Monthly Archives: August 2012

Obamacare’s Cartels Raising Health Care Costs

Two articles in the past week have demonstrated the impact of Obamacare on health care professions, and the bottom line for millions of struggling American families.  First, the Washington Post profiled two recent mergers – one among insurers, another among assisted living facilities – noting that “the health care industry is increasingly turning to consolidation as a way to cope with smaller profit margins and higher compliance costs that many anticipate when the federal government’s health care reforms under [Obamacare] take effect.”  One analyst noted that “the regulatory limitations on their margins mean that to drive profitability, they need to get leverage on [administrative costs]….In order to do that, they need to be bigger.”

The another article, this one in the Wall Street Journal, highlighted how bigger does NOT mean better for patients.  The article began with the story of a Nevada patient whose echocardiogram bill rose from $373 to a whopping $1,605 in the space of six months.  The same procedure — performed in the same office, by the same cardiologist — quadrupled in price simply because the cardiologist’s practice had been bought out by a hospital system, which used the change in ownership to extract higher prices from insurers.  The Journal notes the increasingly common nature of the practice:

With private insurers, hospital systems with strong market heft can often negotiate higher rates for physician services than independent doctors get. The differential varies widely, anywhere from 5% or less to between 30% and 40%, industry officials say.  The bounce can be far greater: Blue Shield of California said that after one group of physicians based in Burlingame, Calif., came under the umbrella of the powerful Sutter Health system in 2010, its rates for services increased about 140%.  The insurer said it saw a jump of approximately 95% after a Santa Monica, Calif., group became part of the UCLA Health System in January 2011.

Summing up then: Thanks to Obamacare, hospitals, insurers, and physicians feel the need to team up — in an attempt to gang up on patients and charge the highest possible prices, raising costs rather than lowering them.  Call this many things, but do NOT call it “reform.”

Paul Krugman’s Typical Trifecta

Writing in the New York Times this morning, Paul Krugman’s column hits the usual Krugman-esque notes.  The column, entitled “The Medicare Killers,” is liberal.  As you can tell from its title, the column is hyperbolically over-the-top.  And it’s also flat-out WRONG.  The most obviously false statement is his unequivocal declaration that not a shred of evidence exists that private plans can deliver Medicare benefits more efficiently than the federal government:

Wouldn’t private insurers reduce costs through the magic of the marketplace?  No.  All, and I mean all, the evidence says that public systems like Medicare and Medicaid, which have less bureaucracy than private insurers (if you can’t believe this, you’ve never had to deal with an insurance company) and greater bargaining power, are better than the private sector at controlling costs.

As Bill Clinton might say, the accuracy of that statement depends solely upon what the meaning of the word “all” is.  Because a new study published in the Journal of the American Medical Association just this month found that private plans would “bid an average of 9% below traditional Medicare costs” under a premium support model.  Which might explain why other liberals at the Center for American Progress are now – disingenuously – advancing the exact opposite of Krugman’s argument: that seniors would have to pay more to stay in government-run Medicare.

So either Paul Krugman doesn’t know his facts, or he doesn’t want to know his facts — because he would rather keep making claims about government-run Medicare’s “efficiency” that he knows to be wrong.  Either way, it’s a sad statement that Krugman and his allies would have to stoop so low to defend the indefensible — and unsustainable – status quo.

Does David Cutler Believe in ANYTHING?

Last Friday the liberal Center for American Progress released a paper co-authored by Harvard professor David Cutler that amounted to a partisan — and thoroughly un-principled — attack on conservative entitlement reform proposals.  When it comes to premium support proposals in Medicare, the CAP paper alleged that traditional, government-run Medicare would be cheaper for senior citizens than a choice of private plans:

Seniors will face higher costs not only because of this cost shift from the government but also because the Romney-Ryan plan increases system-wide costs by promoting private insurance that will be more costly than the existing Medicare system.  The Romney-Ryan plan would cost more than the current Medicare system because, as the Congressional Budget Office has documented, private insurance companies have higher profits and administrative costs than Medicare does, and because the plan would reduce the market share, and therefore the purchasing power, of traditional Medicare….Ample evidence exists that premium support would not foster the type of competition that reduces prices.

