Why Obama's Deficit Commission Makes Me Miss Bill Clinton

Cross-posted from National Review Online.

UPDATE: National Review Online has posted an audio version of this article. So, if you’re puttering around the house and you feel like listening to someone read this article on your behalf, this mp3 file is for you:

It’s an oft-repeated joke in Washington: When the going gets tough, the tough appoint a commission. Presidents appoint commissions so they can say that they’re “doing something” about a politically thorny problem without actually making any difficult choices.

But congressional commissions aren’t always the joke they’re made out to be. In 1988, as the Cold War came to an end, Congress organized the Base Realignment and Closure Commission as a way of reducing our military footprint. The unorthodox idea was to close obsolete military bases on strategic merit, rather than the parochial interests of individual congressmen. The BRAC process was an enormous success, and the “peace dividend” that BRAC generated did much to balance the budget in the 1990s.

In 1997, Congress created the National Bipartisan Commission on the Future of Medicare as part of the Balanced Budget Act of that year. Led by Sen. John Breaux (D., La.) and Rep. Bill Thomas (R., Calif.), and with a staff headed by an unknown 26-year-old named Bobby Jindal, the Breaux-Thomas Commission put together the most credible plan for Medicare reform ever to receive bipartisan support. Unfortunately, because of the political dynamic fostered by the Monica Lewinsky scandal, that plan never made it into law.

President Obama sought to draw on the credibility of these commissions when, last January, he established the National Commission on Fiscal Responsibility and Reform. The president had already signed the $1 trillion stimulus package and was assembling the votes to push Obamacare through the House. He needed to throw a sop to those who were complaining about deficit spending. And a sop is what he got.

The commission, as designed, consisted of 18 members: six appointed by the president, six appointed by the House, and six appointed by the Senate. President Obama chose former Wyoming senator Alan Simpson, a moderate Republican, and Erskine Bowles, who was chief of staff in the Clinton White House, to lead the commission. Obama’s other appointments consisted of one Republican and three Democrats, and the House and Senate each sent three Democrats and three Republicans. For anyone keeping score, that adds up to ten Democrats and eight Republicans.

This was a commission set up for failure. In order to endorse a formal proposal, the commission required 14 votes out of 18: 78 percent of the commission’s members. When you consider the fact that Andy Stern, a left-wing laborite, was never going to vote for any serious deficit-reduction measure, you’re talking about 14 out of 17, or 82 percent. It’s hard enough to get a simple majority of politicians to agree on deficit-reduction measures, let alone a four-fifths majority. And that’s before you consider the fact that Republicans, who are normally more sympathetic to deficit-reduction measures, were outnumbered: Even if all eight of them supported the commission’s findings, six out of ten Democrats would also need to join in.

Given these odds, it’s somewhat miraculous that the commission came up with any useful ideas at all. To its credit, the Commission made constructive proposals for capping discretionary spending, reforming Social Security, and simplifying the tax code (albeit with substantial tax hikes).

But the commission utterly failed in the area in which it needed most to succeed: steering our health-care entitlements onto a sustainable path.

According to the long-term outlook of the Congressional Budget Office, nearly the entirety of the growth in federal spending -- and hence the entirety of the growth of our fiscal cancer -- is driven by runaway spending on health care: Medicare, Medicaid, the Children’s Health Insurance Program, and Obamacare’s exchange subsidies. In contrast, over time, Social Security and other discretionary spending will actually stay relatively constant as a percentage of GDP.

When it comes to health care, the commission’s plan would hardly prevent a fiscal collapse: Instead, it would guarantee one. By replacing the meaty plan of the old Breaux-Thomas group with a hodgepodge of half-measures, the commission did nothing to address the fundamental flaws in government health policy.

First off, this being President Obama’s commission, repealing Obamacare was off the table. Hence, any consensus would involve endorsing and ossifying the budget-busting aspects of our new health-care law: the massive expansion of Medicaid and the huge new insurance subsidies for lower-income individuals. (The CLASS Act, a new entitlement for long-term care, was a notable exception; the commission did recommend its repeal, if it cannot be adequately reformed.) Spending on these programs is certain to exceed CBO projections, and tax rates can’t increase fast enough to make up the difference.

The commission missed other opportunities for reform. Instead of eliminating the employer tax exclusion—the tax break that allows employers but not individuals to buy health insurance tax-free—the Commission proposed tinkering around the edges: capping the deductible amount at the 75th percentile of premium levels and reducing the “Cadillac tax” on expensive health plans.

In contrast, real reform would either eliminate the exclusion altogether, or give individuals the same tax break, so that individuals could buy insurance for themselves. This reform alone would transform our health-care system and is arguably more important than any other. Instead of seizing this opportunity, the commission chose to dabble in it.

On Medicare, the commission did its least bad work. The core problem with Medicare is this: If people are able to get an unlimited amount of health care for free, they will use more of it than they need. There are two ways to solve this problem: (1) giving seniors more control over their own health-care dollars, so they have an incentive to spend the money wisely; or (2) empowering government bureaucrats to deny care when they find it too costly. It won’t surprise you to learn that the commission leaned toward option number 2.

The commission did make some constructive proposals on the free-market side: It proposed (very modestly) increasing the degree to which seniors share in the costs of care, and it proposed (again, modestly) restricting the ability of private insurers to offer “Medigap” plans that wipe out Medicare’s cost-sharing provisions. The commission proposed ending the practice of reimbursing hospitals and doctors for bad debts caused by failure to collect co-payments from patients, something that should have been done a long time ago.

But they proposed these measures only to pay for increased spending elsewhere, and other needed reforms were nowhere to be found. The commission didn’t address the need to index the Medicare retirement age, nor the need to means-test Medicare benefits. Paul Ryan’s proposal to gradually shift Medicare from a defined-benefit to a defined-contribution plan—one that would do much to solve the fiscal problem—was shriveled into a symbolic pilot program within the Federal Employees Health Benefits System.

The rest of the commission’s proposals for Medicare involve enhancing the reach of Obamacare: expanding the authority of the Independent Payment Advisory board; applying Medicaid-style drug-price controls to Medicare; and accelerating the implementation of the legislation’s Medicare pilot projects.

On Medicaid, a $500 billion–a–year (and growing) program that has somehow managed to become a fiscal crisis and a humanitarian crisis at the same time, the commission proposed essentially nothing. They aspire to “restrict and eventually eliminate” a Medicaid tax loophole that states use to bilk the federal government, for savings of around $5 billion a year, though they didn’t specify how to do it. They hope to pass some administrative costs to the states, for a “savings” of under $300 million a year. They recommend that Washington grant waivers to certain states, under a plethora of conditions, to experiment with their own ideas for Medicare reform.

Given that Medicaid is the program most immediately in crisis, with the potential to drive large states such as New York and California into bankruptcy, the commission’s silence on Medicaid is breathtakingly irresponsible. It’s one thing for the Commission not to endorse real Medicaid reform: but to not even propose it?

If you’ve managed to get through the preceding 1,300 words, let me summarize them in one: punt.

