The ‘Public Option’ Is Back
That didn’t take long at all. Left-wing congresscritters have (re-)introduced legislation to create a “public option” in ObamaCare‘s health insurance exchanges.
The Congressional Budget Office scores the bill as reducing federal deficits by $53 billion by 2019. How? Paying doctors and hospitals less! Put that on a bumper sticker! The public option would use Medicare’s price and exchange controls to pay doctors and other health care providers 5 percent more than Medicare does. Except for prescription drugs: the public option would, ahem, “negotiate” those prices, meaning it would use a separate price-control scheme and pay less than Medicare does. (That means PhRMA probably won’t be bankrolling the public-option campaign the way it bankrolled the pro-ObamaCare campaign and is bankrolling the re-election bids of its congressional benefactors.) Providers, such as community hospitals, would take a huge pay cut if some of their privately-insured patients suddenly only paid Medicare plus 5 percent.
When costs explode under ObamaCare the way they are exploding under RomneyCare, expect the public option to be the Left’s go-to solution. In CongressDaily, co-sponsor Rep. Raul Grijalva (D-Ariz.) says:
By reintroducing it, we make sure that people don’t forget this is a viable option…. I think as the health bill is implemented, more and more people are going to come to the realization that cost containment and competition aren’t as robust as they should be, because of the absence of the public option.
Naturally. Because the first thing that comes to mind when I think cost-containment and competition is government health care programs.
For a refresher on how the Left confuses cost-containment with spending-containment — and on why the public option is a really, really, really bad idea — see my paper, “Fannie Med? Why a ‘Public Option’ Is Hazardous to Your Health.”
A Tale of Two Frauds
The President has announced a government crackdown on Medicare and Medicaid fraud. The effort appears to be an attempt to make it easier for Americans to swallow the health care “reform” he’s trying to shove down their throats. As House Republican leader John Boehner correctly asked, “Why can’t we crack down on fraud without a big-government takeover of health care?”
As I’ve noted before, improper payments made by Medicare and Medicaid is may well be $50 billion more than the already appalling $100 billion annual figure the president cited. Administrative efforts to rein in fraud and abuse are welcome, but they won’t solve the huge and fundamental inefficiencies of these programs. Because the law requires government health care programs to quickly get payments out the door, Uncle Sam will always be engaged in a costly game of “pay and chase.”
The broader problem is that government programs aren’t subject to market discipline. Policymakers and administrators have little incentive to be frugal because they face few or no negative consequences when playing with other people’s money.
Most of us have noticed how good private companies can be at reducing fraud. I recently received a call about questionable charges on my Discover credit card. After quizzing me on a list of purchases made with my card in the past 24 hours, it became clear that someone had gotten control of my account. Discover immediately closed the account, opened an investigation, and removed me from any liability for the fraudulent charges.
What amazed me is that I only had about $300 worth of charges on my card. It’s not a big account and thus not a big money maker for Discover. Yet, within 24 hours of a string of suspicious charges, the company was right on top of it before I even realized anything nefarious was going on. Private markets don’t always work this well, but government programs almost never do.
The Best and Worst Ways to Reform Health Care
From my health care reform oped in today’s Daily Caller:
President Obama wants to work with Republicans on health care reform. “I am going to be starting from scratch,” he says, “in the sense that I will be open to any ideas that help promote” controlling health care costs and making health insurance more widely available.
As it happens, many of the worst ideas are in the legislation Obama supports. Republicans have embraced some of the best ideas, but also some of the worst.
The best health care reform ideas ideas give consumers the money, let them choose a health plan regulated by a state of their choice, and reduce the federal government’s role in providing medical care to the needy. The worst ideas? Creating or expanding government health care programs, mandates, price controls on health insurance, and federal med mal reform.
Wednesday Links
- David Boaz debates at The Economist: Is Obama failing? “In many ways, Obama has just doubled down on George W. Bush’s policies of bailouts, takeovers, expanded Fed powers and nationalizations. In a recession he is adding debt, taxes and regulation to the burdens already felt by business.” Readers can vote and join the debate.
- Ever wonder why weather forecasters can get things so wrong?
- Looking for a primer on the causes of the financial crisis? The new Cato Policy Report has answers.
- Podcast: “Citizens United and SpeechNow.org” featuring Steve Simpson of the Institute of Justice.
HHS Bureaucracy Is Not up to the Task
One aspect of the health care debate that has not been sufficiently addressed is how the Department of Health and Human Services will handle all its new responsibilities given the massive fraud and abuse that already plagues its existing programs.
It seems that every week there’s a new report of government health care being bilked. Since what’s reported is typically only what is caught, one can only imagine how much isn’t being caught. Harvard’s Malcolm Sparrow, a top specialist in health care fraud, estimates that up to 20 percent of federal health program budgets are consumed by improper payments, which would be a staggering $150 billion a year for Medicare and Medicaid.