There then followed a whole series of calculations showing how much more seniors would be forced to pay because the paper alleges the Romney-Ryan plan will drive them into private, less-efficient health plans.  This position would be slightly less disingenuous had not both CAP and Cutler himself, in a paper Cutler co-authored earlier this month, taken the exact opposite position and put out similarly detailed projections about how much more seniors would pay – not because private plans would be lessefficient than government-run Medicare, but because they would bemore efficient:

An estimate of what such a bidding system may mean for Medicare beneficiaries, using 2006-2009 data on MA plan bids and traditional Medicare costs, is shown in the TABLE.  Nationally, in 2009, the benchmark plan under the Ryan-Wyden framework (i.e., the second-lowest plan) bid an average of 9% below traditional Medicare costs (traditional Medicare was equivalent to approximately the tenth-lowest bid).  Since traditional Medicare is simply another plan option under the Ryan-Wyden plan, a beneficiary in 2009 would have paid an average of $64 per month (9% of $717) in additional premiums to stay in traditional Medicare….beneficiaries must pay more for traditional Medicare or join a private plan.

The rest of the CAP paper really needs no rebuttal — its author’s lack of principles discredits it enough on its own.  And as we have pointed out before, the Center for American Progress has done a thorough job disgracing itself by taking wholly illogical and inconsistent positions for no apparent reason other than political gain.

But one fundamental question is why Harvard University allows faculty members like David Cutler to use their institutional affiliation to put out such mutually contradictory and disingenuous work.  Universities claim to be bastions of academic freedom.  But changing one’s position in a matter of weeks, and putting out detailed estimates on both sides of an economic argument, may strike many as a perversion of academic freedom — engaging in either rank political opportunism, selling one’s “academic” conclusions to the highest bidder, or some combination thereof.  In short, academic freedom does not mean the freedom not to have principles — a lesson that Cutler and Harvard apparently need to re-learn.

More Bad News for American Patients

Earlier this week consultants at Towers Watson, in conjunction with the National Business Group on Health, released their annual survey of large employers offering health insurance.  And the results are not encouraging for businesses or employees:

Higher Costs:  “Employers anticipate total health care costs will reach $11,664 per active employee in 2012, up from $10,982 in 2011 — a 6.2% increase in total costs over the period.”

Higher Premiums:  “Employees, on average, paid 23.0% of total premium costs in 2011 and are expected to pay 23.7% in 2012, as companies take steps to control their costs.  In paycheck deductions, this translated into an average employee contribution of $2,529 to premiums in 2011, which is expected to rise to $2,764 in 2012 — a 9.3% increase in one year.”

Higher Out-of-Pocket Charges:  “The share of total health care expenses paid by employees, including premium and out-of-pocket costs, is expected to be 34.4% in 2012, up from 33.2% in 2011.”

Employers Dropping Retiree Coverage:  “If [Obamacare] works as intended, the health insurance market in 2014 and beyond will become an attractive alternative and further push companies to exit sponsorship of their pre-65 programs.”

Employers Dropping Workers’ Coverage:  “Nearly one in five companies is likely to offer health care coverage to a subset of its workforce and direct the remainder of its employees to the insurance Exchanges.”

Employers Less Confident about Offering Coverage:  “Against the backdrop of [Obamacare], companies have never been more uncertain about the future of their health care programs over the long term….With the health care marketplace changing rapidly and parts of [Obamacare] already starting to take effect, employer confidence is at its lowest point (23%) since we began tracking this data.”

Businesses Bogged Down by Paperwork:  Nearly one in six firms (15%) cited the cost of Obamacare compliance as one of the “biggest challenges to maintaining affordable benefit coverage.”

Firms Reducing Employee Hours:  “Nearly 40% of companies that traditionally use a high number of part-time workers expect to limit them to less than 30 hours per week by 2014 to escape having to pay benefits.”

The report once again illustrates Obamacare’s broken promises – instead of premiums going down by $2,500, they continue to skyrocket, even as individuals are unable to maintain their prior coverage.  It’s yet another example of the way in which Obamacare has failed to deliver for the American people.

Evidence & Ideology in the Medicare Debate

In a New York Times blog post last Friday, former Clinton Administration official Laura D’Andrea Tyson said that “when formulating public policy, evidence should be accorded more weight than ideology, and facts should matter more than shibboleths.”  On that count, she’s right.  But unfortunately for Tyson, the evidence shows that while liberal, top-down proposals to restructure Medicare — and the health care system — have failed, conservative proposals to introduce market forces into America’s failing entitlements could just succeed.

