Tuesday, June 29, 2010

Finally, Some Good News From Massachusetts

Cross-posted from Critical Condition on National Review Online.

Finally, some good news with the Massachusetts insurance price-control saga: an appeals board of attorneys from the state’s Division of Insurance has overturned Governor Deval Patrick’s denial of Harvard Pilgrim Health Care’s requested rate increases. The Boston Globe reports that the “panel…found that rate increases Harvard Pilgrim initially sought in April are reasonable given what it must pay to hospitals and doctors.”
Insurers yesterday cheered the ruling, which bodes well for three other companies now before the appeals board with their own cases against capped rates.

“The decision shows what we have been saying all along,” said Lora Pellegrini, president of the Massachusetts Association of Health Plans, a trade group based in Boston. “The denial of carrier rates was inappropriate.”
The other insurers in the state can hold out hope that the appeals board will give them the same treatment, saving them several months of uncertainty and litigation.

Meanwhile, in Washington, it didn’t take long for the Obama administration to try Deval Patrick’s tactics on for size. Everyone knows that insurers across the country are going to have to raise premiums in order to account for all of the new mandates in the Affordable Care Act. But the President is trying to have his cake and eat it too, warning insurers that the government will not allow “unreasonable premium increases.” He would doubtless cheer on the implosion of the private health insurance business, but consumers would not.

Both in Massachusetts and across the nation, genuine attempts at reducing the cost of health insurance will require a completely different approach to health care reform: one that incentivizes patients to make prudent choices about health spending, and one that frees insurers from the mandates that prevent them from creating affordable insurance products.

Too many Republicans are formulating their health care positions by melding a general free-market disposition with a split-the-difference political posture. These Republicans need to understand that the desire to repeal Obamacare is neither a temper-tantrum nor an ideological litmus test. Rather, as a policy matter, repeal is critical to the economic fortunes of tens of millions of Americans, for whom affordable health insurance is increasingly out of reach.

Monday, June 28, 2010

Does the Sarbox Ruling Sanctify Obamacare?

Cross-posted from The Agenda on National Review Online.


Today, in Free Enterprise Fund v. Public Company Accounting Oversight Board, the Supreme Court invalidated a provision of the Sarbanes-Oxley Act without voiding the entire law.

This matters for the legal fight against Obamacare, as Sarbox did not have a “severability clause”—standard language that would ensure that, if one part of Sarbox was ruled unconstitutional, that part could be “severed” from the rest of the law, which would remain standing.

The Patient Protection and Affordable Care Act also lacks a severability clause. Some have therefore hoped that, if PPACA’s individual mandate is eventually ruled unconstitutional, the entire law would necessarily be voided along with it.

Today’s ruling by the Court, however, suggests that a severability clause is not needed in order to strike down one provision of a larger law (h/t Ross Kaminsky):
The unconstitutional tenure provisions are severable from the remainder of the statute. Because “[t]he unconstitutionality of a part of an Act does not necessarily defeat or affect the validity of its remaining provisions”… the “normal rule” is “that partial… invalidation is the required course.” The Board’s existence does not violate the separation of powers, but the substantive removal restrictions imposed by §§7211(e)(6) and 7217(d)(3) do. Concluding that the removal restrictions here are invalid leaves the Board removable by the Commission at will. With the tenure restrictions excised, the Act remains “’fully operative as a law,’” and nothing in the Act’s text or historical context makes it “evident” that Congress would have preferred no Board at all to a Board whose members are removable at will. The consequence is that the Board may continue to function as before, but its members may be removed at will by the Commission.
I’m not a lawyer, but this suggests to me that the Court presumes severability unless non-severability is explicitly specified. Does anyone else have thoughts on this topic?

Might High-Risk Pools Bear Unintended Consequences?

Cross-posted from The Agenda on National Review Online.


The Summer 2010 issue of Yuval Levin’s National Affairs is out, and it contains three intriguing articles on health care reform.

The first, by Paul Howard and Stephen Parente (subscription required), effectively summarizes the debate of the last 15 months. Howard and Parente propound free-market ideas for reform, such as: interstate insurance competition; voucherizing Medicare, Medicaid and Obamacare’s insurance subsidies; and turning Obamacare’s “Cadillac Tax” into a “Buick Tax” so as to further the conversion of the employer-based insurance market into an individual one. Importantly, from their perspective, these reforms could be implemented whether or not the Affordable Care Act is repealed.

In a separate piece, John Hood presses the case for reform of Medicaid, which is an underappreciated driver of our fiscal crisis because its responsibilities are shared between the states and the federal government. Fundamentally, Hood shares the view of Howard and Parente that vouchers will help rationalize Medicaid spending and budgeting.

Hood points out a worrisome trend: that many well-off people game the Medicaid system by transferring assets to other family members, so that they can fall under the wealth threshold for Medicaid subsidies.

Hood favors eliminating these loopholes, along with the direct federal role for managing Medicaid, instead advocating block grants to the states. Block grants incentivize states to experiment with productive Medicaid reforms, because they retain the savings from any successful innovations. In addition, block grants allow for predictable budgeting.

Another idea raised by Howard and Parente is assembling a system of high-risk pools as a way of improving access to health insurance for those with pre-existing conditions. James Capretta and Tom Miller take up the subject of high-risk pools in depth, in an original and provocative article. Capretta and Miller argue that a fully-funded system of high-risk pools would spend around $17 billion a year to cover the 4 million people who need them, and by isolating those people from the rest of the insurance pool, make insurance coverage far more affordable for everyone else. Their piece contains a number of thoughtful proposals for ensuring that the pools would function as intended.

Controversially, they argue that the federal government should directly fund these high-risk pools, since fiscally-constrained states have not been able to adequately do so thus far. My preference would be that high-risk pools remain the province of the states, so that states can experiment with their structure—something that can only happen if states are not constrained by the myriad distortions of federal policy.

There are two other large challenges with high-risk pools that merit further debate (though Capretta and Miller do address them). The first is: what sort of mechanism could be erected to ensure that high-risk pools don’t metastasize into moderate-and-high-risk pools, and eventually all-risk pools? That is to say, is it possible to define “high-risk” in such a way as to sufficiently constrain the political temptation to expand such risk pools to cover larger constituencies? Just as with pension packages for government employees, it would be easy for a politician to expand the size of a high-risk pool, knowing that the full costs of doing so would show up decades later, when the patients are older, and when that politician is off sipping piña coladas on some tropical island. Insurance lobbyists will fight hard for such risk pool expansions, knowing that their own businesses will prosper by dumping risky individuals onto the state.

Capretta and Miller suggest that capping federal expenditures at some dollar figure, such as $15 to $20 billion, might do the job. But there will always remain the risk that a more spendthrift Congress will blow through the cap. This is another reason why it might be better for the states to run these pools—states’ inability to sustain deficits will prevent the programs from getting out of hand.

There is a second, related problem, one that John Goodman has raised: that the government is fundamentally incompetent at pricing risk. “Price setting errors that government makes in the market for risk,” writes Goodman, “will invariably be worse than in just about any other market.” (Think of what the government has done to the housing market.) The potential is strong for such government intervention to significantly distort the conventional insurance market, as it has done with Medicare and Medicaid.

All in all, the creation of high-risk pools is a promising idea that, I believe, is not yet ready for prime-time. We will need to refine the concept further at the state level before we can jump in with both federal feet. Capretta and Miller deserve our thanks for helping to frame the discussion.

Sunday, June 27, 2010

The Commonwealth Fund Rags On U.S. Health Care

Cross-posted from The Agenda on National Review Online.


