ObamaCare Supporters, Be Warned: This May Sting a Little
Cato has now posted my remarks from last week’s “Obamacare in the Supreme Court” conference:
The full conference will be available here soon.
Podcast: ObamaCare’s Most Unconstitutional Provision Isn’t the Mandate. It’s IPAB.
My latest podcast, “IPAB: ObamaCare’s Next Constitutional Hurdle.”
Why ObamaCare Must Go, in Ten Short Minutes
Last week, I appeared on NPR’s Tell Me More program. My discussion with host Michel Martin gives a good synopsis of why ObamaCare is both harmful to consumers and unconstitutional. Listen to the segment here.
For a contrary perspective, listen to former Obama administration acting solicitor general Neal Katyal, who appeared on the program the next day. If you do listen to both programs, let me know what you think about Katyal’s comments, specifically this part:
MARTIN: First, I want to play a short clip from Michael Cannon of the Cato Institute who spoke to us yesterday as we said. This is a little of what he told us. Here it is.
MICHAEL CANNON: If the Supreme Court were to uphold this unprecedented and really breathtaking assertion of government power, there would be nothing to stop the Congress from forcing Americans to purchase any private product that Congress chose to favor. That could be a gym membership. That could be stock in Exxon Mobil. That could be broccoli if Congress decided that any of these products move in interstate commerce and that forcing you to buy it was essential to the regulatory scheme they wanted to enact.
MARTIN: What is your response to that?
KATYAL: Well, I mean, that’s a lot of rhetoric and not really a legal argument because it’s not responsive to what the government is asking for here. What the government is saying is, look, everyone consumes healthcare in this country, you and I. And, you know, even if I might say to myself, I don’t need health insurance. I won’t get sick. The fact is, as human beings with mortality, we are going to get sick and it’s unpredictable when.
You could get struck by a heart attack or cancer or hit by a bus and wind up in the emergency room and then it’s average Americans who have to pick up the tab for that. And so the government is not saying here we have the power to force people to buy goods. They’re saying, look, you’re going to already buy the goods. You’re going to use it. And the only question is, are you going to have the financing now to pay for it.
And so the government is regulating financing. It’s kind of like a government law that says you’ve got to pay cash or credit. It’s not the government coming in and saying, oh, consume this product you wouldn’t otherwise consume. And as for the kind of, you know, ludicrous suggestion that this would somehow lead to the government forcing people to eat broccoli or the like, I mean, I would think that someone from the Cato Institute would know that the Bill of Rights and the privacy protections in the constitution would protect against such drastic hypotheticals.
Now, I’ve been at this for a while. I’ve seen people evade uncomfortable questions and mischaracterize things I’ve said. But for some reason, this instance really surprised me. Maybe Katyal was nervous.
What Is Causing Drug Shortages?
A number of people have asked me what is causing the current shortages in certain types of drugs. Here’s what I’ve been able to discern so far:
In general, there are two reasons why shortages might appear in a market. The first is high fixed costs. These include regulatory costs, the costs of converting a manufacturing plant to a new use, or the costs of creating a new factory. Industries with high fixed costs will see temporary shortages after either supply shocks (e.g., a factory goes offline) or demand shocks (e.g., an increase in the population needing a drug). The price mechanism eventually resolves such shortages. The duration of the shortage is related to the size of the fixed costs.
Shortages also appear when something interferes with the price mechanism’s ability to resolve a shortage. The classic example is government price controls (i.e., a binding price ceiling). Such shortages persist as long as the price controls (e.g., rent control) remain in place and binding.
From my study of the current spate of drug shortages, the best accounting for these shortages appears in this publication by the U.S. Department of Health and Human Services: “Economic Analysis of the Causes of Drug Shortages,” Issue Brief, October 2011.
I initially suspected these drug shortages were caused by Medicare’s Part B drug-payment system. Others, including Scott Gottleib and the Wall Street Journal, have made that claim. However, this study and a lengthy discussion with the U.S. Department of Health and Human Services’ assistant secretary for planning and evaluation have persuaded me that not only is Medicare’s Part B drug-payment system not the cause, that system doesn’t even impose binding price controls. Rather, it controls the margins that physicians earn for administering a drug. (If Medicare did impose binding price controls, would we see mark-ups of 650 percent or more for the shortage drugs?)
Rather, the shortages appear to be the result of a number of dynamics in the market for rare drugs:
You Keep Using the Word ‘Affordable.’ I Do Not Think It Means What You Think It Means.
The federal government gave a $10 million “affordability” prize to a giant corporation for manufacturing a $50 lightbulb. The Washington Post:
The U.S. government last year announced a $10 million award…for any manufacturer that could create a “green” but affordable light bulb.
