Under Romney/ObamaCare, Even the Scapegoats Scapegoat
In a recent post on how RomneyCare is increasing health insurance costs in Massachusetts (by encouraging healthy residents to purchase coverage only when they need medical care) and how ObamaCare will do the same, I linked to a Boston Globe article where an insurance-company spokeswoman made this odd claim:
We believe…the gaming in the system…is adding as much as $300 million dollars to the health care system in Massachusetts.
It’s hard to know what she meant. Taken literally, this claim is obviously untrue. The gamers aren’t adding revenue to “the system” — they’re withholding revenue. Nor are they adding costs, in the sense of additional medical spending. If anything, overall spending falls because the gamers are less often insured, and therefore consume less medical care.
She might have meant that the premiums the gamers aren’t paying (or the difference between what they pay and the medical care they receive) amounts to $300 million, and that the gamers are imposing that cost on non-gamers in the form of higher premiums. But that doesn’t hold water, either. The gamers have zero power to impose costs on non-gamers; only the government has that power. All the gamers are doing is responding rationally to the incentives RomneyCare creates and avoiding — lawfully, I might add — a $300 million tax.
So if that was her meaning, this spokeswoman should have said:
RomneyCare is imposing a $300 million tax on insured Massachusetts residents by encouraging other residents to game the system.
Instead, she blamed consumers and argued for laws that make it harder for consumers to avoid RomneyCare’s private-insurer bailout individual mandate.
So now we’ve got President Obama, who signed a law requiring health insurers to pay for more stuff, blaming insurers for rising premiums. We’ve got pro-RomneyCare politicians doing the same in Massachusetts. And we’ve got health insurers, who support laws forcing consumers to buy their products, blaming consumers for the cost of those laws.
Remember how RomneyCare and ObamaCare were supposed to promote responsibility?
You Say You Want Comparative-Effectiveness Research?
Over at CongressDaily, Julie Rovner has a great piece on the difficulties involved in generating and using comparative-effectiveness research (read: evidence that can improve the quality and reduce the cost of medical care). Rovner cites a recent New England Journal of Medicine article about the obstacles to conducting CER, and a recent article from Health Affairs that finds consumers tend to trust their doctor’s judgment more than evidence-based treatment guidelines.
In a paper titled, “A Better Way to Generate and Use Comparative-Effectiveness Research,” I explain how a string of government interventions — from state licensing of medical professionals and health insurance, to the tax preference for job-based health insurance, to Medicare and Medicaid — have reduced both patients’ demand for evidence about which medical interventions work best, as well as the market’s ability to supply that evidence. In that paper, I predict that efforts like the CER funding in the “stimulus” bill and ObamaCare’s “Patient-Centered Outcomes Research Institute” will fail, just as all such government efforts have failed in the past.
If you want to generate evidence about which medical interventions work best, and have people use that evidence, then you need to liberalize the U.S. health care sector.
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.
Obama’s ‘Best’ Idea? Rationing Care via Clinton-esque Price Controls
Hoping to revive his increasingly unpopular health care overhaul, President Obama has invited Republicans to a bipartisan summit this Thursday and plans to introduce a new reform blueprint in advance of the summit. On Sunday, the White House announced that a key feature of that blueprint will be premium caps, a form of government price control that helped kill the Clinton health plan when even New Democrats rejected it.
The New York Times reports on President Obama’s blueprint:
The president’s bill would grant the federal health and human services secretary new authority to review, and to block, premium increases by private insurers, potentially superseding state insurance regulators.
It bears repeating what Obama’s top economic advisor Larry Summers thinks about price controls:
Price and exchange controls inevitably create harmful economic distortions. Both the distortions and the economic damage get worse with time.
For example, as I have written elsewhere, artificially limiting premium growth allows the government to curtail spending while leaving the dirty work of withholding medical care to private insurers: “Premium caps, which Massachusetts governor Deval Patrick is currently threatening to impose, force private insurers to manage care more tightly — i.e., to deny coverage for more services.” No doubt the Obama administration would lay the blame for coverage denials on private insurers and claim that such denials demonstrate the need for a so-called “public option.”
As the Progressive Policy Institute’s David Kendall explained in a 1994 paper, the Clinton health plan contained similar price controls. Kendall explains why they would be a disaster:
In spite of the late hour in the health care debate, Congress has not yet decided how to restrain runaway health care costs. The essential choices are a top- down strategy of government limits on health care spending enforced by price controls or a bottom-up strategy of consumer choice and market competition. History clarifies that choice: Previous government efforts to regulate prices in peacetime have invariably failed. Moreover, government attempts to control prices in the health care sector would undermine concurrent efforts to restructure the marketplace…
The idea of controlling costs by government fiat is seductively simple. But it rests on a conceit as persistent as it is damaging: that government bureaucracies can allocate resources more wisely and efficiently than millions of consumers and providers pursuing their interests in the marketplace. The alternative — one rooted in America’s progressive tradition of individual responsibility and free enterprise — is to improve the market’s ground rules in order to decentralize decision-making, spur innovation, reward efficiency, and respect personal choice.
