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Joseph Antos

A bad day for the White House—and for taxpayers

By Joseph Antos

April 24, 2012, 6:42 am

The White House did not have a good Monday. The day started with the Government Accountability Office calling for the cancellation of an $8.3 billion program that is supposed to reward high-quality Medicare plans, but is paying off average plans instead.

That was followed by the Medicare trustees, who reported that Medicare’s trust fund will be out of money five years earlier than they predicted when the president’s health reform law was enacted. Even worse, Medicare’s chief actuary said that the projections are unrealistically optimistic. They assume that Congress will allow Medicare hospital payments to drop so low that beneficiaries would have trouble finding a bed for necessary care.

Desperate for good news even if they have to make it up, the administration released a report touting Medicare savings from the president’s health reform law through 2016. We learn, for example, that over the next five years, payments to hospitals and other providers will be reformed to the tune of $85 billion. That means cut, and that’s what the Medicare actuary is referring to when he says that the trustees’ projections are not reasonable.

The administration also takes pride in cutting payments to private health plans under Medicare Advantage. That saves $68 billion, although they don’t mention the $8 billion that GAO says is a waste. Judging from HHS Secretary Sebelius’s comments at the trustees’ press conference today, the administration is in no mood to back down on that program

In fact, the administration is not prepared to back down even when its own Medicare trustees (who include Sebelius, Treasury Secretary Timothy Geithner, and Labor Secretary Hilda Solis) agree that big reforms are necessary to ensure that Medicare’s trust funds will not run out. Who are we to believe: Secretary Sebelius or Trustee Sebelius?

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Categories: Economic Policy, Health Policy, Regulation | Tags: health policy, Medicare

Joseph Antos

No, Obamacare really doesn’t add up

By Joseph Antos

April 11, 2012, 8:41 am

Sometimes even the government cannot spend money that it does not have. That’s the simple truth behind the new study by Charles Blahous, a public trustee for Medicare and Social Security.

Blahous finds that the Affordable Care Act is expected to increase the federal deficit by at least $346 billion between now and 2021, and the price tag might be as high as $527 billion. That’s a far cry from the $143 billion in deficit reduction that the Congressional Budget Office predicted when the ACA was enacted.

The difference is the result of different ways of adding up the spending. Unlike other government programs, Medicare Part A is not authorized to borrow if it runs short of money. Instead, it is required to pay what it can and not more. CBO ignores this legal restriction on Medicare spending and assumes that the money keeps flowing.

The new study takes the trust fund rules into account. Prior to the passage of the ACA, the Medicare trustees predicted that the Part A trust fund would be exhausted in 2016. After that date, hospitals would continue to be paid but only out of the payroll tax contributions from workers and employers—not enough to fully pay the bills.

By imposing hundreds of billions in cuts to hospitals and other providers of Part A services, the ACA extended trust fund solvency to 2024. That means Medicare will have 8 additional years of spending at levels that otherwise would not have been legally possible under the current rules.

But the money saved by Medicare was not truly saved. Instead, it was used to pay for the new subsidies in Medicaid and the insurance exchanges under Obamacare. The money was spent twice, once to extend Medicare solvency and once to pay for a massive expansion of government health care.

One can certainly argue about the best way to score legislative proposals. One cannot argue that spending more money reduces the deficit. That’s the Obama administration’s position, and they’re wrong.

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Categories: Economic Policy, Fiscal Policy and Taxes, Health Policy | Tags: healthcare, Medicare, obamacare

Fact checking the fact checker on Paul Ryan’s Medicare reform plan

By Joseph Antos

April 6, 2012, 2:34 pm

On Tuesday, President Obama attacked what he claimed is the Republican Medicare plan. Jim Pethokoukis points out that Obama criticized a plan that no one has actually proposed. Today, Glenn Kessler (the Washington Post’s “Fact Checker”) takes on Obama’s claim that Paul Ryan’s plan would not protect seniors from the rising cost of health care. Kessler quotes me, and gets it partly right.

There really is no mystery about what the House Budget Committee documents say. Under Ryan’s plan, every senior will be able to afford full Medicare benefits, whether through a private insurer or the traditional program. In many parts of the country, traditional Medicare will be the low bidder. Indeed, the point of the proposal is to give seniors a good deal through competition, not to drive out traditional Medicare and not to dictate what plan seniors must choose.

It is no coincidence that Ryan adopts the same spending target that Obama proposes in his latest budget: GDP plus 0.5 percent. The GDP plus 0.5 percent target is a budget gimmick used to generate savings that CBO can score, whether or not those savings are actually achieved in future years. If seniors are harmed in any way under Ryan’s plan as a result of the spending target, they suffer the same harm under Obama’s.

