and lower prices, grow more and waste less; to help save scarce fuel in the energy crisis, drive less, heat less.”


Much of the recent discussion of health care costs likewise treats this as a problem caused by a demonic private insurance industry, and therefore requiring such “reforms” as expanding Medicaid to the non‐​poor and Medicare to the non‐​old.


The facts are quite different, as shown in “The Evolution of Medical Spending Risk” by Jonathan Gruber of MIT and Helen Levy of the University of Michigan, in the latest Journal of Economic Perspectives.


Gruber and Levy calculate that real private health care spending per person (in 2007 dollars) “increased from about $700 to $3,500 between 1960 and 2007, a five‐​fold increase.” They note that “private out‐​of‐​pocket spending has not quite doubled.” Yet “government health spending over the same period … increased from about $250 to $3,5000, a 13‐​fold increase.”


In fairness, the quality of health care has been hugely improved since 1960. And prices of physician services (which are often incorrectly compared with the overall consumer price index) have risen no faster than prices of non‐​medical services.


In any case, President Obama’s claim that the pace of total public and private spending on health care could somehow be “contained” by greatly increasing government spending clearly flunks 3rd grade arithmetic.


Unless the hidden agenda is to impose draconian wage and price controls and political rationing on health care providers, all the rhetorical pretense about proposed health care legislation being a way to hold down overall spending on health care is like saying the solution to chronic drunkeness is more booze.

December 16, 2009 2:26PM

Reid Won’t Even Tell His Base What He’s Asking Them to Swallow

Here’s my answer to today’s “Big Question” on The Hill’s Congress Blog:

Now that the “public option” is dead, both the Left and the Right should be able to agree: the Senate bill is nothing but a $450 billion bailout of the private insurance companies.


In fact, the bailout may be several multiples of that figure.


That $450 billion just represents checks that the Treasury would write to private insurance companies. The Reid bill would also force nearly every U.S. citizen to fork over cash to the private insurance companies — no matter how lousy a deal they offer. A recent CBO memo reveals that Reid has been meticulously working behind closed doors to conceal the full cost of his private‐​insurer bailout.


The Left and the Right should insist that Reid produce a complete CBO score that reveals the full cost of his bill’s private‐​insurer bailout — in particular, the cost of the individual and employer mandates.


Left‐​wing Democrats will follow their own consciences when deciding how to vote. But they should force Reid to be honest about what he’s asking them to swallow.

December 16, 2009 7:49AM

Bland CBO Memo, or Smoking Gun?

This weekend, the Congressional Budget Office released “a very strange memo” titled, “Budgetary Treatment of Proposals to Regulate Medical Loss Ratios.” You wouldn’t know it from the title, but that little memo is the smoking gun that shows how congressional Democrats have very carefully hidden more than half the cost of their health care bills.


First, a little history. Like both the House and Senate bills, the Clinton health plan would have mandated that individuals and employers purchase private insurance. In its 1994 score of the Clinton plan, Bob Reischauer’s CBO included those mandated “private” payments in the federal budget –- i.e., as federal revenues and federal expenditures.


And yet, none of the CBO scores of this year’s bills include the costs of similar individual/​employer mandates as federal revenues or federal spending.


My read of the CBO’s score of the Clinton health plan is that the private‐​sector mandates accounted for around 60 percent of the Clinton health plan’s total cost, the remainder being (traditional) government spending. So how is it that the CBO made the full cost of the Clinton health plan apparent to the public in 1994, but may now be revealing only 40 percent of the cost of the Obama health plan?


For some time, I’ve suspected the answer is that congressional Democrats have very carefully tailored their individual and employer mandates to avoid CBO’s definition of what shall be counted in the federal budget. Democrats are still smarting over the CBO’s decision in 1994. By revealing the full cost of the Clinton plan, the CBO helped to kill the bill.


Since then, keeping the cost of their private‐​sector mandates out of the federal budget has been Job One for Democratic health wonks. While head of the CBO, Obama’s budget director Peter Orszag altered the CBO’s orientation to make it more open and collaborative. One of the things about which the CBO has been more open is the criteria it uses to determine whether to include mandated private‐​sector spending in the federal budget. The CBO even published a paper on the topic. Read this profile of Orszag by Ezra Klein, and you’ll see that those criteria were also a likely area of collaboration with lawmakers.


The Medical Loss Ratios memo is the smoking gun. It shows that indeed, Democrats have been submitting proposals to the CBO behind closed doors and tailoring their private‐​sector mandates to avoid having those costs appear in the federal budget. Proposals that would result in a complete cost estimate — such as the proposal by Sen. Rockefeller discussed in the Medical Loss Ratios memo — are dropped. Because we can’t let the public see how much this thing really costs.


Crafting the private‐​sector mandates such that they fall just a hair short of CBO’s criteria for inclusion in the federal budget does not reduce their cost, nor does it make those mandates any less binding. But it dramatically reduces the apparent cost of the legislation. It is the reason we’re all talking about an $848 billion Reid bill, rather than a $2.1 trillion Reid bill.


If someone sold you a house, or a car, or a mutual fund this way, we would put them in jail.