Posted tagged ‘health care’

Can you like the parts but not the whole?

February 28, 2010

Rep. Chris Van Hollen (Md.), the chairman of the Democratic Congressional Campaign Committee, said the solution might be to change the party’s message by focusing on individual reforms in the massive healthcare bill. … Van Hollen noted to reporters that polls show voters support the individual reforms of the Democrats’ healthcare package1

In the health care debate, liberals are fond of citing polls that show, they say, that voters like individual aspects of Obamacare, but do not like the package as a whole2. They conclude that voters are behaving irrationally, because if all the parts are good than obviously the whole must be good. From this line of reasoning, they deduce that if Congress passes Obamacare, then people will realize they really liked it all along. Alas, the logical premise is false. There are valid reasons why one might like the parts, but not like the whole.

Suppose a family is looking for a pet. Would they like a kitten? Yes. Would they like a puppy? Yes. How about a hamster? Yes. Or maybe tropical fish, a rabbit, a gerbil, or a parakeet? Sure, those are all good choices. So can we make the family very happy by giving them a kitten, a puppy, a hamster, tropical fish, a gerbil, and a parakeet. If they liked each one independently, aren’t they logically obligated to like them all when presented as a group? Clearly not.

Do you like macaroni, spaghetti, potatoes, and rice? Do you want them all in the same meal? How about having a couple of speculative stocks in your retirement portfolio? How about owning nothing but speculative stocks? How about taking a vacation in Florida, Hawaii, the Grand Canyon, Alaska, or the Greek Isles this year? How about going to all of them?

In each each example is that there is something that accumulates beyond an acceptable threshold. There were the work of caring for pets, the blandness of starchy food, the risk of speculative stocks, and the cost of vacations. Among the things that accumulate with health care proposals are the cost, the risk of unintended consequences, and the potentially unacceptable accumulation of power in the hands of government bureaucrats. A total overhaul of the health care system poses risks not presented by any single modification. An incremental approach is inherently less risky because it is then possible to undo a wrong move without so great a risk of system failure.

While one can logically like each part while not liking the whole, it is not true that voters like every element of the health care legislation. When liberals claim that polls show approval of elements of Obamacare, are they claiming approval of the special privileges for certain states, the cuts to Medicare with costs transferred to the insured, the unions’ exemptions from high taxes on “Cadillac plans,” and the new taxes on medical devices and drugs? Those elements are not mentioned by advocates who claim agreement, but the implication is that those features are not important compared to what liberals consider to be the important parts of the legislation.

The norm is that voters would like all manner of new benefits, so long as they don’t have to pay for them. Would you like A, B, C, D, E, and F? Yes! Would you like to pay for A, B. C, D, E, and F? No! A, B, C, D, E, and F are polled separately, so the score is six yeses and one no.

In the past, the game has been to sell new benefits while pretending that someone else will pay for them. Obamacare claims that only the rich will pay for everyone. This time around, voters are not so willing to accept that claim. There may be agreement on a very long list of items. The poison pill is the single item of paying for it. It does not follow that if 90% is favored, that it’s unfair to reject the whole based upon the 10%. The 10% can be fatal.

Actually, Obamacare has several poison pills. Besides cost, there is the risk of imposed rationing and associated deterioration of the overall quality of care. Individuals may find other poison pills. Representative Dennis Kucinich says he won’t vote for any thing without a government option, and other House Democrats have trouble with the risk of government-funded abortions.

The White House position is that many Republican ideas have been incorporated into pending legislation3. The implication is that Republicans ought to accept the “compromise.” The hundreds of Republican amendments that were accepted into the legislation where technical amendments, staff corrections of typographical errors and such. Substantial changes proposed as amendments were uniformly rejected.

There are indeed some substantial Republican ideas in the legislation, but Democrats got to choose the ones they found acceptable. It’s also true that there are elements of the legislation that voters favor. But it is wrong to suppose that the legislation as a whole ought to be therefore considered acceptable. Accumulated cost and risk to the health care system, and poisonous individual included features make the package unacceptable.


1. Alexander Bolton, White House signals new way on health, The Hill
2. CNN Poll: Health care provisions popular but overall bills unpopular
3., Republican Ideas Included in the President’s Proposal

Insurance Industry Profits are an Insignificant Part of Total Health Costs

November 2, 2009

Advocates of increased government involvement in health care frequently cite the profits of private health care providers as a major part of the costs of health care. The numbers, however, show that health insurance and managed care industry profits are 0.36% of the national bill for health care. If the compensation of industry executives is added as part of the alleged problem, then the industry accounts for 0.37% of total costs. The notion that industry profits are responsible for rising health care costs is a fraud.