On December 3, the commission’s findings received the support of eleven of its members, well short of the 14 it needed to make an official endorsement. (Those opposed included Max Baucus, all of the House members save John Spratt, and—wait for it—Andy Stern.) But on the critical issues surrounding health-care entitlements, the commission, as a group, got nowhere.

Is there hope for Americans concerned about our fiscal dysfunction? Yes, some. The commission’s final report does contain a few measures that the next Congress would do well to consider. The path forward, however, is most likely to revolve around proposals put forth by individual commission members. James Capretta praises the plan from Paul Ryan and Alice Rivlin, which, while imperfect, far exceeds the commission’s work in wrestling with health-care entitlements. Importantly, come January, Representative Ryan will be in charge of the House Budget Committee, and will be thereby able to put some of his ideas into actual legislation.

Ultimately, the failure of the National Commission on Fiscal Responsibility and Reform was a failure of leadership. One man could have done much to encourage the commission to take bolder steps and tackle the hardest issues. Unfortunately, that man was President Obama. Who could have figured that Obama would make Americans miss Bill Clinton?

The Fiscal Commission on Health Care Reform

Cross-posted from The Agenda on National Review Online.

The National Commission on Fiscal Responsibility and Reform has put out its anticipated report, entitled “The Moment of Truth.” In this post, I summarize the Commission’s recommendations on health care policy, with minimal editorializing. I’ll put out a subsequent post with my assessment of the actual quality of these recommendations.

Overall, the Commission aims to achieve $4 trillion in deficit reduction through 2020, by capping revenue at 21% of GDP (higher than historical averages) and reducing the deficit to 2.3% of GDP by 2015 (it’s currently 8%). Because Medicare and Medicaid are such are such huge components of federal spending, achieving these fiscal goals requires substantial changes to our government’s involvement in health care. These include:

Modifying the employer tax exclusion. Currently, employer-provided health insurance is excluded from taxable income, something that grossly distorts our health care system by taking purchasing decisions out of individuals’ hands and placing them in the hands of HR bureaucrats. I have advocated eliminating this exclusion entirely as a way to increase revenue and lower health costs. The Commission advocates capping the deductible amount at the 75^th percentile of premium levels in 2014, and freezing the cap (i.e., not indexing it to inflation) from 2018 to 2038. The Commission also advocates reducing Obamacare’s “Cadillac tax” to 12% from 40% on high-cost plans.

Reforming the Medicare Sustainable Growth Rate (SGR) “doc fix”. The “doc fix” requires the government to reduce payments to doctors and physicians if health costs exceed the Sustainable Growth Rate, a blend of health inflation, GDP, and other measurements. Congress keeps overruling the SGR and paying doctors and hospitals at higher rates; bringing payment rates in line with SGR in 2012 would require a 23% cut to physician and hospital payments. The Commission recommends freezing rates at current levels (i.e., continuing to spend well above SGR levels), enacting a 1% cut in 2014, and directing Medicare to come up with a new payment system that would “cost about $22 billion less” than freezing payments at current levels. That is to say, the Commission advocates punting the SGR situation and saving costs elsewhere to make up for the excess spending.

Reform or repeal the CLASS Act. The CLASS Act, a voluntary entitlement for long-term care, was famously described last year by Kent Conrad as “a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of,” but Conrad voted for it anyway. The Commission advocates reforming the CLASS Act “in a way that makes it credibly sustainable over the long term”—good luck with that—or repealing it.  Because the CLASS Act will rake in more money in the near term but lose money in the long term, it is considered a deficit-reducing measure within the CBO’s ten-year scoring window. Hence, repealing it will require matching tax increases or spending cuts.

Paying for SGR reform and CLASS Act repeal. The Commission recommends offsetting the above SGR and CLASS Act reforms above with a long litany of reform measures that are projected to save $391 billion from 2012 through 2020:

• Waste, fraud, and abuse ($9 billion in savings from 2012 through 2020). “Increasinging the ability of CMS to combat waste, fraud, and abuse” (don’t laugh) “by providing the agency with additional statutory authority and increased resources.”
• Increased cost-sharing ($110 billion). Reforming Medicare cost-sharing rules, by increasing the amount seniors pay for increased health spending. This is key to any serious attempt to reform Medicare. The Commission recommends a single combined annual deductible of $550 for Medicare Parts A and B (hospital and medical care), with 20% coinsurance up to $5,500, 5% coinsurance from $5,500 to $7,500, and 0% cost sharing above $7,500.
• Restrict Medigap plans ($38 billion). This is another key element of serious Medicare reform: restricting the ability of private insurers to write plans that piggyback off of Medicare coverage, incentivizing seniors to overspend on health care. The Commission recommends prohibiting Medigap plans from covering the first $500 of an enrollee’s cost-sharing liabilities and no more than 50% of the next $5,000 in liabilities.
• Extend Medicaid drug rebate to dual eligibles ($49 billion). Currently, seniors who are eligible both for Medicare and Medicaid pay the private-sector (i.e., market-rate) prices for drugs through the Medicare prescription drug benefit. The Commission advocates requiring pharmaceutical companies to give these individuals the much-lower Medicaid rates.
• Reduce “excess” payments to hospitals for medical education ($60 billion). At present, Medicare provides supplemental funding to hospitals in order to subsidize the cost of training medical interns and residents (recent medical school graduates). The Commission advocates reducing these payments using a new formula.
• Cut Medicare payments for bad debts ($23 billion). Medicare reimburses hospitals and doctors for deductibles and copays owed those providers by patients, giving hospitals and doctors no incentive to track down those missed payments. The Commission recommends ending this practice.
• Accelerate Obamacare home health savings ($9 billion). The Commission recommends moving up the timetable for changes to reimbursements for home health providers, as mandated by PPACA, by several years.
• Eliminate state gaming of Medicaid tax gimmick ($44 billion). According to the Commission, many states game the system by taxing hospitals and doctors, and then using those revenues to pay for more health care delivered by those hospitals and doctors. Because the federal government gives states more Medicaid funding if the states “spend” more, this system allows states to effectively force Washington to fund profligate Medicaid spending. The Commission recommends “restricting and eventually eliminating this practice,” but declines to give specifics.
• Place dual eligibles in Medicaid managed care ($12 billion). Because the government reimburses doctors and hospitals at much lower rates in Medicaid relative to Medicare, putting these patients on Medicaid will save the government money. It will also reduce administrative redundancy.
• Reduce funding for Medicaid administrative costs ($2 billion). The Commission advocates passing these costs onto the states.
• Allow expedited application for Medicaid waivers in well-qualified states (no savings specified). The Commission advocates allowing ten states to opt out of the traditional Medicaid system, if they meet a set of “certain objective threshold criteria,” in order to come up with innovative new approaches.
• Malpractice reform ($17 billion). The Commission advocates incremental reforms to the malpractice litigation system, such as creating specialized health courts, allowing safe haven rules for providers who follow best practices, imposing a statute of limitations, etc. The Commission advocates that Congress “evaluate the impact” of “statutory caps on punitive and non-economic damages”: a victory for Democrats.
• A pilot voucher program through the Federal Employees Health Benefits (FEHB) system ($18 billion). The Commission advocates using the popular FEHB program as a vehicle for road-testing a voucher system that could be adapted to Medicare at some unknown point in the future.

