If you’re like most Cato@Liberty readers, you often ask yourself, “Self, what kind of artwork does Michael Cannon have on the walls of his office?” Thanks to the folks at bloggingheads.tv, not only can you find the answer, but you can learn an awful lot about medicine, health insurance, and health care reform. 

This week, BloggingHeads hosted a discussion between New America Foundation senior fellow Shannon Brownlee and me.  Brownlee is the author of the quite excellent book Overtreated: Why Too Much Medicine Is Making Us Sicker and Poorer.  (Disclaimer: I disagree with many of the conclusions in Overtreated, else we wouldn’t have much to debate.)  Brownlee was kind enough to plug my book, too.

Yesterday, an announcement from the Commonwealth Fund landed in my inbox. The subject line read:

How to Achieve Universal Coverage While Lowering Health Spending

A colleague received the same release, and forwarded it along with this note:

Coming next, anti-gravity and perpetual motion machines.

To which I replied:

…eternal youth, gold from base metals, a lasting peace in the Middle East…

To which he replied:

The dead shall rise, the lame shall walk, the blind shall see.

I’m tempted to throw in something about the Cubs winning the World Series. But even that wouldn’t convey the level of impossibility we’re talking about here. You see, there’s an outside chance that the Cubs actually could take the Series.

I’d say we’re as likely to see the dead, the lame, and the blind win the World Series as we are to achieve universal coverage while lowering health spending.

Or does even that overstate the odds?

One of the hottest trends in health policy — wait, where are you going? — is for insurers to pay doctors and hospitals based on the value of their services. I know: how novel. But as it happens, in the United States we generally pay providers based on volume, rather than value. The new trend of value-based purchasing goes by the name “pay-for-performance” or P4P.

P4P can be tricky, since patients vary in terms of their preferences and how they respond to even high-quality care. So if you’re going to have insurers define and reward value, it makes sense to let patients choose their health plan. That way, patients can avoid a P4P system that might (ironically) leave them with lower-quality care.

Unfortunately, the government doesn’t see it that way. The federal Medicare program — which covers 45 million seniors and disabled Americans, making it the nation’s largest purchaser of medical services — is developing a P4P scheme that enrollees will find unavoidable, for two reasons. First, many Medicare enrollees do not have the option of switching insurers. Second, even if they do have that option, private insurers will simply follow the P4P scheme developed by Medicare. Why spend your own money doing something when a big government bureaucracy will do it for you?

The reactions to a study in this week’s Journal of the American Medical Association illustrates another concern with government-administered P4P. According to that study:

Safety-net hospitals tended to have smaller gains in quality performance measures over 3 years and were less likely to be high-performing over time than non–safety-net hospitals. An incentive system based on these measures has the potential to increase disparities among hospitals.

This is not necessarily a problem: a P4P scheme should penalize low-quality care and spur those hospitals to improve quality.

The problem is that when government administers the P4P scheme, the low-quality providers and their advocates will lobby their elected officials for more money in advance of improving quality. In some cases, such as safety-net hospitals, providers may indeed require more resources to improve the quality care. But because the P4P scheme is politically controlled, even providers who don’t will demand more resources — and get them. Moreover, what will those providers say if the “pre-improvement” subsidies fail to deliver any improvement? I’m willing to bet may hat that they’ll ask for even more subsidies.

As I argue here, better that we just let patients choose their health plan, and leave the P4P-ing to the private sector, where the low-quality providers won’t be able to lobby their way out of making some badly needed behavioral changes.

Last year, the federal Medicare program announced that — after 40 years of financially rewarding providers who harm patients – it would no longer pay the added costs of treating patients who fell victim to a list of medical errors known as “never events.”  In other words, the providers — doctors, hospitals — will have to eat the costs of their own mistakes. 

As they often do, private health insurance companies are following Medicare’s lead.  WellPoint, Cigna, and other fee-for-service plans have announced that they too will stop paying the added costs that come from “never events.”