An example of the criticism is that of Representative Anthony Weiner (D-NY) on the Rachel Maddow show, who said, speaking of proposed legislation that would heavily tax the health insurance industry:

“Well, the one behavioral change we are clearly not going to see is the insurance companies aren’t going to suddenly start saying, ‘You know what, we are going to stop making 30 percent profits and cut it down to 10 percent or 5 percent because of this bill.’ “

So are the insurance company profits really 30%, as claimed?

Fortune magazine rated the health insurance industry as the 35th most profitable of 53 industries surveyed for 2008:

Health Care: Insurance and Managed Care 2.2%

In 2006, in better economic times, according to CNN, health insurance company profits were 7.1%. In the Yahoo Finance ranking of industries (they divide industry into more categories than Fortune) by profitability, “Health Care Plans” rank 84th, with a profitability of 3.3%.

Total insurance company profits were $12.87 billion in 2007 and $8.40 billion in 2008. Total health care spending in the United States was $2.2 trillion in 2007. Insurance company profits were therefore 0.59% of total health care costs in 2007. Since total costs have been rising at about 6%, the insurance company profits would be about 0.36% of total health care costs in 2008.

Ten companies account for the health insurance company profits. The highest paid executive received about $11 million, and the others much less, going down to a few million. In each company the top guy gets by far the largest compensation. The pattern I’ve seen is that the top person at any large company gets about half of the total pay. To be generous, I will suppose that the average top pay is $8 million, and that it is only a third of the total executive pay. So that would make the total for the industry 10 x $8 million x 3 = $240 million. The industry profits were $12.87 billion and $8.4 billion, so $0.24 billion would be added using Con’s definition of profit. that would make the contributions to total health care costs rise from 0.59% and 0.36% to 0.596% and 0.37%, respectively. Even if one were to indulge fantasies that executive compensation were much higher than I had supposed, it would not approach being a major part of health care costs.

Critics counting the numbers from public records for top execs claim that compensation was about $115 million in 2007 and less in 2008. That’s much less than the $240 million I’ve estimated. My estimate includes a factor for second-tier execs.

It’s worth noting that executives earn their pay by reducing costs. In Medicare, some put fraud as 20% of the programs costs. That would be 20% of $440 billion, $88 billion. Private insurance companies police fraud, so their losses to fraud are much less.

The hard numbers do not support critics arguments, so they avoid the numbers by spinning percentages. Percentage increases in profits do not mean the profits were significant. If your business made $10 last year and $100 this year, that’s a 900% increase, but it doesn’t imply you are ready to retire on the Riviera. Insurance companies have made billions, but as we have seen, the billions are not a significant part of the trillions involved in health care.

The health insurance industry profits rose “from $2.41 billion in 2001 to $12.87 billion in 2007.” Thus, I included the highest profit year, when the profits were 0.57% of total spending. Critics uniformly ignore the decline in profits since 2007. The profits in health insurance vary between about 2% and 8%.

To make a more dramatic story, critics ignore the 2008 data. It’s likely 2009 will be even worse, so of course that will have to be ignored as well. What the large percentage changes mean is that the industry is volatile. Anything that can go up rapidly is subject to coming down just as rapidly. Profit margins of 2% to 8% are well below the 9% average for the market as whole, so the picture is not particularly attractive.

Critics also try to spin the profit percentages by claiming that reserve funds keep by insurance companies should not be included in basis for calculating profits. That’s nonsense because the main way that insurance companies make money is by investing the funds held in trust. That’s true of life insurance and virtually all forms of insurance. An insurance company may actually pay out in benefits more than it receives in premiums. A large part of profit comes from investing the reserves, and an insurance company that does a better investment job earns more profit. That’s what they do for a living.

Besides, using a definition of profit that is not shared by anyone in the financial community is a scam in the first place.

Note that changing the definition of profit changes the percentages with respect to the company, but not to the total cost of health care. Even if it is deemed a million percent company profit, it is still $8.4 billion of the $2.2 trillion in health care costs. That’s 0.36%, an insignificant part of the total cost.

Can Government Compete Fairly?

September 23, 2009

I think it is possible for government to compete fairly with private enterprise, although I cannot think of an instance where it has happened. When the question is posed, what first comes to mind are subsidies by taxpayers to the government operation. That’s true, but there are also issues of access to and the cost of capital, costs of building market share, equatable rules of competition, and the risk of failure. All of these factors must be taken into account when considering if there is level playing field. I’m here to help.

If an ordinary citizen has identified a market and wants to start a business to serve it, one of the first concerns is securing the capital to buy facilities and hire employees. Few business start making money on day one, so financing is needed. If it’s very small business, the capital might come out of your saving or from a loan from Uncle Harry. The government isn’t going to do anything small, and, lord knows, it doesn’t have any savings. The avenue is then to write a business plan showing how much money is needed and how it will be repaid. Investors will then consider the risks and potential rewards, and decide if they will put up the capital.