Energy Secretary Steven Chu said the prize would spur industry to offer the costly bulbs…at prices “affordable for American families.”…
Now the winning bulb is on the market.
The price is $50.
Retailers said the bulb, made by Philips, is likely to be too pricey to have broad appeal. Similar LED bulbs are less than half the cost.
This is the same federal government that refers to ObamaCare, which costs more than $6 trillion, as the “Affordable Care Act.”
Does Mitt Romney Have Health Insurance?
It’s an interesting question. Romney is under age 65, which means that he would have to obtain private health insurance. He jokes that he is unemployed, which means he may have to purchase it on his own. Or he may get it as a retiree benefit from Bain Capital.
The question is interesting because Romney is so wealthy that to spend his money on health insurance might seem like a waste. (Of course, Romney may be very risk averse, and a man to whom $10,000 is a small wager probably isn’t going to notice a $20,000 health insurance premium. But Romney could pay for whatever medical care he and his wife — and his children, and his grandchildren — could possibly need.) On the other hand, if Romney doesn’t have private health insurance, it would look bad that he forced other people to buy it.
Moreover, Romney turns 65 on March 12, meaning he becomes eligible for Medicare on March 1. He likely received his Medicare card in the mail two months ago. If Romney does not enroll in Medicare, it would again look bad that he who forced others to purchase health insurance is opting not to obtain health insurance himself. But if he does enroll in Medicare, it’s worth asking whether the 99 percent should subsidize people like him.
Kaiser Family Foundation: If ObamaCare Increases the Cost of Your Coverage, That’s a ‘Benefit’
Jonathan Gruber, one of ObamaCare’s biggest defenders, estimates that even after accounting for the law’s tax credits and subsidies, nearly 60 percent of consumers in Wisconsin’s individual market (for example) will pay an average of 31 percent more for health insurance. Some will pay more than twice as much as they did pre-ObamaCare.
Inexplicably, the Kaiser Family Foundation, another defender of the law, counts everyone in the individual market—including those who would pay more—in its estimate of “the number of people who would benefit from the financial subsidies.”
Sebelius Admits ObamaCare Exchanges Aren’t Happening, Then Disqualifies Herself from Office
Politico Pro has published a short but remarkable article [$] stemming from an interview with HHS secretary Kathleen Sebelius. It offers a couple of illuminating items, and one very glaring one.
First, Sebelius undermines the White House’s claim that “28 States and the District of Columbia are on their way toward establishing their own Affordable Insurance Exchange” when she says:
We don’t know if we’re going to be running an exchange for 15 states, or 30 states…
So it turns out that maybe as few as 20 states are on their way toward establishing this “essential component of the law.” Or maybe fewer.
Second, the article reports the Obama administration has reversed itself on whether it has enough money to create federal Exchanges in states that decline to create them. The administration has repeatedly claimed that the $1 billion ObamaCare appropriates would cover the federal government’s costs of implementing the law. And yet the president’s new budget proposal requests “another $1 billion” to cover what Sebelius calls “the one-time cost to build the infrastructure, the enrollment piece of [the federal exchange], the IT system that’s needed.”
In other words, as I blogged yesterday, the Obama administration does not have the money it needs to create federal Exchanges. Therefore, if states don’t create them, ObamaCare grinds to a halt. (Oh, and this billion dollars is the last billion the administration will request. Honest.)
Most important, however, is this:
Even if Congress does not grant the president’s request for more health reform funding, Sebelius said her department will find a solution. “We are going to get it done, yes,” she said.
An HHS staffer prevented the reporter from asking Sebelius what she had in mind.
This is a remarkable statement. Sebelius basically just copped to a double-subversion of the Constitution: Congress appropriates money for X, but not Y. Sebelius says, “I know better than Congress. I’m going to take money away from X to fund Y.” Sebelius has already shown contempt for the First Amendment, first by threatening insurance carriers with bankruptcy for engaging in non-fraudulent speech, and again by crafting a contraceptives mandate that violates religious freedom. Now, she has decided the whole separation of powers thing is for little people. What will Sebelius do the next time something gets in the way of her implementing ObamaCare?
I don’t see why a federal official should remain in office after showing so much contempt for the Constitution she swore to uphold.
HuffPo Oped: ‘The Illiberality of ObamaCare’
My latest:
On Friday, President Obama tried to quell the uproar over his ongoing effort to force Catholics (and everyone else) to pay for contraceptives, sterilization, and pharmaceutical abortions. Unfortunately, the non-compromise he floated does not reduce by one penny the amount of money he would force Catholics to spend on those items. Worse, this mandate is just one manifestation of how the president’s health care law will grind up the freedom of every American.