One of the disappointing things about healthcare policy research is that its volume is inversely proportional to its quality. Each year, sheaves of research papers are produced by academics and think-tankers, thick with tables and charts, purporting to argue that 62% of all bankruptcies are due to medical expenses, or that 45,000 people a year die because they don’t have health insurance. These studies are then broadcast uncritically by the press, and repeated as gospel by soundbite-seeking politicians. Unfortunately, the methodologies used in such research are often poor, and in the two examples above, intentionally misleading. (Megan McArdle is one of the few writers who has tackled this subject well.)

Such is the case with a new study published last week by the Commonwealth Fund that argues that, compared to six other developed countries, “the U.S. health care system ranks last or next-to-last” on measurements of its quality, access, efficiency, equity, and “healthy lives.” Overall, the study ranked the Netherlands first, followed by the United Kingdom, Australia, Germany, New Zealand, and Canada, with the U.S. ranking dead last.

The study is typical of the genre: drawing conclusions that are not warranted by the data; failing to account for alternative (and more plausible) explanations; and using flawed methodologies. The point of view of the authors is clear: in the first paragraph of the report, they write that “newly enacted health reform legislation in the U.S. will start to address these problems by extending coverage.” But they do their cause no favors with such a tendentious report.

First of all, the authors attempt to assess the quality of U.S. and international health care systems not with hard data, but with subjective surveys. The survey assessed the effectiveness of health care by asking patients and physicians questions like: “Did you receive reminders for preventive and/or followup care?” and “Do you believe a medical mistake was made in your treatment or care in the past 2 years?”

While it is interesting to look at such surveys, it is simply not serious to draw hard conclusions from them. U.S. consumer culture is famously more demanding than that of other developed countries; while Americans still defer to their doctors and pharmacists, they do so appreciably less than Europeans do. They are more likely to suspect error, and far more likely to sue if they believe an error has been made. An international poll that does not even attempt to normalize for these cultural differences is not informative.

There is an energetic debate among empiricists as to how best to measure quality in a healthcare system. Blunt instruments like overall life expectancy don’t take social factors, like violent crime and obesity, into account. European authorities manipulate infant mortality statistics in order to make their national health systems look better than those of rivals (much in the way that some U.S. localities pad crime statistics).

One promising approach is to examine survival rates after a serious diagnosis has been made: for example, how long does the average patient live after being diagnosed with a stroke? With a heart attack? With breast cancer? This approach has several qualities in its favor: it is quantitative; it can control for population disparities between countries by focusing on a particular disease; and it focuses on the actual purpose of delivering health care: treating disease.

As with the infant mortality problem, such national statistics can be manipulated, but so long as the level of disclosure is sufficiently detailed, one can attempt basic comparisons. The Lancet Oncology has published two sets of interesting studies on this subject as it relates to cancer: CONCORD, a worldwide analysis of cancer survival rates; and EUROCARE, a European one. CONCORD found that, in all cancers studied, 91.9% of Americans survived for five years after diagnosis, compared to 57.1% for Europeans.

Another important element of health care quality is speed of service: how long did it take to get an appointment to get an MRI scan? How long did it take, once surgery was prescribed, to undergo the procedure? Delays in diagnosis and treatment are important, because a disease can worsen when it hasn’t been discovered or isn’t being treated. The Commonwealth survey asks its participants some relevant questions in this department, but de-emphasizes—or doesn’t ask—the questions that really matter. In addition, the questions it does ask, it asks in ways that blur, rather than reveal, differences. Hence, the survey ranks the U.K. higher than the U.S. on timeliness of care, even though vast experience shows that the U.K. is among the world’s worst, and the U.S. among the world’s best, on this front. (The British waiting time problem got so bad that Tony Blair brought in Donald Berwick, President Obama’s nominee to head the Centers for Medicare and Medicaid Services, to tackle it.)

One important thing to remember when comparing the American health care system to that of other countries is that we actually have three different systems: one for those with private insurance (177 million people in 2010), one for those under Medicare (45 million), and one for those under Medicaid and SCHIP (40 million). A rigorous survey of U.S. health care quality would break out the distribution of those in each program, and the respective performances of each.

One thing we do know is that people with Medicaid fare worst: because Medicaid severely underpays doctors and hospitals for the care of its beneficiaries, many physicians refuse to take Medicaid patients. As a result, wait times and health outcomes for Medicaid patients are far worse than those for people with private insurance or Medicare. The Affordable Care Act expands the Medicaid population by 20 million, which is certain to put additional strains on this already-broken system.

Hence, though the authors of the Commonwealth study are sanguine about the prospects of Obamacare to improve the quality of American health care, the likely outcome is the opposite.

Thursday, June 24, 2010

Health Wonk Review Review: The Platonic Form Of Health Insurance

Cross-posted from The Agenda on National Review Online.


First off, my apologies for the posting lull—I was traveling on business and without any real spare time. I’m back now.

The latest edition of Health Wonk Review is up, hosted by D. Brad Wright of Wright on Health. There wasn’t a dominant healthcare issue in the newspapers this fortnight, so top healthcare bloggers tackled a diverse array of interesting subjects.

HWR highlights John Goodman’s discussion of the emptiness of Obamacare’s promise to allow Americans to keep their health plans if they like them. But the most interesting posts from Goodman’s blog were Linda Gorman’s brief entry on erroneous payouts by the Medicaid system—for example, an error rate of 77% in 2009 in Colorado—and Goodman’s must-read discussion of the concept of health insurance.

Goodman argues that people should pay out-of-pocket for care “when patients can exercise discretion; when patients should exercise discretion; and when the amount of money is not large.” He goes on to point out that Obamacare requires people to purchase insurance based on the opposite premise: where the patient can and should have discretion (such as with preventive care), all costs will be paid by the insurer; whereas in cases where the patient has not chosen his condition (e.g., getting hit by a truck), he will get stuck with high out-of-pocket costs.

Austin Frakt does his usual job of honestly assessing the challenges of health care reform from the liberal perspective. This time, he takes on Obamacare’s cuts to the Medicare Advantage program. He concludes: “In the long run, there’s no getting around the fact that Advantage plans will shrink in generosity and availability. Anything else would defy a fundamental law of economics that also happens to be a fundamental law of politics: you get what you pay for.” There was a case to be made for taking on the Medicare Advantage subsidies. (For the opposite view, see one of the Wall Street Journal’s many editorials on the topic.) Either way, it’s a shame those funds couldn’t have been used for deficit reduction.

Chris Fleming of Health Affairs’ blog discusses the June issue of the magazine and an accompanying panel discussion in Washington on the subject of “bending the cost curve.” The panelists were optimistic about the impact of electronic medical records, and of stimulating more “integrated care”—a healthcare catchphrase for combining health insurance, doctors, and hospitals under one roof (and thereby aligning everyone’s incentives). Other panelists, like former CBO director Douglas Holtz-Eakin, were pessimistic about Obamacare’s fiscal acrobatics.

Peggy Salvatore of Healthcare Talent Transformation feels “overwhelmed” by the government’s directives on the implementation of healthcare information technology. She also writes that private-practice oncologists are on the ropes: “The outlook is grim, quite frankly, for oncologists who are practicing in private medical offices. There’s just no money in it anymore, and reimbursement doesn’t cover their costs. They aren’t the only specialty that is feeling the pinch, but the financial pain is particularly acute in oncology.”

David Williams of Health Business Blog makes some excellent points about a recent New England Journal of Medicine op-ed about comparative-effectiveness research. (Comparative-effectiveness research seeks to compare two different approaches to treating a disease, in an effort to see which approach is more cost-effective. The 2009 stimulus law included substantial funding for such research, which some conservatives see as a prelude to pharmaceutical price controls.) While the authors of the op-ed point out a number of logistical difficulties in such research, Williams correctly notes that there are additional problems, because the example they use—a trial of Avastin against Lucentis in a form of blindness called age-related macular degeneration—is a unique situation and not generalizable to other cost-effectiveness questions.