In the race to improve health care quality, is government beating the market?  Hardly.

As noted health economist Alain Enthoven and I explain in a recent oped, the market long ago developed payment mechanisms that punish medical errors:

If anything, government prevents markets from improving patient safety. A raft of government interventions favor fee-for-service medicine and inhibit competition by plans with greater incentives to reduce errors. Medicare, the nation’s largest purchaser of medical services, is almost entirely fee-for-service. Federal and state tax laws give larger tax breaks to people or groups that choose more costly care, and favor employer-based coverage, which usually denies workers the ability to choose their health plan.

Government regulation of health insurance and medical professionals further inhibit competition by such plans.

If you want to know why medicine isn’t better, cheaper, and safer, look no further than your own government.

I’ve got an oped in today’s Orange County Register on congressional efforts to smother health savings accounts (HSAs) in the cradle:

In April, House Democrats passed legislation that would impose onerous and unnecessary reporting requirements on people with tax-free health savings accounts . . . what really bothers them is the fact that HSAs let workers control their own money.

Read all about it here.

Read about letting workers control all their health care dollars here.

The Center for American Progress’s Ben Furnas responded to my post about the political Left’s misunderstanding of health insurance markets by . . . showcasing the political Left’s misunderstanding of health insurance markets. 

I claimed that the individual market provides reliably to lots of very sick people  — protection better than or equal to that provided by job-based health insurance.  Furnas responds:

The main reason (not mentioned by Cannon) that some people who develop health problems can renew their health insurance without seeing higher premiums is federal regulation through the Health Insurance Portability and Accountability Act (HIPAA). States have improved on these regulations, offering more protections to sick consumers of private health insurance, but John McCain, in his push for an unregulated national market, would undermine these additional protections.

Actually, 75 percent of policies sold in the individual health insurance market provided those protections before government required them.

Furnas has more to say about the dangers of freedom and the need for more government control of people’s health care decisions, but that suffices to make the point.

Nearly two years after its release, David Hyman’s satire Medicare Meets Mephistopheles is still generating reviews — and controversy. 

In the April 2008 issue of the Michigan Law Review, Michigan law professor Jill Horwitz raves:

Hyman is extraordinarily knowledgeable about health care regulation and his exposition is succinct. The book is filled with informative and accurate summaries of Medicare’s complicated program design and related laws. The summaries of fraud and abuse law, for example, make my heart sing. I’ve seldom seen such an accessible and accurate primer.

It would be a stretch, however, to claim that Horwitz and Hyman see eye-to-eye.  Horwitz concludes her 19-page review thus:

Medicare Meets Mephistopheles is a terrific overview of a troubled system, but a missed opportunity to help reform Medicare. Providing health care fairly and efficiently is a complicated process that necessarily involves a heavy dose of government. Libertarian railing against big government, regulation, and all lefty foolishness that market proponents despise doesn’t get one very far in determining how to get health care to 300 million people. In the end Hyman doesn’t offer any realistic alternative to this government-regulated muddle because, God knows, his plans are unacceptable anywhere but in hell.

Ay caramba!

Consider the following:

1. Research suggests the federal Medicare program spends as much as $100 billion per year on medical care that makes seniors neither healthier nor happier.
2. Medicare’s payment system continues to reward low-quality and even harmful medical care.
3. The trustees of the Medicare program have issued yet another annual report containing dire warnings about Medicare’s financial sustainability, including an unfunded liability of $86 trillion.
4. According to economist and former Medicare trustee Tom Saving, Medicare alone will require tax rates to rise by 25 percent within a generation, and to double within 75 years, absent reform.  
5. The picture is far worse than it was when politicians were developing fundamental Medicare reforms 10 years ago.

You would think that Medicare reform would be a high priority for politicians.  You would be wrong. The president has proposed reforms that would barely slow the program’s growing dependence on general revenues — a proposal that Congress has largely ignored. The leading presidential candidates advocate tweaks — such as reducing payments for private plans and prescription drugs, or tying payments to quality measures — rather than fundamental reforms.

