Reason Foundation - Policy Areas > Health Care

Obama's Hidden Fees

jsullum@reason.com (Jacob Sullum) — Wed, 04 Nov 2009 13:15:00 EST

President Obama’s promise to raise taxes only on the wealthy was easy to make and easy to break. He broke it barely two weeks after taking office, and he will break it again if Congress passes the health care legislation he wants. But Obama has come up with a strategy to avoid the fate of George H.W. Bush: Although he will raise your taxes, he will never admit he is raising your taxes.

Campaigning in Dover, New Hampshire, in September 2008, Obama declared: “I can make a firm pledge. Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.”

Five months later, Obama signed a bill that more than doubled the federal cigarette tax, which falls especially heavily on the poor. White House Press Secretary Robert Gibbs argued that it didn’t really count, because “people make a decision to smoke.” Similarly, White House spokeswoman Linda Douglass says financial penalties for failing to obtain medical coverage are not taxes because “a fee would only be imposed on those few who could afford to purchase insurance but refuse to do so.”

Yet the fact that you can avoid a tax by changing your behavior does not mean it isn’t a tax. You don’t pay gasoline taxes if you don’t drive, you don’t pay property taxes if you don’t own real estate, and you don’t pay income taxes if you don’t earn income. In this case, people are subject to the “fee” simply by virtue of living in the United States and choosing not to buy something the government thinks they should.

Douglass likens the individual health insurance mandate to state requirements that drivers have liability insurance and that parents educate their children. But people who violate such laws are subject to criminal penalties. Neither the House nor the Senate health care bill would establish criminal penalties for refusing to buy health insurance, presumably because due process requirements would make it hard to impose them.

Instead the bills would establish a “tax on individuals without acceptable health care coverage” and an “individual responsibility excise tax,” respectively. “If you put something in the Internal Revenue Code and you tell the IRS to collect it,” a tax expert told the Associated Press in September, “I think that’s a tax.”

The president disagrees. “For us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase,” he insisted during a squirm-inducing September 20 exchange with ABC’s George Stephanopoulos. “You can’t just make up that language and decide that that’s called a tax increase.” Stephanopoulos responded by literally getting out the dictionary to demonstrate that “a charge…imposed by authority on persons or property for public purposes” is commonly considered a tax.

If Obama can deny that a charge is a tax even when it’s collected by the IRS and identified as a “tax” in the legislation creating it, he surely sees nothing tax-like in the money people are required to spend if they want to avoid that charge. Yet forcing people to buy insurance they do not want so their premiums can subsidize other people’s health care looks a lot like a tax-funded welfare program, even if the money does not flow through the public treasury.

Furthermore, when businesses buy government-required health insurance or pay a penalty for failing to do so, that money comes at the expense of employee compensation. “An employer mandate should therefore be labeled an employee mandate,” says the Cato Institute’s Michael Cannon.

“What we are saying,” House Majority Leader Steny Hoyer (D-Md.) explained last week, “is everybody will contribute…to making sure that health care options are available to all of our citizens.” So we're talking about a legally required contribution that will be used to provide a government-arranged benefit. If only there were a shorter way of expressing that concept.

Jacob Sullum is a senior editor at Reason and a nationally syndicated columnist. This column first appeared at Reason.com.

Masterfleece Theater

info@reason.org (David Harsanyi) — Fri, 30 Oct 2009 13:07:00 EDT

The King James version of the Bible runs more than 600 pages and is crammed with celestial regulations. Isaac Newton's Principia Mathematica distills many of the rules of physics in a mere 974 pages.

Neither of them has anything on Nancy Pelosi's new fiendishly entertaining health care opus, which tops 1,900 pages.

So curl up by a fire with a fifth of whiskey, and just dive in.

But drink quickly. In the new world, your insurance choices will be tethered to decisions made by people with Orwellian titles (1984 is only 268 pages!), such as the "Health Choices Commissioner" and "Inspector General for the Health Choices Administration."

You will, of course, need to be plastered to buy Pelosi's fantastical proposition that 450,000 words of new regulations, rules, mandates, penalties, price controls, taxes, and bureaucracy would have the transformative power to "provide affordable, quality health care for all Americans and reduce the growth in health care spending."

It's going to take some time to deconstruct this lengthy masterpiece, but as you flip through the pages of the House bill, you will notice the word "regulation" appears 181 times. "Tax" is there 214 times. "Fees," 103 times. As we all know, nothing says "affordability" like higher taxes and fees.

The word "shall"—as in "must" or "required to"—appears more than 3,000 times. The word, alas, never is preceded by the patriotic phrase "mind our own freaking business." Not once.

To vote for the bill, a legislator must believe a $1 trillion price tag is "revenue-neutral" or that it alleviates any of the pain higher costs bring to the average American. This would require alcohol.

Real competition, as far as anyone can tell, is antithetical to the authors of this bill. Remember, you can purchase oranges from Florida and whiskey from Kentucky, yet you're prohibited from buying health insurance from anywhere outside your state; so sayeth Nancy Pelosi.

Instead of the creation of a new market with interstate trade, what we would get is the institution of the pleasant-sounding "Health Insurance Exchange," which would exist, it seems, only to accommodate a noncompetitive, government-run insurance option.

Now, finding a name for a state-run program without offending the lingering capitalistic sensibilities of bourgeoisie has been problematic. So Pelosi went with the innocuous "consumer option"—known for a fleeting moment as the "competitive option" and popularly as the "public option." Whatever your preference is, it's the option that would lead to a single-payer insurance program.

Democrats say we could save billions by funding a plan that used billions of wasted tax dollars from another public plan that we already supplement with billions. Make sense?

In actuality, we would pay for all this by "cost sharing," or "sharing the cost" of insuring everyone through higher prices and taxes. But no fear. The legislation also would tax "the rich." The bill wouldn't index tax to inflation, so more of you would be on the hook as inflation rose because of the tragically irresponsible behavior of Congress and the White House. The rich—many of them small-business owners—are already set to see their federal rates go up in 2010.

Hey, who needs those jerks to create real jobs when we have Washington pretending to do it?

All of this, as Madame Speaker says, constitutes a "historic moment for our nation and families." True. No legislation in modern American history compares when in comes to injecting itself into the everyday decisions of the citizen.

And few can compete with its deception. The bill's intentions are cloaked in euphemisms, and it is teeming with ulterior motives, all cobbled together in closed-door meetings at which industry payoffs are offered using taxpayer dollars to facilitate a power grab of unprecedented cost.

All of it rolled right into a neat 1,900 pages.

David Harsanyi is a columnist at The Denver Post and the author of Nanny State. Visit his Web site at www.DavidHarsanyi.com. This column first appeared at Reason.com.

The Unhealthy 'Public Option'

schapman@tribune.com (Steve Chapman) — Thu, 29 Oct 2009 13:00:00 EDT

If Medicare were a bank, federal regulators would be closing its doors, selling its operations, and sacking its managers. Thanks to soaring costs, the program is fast running out of money—even though it pays such low fees that many doctors refuse to take Medicare patients. Meanwhile, Medicare fraud costs taxpayers some $60 billion a year, according to a report by CBS's 60 Minutes, making it among the most profitable fields for felons.

That's our experience with government-run health insurance for the elderly. So what do congressional Democrats propose to do? Offer government-run health insurance to everyone else.

Senate Majority Leader Harry Reid capitulated to his party's more liberal elements when he said he will insist that health care legislation include a "public option"—a government insurance plan—to bring "meaningful reform to our broken system." But deploying a version of Medicare to repair the status quo is like using a brick to improve a window.

President Obama says it would help consumers by giving private insurers some real competition. But the typical state has 27 companies competing in the small-group health insurance market. If there were insufficient competition, the health insurance sector wouldn't rank 86th among American industries in profitability.

Health care plans average profits of just 3.3 percent. In wireless communications, a vigorously contested market, profits are 11 percent. Does Obama think we need a government cell-phone company to compete with Verizon and AT&T?

The proponents also believe that, like Medicare, a new government plan could be run far more efficiently than private firms. Don't make me laugh. Medicare, keep in mind, is going broke. And its alleged efficiencies are illusory or nontransferable.

Health economists Regina Herzlinger of Harvard and Robert Book of the Heritage Foundation note that on a per-person basis, Medicare has higher administrative costs than private firms. They look smaller only because the average Medicare patient uses more services than the average private insurance patient. "Expressing them as a percentage makes Medicare's administrative costs appear lower because they are spread over a larger base of health care costs," write Book and Herzlinger.

A "public option" might duplicate one of Medicare's means of saving money: limiting reimbursements to doctors and hospitals to far less than what private insurers pay. But 19 health-care organizations that support reform, including the Mayo Clinic, explained the flaw in that approach.

"Under the current Medicare system, a majority of doctors and hospitals that care for Medicare patients are paid substantially less than it costs to treat them," they said in an open letter to Congress. "Many providers are therefore already approaching a point where they can not afford to see Medicare patients." Last year, the government's Medicare Payment Advisory Commission reported that 29 percent of recipients who were looking for a primary care physician had trouble finding one.

Skimpy reimbursements lower Medicare's costs. But if a new government-run plan tries the same trick, it will have trouble attracting providers and therefore patients. If it pays the same rates as private insurers, on the other hand, it will lose that big competitive edge.

Fortunately for disciples of government expansion, the "public option" insurance has other advantages. Obama insists it will have to cover all its costs. Oh, really? When Medicare Part B (which pays doctor bills) was set up in 1966, premiums paid by retirees were supposed to cover 50 percent of its outlays. Instead, Congress limited rate increases so that before long, premiums were covering just 25 percent of the bills, a practice later written into law.

If the Washington-run plan charges too little to pay its expenses, will it raise rates, thus antagonizing what could be a sizable group of voters? Or will Congress cough up the money to keep it going? You know the answer.

In the end, the key to the success of this program, writes Cato Institute analyst Michael Cannon, is that "government possesses both the power to hide its true costs (which keeps its premiums artificially low) and to impose costs on its competitors (which unnecessarily pushes private insurance premiums higher)." Private insurers will be "competing" against a team that gets to write the rules, run the draft and hire the referees.

With those artificial advantages, the public option could eventually become the only option. If that happens, a lot of Americans will be surprised. But I suspect Harry Reid and Barack Obama will not be among them.

This column first appeared at Reason.com.

Mandatory Savings?

jsullum@reason.com (Jacob Sullum) — Wed, 28 Oct 2009 12:53:00 EDT

The recently revived idea of creating a government-run health plan to compete with private insurers may reinforce the impression that President Obama and his allies in Congress are standing tall against those corporate fat cats who delight in denying lifesaving care to children and old ladies. But Obama and the insurers still see eye to eye on a central element of his health care agenda: the requirement that every American obtain medical coverage.

It’s obvious why the insurers like this idea. What industry wouldn’t welcome a law that forces everyone to buy its product? But the insurers also argue that a mandate will help control costs, and the president agrees. Judging from the experience in Massachusetts, which imposed its own insurance requirement in 2006, they’re both wrong.

Because he wants to show that an insurance mandate is fair as well as fiscally wise, Obama focuses on uninsured Americans who skip out on their medical bills, leaving policyholders and taxpayers with the tab. “Such irresponsible behavior costs all the rest of us money,” he said in a speech last month.

