ObamaCare’s ‘Sweetheart Deal’ for PhRMA
The New Republic’s Jonathan Cohn reports that back in March, IMS Health projected slightly negative revenue growth for the pharmaceutical industry but recently changed that projection to 3.5-percent annual growth from 2008 through 2013.
“What changed?” Cohn asks. “A major factor, according to IMS, was the emerging details of health care reform . . . Put it all together, and you have more demand for name-brand drugs . . . enough to boost revenue significantly.” And:
“If this bill is implemented,” the report concludes on page 138, “an increase in prices on new drugs can be expected.”
How could this be happening? Oh yeah:
That brings us back to the deal that the Pharmaceutical Researchers and Manufacturers of America, which represents those companies, made with the White House and Senate Finance Committee . . .
The industry agreed to embrace health care reform and, later on, launched a massive advertising campaign to promote the cause. In exchange, the White House and Senate Finance–which had been asking various industries to pledge concessions that would help pay for the cost of coverage expansions–promised not to seek more than $80 in reduced payments to drug makers.
To an industry as big and profitable as the drug makers, giving up $80 billion over ten years wouldn’t seem like much of a sacrifice–a point critics started making right away. But if IMS is right, the drug industry wouldn’t even be giving up $80 billion, in any meaningful sense of the term. If anything, it’d be making more money. Maybe quite a lot of it.
Which is what I predicted, both here and here.
Cohn concludes, “the drug industry has enormous leverage in Congress.” But Cohn still supports the president’s health care takeover. Or is it PhRMA’s health care takeover?
Filed under: General; Health, Welfare & Entitlements
Abortion Funding and Health Care
President Obama’s approach to health care reform — forcing taxpayers to subsidize health insurance for tens of millions of Americans — cannot not change the status quo on abortion.
Either those taxpayer dollars will fund abortions, or the restrictions necessary to prevent taxpayer funding will curtail access to private abortion coverage. There is no middle ground.
Thus both sides’ fears are justified. Both sides of the abortion debate are learning why government should not subsidize health care. Tip of the hat to President Obama for creating this teachable moment.
Meanwhile, Catholics should be outraged at the United States Conference of Catholic Bishops (to which my grandfather served as counsel). Yes, the USCCB helped prevent taxpayer funding of abortions in the House bill. But at the same time, those naughty bishops have abandoned the Church’s doctrine of subsidiarity by endorsing the rest of the Democrats’ plan to centralize power in Washington.
As it happens, Caesar is the main source of funding for Catholic hospitals. That may explain why the bishops are so eager to render unto, ahem, Him.
Cross-posted at Politico’s Health Care Arena.
Filed under: Government and Politics; Health, Welfare & Entitlements
Putting Private Insurance Out of Business
Over at Think Progress, Matt Yglesias takes me to task for saying that the so-called public option in the House’s health care bill “would all but eliminate private insurance and force millions of Americans into a government-run system.”
Yglesias apparently still buys into the myth that the public option is, well, an option.
For people who receive health insurance through their employers, which is to say the vast majority of the Americans who currently have health insurance, the House bill would change very little. Or, rather, the biggest change would simply be the confidence that if, in the future, you cease to get health insurance from your employer (maybe you’ll lose your job or want to change jobs) that you’ll still be able to get health care. What’s more, of the minority of Americans who would be getting health care through the new “exchange,” the majority will probably sign up for private health insurance and everyone will have the option of doing so. If the government-run public plan is, for whatever reason, vastly more appealing than the private options then it will dominate. But if you believe the government can’t run health care well, there’s no reason to think that will happen. Whatever you think of that, though, the basic fact is that even if the public option does dominate the exchange most people will still have private employer-provided insurance.
That might be true if the new government-run program were going to compete on anything close to a level playing field. But, because the public option is ultimately supported by the taxpayers, the playing field can never be level. True, the bill does say that the new program is supposed to be self-sustaining, covering administrative and benefit costs entirely out of premium revenues. But remember that Medicare Part B was originally supposed to support 50 percent of its costs through premiums. That has shrunk to the point where premiums pay for less than 25 percent of the program’s cost.
And the government has a myriad of ways to prevent the true cost of the program from showing up in premium prices. For example, the government-run plan will not have to pay state or federal taxes, and unlike private insurance plans, who can be sued in state courts, the government-run plan could only be sued in federal court.