InsureBlog is one of the best blogs for knowledgeable discussion of the health insurance industry. There, Henry Stern investigates the demise of nHealth, a Virginia-based provider of consumer-driven health plans. He concludes that, while the company attempted to blame its failures upon the “considerable uncertainties” caused by Obamacare, its problems were more likely to have been caused by a more conventional business failure: under-capitalization.

Rich Elmore of Health Technology News interviews Rick Jackson, CEO of Jackson Healthcare, who conducted a Gallup survey suggesting that “$650-850 billion per year” could be saved from the healthcare system by tort reform.

Richard Fogoros, author of the intriguing Covert Rationing Blog, has a thoughtful piece on the debate about whether or not relationships between doctors and the pharmaceutical and medical-device industries are a conflict of interest.

Jason Shafrin of Healthcare Economist reviews the healthcare systems of Canada, France, Germany, Italy, Japan, Sweden, and…Rwanda as a way of garnering lessons for American health reform.

Finally, Louise Norris of Colorado Health Insurance Insider notes a recent interview of Barbara Bush (George W. Bush’s daughter, not his mother) by Fox News Sunday, in which Ms. Bush says she’s “glad” that Obamacare passed, and that “health care is a right.”

Saturday, June 19, 2010

Dartmouth, Episode II: The Times Strikes Back

Cross-posted from Critical Condition on National Review Online.


The Darmouth Atlas of Health Care, as readers may recall, has been a source of significant recent controversy, due to a skeptical front-page article published in the New York Times on June 3. Elliott Fisher and Jonathan Skinner of Dartmouth penned two rebuttals to the Times piece, in which they pointed out some of its factual and analytical errors. But the Dartmouth duo failed to address concerns about the key question underlying their research: is government capable of efficiently micromanaging medical practice?

Yesterday, Times reporters Reed Abelson and Gardiner Harris posted online a 3,000-word, 7-footnote response to the Dartmouth rebuttals. If anything, the reporters’ new piece is even harsher than their original one. It certainly makes for some interesting reading.

The Times reporters acknowledge that the Dartmouth researchers have conducted some cost-of-living adjustments in their academic research, but point out that such research is either absent from, or de-emphasized on, their public website:
The distinction between the atlas, as it is available on the Dartmouth Web site, and other published work by the Dartmouth researchers is important. In the academic sphere, the Dartmouth researchers often use careful statistical adjustments and nuanced language to qualify their findings. But on the Dartmouth Atlas Web site and in the halls of Congress where the atlas maps have become popular, there is little of that care, leading to conclusions and hospital and regional rankings that can present a misleading picture.

For example, some prominent academics, despite their familiarity with the Dartmouth work, were unaware, until told by The Times, that the popular regional maps and hospital rankings published on the Dartmouth Atlas Web site were not adjusted to reflect the price and cost-of-living differences around the country.
Abelson and Harris go on to document evidence that, among other things: (1) Dartmouth’s Fisher exaggerated the strength of the Atlas’ findings in Congressional testimony; (2) other methodological problems exist with the Atlas; (3) the Dartmouth group has made wild claims about the amount of money government can save by adopting their recommendations.

That the Atlas has methodological problems is undeniable. That there is waste in the medical system is also undeniable. While I’ll be interested to see how the Dartmouth researchers and sympathetic bloggers respond to the latest salvo from the Times, I’m really hoping they’ll one day answer the important question: why will more government involvement lead to less waste?

Tuesday, June 15, 2010

Grandfathers Are Goners (Unless You're In A Union)

Another example of how the devil of Obamacare is in the details.


Last weekend, Rep. Bill Posey (R., Fla.) posted a federal report, published in a collaboration between the HHS and Labor Departments and the IRS, documenting the government's interpretation of Obamacare's "grandfathering" rules—the rules that were touted as allowing individuals to keep their existing health plans. David Hogberg and Sean Higgins of Investor's Business Daily read through the report, which stated that the "midrange estimate is that 66% of small employer plans and 45% of large employer plans will relinquish their grandfathered status by the end of 2013." The government also provided a low estimate and a high estimate; at the high end, the report projects that 80% of small employers, and 69% of all plans, would lose their status by 2013.

Another interesting tidbit uncovered by Hogberg and Higgins is that labor unions are exempted from the rules that normal plans have to follow:
Page 81 of the regulations says this regarding health plans that are part of “collective bargaining agreements” — i.e., labor union plans:
(f) Effect on collectively bargained plans — (1) In general. In the case of health insurance coverage maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers that was ratified before March 23, 2010, the coverage is grandfathered health plan coverage at least until the date on which the last of the collective bargaining agreements relating to the coverage that was in effect on March 23, 2010 terminates.
That wording is a bit convoluted, but the document provides an example of how this would work:
Example 1. (i) Facts. A group health plan maintained pursuant to a collective bargaining agreement provides coverage through a group health insurance policy from Issuer W on March 23, 2010. The collective bargaining agreement has not been amended and will not expire before December 31, 2011. The group health plan enters into a new group health insurance policy with Issuer Y for the plan year starting on January 1, 2011. (ii) Conclusion. In this Example 1, the group health plan, and the group health insurance policy provided by Y, remains a grandfathered health plan with respect to existing employees and new employees and their families because the coverage is maintained pursuant to a collective bargaining agreement ratified prior to March 23, 2010 that has not terminated.
Those who are not part of a collective bargaining agreement get treated differently. According to page 76 of the regulations, “an employer or employee organization enters into a new policy, certificate, or contract of insurance after March 23, 2010 ... then that policy, certificate, or contract of insurance is not a grandfathered health plan with respect to the individuals in the group health plan.” In other words, a business would not be able to change insurance carriers and retain their “grandfathered status.”
First the delay in the excise tax on Cadillac plans, now this. You gotta give those labor unions their due—they sure know how to shape legislation.

Monday, June 14, 2010

Why Is The Pharma Pipeline Clogged?

Cross-posted from The Science Business on Forbes.com.


Could it be that there are scientific limitations to drug development?

That the FDA is increasingly strict is incontrovertible. To take one recent example, after diabetes drug Avandia from GlaxoSmithkline was linked to cardiovascular safety risks in 2007, the FDA began requiring all sponsors of new diabetes drugs to conduct large cardiovascular safety trials. These trials cost hundreds of millions of dollars each, costs that will be borne by ordinary people: either through higher insurance premiums and higher Medicare and Medicaid taxes (because of increased drug costs), or because companies decide to abandon development of these drugs as the rewards are outweighed by the risks.

Megan McArdle of The Atlantic Monthy has an article out this month on the drug pipeline slowdown. Most of what she discusses will be familiar to regular readers of this blog. She does make an interesting argument: that, while there is something to the complaint that the FDA is getting more stringent, and that companies often eschew innovation for me-too approaches, the real problem is that drug development is getting technically harder:
When you’re up against nothing, it’s relatively easy to show that you’re more effective than the alternative. But when you’re up against already-state-of-the-art treatments, you’re looking for small improvements. That means you need huge numbers of patients to generate a statistically significant result. And since good treatments already exist, the safety hurdles are also higher—the FDA is less likely to approve a statin that causes internal bleeding than a pancreatic-cancer drug that does the same.

Meanwhile, in the areas where we don’t have good drugs, we don’t have so many easy targets, either. The great hopes for finding drug prospects by decoding the human genome have largely faltered; so far, reading our DNA seems mostly to have taught us how little we still understand about our own biology. So researchers are left with complex problems like cancer, which is really not one disease at all, but several thousand different ways that a human cell can go wrong.
It is true that generic drugs for heart disease, diabetes, high blood pressure, etc., along with more aggressive cost-control from insurers, has made it difficult to develop new, first-line drugs for those diseases. But there remain tens of millions of people in the U.S. for whom those first-line drugs are not sufficient. Hence, the markets for new drugs remain massive.