Perhaps so, but it’s not very much money. In a 2008 Health Affairs article, George Mason University economist Jack Hadley and three co-authors calculate that “uncompensated care represents 2.2 percent of health spending in 2008.”

Obama came closer to explaining the real motivation for the insurance mandate when he said that “unless everybody does their part, many of the insurance reforms we seek—especially requiring insurance companies to cover preexisting conditions—just can’t be achieved.” He worries that insuring older, sicker people will be prohibitively expensive unless the young and healthy are forced to subsidize them.

The insurers are more forthright on this point, warning that insufficient penalties for failing to buy insurance will result in “adverse selection,” fueling the rise in premiums. Yet the penalties in Massachusetts are faster and heftier than the ones proposed in the bills Congress is considering, and the state continues to experience rapid health care inflation.

Since 2006, Michael Tanner notes in a recent Cato Institute paper, health insurance premiums in Massachusetts have risen by 8 percent to 12 percent a year, almost double the national average. During the same period, total medical spending has increased by 28 percent. The cost of subsidizing coverage through the state’s Commonwealth Care program is expected to hit $880 million next year, 20 percent more than originally projected.

There are several reasons why mandatory insurance, contrary to Obama’s promises, has been accompanied by rapidly escalating costs. First, when you subsidize something, people tend to consume more of it. Total spending is therefore bound to be higher, whether it’s covered through direct taxes or through the indirect tax of forcing people to pay for insurance they don’t want.

Second, despite stricter penalties, Massachusetts seems to be experiencing adverse selection. Tanner notes that, while the share of residents without insurance has shrunk from about 10 percent to about 5 percent, the proportion of uninsured people in the 18-to-25 age group has increased from 30 percent to 35 percent, indicating that “the young (and presumably more healthy) are less likely to comply with the mandate.”

Third, requiring people to buy insurance entails defining the minimum level of coverage, which necessarily makes insurance more expensive than it would otherwise be. In effect, the government prohibits the cheapest insurance plans, the ones with the highest deductibles and the least generous benefits.

Defining one minimum medical package for the entire country, thereby inviting every health care interest to descend upon Capitol Hill and lobby for inclusion, will compound the inflation caused by state requirements. Cato's Michael Cannon warns that such a federal standard could force 100 million Americans into more expensive plans while effectively banning the money-saving combination of high-deductible insurance and health savings accounts.

The upshot is a phenomenon we have seen many times before: Instead of protecting us from big business, big government buys it off with our money.

Jacob Sullum is a senior editor at Reason and a nationally syndicated columnist. This column first appeared at Reason.com.

Health Care Delusions, Left and Right

schapman@tribune.com (Steve Chapman) — Mon, 26 Oct 2009 12:46:00 EDT

If you've been following the health care debate over the last couple of years, you may have heard the grim tale of Nataline Sarkisyan. Just 17 years old, afflicted with leukemia, she needed a liver transplant, but the insurance company Cigna refused to cover the surgery. After being picketed by nurses and the family, the insurer relented, but too late: She died that same day.

When he ran for president, John Edwards used the girl's experience as proof of the need for reform. Her parents went to Cigna headquarters to charge the company with killing their daughter to make money. Lately, a liberal group called Americans United for Change has used her in a TV spot to dramatize its claim that "if insurance companies win, we lose."

Her case is an excellent illustration of what is wrong with our approach to health care—but not how Cigna's critics mean. The insurer declined to pay for the transplant because, it said, "the treatment would be unproven and ineffective—and therefore experimental and not covered."

Nataline's surgeons disagreed, estimating she had a 65 percent chance of surviving six months with a new liver. But Dr. Goran Klintmalm, head of the Baylor Regional Transplant Institute in Dallas, told The Los Angeles Times the surgery was "very high-risk" and "on the margins." Even on the best prognosis, she stood a one-in-three chance of dying—after undergoing a very expensive operation and taking a liver that might otherwise have gone to someone with a better chance of survival.

Maybe Cigna was mistaken. Maybe not. The problem is that the critics seem to imagine that once we crack down on insurance companies or go to a single-payer government health insurance plan, future patients like Nataline will get anything their doctors recommend.

They won't. No matter how we "reform" health insurance, there will still be close calls, where it's not clear that a costly procedure will actually do any good. There will have to be someone, either in government or in the private sector, to decide which operations and treatments should be covered and which should not. And there will be patients who will die after being refused.

Health care "reform" won't eliminate such incidents and may produce more of them. Despite all those greedy private health insurers—or maybe because of them—Americans get far more liver transplants per capita than the residents of Canada, France, or Britain.

But liberals are not the only people who fantasize that our health care resources are unlimited. Republicans have accused the Obama administration of plotting to set up "death panels" to ration care for seniors. Former Lt. Gov. Betsy McCaughey of New York called the House Democratic health care bill "a vicious assault on elderly people" that will "cut your life short."

Republican National Committee Chairman Michael Steele has taken the same tack. After the administration proposed modest reductions in the growth of spending on Medicare, he did an impersonation of John Edwards.

"We want to make sure that we are not cutting the Medicare program," Steele said. "Anytime you get a body of individuals that go beyond me and my doctor who are going to make decisions about what kind of health care I get, that's rationing of health care." But as long as someone else has to pay for those decisions, someone other than doctors and patients is going to make decisions about what treatments are worth the cost.

As it happens, Washington is not about to get stingy with seniors. The cost constraints in the health care bills moving through Congress would trim total projected Medicare outlays by only 3 to 5 percent over the next decade. A cut of 5 percent in 2019 spending, however, would leave it 80 percent higher than this year.

Ten years from now, even with such "cuts," seniors will have more and better medical options than today. Yet Republicans act as though everyone over 65 will be herded onto an iceberg and pushed out to sea.

What left and right have in common is the delusion that when it comes to medicine, nothing succeeds like excess. But no health care measure can alter the fact that our resources are not unlimited. We may not want to hear it, but no matter what kind of insurance system you have, sometimes someone has to say "no."

This column first appeared at Reason.com.

In Health Care, Nobody Knows Anything

rbailey@reason.com (Ronald Bailey) — Tue, 20 Oct 2009 12:30:00 EDT

“Nobody knows anything,” is the famous dictum that screenwriter William Goldman once asserted about Hollywood movie-making. Goldman was saying that movie producers have no clue about whether or not a movie will sell until it hits the theaters. There is no formula for a hit movie.

Figuring out health care in America is only slightly more complicated and mysterious than making a hit movie. Fifty million Americans are unable to buy health insurance and premiums have doubled over the past decade. Health care spending in 2009 consumes about $2.5 trillion, more than 17 percent of our gross domestic product. And as spending has skyrocketed, improvements in health outcomes have been real, but modest. What’s going on?

On Saturday, President Barack Obama denounced two new studies, sponsored by the health insurance industry, which found that current health care reform bills in Congress will increase premium prices for consumers. One study, done for the lobbying group America’s Health Insurance Plans by the consultancy PriceWaterhouseCoopers, found that the provisions in the Senate bill sponsored by Sen. Max Baucus (D-Mont.) would add $1,700 a year to the cost of family coverage in 2013 and $600 for a single person. By 2019, family premiums could be $4,000 higher and individual premiums could be $1,500 higher. A weak individual coverage mandate, coupled with a guarantee issue requirement, no preexisting condition limits, and no rating based on health status would significantly boost insurance premiums.

The Blue Cross Blue Shield Association commissioned a new study by the Oliver Wyman consultancy which also found that guaranteed issue and community rating mandates coupled with a weak individual mandate would drive up premiums by 50 percent for individual policies and 19 percent for small group plans.

“Every time we get close to passing reform, the insurance companies produce these phony studies as a prescription and say, ‘Take one of these, and call us in a decade,’" declared the president. “Well, not this time.”

The president is right that we should always be skeptical of studies that find in favor of the groups that sponsor them. And these two insurance industry-sponsored studies do have their flaws. But the finding that guaranteed issue and community rating mandates increase insurance premium prices has been corroborated by other academic researchers. For example, researchers from MIT, the Brookings Institution, and Brigham Young University reported in a 2008 study published in Forum for Health Economics & Policy that community rating regulations increased premiums for high-deductible policies for individuals by as much as 17 percent and families by as much 33 percent in the nongroup market. In addition, the researchers found that the “guarantee issue regulations that accompany community rating regulations in New Jersey are associated with premium increases of well over 100 percent for individual and family policies.” And as my colleague Peter Suderman recently pointed out, Massachusetts, the one state that combines an individual mandate, community rating, and guaranteed issue, now has the highest premiums for family insurance plans in the country.

President Obama also denounced the insurance industry malefactors for “making this last-ditch effort to stop reform even as costs continue to rise and our health care dollars continue to be poured into their profits, bonuses, and administrative costs that do nothing to make us healthy—that often actually go toward figuring out how to avoid covering people.”

Obama is right that administration costs can be quite large. Why would health insurers spend so much money on administration? According to the New England Journal of Medicine, the director of the Office of Management and Budget, Peter Orszag, cites evidence that $830 billion is being spent this year on unnecessary care. That represents about 30 percent of all health care spending. Of course, insurers have a big interest in trying to reduce unnecessary spending, so they hire flocks of administrators to negotiate lower rates and to monitor medical spending charged by doctors and hospital administrators. Government health care programs like Medicare don’t have to negotiate; government agencies just fix prices, which means they fail to combat waste and fraud effectively.

What about those insurance company profits? Back in July, President Obama asserted that health insurance companies are making “record profits.” Not really. The Annenberg Public Policy Center’s FactCheck.org reported, “In general, the health insurance industry did poorly toward the end of 2008 and in the first quarter of 2009, so record profits weren’t likely in the second quarter.” Averaging profits of 3.3 percent, health insurers are the 86th most profitable industry in the U.S., well behind chain restaurants (7.7 percent), electric utilities (6.2 percent), and brewers (18 percent), but ahead of major auto manufacturers (-3.3 percent), resorts and casinos (-8.9 percent), and major airlines (-11 percent).

We’ll pass over the president’s naked attempt to provoke voter envy about the big paychecks of health insurance executives, since taxing them away entirely would not perceptibly lower the costs of health insurance.

So why have health costs, and especially health insurance premiums, skyrocketed since 2000? Let’s look at one plausible theory: market consolidation. In the past two decades, fewer and fewer competitors are exercising more and more monopoly control over health care spending. Case Western Reserve political scientist Joseph White looks at the last time a Democratic administration pushed for health reform. In 1993, recalls White, “costs were expected to quickly hit 14 percent of GDP and rise to 18 percent by the end of the decade.” But that didn’t happen. Why? One plausible story focuses on the rise of health maintenance organizations (HMOs).

The rise of HMOs was enabled by an earlier federal government attempt to rein in health care costs, the Health Maintenance Organization Act of 1973. The idea behind HMOs was that these insurers would control costs by offering a wide array of preventive care to their subscribers. That sounds like a plausible idea until one realizes that people, on average, change insurers every four years or so. An insurer that invested in preventive care was unlikely to reap the cost-saving benefits. Thanks to the spread of HMOs, the 1990s saw the rise in health care expenditures slow down. Why? Chiefly because HMOs fiercely negotiated lower prices from physicians and hospitals. But the era of modest premium price increases didn’t last long.