That is usually a non-starter for government. Private markets would never risk the capital needed to legitimately fund a gigantic government operation like a health insurance venture, at least not without guarantees of the full backing of taxpayers. Backing by the taxpayers, however, would be unfair competition. Nonetheless, we don’t want to kill the idea of government ventures at the starting gate. Instead, we will charge the venture at the interest rates prevailing to commercial ventures comparable in size to the new government venture.

Taxpayers should receive not just the rate on government bonds, but rather the rates appropriate to risky commercial ventures. For a health insurance venture, we can use the rates at which large health insurance companies are borrowing money. That’s not quite fair, because the existing companies have a track record. But charging the rates at which, say, the government lent money to AIG will be close enough.

Usually, a new competitor starts small and builds market share slowly by establishing a record of positive performance. A new insurance company would have to start in one state, then expand later if and only if they were successful. It would be a good idea for a government venture to follow that route, and fair competition dictates that they must. Of course, that’s not how government works. So again we are forced to make allowances if they are to have a chance. We can put an additional charge on their books that taxpayers will get back for building market share. Ventures like FedEx, CNN, and USA Today lost money for years before they reached the scale needed to break even. We’ll just estimate the cumulative debt and put it on the books of the government venture.

Now we get to the rules of equitable competition. It would be grossly unfair for a government insurer to offer policies across state lines without private insurers being given an equal opportunity to do so. In that vain, if private insurers are subject to onerous state regulations and reporting requirements, then the Feds must operate under an equal burden. The is no need to make allowances, the Feds get the same regulations.

In the interests of equity, the government venture should conform to all the Securities and Exchange Commission regulations, Sarbanes-Oxley requirements and so forth that are imposed upon large corporation. the venture should fill out all of the tax forms and be subject to audit by all the government agencies whose job it is to audit them. The taxpayers ought to get all of this information anyway, since they are in effect the stockholders.

Ordinarily, the Feds get special treatment for lawsuits. They cannot be sued without their permission. That would have to be waived in the interests of fair competition.

Government ventures do not ordinarily pay local real estate taxes, sales taxes, or income taxes.Fair competition dictates that any government venture pay real estate and sales taxes or equivalent fees in lieu of taxes. While ventures like the Postal Service commonly exempt themselves from local taxes, there is precedent with some military installations paying equivalent fees. It can be done.

Private insurance companies do not to keep all of their profits. They pay state and federal income taxes, at the rate of forty to fifty percent of profits. thus private health insurance includes payments to states and the federal government into general revenues. If those taxes are not paid it would be unfair to taxpayers who would have to pick up the slack. Consequently, for fairness, a government venture ought to make payments in lieu of income taxes. Those payments could be keyed to the taxes paid by the private sector as a percentage of their revenues. If the private sector has a bad year and pays little income tax, then the government venture would be spared as well.

Private corporation cannot require customers to use their services, not can they impose price controls on their suppliers, so there will be none of that in the new era of fair competition by government. Hospitals, physicians, and nursing homes will be allowed to decline accepting patients at government rates, and customers can decline coverage at government rates.

Under present Medicare rules, investigations of gross fraud are charged to the Justice Department. Such investigations would only be charged to the Justice Department if similar fraud investigations are so chrged by private insurers. Otherwise, they are charged to the government insurance venture directly.

Ordinary ventures fail if they do not turn a profit or at least break even. Consequently, the length of time required for government failure will be established at the outset, and the government venture will close down or be sold off if the criteria are not met. Five years would be reasonable, since the operation starts at full scale. This avoids the trap of the Postal Service and public transit agencies that lose money virtually every year forever, but never go into bankruptcy. Fair competition requires that they be allowed to fail, and their assets taken over or liquidated on the open markets if they cannot compete.

So there you are. There are ways for government to compete fairly with the private enterprise. The question is whether proponents of fair competition from the government step up to the challenge.

Health Care for Illegal Aliens

September 14, 2009

President Obama made the point in his speech this week that H.R. 3200, the leading health care bill in the House, specifically excludes coverage of non-citizens. That brought the infamous outburst, “You lie!” from South Carolina Republican Jim Wilson. Wilson’s outburst was inexcusable, and he rightly apologized. But what is the planned coverage for illegals, and what should it be?

While non-citizens are specifically excluded from the pending legislation, there is no provision for enforcing the restriction. The is no requirement to check citizenship status and no penalty for failure to report non-citizens. All the medical bills will be paid by the government. So while they are specifically excluded, they are implicitly included. For those who think receiving care and paying the bill is relevant, they are covered.

Illegal workers pay some taxes, but it amounts to only a third of the services they receive. Currently, they generally receive health care through the emergency room system. The Congressional Budget Office has proven that health care costs increase when emergency care is supplemented with general care. That’s for essentially the same reason that the long waits in national health care systems reduce costs: people endure pain as the alternative, they drop out of the system and seek private care, and some people die while waiting in the queue. Liberals easily confuse receiving care with not receiving care while waiting, but in practice that’s not a distinction.