To help get the politicians focus on this crucial issue, the Cato Institute will host a policy forum on Thursday, May 15, titled, ”Whatever Happened to Medicare Reform?”  Tom Saving, the Commonwealth Fund’s Stuart Guterman, and I will discuss the current state of the Medicare program, and how the program needs to be reformed.  The forum will run from 12pm to 1:30pm. 

Click here to register.

Market-oriented health-care wonks have proposed various ways of reforming the tax treatment of health insurance that would level the playing field between job-based coverage and coverage that consumers purchase directly (i.e., on the “individual” market).  The key to those proposals is that they would let workers control money their employer now controls, and generally would allow workers to spend those earnings on the mix of medical care and health insurance that meets their needs. 

The political Left typically protests that if workers had the freedom to spend their earnings however they want, the multiplying villainies of the market would swarm upon the sick, leaving them with no insurance coverage.  For example, Elizabeth Edwards and others chide Sen. John McCain because, they claim, people with chronic conditions could not obtain health insurance in an unregulated individual market.  Edwards even wrote: “The insurance company makes money when it doesn’t have to pay for our health care. (I suspect that if they could, they would write obstetrical-only policies for nuns.)”

An economist at the University of Pennsylvania named Mark Pauly spends much of his time collecting evidence — I repeat, evidence — that this view does not reflect the reality of unregulated health insurance markets.  Pauly and his colleagues have found:

[A]ctual premiums paid for individual insurance are much less than proportional to risk, and risk levels have a small effect on obtaining coverage. States limiting risk rating in individual insurance display lower premiums for high risks than other states, but such rate regulation leads to an increase in the total number of uninsured people. The effect on risk pooling is small because of the large amount of risk pooling in unregulated individual insurance.

and

[T]here was substantial cross-subsidization of high-risk by low-risk persons in the individual insurance market in a period in which there was only minimal state regulation. Premiums do rise with risk, but the increase in premiums is only about 15 percent of the increase in risk. Premiums for individual insurance vary widely, but that variation is not very strongly related to the level of risk.

A new Health Affairs Web Exclusive by Pauly and colleague Robert Lieberthal offers further evidence that a freer market would provide high-cost patients more protection than today’s government-created employment-based system.  Pauly and Lieberthal write:

[A] young high-risk male who initially had small-group coverage faces a 44 percent chance of becoming uninsured in the next period—a risk nearly twice as great as it would be if he initially had individual insurance.  Somewhat ironically, the usual blame for such a person’s lacking coverage will be laid at the door of the medically underwriting individual insurer, which quotes a high premium, rather than being referred in part to the group insurance system that plunged this person into such a vulnerable situation in the first place.

Thus, it is not true that more freedom would mean no health insurance for people with costly medical conditions.  Provided consumers insure while they are still healthy, individual-market coverage offers as much or more protection to high-cost patients than they have now.

In the transition to a level playing field between employer-sponsored and individual-market coverage, there may be some people with high-cost conditions who lose their existing coverage, and cannot obtain subsequent coverage.  If that occurs, most Americans will want to offer some form of subsidy to those hard cases — a group that does not include wealthy people like Elizabeth Edwards, John McCain, or Jay Cutler.  

When fashioning those subsidies, policymakers should bear two things in mind.  First, as Pauly’s work suggests, this is likely to be a temporary problem; markets can and will cover tomorrow’s high-cost patients.  Second, policymakers should not try to force insurance markets to provide the desired subsidies; that would undo the substantial good that unregulated insurance markets can achieve.

By all accounts, U.S. spending on health care has been growing much more rapidly than national output. Health statistics–health spending as a share of national output or per person, compared across developed nations–routinely ranks the United States at the top of the list, and statistics on effective health care delivered per dollar spent routinely ranks the United States near the bottom. So news reporters could not miss the clear implication that Americans need to cut health care spending growth and make their health care sector more efficient. If we could reduce spending on unnecessary and low-value health care services, it would go a long way in achieving both objectives.