At the very least, the program carries with it an implicit guarantee against future losses. Suppose the public option prices its products too low and loses money. Can you imagine that Congress is simply going to let it go bankrupt, go out of business? Would a Congress that has bailed out banks and automobile companies because they are “too big to fail” resist subsidizing the government’s insurance plan if it began to lose money? Even without the actual bailout, such an implicit guarantee has a value. For example, the implicit guarantees behind Fannie Mae and Freddie Mac were estimated to have saved those institutions $6 billion per year.
All of this means that the government-run plan would be significantly cheaper than private insurance, not because it would out-compete private insurance or because it was more efficient, but because it had unfair advantages. The lower cost means that businesses, in particular, would have every incentive to dump workers from their current health insurance plan into the government plan. And, if other provisions of the bill make insurance more expensive, as is likely, the incentive for employers to shift workers to the government plan would be even greater. Estimates suggest that nearly 90 million workers could eventually be forced into the government plan.
As Robert Samuelson, dean of economic columnists, writes in the Washington Post, “a favored public plan would probably doom today’s private insurance.”
Samuelson is right. There is nothing “optional” about a public option. And that is just the way the Left wants it.
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, Welfare & Entitlements
Weekend Links
- Cato v. Heritage on the Patriot Act, Round II. Today’s topic: “Where are the demonstrated examples of abuses of liberties because of the Patriot Act? Are there any provisions of the law that civil libertarians would find acceptable?”
- Comparing the Great Depression to the current recession: Did we not learn anything?
- Re-examining the U.S. alliance with Japan: “The current relationship remains trapped in a world that no longer exists.”
- The human cost of delayed economic reform in India: “With earlier reform, 14.5 million more children would have survived, 261 million more Indians would have become literate, and 109 million more people would have risen above the poverty line.”
- Podcast: What we should have learned from our experience in Somalia. Background reading: Somalia, Redux: A More Hands-Off Approach
“Why Don’t We Fix the Two Public Options We Have Now instead of Creating a Third One?”
That sensible — and hopefully not rhetorical — question was posed by Democratic Senator Mary Landrieu (D-LA) on National Public Radio, according to The Hill.
Regarding recent polling that shows that a new Fannie Med (my term) commands majority support among the public, Landrieu quipped, “I think if you asked, ‘Do you want a public option, but it would force the government to go bankrupt?’, people would say no.”
Real health care reform wouldn’t bankrupt taxpayers or the government.
Filed under: Cato Publications; General; Health, Welfare & Entitlements
Parsing Pelosi: House Health Takeover Would Cost around $2.25 Trillion
Just like the Senate Finance Committee’s government takeover, the House of Representatives’ government takeover hides more than half of its cost by pushing those costs off the government’s budget and onto the private sector.
So when Speaker Pelosi says the House bill would cost under $900 billion, what she actually means is that it would cost around $2.25 trillion.
Filed under: Cato Publications; General; Health, Welfare & Entitlements
Max Baucus’s Magic?
Max Baucus says every single Democratic senator will vote for all the taxes, all the private-sector mandates, all the inter-governmental mandates, all the Medicare spending cuts, and all the new private-insurance subsidies that he and Harry Reid are cobbling together. What’s left to discuss?
Baucus may know something I don’t. But here’s what I do know.
- To subsidize Paul, Democrats need to rob Peter. And Peter ain’t gonna like that, whether “Peter” is union members, small businesses, insurance companies, medical-device manufacturers, sick people, or the middle class broadly.
- Of course, the government already does a lot of Peter-robbing and Paul-paying in health care. Democrats could subsidize Paul #2 by cutting subsidies to Paul #1. But again, Paul #1 — whether “he” be seniors, doctors, hospitals, insurance companies, pharmaceutical manufacturers, medical-device manufacturers, home health agencies, skilled nursing facilities, etc. — ain’t gonna like that.
- Members of Congress, including Democratic senators, tend to listen to those Peters and Paul #1s.
- Democrats could try to rob future generations, but they (particularly President Obama) have painted themselves into a corner on that one by promising not to add to the deficit. And with regard to deficit spending, the public appears to be in no mood.
Heck, I’m sure that Baucus knows a lot of things I don’t know. But I doubt he knows any magical incantations that’ll make those challenges go away.
(Cross-posted at Politico’s Health Care Arena.)
Filed under: Cato Publications; Health, Welfare & Entitlements
Wednesday Links
- Why there’s no way to enforce a ban on texting while driving.
