ObamaCare’s Preventive-Care Subsidies: Neither Free nor Cost-Effective
Matt Yglesias criticizes my comment in today’s USA Today when he writes, “making preventive health care free to the patient is…very cost-effective.”
Except it isn’t “free” to the patient.
And it isn’t cost-effective. The evidence strongly suggests we would “buy” as much health if we just waited for people to get sick and treated them then.
Cash Rewards For Failing Schools, the Lawsuit Way
I see the editorialists of the New York Times have rhapsodically hailed last week’s 3-2 New Jersey Supreme Court opinion striking down the budget-trimming plans of Gov. Chris Christie. As the press reported, the court ordered instead that an extra $500 million in state funds be allocated to some of the state’s poorest-performing school districts — the so-called Abbott districts, named after the three-decade-running New Jersey school finance litigation, Abbott v. Burke.
It’s too bad the editorial said nothing about the report five years ago in which one leading newspaper surveyed the wreckage done by the then-25-year-old litigation, which it called an “ambitious court-ordered social experiment.” (At that point, $35 billion in state tax money had already been lavished on the Abbott districts.) The paper’s reporting made a convincing case that the orders had squandered billions on mismanaged districts that were already far outspending most others in the state and region, as with Asbury Park, which was spending 70 percent more than the typical New Jersey district. Indeed, “the highest-spending districts were making the fewest gains” in student performance. It’s especially unfortunate because the newspaper that reported all this was the New York Times itself.
As I argue at greater length in my new book, school reform lawsuits like Abbott are much more than just vehicles for inefficiency and waste of tax dollars: they’re examples of an alternative method of governance, accomplished through what is sometimes called institutional reform litigation, and quite remote from the channels of lawmaking and appropriations familiar from civics books. Typically, successful litigation of this sort transfers control over an important issue like school funding from branches of government that are accountable to taxpayers and voters to a cluster of private litigators, expert witnesses, special masters, consultants, law professors, backers in liberal foundations, and so forth. The legal basis for the power grab is often flimsy in the extreme; in the Garden State, for example, the state constitution vaguely mandates that there be a “thorough and efficient” system of public education, and “educational equity” lawyers have prevailed on the courts to erect the whole thirty-year edifice of Abbott orders on a filling in of those mysterious blanks, a process that Gov. Christie has accurately described as “legislating from the bench”. (Our friend Hans Bader at CEI has more here and here.) In New Jersey, as in many other states and cities subject to these suits, governors and legislators may come and go, but the permanent government of court orders and negotiated consent decrees grinds on and on, conferring a curiously unaccountable power on the lawyers who manage and advance the litigation and their circle of allies.
It’s worth noting that since the U.S. Supreme Court’s 1973 decision in San Antonio v. Rodriguez, the federal courts have stayed out of most school finance litigation, leaving it to state courts. For decades, outspoken voices in the law schools have been calling for Rodriguez to be overturned or at least end-run so as to confer an Abbott-like charter for social experimentation on the federal courts, which could then proceed to issue orders equalizing school finance, ordering “Robin Hood” aid to underperforming districts, and so forth. The most prominent advocate of this view in recent years has been a Berkeley law professor named Goodwin Liu — his views are summarized by admirers here and here — which may explain in part why Liu’s recent Ninth Circuit nomination raised such strong feelings.
The Cognitive Dissonance of ObamaCare Supporters
“The Affordable Care Act offers new benefits like preventive care with no out-of-pocket cost and tools to help fight unreasonable premium increases that will save money for consumers.” — Jessica Santillo, a spokeswoman at the Department of Health and Human Services
ObamaCare Leads Minnesota Insurers to Suspend Sales
From the Minneapolis Star-Tribune:
Two of Minnesota’s biggest health plans said Thursday they have temporarily suspended sales of individual health insurance policies because of uncertainty related to the new federal health reform law.