The debate is over how Ryan would achieve budget savings, and again there is no mystery despite the White House’s best efforts to obfuscate the matter. Contrary to the claim from an unnamed Administration official, the spending target would not be met simply by slapping a cap on the federal subsidy and leaving seniors with unaffordable premiums. Congress would reduce program costs by cutting payments to providers, reducing program overhead, raising premiums to high-income beneficiaries—in other words, all the actions that Congress could take today if it had the will to rein in Medicare’s runaway spending.

In fact, enrollment in traditional Medicare is likely to be so great even a decade from now that any serious effort to reduce program costs would have to rely on such policies. According to the Medicare trustees, about 55 million people will be enrolled in traditional Medicare in 2022. Roughly $900 billion of the trillion dollars that Medicare will spend that year will be through the traditional program.

It is ludicrous to argue, as the White House does, that deficit reduction efforts under the Ryan plan would ignore opportunities to reduce Medicare’s operating costs and simply pass the high costs onto seniors. Although Ryan’s plan does not spell out in great detail all of the mechanisms it would use to slow Medicare spending, it is clear that Congress would have all the policy tools needed to ensure affordable health care for our seniors. But Congress would have to find the political guts to use them. That has been our problem all along.

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Categories: Economic Policy, Fiscal Policy and Taxes, Health Policy, Retirement and Social Security | Tags: Medicare, paul ryan

Joseph Antos

No, Paul Ryan’s new budget does not end Medicare

By Joseph Antos

March 20, 2012, 4:29 pm

Contrary to claims from opponents, the budget plan released today by House Budget Chairman Paul Ryan does not spell the end of Medicare. The plan lowers Medicare spending by $210 billion over the next decade—a modest reduction for a $6.6 trillion program. That sets the stage for the shift to premium support, which gives seniors a choice of competing health plans including traditional Medicare. A recent AEI study shows that competition could reduce federal spending by another 4.2 percent a year while maintaining basic benefits and without raising taxes—and without exposing the elderly to the risk of higher health care costs.

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Categories: Regulation | Tags: healthcare, healthcare policy, paul ryan

Joseph Antos

Competitive bidding: A market cure for Medicare’s crisis

By Joseph Antos

February 16, 2012, 10:35 am

The 2013 budget President Obama released this week once again abdicates the responsibility we have to save Medicare from fiscal insolvency. Responsible reform would ensure that seniors would continue to have access to the care they need without bankrupting younger generations who foot the bill. As I explain here, the budget’s proposed “savings” in the form of provider payment cuts have almost no chance of passing Congress. Moreover, piling on cuts to the Affordable Care Act’s looming burden on hospitals and nursing homes will only make it more difficult for seniors to get the care they need.

A new AEI report released today is a reminder that effective, bipartisan solutions exist. The report finds that competitive bidding, a reform proposal to Medicare that introduces market pressures to lower prices, can save $339 billion over a decade, even accounting for the unrealistic cuts in payments to doctors and hospitals imposed by the Affordable Care Act. Competitive bidding does this without compromising affordable health premiums or endangering care for seniors.

This is the same approach taken by Senator Ron Wyden (D-Oregon) and Representative Paul Ryan (R-Wisconsin) in their bipartisan Medicare reform proposal. Unsurprisingly, the president ignored this bipartisan proposal, just as he ignored his own Simpson/Bowles deficit reduction commission. The contrast between serious proposals to save entitlements and the president’s politicized budget could not be clearer.

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Categories: Health Policy | Tags: 2013 budget, Medicare, Paul Ryan. Wyden-Ryan

One step closer to a Medicare reform that can work

By Joseph Antos

December 15, 2011, 3:46 pm

The Medicare reform proposal released today by Representative Paul Ryan (R-Wisconsin) and Senator Ron Wyden (D-Oregon) recognizes that even the federal government cannot guarantee to pay for health services, or anything else, without limit. The new proposal is more realistic in some respects than the Medicare reform advanced by Ryan in the House budget resolution, but it leaves many questions unanswered. Those details, and the public’s reaction to them, will determine whether the premium support concept that caps the federal subsidy will be adopted.

Under the new proposal, traditional fee-for-service Medicare would continue to be available to future generations of seniors, but it must now compete head-to-head with private plans. That is very similar to the competitive bidding model advanced by AEI experts Robert Coulam, Roger Feldman, and Bryan Dowd. In contrast, the House plan would have made traditional Medicare unavailable to new beneficiaries as of 2022—clearly unpopular with seniors, who view this as undermining their program and are likely to express their displeasure at the polls.

Some conservatives will criticize this change as backsliding. They correctly see the traditional Medicare program in its current form as inefficient and anti-competitive. But pretending that the program will disappear in ten years feeds the worst tendencies of politicians, who would avoid making important but difficult decisions needed to set traditional Medicare on a fiscally sustainable path.

