As with most other issues, Sarah Palin’s record on health care reform is, well, thin. But what we do know suggests that she leans in the right direction. She has said that the key to health care reform is to “allow free-market competition and reduce onerous government regulation.” As governor, she called for abolishing Alaska’s anti-competition certificate-of-need (CON) requirement. (CON requires that health care providers seek state approval before building or expanding hospitals, purchasing capital equipment, or offering new or expanded services). She also established a state office to provide health care consumers with information about price and quality. While this should more properly be handled by the private sector, it shows she understands the importance of making the health care system more transparent and putting consumers at the center of any health care reform. Given the dismal record of most politicians from both parties on this issue, Palin’s record should be considered limited but encouraging.

I’ve blogged previously about how Medicare avoids administrative costs by permitting waste and fraud. Now it appears that Medicare avoids public scrutiny about fraud by covering it up. Today’s New York Times reports:

Medicare’s top officials said in 2006 that they had reduced the number of fraudulent and improper claims paid by the agency, keeping billions of dollars out of the hands of people trying to game the system.

But according to a confidential draft of a federal inspector general’s report, those claims of success, which earned Medicare wide praise from lawmakers, were misleading.

In calculating the agency’s rate of improper payments, Medicare officials told outside auditors to ignore government policies that would have accurately measured fraud, according to the report. For example, auditors were told not to compare invoices from salespeople against doctors’ records, as required by law, to make sure that medical equipment went to actual patients.

As a result, Medicare did not detect that more than one-third of spending for wheelchairs, oxygen supplies and other medical equipment in its 2006 fiscal year was improper, according to the report. Based on data in other Medicare reports, that would be about $2.8 billion in improper spending.

That same year, Medicare officials told Congress that they had succeeded in driving down the cost of fraud in medical equipment to $700 million.

Some lawmakers and Congressional staff members say the irregularities that the inspector general found were tantamount to corruption and raise broader questions about the credibility of other Medicare figures.

The article discussed the extent of Medicare fraud:

Equipment sellers have submitted counterfeit documents, forged doctors’ signatures and filed claims on behalf of patients who were dead or had never been seen by the prescribing physician, according to many reports by government oversight agencies.

For example, a Florida businessman was sentenced last year to 37 months in prison for submitting more than $5.5 million of fake claims to Medicare. The businessman operated for months, despite giving the agency an address that was actually a utility closet…

Medicare reported to Congress that, for the fiscal year of 2006, AdvanceMed’s investigations had found that only 7.5 percent of claims paid by Medicare were not supported by appropriate documentation. But the inspector general’s review indicated that the actual error rate was closer to 31.5 percent.

For instance, according to the report, the Office of Inspector General examined a claim for an electric wheelchair that AdvanceMed had said was appropriate. The inspector general’s investigation revealed that the physician who was listed as having prescribed the wheelchair had no knowledge of the prescription.

The person who received the wheelchair said that he had never met with the physician, that he did not need a wheelchair and that he had never used it, according to the report. His wife had also received a wheelchair that she had not asked for and never used.

Equipment sellers can pocket more than $2,500 every time they send a powered wheelchair to a patient and bill Medicare.

Don’t worry, though, because your congresscritters are on the job:

On July 1, Medicare instituted a new competitive bidding system that officials said would reduce both fraud and costs for medical equipment.

On July 15, however, Congress suspended the program, after equipment manufacturers and sellers began an aggressive lobbying campaign.

A leading congressional watchdog was outraged:

“This is outrageous,” said Senator Charles E. Grassley of Iowa, the top-ranking Republican on the Senate Finance Committee, who has repeatedly credited the Centers for Medicare and Medicaid Services with reducing improper expenditures. “If heads don’t roll, you can’t change the culture of this organization,” he added.

To clarify, Grassley was of course referring to the culture of Medicare, not Congress.

Another congressional watchdog had seen it all before:

“This report doesn’t surprise me,” said Representative Pete Stark, Democrat of California and a senior member of the Ways and Means Committee. He has pushed to cut improper Medicare spending. “To look better to the public, you cook the books,” he said. “This agency is incompetent.”