Now for the doublespeak: Many proponents of Health Savings Accounts (HSA) that can only be accessed under a high-deductible health plan tout the increased role of health care consumers. With larger out-of-pocket spending initially, consumers have greater incentives to eliminate unneeded and costly health services. But success on this count is routinely dismissed in the media as having undesirable side effects–as in today’s Wall Street Journal (HSA Users Find Hassles Amid Savings, May 1, 2008, Personal Journal, page D1):

…average health-insurance costs rose 3.6% in the past two years for employers who offered high-deductible plans, compared with a rise of 7% for employers without such plans.

That’s followed by

Some analysts say much of those employer savings come because many HSA participants tend to forgo care.

Excuse me, but isn’t this exactly how it’s supposed to work?! The language in all such instances usually hints (as does this WSJ report) that the forgone care is valuable and people with HSAs are therefore suffering unduly. Such implied criticism is unjustified unless accompanied with the qualification that the rejected health care services may not be valuable or cost effective.

Indeed, the article later cites a patient with an HSA “fighting” with a doctor about routine physicals and cardiac exams. The doctor wants these exams to be taken regularly, whereas the patient does not because the high-deductible HSA implies larger out-of-pocket payments. In my personal experience, both types of health checkups are most often a waste of time–all they do is separate the patients from their money, which goes to the doctors.

But if many more consumers were to obtain HSAs and economize their health care spending, it would clearly be a problem for the medical profession. And news reporters usually accept, without further questioning, analysts’ comments about unneeded patient suffering because of forgone care. Clearly, wider use of HSAs and better management of consumers’ health care dollars face tremendous hurdles–the medical profession’s self-interest being the biggest one of all. (And I hope my doctor doesn’t read this.)

Former U.S. Senate Majority/Minority Leader Tom Daschle (D-SD) says no way, Jose. 

In a recent interview about his new book, Daschle stressed:

Congress is just not capable of being the manager of a health care system and yet it’s largely Congress today that has that responsibility. It hasn’t worked for the last 50 years. It’ll work even less in the next 50.

Thus Daschle advocates creating a Federal Health Board to manage this $2 trillion chunk of the U.S. economy. 

Where does he look for a model of this type of centralized planning agency?  Quoth Daschle:

I believe that the connector idea is really the Massachusetts version of the Federal Health Board. I like a lot of what the connector is all about.

At a recent health policy forum in Washington, D.C., noted health economist and wit Uwe Reinhardt shed some light on that question:

[T]he following can be said: the United States Congress has absolutely no interest in reducing . . . dubious Medicare expenditures. Let me repeat that. The United States Congress has no interest whatsoever in reducing dubious Medicare expenditures . . .

So the interesting and intriguing question for all, for journalists too, [is]: why is the Congress so disinterested in cost containment when it constantly whines about having to restructure Medicare? That is to me a huge mystery.

Obviously, Prof. Reinhardt hasn’t read this.

Writing in The Wall Street Journal, Arizona Gov. Janet Napolitano (D) recently complained that the Bush administration is abandoning federal spending commitments, “cost-shifting to the states,” and creating budget deficits in states like Arizona.

In companion letters to the editor of today’s The Wall Street Journal, the Goldwater Institute’s Darcy Olsen and I inquire as to the color of the sky on planet Napolitano.

Olsen writes, in part:

Like most of the southwest, Arizona has been rolling in cash thanks to historic economic expansion. Three of the past five years saw double-digit percentage budget growth. But instead of reducing the tax burden or saving for a rainy day, state government ballooned 40% in real terms. Arizona now finds its per capita state spending on a par with Massachusetts.

Only 21 states went into the red this year, and Arizona led the way with the largest budget deficit of any state on a per-capita basis.

States can unilaterally opt out of some federal programs, like No Child Left Behind. Most governors can also reduce agency spending through executive action. Arizona did none of these things.