Illegal workers are often employed in agriculture, construction, and the hospitality industry (hotels and restaurants). Because the taxes paid by illegal workers do not cover the government services they use, the rest of taxpayers subsidize the consumers who use the products and services provided by those industries. One could argue that “everyone” consumes manually harvested crops, uses hotel rooms, and enjoys restaurant meals. That’s not completely true, and more importantly some people get advantage from the subsidies a great deal more than others. Why should people who frequently stay in hotels be subsidized by those who do not? Why should those who eat labor-intensive lettuce be subsidized by those who eat mechanically harvested corn?

Beyond the inequity of some taxpayers subsidizing the consumption of others, providing a hidden subsidy distorts the market for those things. If the true costs of the labor were reflected in those markets we would expect less of the more expensive products to be consumed, legal labor to be more competitive with illegal labor, more automation to replace labor, and some products to be produced increasingly abroad.

For example, labor-intensive field crops may be produced more in Mexico and Chile and less in the United States. That is appropriate and it supports the economies of developing countries while freeing American capital to be applied to better uses.

The solution for this aspect of health care is to require the employers of non-citizens, legal or not, to provide for their workers’ health care. They can do that by providing health insurance for their workers and families of the workers or by being directly responsible for their health care expenses. Employers would pass the costs along to consumers, and markets would then be a better reflection of true costs.

Do we need comprehensive immigration reform first? No, we should make incremental improvements when possible. This gets back to the radical idea that nothing short of a revolution is acceptable. That is the false presumption of the Left, who care far more about accumulating government power than finding practical solutions to problems. That is a form of obstructionism.

As a consequence of Congressman Wilson’s outburst, there is now a move afoot to provide checking of citizenship to receive the proposed benefits. So was it true that President Obama was lying? Well, yes, it was true by any reasonable assessment. Obama certainly knew that there was no checking of citizenship, so he knew non-citizens would received de facto coverage. Nonetheless, the Congressman’s outburst was inexcusable. The end does not justify the means. There were other ways to make the point.

Why can there be no compromise on health care?

September 3, 2009

Nancy Pelosi has stated in explicitly: any bill that does not include a government option cannot pass the House. Howard Dean says that true reform of health care requires a government option. The question is why a larger role by government is deemed essential by ideological liberals. the main reason is fear that the compromise might work, and that would upset their larger agenda for government control.

We have a good idea what Republicans want. Republicans uniformly favor tort reform, which is estimated to account for 10% of the direct costs of health care, and as much as 20% more in the form of unnecessary tests and procedures done to fend off potential future lawsuits. Republicans favor laws that would eliminate health insurance companies refusing to accept customers with pre-existing conditions and dropping coverage on customers who develop expensive illnesses. Republicans favor changing the laws that prohibit insurance companies from doing business across state lines, which results in some areas having health insurance unavailable.

There are certain legal obstacles to the sale of high-deductible health insurance which Republicans would like to remove. This would serve the presently-estimated 22 million who can afford insurance, but don’t get it because they choose to take their chances. Many might get a catastrophic health insurance policy as a compromise.

There are 47 million uninsured, but after subtracting illegal aliens, those who make over $75,000 but elect not to purchase health insurance, and those who qualify for Medicaid but haven’t applied because they are not sick, there are about 12 million who need support in obtaining health insurance. Senator DeMint has proposed legislation that would give a $5000 voucher for the purchase of health care to each of these individuals. The total cost would be about half of what Democrats claim their program would cost, and if tort reform could be accomplished overall health costs would still drop.

Incidentally, illegal aliens should be insured by their employers. The costs would then be passed along to consumers. So, for example, people who buy vegetables and rent hotel rooms would pay the true costs of labor in the agriculture and hospitality industries. This is fair. It ought to be a part of health care legislation.

It’s not clear how many Republicans would sign on to DeMint’s legislation, but it indicates an area where a compromise is possible. Other Republicans have advocated cooperatives as a mechanism for providing insurance, but here is a question as to whether cooperatives would end up as just a proxy for government. It’s nonetheless in the area of compromise.

Why are Pelosi, Dean, and their ilk unwilling to discuss legislative approaches that seem to have a good chance for success? I think there are at least three reasons.

First is that the more or less obvious improvements, like allowing competition across state lines and denying exclusion for pre-existing conditions, are held hostage to what they perceive as the greater goal of expanding government involvement and control. They claim that the obvious improvement can only be obtained as part of the larger package that presages government involvement. As opposition to government involvement grows, they have changed “health care reform” into “insurance reform” and played up the obvious improvements as the centerpiece of the legislation. In fact, since Republicans have already introduced the legislation, they could be swiftly enacted if the Democrats desired.