The reality is that traditional fee-for-service Medicare likely will have some 50 million enrollees in 2022, and will remain a dominant force in the health sector for decades. Ryan and Wyden hint at the need for common-sense reforms to traditional Medicare, including a new structure of deductibles and copayments, a cap on catastrophic costs, and a new physician payment system. They skirt the central problem: disorganized fee-for-service and top-down limits on prices paid for services drive up the use of more, and more complicated, services. The program’s survival depends on our willingness to make substantial changes over the next few years so that traditional Medicare can provide cost-effective care without draining the Treasury.

With the massive baby boom generation beginning to turn 65, we have almost run out of time to put Medicare on a sustainable basis. Fortunately, the influx of baby boomers slows the growth of Medicare spending for a few years because younger beneficiaries need less healthcare. That buys Congress a little more time to face financial reality and reform the program.

Between 2005 and 2010, Medicare spending per beneficiary increased 39 percent, but between 2010 and 2015 the increase is projected to be about 7.5 percent. However, that assumes Congress will allow a 27.4 percent cut in physician fees to take effect in January. Under the more reasonable assumption that a doc fix is enacted, I estimate that Medicare spending between 2010 and 2015 is likely to increase by about 16 percent—still much lower than the preceding five-year period. Soon after that, costs begin to rise steeply as the boomers begin to reach their 70s.

That leaves Congress with barely enough time to truly reform Medicare. The Ryan-Wyden plan hints at that, and backs it up with a cap on Medicare spending limited to the growth in GDP plus 1 percent after 2022. That is a weaker constraint on spending than under the House proposal, but more likely to garner political support.

Waiting another decade to bend Medicare’s cost curve is not an option. If the president and the new Congress fail to take decisive action early in the new term, the corrective fiscal surgery will be far more severe. Paul Ryan and Ron Wyden have set out a useful marker that could be the basis for real Medicare reform in 2013.

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Categories: Economic Policy, Health Policy, Retirement and Social Security | Tags: Medicare, paul ryan, Ron Wyden

Joseph Antos

How the Debt Deal Will Really Work

By Joseph Antos

August 18, 2011, 1:52 pm

Most financial analysts breathed a sigh of relief when the president signed the Budget Control Act into law just a few hours before we hit the limit on the national credit card. But that was premature. The new budget law does little more than establish a process by which our fiscal crisis may be addressed, and there are ample opportunities for that process to be overturned. If that does happen, we can look forward to another debt-driven political crisis in 2013.

The new budget law raises the amount that the government can borrow in two steps, from $14.3 trillion to $16.4 trillion, in exchange for an equivalent reduction in federal spending. The president and Congress only settled how much to cut, not what to cut, in the debt deal. The appropriations committees and a new joint committee are tasked with the dirty work.

Continue reading →

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Categories: Economic Policy, Fiscal Policy and Taxes, Monetary Policy | Tags:

Joseph Antos

When Is a Rebate Not a Rebate?

By Joseph Antos

July 8, 2011, 8:20 am

To most people, the word rebate means mailing a UPC “proof of purchase” code to an address in Minnesota and weeks later receiving a check from the manufacturer of a small appliance. A rebate is a good thing for all concerned. Consumers motivated to do a little work save some money. The firm sells more product, receives valuable information about its customers (often including phone numbers and email addresses that can be used in promoting other products), and it may cut into profits less than an across-the-board price reduction.

This is not what President Obama and the debt negotiators are talking about when it comes to applying a “rebate” to the Medicare Part D prescription drug program. The rebate proposal, advanced in Congress by Rep. Henry Waxman (D-Calif.) and Sen. Jay Rockefeller (D-W. Va.), would require drug manufacturers to pay the federal government a rebate for drugs purchased by low-income enrollees in Part D plans.

Supporters of the proposal argue that this simply revives an old policy. For the past two decades, manufacturers wishing to sell prescription drugs through Medicaid are required to pay a minimum rebate. That rebate also applied to drug sales for Medicare beneficiaries who were also enrolled in Medicaid (the “dual eligibles”) prior to the creation of a Medicare drug benefit. Dual eligibles were shifted to Medicare drug plans that are not subject to the rebate requirement at the start of the program in 2006.

The Waxman-Rockefeller proposal creates a minimum rebate for Medicare Part D equal to 23.1 percent of the list price for most brand-name drugs. The rebate would apply to prescriptions taken by dual eligibles as well as other Medicare beneficiaries who are eligible for low-income subsidies. As is the case in Medicaid, failing to pay the rebate means the manufacturer’s drugs could not be sold through Part D.

This is nothing like the rebate for electric toothbrushes that most consumers are familiar with. Oral-B or Sonicare do not have to be forced to offer a rebate as this is a way to increase sales. The Part D rebate must be mandated because it does not help reduce costs or increase sales by either the drug manufacturers or Part D plans.