President’s Budget Shows Feds Can’t Create ObamaCare ‘Exchanges’
According to Politico Pro [$]:
More than $860 million of President Barack Obama’s proposed $1 billion increase in the CMS budget will go to building the federal exchange, acting [Centers for Medicare and Medicaid Services] Administrator Marilyn Tavenner said during a budget briefing at HHS on Monday.
This funding is necessary in part because the amount originally appropriated for the federal costs of implementing the Affordable Care Act — $1 billion — is expected to be gone by the end of this year, HHS officials said.
Assistant Secretary for Financial Resources Ellen Murray said at the briefing that half of these funds have already been obligated, and the remaining amount will be used by the end of the year.
She also said states will still be able to get help building exchanges, because other ACA funds are still available for exchange work.
“Funding for [state grants] was provided in the Affordable Care Act, so the money we’re asking for in this budget is just for the federal exchange,” Murray said.
In other words, the federal government doesn’t have the money to create ObamaCare Exchanges, and the administration has no hope of getting that funding through the Republican-controlled House. So if states don’t create Exchanges, they might not exist. (And even if the federal government does create them, they won’t work.)
Never mind the lawsuits. The Exchanges may be ObamaCare’s most serious vulnerability.
Credit Where It’s Due: Sarah Kliff Edition
On Friday, President Obama announced an “accommodation” to those who object to his contraceptives mandate. Since then, I have been astonished at how many reporters have portrayed the president’s announcement as some sort of compromise, even though it would not reduce — not by one penny – the amount of money he would force Catholics and others with a religious objection to spend on contraception.
In fact, the only reporter who seemed to grasp this may also have been the first out of the box. The Washington Post‘s Sarah Kliff:
“If a charity, hospital or another organization has an objection to the policy going forward, insurance companies will be required to reach out to directly offer contraceptive care free of charge,” one administration official explained…
Numerous studies have shown that covering contraceptives is revenue-neutral, as such preventive measures can lower the rate of pregnancies down the line…
“Contraceptives save a lot of money,” a senior administration official argued.
The catch here is that there’s a difference between “revenue neutral” and “free.” By one report’s measure, it costs about $21.40 to add birth control, IUDs and other contraceptives to an insurance plan. Those costs may be offset by a reduction in pregnancies. But unless drug manufacturers decide to start handing out free contraceptives, the money to buy them will have to come from somewhere.
Where will it come from, since neither employers nor employees will be paying for these contraceptives? That leaves the insurers, whose revenues come from the premiums that subscribers pay them. It’s difficult to see how insurance companies would avoid using premiums to cover the costs of contraceptives.
The Post‘s subsequent coverage would have benefited from such scrutiny of the president’s spiel. If I missed such scrutiny in the Post or elsewhere, I hope someone will let me know.
Cochrane on ObamaCare’s Contraceptive-Coverage Mandate
My Cato colleague John Cochrane – who is way smarter than I am — has a generally excellent op-ed in today’s Wall Street Journal on ObamaCare’s contraception mandate:
Salting mandated health insurance with birth control is exactly the same as a tax—on employers, on Catholics, on gay men and women, on couples trying to have children and on the elderly—to subsidize one form of birth control…
The tax rate and spending debates that occupy the media are a small part of the effective taxes and spending that the government achieves by these regulatory mandates…
The natural compromise is simple: Birth control, abortion and other contentious practices are permitted. But those who object don’t have to pay for them. The federal takeover of medicine prevents us from reaching these natural compromises and needlessly divides our society…
Sure, churches should be exempt. We should all be exempt.
My only quibble is with his claim, “Insurance is a bad idea for small, regular and predictable expenses.”
That’s generally true. But medicine is an area where, potentially at least, small up-front expenditures (e.g., on hypertension control) could prevent large losses down the road. So it may be economically efficient for health plans to cover some small, regular, and predictable expenses. Both the carrier and the consumer would benefit. In fact, that would be the market’s way of telling otherwise uninformed consumers, “Hey! Controlling your hypertension is a really good for you!” And really, if someone is so risk-averse that they want health insurance with first-dollar coverage of everything – and they’re willing to pay the outrageous premiums that would accompany such coverage — why should we take issue with that?
ObamaCare’s contraceptive-coverage mandate demonstrates that government does a horrible job of picking only those types of “preventive” services for which first-dollar coverage will leave consumers better off. But I also think advocates of free-market health care generally need to let go of the idea that health insurance exists only for catastrophic expenses.
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