Second, tort reform is not in the Democrat’s package, even thought it would pay for the uninsured, because trial lawyers are the top group of contributors to the Party. Give credit to Howard Dean for acknowledging this fact. When you work the numbers, health insurance company profits are about 1% of health care costs, and they earn those profits by administering stiff fraud prevention programs and introducing genuine efficiencies. However, tort reform may represent 30% of costs, but it is untouchable due to Democratic special interests.

Third, radicals having the gnawing doubt that a compromise might work so well that their demands for revolutionary change would no longer have an audience. This is the larger agenda in holding obvious improvements hostage to grander schemes. The radicals fears are well-founded. Incremental improvements are likely to provide good results, and that might well lead to additional incremental improvements.

For leftists, security for the country as a whole comes from the power of a liberal elite to rule. Bureaucrats handle the details. For rightists, security comes from national wealth. Free markets handle the details. That makes seizing power the top item on the leftist agenda, for if the chosen elite rules then problems will be solved by the elite, and the rest of us need not be concerned with what they are going to do. For right-wingers, security is achieved by making the nation prosperous, and doing that is the top agenda item. We see these priorities played out in the health care debate.

Conservatism is the doctrine of evolutionary change. Small changes expose weaknesses before they are institutionalized, so the errors can be undone. Leftists do not like to compromise precisely because incremental change works, and it defeats their agenda.

Lies and Hypocrisy in Health Care

August 25, 2009

There is a difference between a lie and a mistake and also between hypocrisy and just playing the cards you are dealt. These conceptual differences arise regularly in political debate, and now in in the health care debate. Let’s start with hypocrisy.

The claim is now made that that it is hypocritical to accept Medicare while opposing government health insurance as part of the Obama health plan. The alleged principle called upon is that one cannot ethically oppose something while participating in it. Daniel Gross wrote in Health Care Hypocrisy for Newsweek that “many the pundits attacking government health insurance rely on government health insurance for their own families.” This is every bit as shocking as the revelation that many who advocate government health insurance now actually depend upon private health insurance to protect their families. That would be private health insurance from an employer like, say, Newsweek.

I isn’t it shocking at all. Suggesting it is hypocritical is dumb. It is entirely reasonable to stay in System A while advocating System B, until such time as System B actually comes to pass. The people who could not figure this out when earmarks where the accepted method for government to dispense money, cannot figure it out now. As with earmarks, people have every right to refuse them as a way to protest, but there is no obligation to do so. Thus if Mr. Gross wishes to renounce any private health care he is receiving as a means of protesting the lack of a government program, it think he is entitled to do so but not morally obligated.

On to lies. Robert Parry wrote in an article Palin’s ‘Death Panel’ and GOP Lying “False Republican claims about President Barack Obama’s health-care initiative, including former Alaska Gov. Sarah Palin’s demagogic charge about a “death panel,” are part of a pattern of systematic lying that has marked the GOP’s political tactics at least since Ronald Reagan’s presidency in the 1980s.” Of course, Mr. Parry is not burdened by the old-fashioned notion that a lie is proven by evidence that the speaker knew something was false at the time it was said. Nowhere in the piece does Mr. Parry offer any evidence that any Republic knew something to be false that he proclaimed to be true.

The House bill does provide for payment for periodic end of life counseling, but Palin was mistaken in describing that as a “death panel.” Mr Parry, cannot conceive that Palin misunderstands what the “end of life counseling” that is in the bill actually refers to. Note that a Republican amendment clarifying that this could not include recommending euthanasia was flatly rejected by Democrats. Also, there was the case in Oregon where their liberal-inspired UHC denied a $4000 drug and offered euthanasia instead. How could Palin possibly have gotten the wrong idea? It’s inconceivable, according to Mr. Parry, so she must have been lying.

Let’s try out the thesis that a major political figure could not possibly be mistaken about the contents of the health care bill. President Obama said that the House health care reform bill does not deprive anyone of choice in health insurers, yet page 16 the bill says that if you loose your job, you can only get government insurance. So is Obama lying? We apply the argument, “It’s just not possible that the president of the United States would not know the relevant part of the bill he is supporting.” per Mr. Parry, and must conclude from that logic the President was lying.

I don’t buy that. I think it is quite likely that Obama is simply mistaken about what is and is not in the legislation. Palin is also entitled to be mistaken. In fact, the bill is a manifestation of “Big Bang, no details.” For most things, it is not possible to know what it says, and that is by design. The principle is that some time in the future, assuming it is passed, the bureaucracy will reveal what it says and implies.