Hospitals and physicians struck back by beginning to consolidate themselves. As hospital mergers produced local monopolies, they were able to increase their prices substantially. “I find that hospitals increase price by roughly 40 percent following the merger of nearby rivals,” Leemore Dafny, an economist at the Kellogg School of Management at Northwestern University concluded in a 2008 study. Insurers with relatively few patients could not bargain effectively with the new local health monopolies, and so dropped out of those markets.

According to White, the result of the 1990s orgy of insurer and provider consolidation was that “there were half as many health plans in 2004 as in 1996.” In addition, “in thirty-eight states the largest firm controlled at least one-third of the insurance market; in sixteen states it controlled at least half.” In this analysis, insurers and hospitals have evolved into local oligopolies. One plausible story, it seems, is that an ever more monopolistic health care system has been fueling the recent double digit increases in health care costs.

But then you remember, nobody knows anything when it comes to health care. In 2003, the Federal Trade Commission issued a report that concluded that there was “no valid empirical basis” for the claim that consolidations among hospitals “have accounted for increases on hospital services.” But what about consolidation among insurers? “The insurance industry is congenitally weak in bargaining with supply side of the American health sector,” explained Princeton University health economist Uwe Reinhardt on a recent NPR Money Planet segment. Reinhardt believes that insurers largely dance to the fiscal tune whistled by hospitals and physicians.

Clearly there has been a drastic failure of market competition when it comes to the health care sector. The question is how can market forces of competition be brought to bear on escalating health care costs?

An essential player is absent from the competitive field: the actual consumer of health care services. So long as insurers can extract their premiums from employers and providers can extract payments from insurers, the health care industrial complex has very little incentive to rein in costs.

Recent efforts have been made to create so-called consumer-driven health care based on high deductible insurance policies. Because consumers are on the hook for the first several thousand dollars in health care costs, the idea is that savvy consumers will shop around for health care services and thus force insurers and providers to lower their prices. This cost-reducing dynamic works in most other areas of our economy, so why not in health care?

One of the chief problems is that consumers haven’t a clue about what their insurance and medical services cost. Hospital chargemasters (essentially comprehensive lists of all charges) typically contain prices for over 20,000 items and services. Sorting through those lists for the best prices would be impossible for consumers. But why should they have to? In markets, the proper dictum is that “nobody has to know everything.” Markets are superb at gathering widely dispersed information and resources from millions of people and firms and then distilling that information into prices.

When someone buys a car, they are not confronted with a bill listing separate prices for pistons, radiators, assembly line screw tightening, seats, gas tanks, windows, and so forth. Nor when they buy a hamburger are the prices for the beef, bun, wrapping paper, and special sauce listed and charged for individually. The market has bundled those separate items together into a single price. Competition sparked by consumer demand could unleash a similar simplifying dynamic in which prices for health insurance and medical services become bundled and more transparent.

So what kind of real reforms could increase health care competition? Congress should aim to break up the system of local monopolies into which our health care sector has devolved. In his Saturday attack on health insurers, President Obama noted that the industry enjoys “a privileged exception from our anti-trust laws, a matter that Congress is rightfully reviewing.” What he is talking about is the McCarran-Ferguson Act of 1945 that allows state governments to regulate the business of insurance without federal government interference. The Act is, in part, responsible for the evolution toward state insurance markets dominated by just a few large insurers. Consumers cannot purchase insurance policies that are not licensed by their state insurance commissions and which do not incorporate all the mandates imposed by those commissions. Congress and the states should open up competition between insurance companies by enabling “regulatory federalism” that would allow individuals and employers to purchase health insurance from other states. As a report from the free-market Cato Institute notes, regulatory federalism would force state insurance commissions to compete among themselves. The result would be that “states that impose unwanted regulatory costs on insurance purchasers would see their residents’ business—and their premium tax revenue—go elsewhere.”

Barriers to increased competition among health care providers must be removed too. For example, many states have certificate of need programs that forbid the construction of new health care facilities without prior regulatory approval. Passed by Congress in 1974 as a cost-cutting measure, the ostensible purpose of the programs is to keep health care costs low by requiring advance approval by state agencies for most hospital expansions and major equipment purchases. But regulations don’t really work that way. “Market incumbents can too easily use [certificate of need] procedures to forestall competitors from entering an incumbent’s market,” according to a 2004 Federal Trade Commission report. In fact, “programs can actually increase prices by fostering anti-competitive barriers to entry.” State enforced monopolies increase prices? Who knew?

There is one thing that everybody should know when it comes to health care: Competition in markets tends to lower prices and improve quality over time. It can do so in health care markets as well.

Ronald Bailey is Reason magazine's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books. This column first appeared at Reason.com.

Dishonest Attacks on the U.S. Chamber of Commerce

anthony.randazzo@reason.org (Anthony Randazzo) — Mon, 19 Oct 2009 13:05:00 EDT

MoveOn.org is joining the attack on the U.S. Chamber of Commerce (USCC) today, sending out an email asking its members to lobby against businesses who believe the health care and energy bills being discussed in Congress will damage their ability to do business. MoveOn writes:

Anheuser-Busch is helping fund a $100 million campaign by the U.S. Chamber of Commerce to kill clean energy and health care in Congress. Other companies, such as Apple, have quit the Chamber in protest, but Anheuser-Busch is still a dues-paying member. Can you call Anheuser-Busch and urge them to quit the Chamber of Commerce?

How terrible of Anheuser-Busch to want to avoid increased operations costs that would likely require them to fire employees. Do health care and energy bill advocates seriously not understand that the legislation as written today will increase unemployment?

As for MoveOn's note of Apple. This is especially dishonest. Al Gore sits on the board of Apple. Yep, Mr. Inconvenient Truth himself, who is a proponent of the energy bill and is also personally invested in the alternative energy products that the Cap & Trade bill would force firms to use. Do energy advocates seriously not see the rent seeking behavior going on here? This is the kind of crony capitalism that progressives should be livid about.

And that's not the only reason Apple backed away from the USCC on this issue. Where are most of Apple's products created? In East Asia. So who would get hurt most by the operations costs increases of the energy and health care bills? Apple's competitors. No one can fault Apple for supporting legislation that would hurt its opponents more than its costs would go up. In fact it is good business. But passing the bills would be bad politics.

The Coming Health Care Box Canyon

anthony.randazzo@reason.org (Anthony Randazzo) — Fri, 16 Oct 2009 14:16:00 EDT

Some Friday comic relief from Colbert waxing philosophically: "We're on a runaway stagecoach of big government, being chased by the coyotes of increased deficits."

Visit ColbertNation here.

Max's Adventures in Wonderland

info@reason.org (David Harsanyi) — Tue, 13 Oct 2009 13:54:00 EDT

For Philistines like me, the mysteries of Washington can be both perplexing and wondrous. If you watched noted alchemist Sen. Max Baucus (D-Mont.), conjure up health care gold last week, you probably know what I mean.

Mercifully, House and Senate Democrats recently blocked amendments that would have required health care bills to be posted online for 72 hours before a committee vote, sparing us the needless irritation of grappling with fancy facts about the most consequential piece of legislation in recent memory.

No need to get into the weeds for you and me. No way. Just think of legislation as abstract art. The Congressional Budget Office does.

The CBO's new estimate, which magically meets every one of President Barack Obama's preconditions, is based on "conceptual" language provided by Baucus rather than on any of those maddeningly specific Arabic numerals.

That's because the estimate isn't rooted in an actual bill per se, nor does it incorporate hundreds of amendments that will be part of any final product—well, not exactly ... What we do have is a CBO that has been browbeaten long enough by the White House to finally summon the conviction to get a figure that so many wanted to hear.

It's also, believe it or not, free.

According to the CBO, the Senate plan—which actually would cost more than earlier estimates, rising from nearly $800 billion to $829 billion (or $904 billion, according to a number of economists)—has triggered many excited journalists and politicians to claim that the bill miraculously would "pay for itself."

The CBO says that not only would it pay for itself—and this part is really wonderful—but also the government's spending an additional $829 billion over the next 10 years would reduce the federal deficit by $81 billion.

How exactly does health care "reform" pay for itself in Wonderland? In this case, it pays for itself by charging taxpayers new "fees," delivering new mandates and penalties, adding pass-through costs, and cutting hundreds of billions of dollars from Medicare.

As you know, if there's anything old folks—already prone to irascibility from time to time—absolutely adore it's the prospect of cutting their Medicare benefits. Yet even those savings seem to defy reality.

One of the many assumptions in the Baucus plan is that there would be continual cuts in physician reimbursements, cuts that Congress never has allowed and precious few onlookers believe would be politically palatable. So without a major attitude adjustment in Washington, this savings is just fantasy, as well.

Not to worry, though, there are sure things. One of the most popular and cost-effective programs, Medicare Advantage, would take a hit of $117 billion through 2019.

That might seem somewhat mysterious to you. Then again, Medicare Advantage involves private insurance firms (a curse on their house!), which should be squashed like a cockroach.

CBO Director Douglas Elmendorf previously warned that Medicare Advantage payment cuts would have the potential to hurt seniors' private health plans, which, of course, is the point of "reform."

The most exhilarating aspect of this plan, however, isn't that it would do nothing to contain costs for average consumers; it's that average consumers would help pay for it long before they failed to receive any tangible benefits.

According to Democrats, health care reform must be passed this very moment even though it wouldn't kick in until 2013. Don't worry; it would start taxing Americans in 2010, three years before you got nothing.

All of this probably adds up to the most expensive dependency program yet devised.

Coming at a time when the nation has hit 9.8 percent unemployment, with no help from Washington in sight, the latest Pew Research Center survey on the health care issue claims that "more people now generally oppose the health care reform proposals in Congress (47 percent) than favor them (34 percent)."

That 47 percent just doesn't believe. They don't believe higher taxes would bring down costs. They don't believe that more spending could shrink the deficit. They can't believe that fees wouldn't be taxes. Or that an entitlement program, for the first time in history, would pay for itself.

What they do believe in is reality.

David Harsanyi is a columnist at The Denver Post and the author of Nanny State. Visit his Web site at www.DavidHarsanyi.com. This column first appeared at Reason.com.

The Madness of the Mandate

peter.suderman@reason.org (Peter Suderman) — Fri, 09 Oct 2009 13:46:00 EDT

Over the summer, the health-care debate focused on the controversy over the so-called "public option"—a government-run insurance plan intended to offer a low-cost alternative to private insurers. But squabbling over the public plan has diverted attention away from the true centerpiece of all current reform efforts: an individual mandate requiring every American to buy health insurance. Even without any form of public option, a nationwide mandate opens the door to de facto government control over the entire insurance industry, while potentially killing off the low-cost plans that could truly revolutionize American medicine.

An insurance mandate is a crude solution to the what many liberals consider the primary problem with America's health-care system: the large number of uninsured. One of the most frequently repeated statistics in the health-care debate is that there are 47 million people without health insurance in the U.S. Anyone looking for a way to get all of those people insured is left with only one option: force them to get insurance.

Problem is, the 47 million statistic is misleading. And even with a mandate, health reform legislation is projected to leave tens of millions uninsured.

Let's start with the 47 million figure. The number is presented as a static fact, but instead it's the total number of people who go uninsured for even a single day each year. The number also includes several million illegal immigrants, 11 million individuals who already qualify for some form of government health assistance, and 18 million individuals who make more than $50,000 a year, many of whom presumably could buy insurance but simply choose not to.

