health care reform and the budgetary death trap

The talk the of the day seems to be that Obama's prepared to jettison the public option.  This is an enormous mistake, to begin with, Survey USA recently found 77% of the public supporting the public option.  Even for Senators like Landrieu, whose electoral fears are understandable, the public option is not going to be electorally dangerous, support for any bill with or without a public option might be since public opposition to health care is overwhelmingly based on misconceptions about the proposals.  This is evidently driven by whip counts rather than the nature of the public debate, since no real conversation about the public option has even begun for the most part.

The deal is that I have a hard time believing either of two things, that any health care bill that achieves universal coverage has 60 votes in the Senate, and that the public option does not have 51.  Therefore, either way we're at the point of either magically and suddenly re-framing the way cloture votes are perceived (infinitely unlikely), or we get a new Senator from Massachusetts and convince all the Dems to vote to end debate regardless of their position on the legislation itself (still unlikely but a little more plausible than the first), or budget reconciliation.  In all of those scenarios we should actually only need 51 votes for the public option, which again, I have a hard time believing doesn't exist.

This is just flatly bad policy, the public option is the only force under the proposed bills that has any ability to significantly lower health care costs, by creating a strong, nonprofit competitor to insurance companies that can deliver health insurance with very low administrative costs.  Without that public option we do get improvement, but we get a budgetary mess (ironic given that the conservative Democrats opposing the public option claim to be so concerned about the budget deficit).  What we end up with without a public option is some network of subsidies and mandates within a government regulated private insurance exchange, this brings us to near universal coverage, which is good, and there is some reason to believe that it might lower costs marginally, while Hawaii's employer mandate has some major problems, it has managed to hold costs under the national average.  So its not out of the realm of possibilities that the growth in health care costs might be kept down just by dramatically reducing the number of uninsured, but there's no mechanism to force the insurance market to lower premiums and to keep administrative costs (and profits) down.


Jacob Hacker has a very good article on this in which he compares Medicare Advantage to the traditional government run medicare program, and finds that traditional medicare has far lower administrative costs.

the Congressional Budget Office (CBO) has found that administrative costs under the public Medicare plan are less than 2 percent of expenditures, compared with approximately 11 percent of spending by private plans under Medicare Advantage. This is a near perfect “apples to apples” comparison of administrative costs, because the public Medicare plan and Medicare Advantage plans are operating under similar rules and treating the same population.

Hacker's example is even in a competitive market in which the Medicare Advantage private plans have to compete with traditional Medicare, and traditional Medicare delivers much lower administrative costs.  Some studies have challenged the assertion that Medicare is far more efficient than private insurance by deducting taxes from private insurance's non-delivery (normally referred to as administrative) costs.  There's a point to be made here regarding taxes, I'll grant that one, but to give them profits misses the entire point.  How we concluded as a society that my health should be an item that other people can profit on is beyond me.  Profits are a big part of the problem, and I'm more than happy to allow them to take a hit by trying to compete with a nonprofit government provided option, that hit is a part of where savings to the public will occur.  Without that hit, and without the public option being able to take steps to lower its costs (negotiating drug prices, pegging rates to medicare...) the public is going to take a major budgetary hit somewhere down the road.  One of the reasons we're talking about this is that health care costs will force Medicare and Medicaid spending to double over the next 30 years.  We need some force in the market to force costs down significantly, and subsidizing private insurers to cover people at 400% of the poverty level will only increase Federal health care expenditures unless something forces costs down.

Reform is good, period, having nearly 50 million Americans uninsured is unacceptable, but reform that fails to really address rising costs is just begging for trouble, its a huge mistake for Obama to abandon the public option, hopefully these rumors will not turn out to be true.  Furthermore, if he announces this in front of the AFL-CIO as is rumored, he's going to get destroyed, as well he should, its a terrible idea.

