Thursday, June 25, 2009

ObamaCare will save money? Don’t believe a word of it

President Obama is selling government health insurance to the American people as the way to save money. That government health insurance will merely provide competition to keep private insurance companies from gouging their customers.

Indeed, Obama even claimed on Monday, in a speech before the American Medical Association, that a government insurance system is essential to holding down medical costs: “if we fail to act, federal spending on Medicaid and Medicare will grow over the coming decades . . . . and impose a vicious choice of either unprecedented tax hikes, overwhelming deficits, or drastic cuts in our federal and state budgets.”

There are a couple of problems with Obama’s argument. Government is just not known for its cost effectiveness or quality. And the way for government enterprises to survive is with massive taxpayer subsidies and charging customers prices below the firm’s actual costs, driving more efficient private firms out of business. These subsidies mean that when government enterprises “win” they do so by driving more efficient private firms out of business.

Milton Friedman was well-known for pointing to a very good rule of thumb in evaluating government enterprises: “on the average anything government does costs twice as much as if it were being done by private enterprise.” Whether it is education or the post office, the reason is very simple: When people have their own money at stake they are much more careful in how it is spent.

Despite lower costs, private schools still do a better job. Americans send their kids to private schools despite having to pay taxes for public schools, too. How bad must public schools be if parents are willing to pay private school tuitions even though price for public schools is “zero.” Academic evidence consistently shows that children in private schools learn faster than those in public ones.

A second problem with government-run firms is that they typically engage in what is called “predatory pricing.” Obviously public schools don’t charge anything for students attending them, limiting competition from private schools. Also take the post office. The U.S. Postal Service would often increase its first-class mail rate, where it had a monopoly, to raise money to subsidize its overnight delivery service where it faced stiff competition. For example, it raised first-class mail to thirty-three cents in January 1999 and simultaneously reduced the price of domestic overnight express mail from $15.00 to $13.70, even though it was already losing money at the $15.00 rate. The price, which was lowered in response to increasingly successful competition in overnight delivery from FedEx and UPS Overnight, remained below $15.00 for the next seven years. Clearly the Postal Service was not able to drive its competitors out of business with this maneuver, in part because its on-time delivery record and quality was poorer.

The Postal Service lost money on its overnight deliveries despite advantages that FedEx and UPS could only dream of. The Postal Service is exempt from paying state sales, property and income taxes. And it uses some of the most expensive real estate in the country — rent-free. The competition that Obama advocates between government and private insurance companies isn’t going to be any fairer.

The reality of the situation has begun to enter into the health care discussion. Larry Summers, Obama’s chief economic adviser, claimed in April that the government insurance would be so efficient that $700 billion would be saved each year just from stopping unnecessary surgeries –- that is almost 30 percent of all heath care costs he claimed were wasted just on unnecessary surgery. He argued that the efficiencies would be so large that government insurance program actually wouldn’t cost any money. Yet, on Monday night, even the Democratically controlled Congressional Budget Office acknowledged that the cost of the health care proposals would cost at least $1.6 trillion over 10 years, and it warned that the total could go much higher depending upon what features were added to the program. Even at that cost the program would only cover one-third of the uninsured.

The government has consistently underestimated the costs of government health care programs in the past. The biggest problem with current CBO estimates is that they assume that only “15 million individuals” will give up private insurance to get what the government offers. Others have put the number at almost 120 million — massively increasingly the cost of the program.

There is also the question of whether there will be any gain in physical health for those who are currently uninsured. Being uninsured is not the same thing as not getting health care. The uninsured received health care worth $116 billion in 2008. In addition, 2.3 percent of Americans are both uninsured and very dissatisfied with the quality of the health care that they receive.

Already the Congressional Budget Office is predicting a federal budget deficit of over $9.3 trillion. Just that new debt alone means an extra $103,000 for each of the 90 million tax filers who actually pay taxes. Depending on government to magically find ways to create efficiency will only ensure huge additional expenditures and debt. It can also jeopardize a health care system where 89 percent of Americans are happy with the health care that they receive.


No right to health care

What virtually no one has addressed in the debates on health care is that there is no such thing as a fundamental “right to health care.” Even more to the point, health care provided by the coerced expenditure of the time and money of others is even more destructive of rights and freedom.

While medical insurance and health care are certainly desirable values, “forced charity” is a contradiction in terms. Few people would condone a private citizen (or group of citizens) walking into a neighbor’s home, placing a gun to that person’s head, and demanding money. Even if the intruders claimed they needed the money for themselves or for someone else in need, any decent individual would still condemn such robbery. The (“good”) ends do not justify the (bad) means.

Somehow, though, voting for such an immoral set of actions and outcomes is supposed to make such policies okay. But hiding behind an anonymous vote and relying on the government and its armed agents to impose one’s wishes on unwilling others is neither honorable nor moral. Legalized theft is no less theft simply because one group of people is more politically powerful than another. Might does not make right.