- How onerous financial rules will only delay economic recovery and dampen long-term growth.
- It’s time to start over on health care reform: “If you’re going the wrong way down a road, the answer isn’t to step on the gas, but to turn around.”
- Is the current recession the worst since the Great Depression? You might be surprised…
- When “history” dials the wrong number.
Weekend Links
- How cap-and-trade is like ritual self-flagellation.
- The Senate Finance Committee’s version of health care reform is definitely a step up from all of the other versions of the bill. But that’s still a pretty low bar.
- Change? The president cuts another deal for special interest lobbyists at the expense of American families.
- Why free trade is a boon to the environment.
Baucus Bill’s Spending Cuts Won’t Stick
Why? Just ask Sen. Evan Bayh (D-IN):
You can sort of see this coming. The savings from the pharmaceutical companies and the insurance industry, you can kind of count on that because they’re not very popular.
The hospitals are a different story. People, you know, like their hospitals; they tend to trust their hospitals. The hospitals have pledged big savings. I can easily forecast at some point in the not-too-distant future the hospitals coming in and saying, “You know what, this isn’t working exactly the way we expected. Please spare us from this,” and them getting a good hearing in [Congress].
The same thing goes for physicians.
And the pharmaceutical companies.
Wednesday Links – Health Care Costs
The Congressional Budget Office released a report this week that revealed that the proposed health care bill would not increase the deficit. But is it that simple? Cato health care policy experts have examined the bill and added up the costs. Here are a few things they have found:
- Congress has been cooking the books: “When it comes to the health care reform debate…honest budgeting is nowhere to be seen.”
- Costs will only decrease if we give market forces room to breathe.
- How some in Congress are hiding the true costs of the health care overhaul.
- Healthy Competition: What’s Holding Back Health Care and How to Free It
“Keep Your Subsidies off My Ovaries”
In my recent Cato paper, “All the President’s Mandates: Compulsory Health Insurance Is a Government Takeover,” I explain that if Congress compels Americans to purchase health insurance, it would “inevitably and unnecessarily open a new front in the abortion debate, one where either side—and possibly both sides—could lose.”
Slate’s William Saletan explains how the pro-choice side could lose:
This week, the Senate finance committee is considering amendments that would bar coverage of abortions under federally subsidized health insurance. Pro-choice groups are up in arms. After all, says NARAL Pro-Choice America, “In the current insurance marketplace, private plans can choose whether to cover abortion care—and most do.” If Congress enacts subsidies that exclude abortion, “women could lose coverage for abortion care, even if their private health-insurance plan already covers it!“…
The argument these groups make is perfectly logical: If you standardize health insurance through federal subsidies and coverage requirements, people might lose benefits they used to enjoy in the private sector. But that’s more than an argument against excluding abortion. It’s an argument against health care reform altogether.
Saletan also explains why pro-life and pro-choice positions on Obama’s health plan are irreconcilable:
To get what they consider neutrality, pro-choicers have to make pro-lifers pay indirectly for abortions. And to keep what they consider clean hands, pro-lifers have to make abortion coverage federally unsupportable and therefore, in a subsidy-dependent system, commercially nonviable.
Rather than an argument against all health care reform, I’d say this is an argument against reforms that expand government subsidies or otherwise give government the power to choose what kind of insurance you purchase. Fortunately, there are better ways to reform health care.
Filed under: Cato Publications; General; Health, Welfare & Entitlements
“How American Health Care Killed My Father”
Not my father. David Goldhill’s father.
David Goldhill is a Democrat. He is the president and CEO of the Game Show Network. And he’ll be speaking on health care at a Cato Institute event on Capitol Hill this Thursday.
Why would you want to hear the president of the Game Show Network discuss about health care reform?
Because after Goldhill’s father succumbed to a hospital-acquired infection, Goldhill spent two years studying America’s health care sector. The product of those efforts is “How American Health Care Killed My Father,” an article in this month’s issue of The Atlantic that bloggers have acclaimed as a “stemwinder” and “a fascinating read.”
Goldhill analyzes why America’s health care sector is so dysfunctional and concludes that “this generation of ‘comprehensive’ reform will not address the underlying issues, any more than previous efforts did. Instead it will put yet more patches on the walls of an edifice that is fundamentally unsound—and then build that edifice higher.”
The event will take place in room B-340 of the Rayburn House Office Building at noon on Thursday, October 1. Click here to register.