Implementing Obamacare’s cost-saving measures as soon as possible. The Comission recommends directing Medicare “to design and begin implementation of [PPACA’s] Medicare payment reform pilots, demonstrations, and programs as rapidly as possible.”

Allow IPAB to cut payments to hospitals. For all the talk about “death panels,” the Medicare Independent Payment Advisory Board, which is tasked with reducing Medicare spending, is essentially only allowed to cut payments to doctors if health costs grow too quickly. The Commission advocates allowing IPAB to cut payments to hospitals as well.

Establish a long-term global budget for total health care spending. The Commission recommends “requiring both the President and Congress” to make further recommendations about reducing health spending.

How Medicaid is Burying the Empire State

Cross-posted from National Review Online.

Medicaid is, first and foremost, a humanitarian disaster. Studies have repeatedly shown that the program fails so badly that indigent patients fare no better than, and often worse than, those with no insurance at all.

But there is, of course, another Medicaid-driven crisis: the one in which skyrocketing spending on Medicaid is annihilating state budgets all across the country, a problem that Obamacare makes significantly worse.

The State of New York is a poster child for how decades of irresponsible management of Medicaid can drive a state treasury into a ditch. On Monday, New York lieutenant governor Richard Ravitch published a thoughtful and distressing report that details the depth of the problem. Medicaid is “the largest single driver of the State’s growing expenditures,” writes Ravitch. “The current State budget crisis,” in turn, “is threatening New York’s ability to handle the growth of this program without dramatically raising taxes or cutting other essential government services.”

Ravitch notes that nearly one-quarter of all New York state residents — 4.5 million people — are on Medicaid. In the 2010 fiscal year, local, state, and federal parties spent more than $50 billion on Medicaid in New York, far more than any other state in the union, and nearly 40 percent of New York’s 2010 budget of $132 billion. New York spends more on Medicaid per capita than any state — double that of neighboring New Jersey and Connecticut, and 2.3 times that of California, the second-largest state in total Medicaid expenditures.

But the near future makes 2010 seem paradisiacal by comparison. Over the next four years, as the federal bailout of spendthrift states expires, Albany expects its Medicaid spending to increase by 18 percent a year. Then, in 2014, Obamacare forces the state to increase the number of people who are eligible for Medicaid, expanding the state’s fiscal liabilities and constraining its latitude to institute needed reforms.

In his 17-page report, Ravitch traces the recent history of how New York’s Medicaid program came to this pass. Most important, New York has been one of the most aggressive states in taking advantage of federal matching funds in order to expand its Medicaid program, making it one of the most lavish in the country. Unfortunately, it has been politically easy to expand Medicaid during good times, but impossible to rein it in during bad times; indeed, during the financial crisis of 2008–09, the state actually expanded its Medicaid coverage, and Medicaid enrollment increased by 600,000.

Another problem, the transformation of Medicaid from a welfare program to an entitlement program, was a result of the passage of federal welfare reform in 1996. When Medicaid was first instituted in 1965, nearly everyone eligible for Medicaid was already on welfare: that is, they were receiving direct cash assistance. After 1996, New York’s welfare rolls shrank dramatically, while its Medicaid rolls continued to expand. “Today,” writes Ravitch, “only one out of six New York children and adults receiving Medicaid services also receives cash assistance,” because most people on Medicaid are employed, albeit with below-average incomes.

A third problem is that Medicaid provisions such as “spend-down” rules and the doctrine of “spousal refusal” allow higher-income individuals to game the system and gain Medicaid eligibility, by rearranging their assets. (John Hood discusses this problem in the Summer 2010 issue of National Affairs.)

A fourth problem is that New York’s methods of reimbursing doctors and hospitals for Medicaid services is specified line-by-line in state law. Ravitch writes:

For most areas of Medicaid payment in New York — in-patient hospital care, freestanding ambulatory care centers, home health agencies, nursing homes — the basic formulas for reimbursing Medicaid providers are set directly by the State legislature as part of the annual negotiations over the budget. Even minor adjustments require legislative action. As a result, the State has found it exceedingly difficult to control Medicaid costs by improving and updating payment methods.

For example, until recently the State was required by law to reimburse hospitals for most in-patient care under a complex inflation-adjusted formula devised in 1981. Since that time, there have been revolutions in hospital operations, staffing, and technology — changes for which the inflation rate is a grossly inadequate proxy. But because the formula was embedded in statute, it took almost 20 years, until 2009, for the methods to be updated.

This is a key issue with government-run health insurance, both at the state and federal levels: Government insurance is inherently politicized, and reacts slowly, if at all, to innovations in health-care delivery and technology.

A fifth problem is administrative fragmentation: In New York, responsibility for coordinating Medicaid is spread out between the Office of Health Insurance Programs, the Department of Health and Mental Hygiene, and the Office of Long Term Care. In addition, administration of Medicaid in New York is divided between the state government in Albany and 57 county governments. This allows clever patients to game the system, and leaves others in need to fall through the cracks.

So: what to do about it? Ravitch offers some sensible proposals for incremental improvement. Notably, he advocates tort reform:

Any serious Medicaid cost control effort requires reform of the State’s expensive and inequitable malpractice system, which exerts significant cost pressure on the program. Reform should aim at significant premium relief for physicians, reduced coverage costs for hospitals, and promotion of patient safety. The legislative components of a reform package should include tort reform measures such as a cap on non-economic damages, a neurologically impaired infant fund, and specialized courts.

He also advocates reform of New York’s spend-down and spousal-refusal rules, administrative consolidation, and outsourcing of reimbursement decisions to a board of experts. He favors transitioning Medicaid’s fee-for-service patients into a managed-care model. He advocates a tax on sugary soft drinks. He also encourages Albany to lobby Washington for more money.

The most effective state-based Medicaid reforms, however, are notably absent from Ravitch’s report: introducing consumer-driven health plans into Medicaid, as Mitch Daniels has in Indiana; converting the Medicaid program over to a cash assistance or premium-support model that allows lower-income individuals to buy private insurance; and closely matching New York’s Medicaid-eligibility requirements to those of federal law.

Richard Ravitch deserves credit for bringing thoughtful attention to New York’s biggest fiscal problem. But his deck-shuffling recommendations for reform won’t do enough to solve the underlying problem. The approached favored by many in Albany — tax increases on the wealthy — won’t work either, since New York’s richest can easily relocate to neighboring states.

For better or worse, Richard Ravitch isn’t running for governor this year. Andrew Cuomo, who is, echoes only the most Democratically palatable of Ravitch’s proposals: consolidating Medicaid’s administration in Albany; outsourcing reimbursement decisions to an expert panel; etc. (Reliably, Cuomo’s 252-page agenda contains not one word on tort reform.)

By contrast, Cuomo’s Republican opponent, Carl Paladino, seeks to reduce the state Medicaid budget by $20 billion “by eliminating optional programs that special interest lobbyists purchased from the Albany ruling class with huge campaign donations.”