Meanwhile, mandates don't actually bring everyone into the system. Some people simply wouldn't comply. Others would choose to pay a penalty in order to avoid buying insurance. The latest report from the CBO estimated that the health-care plan put forth by the Senate Finance Committee would leave "about 25 million nonelderly residents uninsured (about one-third of whom would be unauthorized immigrants)."

In other words, a mandate is, at best, a leaky solution to an incredibly exaggerated problem.

Yet advocates claim that it's the only way to cover everyone and bring down costs. In the real world, however, that's just not true.

As Cato Institute health-policy analyst Michael Cannon pointed out in a recent paper, mandate supporters often argue that, by bringing everyone (or nearly everyone) into the insurance pool, a mandate will save money on so-called "uncompensated care"—the unpaid-for care doled out to free-riders throughout the nation's emergency rooms. But according to the Urban Institue, a left-leaning think tank, uncompensated care only accounted for about 2.2 percent of health spending in 2008. So, at most, savings would amount to measly 2.2 percent—and that's before accounting for the additional costs imposed by a mandate.

And those costs can be significant. As Cannon explains, "when government makes health insurance mandatory, it must define a level of coverage that satisfies the mandate." That means that many lower-coverage, lower-cost plans no longer make the cut—and premium costs go up. As Cannon calculated based on a study by Massachusetts Division of Finance and Policy, mandatory coverage requirements can "increase the cost of insurance by as much as 14 percent—or nearly $1,700 per year for family coverage." Two-and-a-half years after first imposing a mandate, the state now has the dubious honor of having the nation's most expensive health insurance premiums, and the future looks even more grim: Insurers have already announced plans for double-digit hikes next year.

Nor does the existence of a mandate guarantee that public spending on health-care will be kept in check. Indeed, the opposite has occured in Massachusetts. The state's medical spending is so out of control that, according to the Boston Globe, state insurance commissioners now worry that it "could threaten the state’s model health insurance law and bankrupt employers and patients."

Supporters claim the Massachusetts plan has been a success because it's increased the percentage of people in the state with health insurance. And it's true. Estimates suggest that, these days, the percentage of uninsured in Massachusetts numbers somewhere between 2.2 and 4 percent (although given that 86 percent had insurance before the mandate took effect, this isn't as much of an accomplishment as they claim). But what good is insurance if the program that funds it isn't sustainable? Even among those who view the plan as a model for the nation, there's concern that skyrocketing costs "threaten the long-term viability of the initiative."

Meanwhile, a mandate's minimum coverage requirements would effectively outlaw low-cost health-care solutions like health-savings accounts (HSAs) that let individuals pay for care out of accounts they control—and, unlike traditional insurance plans, have a legitimate (if not yet definitive) record of lowering health-care spending.

But in Washington's current reform-crazed atmosphere, sensible ideas like giving consumers more control over their health-care don't stand a chance. Instead, liberal reformers appear to have succumbed to the power of compulsory insurance. And if they get their way, it won't be long before we're all in the grips of mandate madness.

Peter Suderman is an associate editor at Reason magazine. This column first appeared at Reason.com.

Cash-Strapped States Wary of Medicaid Expansion

leonard.gilroy@reason.org (Leonard Gilroy) — Mon, 05 Oct 2009 14:28:00 EDT

Following up on Friday's post, Shailagh Murray at the Washington Post has an interesting story today on the growing apprehension among the states over the prospects for a dramatic expansion of Medicaid at a time when most states can ill-afford it:

The nation's governors are emerging as a formidable lobbying force as health-care reform moves through Congress and states overburdened by the recession brace for the daunting prospect of providing coverage to millions of low-income residents.

The legislation the Senate Finance Committee is expected to approve this week calls for the biggest expansion of Medicaid since its creation in 1965. Under the Senate bill and a similar House proposal, a patchwork state-federal insurance program targeted mainly at children, pregnant women and disabled people would effectively become a Medicare for the poor, a health-care safety net for all people with an annual income below $14,404.

Whether Medicaid can absorb a huge influx of beneficiaries is a matter of grave concern to many governors, who have cut low-income health benefits -- along with school funding, prison construction, state jobs and just about everything else -- to cope with the most severe economic downturn in decades.

"I can't think of a worse time for this bill to be coming," said Tennessee Gov. Phil Bredesen (D), a member of the National Governors Association's health-care task force. "I'd love to see it happen. But nobody's going to put their state into bankruptcy or their education system in the tank for it."

Read the whole thing. My fear is that while states and the feds kick the ball back and forth in terms of who would be responsible for covering the costs of Medicaid expansion, the public discourse will gloss over the fact that it's us taxpayers that would ultimately foot the bill either way, whether that comes through higher taxes and fees at the state level or federal level (or both).

Obama Is No Radical

jwalker@reason.com (Jesse Walker) — Wed, 30 Sep 2009 13:33:00 EDT

The conservative firebrand David Horowitz has declared the Obama White House a "radical regime." For the Republican radio host Sean Hannity, the ousted ex-communist "green jobs" czar Van Jones "signifies the radicalism of this administration." Even Andy Williams, the Branson crooner who sang "Moon River" and "Days of Wine and Roses," has joined the chorus, telling Radio Times this week that Barack Obama is "following Marxist theory."

For a chunk of the right—the portion that defines itself by its opposition to "the left"—that's the best explanation for the country's recent political path: Washington has been seized by radicals. But compared to a real radical, Obama is about as middle of the road as Andy Williams' music.

Yes, he gave a job to Van Jones, and if you search his administration you'll find yet more hires whose views are well to the left of most of the country. If you looked through George W. Bush's administration, you'd find hires with views well to the right of most of the country: Eric Keroack, say, the critic of contraception who landed a job atop the family planning office at the Department of Health and Human Services. It's an ideological spoils system, patronage paid to the factions that make up a party's base. And sometimes it has policy consequences, so it's worth monitoring closely.

Yet most people on the right will tell you, quite accurately, that the Bush years didn't do much to shift the country toward greater social or economic conservatism. I expect most people on the left will say something similar when Obama exits office. Thus far, the president's domestic agenda has been many things, but radical it isn't. Radicals make sudden turns. Obama sometimes slams his foot on the accelerator—just look at projected spending for the next few years—but he hardly ever tries to change direction. Radicals tear down centers of power. When Obama is faced with a crumbling institution, his first instinct is to prop it up.

That was most obviously true with the bailouts, a series of corporate preservation programs that began before he took office and have only increased since then. Candidate Obama voted for the Troubled Asset Relief Program, the 2008 bailout for failing financial institutions, and he personally intervened to urge skeptical liberals to support it. After Congress refused to authorize a bailout of the car companies, Obama followed George W. Bush in ignoring the plain language of the law and funneling funds to them anyway. Like Bush before him, Obama took advantage of such moments to adjust the institutional relationship between these nominally private businesses and the state: firing the head of General Motors, urging the company to consolidate brands, pushing for new controls on Wall Street pay. But the institutions themselves were preserved, in some cases enriched. The radical thing to do would have been to let them collapse.

And no, I'm not using "radical" as a euphemism for "free-market libertarian." A radical Obama still might have extended assistance to the people displaced by the corporate failures, perhaps even setting up a generous guaranteed income scheme. He might have broken up the big banks. He might have done all sorts of things, some wiser than others. But he would not have strengthened the corporate-state partnerships bequeathed to him by Bush.

After the bailouts we had the "stimulus" package, which boiled down to this: You're cutting back on unsustainable consumption? Here: Spend more! Around the same time we got the cash for clunkers program, which took that same impulse and added incentives that undermined the salvage business and the second-hand car trade—markets that are far more decentralized, dynamic, and open to the participation of the poor than the automakers that accepted Obama's largesse.

Now we have health care reform. Here you might actually expect the president to veer in a new direction and let a powerful institution die. After all, it's been only six years since he described himself as "a proponent of a single-payer, universal health care plan," and if he were serious about that it would mean the end of the private health insurance industry. Single payer isn't on the table right now, but liberal Democrats are trying to push a "public option"—a government-run alternative for people who'd like to opt out of the available private plans—into the legislation. And the public option is, in the words of single-payer advocate Mark Schmitt, "a kind of stealth single-payer." So in health care at least, Obama's a radical, right?

I don't think so, for two reasons. First, it's increasingly unlikely that a public option will be a part of the bill that emerges, in which case we'll be left with an enormous boondoggle for the industry: a law requiring every American to buy health insurance or else face legal sanctions. Every other powerful institution in the health sector already supports the president's proposals. Indeed, the Pharmaceutical Research and Manufacturers of America, the American Medical Association, and the Federation of American Hospitals are sponsoring a multi-million-dollar ad campaign on the measures' behalf. If the public-option-free version of ObamaCare becomes the face of reform, don't be surprised if the insurers join them.

Second, and more important, a system with more government-provided insurance, even one with only government-provided insurance, would still accept the institutional premises of the present medical system. Consider the typical American health care transaction. On one side of the exchange you'll have one of an artificially limited number of providers, many of them concentrated in those enormous, faceless institutions called hospitals. On the other side, making the purchase, is not a patient but one of those enormous, faceless institutions called insurers. The insurers, some of which are actual arms of the government and some of which merely owe their customers to the government's tax incentives and shape their coverage to fit the government's mandates, are expected to pay all or a share of even routine medical expenses. The result is higher costs, less competition, less transparency, and, in general, a system where the consumer gets about as much autonomy and respect as the stethoscope. Radical reform would restore power to the patient. Instead, the issue on the table is whether the behemoths we answer to will be purely public or public-private partnerships.

So I can't agree with Horowitz, Hannity, or Andy Williams. The president could pal around with militiamen, hook a money hose from the Treasury to ACORN HQ, and sleep each night with a Zapatista plush doll, but as long as his chief concern is preserving and protecting the country's largest corporate enterprises, the biggest beneficiaries of his reign will be at the core of the American establishment.

Jesse Walker is managing editor of Reason magazine. This column first appeared at Reason.com.

Does High-Tech Medicine Mean Higher Health Care Costs?

rbailey@reason.com (Ronald Bailey) — Tue, 29 Sep 2009 11:07:00 EDT

"About half of all growth in health care spending in the past several decades was associated with changes in medical care made possible by advances in technology," declared a Congressional Budget Office (CBO) report last year. "Health care economists attribute about 50 percent of the annual increase of health costs to new technologies or to the intensified use of old ones," writes bioethicist Daniel Callahan in his new book, Taming the Beloved Beast: How Medical Technology Costs Are Destroying Our Health Care System. Conventional wisdom holds that the nation is facing a massive health care bill thanks to our use (and potential overuse) of pricey new treatments and technology.

But is it true that expensive high-tech medicine is to blame for rising health care costs? Callahan complains that "American health care is radically American: individualistic, scientifically ambitious, market intoxicated, suspicious of government, and profit-driven." And he's right about America's high-tech vitality: The U.S. health care system does develop and deploy medical innovations much faster than other rich countries. New pharmaceutical products generally launch here two years earlier than elsewhere, according to a December 2008 report from the business consultancy McKinsey (which also blamed high-tech medicine for escalating costs). Plus, American physicians are "much quicker to adopt new surgical techniques and advances in anesthesia." The top five U.S. hospitals alone conduct many more clinical trials than any other single other developed country.