Climate Change and Health Care: Free Lunches?
In the debate over health care reform, advocates of expanded government health insurance suggest we can pay for this by making Medicare and Medicaid more efficient.
In Paul Krugman’s most recent column, he makes a similar claim about reducing greenhouse gas emissions:
The evidence suggests that we’re wasting a lot of energy right now. That is, we’re burning large amounts of coal, oil and gas in ways that don’t actually enhance our standard of living — a phenomenon known in the research literature as the “energy-efficiency gap.” The existence of this gap suggests that policies promoting energy conservation could, up to a point, actually make consumers richer.
Both claims of a “free lunch” are heroic, at best.
In the case of health insurance, Medicare and Medicaid are inefficient, but to make them more efficient we have to reduce government subsidy for health insurance, not expand it.
In the case of energy efficiency, more energy-efficient practices exist (e.g., replacing incandescent light bulbs with CFLs), but they are expensive: if they actually made consumers richer, most would be using them already.
Now the fact that expanded government health insurance and increased energy efficiency would cost more, not less, does not prove they are bad ideas (that’s a separate discussion). But it means society must evaluate a tradeoff, not just assert we can have something for nothing.
C/P Libertarianism, from A to Z
Filed under: Energy and Environment; Government and Politics; Health, Welfare & Entitlements
Now We See the Violence Inherent in the System
In case you’re wondering how Congress and President Obama plan to enforce their little compulsory health insurance schemes, here’s a note explaining their strategy from the head of Congress’ non-partisan Joint Committee on Taxation to Sen. John Ensign (R-NV).
Yeah, but . . . it’s not like it’s . . . you know . . . a tax or anything. Oh, wait.
Filed under: Cato Publications; General; Health, Welfare & Entitlements
20-somethings Will Pay for Big Government
A front-page Washington Post story today notes that the cost of Obama-style health care reform will fall disproportionately on young adults.
Younger workers are typically more healthy than the population at large, and a significant share of them quite rationally choose not to buy health insurance, as my colleague Mike Tanner explains in a recent op-ed. The major health care plans on the table in Washington would force them to buy coverage. As the Post story explains:
Drafting young adults into any health-care reform package is crucial to paying for it. As low-cost additions to insurance pools, young adults would help dilute the expense of covering older, sicker people. Depending on how Congress requires insurers to price their policies, this group could even wind up paying disproportionately hefty premiums—effectively subsidizing coverage for their parents.
I’m beginning to see a pattern. Those same young workers will be forced to pay the bills for soaring Social Security and Medicare expenditures when the Baby Boomers begin retiring en masse a decade from now. And of course, they will be the ones paying off the $9 trillion in additional federal debt expected to be wracked up from the current explosion in federal spending.
I always thought parents were supposed to support their kids, not saddle them with bigger bills and huge debts.
Filed under: General; Health, Welfare & Entitlements
Monday Links
- Obama spoke on Wall Street today about increasing regulation of the American financial system. But did deregulation really cause the financial crisis?
- Burnt rubber: Obama’s decision to slap a 35 percent tariff on Chinese tires whiffs of senseless protectionism.
- According to the Economic Freedom in the World report, the U.S. was ranked the second-freest economy in 2000. It has fallen to 6th place this year.
- A bold exit strategy for Afghanistan.
- Why it’s time for the U.S. to start doing less abroad.
- Podcast: China’s economy is on track to be larger than the U.S. economy in a few years. Trade expert Dan Griswold says, “So what?”
Summing Up Obama’s Health Care Address
Cato health care experts dissected President Obama’s address Wednesday night, providing live commentary throughout the speech.
Overall impressions:
Michael D. Tanner: Can’t see this as a game-changer. I would give him an ‘A’ on delivery, but at best a ‘C’ on substance. There were surprisingly few details and very little new.
Patrick Basham: Strikingly political/partisan rather than statesmanlike speech. Obama chose to pressure Republicans to support his plan rather than attempt to persuade them to do so. He risks a another wave of (effective) opposition from conservative talk radio & cable TV.
Michael F. Cannon: Translation: My health plan cannot work if you are free to make your own decisions.
Filed under: General; Government and Politics; Health, Welfare & Entitlements
Cato Health Care Experts Live-Blogging Obama’s Address
Cato health care policy experts offered live-commentary to President Obama’s address to Congress on Wednesday night. To review their comments, click the replay button below.
The video player has the speech in full.
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