Even worse, the mandated rebate interferes with pricing deals that have already been struck between pharmaceutical manufacturers and Part D plans. Requiring manufacturers to make additional rebate payments to the government is likely to cause those old deals to collapse. New price negotiations are likely to result in higher—not lower—prescription costs in Part D as manufacturers try to offset part of the cost of the new federal payments.

Ultimately, patients will bear the burden of this policy. Middle-income seniors will pay more for their benefit and get less as drug formularies tighten and access to innovative drug therapies is reduced. Low-income enrollees will be protected against higher costs, but they are likely to find fewer attractive Part D plans that do not require some additional payment. Increasing numbers of enrollees eligible for low-income subsidies already pay premiums rather than enroll in low-cost plans, and that trend would accelerate under the rebate proposal.

To summarize, the Waxman-Rockefeller Part D rebate is imposed on drug manufacturers under threat of losing their Medicare market, provides no savings to seniors (and probably increases their costs), reduces access to affordable drug plans for low-income seniors, and transfers as much as $112 billion to the federal budget. In other words, the Democratic leaders would legislate compulsory payments by private firms to the federal government.

When is a rebate not a rebate? When it is a tax.

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Categories: Economic Policy, Health Policy | Tags:

Joseph Antos

Mr. Speaker, Medicare IS Social Engineering

By Joseph Antos

May 16, 2011, 9:03 am

Newt Gingrich, former Speaker of the House and candidate for the Republican presidential nomination, told David Gregory Sunday that he opposes “social engineering” in healthcare, whether it comes from the left or the right. That seems to mean that he’s opposed to any significant change in the Medicare program—a stance that is calculated to avoid scaring off political support from seniors. But that overlooks the fact that Medicare itself is one of the most massive social engineering projects of the 20th century, one that will not survive in the 21st century without the kind of policies that Gingrich has rejected.

The Medicare Trustees issued their annual report on Friday (the 13th), and the news is not good. Left to its own devices, Medicare’s Hospital Insurance trust fund will run out of money in 2024, five years earlier than projected by the Trustees last August. If the cuts in Medicare payments to doctors, hospitals, and other care givers take effect as scheduled under the current law, Medicare payment rates will be no higher than those of Medicaid, dropping to 60 percent of the going market rates by 2020 and falling further in years to come. Good luck to seniors trying to make a doctor’s appointment if Medicare pays 60 cents on the dollar.

There is little chance that such cuts will be implemented. Congress has avoided taking formula-driven reductions in physician payment rates over the past eight years, which has built up the amount that would have to be taken out if a cut were ever put into place. Next year, doctors are looking at a nearly 30 percent reduction in Medicare payment rates, but it will never happen. They know it, and the Trustees know it. And without that cut and others like it, Medicare costs will soar and so will the taxes working people pay to support this bloated and inefficient program.

That’s social engineering. Medicare rewards the behavior it wants, and penalizes the behavior it does not want. Apparently, it wants healthcare providers to prescribe more tests and procedures without much regard for whether those services are truly essential for their patients. Why else would traditional Medicare (which has 36 million members) be designed to pay for each individual service rather than covering all of the care needed by a patient? The entitlement is unlimited, and the incentives are clear.

So, Mssrs. Speaker (that’s Gingrich and Boehner), try not to be too “wedded” to a program designed to impose unaffordable costs on the country. You may not want to embrace the plan adopted in the House budget resolution a few weeks ago, before electioneering fears took hold. But you should at least admit that Medicare’s promises cannot be kept and that reform is unavoidable. If Obama administration officials can sign off on that statement, surely you can too.

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Categories: Health Policy, Politics and Public Opinion, Society and Culture | Tags:

Joseph Antos

Just How Is Medicare Spending Our Money?

By Joseph Antos

April 8, 2011, 4:18 pm

One of President Obama’s first acts as president was to declare that he was going to create an “unprecedented level of openness” in government. Apparently, that does not include the Medicare program.

For more than 30 years, Medicare has been enjoined from publicly disclosing how much the program pays individual physicians. A 1979 federal court ruling determined that the physician’s right to privacy dominates the public’s right to know how tax dollars are spent. Since then, the federal government—whether headed by a Democrat or a Republican—has consistently resisted releasing information about how Medicare spends our money. Despite President Obama’s statements about open government, he kept the book tightly closed on Medicare.

At long last, that may be about to change. On April 7, Senators Ron Wyden (D-Oregon) and Charles Grassley (R-Iowa) introduced the Medicare Data Access for Transparency and Accountability Act, or DATA Act. That legislation would release information on Medicare physician payments, publicly and without charge.

This provision might well become law because it is being sold as a tool against fraud and abuse—and who could be against that? But that is far less important than giving patients information that can help them in their choice of which physician to consult when facing serious illness. Detailed claims data can provide insight into the experience, quality, and efficiency of physicians. That’s what Robert Krughoff, president of Consumers’ Checkbook/Center for Study of Services had in mind when he tried to get the information released five years ago.