But in June, Columbia University economist Frank Lichtenberg published a new study that suggests advanced medical technologies are not contributing all that much toward rising U.S. health care expenditures. Lichtenberg begins by looking at how the rate of increase in longevity has varied among U.S. states between 1991 and 2004. He investigates how such factors as the quality of medical care, behavioral risks (obesity, smoking, and AIDS incidence), and education, income, and health insurance coverage affect life expectancy. To measure differences in the quality of medical care, Lichtenberg examines how quickly each state took up advanced medical diagnostics and new drugs. He also calculates what fraction of physicians in a state were trained at top-ranked medical schools.

Lichtenberg's key finding is that life expectancy increased faster in states that more rapidly adopted advanced diagnostic imaging techniques, newer drugs, and attracted an increasing proportion of doctors from top medical schools.

The good news is that between 1991 and 2004 average life expectancy at birth in the U.S. increased 2.37 years. During that time Lichtenberg finds that nationwide the use of advanced imaging procedures nearly doubled from about 10 percent to nearly 20 percent. Lichtenberg calculates that the deployment of advanced diagnostic imaging techniques (e.g., CT scans, MRIs) is responsible for boosting average U.S. life expectancy by 0.62-0.71 years during this period. In addition, he estimates that the adoption of newer drugs increased average U.S. life expectancy by about 1.5 years. On the other hand, the fraction of physicians being trained at top medical schools has declined, which Lichtenberg reckons has reduced overall life expectancy by 0.28-0.47 years.

Interestingly, Lichtenberg found that "growth in life expectancy was uncorrelated across states with health insurance coverage and education, and inversely correlated with per capita income growth." The last finding is a bit puzzling. Lichtenberg calculates that the average 20 percent increase in real per capita income resulted in lowering average life expectancy by 0.34-0.42 years and finds that states with high income growth had smaller longevity increases. He does not speculate on why higher incomes lowered life expectancy but perhaps richer people engaged in riskier behaviors that are unaccounted for in Lichtenberg's model. For example, binge drinking in older men correlates with higher incomes.

It's not too surprising that high-tech medicine and better physician training boost life expectancy, but what about their costs? To answer that question, Lichtenberg looked at per capita medical spending by state. The top six states used advanced imaging diagnostics roughly 30 percent more often than the bottom six, for instance, making them ripe for comparison. He found that the states with larger increases in high-tech diagnostic procedures, newer drugs, and higher quality physicians did not have larger increases in per capita medical spending.

"The absence of a correlation across states between medical innovation and expenditure growth is inconsistent with the view that advances in medical technology have contributed to rising overall US health care spending," he concludes. Lichtenberg further speculates that states that have more quickly adopted high-tech procedures have not seen their health care expenses increase because "while newer diagnostic procedures and drugs are more expensive than their older counterparts, they may reduce the need for costly additional medical treatment." In other words, high-tech medicine may initially cost more, but it reduces spending in the long run, while increasing the life expectancies of patients.

Cost cop Callahan has a solution to the alleged problem of escalating technological costs: Adopt the methods used by European universal government-funded health care systems:"They use—among other tools—price controls, negotiated physician fees, hospital budgets with limits on expenditures, and stringent policies on the adoption and diffusion of new technologies." In other words, stifle innovation.

"Cutting the use of technology will seem wrong—even immoral—to many," Callahan admits. Well, yes. And if Lichtenberg is right, slowing technological progress in medicine wouldn't save money, but it definitely would kill more people.

Ronald Bailey is Reason magazine's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books. This column first appeared at Reason.com.

The Body Politics

peter.suderman@reason.org (Peter Suderman) — Fri, 25 Sep 2009 11:03:00 EDT

As health-care reform struggles to stay afloat, Democrats are desperate to pin the blame on Republicans. But the truth is, no matter how much Democrats gripe, it's their own fault.

With the passing of Ted Kennedy, Democrats have only 59 votes in the Senate, one less than they need to break a filibuster. Until this week, Democrats held out hope that at least one Republican would sign on. But when Senate Finance Committee Chairman Max Baucus finally released his plan on Wednesday, Olympia Snowe, the most likely GOP vote, quickly backed out.

That leaves Democrats with just one option: Go it alone. And that won't be easy. Because a party that not long ago was united behind a leader and a purpose—guaranteeing health insurance to all Americans—has, in just a few short months, descended into disarray.

As the health-reform push enters its final stages, here's who's causing headaches:

Sen. Jay Rockefeller: As a member of the Senate Finance Committee, Rockefeller is a key vote. And he's repeatedly said there's no way he'd vote for the Baucus plan as it stands. He hasn't just knocked the plan, he's knocked the planner, taking aim at Baucus' feints toward bipartisanship. "You don't run a committee that way," he told Politico. The West Virginia senator is so miffed by the failure to include a government-run public plan, a favorite idea among liberals, that he took his complaints all the way to Obama—and still came out shaking his head. Nor is he willing to consider compromises like co-ops or a public option "trigger." For Rockefeller, no public plan means no way.

Sen. Mary Landrieu: Rockefeller, though, faces tough opposition from moderates like Landrieu who have expressed serious reservations about including a public option. At the beginning of last week, Landrieu worried that a public plan might "undermine the private insurance system."

Rep. Nancy Pelosi: Pelosi, the House's top Democrat, also sniffed at the Baucus plan, expressing disappointment in the bill's lack of a public option, saying she wanted "modifications" to make mandatory insurance more affordable.

Sen. Ron Wyden: Like Pelosi, Wyden, another Finance Committee member whose own more radical reform bill has been sidelined, has taken issue with the expenses the plan could impose on the middle class. Shut out, Wyden took his objections straight to the public, putting a stern op-ed in The New York Times detailing the "problem" with the Baucus bill. But increasing middle-class subsidies would also make the bill more expensive—a politically risky move.

Sen. John Kerry: For Kerry, the current Baucus plan is a non-starter. The former presidential candidate has also stated worries about the plan's cost to lower-income Americans—and said it's got to change before passage.

"It's not going to be the bill we're going to vote on," Kerry said when the Baucus plan hit.

Sen. Dianne Feinstein: Any move to make the bill more expensive would risk the wrath of Democrats like Feinstein, who recently told the San Francisco Chronicle, "There is real concern over debt and deficits, and whether this bill will create additional entitlements." Of course, Feinstein doesn't want the bill cut too much: She's also expressed concern that Obama's cost cuts will come out of her home state's public hospitals.

Sen. Bill Nelson: Nelson, a Florida senator answerable to the votes of numerous senior citizens, has expressed tacit support for the measure, but he's also taken issue with the plan's cuts to Medicare. In a strident statement on the Senate floor, Nelson said it would be "intolerable" to ask seniors to give up the "substantial benefits" they now enjoy.

But intraparty bickering isn't the only hurdle for Democrats. They also have to balance the demands of liberal interests like labor unions and major health-care players.

When health-reform efforts started, Democrats opted to buy off industry, which they saw as having killed the Clinton reform drive in the '90s. Every player got a handout—but the handouts may not add up. Insurance companies, for example, were promised comparative-effectiveness research—a government panel that would give them cover to say that treatment options just aren't worth the price. Rather than seem stingy, they can say, "Sorry, the government says this isn't effective."

The pharmaceutical lobby, meanwhile, came on board in hopes of expanding the market for brand-name drugs. But comparative-effectiveness research might slash the sales of some of those same drugs—especially the most profitable ones. The drug companies haven't jumped ship yet but they're fighting hard to nix the insurers' handout.

Cranky Congress critters. Inter-industry feuding. What's left? Oh right: Voters. As Robert Goldberg of the Center for Medicine in the Public Interest says, Democrats "forgot about the fact that health reform affects people, not just interest groups." On that front, Obama's prime-time speech before Congress was supposed to give health reform a bump. It did, but just for a few days. Heading into the weekend, the bump had vanished. And pollster Scott Rasmussen's survey of likely voters indicated that "just 42% now support the plan, matching the low first reached in August."

Still, it's hard to blame voters. If Democrats can't find a plan they all like, why should the public?

Peter Suderman is an associate editor at Reason magazine. This article originally appeared in the New York Post. This column first appeared at Reason.com.

Obama, Race, and Health Care

shikha.dalmia@reason.org (Shikha Dalmia) — Fri, 25 Sep 2009 10:58:00 EDT

After an exceedingly disappointing 10 months in office pursuing a hyper-partisan agenda, President Barack Obama reminded me last week of why, for a brief moment during his campaign eons ago last year, he actually won my heart. He seemed then to be a genuinely different kind of candidate, heterodox and capacious, capable of transcending the great divides of our time to forge perhaps a new—and improved—political consensus.

Remember that great line from his speech? "There is not a liberal America and a conservative America; there is the United States of America. There is not a black America and a white America and Latino America and Asian America; there is the United States of America."

He reignited that spirit over the weekend when he took to the airwaves and rebuked—calmly but firmly—the ideological yahoos in his party—the Nancy Pelosies, Maureen Dowds, and Paul Krugmans—for calling opponents of ObamaCare racist. "[Race] is not the overriding issue here," he admonished. It's an argument about "what's the proper role of government."

Exactly. But if Obama wants to regain the momentum on health care reform, he will have to do more than just refrain from impugning the motives of his opponents. He will actually have to listen to them and do what he said he would during his campaign: put affordable coverage within the grasp of more Americans without forcing them to purchase it, without raising their taxes, and without breaking the federal bank.

Obama has been trying to shore up support for health care reform by noting that he will veto any health care bill that isn't deficit-neutral. "I will not sign a plan that adds one dime to our deficits either now or in the future. Period."

But it isn't racist to wonder if that statement depends on what Obama's definition of "deficit neutral" is. The Congressional Budget Office, for instance, had noted that the House Democrats' health care bill would add $220 billion to the deficit over 10 years. But the White House proclaimed the bill to be "deficit neutral" anyway. Why? Because it simply refused to count $245 billion in Medicare payments to providers in the bill that it viewed as excessive.

Since then, the CBO has certified that the Senate's Baucus bill (which many House Democrats have already declared dead-on-arrival because it does not contain their beloved public option) would reduce the deficit by about $50 billion over 10 years. But that's only because it will offset its costs by sticking it to the American people—many of them making under $250,000—in the form of higher taxes, penalties, and fees.

Despite that, its "deficit neutrality" depends on two caveats: one, leaving 17 million Americans uninsured. And two, Congress holding Medicare reimbursement rates to providers to the declining levels prescribed in the bill for the next two decades. But this is something that Congress has never been able to do, so the CBO projection is totally meaningless. The CBO itself says as much, noting that its analysis assumes that the Baucus bill will be followed in toto forever, which is "often not the case for major legislation."

But the real issue is that deficit neutrality—even if it were achievable under ObamaCare—is a sham goal. The country's deficit has tripled since last year and is expected to balloon to $9 trillion over the next decade. Declaring "neutrality" in the face of this is not a policy position. It is a cop out. It is code for permanently cementing deficits into the federal budget, and virtually guaranteeing either hyper-inflation, hyper-taxation, or both down the road.

Obama insists that two-thirds of his health care tab—or over $500 billion over 10 years—will be paid for by squeezing out waste and inefficiency from Medicare. But if there are such savings waiting to be tapped in Medicare, shouldn't they go toward slashing the deficit—not adding more entitlements? Is it a symptom of racism or the mental health of the American public that it is taking to the streets to protest such warped priorities?

