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Debating the President’s Portsmouth pitch (part 12)

kbh — Thu, 13 Aug 2009 16:00:33 +0000

We continue debating the President’s health care pitch at the Portsmouth town hall:

THE PRESIDENT: Another way of putting this is right now insurance companies are rationing care. They are basically telling you what’s covered and what’s not. They’re telling you: We’ll cover this drug, but we won’t cover that drug; you can have this procedure, or, you can’t have that procedure. So why is it that people would prefer having insurance companies make those decisions, rather than medical experts and doctors figuring out what are good deals for care and providing that information to you as a consumer and your doctor so you can make the decisions?

The quote takes on a whole new meaning if you insert a legislative detail that the President omitted. I’ll put it in brackets:

So why is it that people would prefer having insurance companies make those decisions, rather than medical experts and doctors [chosen by the government] figuring out what are good deals for care and providing that information to you as a consumer and your doctor so you can make the decisions?

In a world of limited resources, we cannot just make decisions about medical care based on whether an additional treatment provides a medical benefit. Someone must instead decide whether that benefit is worth the cost. The third MRI on the sprained wrist may provide more up-to-date and useful information, but the benefit is probably small compared to the additional cost. Someone must have authority to decide whether additional care is “worth it.” That person must control the dollars. Ultimately, the health policy debate comes down to the question: Who should make the cost/benefit decision? The pending legislation would move some of those decisions from insurers to the government.

I think it’s a mistake to have government make more cost-benefit decisions on our behalf in part because people are different. The President is talking about government policymakers (who would also happen to be medical professionals) making determinations about “what are good deals for care.” But cost-benefit tradeoffs depend on the particular medical conditions, situation, and preferences of the individual. I would like more of these decisions to be pushed away from insurers to individuals and families, rather than to people chosen by the government to make those tradeoffs for us.

Continue read the next post in this series…

Kudos to the President for proposing to scale back terrorism reinsurance

kbh — Sat, 20 Jun 2009 18:59:46 +0000

Kudos to the President for his proposal to scale back the subsidy for terrorism reinsurance. I wish he had gone all the way to eliminate this program during this term, but I’ll take the partial win.

After the 9/11 attacks, parts of the market for insurance against terrorist attacks evaporated. Insurers rely on statistical data to determine the chance of a future terrorist attack, and therefore the chance that they will have to pay a claim. Insurers were no longer able to estimate the chance that the Empire State Building, or a new stadium, would be attacked, and so they were unwilling to sell terrorism insurance for these kinds of high-value terrorist targets.

This caused further problems, because some real estate developers could not get bank loans without insurance against a terrorist attack.

In 2002 President Bush proposed, and the Congress created (on a strong bipartisan vote) a terrorism reinsurance program, known as the Terrorism ReInsurance Act (TRIA). The government acted as insurer to insurance companies against the risk of an attack on property by foreign terrorists. This was supposed to be a temporary program to fill the gap and allow real estate construction to proceed, while the insurance industry had time to recoup its losses from 9/11 and redevelop new estimates that would allow it to reenter this market.

The program contained an implicit taxpayer subsidy. Since we have not had a terrorist attack since 9/11, there have been no actual government outlays, but the subsidy exists nonetheless. Insurers had higher profits because they don’t have to buy reinsurance on the private market. They relied on the government program instead.

The insurance industry built a bipartisan coalition of Members to extend TRIA and maintain the implicit taxpayer subsidy. The industry has now had more than seven years to re-estimate probabilities and rebuild their financial cushions. There is no longer a need for TRIA, but the insurance industry is extending the subsidy because it can.

The original TRIA law created a two-year program. We tried to eliminate it at the end of 2004, but an overwhelming bipartisan majority decided to extend the program for three more years, until the end of 2007. In 2007 we again tried to eliminate TRIA, and an even stronger bipartisan coalition extended TRIA for seven more years. It is now scheduled to expire at the end of 2014, although I won’t hold my breath.

Each time we were able to scale back the subsidy by raising the deductibles and charging the companies (effectively) higher premiums. In 2007, however, the industry was able to expand the program’s scope to include domestic terrorist attacks. They failed (thankfully) to expand the program to cover life insurance policies.

The market for terrorism insurance and reinsurance would function properly if the government were no longer involved in it. The President deserves kudos for proposing to further increase the deductibles and thereby scale back the implicit taxpayer subsidy, and for proposing that the program sunset after 2014. I wish he had proposed to eliminate it immediately — we certainly could use the scorable savings.