And while it may seem today, as McArdle writes, that “the big fat targets like angiotensin” are sewn up, but it’s worth remembering that those big fat targets were once hypothetical, just like those of today’s emerging drugs. The targets only seem big and fat in retrospect. While the first angiotensin converting enzyme inhibitors were being developed, nobody knew if they would succeed. Hindsight is 20/20, and we often forget this when we think about drug development.

One technical challenge for small-molecule drug development today is the revolution spawned by combinatorial chemistry. Combinatorial chemistry is the high-tech process by which companies can rapidly synthesize large numbers of variations to a core molecular backbone. While combinatorial chemistry has so far led to few new drugs (Nexavar is a notable exception), these novel compounds are often patented, limiting the maneuvering room for new players. Antibodies are one way around this problem in some instances, especially now that human gene patents have been invalidated.

At the end of the day, though, drug development isn’t getting inherently harder. The obstacles posed by generic drugs and patent barriers are compensated for by new scientific insights and technologies. The biggest issues for the industry remain: (1) the massively increased strictness of the FDA, as discussed above; and (2) how the way we pay for drugs distorts industry’s priorities.

The way insurers pay for new drugs is highly politicized. If a new cancer drug extends life by three months, and the drug company charges $100,000 for it, insurers feel forced to pay up, because if they don’t, patient advocates will paint them as the bad guys. Patient advocates have less sway with the big cardiovascular and metabolic diseases, because we don’t feel as sorry for people with clogged arteries.

Because of these phenomena, nearly every drug company today focuses on “specialty” opportunities: ones where they know the FDA will be more lenient, and where insurers will have no leverage. Overall, the effect is a gradual migration away from those diseases that affect the most people. It’s not obvious that this is a good thing.

Sunday, June 13, 2010

Is the Doc Fix Fixable?

Not without serious Medicare reform.


As the Senate continues to debate yet another stopgap measure to maintain doctors’ pay under Medicare, John Graham of the Pacific Research Institute has written the definitive piece (posted both at John Goodman’s blog and at Critical Condition) on the subject. “Of all the huffery puffery in American health policy, what is the most ridiculous?” asks Graham. “I think a leading candidate is the never-ending lobbying by the American Medical Association and associated medical societies to implement a so-called “doc fix” for Medicare.”

Read the whole thing. (The latest Health Wonk Review also touches on this topic.) Goodman highlights the bizarre manner in which the government set prices for various physician services, and points out that physicians, and the AMA, are constantly gaming the system.

Ultimately, chronic physician underpayment by Medicare and Medicaid is about the government promising more to the voters than it can deliver. Instead of telling those constituents, “We can’t afford to cover all your care, so we need you to assume some of the cost,” they say “we’ll just underpay doctors and paper over the problem.” As Graham rightly points out, the only true permanent solution to the chronic underpayment of physicians is to move Medicare to a voucher system, in which the liability of the government is fixed at a dollar amount, and retirees can take out Medigap-style supplemental insurance if they choose.

I have never felt more ashamed of the medical profession than I did when, last week, I heard AMA President James Rohack announce his advertising blitz on behalf of the doc fix. Nowhere in Rohack’s remarks was there any concern for the enormous amount of spending involved in a long-term reform-free fix—$239 billion according to the CBO—nor any constructive suggestions as to how to pay for such a measure. Maybe Rohack feels that it’s not his job to talk about that. But physicians are supposed to be more than just another special interest with their snouts at the till; they are supposed to place the good of others above their own.

Rohack, by contrast, makes it clear that his first priority is the bank accounts of his constituents. And yet, even on this dubious benchmark, Rohack has been a colossal failure. Rohack was a big supporter of Obamacare, even though lawmakers broke their promise to address physician underpayment (due to the fact that it was damaging the bills’ CBO scores). Even worse, the Affordable Care Act massively expands Medicaid, the program that underpays doctors so badly that they lose money on every Medicaid patient they treat. Over a third of doctors don‘t accept Medicaid patients, a number that is certain to grow.

I hope more physicians raise their hands to say that Rohack doesn’t speak for them.

Friday, June 11, 2010

Mass. Insurance Official: Premium Caps "Will Be A Train Wreck"

Cross-posted from Critical Condition on National Review Online.


Earlier this week, the Associated Press obtained explosive internal e-mails from Robert Dynan, Deputy Commission for Financial Analysis at the Massachusetts Division of Insurance. The e-mails were drafted in reaction to the April 1 news—which Dynan only learned about by reading the papers—that state insurance commissioner Joseph Murphy was imposing price controls on Massachusetts health insurers. Drynan writes that Murphy's action "has the potential for catastrophic consequences including irreversible damage to our non-profit health care system."

In an e-mail sent to colleagues on April 6, Dynan expresses his fear that insurers will go bankrupt as a result of Murphy's decision:
The rates, by design, have no actuarial support. This action was taken against my objections and without including me in the conversation, but this does not relieve us of the burden of monitoring solvency. Indeed, our job of monitoring solvency just got exponentially more difficult and exponentially more important. There most likely will be a train wreck (or perhaps several train wrecks).
On April 30, Dynan sent a detailed assessment to Murphy, outlining 13 key concerns, which I summarize here:
  1. If an HMO goes insolvent, the non-profit hospitals will be forced to eat millions of dollars in un-reimbursed claims, "potentially jeopardizing their financial condition."
  2. Most HMOs "showed less than stellar results" in 2009, and lack the "excess capital" to sustain further losses. "I can guarantee you that there are very few regulators in the United States who would disagree with me."
  3. The Massachusetts insurance market is mostly non-profit; non-profit plans have narrower profit margins and are therefore more likely to fail. "If they were to fail, the void may be filled by for-profit insurers."
  4. Some HMOs in the state, for whatever reason, undercharged for health insurance in 2009; these insurers will be especially hurt by a second year of losses. "Over time, consumers and employers will take advantage of this price inefficiency and will...swamp them with further losses."
  5. The rate caps will not affect any other practices in the health care system. "Hospitals do not seem inclined to tear up valid contracts with the HMO's in order to give them relief."
  6. There is a "serious potential for brokers and insureds to game the system...A rational person would cancel their old policy and take out a new policy at the artificially low rate...it could be very damaging to the 2010 business plans."
  7. If the HMOs succeed in overturning the price controls in court, "employees run the risk of a retroactive bill from their employer for health insurance back to April 1."
  8. Three insurers are already under formal state oversight due to insolvency risks, and more such situations are likely due to the price caps. "This has the potential for a 'run on the bank' for the [insurers in question]."
  9. All insurance companies, including HMOs, "are still recovering from a very difficult investment climate," leading to further concerns about their solvency.
  10. "The HMO's cannot be legally required to sustain these losses in the merged market forever." HMOs will exit the market, leaving Massachusetts residents without access to insurance.
  11. Some hospitals will be hit disproportionately if an insurer goes bankrupt, "depending on the level of business with the insolvent HMO. Also, the Commonwealth's General Fund is in no condition to assist in a bailout."
  12. A Massachusetts resident who incurs health expenses out-of-state, if his insurer goes bankrupt, will be personally liable for those expenses. The out-of-state hospital "will demand payment from the Massachusetts resident, who may only recover cents on the dollar [from his bankrupt insurer]."
  13. An epidemic of insurer bankruptcies could lead to a loss of Massachusetts' accreditation with the National Association of Insurance Commissioners, which "would not be helpful to the many life and property and casualty companies that call Massachusetts home."
Murphy, Dynan's boss, did not take too kindly to these objections. "Negative and conclusory statements about the effect of the Divison's actions on insurers and the market are unprofessional and counterproductive." Dynan half-heartedly apologized in a written letter dated June 4, saying "I should have been more careful in the selection of words I used to express my private opinion."