Cwechblug State of the Union Response

First, excellent Democratic rebuttal by Sen. Webb. There were a few things in the State of the Union that struck me as interesting, bad ideas, or idiotic. First, I was surprised at how little substance there was in this State of the Union. Very few coherent policy objectives, and a lot of fluffy nice sounding rhetoric. The few things that he did propose left me perplexed however. Why did Bush propose the National Guard?

A second task we can take on together is to design and establish a volunteer Civilian Reserve Corps. Such a corps would function much like our military reserve. It would ease the burden on the Armed Forces by allowing us to hire civilians with critical skills to serve on missions abroad when America needs them. And it would give people across America who do not wear the uniform a chance to serve in the defining struggle of our time.

If anyone can tell the difference between what he proposes in this section of the speech and the National Guard, please tell me, because I am still perplexed about why Bush proposed the National Guard tonight.

Moving on to Health Care. This is quite possibly one of the worst ideas I've ever heard. The following is what Bush proposed tonight in regards to health care.

For Americans who now purchase health insurance on their own, my proposal would mean a substantial tax savings — $4,500 for a family of four making $60,000 a year. And for the millions of other Americans who have no health insurance at all, this deduction would help put a basic private health insurance plan within their reach. Changing the tax code is a vital and necessary step to making health care affordable for more Americans.

My second proposal is to help the States that are coming up with innovative ways to cover the uninsured. States that make basic private health insurance available to all their citizens should receive Federal funds to help them provide this coverage to the poor and the sick. I have asked the Secretary of Health and Human Services to work with Congress to take existing Federal funds and use them to create “Affordable Choices” grants. These grants would give our Nation’s Governors more money and more flexibility to get private health insurance to those most in need.

There's been much debate about the problems with Wyden's plan, namely that it doesnt do enough to contain costs. But this is truly rediculous. If you make health care costs tax deductable and do nothing else, you merely give insurance companies the ability to charge any amount of money at public expense. Rather than contain costs as we need to do, insurance premiums would drive straight through the roof. Because once everyone has the ability to deduct health care costs from their taxes, insurance companies will have a huge market available to them for which there is no demand curve. There is nothing to contain costs of insurance. People by health care at price 1, deducting their entire premium from their income taxes, insurance companies raise prices because they can make more money, cost 2 is now far higher than cost one. Consumer purchases health care at cost 2 and deducts it from their taxes. It is a giant Federal gift to insurance companies that seems limitless. I'm also wondering about people who have so little income that they dont pay anything in taxes. Are they going to recieve money back from the government to cover their health care costs. This may be universal, but its a monumentally bad idea.

The proposal to give a Federal grant to encourage States to "find innovative ways to provide private health insurance to their citizens." This is really a way to prevent States from going single-payer on their own and stop the movement at the State level where it is beginning to take shape. This is not encouraging States to come up with innovative new policies, it is limiting them to a narrow set of policy options that are more likely to fail than single-payer. The specification of private insurance here is important.

Finally, Bush once more proposed health savings accounts, which have the fundamental flaw of assuming that health care is a normal consumer item. If I want a banana, I know that a banana is what I need and I can shop at a place in which I can get a good price for a banana. Health care isnt like this at all. If I need an MRI, the only way I know that I need an MRI is that the doctor who is going to make money through the process told me I need an MRI. I cant make the rational consumer choice that I dont really need an MRI, if I choose not to get one I run considerable personal health risks. The money in a health savings account would be limited, so if I develope a major health problem I might run out of money in the account and end up paying out of pocket. Not to mention the question of what one does if they dont have any money to put in the health savings account to begin with. So that's three bad ideas in health care by my count.

Bush also engaged in a little bit of Ron Saxton style rhetoric, claiming that we're going to keep medicare healthy, expand the war in Iraq, cut taxes, create a new National Guard (huh?), and balance the budget. A friend of mine commented "We're raiding Canada," and as near as I can tell that's the only way to do it. We're not going to cut programs, we're going to cut taxes, and balance the budget. It all sounds nice but cant be taken seriously, I guess Saxton's magic "inefficiences" have returned.