Paladino’s proposal, though lacking in detail, is a promising start, for it at least reflects the political courage needed to get Medicaid’s balances in order. Ultimately, though, altering the trajectory of Medicaid spending requires fundamental reform. Such reform will certainly require leadership from New York’s next governor, but also a fiscally serious state legislature and a rollback of Obamacare. New York’s voting taxpayers have their work cut out.

Health Wonk Review Review: Medicaid's Rescissions

Cross-posted from The Agenda on National Review Online.

This fortnight’s Health Wonk Review, hosted by Joe Paduda of Managed Care Matters, is notable for its sober take on the post-PPACA landscape.

John Goodman has an insightful piece on Medicaid’s serious structural problems. He points out that, while advocates of PPACA highlighted first-person accounts of abusive practices by private insurance companies, Medicaid’s practices are far worse:

Yet, in all the episodes of [private insurer] abuse, do you recall even a single instance where an insurer:

• Arbitrarily dropped coverage for tens of thousands of enrollees with the stroke of a pen — just to save money.
• Dropped entire categories of care — such as dental care or home health care — because it decided these services were too costly?
• Arbitrarily reduced the fees it paid to doctors and hospitals, pushing many out of its network, and leaving its enrollees with serious access to care problems?

Probably not. For a private insurer, each of these activities would be a serious violation of contract. There is one insurer that does these things routinely. It’s called Medicaid and about half of all the newly insured people under the PPACA will be enrolling in it.

In response, Jonathan Cohn rose up to defend Medicaid: “[Private-sector] rescission is the product of insurers trying to make money at the expense of people in need. Medicaid cuts are the product of society trying to help people in need, but coming up short.” Except that private-sector rescissions are exceedingly rare, compared to the hundreds of thousands of people affected by Medicaid rescissions.

Jason Shafrin reviews the burdens that states will face in expanding Medicaid. He concludes: “Who are the winners? The poor and near-poor who receive additional coverage. Who are the losers? Providers who must accept lower payment for Medicaid and the rich who must pay higher taxes to cover these individuals.” Except that the rich includes the middle class, and that it’s not obvious that Medicaid really helps people.

Jaan Sidorov of the Disease Management Care Blog thinks that attempting to repeal Obamacare, given that President Obama will veto any such attempt, is a “waste of political energy” and refuses to “vote for any candidate spouting [such] silly rhetoric.” He thinks Republicans should focus on underfunding key elements of PPACA, such as the hiring of new IRS agents, and introducing better reforms. Maggie Mahar is “convinced” that conservatives will fail in repealing PPACA, and rebukes liberals who believe that repeal is a good thing, because it would hasten the advent of a true single-payer system.

Advocates of health insurance price controls have taken to criticizing the reserves accumulated by private insurers. When insurance companies take in more premiums than they spend on health expenses and administrative costs, they often keep the difference in a bank account, in “reserve,” so as to ensure that they can remain solvent in bad times. Price-control advocates have been arguing that these reserves are excessive, and that state governments should force insurers to draw down on their reserves by charging lower premiums. Mike Feehan of InsureBlog responds to one such argument, from Consumers’ Union on not-for-profit Blue Cross and Blue Shield plans.

Joanne Kenen of the New Health Dialogue writes insightfully about the difficulties in managing end-of-life care in the emergency room.

Julie Ferguson of Workers Comp Insider fears that the PPACA regulations that define what a “Cadillac plan” is will force many employers to drop health coverage: “Most large employer plans, so defined, will be subject to potentially expensive penalties, thus strongly incenting employers to relegate employee health care to the soon to be created exchanges.”

Joe Paduda wonders why insurers complain about rising health costs: “Isn’t that your job? In return for getting millions of new members, aren’t health plans supposed to figure out how to manage care and control costs?” David Williams at the Health Business Blog has an answer: it’s not so easy for health insurers to steer people to cost-effective treatments. He discusses a paper in the American Journal of Managed Care about “value-based insurance design,” that describes many of the logistical challenges insurers face in trying to execute on these strategies. Aaron Carroll, newly of the Incidental Economist, isn’t too worried: “Insurance companies are very, very good at what they do. I don’t doubt that they will find ways to remain profitable.”

Building the Case for Medicaid Reform

Cross-posted from The Agenda on National Review Online.

For those who haven’t had their fill of the Medicaid reform discussion, the full results of the UVa surgical outcomes study have been published in the online edition of Annals of Surgery. (I ask everyone who has had their fill for forgiveness.) There are a couple of points that keep coming up in the comments and in responses from other bloggers, so I want to spend at least one post addressing them.

Austin Frakt writes that, contrary to my expressions of concern, he is quite open-minded to the possibility that outcomes with Medicaid are poorer than those of the uninsured (and especially those with private insurance). He remains reasonably skeptical that studies like the Virginia one adequately control for the poor social and health status of the Medicaid population:

There are undoubtedly studies that consider Medicaid vs. uninsured outcomes using the random variations provided by the natural experiment that is Medicaid. Characteristics of the program vary by state and year, making it a perfect set-up for such an analysis of this issue. This second I can’t point to a study. But I know where to look. One place to start would be to examine the literature cited by Stan Dorn on Ezra Klein’s blog at the Washington Post (tinyurl.com/StanDorn), Harold Pollack on The New Republic’s The Treatment blog (tinyurl.com/HPollack), and by J. Michael McWilliams on this blog (tinyurl.com/JMMcWill).

That’s it. That’s my position, and it always has been. If you read carefully you ought to notice that I didn’t actually condemn or praise Medicaid. I didn’t actually say how it should be reformed. I just listed the possibilities.

It is certainly important, in any study comparing Medicaid to other insurance populations, to control for the kinds of things, like prior health status, that negatively skew Medicaid outcomes. In medicine-speak, these factors are called comorbidities. As I have written before, one must be careful with comorbidity analyses not to eliminate the ways in which Medicaid actually contributes to poor health status.

Having said that, the authors of the Virginia study did control for 30 different comorbidity measures, using a widely used, highly validated methodology first worked out by Anne Elixhauser and colleagues in 1998. Using 1992 data from 438 California hospitals, Elixhauser et al. identified those factors that most significantly contributed to “substantial increases in length of [hospital] stay, hospital charges, and mortality.”

Notably, the Elixhauser comorbidities include several factors that many associate with the Medicaid population: AIDS, alcohol abuse, depression, drug abuse, liver disease (such as hepatitis), obesity, and psychoses.

(The others are: deficiency anemia, arthritis/collagen vascular disorder, chronic blood loss anemia, congestive heart failure, chronic pulmonary disease, coagulopathy, uncomplicated and complicated diabetes, high blood pressure, hypothyroidism, lymphoma, fluid and electrolyte disorder, malignant cancer, neurologic disorders (other than stroke), paralysis, peripheral vascular disease, pulmonary circulation disorder, renal failure, solid tumors (non-malignant), peptic ulcer disease (without bleeding), heart valve disease, and weight loss.)

The Virginia study authors also controlled for income, age, and gender.