Of course, Pete Stark’s solution for Medicare’s incompetence is to force you to enroll:

There is a road map laid out for us…Medicare. Medicare has lower administrative costs than any private plan on the market…Medicare has shown us the power of simplicity; we need only expand its promise to the rest of our population.

Medifraud for all!

Did I say secretive? Scratch that. They actually recorded the proceedings, and posted them online.

I just got a media inquiry from someone who was on a conference call with Obama economic advisors Jason Furman and Austan Goolsbee. According to this source, they claimed that McCain’s health insurance tax credit “will surely prove a trojan horse tax increase on middle class familes” (my source’s words) because the amount of the tax credit would grow only at the rate of the Consumer Price Index (i.e., inflation). That’s much slower than the growth rate for the value of the current tax exclusion for employer-sponsored health insurance, which grows at the much-faster rate of premium growth. (BTW, it also grows with the rate of increase in marginal tax rates. Ahem.)

Others have made this charge before. I’m sorry to hear that Fursbee have picked it up.

Here’s what I wrote to our media friend:

Fursbee are correct, in the sense that providing a tax break that is standardized (i.e., a fixed credit versus an exclusion whose value varies with one’s premiums and marginal rate), and whose growth is limited (to CPI versus today’s unlimited exclusion), would tax currently untaxed activity. 

But they’re flat wrong in concluding that would be a net tax increase. The ‘why’ requires some explanation. 

Employers provide health insurance principally because those benefits are excluded from income & payroll taxes, while individual-market coverage is not. A recent survey of health economists found that 91 percent agree that workers pay for health benefits through reduced wages. The average “employer contribution” to the average family policy is roughly $9k. That means that if employers weren’t providing health benefits, the labor market would force them to return that $9k to workers. We call the current exclusion a tax break, even though it denies workers the ability to control $9k of their compensation. If government took $9k from workers and used it to provide workers with health insurance, then we would call that a tax. Yet when government effectively takes that money from workers and gives it to employers, we rather curiously call it a tax “cut.” 

McCain’s tax credit would level the playing field between job-based and individual-market health insurance. With no tax penalty encouraging workers to let their employer control that $9k, the labor market would gradually force employers to add that money to workers’ cash wages. Letting workers own and control that money is nothing if not a tax cut. And it would swamp the tax-increasing effect of limiting the tax credit’s value to CPI growth. 

Fursbee are being too cute by half. And I don’t even like the McCain tax credit.

I might have added that McCain’s credit would encourage Americans to be much more economical about their health insurance, which could restrain premium growth. (Any excess premium growth due to the exclusion is itself a tax.) Or I might have noted that the McCain credit would be a pure tax cut to people without access to job-based coverage. 

Or I might have mentioned that Fursbee should know better. They know that tax exclusion for employer-sponsored health insurance is horribly inefficient, that reform is crucial, and that any reform will be imperfect. Assuming my source is correct, they are being selective about their facts, demagoguing a serious effort to fix this problem, and making it harder for anyone to do so.

It’s an open group, so just search for it and sign up. I don’t know what took me so long.

Should government require people to purchase health insurance? My answer is no. Here are three reasons.

1. The uninsured bear the health costs of their decision not to insure. If my neighbor doesn’t buy health insurance, that doesn’t threaten my health. (He might threaten my family’s health if he doesn’t get his family vaccinated. But vaccinations can easily be obtained without insurance.)
2. As a group, the uninsured bear the financial costs of their own health care. Many uninsured people show up at the hospital, get treated, and then don’t pay their bills. Doctors and hospitals scream an awful lot about having to deliver “uncompensated” care. But two recent studies — one on doctors services by Jonathan Gruber and David Rodriguez, the other on hospital services in California by Glenn Melnick and Katya Fonkych — show that the uninsured who do pay their bills more than make up for the uninsured who don’t. Why? The uninsured pay the highest prices. Gruber and Rodriguez write, “Our best estimate is that physicians provide negative uncompensated care to the uninsured, earning more on uninsured patients than on insured patients with comparable treatments.” Melnick and Fonkych write that in 2005, “uninsured patients as a group still paid a higher percentage of charges, on average, than Medicare and Medicaid.” Note that this is an average: some providers may provide lots of uncompensated care, but that appears to be offset by those that provide negative uncompensated care. As a group, the uninsured appear to pay for themselves.
3. The uninsured pay higher taxes. Federal and state governments offer large tax breaks for employer-sponsored health insurance. The uninsured, by definition, do not obtain employer-sponsored health insurance. Because they forgo those tax breaks, they pay higher taxes. Those additional tax payments help fund things like subsidies to hospitals that provide (positive) uncompensated care (see #2).