New York Times columnist David Leonhardt did raise the question this week of whether the HHS bureaucracy is up to the task. He notes that the president is yet to choose a nominee to head the HHS’s Centers for Medicare and Medicaid Services (CMS), and he suggests that “the lack of a Medicare nomination suggests that the White House is not giving enough attention to what will happen once Mr. Obama signs a bill.” Well that’s because most politicians are primarily concerned with getting accolades for passing bills, but don’t worry too much about how programs actually work.
As I mentioned in an earlier post on this subject, CMS is the reincarnation of a previous HHS bureaucracy with a poor reputation. David Hyman recounts in his book, Medicare Meets Mephistopheles, that in 2001 HHS’s Health Care Financing Administration became CMS in an attempt to rebrand the universally disliked HCFA. CMS Administrator Tom Scully told Congress in 2003:
The fact is, the health care market…is extremely muted and extremely screwed up and it’s largely because of my agency. For those of you who don’t follow CMS, which used to be called HCFA, we changed the name because it was so well loved. I always say it’s kind of like when Enron comes out of bankruptcy, they’ll probably change their name. So, HCFA—Secretary Thompson and I decided to confuse everybody. We changed the name to CMS for a couple of years so people wouldn’t realize we’re actually HCFA. So far, it’s worked reasonably well.
Oh sure, the president is promising that this time it will be different. But Leonhardt relates a story from former CMS administrator Mark McClellan that shows why the president’s promise will be impossible to keep:
[Mark McClellan] likes to tell the story of a Medicare demonstration project that Congress approved in 2003. Once the bill passed, officials had to devise the project’s details, decide how to measure the results and choose the locations. All of that took until 2009. The first round of projects — coordinating care across medical specialties, in Indiana and North Carolina — has only recently started. Years more will pass before the results are in.
Monday Links
- Supporters of the government health care overhaul pulling select quotes from research papers while hiding conclusions from the very same papers that hurt their political cause.
- Will the Senate health care bill pass in 2009? David Boaz: “It’s looking like a health care overhaul won’t pass this year. The basic problem is that the more people learn about the bill, the less they like it.”
- Religious persecution update: The State Department’s new list of the top 30 most egregious offenders.
- Strategies for dealing with North Korea’s nuclear reality.
- Podcast: “Perverse Incentives in Obamacare.”
FEHBP Plan Is No ‘Moderate Compromise’
Senate Majority Leader Harry Reid (D-NV) has announced that he has reached a super secret compromise on how to deal with the so-called public option for health reform. While Reid said the agreement was too important to actually tell anyone what is in it, most of the details have been leaked to the press.
Rather than set-up a completely government-run insurance plan to compete with private insurance, Congress would establish a program similar to the Federal Employees Health Benefit Program (FEHBP), which currently covers government workers, including Members of Congress. The FEHBP offers a variety of private insurance plans under a program managed by the US Office of Personnel Management (OPM). Each year OPM uses the Federal procurement process to solicit bids from insurance companies to be one of the plans offered. Premiums can vary, but participating plans operate under stringent rules. As a model, the FEHBP is apparently acceptable to moderate Democrats because the insurance plans are private rather than government entities, while liberals like it because it is government regulated and managed.
In addition, the compromise plan would expand Medicare, allowing workers ages 55 to 65 to “buy in” to the program, and may also expand Medicaid.
A few reasons to believe this is yet another truly bad idea:
- In choosing the FEHBP for a model, Democrats have actually chosen an insurance plan whose costs are rising faster than average. FEHBP premiums are expected to rise 7.9 percent this year and 8.8 percent in 2010. By comparison, the Congressional Budget Office predicts that on average, premiums will increase by 5.5 to 6.2 percent annually over the next few years. In fact, FEHBP premiums are rising so fast that nearly 100,000 federal employees have opted out of the program.
- FEHBP members are also finding their choices cut back. Next year, 32 insurance plans will either drop out of the program or reduce their participation. Some 61,000 workers will lose their current coverage.
- But former OPM director Linda Springer doubts that the agency has the “capacity, the staff, or the mission,” to be able to manage the new program. Taking on management of the new program could overburden OPM. “Ultimate, it would break the system.”
- Medicare is currently $50-100 trillion in debt, depending on which accounting measure you use. Allowing younger workers to join the program is the equivalent of crowding a few more passengers onto the Titanic.
- At the same time, Medicare under reimburses physicians, especially in rural areas. Expanding Medicare enrollment will both threaten the continued viability of rural hospitals and other providers, and also result in increased cost-shifting, driving up premiums for private insurance.
- Medicaid is equally a budget-buster. The program now costs more than $330 billion per year, a cost that grew at a rate of roughly 10.7 percent annually. The program spends money by the bushel, yet under-reimburses providers even worse than Medicare.
- Ultimately this so-called compromise would expand government health care programs and further squeeze private insurance, resulting in increased costs and higher insurance premiums, and provide a lower-quality of care.
No wonder Senator Reid wants to keep it a secret.
Will America Keep “Bending the Productivity Curve”?