To me, this is a responsible, comprehensive, and quantitatively validated list of comorbidities and adjustments. To those who disagree: what other adjustments would you have preferred to see? Which, if any, of these additional adjustments would have had a significant impact on the results of the study? What data can you cite to support their importance, and to support that they are independent of the effects of Medicaid itself or of welfare dependency? Austin has written extensively about the general concept of controlling for extenuating factors, so his thoughts on this topic could be illuminating.

Austin also writes that a definitive study to measure the benefits of Medicaid against those with other forms of insurance (or uninsurance) would need to be prospective—that is to say, we take X number of people, put half on Medicaid and half on something else, and see what happens. While he’s right that prospective studies are, all else being equal, better than retrospective ones, they can also be misleading if they aren’t stratified properly by health status, social factors, etc. Another disadvantage of prospective studies is that they usually sample a much smaller number of people than retrospective studies can. Even if we could design a good prospective Medicaid study, actually conducting one would be very difficult and take several decades to play out. I hope we can all agree to use the best available evidence in the meantime.

I would also point out to Austin that exactly the same arguments could be applied to PPACA: i.e., let’s do some well-designed, prospectively-controlled studies before adding 16 million people to the Medicaid rolls at a cost of $100 billion a year.

Aaron Carroll points out that the UVa study focuses solely on surgical outcomes. Aaron, as a pediatrician, wonders whether its results are applicable to non-surgical situations. I have addressed this issue in part, but I will take a look at pediatric outcomes in a separate post.

Aaron also notes that Medicaid is voluntary: but this is weak support for the implication that Medicaid, in its current form, is the best we can do. In the Vietnam days, some conservatives used to tell liberals to “love [America] or leave it.” I don’t remember liberals being too happy about that. Nor does Medicaid’s voluntary nature mean, ipso facto, that it must be doing some good. Does the voluntary nature of Medicare overutilization mean that Medicare overutilization is a good thing? Most liberal health policy types that I know believe otherwise.

A number of people ask: “Ok, let’s suppose for a minute that the UVa study is accurate, and that those on Medicaid do fare worse than the uninsured. Are you suggesting that we abolish Medicaid and do nothing about the problem of the uninsured?” No—I am suggesting that we transition to something akin to the Swiss model, whereby we offer graduated subsidies with which the poor can buy consumer-driven private insurance. Simply sending them the cash would be far more efficient than what we do now.

I would ask those who ask these philosophical questions if they are happy with Medicaid as it is, or if they have their own ideas for reform. Hopefully we can get past this idea that criticizing Medicaid equals seeking to abolish assistance for the needy.

The evidence of Medicaid’s problems is, in my view, overwhelming. I encourage those who believe otherwise, or are simply agnostic, to spend some time going through the data. Medicaid reform is an issue that should unite those who are concerned with the plight of the poor, and those who are concerned about America’s fiscal condition. These are the two things, after all, that health care reform was supposed to be about.

Medicaid Reform in One Easy Step

Cross-posted from Critical Condition on National Review Online.

Stimulated by the comments of reader Joe C., I went back and looked at the Medicaid numbers. From 2010-2017, here are the Congressional Budget Office’s pre-Obamacare projections for the number of people covered by Medicaid and CHIP, and the Medicaid Actuary’s 2008 projections for federal and state spending on Medicaid (apologies for the small type):

Year (pre-PPACA)	2010	2011	2012	2013	2014	2015	2016	2017
Covered lives (millions)	40	39	39	38	35	34	35	35
Federal expenditures ($bn)	$392.6	$424.0	$457.4	$494.0	$533.3	$576.4	$623.0	$673.7
Federal share	$223.5	$241.3	$260.3	$281.1	$303.5	$328.0	$354.5	$383.4
State share	$169.1	$182.7	$197.1	$212.9	$229.8	$248.4	$268.5	$290.3
Cost per covered life	$9,815	$10,872	$11,728	$13,000	$15,237	$16,953	$17,800	$19,249
Growth rate		10.8%	7.9%	10.8%	17.2%	11.3%	5.0%	8.1%

As you can see, we currently spend almost $10,000 per Medicaid beneficiary, a number that will exceed $19,000 in 2017. The growth of per-beneficiary expenditures is not only well above conventional inflation, but also health care inflation. This is why Medicaid is annihilating state budgets.

What does the average individual health plan cost in the private sector, you ask? According to the Commonwealth Fund, the average private-sector individual health plan in 2008 cost $4,386. If we assume that premiums increased by 6% in 2009 and 2010, we get to a 2010 average of $4,928. In other words, the government is spending twice per Medicaid enrollee than middle-class Americans spend on their own insurance. And this is the system that PPACA wants to expand by nearly 50%.

Austin Frakt asks us to choose between two options: being uninsured, or accepting Medicaid. He posits that most people given that choice would accept Medicaid, despite its problems, and so the solution is to spend more money on the program. But this is a false choice, for two reasons.

The first is, as I’ve discussed elsewhere, a large proportion of the uninsured are not poor. These people are uninsured by choice. (In Massachusetts, instead of responding to the individual mandate, as Austin and others suggest they have, such people will game the system by claiming they have insurance when they don’t.) There are definite advantages to being uninsured over being on Medicaid, if you can pay the bills. The most significant of these is that nearly any doctor will take an appointment with someone who is willing to pay out-of-pocket.

The second of these, and the most important, is: why on earth are we spending twice as much on people with Medicaid as we do on private insurance for middle-class Americans, only to get substantially worse medical outcomes? People on Medicaid have poorer access to care (for reasons I have discussed elsewhere), and have more health problems in general. Let’s generously say that their health care should cost 50% more than that of the average American.

So here’s a modest proposal: Instead of spending $400 billion on Medicaid in 2010, let’s spend $300 billion, but instead of spending it on Medicaid, or even on vouchers, let’s write checks to the poor. Instead of filtering $9,815 per Medicaid enrollee through a cascade of government employees, let’s send $7,361 in cash into the mailboxes of impoverished individuals, to spend on whatever is most important to them and their families. It achieves more efficient wealth redistribution than does Medicaid, and allows the poor to afford high-quality, private-sector health insurance. If they are healthy, they can buy inexpensive insurance and save the extra cash; if they are sick, they can use the entire amount for insurance. This approach would not only save money, and appeal to the poor, but it would align Medicaid inflation with health inflation, saving trillions of dollars over time. Indeed, if healthy Medicaid beneficiaries choose less-expensive, consumer-driven plans, such a reform could actually bring Medicaid inflation below overall health inflation.

I can already hear an objection: what if they spend the cash on bad things, like alcohol, instead of good things, like health insurance? I would argue that the enormous efficiencies of a direct transfer payment outweigh that risk. At any rate, vouchers are designed to address exactly that concern. But those who wish to better control how the poor spend taxpayers’ money are perfectly able to do so without my encouragement.

Re (3): UVa's Surgical Outcomes Study

Cross-posted from The Agenda on National Review Online.