The American Medical Association objects, stating that claims data could be “be misleading, inaccurate and disruptive to patients’ longstanding relationships with their physicians.” Let’s get serious. Perfect data will never exist, and most patients will not go to the trouble of going to a website to review performance data. But those who do will be able to ask better questions of their physicians, and that can be the start of a true consumer revolution in healthcare.

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Joseph Antos

Who’s Next, After Don Berwick?

By Joseph Antos

March 9, 2011, 8:20 am

Senator Max Baucus finally admitted what everyone has known for eight months. Donald Berwick cannot be confirmed as administrator of the agency that runs Medicare, Medicaid, and now private health insurance. Dr. Berwick was given a recess appointment as the country’s de facto health czar on July 7, 2010, after it became clear that confirmation by the Senate would be extremely difficult. Using a recess appointment to avoid a political confrontation limits Berwick’s term to the end of 2011 and sealed his fate. Even without the strong Republican showing in the November election, there was no chance that Berwick could be confirmed by the Senate after having avoided the inevitable grilling the first time.

Given the questionable political judgment displayed by the Obama White House throughout this affair, I offer some practical advice. First, consider what kind of job running the government healthcare financing agency (let’s call it HCFA for short—kind of catchy, don’t you think?) actually is. It’s not a place for the fainthearted or the inexperienced. Desiree Rogers need not apply. Second, consider how long that job might last. There’s an election next year, and we might get a new president. Even if Obama is re-elected, he is likely to have a new outlook on what Americans want the government to do with their healthcare. Foreclosing options, particularly at HCFA, would be a bad idea. Third, the vetting process that candidates go through before they can be nominated takes a tremendous amount of time and money. A new person is likely to still be struggling with disclosure forms and embarrassing questions well into next year, losing valuable time in an agency that touches all of our lives.

What, then, is a president to do? Simple. Go with someone who is already doing the job. Marilyn Tavenner is HCFA’s principal deputy and she was acting administrator for five months before Berwick arrived—and she can be acting administrator again without any new political problems. She’s a nurse, ran private hospitals, and was secretary of health in Virginia. Tavenner has a reputation for making the trains run on time, and she would be a steadying influence on an agency that has been in constant turmoil in this administration. More importantly, Tavenner would not act as if she has a mandate to upend the health system, because she doesn’t.

Okay, she’s a Democrat. But everyone has a flaw.

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Joseph Antos

Nonprofits Lobby, Too

By Joseph Antos

January 18, 2011, 11:17 am

Should anyone be shocked that a nonprofit health insurance company would spend millions of dollars supporting a political candidate? Blue Cross Blue Shield of Florida received unfavorable publicity over its contributions to the campaign of newly elected Governor Rick Scott. The press wants to know why the company, a nonprofit mutual insurer, and its subsidiaries made over $4 million in political contributions in recent years. How is that possible, especially when many of its customers are seeing double-digit increases in premiums?

The answer is simple. Whether a company is for-profit or nonprofit, it has to care about its financial bottom line. Nonprofit status does not mean corporate sainthood—or the reverse. In fact, the basic incentives facing companies are similar regardless of their tax status. They need to make a profit (taxable) or a surplus (nontaxable) if they expect to continue operations. And they need to deal with the realities of their industry.

It’s not surprising that lobbying is a part of every health insurer’s business model. Unlike most other markets, more than 40 percent of the money spent in healthcare comes from federal and state programs rather than directly from consumers. Political contributions may well be a problem, but they are also a symptom of excessive regulation and massive government spending that will only worsen when ObamaCare is fully implemented.

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Joseph Antos

Ronald McDonald Keeps His Insurance

By Joseph Antos

October 8, 2010, 7:06 am

ronald-mcdonald Embarrassing publicity in a tough election year has forced the administration to back down from one of its vaunted consumer protections. If it were not for a front-page story in the Wall Street Journal, nearly a million low-wage workers would lose their health insurance thanks to new rules imposed by ObamaCare. McDonald’s and 29 other firms have received waivers from a requirement to up the minimum benefit covered by insurance, making it possible for their employees to continue to buy low-cost coverage. But thousands of other workers are not exempted and will not be able to afford the government’s idea of good insurance.

Starting next year, insurers will be required to cover up to $750,000 in costs, ratcheting up over the next few years so that coverage must be unlimited by 2014. The administration calls that a consumer protection, but it only protects you if you can afford it. Firms that hire low-wage workers, such as McDonald’s, can offer “mini-med” plans that provide lower benefits than a typical comprehensive health plan at a correspondingly lower cost. By far the most popular mini-med plan offered by McDonald’s costs $24.30 a week and covers doctor visits, hospital stays, and some prescription drugs, up to $5,000 each year.

Raising the benefit cap to $750,000 would put insurance out of reach for workers who clearly want coverage. They are buying that insurance with their own money, without the government telling them they have to. Fortunately, they can now keep that coverage, at least for next year.