Indeed, if Obama were genuinely interested in helping uninsured Americans purchase health care, he wouldn't be talking about imposing an individual mandate and confiscating up to $3,800 in penalties every year (as per the Baucus plan) from families that don't comply. He would do what he said he would during the campaign: make irresistibly cheap options available to them.

Obama's whole argument for the mandate is based on the idea that uninsured folks impose an unacceptable financial burden on the rest of us when they land in emergency rooms and get care they can't pay for. But uncompensated care costs only about $40 billion annually—or about 2 percent of the country's $2.2 trillion health care spending. That's less than what department stores lose to shoplifting every year.

But even if one accepts that argument, shielding the insured from the costs of this uncompensated care requires only that the uninsured get some form of bare-bones, catastrophic coverage. And a healthy, young guy could do so for as little as $80 a month if he could purchase insurance from states like Kentucky, that haven't jacked up coverage costs by forcing insurance companies to include everything from in-vitro fertilization to hair prostheses in their basic package, as states like New Jersey have done. Indeed, if individuals could purchase coverage across state lines, the ranks of the uninsured might be cut by up to 17 million—almost half of uninsured Americans—without costing Uncle Sam a dime.

The main reason Americans can't do so is a 1945 federal law called the McCarran-Ferguson Act. This law handed states the primary role in regulating health insurance in violation of the Constitution's Interstate Commerce Clause, which expressly gives Uncle Sam authority to check state barriers that inhibit the free flow of goods and services. Yet Obama has said not a word about reforming this law in the scores of speeches he has given. Nor have his fellow Democrats made any mention of it in the thousands of pages of legislation they have produced.

Americans elected Obama because he presented himself as a fiscally responsible adult who—in contrast to his predecessor—was interested in looking for workable, pragmatic solutions, not promoting an ideological agenda. But Obama pulled a massive bait-and-switch upon assuming office, using every issue—the financial meltdown, the recession, the deficit, global warming, and, of course, rising health care costs—to expand the scope and size of government. That's what Americans are protesting now, not his skin color.

He was, after all, black before he got elected, as he himself pointed out to David Letterman.

Shikha Dalmia is a senior analyst at Reason Foundation and a biweekly Forbes columnist. This article originally appeared at Forbes. This column previously appeared at Reason.com.

The Truth About Media Bias

info@reason.org (John Stossel) — Thu, 24 Sep 2009 13:46:00 EDT

When I announced last week that I was leaving ABC for Fox, some readers complained about my "bias." I replied: "Every reporter has political beliefs. The difference is that I am upfront about mine."

Look at today's burning issue: President Obama's pledge to redesign 15 percent of the economy. Virtually every reporter calls his health care plan "reform." But dictionaries define reform as "improvement." So before they present any evidence, reporters pronounce Obama's plan an improvement. Isn't that bias?

The New York Times took its bias to an absurd length. Its page-one story on the big anti-big-government rally in Washington, D.C., referred to "protests that began with an opposition to health care. ..."

Apparently, in the Times reporter's and editors' view, opponents of the Obama health care plan oppose health care itself. (The online article was later changed.)

Economic-policy reporters usually present the views of supporters of new regulations as objective and public-spirited. For a contrary view, at best they'll ask a Republican or a representative of the regulated business, who is portrayed as self-serving. (Republicans tend to offer a watered-down version of the Democrats' proposals.)

A recent Bloomberg report on President Obama's plans to rewrite financial regulations is typical: "Obama has proposed new regulations overseeing the systemic risk posed by large financial institutions." The reporter quoted White House economic adviser Lawrence Summers in support of the plan. Although there are plenty of reasons to doubt that regulators are competent at judging systemic risk, no skeptical economist was quoted. Readers are led to believe the program is perfectly feasible.

Most reporting on the "stimulus" package has the same flaw. Just to call it "stimulus" is to editorialize, since the idea that government spending can truly stimulate an economy is at best doubtful. Many good economists say it can't be done. After all, the money is taken from somewhere else. But the economists rarely are quoted.

In addition, reporters seem to think they've done their job if they merely describe the intentions behind the proposed "reform." But the burden of proof should be on the sponsors of regulation and spending. They should have to make a convincing case that their new rules are superior to the free market. Who cares about intentions?

Fuel-efficiency standards, intended to save gasoline, give us less crashworthy cars, so more people die. Subsidies to American farmers destroy Third World markets. Fannie Mae and Freddie Mac encouraged shaky subprime mortgages and helped cause the housing and financial turmoil.

The long list of bad results that have emerged from well-intended regulation ought to dim reporters' enthusiasm. But it hasn't.

I admit that my guiding political and economic philosophy—libertarianism—now shapes my reporting, in this way: It prompts me to ask questions that others don't ask.

I don't claim to be the expert. But some of my colleagues who write about business know nothing about economics. Many are comically hostile to profit—they dismiss it as "greed" (although they bargain for the highest salaries possible).

On my former ABC blog, some people called me a biased "conservative."

"Your (sic) a shill anyways John. dont (sic) let the door hit you in the you know what."

I'm surprised that the self-described enemies of intolerance can't tolerate even one MSM reporter who doesn't share their statist premises. The interventionist state has been the status quo for generations, so I must be something other than "conservative." "Liberal" is what my philosophy used to be called. It's the statists who are the reactionaries.

Not all the blog comments were hostile:

"Congratulations. The mind boggles at the thought of giving free reign on air to someone who actually understands economics."

"Stossel challenges conventional wisdom, so I hope Fox lets him do that."

I assume Fox will. My points of view on things like immigration, nation-building, and the war on drugs differ from those of many at Fox, but libertarians like Judge Andrew Napolitano still seem to thrive there. The alleged "conservatives" are pretty tolerant.

I think they'll tolerate me. See you there next month.

John Stossel joins Fox News on October 19. He's the author of Give Me a Break and of Myth, Lies, and Downright Stupidity. This column first appeared at Reason.com.

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So Obama Didn't "Lie," He Was Just Wrong

anthony.randazzo@reason.org (Anthony Randazzo) — Wed, 23 Sep 2009 10:52:00 EDT

Perhaps Joe Wilson should have yelled, "You wrong!" I think the improper English would have been overlooked (he is from South Carolina after all.) He would have also need to yell that at a different part of the speech for it to make the point. Yesterday, the CBO pointed out that the president's frequent talking point on seniors and their benefits is, ahem, a bit off the mark.

The White House has consistently claimed that it would be be able to slash around $500 billion from Medicare without cutting any benefits. And it is of course possible in theory, given the massive waste of Medicare. As I wrote about last month, there are very specific cuts planned for the Medicare Advantage program that will slash benefits from seniors. (The Advantage plan is disliked by the White House because it is run by private companies.) The CBO confirmed these cuts yesterday:

Congress' chief budget officer is contradicting President Barack Obama's oft-stated claim that seniors wouldn't see their Medicare benefits cut under a health care overhaul. The head of the nonpartisan Congressional Budget Office, Douglas Elmendorf, told senators Tuesday that seniors in Medicare's managed care plans would see reduced benefits under a bill in the Finance Committee. The bill would cut payments to the Medicare Advantage plans by more than $100 billion over 10 years. Elmendorf said the changes would reduce the extra benefits that would be made available to beneficiaries.

So the question is, why is the president claiming that benefits won't be lost? Is he lying? No, he is just wrong. And politicians are frequently wrong. Whether it's misinterpreting data or being blinded by ideology, the simple fact is nearly every major government program goes over budget. The odds are that the cost savings projected here won't be realized, so if the projects are already looking at benefits being slashed then its a near certainty.

With that being said, it makes the recent HHS attack on Humana, Inc., a medical service provider, even more dastardly. HHS is claiming Humana misled its customers by sending them a letter claiming ObamaCare would cut benefits from the Advantage plan. In Wilsonian form, HHS has yelled back (through lawyers), "you lie!" But they are not lying. And HHS is threatening Humana's freedom of speech. (Ironic, since Humana supports pretty much every aspect of ObamaCare except the cuts and the public option.)

In the end, cutting benefits from Advantage isn't a bad thing. The president should claim it. Humana likes ObamaCare because the mandate will force more people into its businesses. Seniors are complaining because cuts would mean they can't free ride on younger Americans for their health care. Ultimately, the best thing to do would be to dump the whole Medicare program (over time, in a structured way, to avoid transitional trap issues, of course.) And we should realize through all of this, what the simple reality is on government programs.

(Also my apologies to South Carolina.)

Coverage Story

jsullum@reason.com (Jacob Sullum) — Wed, 23 Sep 2009 10:51:00 EDT

At a July press conference, President Obama claimed "the average American family is paying thousands of dollars in hidden costs" because uncompensated health care for the uninsured drives up the price of medical coverage. In an interview with ABC's George Stephanopoulos on Sunday, by contrast, he said uncompensated care costs the average family $900.

According to a 2008 report from the Henry J. Kaiser Family Foundation, both of those estimates are way off. The foundation's analysis indicates that the true annual cost per family is more like $200, with uncompensated care accounting for "less than one percent of private health insurance costs."

These numbers are important because the president's main justification for requiring every American to buy health insurance, a central element of his reform plan, is that uninsured people unfairly impose costs on their fellow citizens. That rationale not only has a weak empirical basis; it conceals the real motivation for the individual insurance mandate while dodging moral and constitutional questions about it.

During the presidential campaign, Obama castigated his Democratic rival, Hillary Clinton, for saying the federal government should force everyone to buy health insurance. Five months into his presidency, however, Obama said he supported "making every American responsible for having health insurance coverage." In a speech this month, he argued that "the young and the healthy" cannot be permitted to "take the risk and go without coverage" because "such irresponsible behavior costs all the rest of us money," since "we pay for these people's expensive emergency room visits."

The problem with this argument is not just that the cost of such uncompensated care seems to be much lower than the president claims. It's also his assumption that everyone who goes without insurance is a freeloader.

What about the young and healthy (or middle-aged and wealthy) person who decides insurance is not worth his money but pays all his medical expenses out of his own pocket? His choice does not impose costs on anyone, but under Obama's plan he would still be punished for it.

The real reason Obama insists upon making the young and healthy buy insurance they don't want is not the relatively minor free rider problem but the potentially ruinous adverse selection problem: The most expensive patients are the ones who are most likely to sign up for coverage. To keep the official 10-year price tag of his plan below that magical $1 trillion threshold, he needs to balance sick people who rack up big bills with healthy people who pay for insurance but don't use it. Instead of acknowledging this reality, Obama portrays the healthy uninsured as irresponsible leeches.

Even if Obama could make a plausible moral argument for the unprecedented step of demanding that all Americans buy insurance—not in exchange for a particular privilege, such as driving on public roads, but simply by virtue of being alive—he would be hard pressed to cite the constitutional authority for such a mandate. The regulation of interstate commerce is the usual justification for federal intervention in the economy, but the decision to refrain from buying insurance is neither interstate nor commerce.

Obama might be on firmer ground if he portrayed the levy imposed on people who decline to buy insurance as an exercise of the congressional tax power. But he does not want to admit he is forsaking his campaign promise to refrain from raising taxes on households earning less than $250,000 a year. That's why, in his interview with Stephanopoulos, he insisted that the "excise tax" imposed on the uninsured by the Senate health care bill he supports is not really a tax.