On June 9, both the Boston Globe and the Boston Herald ran stories about the dust-up. Dynan could not be reached for comment and appears to have been muzzled. "Murphy said Dynan was either on vacation or on a state-mandated furlough," reported the Herald.

Thursday, June 10, 2010

Health Wonk Review Review: Of Dartmouth, Doc Fixes, and Droppings

Cross-posted from The Agenda on National Review Online.

This fortnight’s Health Wonk Review was hosted by Tinker Ready of Boston Health News. A number of subjects we’ve discussed at The Agenda were on the docket.

The Dartmouth Atlas fracas was foremost on healthcare bloggers’ minds; Kate Steadman of Kaiser Health News compiled an excellent summary of left-of-center opinion on the topic. Today Steadman posted a follow-up of right-leaning commentary, including an outstanding article on the topic by John Goodman. Goodman points out that “this…discussion is very similar—almost word-for-word similar—to the public policy discussion over public education that has been underway for a quarter of a century.” Merrill Goozner finds common ground with conservatives, noting that the Dartmouth data “by itself tells us nothing about why…overutilization [of health care resources] occurs.”

The Senate is presently debating yet another patch of Medicare’s sustainable growth rate formula (SGR), otherwise known as the “doc fix.” Health Care Renewal reviews a number of structural problems with the SGR, and notes that a big part of the problem is the mysterious Resource-Based Relative Value Scale (RBRVS), an exclusive province of the American Medical Association that is used to determine Medicare reimbursements for various medical and surgical procedures. A major new article in the New England Journal of Medicine, HCR opines, fails “to mention the key roles of the RBRVS Update Committee, the obscure, opaque AMA committee that de facto controls the payment system, without public input from any other individuals.” The AMA’s role in setting reimbursement schedules is a significant conflict of interest, and one that explains why the AMA supported Obamacare when so many physicians did not. The Hospitalist Leader also discusses the problems of the RBRVS Update Commttee and its impact on the doctor shortage.

Austin Frakt agrees with conservative complaints that Obamacare incentivizes employers to drop health coverage for their employees, but points out that a gradual elimination of employer-sponsored health insurance is actually a good thing. He’s right, except for the fact that the Obamacare-led individual market is heavily subsidized, and a flood of unexpected entrants into that market will sink the Treasury.

John Goodman asks: “Should everyone be required to have health insurance? The short answer is no. There is nothing that can be achieved with a mandate to buy health insurance that cannot be better achieved by a carefully designed system of tax subsidies.”

The guys at InsureBlog point out how remarkable it is that, at a time that the U.S. health care system is becoming more like Canada’s, Canada’s system is seeking to become more like ours.

In light of Memorial Day, the Veterans Administration health system was on the minds of many. Jason Shafrin of Healthcare Economist points out that the VA outsources a significant amount of its health services, undermining its claim to be a model for single-payer health care. The New Health Dialogue discusses Phil Longman’s book on the VA, Best Care Anywhere. “If it’s good enough for wounded warriors and the American Legion, maybe it deserves a second look.”

Wednesday, June 9, 2010

More Thoughts On Dartmouth

See "Why The Dartmouth Flap Matters For Obamacare" for background.


John Goodman has an excellent piece out today on the Dartmouth fracas. He makes a compelling analogy between efforts to improve healthcare quality by government fiat and those who have tried to reform the public education system:
Now for 25 years, education policy experts have been asking this simple question: Is there a way for the funders of care (the buyer side of the market) to get low-performing schools to produce as well as the high-performing schools? In other words, can we use the power of the purse, the power of authority or any other governmental power to replicate excellence?

The answer appears to be: No. Every example we have of a good school is an example of excellence achieved because of the enthusiasm, energy, leadership, vision, etc. of people on the supply side of the market. We have no examples of good schools created by federal judges, school boards, city governments, state governments, etc. (unless you count magnet schools that siphon off all the best students).

The same thing is true in health.
He also points to a provocative NCPA study by Andrew Rettenmaier and Thomas Saving, who show that unusually high regional spending by Medicare is often offset by unusually low spending by private insurers or Medicaid:
News stories often imply that doctors in high-spending Medicare states are practicing medicine in a way different from doctors in low-spending states. One is left to infer that this must also be true for Medicaid patients and private patients as well. But this inference is not entirely true.

For example, although Louisiana is the highest spending Medicare state and South Dakota is the lowest, average per capita health care spending for the whole population is actually lower in Louisiana ($5,040) than it is in South Dakota ($5,327). This is not an isolated case:
  • Although Texas is fifth highest in Medicare spending per capita, it is 43rd in per capita spending for the state's entire population.
  • California is 11th in Medicare spending, but 42nd overall.
  • North Dakota is 43rd for Medicare, but 11th overall.
It appears that high Medicare spending is often associated with lower spending on the non-Medicare/Medicaid population and vice-versa. This observation is consistent with cost shifting between public and private payers, although there may be other explanations as well.
The whole thing is worth a read.

Why The Dartmouth Flap Matters For Obamacare

Cross-posted from National Review Online.


The liberal end of the blogosphere is aflame with criticism of press coverage of a health-care database at Dartmouth College. While the debate may seem arcane, it is worth a closer look. For it relates to one of the key justifications for Obamacare: that the rising cost of health insurance is largely due to the greed and incompetence of ordinary physicians, and that government alone can fix this problem.

First, some background. Over twenty years ago, Dr. Jack Wennberg of Dartmouth Medical School started tracking regional variations in Medicare expenditures; his diligent compilations came to be known as the Dartmouth Atlas of Health Care. The group that tends this database has gained broad academic respect over the years. In 1997, Wennberg’s son David helped to found Health Dialog, a consulting firm based on the Dartmouth work; in 2007, it was sold to British insurer Bupa for $775 million.

It wasn’t until 2009, however, that the Dartmouth Atlas became truly famous. In June of that year, Atul Gawande of The New Yorker published an article, “The Cost Conundrum,” describing medical practices in McAllen, Texas, an area that the Dartmouth Atlas identifies as one of the most expensive health-care markets in America. “In 2006,” observed Gawande, “Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average.”

But, wrote Gawande, there was no discernible justification for McAllen’s high costs. In El Paso, a town that is in many ways similar to McAllen, Medicare spent only half of what it was spending in McAllen: $7,504 per enrollee. Importantly, the Dartmouth data suggested that McAllen’s increased medical utilization wasn’t leading to better results: Indeed, based on Medicare’s rankings, McAllen’s hospitals were performing worse than El Paso’s. The reasons, it appeared, were ignorance and avarice. Many doctors were simply unaware of how their practices deviated from medical convention. In addition, Medicare mostly pays doctors and hospitals on a fee-for-service basis; therefore, health-care providers have incentives to order more tests and conduct more operations, so they can collect more fees.

Gawande’s piece gained enormous attention. David Brooks called it “the most influential essay of 2009.” It became required reading in the White House. Recounted Sen. Ron Wyden (D., Ore.), “[The President], in effect, took that article and put it in front of a big group of senators and said, ‘This is what we’ve got to fix.’” Peter Orszag, the White House Budget Director, used the Dartmouth data to argue that health-care expenditures could be reduced by $700 billion—over 30 percent—without sacrificing quality. The Dartmouth data allowed Democrats to imagine a glorious possibility: that the increased expense of universal health insurance could be paid for by intimately regulating medical practice in a way that wouldn’t harm, and might even improve, the quality of care.