As centrally planned economies crumble around the world, many in the United States seem bent on erecting a command and control economy in health care. This policy briefing examines the reasons why government price regulation would fail to constrain health care costs and create many adverse side effects…
Ultimately, government price regulation will always fail because it does not change the underlying economic forces driving up prices. If we are serious about slowing the growth of health care costs, we have to change the ways we consume and provide medical care. Price controls evade the hard but essential work of structural reform in health care markets: They are a quintessentially political response to an economic problem. The alternative is to allow well-functioning markets to set prices and allocate resources, while ensuring that all Americans have access to affordable health care coverage. The market-oriented approach leaves decisions to cost-conscious consumers and health care providers rather than bureaucrats.
Any of that sound familiar? It’s worth reading the whole thing.
This is not hope. This is not change. (Much less a game-changer.) It is, to pinch a phrase, a return to “the failed theories that helped lead us into this crisis.”
The Cost of Government Guarantees
John Kay’s column in yesterday’s Financial Times criticizes government guarantees to banks because they involve hidden but large costs. According to Kay:
- Such guarantees distort competition: sheltered banks outperform rivals not because of greater efficiency, but because capital becomes cheaper to obtain.
- Sheltered banks gain too-big-to-fail status, which creates barriers to entry for smaller, more efficient banks.
- Relief from business risk leads to more risk taking, AKA moral hazard.
- Cheaper private risk management incentives are reduced within and outside the bank.
Other kinds of government guarantees, such as social insurance, also involve large hidden costs. Social Security and Medicare’s guarantee of a paid holiday with medical care for the rest of retirees’ lives generates the same types of costs:
- Labor competition is reduced because the programs induce early worker retirements, which leads to higher wage costs, on average, and lower national output.
- Workers who believe they will receive Social Security and Medicare will engage in lower personal saving, which means less capital formation and lower economic efficiency.
- Retirement income guarantees induce riskier personal savings portfolios, AKA moral hazard.
- Guaranteed retirement income means poorer financial knowledge and poorer risk management.
And now, retiree political power is too big to fail as well!
How come when Kay writes about market distortions from government guarantees for banks, he gets published; but when I do the same about government guarantees for people, I get the cold shoulder from editorial page editors?
‘Letting the Sick Die on the Street’
Blogger Matt Yglesias has described my CNN op-ed on health care as follows:
Meanwhile, in Harvard economist and Cato Institute senior fellow Jeffrey Miron’s dystopia, if your parents wind up with no money through bad luck or poor decision-making and then you get sick you’ll just die on the street for lack of money.
Did I really say such an outrageous thing? Well, I did not use exactly those words (as Matt makes clear), but yes, that is the logical implication of my position.
And I stand by it. Here’s why.
First, my assessment is that even with no government health insurance, hardly anyone would die on the street for lack of health care. The poor would use their income transfers to buy some health care or insurance. The poor would receive private charity. And health care would be far less expensive due to elimination of the distortions caused by government health insurance.
Second, my position is that government provision of health insurance is enormously inefficient: it means worse health care for everyone, and it wastes resources that can be put to other uses. So the negative of having a few people suffer without government health insurance must be balanced against the good of having better medical care for all and against the good that can be accomplished with those saved resources.
That good might be lower taxes for everyone, or more government spending on education, or greater public health spending to combat HIV in poor countries. Whatever the alternate uses turn out to be, one cannot escape the fact that a tradeoff exists between protecting the poor and other goals.
To Make Health Care Affordable, Don’t Add Regulations — Repeal Them
David Freddoso of the Washington Examiner reveals how the monopolies that states enjoy over licensing doctors, nurses, and other clinicians reduce access to care for low-income Americans:
Stan Brock just wants to help. The former co-star of “Wild Kingdom” wants to deliver free medical, dental and vision care to the poor. Whereas most politicians talk about “bending the cost curve” in health care, Brock simply wants to break it – to provide care free of charge, at the hands of unpaid volunteer doctors and dentists using donated equipment.
Brock’s group, Remote Area Medical, wants to bring its services to Washington, and soon. He wants his volunteer eye doctors to grind new glasses on the spot for those having trouble seeing.
He wants his dentists to pull rotten teeth and perform root canals in badly neglected mouths. He wants to give checkups and HIV tests to the uninsured and the underinsured. No questions asked.
The only question is whether the bureaucrats will let him do it.
That sounds like hyperbole. It’s not. Read the whole thing (it’s short) and you’ll learn how in-state clinicians shamelessly use monopolistic licensing laws to protect themselves from competition — even at the cost of denying medical care to poor people.