How so? After Obama signed a bill raising the federal cigarette tax, his press secretary explained that the tax pledge was still intact because "people make a decision to smoke." Likewise, Obama might argue, people make a decision not to buy health insurance. The lesson is clear: If you don't want to pay higher taxes, don't make any decisions.

Jacob Sullum is a senior editor at Reason and a nationally syndicated columnist. This column first appeared at Reason.com.

Obama's Health Care Tax on the Poor Is Just Called Something Else

anthony.randazzo@reason.org (Anthony Randazzo) — Mon, 21 Sep 2009 12:01:00 EDT

During the campaign in 2008, President Obama made his tax message as clear as it could be: he wanted to tax the wealthy, and help the poor. He promised over and over that taxes on those making less than $250,000 would not go up. So why has the president proposed a health care tax on the poor?

A frequent line by candidate Obama in his stump speeches during the election went something like this:

"Let me be absolutely clear. If you are a family making less than $250,000 a year, you will not see your taxes go up."

Despite this promise, we've already had the federal tax hike on cigarettes to fund children's health care (S-CHIP), an excise tax that impacts the poor profoundly more than the wealthy because of the inverse relationship between smoking and income.

Next came the tariff levied by Protectionist Obama on inexpensive Chinese tires, a tax that will only increase the cost of tires (or at the very least, keep the cost from decreasing) for those with limited incomes. The whole point of Chinese tires in America was that they were being produced with less cost and were less expensive. The tariff isn't going to help rubber workers in the long-run, it's just adding to the tax burden of those under $250,000 while maligning the use of resources in our economy.

And now we come to the health care mandate. As the president laid out in his address to Congress and the American people, he wants health insurance to be mandated like auto insurance. If you don't get insurance, then you get fined. That is a tax on Americans. It is the government taking money. But now the president is trying to dance away around the tax in the mandate by trying to redefine the idea of a tax. The Wall Street Journal covered this in an editoral on Sunday:

Appearing on ABC's "This Week," Mr. Obama was asked by host George Stephanopoulos about the "individual mandate." Under Max Baucus's Senate bill that Mr. Obama supports, everyone would be required to buy health insurance or else pay a penalty as high as $3,800 a year. Mr. Stephanopoulos posed the obvious question about this kind of coercion when "the government is forcing people to spend money, fining you if you don't [buy insurance]. . . . How is that not a tax?"

"Well, hold on a second, George," Mr. Obama replied. "Here's what's happening. You and I are both paying $900, on average—our families—in higher premiums because of uncompensated care. Now what I've said is that if you can't afford health insurance, you certainly shouldn't be punished for that. That's just piling on. If, on the other hand, we're giving tax credits, we've set up an exchange, you are now part of a big pool, we've driven down the costs, we've done everything we can and you actually can afford health insurance, but you've just decided, you know what, I want to take my chances. And then you get hit by a bus and you and I have to pay for the emergency room care, that's . . ."

"That may be," Mr. Stephanopoulos responded, "but it's still a tax increase." (In fact, uncompensated care accounts for about only 2.2% of national health spending today, but that's another subject.)

Mr. Obama: "No. That's not true, George. The—for us to say that you've got to take a responsibility to get health insurance is absolutely not a tax increase. What it's saying is, is that we're not going to have other people carrying your burdens for you anymore . . ." In other words, like parents talking to their children, this levy—don't call it a tax—is for your own good.

As someone who makes under $250,000 a year, I would like to have the option of not having health insurance without fearing a government penalty—or perhaps government discipline is a better way to say it. After all, our parents disciplined us as children as a way of teaching a lesson. And since the president clearly believes he knows best (paternalism), the lesson he wants to teach is: a great way to extend the authority and power of government is to force people into an arbitrary notion of responsibility.

Do I have to have dental insurance, for instance? Why not just choose to brush my teeth twice a day, and go to a dentist that charges between $50 and $100 for an annual cleaning. That's personal responsibility. And if I break a tooth and have a $2,000 bill, it's on me to cover that. I made the choice. I govern my life. I have the incentive to avoid breaking my teeth because of the cost. The government doesn't have to step into that fray, it just chooses to in order to wield more progressive power and control over society and our behavior.

The Consumer Is Not the Customer

jsullum@reason.com (Jacob Sullum) — Wed, 16 Sep 2009 10:47:00 EDT

The other day, I was trying to figure out why the paycheck deduction for my health insurance was higher than I had expected. When I called my insurer to ask what the total premium was, the customer service representative said it was none of my business.

Three-fifths of Americans, the share with employer-provided health insurance, are in the same situation: Since someone else buys insurance for them, using money they would otherwise receive as wages, they are in no position to shop around and typically do not even know the true cost of their coverage. This disconnect between payment and consumption is one of the central problems with the current health care system, contributing to rapidly escalating costs, insecurity, and the general lack of choice and competition. Yet both Democrats and Republicans insist upon preserving it.

Outlining his health care reforms last week, President Obama was at pains to reassure the public that "nothing in this plan will require you or your employer to change the coverage or the doctor you have." In fact, he said employers should be forced to provide health insurance (or, alternatively, contribute to a fund that subsidizes premiums).

Obama presented himself as the protector of job-based medical coverage against those "on the right" who "argue that we should end employer-based systems and leave individuals to buy health insurance on their own." That approach, he warned, represents "a radical shift that would disrupt the health care most people currently have."

Meanwhile, the Republicans, whose last president and last presidential candidate both proposed eliminating the tax incentives that encourage employers to offer health insurance in lieu of higher pay, seem to have abandoned that idea. One of their main complaints about Obama's plan is that it would reduce the number of Americans covered through their jobs.

Senate Minority Leader Mitch McConnell (R-Ky.) warns that one Democratic health care bill "would cause 10 million people with employer-based insurance to lose the coverage they have." The Republican National Committee claims "over 88 million people" who are covered through work "would lose current insurance under government-run health care."

It's no mystery why each party portrays the other as bent on destroying employment-based medical coverage. Surveys find that a large majority of people who have such insurance are happy with it. According to a recent Zogby poll, 77 percent of Americans oppose "taxing employer-provided health care benefits."

Yet it's the tax-free status of those benefits that favors them over cash compensation, maintaining a bizarre system in which most Americans get their health insurance—unlike their car, life, or homeowner's insurance—through their employers. As a result, they are insulated from the actual price of their insurance and are more likely to have plans with low deductibles that cover routine medical expenses as well as large, unpredictable costs. In choosing among providers, drugs, and courses of treatment, they have little incentive to economize and usually do not even know the relative costs of the various options.

The artificial dominance of job-based plans, along with misguided restrictions on where insurers can sell policies and what types of coverage they can offer, has stunted the development of alternatives. Even so, the large price difference between the job-based and individual insurance markets (some of which may be due to differences in the age and health of policy holders) suggests the savings that are possible when people decide how to spend their own money: In 2007 the average annual premium for nongroup health insurance was about $2,600 for single-person coverage and $5,800 for family coverage, compared to $4,500 and $12,100, respectively, for job-based plans.

In addition to enhancing competition and controlling costs, cutting the link between employment and health insurance would relieve the insecurity that many Americans feel about going without coverage when they lose or leave their jobs. Obama is right that it would be "a radical shift"—radical in the sense that it goes to the root of the current health care mess.

Jacob Sullum is a senior editor at Reason and a nationally syndicated columnist. This column first appeared at Reason.com.

Obama's Health Care Plan: Put Up and Shut Up

shikha.dalmia@reason.org (Shikha Dalmia) — Mon, 14 Sep 2009 15:20:00 EDT

For several months now, the American people—as if exhorted by the ghost of William F. Buckley (no particular hero of mine)—have been standing athwart the Democratic agenda of socialized medicine, yelling, "Stop!" But President Barack Obama showed them the policy equivalent of the middle finger Wednesday night.

If there was anything bipartisan about the speech it was that he embraced every bad big-government idea from both sides. If he prevails, the American public won't get "choice and competition" as he proclaimed, but a one-size-fits-all government-prescribed health care plan that it dare not refuse and dare not challenge.

Perhaps the most striking—and disturbing—thing about the speech was the unblinking confidence Obama exuded while breaking key campaign promises he made to voters. He had raked poor Hillary Clinton over the coals for admitting that her road to universal coverage was paved with an individual mandate. "Everyone would be forced to buy coverage, even if you can't afford it," warned Obama in an ad. "You pay a penalty if you don't."

Yet, there he was last night scolding "individuals who can afford coverage but game the system by avoiding responsibility." Never mind that the prime gamers are not the uninsured (whose unpaid bills cost "the system" less than $40 billion every year) but the underinsured covered by Medicare and Medicaid (whom private insurers cross-subsidize to the tune of over $90 billion annually because the government refuses to pay the full cost of their care). Still, he hectored: "Improving our health care system works only if everybody does their part."

Obama didn't say exactly how he would make "everyone do their part"—a question he posed repeatedly to Hillary. But his buddy Sen. Max Baucus (D-Mont.), has some rather well-developed ideas on that score. Baucus has proposed a bill that would force the uninsured to pay fines on a sliding scale of income, with those making 300 percent of the poverty level having to cough up as much as $3,800 a year. In short, Americans would have to pay Uncle Sam for the privilege of remaining uninsured. If there were truth-in-labeling laws for Congress, it would be required to call this bill TonySopranoCare.

Which brings us to the second promise Obama broke Wednesday night: That he would impose no new taxes on anyone making less than $250,000. The penalties that the uninsured—all of whom, I would wager my grandma's life support, make under $250,000—would face are certainly a tax.

He also endorsed a business tax—err, fee—on employers who don't provide adequate coverage that, under a House bill, would be about 8 % of payroll. They will pass this on to their employees in lower wages. And he signed up for an excise tax on high-end insurance plans—many of which are enjoyed by plain union folk, not those rich and famous making over $250,000. Under the Baucus bill, this tax would be as much as 35 percent of the cost of the plan. One would have thought that if the shame of breaking an explicit promise didn't prevent Obama from imposing this last tax, then the logical absurdity of trying to reduce soaring insurance costs by taxing insurance plans would.

It gets worse. In exchange for these bitter tax pills, Obama promised Americans would get eternal health care "security and stability." To deliver that, he would of course ban insurance companies from denying coverage to those with pre-existing conditions—tantamount to forcing fire insurance companies to write coverage on a burning building. He would also prohibit insurers from putting any limits on the coverage they offer and cap what they can require patients to pay out-of-pocket.

In other words, Obama would encourage unlimited health care consumption by patients while eliminating the last vestige of price consciousness. But the reason America is facing unsustainable health care cost increases is precisely because its third-party system of insurance doesn't encourage prudent consumption by patients. Indeed, if Obama really can tame health care costs by making patients even less cost-conscious, I have an even better idea for him: Simply pass a law banning anyone from falling sick and mandate good health for all. If he can suspend the laws of economics, perhaps he can also transcend the laws of physiology.

The fact of the matter is that not too many health care underwriters will survive such crippling mandates. Many of them will fold, causing further consolidation in the insurance marketplace—not more competition and choice. Last night the president declared—in the spirit of grand compromise—that he would be willing to wait a few years to give private insurers a chance to make more affordable plans available to all Americans. Only if they fail would the so-called public option, the government-run insurance plan so beloved of the left, be triggered. But that's a rigged deal: The same legislation that sets up the trigger is putting in place the conditions that will eventually pull it. Obama is not backing off on his goal of eliminating private insurance—only offering a brief deferment.