Fast-forward to last week, when Reed Abelson and Gardiner Harris published a front-page article in the New York Times that was highly critical of the Dartmouth work. “Dartmouth’s claims about which hospitals and regions are cheapest may be suspect,” they wrote. “The real difference in costs between, say, Houston and Bismarck, N.D., may result less from how doctors work and live. Houstonians may simply be sicker and poorer than their Bismarck counterparts.” Abelson and Harris wrote that, among other things, the Dartmouth Atlas didn’t take local cost of living into account when making its measurements, which meant that expensive cities like New York might suffer if the government tried to correct for variations in health-care spending.

The article provoked a fierce rebuttal from Jonathan Skinner and Elliott Fisher, the Dartmouth researchers who now maintain the Atlas. They correctly pointed out that the Atlas does remove cost-of-living considerations from the equation by measuring utilization (i.e., the number of tests and procedures) as well as dollar expenditures. Maggie Mahar of the Century Foundation, an excellent liberal health-care blogger, tracked down the other academics quoted in the Times article, who told her that the Times had misrepresented their views. “It sounds as if it were written by someone’s ex-spouse,” one of her sources told her. “Harris and Abelson were determined to write a story that would ‘take down Dartmouth.’”

Technically, Skinner and Fisher are right: The Times article contains factual and analytical errors. But there are numerous other critiques of the Dartmouth methodology that have not been fully resolved. Rates of chronic disease and poverty are not well accounted for in the Dartmouth statistics, though the Dartmouth team is doing more in this realm than before. Another problem is that the Dartmouth work tries to separate out health spending by medical diagnosis, but does not take into account the severity of illness or the incidence of multiple diseases in the same patient. Another fault is that the study fails to take into account the impact of racial and economic diversity within a given area. Yet another is that the Atlas measures Medicare fee-for-service spending alone, and does not study health-care spending for individuals with private insurance, or with Medicare HMOs. In addition, the data do not take into account regulatory or legal variations among the states, such as differences in malpractice law.

The list of disputations goes on, but you get the point. The Dartmouth group, to its credit, does its best to produce a thoughtful, empirical analysis of variations in health-care spending. And it is of course true that some doctors are unaware of best practices, and that others try to game the system. But it is one thing to catalogue unusual spending, and another to decide which portions of that spending are unnecessary, and quite another altogether to fashion federal regulations that will eliminate the spending that has been deemed unnecessary. There are several fallacies in these great leaps of logic that led the Obama administration to the conclusion that the Dartmouth Atlas can teach the federal government how to micromanage the practice of medicine.

First off, as we can learn from the very data compiled in the Atlas, a number of institutions—such as the Mayo Clinic in Minnesota and the Intermountain system in Utah and Idaho—have succeeded in combining high quality and low cost, without federal intervention. As the Intermountain story shows, these improvements require painstaking focus and, above all, personal relationships with participating physicians. Much more can be done by the private sector to improve the quality of health care, in particular by adopting electronic health records. But there is little evidence that the federal government has the competence to achieve such improvements by bureaucratic fiat.

Second, the government is largely responsible for the original problem. The biggest distorter of physician behavior is what the Dartmouth group delicately describes as “the current reimbursement system”—that is, Medicare. Medicare is what gives physicians incentives to spend as much as they can on patients, and it’s not simple greed: It’s about erring on the side of marshaling all available resources for your patient. In the bad old days, when more people paid for their expenses out of their own pockets, without insurance, doctors were much more conscious of keeping their patients’ financial health in mind. Now that retirees pay little to nothing for Lamborghini health care, their doctors are liberated from having to think about cost.

Third, it isn’t clear that a single-payer system would eliminate variations in health-care spending. As Cato’s Michael Cannon has pointed out, the Congressional Budget Office has looked at Veterans Administration data and found that the VA health-care system contains almost as much variation as the Medicare system, despite the government’s complete control.

Fourth, Orszag is wildly exaggerating when he claims that 30 percent of health-care spending could be saved by using the Dartmouth Atlas to eliminate all unnecessary expenditures. It would be much better for health outcomes, but just as absurd, to seek to cut costs by eliminating all obesity from the country. Eliminating the entirety of wasteful health-care spending would be like eliminating, via federal mandate, every messy desk in America. That is to say, doubtful. And it is not metaphysically possible to eliminate all waste. Quite a bit of what we call “waste” is actually uncertainty: performing heart surgery, say, on someone who may or may not require it. As in war, sports, and courtship, the best medical decision is often more obvious in hindsight than it is in the heat of the moment.

Fifth, while it is a good thing for physicians to adopt the best evidence-based guidelines for clinical practice, every human being is different. There are exceptions to every protocol, medical cases that defy conventional logic. America in particular is a genetically diverse nation; treatments that work in some populations may not work in others. Treatments that work in some individuals don’t work in others within the same population. A one-size-fits-all approach to the practice of medicine is especially appealing to those who have never done it, but it would in reality cause innumerable headaches and heartaches.

And so, the debate about the ins and outs of the Dartmouth Atlas is not merely a statistical one. It is about something more fundamental: Can government do a better job of managing medicine than doctors and hospitals can, or should the doctor-patient relationship remain sovereign? There is plenty of waste in medical care today, but the Dartmouth Atlas demonstrates that government is the problem, not the solution.

Tuesday, June 8, 2010

Obamacare: No Fries For You

Cross-posted from Critical Condition on National Review Online.


John Goodman called my attention to work by John Hoff of the Galen Institute, who won a Politico contest to flag the most overlooked health reform provision:
John Hoff, of the Galen Institute, found a choice paragraph in Section 4205. The provision, which requires chain restaurants and vending machines to provide nutrition notices, instructs the HHS Secretary to “consider standardization of recipes and methods of preparation, in reasonable variation in serving size and formula of menu items, space on menus and menu boards, inadvertent human error, training of food service workers, variations in ingredients…” Considering recipes? Sounds more like cooking class, less like health reform.
I, for one, am not holding out hope that the HHS forces McDonald's to serve medium-rare Niman Ranch hamburgers with blue cheese and jalape├▒os on top.

Saturday, June 5, 2010

Podcast: The Health Care Overhaul and the Deficit

Sounding off on the budgetary bloggers of Pennsylvania Avenue.

Yesterday, I spoke with Ben Domenech, Managing Editor of the Heartland Institute’s Health Care News, about the recent tit-for-tat between the two titans of Washington fiscal wonkery: Congressional Budget Director Douglas Elmendorf, and White House Office of Management and Budget Director Peter Orszag. Here is the full audio (performance by browser may vary):



The Heartland Institute’s health care subsidiary, Consumers for Health Care Choices, does a nice weekly podcast on health care policy, to which you can subscribe via iTunes.

Friday, June 4, 2010

Can Health Care Consumers Make Competent Decisions?

Cross-posted from The Agenda on National Review Online.


Insofar as the debate between the Left and Right on health care is one of philosophy—liberty vs. egalitarianism—it will go on forever. But there may be other areas where empiricism can play a role in bridging our differences.

I was reminded of this last night when having dinner with my cousin and her husband in Chicago. They are both dyed-in-the-wool progressives, whose major objection to a more free-market approach is that consumers are not sophisticated enough to make wise decisions about their own care.

There is something to this critique, one that has been around at least since Ken Arrow founded the field of health economics in the 1960s. Given the complexity of medical knowledge, health insurance plans, etc., isn’t it appropriate for the government to have a large role in protecting consumers from unwise decisions and inefficient practices?