Most international comparisons conclude that America’s health care sector under-performs those of other advanced nations. Aside from other serious flaws, those studies typically ignore each nation’s contribution to medical innovation — the discovery of new knowledge and practices that improve health in all nations. Today, the Cato Institute releases a new study — the most comprehensive study of its kind — that helps fill that void.
In “Bending the Productivity Curve: Why America Leads the World in Medical Innovation,” economist Glen Whitman and physician Raymond Raad conclude that the United States far and away outperforms other nations on medical innovation, but that the legislation moving through Congress threatens America’s ability to innovate. From the executive summary:
To date…none of the most influential international comparisons have examined the contributions of various countries to the many advances that have improved the productivity of medicine over time…
In three of the four general categories of innovation examined in this paper — basic science, diagnostics, and therapeutics — the United States has contributed more than any other country…In the last category, business models, we lack the data to say whether the United States has been more or less innovative than other nations; innovation in this area appears weak across nations.
In general, Americans tend to receive more new treatments and pay more for them — a fact that is usually regarded as a fault of the American system. That interpretation, if not entirely wrong, is at least incomplete. Rapid adoption and extensive use of new treatments and technologies create an incentive to develop those techniques in the first place. When the United States subsidizes medical innovation, the whole world benefits. That is a virtue of the American system that is not reflected in comparative life expectancy and mortality statistics.
Policymakers should consider the impact of reform proposals on innovation. For example, proposals that increase spending on diagnostics and therapeutics could encourage such innovation. Expanding price controls, government health care programs, and health insurance regulation, on the other hand, could hinder America’s ability to innovate.
Raad will discuss the study this Friday at noon at a policy forum at the Cato Institute.
Reid’s Accomplishment
Including a Fannie Med with a “state opt-out” provision in the Senate Democrats’ health care bill accomplishes only this: it helps Majority Leader Harry Reid (D-NV) survive as majority leader by appeasing his left wing. It doesn’t make it any more (or less) likely that Fannie Med will survive.
(Cross-posted at Politico‘s Health Care Arena.)
Filed under: Cato Publications; General; Government and Politics; Health Care
Senate Health Regulation Bill Includes National ID Plan
Thanks to the push for a more transparent Congress, we’re getting a better look at what new health care regulations might shape up to be. Alas, not a very good look: with weak justifications, the Senate Finance Committee is working on a strange “plain language” description of the bill, and apparently not planning to read or release the final language.
I’ve found something worth noting, though, in each of the bill versions I’ve seen. The Senate Finance Committee’s Rube Goldberg plan for health care in America has a provision establishing paragraph talking about “Eligibility Verification.”
If you want to access the “state exchanges” or collect the federal tax credits created by the bill, your eligibility will have to be verified. Here’s what it says:
Eligibility Verification. In order to prevent illegal immigrants from accessing the state exchanges or obtaining federal health care tax credits, the Chairman‘s Mark requires verification of the following personal data. Name, social security number, and date of birth will be verified with Social Security Administration (SSA) data. For individuals claiming to be U.S. citizens, if the claim of citizenship is consistent with SSA data then the claim will be considered substantiated. For individuals who do not claim to be U.S. citizens but claim to be lawfully present in the United States, if the claim of lawful presence is consistent with Department of Homeland Security (DHS) data then the claim will be considered substantiated. Individuals whose status is expected to expire in less than a year are not allowed to obtain the tax credit. Individuals whose claims of citizenship or lawful status cannot be verified with federal data must be allowed substantial opportunity to provide documentation or correct federal data related to their case that supports their contention.
Translation: Every American who wants to access a “state exchange” or get the tax credits in the bill would have to submit data about themselves to the Social Security Administration or Department of Homeland Security for verification. If you don’t do it, no exchanges or tax credits. If your data doesn’t match, no exchanges or tax credits, unless you can convince SSA or DHS bureaucrats that you are who you say you are.
Sound familiar? Then you probably read my Cato Policy Analysis “Electronic Employment Eligibility Verification: Franz Kafka’s Solution to Illegal Immigration.” The paper discusses how verification of immigration status for employment eligibility would plunge Americans into a Kafka-esque bureaucracy and deny many law-abiding Americans the ability to work. Ultimately, the system requires a national identification card.
The same goes with a health care “eligibility verification” system. If you’re one of the millions of people about whom the Social Security Administration has bad data, plan to spend long hours waiting in line to plead with indifferent federal bureaucrats for health care access. When attacks and complications on the verification system break it down, they’ll move to “strengthen” the system. Get ready to dig up your birth certificate—they’ll want to scan it into their computers—plan to be photographed and fingerprinted, and get ready to stand in line for your national ID card.
It was refreshing to see Joe Wilson heckle the president the other week—the president is our employee, after all—but in their enthusiasm to generate differences with President Obama, Republicans may be coalescing behind plans to push a national ID and federal background check system that all freedom-loving Americans should reject.
Government Does Stuff Great
A fun video on “free” health care in Canada:
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