Yesterday, Cato released a study where I advocate breaking up the state’s licensing monopolies and making state-issued licenses portable. Such a law would completely solve Remote Area Medical’s problem.
This Cato study by economist Shirley Svorny reveals how clinician licensing laws do more harm than good.
(Cross-posted at Cato@Liberty Politico‘s Health Care Arena.)
Medicare for Everyone?
According to The Hill, House Democrats are considering re-branding their new government-run health insurance program. A “public option” evidently isn’t catchy enough. Now they’re thinking, “Medicare Part E” as in, Medicare for Everyone.
By all means, model a new government program after Medicare, which:
- Drags down the quality of care for all patients, both publicly and privately insured
- Literally kills people by fueling the epidemic of deaths due to medical errors (as many as 100,000 annually)
- Is responsible for the fragmented delivery system about which the Left complains
- Has required one tax increase every four years, still has an unfunded liability approaching $90 trillion, and will therefore be the driving force behind income-tax rates essentially doubling by mid-century
- Has been expanded well beyond its original mission
- Didn’t save a single life in (at least) its first 10 years of operation
- Coerces people to choose it over private insurance
- Restricts enrollees’ freedom to spend their own money on medical care
- Is easily (and persuasively) parodied as a tool of the devil
Pleeeeease don’t throw me into that briar patch.
Hurting the Sick Is Not Good Politics
I was glad to see James Pinkerton engage my criticism of Louisiana Gov. Bobby Jindal’s (R) endorsement of federal price controls for health insurance. I was even more pleased to see that Pinkerton has his own blog devoted to developing a Serious Medicine Strategy.
If I understand Pinkerton, his argument is essentially: it’s all well and good for some unelectable wonk in the “citadel of libertarian thinking” to “uphold ivory-tower free-market purity” by opposing price controls. But Republicans need “art-of-the-possible solutions” to win elections, and 90 percent of the public support those price controls. “Everyone has a right to his or her principled position,” Pinkerton writes, “but the majority has rights, too.”
Two problems.
First, Pinkerton suggests that libertarians oppose price controls for reasons that only matter to libertarians, and therefore may be safely ignored. Problem is, price controls hurt people. Were Pinkerton to explore the merits of Jindal’s proposal, he would soon conclude that imposing price controls on health insurance taxes the healthy, reduces everyone’s health insurance choices, and creates even greater incentives for insurers to shortchange the sick. (Turns out that what Larry Summers said about price controls applies to health insurance, too.) As John Cochrane explains, those price controls also block innovative products that would provide more financial security and better medical care to the sick.
But Pinkerton’s advice for Republicans is, essentially: “Do what’s popular now, even if it hurts people and voters end up blaming Republicans for it later.” How is that a good strategy?
Second is this idea that “the majority has rights.” Majorities don’t have rights. Individuals have rights. For example, you have the right to negotiate the terms of your health insurance contract with the individuals at this or that insurance company. Majorities may attain power, but that’s the opposite of rights. (See the Bill of Rights.)
Finally, a couple of important odds and ends. Pinkerton suggests it is “un-libertarian” to be “pro-life,” or to “support the police, the military, and other upholders of public order,” or to “support government restrictions on…euthanasia.” Writing from the “citadel of libertarian thinking,” I can assure him he is wrong. Might I suggest Pinkerton read the relevant chapters from The Encyclopedia of Libertarianism? (The health care chapter is a page-turner!) Also, I did not “denounce Jindal” any more than Pinkerton denounced me. I criticized his ideas, and I respect the man.
(Cross-posted at Politico‘s Health Care Arena.)
The Wonders of Socialized Dentistry
As we all know, the American health care system is less than perfect. An inefficient amalgam of government spending, federal tax incentives, employer-based insurance, and private providers, the U.S. system costs us more than it should for the services provided. Nevertheless, medicine in America remains far more directed by and for patients, in contrast to nationalized systems, which are usually organized by and for bureaucrats.
The results sometimes are horrific. Indeed, the best way to understand the consequences of Britain’s National Health Service is simply to read stories in British newspapers. Consider this one in the Daily Mail about the lack of adequate dental care:
Like so many young women, Amy King always took great pride in her appearance.
Standing in front of the mirror to check her make-up before a night out, the 21-year-old would always try a smile – friends told her they loved the way it lit up her face.
Eight weeks ago, all that changed. The student from Plymouth was admitted to hospital where, in a single operation, she had every tooth in her mouth removed.
Obviously, not all foreign systems do so little for their patients. France, Germany, and Switzerland all provide care differently, and in all of these nations people receive better treatment than in Britain. But no where is turning health care over to government the best way to ensure quality yet affordable medical care. Instead, control over health care should be placed back in the hands of those who have the most at stake: patients.