My personal view is that liberals underestimate the degree to which consumers are capable of making sound decisions about complex products. After all, we buy auto insurance policies, laptops, cars, credit cards, etc. all the time; and while the law has a role in protecting consumers against outright fraud, policy experts tend to underestimate the ability of informed consumers to shape efficient market practices. The Internet, in particular, has brought enormous resources to bear on this problem. And where consumers simply can’t learn enough, we mustn’t forget the purpose of the patient-doctor relationship, whatever its imperfections, is to provide just this sort of advice.

This brings me to an intriguing post over at Forbes from Harlan Krumholz, a Yale cardiologist, who suggests that improving the patient consent process could lead to better decision-making and cost efficiencies:
A few weeks ago I made a modest proposal to the medical profession in the pages of the Journal of the American Medical Association. I suggested that we make informed consent meaningful and provide patients with the critical information that should be available to anyone contemplating a major test or procedure.

I suggested that in non-urgent situations, when there is time for deliberation, patients be told their options, given realistic estimates of risks and benefits, informed about the track record of the institution and physicians who will provide the service, and provided an estimate of the costs to them.

My proposal was to standardize the information to patients who are considering some of the most common elective tests and procedures. Assemble panels of expert doctors and determine where there is consensus about the minimum information that all patients should know. Work with educators and psychologists to determine how to convey the information fairly and impartially. Inform patients that the best decision will be aligned with their values and preferences and that no one decision is right for everyone.

This solution to rising health care costs does not involve rationing care. It does not shift payments to patients or reduce payments to doctors. It does not require complicated legislation or regulation. The solution simply ensures that patients are making an informed decision.

Look what happened to John. I arranged for John to meet another cardiologist—someone who would explain the options and be sure that John had realistic expectations about the benefits and risks of the angioplasty procedure. In the end, John opted to focus on treating his risk factors with drugs and defer the invasive procedure. And he has done well.

My hunch is that, just like John, disclosures to patients about their options and expectations will lead many of them to seek less rather than more. Even more importantly, the quality of care will improve as we will be more confident that the care provided is what the patient wants.

In this way, we can reduce health care costs simply by telling the truth.
It is an interesting idea, and one that could be adopted without any government intervention: relevant medical societies (in John’s case, the American College of Cardiology) could come up with consensus guidelines as to what language should be included in the informed consent documents for various procedures.

Taking Krumholz’s idea a step further, it would be nice if these professional societies, perhaps under the umbrella of the American Medical Association, could consolidate all such informed consent language on a single web site. This way, patients and their families could gain access, in plain language, to the best available peer-reviewed assessments of various approaches to their conditions.

Thursday, June 3, 2010

Obama Budget Chief: "I Wholly Agree" That Budget Is Unsustainable

But it's somebody else's problem.


Peter Orszag, Director of the White House’s Office of Management and Budget, responded in a blog post to Congressional Budget Office Director Peter Elmendorf’s blunt take-down of Obamacare. Unfortunately, his response is more spin than reality:
CBO Director Doug Elmendorf recently gave a presentation on health costs and the fiscal outlook. Doug concludes that the federal budget remains on an unsustainable course even after enactment of the Affordable Care Act, and I wholly agree with him.

There should be no ambiguity about whether we face unsustainably large deficits over the medium- and long-term. We do. That is why the Administration’s Budget proposes significant additional deficit reduction and that is also why the President has formed a bi-partisan Fiscal Commission charged with recommending measures to achieve medium term fiscal sustainability and to meaningfully improve the long-run fiscal outlook.
Yeah, so after passing a trillion-dollar entitlement, let’s propose a non-binding commission to come up with suggestions that we can blame Congress for not doing anything with!
The fact that more action must be taken on the deficit even after enactment of the Affordable Care Act, however, is a distinct question from whether the health legislation helps to improve our fiscal course — which it does.

In particular, CBO estimates that the Act will reduce the deficit by more than $100 billion over the next ten years and more than $1 trillion in the ten years after that. That’s more deficit reduction than has been enacted in over a decade.
Given that this assertion has been refuted countless times, I won’t bother with it. At this point, there are only two camps of honest people: those who believe Obamacare will blow up the budget, and that this is a problem; and those who believe that Obamacare will blow up the budget, and that this is not a problem (because wealth redistribution is more important, and because the wealthy can be taxed more if needed).
Perhaps more importantly, the Act has the potential to fundamentally transform our health system into one that delivers better care at lower cost. This potential isn’t fully captured in CBO’s numbers, and that’s appropriate. CBO produces its estimates based on what has happened in the past, and we have never enacted such a fundamental transformation.
Here we agree. Yes, the CBO does not capture the best-case scenario for Obamacare, but it is most certainly not the worst-case scenario, either.
The new law incorporates the most promising ideas from economists and leaders from across the political spectrum to control health care costs. As I have written before, this includes the vast majority of the options CBO itself suggested for reducing long-term health care cost growth. And we now have a variety of new institutions that will be devoted to guiding policy toward higher-quality and lower-cost outcomes.
The new law incorporates ideas from liberal economists and progressive politicians—few of which, if any, will work, because they ignore a fundamental truth about health care: subsidized health insurance leads to more health care spending.
The bottom line is that we are on a long journey toward fiscal sustainability — but that should not diminish the importance and potential of the Affordable Care Act.
A long journey that has been made longer by Peter Orszag.

Wednesday, June 2, 2010

Obamacare's Hidden Time Bomb, Cont'd.

Cross-posted from The Science Business on Forbes.com.


Last month, I wrote about how new restrictions on health insurance “medical loss ratios”—the proportion of medical expenses paid out to premium revenue received—could destabilize the insurance market. It turns out that the state insurance commissioners forced to implement Obamacare are worried about the same thing.

On April 12, Health and Human Services Secretary Kathleen Sebelius wrote a letter to the National Association of Insurance Commissioners, asking them to give her their feedback as to how to implement the MLR restrictions. She gave them a deadline of June 1 to get back to her. Well, June 1 has come and gone, and the NAIC has been unable to meet the deadline:
We will unfortunately not be able to complete it by June 1st as you have requested. We certainly appreciate the need to complete this project as soon as possible – waiting until the deadline of December 31, 2010 in the law is not an option – but we also appreciate, as you do, how critically important it is to do this right. The medical loss ratio and rebate program in PPACA have the potential to destabilize the marketplace and significantly limit consumer choices if the definitions and calculations are too restrictive.
It’s a good sign that the NAIC recognizes the risks of overzealous MLR regulation, and that they are taking the time to make sound recommendations. Their letter shatters the cartoonish illusion that punitive restrictions on insurance companies will benefit consumers.

But remember that the democratically elected insurance commissioners, who represent the views of all 50 states, are more philosophically diverse than the White House is. At the end of the day, the final decisions will rest with Sebelius. Will she do the right thing for consumers, by undermining a key plank of Obamacare? Or will she do the political thing, undermining the stability of the insurance market?

How Socialized Medicine Harms Veterans

Cross-posted from The Agenda on National Review Online.


Michael Cannon posted a great piece on the Cato blog yesterday about the Veterans Health Administration. The VA system rarely gets mentioned in the health care debate, which is surprising: it is a homegrown demonstration of how socialized medicine works in the real world. As with the British National Health Service, the U.S. government owns all of the hospitals, and pays for all of the health care, for qualified military personnel. The resultant problems are easy to predict. As Cannon observes:
The Veterans Health Administration shows how incompetent the federal government is when it comes to making medicine a patient-centered enterprise.  After decades of mistreating veterans, the VHA achieved some successes in the past decade or so, such as adopting electronic medical records and improving on some measures of quality.  Yet serious deficiencies remain.  Today’s Los Angeles Times reports that the VA’s disability system is a nightmare for soldiers and sailors disabled in combat.
Anyone who has ever worked at a VA hospital can tell you what a terrible experience it can be. Yale-New Haven Hospital, where I did many of my clinical rotations, is far from perfect—but heading out to the West Haven VA was like traversing the Iron Curtain. The problems facing the VA system will be familiar to anyone who has dealt with the British NHS: unsanitary conditions, leading to higher rates of hospital-borne infections; rationing of drugs and procedures, leading to poorer health outcomes; and on and on.