Tyson dismisses premium support proposals for Medicare, arguing that “the facts do not support” any conclusion that “competition would encourage more cost-sensitive behavior by beneficiaries, providers, and insurers.”  Actually, a new study published in the Journal of the American Medical Association just this month found that private plans would “bid an average of 9% below traditional Medicare costs” under a premium support model.  That’s a savings of tens of billions of dollars — coming directly from the positive effects of competition.

Conversely, Tyson claims that because competition won’t reduce health costs, “enforceable payment and cost-containment reforms like those in [Obamacare] are necessary.”  Those are the same payment reforms that the non-partisan Congressional Budget Office, in a January report analyzing dozens of Medicare demonstration programs over decades, said haven’t worked to contain costs:

The evaluations show that most programs have not reduced Medicare spending: In nearly every program involving disease management and care coordination, spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program, when the fees paid to the participating organizations were considered….Demonstrations aimed at reducing spending and increasing quality of care face significant challenges in overcoming the incentives inherent in Medicare’s fee-for-service payment system, which rewards providers for delivering more care but does not pay them for coordinating with other providers, and in the nation’s decentralized health care delivery system, which does not facilitate communication or coordination among providers.

While the evidence is clear that Obamacare’s focus on payment reform has NOT worked to control costs, the signs for competition as a positive force slowing costs seem promising.  Which means that if Tyson wants to be bound by evidence and not ideology, she has every reason to endorse premium support as opposed to an extension of the failed status quo.

President Obama’s Two-fold Dishonesty on Cutting Medicare Benefits

Amidst the debate on the campaign trail, there’s been a lot of heated rhetoric of late about Medicare “benefits” and who’s doing what (or not) to them.  For instance, in a recent speech the President said that “I’ve proposed reforms that will save Medicare money by getting rid of wasteful spending in the health care system.  Reforms that will not touch your Medicare benefits.”

There’s only one problem: That statement is flat-out FALSE.  The President HAS enacted cuts to Medicare benefits — namely, additional means-testing in Obamacare –and proposed even more Medicare benefit cuts.  For instance, in his budget submitted to Congress this spring, the President proposed:

  • Increasing means-tested premiums under Parts B and D by 15%, and freezing the income thresholds at which means testing applies until 25 percent of beneficiaries are subject to such premiums;
  • Increasing the Medicare Part B deductible by $25 in 2017, 2019, and 2021;
  • Introducing a home health co-payment of $100 per episode in cases where an episode lasts five or more visits and is NOT proceeded by a hospital stay; and
  • Imposing a Part B premium surcharge equal to about 15 percent of the average Medigap premium — or about 30 percent of the Part B premium — for seniors with Medigap supplemental insurance that provides first dollar coverage.

The problem is not necessarily the policy proposals for these particular benefit cuts, which many may find meritorious.  The Medicare Payment Advisory Commission (MedPAC) has previously recommended introducing home health co-payments as a way to ensure appropriate utilization.  Congresses controlled by both Republicans and Democrats have enacted some (limited) means-testing in Medicare.  And Medigap reform has been an element ofbipartisan proposals to extend Medicare’s solvency and make the program more efficient.

Instead, the fundamental problem is the President’s twofold dishonesty when it comes to cutting Medicare benefits.  First, in saying that he hasn’t proposed cutting Medicare benefits when he has.  Second, and just as importantly, in the way he has proposed cutting those benefits — all the benefit changes the President proposed in his budget would not take effect until 2017, after he leaves office.  Just like with the Cadillac tax — scheduled to take effect in 2018 — or the massive changes to Exchange insurance subsidies that will make health care less affordable after 2019, Barack Obama wants to give away all the government “goodies” while he’s in office — and stick the next President with the bill after he leaves.  That’s not leadership; that’s the antithesis of leadership.

What Are Obama’s Secret Post-Election Plans…?

Two articles in today’s Wall Street Journal illustrate how President Obama is putting politics before policy — deliberately failing to lead on tough fiscal choices to score cheap political points.  One news article notes that the White House has put together a secret deficit reduction plan, which it refuses to release to the American people:

President Barack Obama’s most recent budget…[did not] detail how to slow the growth of spending on Medicare or Social Security.  Nor has Mr. Obama made public the details of proposals he made in unsuccessful talks with House Speaker John Boehner (R., Ohio) last summer, such as raising the eligibility age for Medicare from 65 to 67, a notion both Mr. Romney and Mr. Ryan have endorsed.