Austin Frakt is back for more, with two more posts on the issue of Medicaid’s poor performance in outcome studies vs. the uninsured. I am afraid that Austin makes a couple of analytical errors. These will take some time to go through, so I forgive readers who don’t want to wade in the tall weeds with me. In summary, the evidence Austin cites to argue that Medicaid might be just fine actually demonstrates the opposite: that Medicaid patients get worse medical care than do the uninsured, and that PPACA’s massive expansion of Medicaid will have tragic consequences.

To begin with, Austin is re-energized by some useful commentary from Aaron Carroll. Writes Carroll:

- Insurance doesn’t equal care.  Insurance can affect how likely you are to get care and how quickly you might get it.  But any study that looks at insurance has to adjust for many, many other variables in order to get the true effect of insurance.

- There is a large body of literature out there on insurance.  A lot of it shows that people with private insurance do better than those with public insurance or those without insurance; that should not be a surprise.  Most people (and most of your docs) would rather have private insurance than Medicaid.  But would you really rather have no insurance than Medicaid?  If so, that is everyone’s right.  Don’t get the Medicaid.  I wager few would make that choice.

- I find it interesting that most of the literature that Avik cites is about surgery.  Surgery is different than other types of care (like emergency care) in that it is harder to refuse.  So it may be that the uninsured are getting care on a compassionate basis.  Few would provide a screening mammogram or yearly colonoscopy to someone uninsured, however, and you would get that with Medicaid.

I entirely agree that insurance does not equal care: indeed, this is the point I have been trying to make all along. Medicaid, in particular, because it is heavily underfunded and mismanaged, is insurance of a kind, but not care. And as I pointed out in my previous post, arguments that the studies don’t adjust for enough variables miss the point. We are trying to distinguish between cause and effect: what elements of Medicaid’s poor outcomes are caused by Medicaid, and what elements are inherent to the Medicaid population? Clearly, things like one’s race or gender or age are not caused by Medicaid. But the chronically poor care that Medicaid patients receive, because they have poor access to physicians, is directly responsible for many of their comorbidities. Therefore, correcting for comorbidities, while a useful tool, treats Medicaid overly generously.

Medicaid, due to its extreme underpayment and other problems, gives its beneficiaries very poor access to health care—things like annual checkups, screenings, etc. In Texas, for example, only 32 percent of all physicians are willing to see Medicaid patients. A nationwide survey of major metropolitan areas found that 55% of physicians accepted Medicaid, with particularly low numbers for specialists.

Skeptics of the Virginia study want us to say: “The studies are flawed! They don’t consider all of subtle ways in which Medicaid patients are worse off!” Well, what if the main reasons that Medicaid patients are worse off has something to do with…Medicaid?

As to Carroll’s point about the fact that the uninsured aren’t getting mammograms and colonoscopies, but Medicaid patients are: that isn’t true, because Medicaid patients can’t get appointments to see doctors (see above). If Carroll was right, it would only render even more striking the fact that the uninsured have their cancers detected earlier than do Medicaid patients. With breast cancer specifically (since he brings up mammograms), Medicaid patients were 31% more likely to have late-stage breast cancer than the uninsured. With surgical resections for colon cancer (since he brings up colonoscopies), in a separate study, Medicaid patients had a 27% higher risk of mortality than the uninsured, and a 9% higher risk of surgical complications.

Carroll makes another minor point, which Frakt echoes:

I’m going to take a tiny issue with Avik’s first post.  It was based on (as far as I can tell) a meeting abstract…I’m not saying the results of Avik’s discussed study aren’t valid.  I’m saying I can’t tell.  And neither can you, without more information.  The peer review for a meeting just isn’t the same as for full publication.  You have less time, different criteria, and almost nothing by which to judge the work.

As I have commented elsewhere, the full study is in press in the Annals of Surgery. It should be out in a few weeks, relieving Carroll's concerns. I certainly agree that the detailed study results, published in a peer-reviewed journal, will be useful. Skeptics of the study are setting themselves up for disappointment if they hope that the detailed results will exonerate Medicaid. Indeed, the detailed results are likely to show that social factors (e.g. alcohol and drug abuse) were counted as comorbidities, and were not meaningfully different between Medicaid and the uninsured anyway.

The Virginia study is based on the largest publicly available inpatient database in the U.S., that of the Nationwide Inpatient Sample. The NIS represents approximately 20% of all hospital discharges in the country. The UVa study is the most comprehensive analysis, with the largest sample size, of any published study comparing surgical outcomes on the basis of insurance status.

So, back to Austin Frakt. Austin implies that the Virginia study, and the other studies I cite, are “cherry-picked.” I can assure him that the four studies I described are representative. He is more than welcome to slog through the medical literature, as I did, and see if he comes up with a different conclusion. He won’t.

Austin then goes and picks out a single study, the thing he had earlier criticized me for, and uses that study to suggest that it is premature to conclude that Medicaid patients fare worse than the uninsured. Even worse, Austin actually misinterprets the results of the study he cites! Let us quote its authors (emphasis mine):

Most of the reasons for insurance-related disparities noted above for the uninsured are also applicable to Medicaid patients. Differences in the intensity of inpatient care, limited access to health care services, unmet health needs, and suboptimal management of chronic medical conditions were also reported for Medicaid patients in prior research. These factors likely contributed to the higher in-hospital mortality in this patient population, evidenced by the sequential decrease in odds after adjusting for comorbidities and disease severity.

Translation: Medicaid patients have poorer access to physicians. As a result, their diseases are managed very poorly. This leads them to die in the hospital at higher rates than the uninsured (in Austin’s study, Medicaid patients had a higher mortality than the uninsured with heart attacks and pneumonia, but did better than the uninsured with strokes). As the authors note, additional adjustments for risk factors increase the evidence that Medicaid is the problem, because those risk factors are the ones that Medicaid exacerbates.

I am glad that Austin has taken on this challenging subject. But I encourage him to take the effort he spends attempting to dispute that Medicaid has problems with access to care and medical outcomes, and apply it to actually solving those problems. (Suggesting that we throw an extra $200 billion a year into Medicaid is not viable.) I hope I am wrong, but I fear that he is less than enthusiastic about addressing the problems, because that would require him to acknowledge that PPACA’s massive expansion of Medicaid was a catastrophic mistake.

Re (2): The UVa Surgical Outcomes Study

Cross-posted from The Agenda on National Review Online.

I’m grateful for Austin Frakt’s continued interest in the problem of Medicaid’s poor outcomes. Here are his most recent thoughts:

Avik Roy responds to my post. He lists several more studies that find Medicaid patients have far worse outcomes than privately insured ones and the uninsured too. I’m not going to undertake a literature review. I don’t have time. So, I’m not really debating the merits of the studies Avik Roy cites or whether they are representative of the entire body of work in this area.

So, let’s presume they are credible and representative, then what is the implication? Should we make Medicaid more like private insurance or more like no insurance? Should we Federalize the program?

I believe that everyone should have access to affordable insurance that facilitates access to affordable, high-quality care…If Medicaid doesn’t fill that role for low-income individuals, some of whom are very sick and/or disabled, then it should be reformed. That probably means spending more money on it.