Notes for the Health Care Debate

August 11, 2009

The current debate on health care is confusing. I focus on five central issues. The debate would be improved if these specifics were in the forefront. The debate would be improved if these specifics were in the forefront. My points are, (1) heath in the US is more a product of lifestyle than the care system, (2) insurance company profits are a trivial part of health care costs, (3) justified changes in insurance regulations do not require the much large health care package, (4) a person will not be able to keep their present health insurance if employers drop the option, and (5) critical details of the new system are not disclosed.

1. Health is a product of lifestyle

There is often an unspoken premise that the primary determinant of health care in an economically developed society is the health care system. In poorly developed societies there are problems of famine and drought, and the basic public health measures of clean water, common immunizations, and simple antibiotic cures are absent. This leads to poor health of the populace. The imapct of modern medicine is dramatic. A hundred years ago the life expectancy in the United States was 47, most of the improvements were due to health care. This leads to the incorrect supposition that health care is still the primary factor in longevity. It’s not true. Now the primary determinant is lifestyle.

The health care system of Costa Rica is often ranked as superior to that of the United States, despite their spending about $350 per citizen in comparison to the U.S. spending of over $8000. The life expectancy in Costa Rica is only a couple of years less than in the U.S. What this proves in not that they have a miraculous health care system, but rather that they do not need a miraculous system. The U.S. longevity suffers greatly from deaths due to violence, drugs, traffic accidents, and suicides. If a person makes it to 55 in the U.S., life expectancy is then the longest in the world. That is despite all the clogged arteries and other consequences of horrendous habits.

The U.K. system is uniformly rated better than the U.S. by those who do ratings. The mortality rates for certain types of cancer are the same in the U.K. as the U.S. In the U.K., half as many people get those types of cancer, but one diagnosed, twice as many die from. That makes the U.K. lifestyle, or whatever it is in their environment that causes cancer, considerably better than the U.S., but their health care system considerably worse.

Obama and supporters of their concept of “reform” repeat the false premise chronically. It is flatly untrue that if our health care system is best our health would be the best. When confronted with this fact, the response is invariably, “That’s just an excuse for not improving the system.” It is not. There is broad agreement that the U.S. system can improved. It is a good reason for not copying a defective system on the grounds that it is better.

2. Insurance company profits are not the issue

President Obama in his town hall meeting supposed that high insurance company profits were a good reason to demand “insurance reform.” In a recent year, insurance company profits were about $12.7 billion out of total health care costs of about $1200 billion. If those profits were somehow eliminated, we are looking at about 1% of costs.

However, those profits are earned. Fraud in Medicare is estimated to be about 5%. In private insurance systems, it’s put at much less than a percent. Medicare makes only superficial checks for fraud and erroneous billing. Checking runs up their administrative costs, and government bureaucracies look better if their administrative costs are less. They need not worry about bottomline costs. However, insurance company profits are made the major issue, not the much great inefficiency inherent in government bureaucracy.

3. Insurance regulation is a separate issue

The new phrase for “health care reform” is “insurance reform.” In political talk a reform is absolutely anything you want to do that increases government control. Obama spoke at length about the need to have legislation that require insurance companies do not reject applicants based upon pre-existing conditions. He is quite right about that. California has had such a law for many years, and it works fine. It doesn’t harm the insurance companies, because each gets to operate under exactly the same rule. Republicans agree with this change. Republicans in the Senate Finance Committee, the only place in Congress where Democrats allow Republicans to have a voice, has proposed this legislation.

If everyone agrees, why hasn’t it already been passed? It is held captive to the health care package as a whole. It allows Obama to falsely claim that the only way to get this aspect of the legislation is to adopt the whole monstrous beast.

4. Employers may choose

President Obama assures voters that they can keep their present health care insurance if they like what they have. This is disputed on several grounds. In the current House bill, there is specific language that requires that if you lose your job, you must switch to the government program and then stay on it. It’s doubtful that Obama has read the bill, so he wouldn’t know about that. Beyond, that there is no guarantee that employers will not switch to the government program and drop the option you now have. Proponents argue that the government option will be cheaper; that’s the major argument for it.

How many employers will switch, removing the private options? The Heritage Foundation, a conservative think tank, say it will put 83 million of those now insured on the government program. I have heard estimates of 120 million. Proponents calim it will be zero. While the number is debatable, the point is that the claim that everyone can keep their current insurance is certainly debatable. It is extremely doubtful.

The related question is whether any private enterprise can actually compete with the government. Proponents say its possible if the program is structures correctly. Perhaps on lesser programs its possible, but government health care is ideologically too big to be allowed to fail. For example, the cost of Medicare turned out to be seven time greater than originally estimated by the Congressional Budget Office. A seven-times cost overrun would sink any private entity. Medicare, however, was guaranteed to be a success. The same Congressional Budget Office puts the cost of the new proposal at about $1.6 trillion. One wonders if the same factor of seven should be applied.