The moves by Blue Cross and Blue Shield of Minnesota and HealthPartners came on the same day some of the federal government’s most-heralded consumer protections came into effect…
The insurers that have suspended individual sales say they are awaiting guidance on new rules, including those around coverage of kids with pre-existing conditions…
Pam Lux, a spokeswoman for Eagan-based Blue Cross, said she expects the suspension of individual sales to be brief but could not say if it would be days or weeks.
Is ObamaCare Pushing Rope?
Regarding ObamaCare’s first adverse-selection death spiral, Julie Rovner posts this over at Shots, the NPR health blog:
The advocacy group Health Care for America Now was the first to bring the action to widespread attention. “Even for the insurance industry this behavior is surprisingly brazen,” HCAN Executive Director Ethan Rome wrote in a blog entry for the Huffington Post. “They don’t like the rules, so they’re going to take their ball and go home.”
But the insurance industry trade group America’s Health Insurance Plans rejected HCAN’s contention that the companies’ refusal to sell to all comers is somehow a violation of a promise made earlier this year by AHIP CEO Karen Ignagni that insurance companies would comply with regulations regarding children and pre-existing conditions.
In an interview, AHIP spokesman Robert Zirkelbach said Ignagni was responding only to promises that children wouldn’t be excluded from their parents’ plans and that if the kids are covered, the policies would include treatment of their pre-existing condition.
What emerged in the regulations, however, Zirkelbach said, was, in effect, a requirement that insurance companies accept children even if they are already sick. That, he said, would be tantamount to exactly what companies want to avoid with the adult population — letting people wait until they are sick to sign up for insurance. Which is exactly why the insurance industry is so insistent on a coverage mandate: It needs premiums of healthy people to help cover the costs of those who are not.
In effect, ObamaCare supporters said to the public, “Give the government more power over insurance companies and the government will make health insurance more accessible and secure.” These few paragraphs capture how that strategy has turned into a cat-and-mouse game with insurers, and is turning ObamaCare’s most attractive selling point — guaranteed coverage for kids with pre-existing conditions — into an empty promise.
In stark contrast stands the individual insurance market. Yes, insurers there generally (but not always) charge premiums that correspond to risk, and sometimes turn people down — but that market has also been remarkably innovative when it comes to protecting sick people from higher premiums. RAND Health economist Susan Marquis and her colleagues write, “a large number of people with health problems do obtain coverage” in the individual market: “Our analysis confirms earlier studies’ findings that there is considerable risk pooling in the individual market and that high risks are not charged premiums that fully reflect their higher risk.” Even as Congress debated ObamaCare, UnitedHealthcare introduced an innovative new product that protects people with employer-sponsored coverage from facing sky-high premiums when they leave their company plan. Economist John Cochrane predicts that further innovations can make health insurance more secure and improve the quality of medical care.
Which process seems more likely to improve quality and reduce costs? The political process, where politicians and regulators try to force insurance companies to act against their financial self-interest? Or the market process, where self-interest forces insurers to find innovative ways to give consumers more of what they want?
President Obama’s Speech Czar
President Obama’s Secretary of Health and Human Services Kathleen Sebelius is still threatening to bankrupt insurance companies who tell their customers that ObamaCare‘s mandates will increase premiums by more than 2 percent, even though her department’s projections show that, starting this week, just one of the law’s new mandates will increase some premiums by nearly 7 percent.
In a CBS News story last week, Sebelius tried to defend those indefensible threats:
But don’t the insurance companies have a right to make their own analyses and claims to their customers?
“Absolutely, they have a right to communicate with their customers,” replied HHS Secretary Kathleen Sebelius. “We just want to make sure that communication is as accurate as possible.”
The government can and should police fraud — but that’s not what Sebelius is doing. She is suppressing legitimate differences of opinion in the pursuit of political gain.
What if the government had said, “Absolutely, CBS News has a right to communicate with its customers — we just want to make sure that communication is as accurate as possible”? Should the government be able to put CBS News out of business if it decides those communications are not as accurate as possible? How about the National Rifle Association? Should the next Republican administration be able to put the Center for American Progress, the SEIU, or The New York Times out of business if it decides their communications are not as accurate as possible?