Would the government have granted the waivers so quickly—in time for the employers to finalize their insurance offerings for next year—without a news story in a major national newspaper? Will the hundreds of other companies that are less aware of the new rules drop their coverage—making thousands of families go without health insurance—without realizing that they could also apply for a waiver? What will happen to millions of middle-class Americans who can’t afford expensive coverage mandated from Washington when that is no longer front-page news?

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Joseph Antos

I’ll Have a Big Mac, Hold the Health Insurance

By Joseph Antos

September 30, 2010, 5:53 pm

McDonald’s warned that it might have to drop its health insurance plan for some 30,000 restaurant workers because of new rules imposed by ObamaCare. McDonald’s insurer spends too much money on administrative costs and not enough on health services to fit the federal standard. So in the name of consumer protection, thousands of low-wage hamburger cooks are likely to lose their health insurance starting next year. That’s the genius of healthcare reform: Obama says you can stick with the coverage you have if you like it, but if you’ve already lost it you have nothing to keep. Promise kept!

The problem is that the government is regulating an industry it does not understand. Low-wage workers cannot afford the same kind of health coverage that the average middle-class worker purchases, but many want some insurance. To satisfy that demand, McDonald’s and other major companies (including Home Depot, Disney, and Staples) offer their employees “mini-med” plans that provide limited coverage at low prices. McDonald’s offers their hourly workers—the people you see behind the counter—a basic plan for $13.99 a week that provides a maximum annual benefit of $2,000. For $24.30 a week, the annual benefit jumps to $5,000. Both plans cover doctor visits, prescription drugs, preventive care, and inpatient hospital services up to the annual maximum. McDonald’s says 85 percent of those enrolled in its plans spend less than $5,000 for medical care in a year.

Limited coverage may not be ideal, but it is all that many low-wage workers can afford. But that option may be regulated out of existence. The federal government requires that insurers pay at least 80 or 85 percent of their premiums for health services, depending on how many people are covered by the plan. Limited benefit plans do not meet that standard, not out of malice but out of necessity. Such plans typically cover a transient population, with frequent worker turnover that raises the overall cost of enrollment and administration. Moreover, enrollees do not spend much on claims—undoubtedly because they do not have the time and money to seek medical attention for minor ailments. Is that a reason to stop low-wage workers from buying insurance that they obviously want?

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Joseph Antos

Krugman and the Cost Curve: Reality Check

By Joseph Antos

August 9, 2010, 6:00 pm

paulkrugmanjpg Paul Krugman seems to find evidence in the recently released Medicare Trustees Report that the healthcare overhaul bent Medicare’s cost curve down. That’s correct, but only if you believe that politicians can resist the already-growing pressure from doctors and hospitals to grant them relief from big cuts in reimbursement. According to Richard Foster, Medicare’s chief actuary, physicians are scheduled to take a 23 percent cut in pay this December and another 6.5 percent cut in January. That is assumed in the Trustees Report, even though Congress has short-circuited such formula-driven reductions for the past seven years. Congress has already acted twice to put off this year’s big hit, and it will do so again before the end of the year.

We’ll see similar action in coming years from hospitals as they face the reality that the big cuts in Medicare payments required under the healthcare overhaul cannot be matched with productivity improvements that reduce their cost of care. Even worse, hospitals are beginning to realize that having millions of new Medicaid patients means reducing their losses on patients without insurance, not actually making money. The threat reported by Foster that as many as 15 percent of hospitals and other providers could drop out of Medicare in the next few years will force the hands of politicians. Even the Medicare Trustees, all President Obama appointees, had to admit on page 2 of their report that the good news is “far from certain.” If they don’t believe it, why should the public?

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Joseph Antos

How I Learned to Stop Worrying and Love ObamaCare*

By Joseph Antos

March 26, 2010, 5:42 pm

I have turned my office upside down looking for the memo from my employer, the American Enterprise Institute (AEI), telling me not to speak to the media about the Democrats’ health legislation. I can’t find it, and neither can any of my colleagues, because no such order was ever given.

The accusation that we have been muzzled is surrealistic. According to Bruce Bartlett, who claims to have heard it from former AEI scholar David Frum, there has been hardly a peep out of AEI health scholars on ObamaCare. It is not just because we are lazy and unproductive. The real problem, Bartlett asserts, is that we simply agree too much with what Obama is doing.

Can this be true? Let’s look at the record, as reported on AEI’s website. From January 2009 through March 26, 2010, the five principal AEI scholars who work on health policy have written 88 articles for publication, including 20 articles that appeared in the Wall Street Journal, New York Times, or Washington Post. That does not include 17 postings on AEI’s Enterprise blog. It also does not include dozens of articles on health reform written by Newt Gingrich, Michael Barone, Norm Ornstein, and other colleagues.