5. It is Big Bang, No Details

President Obama countered fears that the new health care plan requires mandatory euthanasia counseling. The plan will pay for end of life counseling every five years, but it’s optional whether the patient elects it. The subject is not euthanasia, but rather the patients wishes if they should end up on indefinite life support and unable to voice an opinion. That’s legitimate.

Nonetheless, while the immediate explanation is legitimate, it doesn’t put all the fears to rest. Oregon has a government universal health care system. Like all such systems it uses rationing to control costs. A case has come to light recently of a 64-year old woman who had cervical cancer. A $4000 drug called Tarceva offered a small hope of a cure. It was by no means a sure thing, but a hope. The state decided the drug was too expensive to be justified relative to the chance of success, and instead offered either hospice care or euthanasia.

The present health care legislation has a provision to reduce Medicare costs by $500 billion. No one to my knowledge has suggested any way that such huge cuts can be achieved other than through rationing of some sort. The cuts will be determined by a panel of advisory board after the legislation is enacted. It will be done in such a way that the decisions can only be overturned by prompt action of a two-thirds majority of Congress. That is a near impossibility.

With the Oregon case in evidence, and the prospect of indeterminate huge savings in Medicare already in the bill, it’s easy to see how people connect the dots. Proponents deny it, asserting that there is nothing in the bill that requires it, and it just won’t happen.

This is the strategy the Bush Health and Human Services Secretary Mike Leavitt calls Big Bang, Not Details. (Leavitt elaborated in an informative debate with Tom Daschle.) In the 90s, Hillarycare sank because it was both revolutionary and disclosed exactly what it would do. People didn’t like the revolution they were offered. The new strategy is to offer a revolutionary vision of free care with no downside, but conceal what it actually entails. Experts will determine that later, you are told not to worry about that now.


The way to debate health care is to debate it. It is not protesters shouting at elected officials, nor Obama’s orchestrated town hall lecture in which his every sigh was met with thunderous applause. Proponents should square off in public debate with opponents. For a start, my list of topics should be addressed.

The current debate on health care is confusing. I focus on five central issues. The debate would be improved if these specifics were in the forefront. My points are, (1) heath in the US is more a product of lifestyle than the care system, (2) insurance company profits are a trivial part of health care costs, (3) justified changes in insurance regulations do not require the much large health care package, (4) a person will not be able to keep their present health insurance if employers drop the option, and (5) critical details of the new system are not disclosed.

Why does government prefer rationing?

July 27, 2009

It’s a straightforward observation: when government is presented with a problem, there is a strong tendency to use some form of rationing as a major part of the solution. We see this in health care, water supplies, electricity, and many other aspects of government regulated or government-run operations. It’s is a reasonable to unexpected emergencies, like World War II shortages or hurricane interruptions, But it is an unreasonable response to chronic problems. So why is it the preferred tool? I think it is because it does not require long term planning, it enhances government authority, and it perpetuates an illusion of fairness.

It should not take too many examples to establish the existence of the rationing preference. My state of California has chronic problems with water shortages. There are a number of ways to increase the supply of water. New dams could be built in the mountains to hold spring runoff for the dry summers, and the Pacific Ocean has the potential for desalinated water. In recent years those solutions have been consistently rejected in favor of water rationing. The price charged for water escalates rapidly to discourage use, but an official promised that people would not be allowed to “buy their way out” of rationing. The government will put flow restriction devices on customers who do not obey dictates.

California took the same approach to electricity shortages, with a system of brown outs to ration supplies. Shortage were easily foreseeable.

Government health care systems around the world depend uniformly on rationing to limit demand. The most popular method is to build long queues for treatment. That discourages people from seeking care, gets rid of some that die while waiting, let’s people live in pain as an alternative to providing service, or encourages them to seek care outside of the government system.

The proposed cap-and-trade system is a mechanism for rationing energy. There is fairly uniform opinion of experts that a straight tax on energy would do a much better job of reducing consumption, assuming one really wants to do that, but a tax is rejected in favor of rationing.

In each case, there is an option to provide all of what is needed on a scale of increased cost. The free market does this naturally. It is only when government intervenes that it doesn’t happen. For example, people who can afford it could sign up for desalinated water to keep their gardens alive in droughts. This could be privately financed so it would cost the taxpayers nothing. It would have the general benefit of increasing the demand for desalinization technology, which ultimately drives the cost of technology down.

In the case of cap-and-trade, the reason for a rationing system is rather transparently related to a quest for government power. Government gets to decide who will get the coupons and at what price. This has the general feature of supporting the theory that government makes better decisions than the free market, so those who have faith in government get to propagate their faith. In particular, it allows politicians to reward their friends and punish their enemies. The coupons will go to buying off key votes to get the legislation passed, to damaging business in states that don’t come along peacefully, and rewarding influential donors who will benefit from the market for rationing coupons.