I’m not getting the sense that’s what Roy has in mind. He writes that “most people can afford to take on more responsibility for their own care, and indeed would be far better off doing so.” That sounds like he wants to make Medicaid more like no insurance.

Austin is a thoughtful guy, so I’m surprised to see him argue that throwing more money at a dysfunctional system is the best path forward. We already spend $436 billion a year on Medicaid, only to achieve the dismal results reflected in the Virginia study. Once PPACA is fully implemented, Medicaid may surpass Medicare as our most expensive health-care program. Medicaid is overwhelming state budgets, crowding out other essential government services. And I haven’t even mentioned our federal deficit. In the post-Obamacare era, increasing physician reimbursement for Medicaid patients to still-stingy Medicare levels will cost $200 billion a year. If Austin has that kind of change under his couch, he should let us know!

I instead favor, as a start, what Mitch Daniels has accomplished with the Medicaid program in Indiana (before PPACA destroys it): subsidized health savings accounts combined with consumer-driven health plans. And Indiana covers people at up to 200% of the poverty line, compared to Obamacare’s 133%. Instead of covering more people, I would more heavily subsidize those at or below the poverty line, in order to bring Medicaid’s low physician payments in line with those of the private sector. Ideally, we would move to a modified version of the Swiss model, in which everyone purchases consumer-driven plans in the individual market, with graduated subsidies for lower-income households.

Ultimately, the goal should be to minimize the number of people who require subsidized insurance. This requires comprehensive health reform aimed at reducing the cost of health care: de-linking employment from insurance; broadening the reach of consumer-driven care; creating a national insurance market; aggressive antitrust enforcement against providers; medical tourism; transparency; malpractice reform; and Medicare reform.

Austin also passes along the comments of some of his readers, who question the methodology of the Virginia study. Reader Jay worries that the Virginians didn’t control for prior health status. On the contrary, they controlled for 30 co-morbid conditions, along with age, gender, income, geographic region, and surgical procedure. They may not have directly controlled for smoking or alcohol consumption (we don’t yet know), but these issues would show up in the comorbidities and in the surgeries themselves. For example, lung resections are typically performed on smokers.

Reader Steve worries that they chose procedures that would be heavily tilted to academic centers, and that this biases the results. From my reading, the procedures they chose are among the most common high-morbidity surgical procedures performed today, which is what you would want an outcomes study to examine. A larger issue, which I discussed in my previous post, is that Medicaid patients appear to spend more time in low-volume surgical centers.

Steve also says:

I would bet almost anything that they do not look at all of the social factors that would contribute to worse outcomes for a Medicaid population. Docs don’t generally look for those. If you are uninsured, how long have you been uninsured? Are you working if you are uninsured? What is the functional capability of someone on Medicaid not working vs. someone uninsured who is working? Which group is more likely to have communication problems? Which group is more likely to give a better history? Which group is more likely to get family support? Which group is staff more likely to dislike?

Steve is missing the point. It’s not the job of these studies to eliminate every conceivable factor that leads Medicaid patients to underperform the uninsured. Rather, they are seeking to establish whether or not Medicaid patients underperform the uninsured, after controlling for basic factors like age, income, and comorbidities. Once you establish that Medicaid underperforms, you can then begin to propose hypotheses as to why this underperformance happens.

On this score, Steve has reversed the cause and the effect. Welfare dependency is what leads to problems like family breakdown, underemployment, and diminished functional capabilities. Dumping 16 million more Americans into our broken Medicaid system is not the answer, but rather its antonym. It is not compassionate, but cruel.

Re: The UVa Surgical Outcomes Study

Cross-posted from The Agenda on National Review Online.

Austin Frakt thinks I am making too much of the University of Virginia study showing that surgical patients on Medicaid fare more poorly than do the uninsured:

Never draw broad policy conclusions from one study. It could hurt your brain. Well it hurts mine, anyway…The policy implication is that we should make Medicaid as close as possible to private insurance, thereby making Medicaid surgical patients 97% less likely to die. Or, if that is too costly, we should instead make Medicaid more like no insurance at all and boost survival by 13%. Talk about bang for the buck!

One way this could make sense is if very little health care (such as that the uninsured might receive) is bad for you, a little bit of, perhaps low quality, health care (such as that Medicaid patients might receive) is very bad for your health, and a lot of perhaps higher quality health care (that the privately insured enjoy so much) is very very good for you.

Or maybe there’s a problem with the study.

Austin is convinced that access to health insurance is better for health outcomes than being uninsured. That is why he, and many others, supported PPACA. The UVa study agrees with him, insofar as those with private insurance fare much better than do the uninsured.

But what is striking about the study, and what gets to the heart of the policy assumptions around PPACA, is that state-run Medicaid insurance may not make much of a difference. Indeed, the literature as to the poor performance of Medicaid is overwhelming.

Austin’s first criticism—that I am relying on one study—can be addressed by surveying the medical literature for similar studies. The Virginia study appears to be, by far, the largest and most comprehensive surgical outcomes study ever conducted that compares Medicaid to the uninsured. Here are some others:

·    A University of Pennsylvania study published in Cancer found that, in patients undergoing surgery for colon cancer, the mortality rate was 2.8% for Medicaid patients, 2.2% for uninsured patients, and 0.9% for those with private insurance. The rate of surgical complications was highest for Medicaid at 26.7%, as compared to 24.5% for the uninsured and 21.2% for the privately insured.

·    A Columbia-Cornell study in the Journal of Vascular Surgery examined outcomes for vascular disease. Patients with clogged blood vessels in their legs or clogged carotid arteries (the arteries of the neck that feed the brain) fared worse on Medicaid than did the uninsured; Medicaid patients outperformed the uninsured if they had abdominal aortic aneurysms.

·    A study of Florida patients published in the Journal of the National Cancer Institute found that Medicaid patients were 6% more likely to have late-stage prostate cancer at diagnosis (instead of earlier-stage, more treatable disease) than the uninsured; 31% more likely to have late-state breast cancer; and 81% more likely to have late-stage melanoma. Medicaid patients did outperform the uninsured on late-stage colon cancer (11% less likely to have late-stage cancer).

I could keep going, but I don’t want to put our readers to sleep.

I would submit to Austin that, instead of assuming that the study must be flawed, because it jars with his intuition, a more scientific approach would be: what could be the logical explanations for why Medicaid underperforms the uninsured? What does the methodology of the study leave out?

The detailed study results will help us address these questions, but the answer almost certainly begins with access to care. Medicaid’s extreme underpayment of doctors and hospitals leads fewer and fewer health-care providers to offer their services to Medicaid beneficiaries.

This is especially likely to be true at the highest-quality surgical centers. A UCLA study published in the Journal of the American Medical Association found that the uninsured and those with Medicaid were far more likely to be treated in low-volume surgical centers than high-volume ones (high-volume surgical centers have consistently been shown to provide the best outcomes).

Another key element to consider is that many of the uninsured are not poor. According to the Census, 17.5 million of the uninsured make more than $50,000 a year. (Median U.S. income is around $40,000 per year.) These individuals are wealthy and/or healthy enough that they have decided to forego insurance. Though the Virginia study corrects for income status and other social factors, the fact that these patients are more capable of paying directly for their own care, at the prevailing rate, means that physicians are more willing to see them.