AEI does not keep a running tabulation of the numerous speeches and press interviews that we have given over the past 15 months. I can speak only for myself. From March 1 through March 26, I have given 41 interviews to newspaper and television reporters. If AEI intended to limit my contacts with the press, it failed miserably.

One has only to click on any of the dozens of links on the website to see that AEI scholars can hardly be considered lackeys to the liberal establishment. For example, Tom Miller wrote, “The short, postcard version of Obama’s health reform pitch to the public represents a faith-based initiative that straddles the line between audacity and mendacity” (“Obama Healthcare 2.0,” The American, April 2, 2009). Scott Gottlieb wrote that “two years from now we will likely be looking at an insurance market that has become worse, not better, with premiums higher and more Americans joining the rolls of the uninsured” (“Obamacare is Going to the President’s Desk—What Comes Next?” National Review Online, March 22, 2010). There are plenty of other examples.

But we are not simply naysayers. Tom Miller and I found that health insurance exchanges, one of the core ideas of Obamacare, could promote smarter purchasing by consumers, but not if they are used to overregulate the market and restrict choice (“A Better Prescription,” February 2010). Jack Calfee, Bob Helms, Miller, and I have all pointed out that inappropriate incentives created by tax subsidies for insurance promote inefficient and wasteful use of health services—a problem that is addressed, although not well, by the president’s legislation.

Despite allegations to the contrary, health policy is neither dead nor complacent at AEI. We remain free to praise or criticize public policy as we see fit. As one of AEI’s past presidents, William Baroody Sr. said, “competition of ideas is fundamental to a free society.” We will continue to embrace that ideal in every aspect of AEI’s work.

*With apologies to Stanley Kubrick.

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Joseph Antos

Let’s Give Stupidity Its Due

By Joseph Antos

January 5, 2010, 1:44 pm

Alex Pollock argues that financial crises are the inevitable consequence of knowledgeable experts who cannot foresee the future and ignore the lessons of the past. He says we should not blame fraud, greed, or stupidity. He lost me on that last point.

Of course I don’t think the experts are literally stupid. But what else would you call it when, in Pollock’s example, bankers put their entire wealth at risk with their own bank despite the age-old admonition to diversify?

Bankers aren’t the only culprits, of course. Pollock criticizes economists who argue that crises could be avoided if we only had better incentives. Speaking as an economist, I don’t want to say we are stupid, but it is true that many economists implicitly (and sometimes explicitly) assume more rationality and systematic knowledge than is possible in the real world. If that odd ideal were true, it wouldn’t leave much for politicians or marketers. Of course, economists need these simplifying assumptions because otherwise they could draw no conclusions.

That point is driven home in the struggle over healthcare overhaul. Congress has spent much of the past year concocting legislation that would make Rube Goldberg proud. The mind-boggling complexity of the Senate and House bills rests on the belief that every problem can be anticipated and, finally, solved. And not just solved, but solved in a way that reduces federal spending even when committing trillions of dollars to a new federal entitlement. That is surely the triumph of simplifying assumptions over predictable reality.

Which brings us back to the wonderful quote from Walter Bagehot:

The losses to which an adventurous and plausible manager, in complete good faith, will readily commit a bank, are beyond comparison greater than any which a fraudulent manager would be able to conceal.

Change “manager” to “health policy expert” and “a bank” to “the country” and you’ll see the problem. Stupidity and lack of foresight (or at least eagerness to believe that it will be different this time) are the most powerful forces in society. Healthcare overhaul will be the next instructive example.

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Categories: Health Policy | Tags:

Joseph Antos

Taking the Politics Out of Health Reform? Hardly

By Joseph Antos

July 27, 2009, 9:13 am

Democrats call it “MedPAC on steroids.” Their idea: a new independent agency that will limit spending in Medicare, something Congress and the president have not been able to do for the past four decades. We already have a Medicare Payment Advisory Commission (MedPAC) that makes recommendations to Congress on ways to improve the program and reduce unnecessary spending, but it only gives advice. Congress is under no obligation to take it.

The Obama administration wants an agency with real authority. Called the Independent Medicare Advisory Council, or IMAC, the new executive branch agency would advance new policies that some hope would slow down runaway Medicare spending. Under the proposal, unless Congress can muster a two-thirds vote of the House and the Senate, those policies would automatically go into effect.

But according to the Congressional Budget Office (CBO), the IMAC is MedPAC on weak tea. The new agency would not be expected to cut Medicare costs. Instead, their recommendations would not increase Medicare spending. That’s taking the Hippocratic Oath a little too far. Yes, do no harm. But how about doing some good?

Ironically, the Democrats recognize that there is too much political meddling in the health system at the same time that they want to impose more federal control. Medicare has been hamstrung by Congress micromanaging the program, resulting in higher costs and poorer performance. Even when Congress has permitted more competitive approaches, such as expanding the reach of private Medicare Advantage plans, politicians have been unable to resist trying to dictate outcomes by building in payment floors and exceptions that favor one constituent or another. That means more spending, not less. A new agency not subject to the political pressures on the Hill might be an improvement, although CBO argues that the new agency would not have much impact.