The one Republican idea that Obama did endorse—caps on medical malpractice awards or tort reform—will actually hurt rather than help patient choice. Big medicine has long blamed the unnecessary tests and procedures these awards encourage for rising health care costs. But several studies have shown that this so-called practice of defensive medicine is a smaller driver of costs than excess physician salaries. By capping these awards, Obama will leave patients even less recourse against physician negligence—hardly the American way.

Obama lambasted the critics who claim his reform plan amounts to a government takeover of the health care system. But the plan he laid out Wednesday night will control every aspect of the medical transaction. It will tell patients when, what and how much coverage they must buy; it will tell sellers when, what and how much coverage they must sell. This is not a government takeover of health care? Then Tony Soprano is just a decent, hard-working businessman.

Shikha Dalmia is a senior analyst at Reason Foundation and a biweekly columnist at Forbes, where this column first appeared. This column also appeared at Reason.com.

The Economics of Obama's Speech

anthony.randazzo@reason.org (Anthony Randazzo) — Mon, 14 Sep 2009 09:00:00 EDT

I really hate that we have to be so critical of this president, but the economics of the Obama speech earlier this week just don't add up. There were a lot of good things the president said, but either his interpretation of facts or policy solutions to real problems (or both) were problematic, at best.

First, the president was right in point out the exploding costs of health care, costs that are putting American companies in an uncompetitive situation with international firms. But he neglects to note that this could be easily changed by ending the culture of employer contribution to health care. It wasn't until the government made health benefits tax free that companies began to offer a portion of compensation packages as employer provided health care. This was done to save companies money as they could pay their employees a smaller salary, but the reduced salary (a smaller total number since it wasn't taxable) would be funneled into the insurance. Over time this create a sense of entitlement that employers would provide health care. We forgot that health care was a part of the over all compensation package. Instead of companies paying a portion of health care, there are other options to be thought through, like tax credits for medical expenses.

Second, President Obama argued that "our health care problem is our deficit problem" because the rising costs of health care are putting pressure on Medicare and Medicaid. To a degree he is right. The rising cost of entitlements is fast becoming the budget crisis. The Wall Street Journal reports that "Medicare's unfunded liability—the gap between revenues and promised benefits—is currently some $37 trillion over the next 75 years." The president suggests solving this problem by cutting "abuse and waste" in Medicare without slashing services. In theory, this could be done, given the waste in the program, but it is unlikely it will be carried out properly. Others have tried to curb Medicare's abuses, but apparently Obama is just gonna get it right this time? Unlikely, since his proposed changes are going to be very ineffective:

So no cuts, for anyone—except, that is, for the 24% of senior beneficiaries who are enrolled in the Medicare Advantage program, which Democrats want to slash by $177 billion or more because it is run by private companies. Mr. Obama called that money "unwarranted subsidies in Medicare that go to insurance companies—subsidies that do everything to pad their profits but don't improve the care of seniors."

In fact, Advantage does provide better care, which is one reason that enrollment has doubled since 2003. It's true that the program could be better designed, with more competitive bidding and quality bonuses. But Advantage's private insurers today provide the kind of care that Mr. Obama said he would mandate that private insurers provide for the nonelderly—"to cover, with no extra charge, routine checkups and preventative care."

Advantage plans have excelled at filling in the gaps of the a la carte medicine of traditional Medicare, contracting with doctors and hospitals to coordinate care and improve quality and covering items such as vision, hearing and management of chronic illness.

I don't want to necessarily defend Medicare. I think we should trash the whole program. But, since politically speaking that won't happen, if we're going to reform it, maybe we shouldn't get rid of the program that has seen its enrollment double in the past six years. I doubt that seniors are rushing into the program so that insurance companies can "pad their profits" more.

Third, and this is a continuation of the second point, how will a government run health exchange not run into the same problems as Medicare and Medicaid? Those programs share something in common: they are run by the government. They have incentives aligned with their funding and operational source. When was the last time a government program came in under or at budget? The reality is that the public option/co-op/health exchange will cost more than advertised, and won't be run like a business because you need to be pursuing profit in order to be a business.

Fourth, the President wants to force individuals to get insurance and force companies to offer it... or else! This might be the most egregious attack on individual liberty in his whole term. Why should we force people to get insurance? I am in the crowd of male, between 20 and 30, in healthy condition, in shape, and without need of a doctor for years. What if I want to spend my money on something else? Something I can use? Something I can build? The President claims that I should pay because if I don't then society must cover my emergency room visits. But what he really wants is my money in order to fund programs for the elderly. At the very least, if this requirement is just for my benefit, make me put that money in a health savings account so that only I can have access to it. That won't happen of course because it screws up the idea for funding the Medicare liability gap or the operations budget of the public option exchange co-op.

I also wrote about The Economy in Obama's Speech last week.

Also see Shikha Dalmia's recent piece "President Obama's Plan Will Control Every Aspect of the Medical Transaction" in Forbes.

Obama Health Care Speech to Congress Links

sam.staley@reason.org (Samuel Staley) — Thu, 10 Sep 2009 09:36:00 EDT

A few quick links to President Obama's speech to a joint session of Congress on health care and coverage from leading national newspapers:

The Presidents speech.

Los Angeles Times.

New York Times. (Note how the disrespectful outburst by Congressman Joe Wilson is in odd juxtaposition to the President's dismissal of death panels in the proposed bills.)

Wall Street Journal (the most balanced IMHO).

Survey Says What?

peter.suderman@reason.org (Peter Suderman) — Fri, 04 Sep 2009 11:46:00 EDT

William Hazlitt once said that "nothing is more unjust or capricious than public opinion." When it comes to health-care, our nation's pundits and activists seem determined to prove Hazlitt right. Some days it seems like everyone has a poll on their side. Participants in the health-care debate have variously claimed that the public supports a public plan and that it doesn't; that comprehensive health-reform is overwhelmingly popular and that it isn't; that people have a dim view of insurance companies and are happy with their own insurance plans; that a majority of Americans favor a single-payer health-care system and that they also support deregulating insurance markets.

Are pundits and pollsters to blame? Or is the public just crazy? The best answer is that it's a little of both.

Part of the problem is that the public is fickle, and opinions change over time. Cherry picking from different months or years—as I did in the previous paragraph—makes finding useful opinions easy. But a larger concern is that many prominent polls are conducted and interpreted in ways that are sure to skew the results.

The most garish examples are what are known as push-polls. These polls, typically conducted by interested parties, artificially inflate public support or disapproval with loaded questions. At their most blatant, these blundering attempts at manipulation come off as laughable. And in the health-care debate, Republicans have been the worst offenders. One RNC survey, for example, asked whether respondents were concerned about the possibility that the government might deny health-care to Republicans because of their political affiliation. Another GOP poll ominously questioned, "Do you think Democrats in Congress should pick your doctor?" (Even more embarrassing: The largest percentage of respondents said "yes.")

Other polls are not so explicitly designed to bias the results, but still push respondents toward a particular answer. One NBC/Wall Street Journal poll, for example, asked whether interviewees favored or opposed health-care reform, and described it with borderline flack-like language:

The plan requires that health insurance companies cover people with pre-existing medical conditions. It also requires all but the smallest employers to provide health coverage for their employees, or pay a percentage of their payroll to help fund coverage for the uninsured. Families and individuals with lower- and middle-incomes would receive tax credits to help them afford insurance coverage. Some of the funding for this plan would come from raising taxes on wealthier Americans.

It's not quite a push-poll, but the description comes right out of the reformers' playbook: Play up the potential benefits and say that only the rich will have to pay. The pollsters might as well have asked whether the respondents had warm feelings towards puppy dogs and ice cream.

Another problem is deciding which questions to reference—and what they actually mean. When public plan-advocate Robert Reich referred to a poll showing that "76 percent of respondents said it was important that Americans have a choice between a public and private health-insurance plan," he wasn't making things up. But that answer came when respondents were asked how "important" it was to "give people a choice of both a public plan administered by the federal government and a private plan for their health insurance." The key words are "important" and "choice." There's a big difference between asking people if they think having a choice is important and asking them if they actually prefer a plan. And as it turns out, when asked straightforwardly about support for a government plan, 47 percent said they opposed it.

The key, then, is to ask better questions, and that means getting specific. Kristen Soltis, a pollster with the Republican-affiliated Winston group, says that "what you're actually looking for is a question that at least gives a little bit of context." The most revealing polls, she says, are those that questions "whether people agree or disagree with what a policy intends to do." So rather than ask whether people support health-care reform generally, or whether they like Obama's plan, effective poll questions seek to assess support for specific proposals—and tend to explain what the proposals are designed to do.

Indeed, questions that have asked about "Obama's plan" are particularly egregious violators of the tenets of good polling: As of yet, no such thing as an "Obama plan" exists. So when CNN asked respondents whether or not they "favor or oppose Obama's plan to reform health care" and the NBC/Wall Street Journal polling team asked whether "Barack Obama's health care plan" is a good idea, they were asking respondents to voice an opinion on an imaginary concept.

Of course, the larger issue is with the argument that "the public" has a preference at all. Groups don't have preferences; individuals do. And when you try to ascertain what group preferences are, the result is often nonsense. One of the key insights of public choice economics has been that, although every individual in a group may hold rational, reasonable preferences, when they express themselves as a group, the results are anything but reasonable. Economist Richard McKelvey's chaos theorem explained how voting (or survey answering) can result in the public expressing paradoxical preferences: So, given three potential choices, A, B, and C, voting preferences would reveal they liked A over B, B over C, and C over A. The public, in other words, is crazy!

Of course, for anyone following public reaction to the health-care debate, the fact that public opinion doesn't make much sense won't come as much surprise. And no matter how unreasonable, public opinion informs how Washington works. Franklin Roosevelt once quipped that "a government can be no better than the public opinion which sustains it." Explains a lot, doesn't it?

Peter Suderman is an associate editor at Reason magazine. This column first appeared at Reason.com.

Teachers Unions Object to Obama's Education Agenda; Invest in Obama's Healthcare Plans Instead

lisa.snell@reason.org (Lisa Snell) — Thu, 27 Aug 2009 16:58:00 EDT

As the Associated Press reports the National Education Association pointedly criticized the Obama administration, saying the president is relying too heavily on charter schools and standardized tests in his attempt to overhaul the nation's schools.

But here's a shocker, the big education unions support Obama's health care plans and are willing to put out some cash and advertising to help out their Democratic friends. As Education Week reports:

Education organizations—including both national teachers’ unions—are putting their muscle and money behind an effort by President Barack Obama and congressional Democrats to revamp the nation’s health care system. . . .

The NEA remains active on other K-12 issues, but it is putting considerable resources into health care overhaul, Mr. Raabe said.

“Right now, in Congress, health care is the top issue,” he said.

For instance, the NEA is planning to spend nearly $300,000 on radio ads that will run in Nevada, the home state of Sen. Harry Reid, the Democratic majority leader, and the district of at least one Democratic House member, Rep. Baron P. Hill, who may face a tough re-election battle.

“Educators stand firm with Reid because he knows we need a health care plan where doctors—not bureaucrats—decide what’s best for us,” says a female voice in the Nevada ad.

Unfortunately, for individual union members who are not looking forward to nationalized healthcare, their money goes to support this agenda as well. As ever your dues dollars at work.