Health Policy Death Match: Klein vs. Ponnuru
I count both Ramesh Ponnuru and Ezra Klein as friends. (I’m so post-partisan.) Why, oh why must they force me to choose between them??
Ponnuru had an op-ed in yesterday’s New York Times where he reaffirmed his membership in the Anti-Universal Coverage Club. Klein responded in a way that’s sure to satisfy his base, but I think he left the reality-based community wanting. Are you ready for the fisk?
Klein suggests that if “80+ percent of Americans . . . think the system needs fundamental changes or a complete rebuild,” then 80+ percent of Americans must support universal coverage. Hmmm, bit of a stretch. In fact, I can recall one poll where nearly one-third of likely Democratic primary voters rejected universal coverage.
Klein suggests that giving consumers the freedom to avoid unwanted state health insurance regulations would mean that Arizonans wouldn’t get coverage for colorectal cancer screening, and that there would be no mammogram coverage in Idaho. Mmm, that’s good crazy. I refer my right honorable friend to the episode where The New Republic‘s Jonathan Cohn made a similar claim about mandates for prostate and cervical cancer screening. I looked up the services covered by the plans made available to the Cohn family by the University of Michigan. It turned out that six out of the seven available plans cover both prostate and cervical cancer screening — even though Michigan requires insurers to cover neither. (I offered to wager Cohn a fancy dinner that his family has coverage for both, but I never heard back from him. Foolish, really, to let me know where he gets his insurance. Klein would never give me such an opening . . . or would he?) What Ponnuru proposes is to let Arizonans and Idahoans and everyone else choose what their health plan covers. Imagine that: people rationing medical care according to their preferences, rather than the preferences of employers, interest groups, bureaucrats, health policy wonks… Why Klein clings to such regulations despite zero evidence that they actually increase access to the targeted services is beyond me.
Klein criticizes Ponnuru for proposing to replace the current tax preference for job-based coverage with a tax credit available to everyone, much like John McCain proposed during his (latest) presidential campaign. Ponnuru cites a study estimating that tax credits would reduce the number of uninsured by 20 million. Klein counter-cites one study estimating that tax credits would have zero net effect on the number of uninsured, and a second study estimating that those who transition from job-based coverage to the “individual” or “non-group” market would pay an additional $2,000 per year for an identical policy. Klein’s criticisms sound persuasive — provided you know precious little about the topic. For one thing, the two studies Klein cites are actually the same study. Pity, really. Had Klein found a second study to support his position, perhaps it would not have been quite so flawed as the one he did find. Here’s what I wrote back in September about that study’s flaws:
Democrats Agree on Health Plan Outline: Be Afraid, Be Very Afraid
The New York Times reports that key congressional Democrats have agreed on the basic provisions for a health care reform bill. And while many details remain to be negotiated, the broad outline provides a dog’s breakfast of bad ideas that will lead to higher taxes, fewer choices, and poorer quality care.
Among the items that are expected to be included in the final bill:
- An Individual Mandate. Every American will be required to buy an insurance policy that meets certain government requirements. Even individuals who are currently insured — and happy with their insurance — will have to switch to insurance that meets the government’s definition of acceptable insurance, even if that insurance is more expensive or contains benefits that they do not want or need. Get ready for the lobbying frenzy as every special interest group in Washington, both providers and disease constituencies, demand to be included.
- An Employer Mandate. At a time of rising unemployment, the government will raise the cost of hiring workers by requiring all employers to provide health insurance to their workers or pay a fee (tax) to subsidize government coverage.
- A Government-Run Plan, competing with private insurance. Because such a plan is subsidized by taxpayers, it will have an unfair advantage, allowing it to squeeze out private insurance. In addition, because government insurance plans traditionally under-reimburse providers, such costs are shifted to private insurance plans, driving up their premiums and making them even less competitive. The actuarial firm Lewin Associates estimates that, depending on how premiums, benefits, reimbursement rates, and subsidies were structured, as many as 118.5 million would shift from private to public coverage. That would mean a nearly 60 percent reduction in the number of Americans with private insurance. It is unlikely that any significant private insurance market could continue to exist under such circumstances, putting us on the road to a single-payer system.
- Massive New Subsidies. This includes not just subsidies to help low-income people buy insurance, but expansions of government programs such as Medicaid and Medicare.
- Government Playing Doctor. Democrats agree that one goal of their reform plan is to push for “less use of aggressive treatments that raise costs but do not result in better outcomes.” While no mechanism has yet been spelled out, it seems likely that the plan will use government-sponsored comparative effectiveness research to impose cost-effectiveness guidelines on medical care, initially in government programs, but eventually extending such restrictions to private insurance.
Given the problems facing our health care system-high costs, uneven quality, millions of Americans without health insurance–it seems that things couldn’t get any worse. But a bill based on these ideas, will almost certainly make things much, much worse.
Or maybe it’s all just a massive April Fool’s joke.
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