But let’s not dismiss the IMAC idea too quickly. There is a chance that the agency might take an interventionist role, as we have seen when other regulatory agencies have been headed by activists. The IMAC might like telling Medicare how to run its business, and what Medicare does sets the pattern for private healthcare. Even well-meaning “budget neutral” proposals could impose new inefficiencies that would result in less value for our healthcare dollar. A powerful new health board would further centralize decisions about a health system that is inherently local.

The better approach—one that really does take the politics out of reform—puts the decision-making in the hands of consumers. We’ve tried everything else. What do we have to lose?

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Joseph Antos

What Can a Texas Town Teach Us About Healthcare?

By Joseph Antos

June 1, 2009, 6:17 am

Atul Gawande has written another brilliant article about our ailing healthcare system for The New Yorker. His description of the symptoms—high spending, low value—is compelling. Just don’t look here for a cure.

Gawande, a wunderkind physician who figured prominently in the Clinton health reform effort of the 1990s, tells us about McAllen, Texas, where the people are poor and the healthcare is expensive. Medicare spends about $15,000 to treat the average senior in town for a year—almost twice the national average. This in a town where the average income hovers around $12,000.

The tour through south Texas is depressing. It’s not just that they’re spending so much of your tax money. It’s also that the patients are almost certainly not getting better or regaining a better quality of life for all that healthcare, and they may be worse off for all the poking, prodding, and cutting that go on there. If only we could get the doctors in McAllen to behave like their colleagues in Minnesota, people would do at least as well as they do now but at a much lower cost.

The only problem: we don’t know how to turn high-utilizing physicians into models of conservative practice. The first impulse is to do no harm, but we also want our doctors to ask whether an intervention will do any good—and whether it’s worth the cost in money and personal suffering.

Gawande sees a solution: change the way the business of medicine is practiced. Instead of leaving doctors and hospitals in their “untenably fragmented, quantity-driven systems of healthcare,” force them into “accountable-care organizations” (ACOs). ACOs would promote collaboration, higher quality, and more prevention, while discouraging overtreatment, undertreatment, and “sheer profiteering.”

Sounds great. So great that Gawande is prepared to penalize providers who don’t form such organizations. But, despite the enthusiasm of experts (including Mark McClellan, physician and former administrator of Medicare), ACOs do not exist and it is not clear how they would accomplish what has been promised.

Even Gawande admits that this would “by necessity” be an experiment. As he says, we do not know what the necessary ingredients are that account for the success of systems like the Mayo Clinic and Geisinger Health, and we do not know how to transplant them into the bloated health system that typifies most of the country.

What he doesn’t say is that we cannot solve our health system problems by top-down solutions that focus solely on the suppliers of healthcare. If a reformed health system is to succeed, it will have to engage patients to take more responsibility for their health spending decisions. And it will have to respond nimbly to the demands of its customers—something that is sorely missing today.

Clearly, there’s a problem in McAllen. But it’s bigger than one town in Texas, and it won’t be solved by the latest policy platitude.

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Joseph Antos

Rangel Says ‘No New Taxes’

By Joseph Antos

May 11, 2009, 6:06 am

Well, not really.

Rep. Charles Rangel, chairman of the House Ways and Means Committee, said recently that there is “no way” he would support taxing employer-provided health benefits. He’s talking about the proposal, made famous (or infamous) in last year’s presidential race, to limit the tax break workers get when they purchase their health insurance through their employers.

John McCain proposed to replace that break with a tax credit available to everyone who buys health insurance, whether they have a job or not. His argument: the tax credit would be fairer, giving help to millions of people who now pay top dollar for health insurance with no federal subsidy.

A Republican wanting to help the poor, and a Democrat saying no to taxes? The real story is more complicated.

If you buy into your employer’s health plan, any contribution the firm makes toward the premium does not count when you do your taxes. By excluding those payments from workers’ incomes, Uncle Sam gives up nearly $250 billion dollars a year in revenue that it does not collect—several thousand dollars a year for the typical family. No wonder most of us get our insurance this way.

Decades ago, unions realized what a good deal this is. They bargained for richer health benefits, and got them. That’s one reason General Motors is in trouble: their workers make $50 an hour counting benefits, making GM uncompetitive in the world market.

Paring back on this tax exclusion would hit union workers in the pocketbook. Even worse from the union perspective, families would no longer have any reason to buy insurance at the workplace. Instead of going with their employer’s choice of health plan, workers could buy the kind of coverage they really want on the open market. And that begins to loosen the hold that unions have on their members.

Charlie Rangel is not against raising taxes. He’s for keeping union support in the next election.

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