So it’s not at all clear that when people don’t buy health insurance, they are imposing costs on the rest of us. The uninsured mostly just hurt themselves.

Members of the Church of Universal Coverage claim that government health insurance is more efficient than private insurance because, gosh, Medicare’s administrative costs are a mere 3 percent of claims. I’ve noted before how that’s neither true nor something to brag about: skimping on administration leads to gobs of waste and fraud.

Well, God bless the folks at the Government Accountability Office, because they came up with a wonderful illustration of just how stupid and harmful Medicare’s administrative-costs strategy really is. The following is from a recent GAO report. I recommend reading the entire excerpt, especially if you’ve always nurtured the hope of someday defrauding Medicare of millions of dollars:

Why GAO Did This Study

According to the Department of Health and Human Services (HHS), schemes to defraud the Medicare program have grown more elaborate in recent years. In particular, HHS has acknowledged Centers for Medicare & Medicaid Service’s (CMS) oversight of suppliers of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) is inadequate to prevent fraud and abuse. Specifically, weaknesses in the DMEPOS enrollment and inspection process have allowed sham companies to fraudulently bill Medicare for unnecessary or nonexistent supplies. From April 2006 through March 2007, CMS estimated that Medicare improperly paid $1 billion for DMEPOS supplies—in part due to fraud by suppliers.

Due to the committee’s concern about vulnerabilities in the enrollment process, GAO used publicly available guidance to attempt to create DMEPOS suppliers, obtain Medicare billing numbers, and complete electronic test billing. GAO also reported on closed cases provided by the HHS Inspector General (IG) to illustrate the techniques used by criminals to fraudulently bill Medicare…

What GAO Found

Investigators easily set up two fictitious DMEPOS companies using undercover names and bank accounts. GAO’s fictitious companies were approved for Medicare billing privileges despite having no clients and no inventory. CMS initially denied GAO’s applications in part because of this lack of inventory, but undercover GAO investigators fabricated contracts with nonexistent wholesale suppliers to convince CMS and its contractor, the National Supplier Clearinghouse (NSC), that the companies had access to DMEPOS items. The contact number GAO gave for these phony contracts rang on an unmanned undercover telephone in the GAO building. When NSC left a message looking for further information related to the contracts, a GAO investigator left a vague message in return pretending to be the wholesale supplier. As a result of such simple methods of deception, both fictitious DMEPOS companies obtained Medicare billing numbers…

After requesting an electronic billing enrollment package and obtaining passwords from CMS, GAO investigators were then able to successfully complete Medicare’s test billing process for the Virginia office. GAO could not complete test billing for the Maryland office because CMS has not sent the necessary passwords. However, if real fraudsters had been in charge of the fictitious companies, they would have been clear to bill Medicare from the Virginia office for potentially millions of dollars worth of nonexistent supplies.

Once criminals have similarly created fictitious DMEPOS companies, they typically steal or illegally buy Medicare beneficiary numbers and physician identification numbers and use them to repeatedly submit claims. In one case from HHS IG, a company received $2.2 million in payments from Medicare for supplies and services that were never delivered. The owner submitted these fraudulent claims from March 2006 through July 2006 using real beneficiary numbers and physician identification numbers that he had purchased illegally. The only employee not involved in the scheme was a secretary, who told HHS IG that there was no business activity in the office and that the owner was rarely there. Another case related to an individual who stole beneficiary numbers and physician identification numbers and submitted $5.5 million in claims for three fraudulent offices from October 2006 through March 2007. He operated one of these offices out of a utility closet containing buckets of sand mix, road tar, and a large wrench, but no medical files, office equipment, or telephone.

Simple methods of deception. That’s all you need to fool Medicare. Or for the Church of Universal Coverage to fool themselves. 

And they’re hoping that’s all they’ll need to fool you, too.