Meanwhile, I tackle Napolitano’s argument that restraining federal Medicaid and SCHIP spending amounts to “cost-shifting”:

Medicaid and SCHIP allow Arizona politicians to subsidize Arizona residents (and Arizona health-care providers), while shifting most of the cost to taxpayers in other states.

Gov. Napolitano opposes the administration’s policy not because it would increase cost-shifting, but because it would reduce her ability to shift those costs to other states.

Medicaid and SCHIP: socialism for state politicians.

According to HealthLeaders Media:

South Carolina-based Companion Global Healthcare added three Singapore hospitals to its network. The deal now allows Americans access to medical and surgical services at ParkwayHealth operated hospitals at pre-negotiated, in-network rates lower than those of U.S. hospitals…

David Williams, consultant and cofounder of MedPharma Partners LLC[, notes,] “It may be a bit of a wake-up call to the local hospitals in South Carolina, putting them on notice that they are facing a broader set of competitors.”

More than one million members of Blue Cross Blue Shield and BlueChoice HealthPlan of South Carolina now have access to the three Singapore hospitals—Mount Elizabeth, Gleneagles, and East Shore—at preferred network rates. The hospitals are accredited by the Joint Commission International, the affiliate of The Joint Commission.

Competition is healthy.  (You know what?  That’s catchy.)

I’m sitting at the 5th annual World Health Care Congress listening to George Shultz and others debate the merits of the presidential candidates’ health care reform plans. 

Rep. Jim Cooper (D-TN), speaking for Sen. Barack Obama’s (D-IL) plan, noted that Sen. Hillary Clinton’s (D-NY) plan would not get a single Republican co-sponsor because it includes an individual mandate. 

Speaking for Sen. Clinton’s plan, former (Bill) Clinton health policy advisor Christoper Jennings responded that there are plenty of Republicans on the individual-mandate bill sponsored by Sens. Ron Wyden (D-OR) and Bob Bennett (R-UT).  And not just Republicans, but conservative Republicans.

So much for that talking point.

Economists Jonathan Klick and Thomas Stratmann find that it does.  In the latest issue of the Journal of Law and Economics, they write:

In the face of rising rates of diabetes, many states have passed laws requiring health insurance plans to cover medical treatments for the disease. Although supporters of the mandates expect them to improve the health of diabetics, the mandates have the potential to generate a moral hazard to the extent that medical treatments might displace individual behavioral improvements. Another possibility is that the mandates do little to improve insurance coverage for most individuals, as previous research on benefit mandates has suggested that mandates often duplicate what plans already cover. To examine the effects of these mandates, we employ a triple-differences methodology comparing the change in the gap in body mass index (BMI) between diabetics and nondiabetics in mandate and nonmandate states. We find that mandates do generate a moral hazard problem, with diabetics exhibiting higher BMIs after the adoption of these mandates.

Las Vegans have been a little jumpy — and rightfully so — since public health officials revealed that a number of endoscopy clinics re-used syringes and medication vials, thereby infecting at least seven patients with hepatitis-C. 

Nevada’s physician-licensing board has proved largely inept in this matter, and a little too cozy with the profession it’s supposed to regulate.  Nevertheless, some want to give the licensing board more power.

Here’s an interview I did on Las Vegas 1’s Face to Face with Jon Ralston.  I argued that licensing laws don’t add much in the way of patient protection, and instead block innovations that would improve patient safety.  (The first interviewee provides lots of good information about the crisis, but if you want to skip to my interview, it begins about 12 minutes into the program.)

. . . strips away privacy before it goes to work.

Here’s a nice, discrete example: S. 2485, introduced in the U.S. Senate last week, would require asset verification of participants in State Medicaid programs, exposing the personal information held by financial institutions to government access.

This privacy loss is a natural outgrowth of entitlement programs. It’s nearly mandated by the simple and warranted effort to reduce waste, fraud, and abuse.