Administration officials are preparing new deficit-reduction proposals to be released if Mr. Obama is re-elected, but see no political advantage in previewing them now, people familiar with the process said.

Likewise, an excellent editorial in this morning’s Journal about the Administration’s plans for top-down government health “reform” notes that the White House has refused to name individuals to Obamacare’s Independent Payment Advisory Board “until after the election.”

So we’ve gone from a world in which candidate Obama repeatedly promised that he would hold all the negotiations on C-SPAN to one in which tough choices are deliberately being withheld from the American people for political reasons, and a world in which the President’s pledge that “we are implementing” Obamacare right now doesn’t apply to the supposed centerpiece of its attempt to control costs — because of the backlash that exposing the law’s coercive nature would generate.  Hope and change indeed.

Robert Gibbs and IPAB Members

Speaking on Fox News Sunday yesterday, Robert Gibbs was challenged about the composition of Obamacare’s Independent Payment Advisory Board, or IPAB.  He said that the IPAB would be composed of “medical professionals. They are people that we trust to make medical decisions.”

Actually, that statement is FALSE.  Obamacare specifically states that practicing medical professionals may NOT comprise the majority of the IPAB’s membership –meaning economists and other potential bean-counters will by definition maintain a majority voting share on the board.  Here’s the specific language from page 423 of the statute (emphasis mine):

(iii) MAJORITY NONPROVIDERS.—Individuals who are directly involved in the provision or management of the delivery of items and services covered under this title shall not constitute a majority of the appointed membership of the Board.

Of course, if Gibbs — and by extension the Obama campaign — want to argue that the IPAB’s members will be thoroughly respected, then President Obama could actually follow the law and appoint IPAB nominees.  According to page 426 of the statute, the law appropriates funds for IPAB (originally $15 million, but lowered to $5 million last December) “for fiscal year 2012” — that’s the fiscal year ending this September 30.  So Obamacare contemplates IPAB being up and running NOW — yet President Obama has failed to nominate any appointees to the board.  If the President wants to save Medicare so badly — and IPAB is so critical to saving Medicare — what’s he waiting for?  And if IPAB is so innocuous and won’t harm seniors, why is he waiting until AFTER his re-election campaign to announce who he wants to put on the board?

Given the massive powers of the IPAB officials — the rulings of these bureaucrats will be exempt from both administrative AND judicial review – there’s a good government argument to be made that the American people should have full knowledge of who these powerful people will be BEFORE they make their choice in November.  Of course, given this Administration’s history of radical appointees — i.e., Donald “Rationing with Our Eyes Open” Berwick — it’s entirely likely that the Administration does NOT want to tell the American people exactly who will be supervising the Medicare program under IPAB’s new world order.

CBO Report Exposes Record of Obamanomics

The Congressional Budget Office released its updated economic forecasts this morning and, today as before, the results reflect the Obama Administration’s “stewardship” of the economy.  In the health care sector, CBO made some significant updates to its baseline, reflecting both economic and technical changes.  With respect to the former, because economic productivity has lagged, and because most Medicare payment rates for hospitals and other providers are linked to “market-basket” updates of goods and services, CBO raised projected Medicare spending based on this economic factor.  From page 52 of the report:

CBO’s current projections of productivity are lower than they were in its previous forecast, and its projected prices for goods and services (including the cost of both labor and non-labor inputs) are now higher.  Consequently, CBO now anticipates higher payment rates for Medicare than it forecast in March, a change that raises projected outlays by $136 billion (or about 2 percent) over the 2013–2022 period.  In the Medicaid program, higher projected prices for medical services and the cost of labor are also expected to boost spending, by $27 billion, between 2013 and 2022.

Admittedly, CBO made a larger downward adjustment ($169 billion) in projected Medicare spending, which it termed a technical adjustment to reflect the current slowdown in health spending.  However, the Medicare actuary and others have said much of this slowdown is linked to the poorly recovering economy – which means spending could pick up whenever the economy fully recovers.

Either way, however, the report reflects an indictment on the Obama economy — lower productivity growth raising Medicare spending, offset only by people cutting back on health expenditures because they can’t afford to go to the doctor.  That’s not evidence Obamacare is working — that’s evidence the “stimulus” didn’t.