There is, doubtless, a level of poverty at which Medcaid is better than nothing at all. But most people can afford to take on more responsibility for their own care, and indeed would be far better off doing so.

UVa Study: Surgical Patients On Medicaid Are 13% More Likely To Die Than Those Without Insurance

Cross-posted from Critical Condition on National Review Online.

At a cost of nearly $100 billion a year, Obamacare adds 16 million people to the rolls of Medicaid. The President and his allies are most proud of this aspect of the new law, as it helps to fulfill a long-held progressive goal of providing government-funded health insurance to all Americans.

Except that Medicaid is broken. Medicaid so severely underpays doctors—reimbursing them at 72 percent of already-stingy Medicare rates—that many physicians refuse to see Medicaid patients. Medicaid patients, in turn, fill up emergency rooms, where they delay the care of the seriously injured.

Now comes word, via a large study by the University of Virginia (h/t Joseph Colletti), that surgical patients on Medicaid are 13% more likely to die than those with no insurance at all, and 97% more likely to die than those with private insurance.

The Virginia group evaluated 893,658 major surgical operations from the Nationwide Inpatient Sample database from 2003 to 2007. They divided the patients up by the type of insurance—private insurance, Medicare, Medicaid, and uninsured—and adjusted the database in order to control for age, gender, income, geographic region, operation, and comorbid conditions (having 2 or more diseases simultaneously). That way, they could correct for the obvious differences in the patient populations (for example, older and poorer patients being more likely to have ill health).

They then examined three measurements of surgical outcome quality: the rate of in-hospital mortality; average length of stay in the hospital (longer stays in the hospital are a marker of poorer outcomes); and total costs.

Outcome	Private	Medicare	Uninsured	Medcaid
In-Hospital Mortality (vs. Private Insurance)	1.00	1.54	1.74	1.97
Length of Stay (days)	7.38	8.77	7.01	10.49
Total Costs ($)	$63,057	$69,408	$65,667	$79,140

The in-hospital death rate for surgical patients with private insurance was 1.3%. Medicare, uninsured, and Medicaid patients were 54%, 74%, and 97% more likely to die than those with private insurance.

The average length of stay in the hospital was 7.38 days for those with private insurance; on an adjusted basis, those with Medicare stayed 19% longer; the uninsured stayed 5% shorter; and those with Medicaid stayed 42% longer.

Total costs per patient were $63,057 for private insurance; Medicare patients cost 10% more; uninsured patients 4% more; and Medicaid patients 26% more.

In summary: Medicaid patients were almost twice as likely to die as those with private insurance; their hospital stays were 42% longer, and cost 26% more. Compared to those without health insurance, Medicaid patients were 13% more likely to die, stayed in the hospital for 50% longer, and cost 20% more. It is hard to see how this problem doesn’t get significantly worse when Obamacare’s expansion of Medicaid is fully phased in.

Remember these statistics the next time you see a study claiming that the quality of American health care is no better than that of Europe. Such studies rarely separate patients with Medicaid and Medicare from those with private insurance.

The Virginia study reminds us that the true cost of government health care is not its impact on the budget, but its impact on the lives and health of every American. We can only hope that our representatives in Washington begin to understand this.

Health Care And The Long-Term Budget Outlook

Happy thoughts for your weekend barbecue.

As many readers will be aware, on June 30, the Congressional Budget Office put out its 2010 Long-Term Budget Outlook. This year’s LTBO is notable because it incorporates the CBO’s view of the impact of Obamacare on the long-term fiscal situation. The CBO provides two sets of projections: an “extended-baseline scenario” which contains unrealistic assumptions about the willingness of Congress to rein in spending and raise taxes; and a more realistic “alternative fiscal scenario” that assumes that the Medicare Sustainable Growth Rate (a.k.a. the “doc fix”) continues to get patched, and that tax revenues hold steady at 19% of GDP. Here is how the spending looks:

As you can see, if you exclude government spending on health care (the top area of the graph), federal spending actually goes down over time as a percentage of GDP. In other words, the entire fiscal crisis is being caused by health care spending.

But wait, there’s more, because the above chart doesn’t include interest payments on the debt. When you include interest, the chart looks like this:

In 2055, based on these projections, when today’s college students are getting ready to retire, interest on the debt will be 19.8% of GDP, whereas tax revenues will be 19.3% of GDP. In other words, every dollar spent by the government in 2055 will be borrowed from someone else. In 2055, according to these projections, federal debt will be 410% of GDP.

Enjoy your weekend!

The Coming Crisis In Emergency Care

Cross-posted from The Agenda on National Review Online.

As I wrote last week, emergency room visits in Massachusetts have increased, despite the fact that universal health care was supposed to solve that problem. PPACA is likely to nationalize the phenomenon. John Goodman has an excellent piece up on the Health Affairs blog in which he explains why this happens. It turns out that it is Medicaid patients, rather than the uninsured, who clog emergency rooms:

As we pointed out in a recent National Center for Policy Analysis (NCPA) Brief Analysis, the use of the emergency room by uninsured patients is not that much different than usage by the insured. The heaviest users of the ER (in proportion to their numbers) are Medicaid patients, probably because Medicaid rates are so low that physicians are not anxious to see them. And the reason why that is important is that more than half of the people who gain insurance under the new health reform bill will enroll in Medicaid.

Health insurance leads to more, not less, utilization of health care.

In general, people with insurance consume twice as much health care as the uninsured, all other things equal. The trouble is that the new health insurance law has no provision for increasing the number of health care providers. As a result, when people try to increase their use of physician services, many will be disappointed and a large number are likely to turn to the emergency room when they cannot get their needs met at doctors’ offices.

The conflation of health insurance with access to health care is one of the biggest epistemological problems with the progressive approach, one that the ensuing decade will lay bare.

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.

Health Tank Part II: Medicare & Medicaid Reform

A compilation of the most promising healthcare policy ideas.

The latest addition to Health Tank is a discussion of Medicare and Medicaid reform.

What can be said about Medicare that hasn’t already been said a thousand times? More than you might think, because the problem is actually far worse than people realize. It’s not just that Medicare threatens to swallow up the Treasury. It’s that Medicare is responsible for at least half of the real increase in the cost of health insurance between 1950 and 1990. Medicare incentivizes the elderly to consume health care without any regard to its expense, and underpays hospitals and doctors for the privilege, leading providers to overcharge those with private insurance in compensation.

It is no exaggeration to say that successful reform of Medicare, Medicaid, and Social Security must be our nation’s highest domestic priority.

Some of the ideas I discuss in Health Tank include: means-testing Medicare benefits; raising the age of Medicare eligibility; moving to a consumer-driven system; reforming Medicare cost-sharing; death panels; fixing the underpayment and cost-shifting problems; and block grants to states for Medicaid. On the Medicaid side, one of the biggest problems is how Obamacare drastically expands the program in a way that reduces flexibility for the states.