My 2004 Policy Analysis, “Understanding Privacy - and the Real Threats To It,” explored how entitlement programs almost always carry with them a significant privacy-cost:

To provide benefits and entitlements—and, of course, to tax—governments take personal information from citizens by the bushel. Nearly every new policy or program justifies new or expanded databases of information—and a shrunken sphere of personal privacy.

Before and after Gov. Mitt Romney (R) signed into law the Massachusetts health care reforms of 2006, Cato scholars predicted that this attempt at central planning would fail.  Both Michael Tanner and David Hyman predicted that the cost of the reforms would exceed projections.  The Boston Globe recently reported:

The subsidized insurance program at the heart of the state’s healthcare initiative is expected to roughly double in size and expense over the next three years - an unexpected level of growth that could cost state taxpayers hundreds of millions of dollars or force the state to scale back its ambitions. 

State projections obtained by the Globe show the program reaching 342,000 people and $1.35 billion in annual expenses by June 2011. Those figures would far outstrip the original plans for the Commonwealth Care program . . .

The state has asked the federal government to shoulder roughly half of the program’s cost from 2009 through 2011, but there is no guarantee of that funding. 

“The state alone cannot support that kind of spending increase,” said Michael Widmer, president of the Massachusetts Taxpayers Foundation, a business-funded budget watchdog group. 

I predicted that shifting uncompensated care subsidies to insurance subsidies wouldn’t much reduce uncompensated care.  The Globe reports:

[Romney] has repeatedly suggested that the state could insure low-income residents largely by reallocating money paid to hospitals and health centers that serve the uninsured . . . As more uninsured residents were covered, the state had expected to shift hundreds of millions of dollars from free care to insurance subsidies, but the drop has been slower than predicted.

David Hyman noted that “the Massachusetts plan does nothing to control the cost of health care—and health care in Massachusetts is already pricey because of the heavy reliance on teaching hospitals and academic medical centers.”  I wrote, “An individual mandate would not fix our broken health care system.  It would simply pump more money into that system. ”  The Globe reports:

Even with federal backing, the state may not be able to afford the insurance initiative as designed, because the law did not make any attempt to trim wasteful health spending, said Alan Sager, a Boston University professor who specializes in healthcare costs.

The Globe also notes, “There has been no discussion of a tax increase to pay for the healthcare plan.”  So far.

Other states (and the District of Columbia) should take note.

Prof. Sherry Glied is chair of the Department of Health Policy and Management at Columbia University’s Mailman School of Public Health.  In this week’s New England Journal of Medicine, she gives a fair account of the difficulties of forcing people to purchase health insurance via an “individual mandate.”  Glied writes that an individual mandate “may require a degree of intrusiveness and bureaucracy that some will find unpalatable,” and, “The risks associated with individual mandates suggest that they are no panacea.”

Her closing observation, though, is novel and particularly noteworthy:

Perhaps the most important benefit of mandates is symbolic. By mandating the purchase of health insurance, governments signal to their citizens that coverage is critical. For many uninsured people as well as their families, communities, and elected representatives, this public commitment to coverage may lead to a reassessment of priorities. Although making mandates functional will be demanding, just passing a mandate may serve an important purpose by moving health insurance higher on the agendas of all these constituencies.

This illuminates a driving force behind mandates.  Advocates do not merely want to improve health and longevity.  They want to change other people’s values.  They want to make the uninsured value health and longevity more than the things that must be sacrificed to comply with the mandate — things like barhopping, education, starting their own business, etc.  And they are willing to use coercion (or the threat of coercion) to do so.  The debate over mandates is not just about how to reform health care.  It is also about who shapes your values.

No wonder there are so many people in the health care industry who support mandates.

David Brown has an excellent article in the Health section of today’s Washington Post:

Most of us naturally assume that preventing a disease is cheaper than waiting for the disease to appear and then treating it. That belief is especially dear to politicians, who often view prevention as an underused weapon in the battle against health-care costs.