You don’t have to oppose ObamaCare to see the danger here.
ObamaCare: a Downward Spiral of Rising Costs and Deteriorating Quality
Here’s my contribution to a “one-minute debate” on ObamaCare in the Christian Science Monitor:
The new health-care law’s mandates are already causing health insurance premiums to rise 3 to 9 percent more than they otherwise would. Its price controls are pushing insurers to abandon the market for child-only coverage and will soon begin rationing care to Medicare patients, partly by driving nearly 1 in 6 hospitals and other providers out of the program.
Starting in 2014, when the full law takes effect, things will get really ugly. ObamaCare’s “individual mandate” will drive premiums even higher – assuming the courts have not declared it unconstitutional, as they should. Because the penalty for violating the mandate is a fraction of those premiums, healthy people will wait until they are sick to buy coverage, driving premiums higher still. This is already happening in Massachusetts, which enacted a nearly identical law in 2006. ObamaCare’s price controls will force insurers to cover sick patients at artificially low premiums, guaranteeing that insurers will avoid, mistreat, and dump the sick, because that’s what the price controls reward. ObamaCare’s private health-insurance subsidies will expose low-wage workers to implicit tax rates higher than 100 percent, potentially trapping millions in poverty.
With real reforms like Medicare vouchers and large health savings accounts, and letting consumers purchase health insurance across state lines, a free market would reduce costs and improve quality through innovations such as integrated health systems, nurse-practitioner-staffed primary care clinics, telemedicine, and insurance that offers even sick patients a total satisfaction guarantee.
But until Congress or the courts discard ObamaCare’s mandates, price controls, and new entitlement spending, there is literally nothing that can arrest this downward spiral of rising costs and deteriorating quality.
The above link will also take you to a counter-point by Kavita Patel of the New America Foundation.
Guess Who’s Behind the New Fire-Sprinkler Mandates
California just adopted effective next year a requirement that all new one- and two-family dwellings include indoor sprinkler systems. Other states are debating similar mandates, spurred by changes to national building code standards. Earlier legal mandates have required the inclusion of smoke alarms and carbon monoxide alarms, but the cost of those devices is relatively minor, whereas full-blown sprinkler systems add measurably to the cost of a new home, as well as posing challenges in such areas as maintenance, aesthetics, and risk of property damage through accidental activation.
It will surprise not a single reader of these columns, I suspect, to learn that the fire sprinkler industry has been a major force in pushing the new mandate. As for the opposition, home builders have managed to mount a bit of resistance — New Jersey, for example, saw the current depressed state of the residential construction business as reason to postpone its mandate for a year. But the builders are pretty much on their own in the fight, since future buyers of new homes are a group with no organized political presence whatsoever.
Real estate blogger Christopher Fountain writes that he’s “never heard of a home buyer voluntarily ordering this equipment when building a house, so it sounds to me like one more instance of people who know better dictating to those who don’t.” Exactly. A South Carolina paper quotes a state official as saying if buyers feel priced out of the new home market by the cost of the mandate, they have other ways to save money “such as choosing less expensive flooring or countertops, or not installing yard sprinklers”. Easy to make someone else’s budget decisions for them, isn’t it? And shouldn’t the “affordable housing” community be taking more of an interest?
Yet. Another. Fraudulent. Cost Estimate.
House Democrats claim that a not-yet-released Congressional Budget Office report puts the cost of their revised health care overhaul at $940 billion over the next 10 years.
Though I have yet to see the CBO score, I’ll bet anyone a fancy lunch that it does not claim the legislation would cost the federal government just $940 billion from 2010 through 2019.
As former Congressional Budget Office director Donald Marron has explained over and over, the figure that Democrats consistently cite for the cost of their bills is only the CBO’s estimate of the cost of federal spending related to the expansion of health insurance coverage. It is not the full cost to the federal government, because each bill also spends taxpayer dollars on other items.