Politicians are elected for short terms, so the pressure is for them to make a quick fix rather than a long term solution. Environmentalists oppose dams and desalinization, preferring instead a quasi-religious austerity to please the gods of nature. Any politician who goes for a practical long term solution will face the ire of this new brand of fundamentalism. Most voters would probably prefer water to the moral purity of drought asceticism, but so long as water generally comes out of the tap, they are unwilling to ponder the long consequences of avoiding new supplies. In the short term, the politician gains the fanatical support of eco-fundamentalists and loses little general support.

Ignoring the long term is likely to lead to crisis, and politicians may suffer from that. California electricity shortages brought on by the political logic of rationing was eventually swamped by the reaction of the general voters, so a little something was done to eliminate brownouts in the short term. It has to get to the point where the peasants are lighting their torches and marching towards the castle where government lives.

When government manages to stamp out all alternatives to the government system, people tend to be more accepting of rationing as a necessary part of life. They think it is the way things have to be, rather than a consequence of particular policies. The logic is that droughts are a result of the forces of nature, not a consequence of government failing to keep supplies at a pace with population. Similarly, long queues in a health care system are accepted as a natural consequence of working system, not an unnatural consequence of a failed system.

Rationing also perpetuates an illusion of fairness. We don’t want the rich getting more water or better health care, do we? The answer is that in fact we should want the rich to get the better things, so long as they pay for it voluntarily. We should want it as a simple matter of free choice, a fundamental right to spend money as one wishes. However, the invisible hand works to the general advantage as well. The rich get to pay a premium price for the latest technology, be it laser eye surgery or water desalinization or whatever, with the result that it drives the cost of that technology down for everyday use. If in some cases it does not, then we benefit from discovering that fact without a government funded research project.

Politicians are largely not sophisticated enough to recognize the benefits of free markets, or if they do recognize it they find it easier to sell government-imposed fairness to the voters.

Understanding the reasons behind government rationing brings the realization that is not an accidental outcome. It is inherent in government control of markets.

Will Obama’s plan cut health care costs?

June 16, 2009

Today President Obama spoke before the American Medical Association, explaining his plans to “reform” the medical care system in the United States. You can tell I’m skeptical, because I put “reform” in quotes. I hold open the possibility that not all plans to spend huge sums of taxpayer money are actually reforms. If the health care plan actually saves money, then it should be funded entirely from the savings achieved. I’ll grant some startup costs, but after a few years money should be flowing into either the Treasury or into the pockets of taxpayers. That, however, is not a part of the plan.

The President said that reform is necessary to make American business competitive with overseas industries whose employees receive government-paid health care. And where do those governments get the money to pay for the health care costs? No place other than higher taxes. Lower health care costs for industry, competitive advantage, are offset by higher taxes, a competitive disadvantage. If the quality of care is maintained, any advantage would have to come from government dispensing health care more efficiently than free markets. That we have not seen.

The President proposed that health care costs could be lowered by computerizing health care records. I can see that working up to a point. For example, in a world of medical specialists it would surely help to have all of a patient’s prescriptions and test results online. Keeping x-ray imagery and CAT scans online seems a doubtful improvement over passing around disks, as is now done. Someone estimated than a third of all the information online could be occupied by medical imagery.

However, insofar as medical records can be beneficially put online, it can be accomplished independent of any massive government plan to “reform” health care. It could be accomplished by having some professional society define a standard, say within a year, and then mandate that practitioners phase in use over a subsequent period. Keeping the mandate to prescriptions and test data would minimize the privacy objections.

Credit President Obama for even mentioning the costs of medical malpractice insurance. It is perhaps a third of physician costs, and for Democrats it has traditional been a subject forbidden to Democrats. By odd coincidence, trial lawyers have long been the largest class of contributors to the Democratic Party. Obama promised not to limit malpractice claims, and that changed the cheers that greeted the subject into a chorus of boos.

He did commit to take a long look at the malpractice lawsuit issues. Health care “reform” is on a short schedule, however, both according to Obama and as a matter of practical politics. If it is not rammed through quickly, it probably will not make it at all. The likely outcome is that there will be continual mumbling about “taking a deep and careful look at all the issues …” while nothing is actually written into the plan.

The centerpiece of the health care plan is for the government to offer health insurance in competition with the private sector. Because the government sets all the rules for the competition, and because the government can draw upon taxpayer money to subsidize whatever price it wants, there is not a chance that the private sector can compete successfully. You can expect that any choice except government will cost you dearly.

Obama stressed repeatedly that anyone who is satisfied with their current health coverage will be able to keep it. You may, for example, choose to keep your current plan that costs $10,000 per year, or sign on with the government for $5,000. What it actually costs the government is irrelevant, the competition is based on what is charged.

To lower costs, money now spent has to be not spent. Changing who pays does not lower costs. If it really cuts costs, then taxpayers should get money back, not put money in.