A couple of other related points from the CBO report:

  • According to the updated baseline, the federal government will in 2022 spend a total of $1.064 trillion on Medicare, and $592 billion on Medicaid (not counting the state share of Medicaid payments).  The vast — and vastly increasing — amounts of money the federal government is spending on these programs makes the best case for comprehensive entitlement reform.
  • The update projects the decade-long cost of a freeze in Medicare physician payments at $245 billion.  If said legislation is not paid for, CBO estimates debt service payments on the $245 billion would total an additional $36 billion.

Peter Orszag’s ‘Fairy’ Tale

Former Obama Administration Budget Director Peter Orszag published a Bloomberg op-ed this morning in which he criticized conservative proposals to introduce premium support in Medicare.  He claims that the “private market tooth fairy” can’t cut costs –arguing that the Congressional Budget Office doubted this premise, and that any cost differentials between government-run Medicare and private plans would be based on private plans treating healthier patients than traditional Medicare.

Orszag claims that CBO said that the private plans in the House Republican premium support proposal would be more expensive for beneficiaries than traditional Medicare.  But that’s only a quarter-truth, at best.  First, Orszag admitted that he used an out-of-date 2011 CBO report to characterize the 2012 House Republican proposal; he claimed he did so because the 2011 CBO analysis “was the only one that CBO has evaluated in terms of total, not just federal, cost.”

That sleight-of-hand was bad enough — but there’s absolutely no excuse for Orszag’s other key omission, which is that CBO currently has no technical capacity to determine whether or not competition can help reduce health costs.  A recent Health Matters column in CongressDaily (subscription required) pointed out this key flaw in CBO’s estimating models:

[CBO] Director Douglas Elmendorf told the House Budget Committee in 2011, his office doesn’t have the ability to account for any cost decreases (or increases, for that matter) that could come from competition between private plans.  “We are not applying any additional effects of competition on this growth rate over time in our analysis of your proposal.  And, again, we don’t have the tools, the analysis, we would need to do a quantitative evaluation of the importance of those factors,” Elmendorf said….

CBO’s current estimate puts the effects of competition at zero, which Gail Wilensky, a former head of Medicare and Medicaid in the George H.W. Bush administration, says is an even worse assumption than making some sort of educated guess.  “You know it’s not zero, that’s the complete cop-out,” Wilensky said in an interview.  “Their assumption is zero; it’s a very specific assumption, and it’s the one thing that’s definitely not accurate.”

Before joining the Obama Administration, Orszag served as Elmendorf’s predecessor as CBO Director.  He knows that this lack of capacity on the effects of competition is a MAJOR hole in the organization’s technical capacities — in fact, one could assign him at least some responsibility for failing to develop those models during his time as CBO Director.  Yet he mentioned none of this in the op-ed.

Instead, Orszag spent time criticizing the process of risk adjustment – in which plans with sicker-than-average beneficiaries receive higher payments than plans with healthier-than-average patients, to compensate the former for their higher costs and discourage plans from attempting to game the system.  Orszag alleges that risk adjustment is imperfect — which is true — but goes on to say that risk adjustment is so imperfect that private plans could still undermine traditional Medicare by soliciting healthier patients, despite the risk adjustment methods in place.  Orszag’s argument would sound slightly more genuine were it not for this paragraph included in Section 1343(b) of Obamacare:

(b) CRITERIA AND METHODS.—The Secretary, in consultation with States, shall establish criteria and methods to be used in carrying out the risk adjustment activities under this section.  The Secretary may utilize criteria and methods similar to the criteria and methods utilized under part C or D of title XVIII of the Social Security Act.  Such criteria and methods shall be included in the standards and requirements the Secretary prescribes under section 1321.

In other words, Obamacare explicitly grants HHS the authority to impose the risk adjustment methods currently being used in Medicare Advantage — the exact same methods that Orszag claims will undermine traditional Medicare.  If those Medicare Advantage risk adjustment methods are so flawed, as Orszag claims, then why did the Obama Administration — of which Orszag himself was a member — permit them to be used in Obamacare Exchanges as well?

Orszag’s column got this much right — there is a “fairy” tale regarding premium support proposals.  But the real fairy tale lies in the inconvenient truths Orszag himself was unable or unwilling to mention in his supposed critique.