Marron examined the CBO’s March 11 score of the bill that passed the Senate on Christmas Eve, and found an additional $96 billion of spending over 10 years. If the most recent iteration of ObamaCare is similar, then new federal spending in that bill would be approximately $1.036 trillion — pushing the total over the president’s spending target.
Anyone care to take me up on that fancy-lunch wager?
Moreover, the on-budget costs of the legislation probably account for only 40 percent of the total costs. The other 60 percent come from the private-sector mandates. But Democrats have systematically suppressed any estimates of those hidden taxes, probably because such an estimate would reveal the full cost of the legislation to be closer to $2.5 trillion over the next 10 years.
It has been 272 days since Democrats introduced the first complete version of the president’s health plan. We still haven’t seen an honest cost estimate.
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.
Dear Poor People: Please Remain Poor. Sincerely, ObamaCare
In a new study titled, “Obama’s Prescription for Low-Wage Workers: High Implicit Taxes, Higher Premiums,” I show that the House and Senate health care bills would impose implicit tax rates on low-wage workers that exceed 100 percent. Here’s the executive summary:
House and Senate Democrats have produced health care legislation whose mandates, subsidies, tax penalties, and health insurance regulations would penalize work and reward Americans who refuse to purchase health insurance. As a result, the legislation could trap many Americans in low-wage jobs and cause even higher health-insurance premiums, government spending, and taxes than are envisioned in the legislation.
Those mandates and subsidies would impose effective marginal tax rates on low-wage workers that would average between 53 and 74 percent— and even reach as high as 82 percent—over broad ranges of earned income. By comparison, the wealthiest Americans would face tax rates no higher than 47.9 percent.
Over smaller ranges of earned income, the legislation would impose effective marginal tax rates that exceed 100 percent. Families of four would see effective marginal tax rates as high as 174 percent under the Senate bill and 159 percent under the House bill. Under the Senate bill, adults starting at $14,560 who earn an additional $560 would see their total income fall by $200 due to higher taxes and reduced subsidies. Under the House bill, families of four starting at $43,670 who earn an additional $1,100 would see their total income fall by $870.
In addition, middle-income workers could save as much as $8,000 per year by dropping coverage and purchasing health insurance only when sick. Indeed, the legislation effectively removes any penalty on such behavior by forcing insurers to sell health insurance to the uninsured at standard premiums when they fall ill. The legislation would thus encourage “adverse selection”—an unstable situation that would drive insurance premiums, government spending, and taxes even higher.
See also my Kaiser Health News oped, “Individual Mandate Would Impose High Implicit Taxes on Low-Wage Workers.”
And be sure to pre-register for our January 28 policy forum, “ObamaCare’s High Implicit Tax Rates for Low-Wage Workers,” where the Urban Institute’s Gene Steuerle and I will discuss these obnoxious implicit tax rates.
(Cross-posted at Politico‘s Health Care Arena.)
Reid Won’t Even Tell His Base What He’s Asking Them to Swallow
Here’s my answer to today’s “Big Question” on The Hill‘s Congress Blog:
Now that the “public option” is dead, both the Left and the Right should be able to agree: the Senate bill is nothing but a $450 billion bailout of the private insurance companies.
In fact, the bailout may be several multiples of that figure.
That $450 billion just represents checks that the Treasury would write to private insurance companies. The Reid bill would also force nearly every U.S. citizen to fork over cash to the private insurance companies — no matter how lousy a deal they offer. A recent CBO memo reveals that Reid has been meticulously working behind closed doors to conceal the full cost of his private-insurer bailout.
The Left and the Right should insist that Reid produce a complete CBO score that reveals the full cost of his bill’s private-insurer bailout — in particular, the cost of the individual and employer mandates.
Left-wing Democrats will follow their own consciences when deciding how to vote. But they should force Reid to be honest about what he’s asking them to swallow.
Cato on Facebook
Cato on Twitter
Cato on Google+
Cato on YouTube