The campaign Web site for Sen. Hillary Clinton (D-N.Y.) notes that her health-care plan is “targeting the drivers of health-care costs, including our back-ended coverage of health care that gives short shrift to prevention.” Rival Sen. Barack Obama (D-Ill.) asserts that American families can save up to $2,500 a year each if five cost-containing strategies are implemented, one of which is “improving prevention and management of chronic conditions.”…

Even when prevention greatly reduces future cases of a particular illness, overall cost to the health-care system typically goes up when lots of disease-preventing strategies are put into practice. This is usually true whether treating the preventable diseases is cheap or expensive.

I raise similar points here and here.

Two points bear clarification, however. First, just because preventive medicine often increases medical spending, that does not necessarily mean (in the words of the article’s headline) that it is “Cheaper To Let People Get Sick.” Illness imposes its own costs, and so it may be cheaper to spend money on preventive care even when doing so increases overall medical spending because the benefits of avoiding illness outweigh the additional spending. But we should not think that spending additional money on preventive medicine would reduce medical spending. Second, contrary to what Brown claims in his first sentence, there very likely was a period in health economics when an ounce of prevention was worth a pound of cure. During the period when public health measures first began to control contagious diseases and foodborne illnesses, prevention probably did deliver health improvements 16 or more times greater than those delivered by treatments for existing conditions.

The article also contains this priceless comment from Louise B. Russell of Rutgers University:

“The point of the medical-care system is to serve people. It is not the point of people to serve the medical-care system.”

Let’s hope that one gets a lot of play in the near future.

Here’s the chronology:

1. Someone tells Sen. Hillary Clinton (D-NY) an anecdote. 
2. Without checking to see whether it’s true, she repeats it on the campaign trail. 
3. Turns out, it might not be true. 
4. She agrees to stop repeating the anecdote.

A fine example of the perils of letting anecdotes guide public policy [$].

Today, the Government Accountability Office (GAO) testified before Congress on the many ways that states use the Medicaid program to defraud (my word) taxpayers in other states.  The following is an excerpt from GAO’s prepared testimony:

GAO has reported for more than a decade on varied financing arrangements that inappropriately increase federal Medicaid matching payments. In reports issued from 1994 through 2005, GAO found that some states had received federal matching funds by paying certain government providers, such as county-operated nursing homes, amounts that greatly exceeded established Medicaid rates. States would then bill CMS for the federal share of the payment. However, these large payments were often temporary, since some states required the providers to return most or all of the amount. States used the federal matching funds obtained in making these payments as they wished…[Such] financing arrangements effectively increase the federal Medicaid share above what is established by law…

Supplemental payments involving government providers have resulted in billions of excess federal dollars for states, yet accountability for these payments—assurances that they are retained by providers of Medicaid services to Medicaid beneficiaries—has been lacking. CMS has taken important steps in recent years to improve its financial management of Medicaid, yet more can be done.

Yes, more should be done.  Congress should reform Medicaid and the State Children’s Health Insurance Program the same way it reformed welfare: eliminate the federal entitlement to benefits, and replace those programs’ matching grants with lump-sum block grants.  That would eliminate many perverse incentives created by those programs, including the incentive to cheat taxpayers in other states.

Those reforms would also be a nice stepping stone toward giving the states full responsibility for maintaining those programs, and getting the federal government out of the business of providing medical care to the poor entirely.

A letter to the editor of the Las Vegas Review-Journal just came to my attention.  It reads:

In his Sunday commentary, “On the road to health care hell,” Steven Miller quoted Michael F. Cannon of the Cato Institute, hardly a person who could be trusted to give an even evaluation of government spending on health care, considering that the Cato Institute wants to limit government.

It is wonderful of Mr. Miller and Mr. Cannon to place all responsibility for Southern Nevada’s public health crisis on the government and none on the greedy bastards who violated their oath to do no harm, and to line their pockets with as much wealth as they could squeeze out of the public. Those who treated Mr. Duke Breuer and sent him home with an IV needle in his arm all had licenses from the state of Nevada, so I guess that Mr. Miller and Mr. Cannon would, by their twisted logic, place the blame solely on the state of Nevada.