Policymakers should consider privatizing the VA hospital system and giving soldiers generous private insurance. As Cannon suggests in an earlier piece:
It seems to me that a better approach would be to give vouchers to all personnel currently in the system, but increase pay and let private carriers insure against service-related injuries for all new enlistments and commissions. Such a system could improve the quality of care for vets. It also would give Congress, the armed forces, and the public a lot of very useful information about the costs of foreign policy decisions.
Spinning out the hospitals would also help address another big problem, which is the way regional (non-military) hospital monopolies drive up the cost of health insurance.

It made sense to have a VA system back in the days before our modern hospital system took root. But today, the VA is an anachronism. Those who favor a free-market-based approach to health care should spend some time thinking about how to improve veterans’ health care. Fixing the VA would allow us to do better by our troops, and could serve as a model for real health care reform.

Tuesday, June 1, 2010

CBO's Elmendorf Bluntly Rebukes Obamacare

Remember when health care reform was supposed to be about “bending down the cost curve”?


On Wednesday, Congressional Budget Office Director Douglas Elmendorf spoke at a conference on health care reform hosted by the Institute of Medicine, the health arm of the National Academy of Sciences. “The rising costs of health care will put tremendous pressure on the federal budget during the next few decades and beyond,” said Elmendorf. “In CBO’s judgment, the health legislation enacted earlier this year does not substantially diminish that pressure.”

As Keith Hennessey put it Friday (h/t Reihan Salam), “Never before have I seen a CBO Director so bluntly refute the policy claims of a President and his Budget Director.” Elmendorf’s presentation, which included slides, helps to visualize the problem.

As you can see from the chart above, the two biggest drivers of federal spending on health care entitlements are the effects of aging (i.e., the retirement of the Baby Boomers), and the effects of excess cost growth (i.e., the rising cost of health care). Dealing with the first problem is theoretically easy, but politically difficult: raising the retirement age and/or means-testing Medicare benefits.

Dealing with the second problem involves free-market healthcare reforms that neither Elmendorf nor Obama consider. “It is not clear what specific policies the federal government can adopt to generate fundamental changes in the health system,” writes Elmendorf; “that is, it is not clear what specific policies would translate the potential for significant cost savings into reality.”

Elmendorf is a centrist technocrat; this is what makes his rebuke of the President so striking. But technocratic centrism, in the context of Washington policy-making, is liberalism by default. As a result, while Elmendorf correctly notes that Obamacare will do nothing to curb health-care inflation, he is strikingly optimistic in believing that Obamacare won’t make the problem substantially worse. And small wonder: his projections rely significantly on the research of White House consultant Jonathan Gruber, who happens to have been the intellectual father of Obamacare.

As Megan McArdle and Ross Douthat have noted, Obamacare’s advocates have made many outlandish claims about the law’s benefits. (I wish I could find the 2009 piece in which the editors of The New Republic claimed that if Obamacare passed, people would no longer die of cancer.) Now that the law has passed, those advocates are quietly back-tracking, especially on issues of cost.

A more realistic analysis by PriceWaterhouseCoopers projects that in 2019, because of Obamacare, the average household will pay an additional $9,500 per year for health insurance, on top of the increases caused by conventional health inflation. For a family making $75,000, that is like a hidden income tax of 13 percent, on top of all the other taxes we already pay. One way or another, Elmendorf’s benign cost projections will soon bump up against reality. Let us hope that the law is repealed before we ever have to say “we told you so.”

Is Intermarriage On The Decline?

Cross-posted from The Agenda on National Review Online.

I got interested in the topic of intermarriage—what was once called “miscegenation”—after reading a brilliant article on the subject by Nathan Glazer in The Public Interest back in 1995. (The magazine’s complete archives are now freely available on-line thanks to National Affairs.) Glazer pointed out that marriage between people of different ethnicities, especially blacks and whites, was the last frontier in racial integration:
After we become ready to work in politics together, to earn our living together, to go to school together, to live together in the same communities, it is not surprising that this increasing togetherness should lead for many to intermarriage. Intermarriage is so crucial a final step because it does more than mark the attraction between two individuals—it marks the highest degree of social acceptance.
To me, this is an exceptionally important and underappreciated idea: that true racial integration can only happen when people are willing to integrate those of other ethnicities into their families.

Unsurprisingly, intermarriage is a signal of how intractable black segregation has been. In his 1995 piece, Glazer cited data that, while 50 percent of American Jews marry outside of their ethnicity, and 30 percent or more do so among Asians and Hispanics, blacks had not: as of the 1980 census, the intermarriage rate for black women was 1.3 percent; the next lowest figure for women was Puerto Rican women, at 21.3 percent.

This, in many ways, was the true symbolic promise of Obama’s presidency: not merely that Obama was the first African-American President, but that he was the son of a white mother and an African father, someone who, in his very existence, was a symbol of racial integration. And yet, there has been little progress on the intermarriage front from 1980: in 2006, the intermarriage rate for black women was 3.7%, and was 8.4% for black men.

In a 1997 piece in National Review, Steve Sailer took a pessimistic take on intermarriage, noting that black men intermarry at much higher rates than black women, and Asian women at much higher rates than Asian men. He contended that these discrepancies cause a number of inter-ethnic tensions that the mainstream media has not grasped:
Black women’s resentment of intermarriage is now a staple of daytime talk shows, hit movies like Waiting to Exhale, and magazine articles. Black novelist Bebe Moore Campbell described her and her tablemates’ reactions upon seeing a black actor enter a restaurant with a blonde: “In unison, we moaned, we groaned, we rolled our eyes heavenward…Then we all shook our heads as we lamented for the 10,000th time the perfidy of black men, and cursed trespassing white women who dared to ‘take our men.’” Like most guys, though, Asian men are reticent about admitting any frustrations in the mating game. But anger over intermarriage is visible on Internet on-line discussion groups for young Asians. The men, featuring an even-greater-than-normal-for-the-Internet concentration of cranky bachelors, accuse the women of racism for dating white guys. For example, “This [dating] disparity is a manifestation of a silent conspiracy by the racist white society and self-hating Asian [nasty word for “women”] to effect the genocide of Asian Americans.” The women retort that the men are racist and sexist for getting sore about it. All they can agree upon is that Media Stereotypes and/or Low Self-Esteem must somehow be at fault.
(More of Sailer’s work on the topic can be found here.)

This brings us to new studies by Daniel Lichter and Julie Carmalt of Cornell and Zhenchao Qian of Ohio State, highlighted in today’s Wall Street Journal, that suggest that intermarriage rates are stagnating or even declining among Hispanics and Asians. Intermarriage among second-generation Hispanic women declined to 16% in 2000 from 22% in the 1990s; among Asian women, the percentage married to white men stayed at about 40% between 1980 and 2008.

“The massive influx of new immigrants from Latin America and Asia has not only fueled the opportunity to marry one’s co-ethnics,” hypothesizes Lichter, “but also revitalized ancestral and cultural identity.” While that could be, a 40% intermarriage rate for Asian women is still quite substantial, where the influx of new immigrants is lower than it is for Hispanics.

Is there a more benign explanation for these disparities than Sailer contends? Are the trends identified by Lichter, Carmalt, and Qian distorted by recent immigration patterns? All in all, this is a subject to pay close attention to.