Only voluntary actions have moral value. In the end, no one has a right to anyone else’s life, money, or property without that person’s consent. The Thirteenth Amendment to the Constitution abolished involuntary servitude. Congress, the President, and the majority of the American public have brought it back.


Medicare for all: Wrong answer, right question

If America HAS to have a "public" insurer for all, the VA would be a better model than Medicare -- though instrument sterilization practices would need to be much improved

Jacob Hacker's enthusiasm for a 'real' public plan option is laudable. It also dramatically overstates the strengths of Medicare. I'm not entirely convinced that we need a public plan option, and am even less sure that Medicare should be the basis for a public plan option. That said, there are at least three solid arguments for a public plan option;

1.) at least one public health provider actually does a terrific job of holding down costs while delivering outstanding care (hint it's not Medicare);

2.) most markets are already dominated by one or two large private insurers, making it extremely difficult for another private insurer to effectively compete. a government plan may (emphasize MAY) offer more competition which might (emphasize MIGHT) lead to lower costs/better outcomes, and

3.) private insurers have done a lousy job of holding down costs, delivering better outcomes, and servicing their insureds. It is hard to see how a governmental plan could be any worse, and easy to envision much better results.

In my mind those arguments tip the scales in favor of a public plan option, and give the lie to opponents' arguments against said option. But Hacker overstates the case for Medicare, and in so doing weakens the case for a public plan option. Specifically, he argues that Medicare has lower administrative costs and does a better job holding down medical trend. I disagree.

As has been well-documented, government plans have unfair advantages over private plans: they don’t need to maintain reserves, earn profits to attract capital, or pay premium taxes. These result in big dollar 'savings' over private plans. It is also important to note that Medicare's cost structure is dramatically different in other ways. Here are a couple examples:

1.) Medicare has no underwriting or sales expenses or marketing costs. No commissions, either. This saves a lot of admin dollars. This differential would disappear in a health connector-type system, with the playing field leveled by dramatically reducing commercial healthplans' marketing costs and elimination of their underwriting expense.

2.) Medicare has one-time enrollment and dis-enrollment, and greatly simplified eligibility processes. This cuts their costs, but would not continue under a connector model.

As significant as the admin expense argument is, it is Hacker's contention that "Medicare has increasingly out-performed private plans in restraining the rate of increase of health spending while maintaining broad access" that is the real problem with his argument for a public plan option. The unfunded liability for future Medicare costs clearly and convincingly demonstrates that Medicare is not earning enough revenue to pay for future expense. In commercial insurance terms, they are dramatically under-reserved. Why? Premiums are not keeping pace with medical inflation, and Medicare is not controlling the primary driver of medical costs - utilization of services.

Here are a couple examples. Medicare's imaging expenses doubled between 2000 and 2007. Utilization of physician in-office services went up more than 10% in 2006. Back surgery rates for Medicare patients in Fort Myers Florida are five times higher than they are in Miami. And physician fees are scheduled to be cut 20.5% next January because total physician expenses under Medicare are way over budget. Not to mention the cost-shifting that currently has private insurers making up lost revenue from Medicare underpayments.

I could go on, but the point is clear - Medicare's supposed administrative and medical cost advantages are not real. That does NOT mean a public plan option isn't viable. In fact, there is a government plan that is kicking the collective private health plan industry's rear end. It's the Veteran's Administration, and rather than Medicare, I'd base a national plan on a dramatic expansion of the VA. Here are a few factoids...

- compared to commercial managed care plans, the VA provided diabetics with better quality care on seven out of eight metrics (NCQA report).

- In 2005, VA hospitals were the highest-rated health system, outperforming other systems including the Mayo Clinic and Johns Hopkins.

- the VA achieves higher scores than private hospitals for patient satisfaction, staffing levels, surgical volume and other significant quality measures

- for six years running, VA hospitals scored higher than private facilities on the University of Michigan's American Customer Satisfaction Index.

And costs haven't increased nearly as fast as they have in the private sector. In the ten years ending in 2005, the number of veterans receiving treatment from the VA more than doubled, from 2.5 million to 5.3 million, but the agency needed 10,000 fewer employees to deliver that care - as a result the cost per patient stayed flat. (costs for care in the private sector jumped 60% over the same period).

The VA did this by closing down unneeded facilities, developing an industry-leading electronic health record system, opening clinics, and dramatically increasing the quality of care, especially for patients with chronic conditions. Oh, and patients can access their own health records - securely - anytime on the web.

Medicare's not the answer. A public plan option based on an expanded VA would force private plans to get better - a lot better - or lose share quickly to this very efficient, and very effective, health system.


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