However, I hold the state of Nevada responsible for not providing the level of regulation that is currently required, and in view of the level of greed that these doctors have shown, it is high time to level the playing field. We should strip them of every nickel that they have.

Wallace Eastman

LAS VEGAS

Whuh? There’s a public health crisis in Southern Nevada? I’m an apologist for greedy bastards? They sent some guy home with the needle still in his arm?? Yikes!

I went back and read the original Las Vegas Review-Journal op-ed by Steven Miller, vice president for policy at the Nevada Policy Research Institute. Actually, Miller provides a more responsible critique of the U.S. health care sector than most free-market advocates. For example, Miller takes seriously the alarming number of medical errors that Eastman decries. 

Eastman may be surprised by how much he and Miller have in common. Nevada’s physician-licensure laws obviously are not doing enough to protect patients from low-quality care. While Eastman argues that more stringent regulation would fix things, I suspect Miller would argue that licensing simply does not work that way; that physicians inevitably come to control the licensure process and manipulate it to protect themselves from competition, including competition from delivery systems that would reduce medical errors.

My guess is that Eastman and Miller agree that there are greedy bastards out there trying to squeeze as much wealth as they can out of the public, but that Miller would argue it’s the very regulations Eastman supports that’s letting the greedy bastards get away with it.

(As for my trustworthiness: Sure, I want to limit government. When I claim government is ineffective, readers should bear in mind my viewpoint. That’s fair, and doesn’t worry me.)

Earlier this week, I participated in a lively debate on individual mandates — i.e., a legal requirement that every American purchase health insurance.  Also on the panel were Prof. Sherry Glied of Columbia University, Bob Moffit of the Heritage Foundation, and Peter Harbage of the New America Foundation. 

The debate can be viewed online at KaiserNetwork.org.

As the debate was sponsored by the National Federation of Independent Business, which has yet to take a position on an individual mandate, it should be of particular interest to small business owners and employees. 

Congressional Quarterly quoted me as saying, “Universal coverage is a bomb that will blow up for small businesses.”  (I meant to say that a policy of universal coverage, and thus an individual mandate, would blow up in their faces.  We’ll have to see what the tape says.)  Also: “Tax reform and deregulation are how to relieve the burden of health benefits for small business, and they have the added benefit of being the right thing to do.”

A central premise of RomneyCare, the smorgasbord of health care reforms that Gov. Mitt Romney (R) wrought in Massachusetts, is that the government could cover the uninsured by redirecting money from uncompensated care subsidies to subsidies for insurance. Because hey, if we give that money to the uninsured, they won’t show up at the hospital unable to pay, right? We could achieve universal coverage with no new government subsidies!

Unless, of course, all the king’s mandates and all the king’s subsidies fail to achieve universal coverage. In that case, the uninsured will continue to show up at hospitals and receive uncompensated care. According to the Boston Globe:

Before healthcare reform took effect last year, [chief executive Dennis D.] Keefe said, Cambridge Health Alliance was reimbursed by the state for the full cost of providing services to the uninsured. Under the new system, “we only get 60 to 70 percent,” he said. The reduction is particularly significant for the alliance because its hospitals serve a high percentage of uninsured patients. Despite the state’s efforts to enroll all low-income residents in free or subsidized insurance programs, many still do not have coverage.

Something similar occured under Maine’s Dirigo health care reforms. Supporters promised that broader coverage would reduce private insurance premiums because reduced uncompensated care would lead to less cost-shifting. Didn’t quite pan out that way.

What remains to be seen is whether, as I predict, the hospitals that demanded the original uncompensated care subsidies will force Massachusetts to restore them. If so, then the Massachusetts health plan will not have reallocated those government subsidies. It will have created new ones.