In the grand scheme of things, $300M — $400M per year is small compared to a $2+ trillion annual budget, and as I noted, that’s an implicit subsidy that has so far involved no actual government outlays. We should eliminate this program because we can — the need for this program no longer exists, the market can function without it, and taxpayers should not be subsidizing the insurance industry.

There is an opportunity here for a conservative Member of Congress or think tank to work with the President on a good (if small) free-market policy reform. It will be you and the President against corporate welfare for the insurance industry and an overwhelming bipartisan majority of Congress. Sounds like a fun fight.

Kudos to the President for proposing to scale back terrorism reinsurance

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The President’s silly health care announcement

kbh — Mon, 11 May 2009 20:18:56 +0000

The President spoke about health care in the cross-hall today, flanked by the heads of several major health lobbying groups (“trade associations,” in Washington vernacular):

hospitals — the American Hospital Association (“AHA”);
doctors — the American Medical Association (“AMA”);
insurance companies — America’s Health Insurance Plans (“A-Hip”);
the drug manufacturers — Pharmaceutical Research and Manufacturers of America (“Pharma”);
the medical device manufacturers — Advanced Medical Technology Association (“AdvaMed”); and
health care worker unions — the Service Employees International Union (“SEIU”).

The President announced,

[T]hese groups are coming together to make an unprecedented commitment. Over the next 10 years — from 2010 to 2019 — they are pledging to cut the rate of growth of national health care spending by 1.5 percentage points each year — an amount that’s equal to over $2 trillion.

This is one of the sillier White House announcements I have seen. Let me draw a sports parallel.

Imagine if the mayor of your nearest big city were to hold a press conference with the General Manager of the city’s Major League Baseball team. The Mayor announces that the GM, working with the coaches and players, has committed that he will work to develop plans for the team to hit the Mayor’s new goal of winning 40 more games this season than they otherwise would have won. Those plans will improve the team’s hitting, pitching, and fielding. The Mayor also announces that the manager’s plans, combined with the Mayor’s new policy initiative for better parking at the stadium, will make fans happier and help the team win more games.

Baseball fans would reply, “Great, I’m all for it.” They might then ask a few questions:

What do you mean the GM “will develop plans”? Doesn’t he have any specific plans yet? How will he improve hitting, pitching, and fielding?
How are we supposed to verify that the team won 40 more games than they otherwise would have, since we will never know how many games they would have won?
Other than picking the number 40, why is the Mayor involved in this press conference? What does the Mayor’s new parking initiative have to do with the coaching changes, and how will the new parking initiative help the team win more games?
If this is such a good idea, what has changed to make it happen now? Is the Mayor claiming that his persuasive powers alone are worth 40 more wins? Why didn’t the GM make these changes before?

The only substance to this announcement is that the manager agreed to the Mayor’s target of winning 40 more games. Everything else is fluff or unrelated.

The same questions apply to the President’s announcement today. The letter from the provider groups says:

We will do our part to achieve your Administration’s goal of decreasing by 1.5 percentage points the annual health care spending growth rate — savings $2 trillion or more. … To respond to this challenge, we are developing consensus proposals to reduce the rate of increase in future health and insurance costs through changes made in all sectors of the health care system.

Not “We have developed proposals and here they are,” but instead “We are developing consensus proposals.” So today the groups actually announced (1) that they accept the President’s quantitative goal, and (2) they will work together to reach that goal. Neither the interest groups nor the Administration announced any substantive plan to achieve the goal.

The letter from the groups states some warm-and-fuzzy non-specific ideas:

Implementing proposals in all sectors of the health care system, focusing on administrative simplification, standardization, and transparency that supports effective markets;

Reducing over-use and under-use of health care by aligning quality and efficiency incentives among providers across the continuum of care so that physicians, hospitals, and other health care providers are encouraged and enabled to work together towards the highest standards of quality and efficiency;

Encouraging coordinated care, both in the public and private sectors, and adherence to evidence-based best practices and therapies that reduce hospitalization, manage chronic disease more efficiently and effectively, and implement proven clinical prevention strategies; and,

Reducing the cost of doing business by addressing cost drivers in each sector and through common sense improvements in care delivery models, health information technology, workforce deployment and development, and regulatory reforms.

This is the parallel to the baseball manager saying he will improve the team’s performance by improving their hitting, pitching, and fielding. Everyone agrees that it makes sense, and everyone wants to know how he’s going to do it. The same applies here. Without specifics, these are empty promises. Nothing in this list is concrete enough to translate into specific actions by anyone.

The letter does urge some increased spending on health care, for “health promotion and disease prevention to reduce the prevalence of chronic disease and poor health status, which leads to unnecessary sickness and higher health costs.” This is a repeat of a common health policy fallacy — that increased government spending on preventive care will reduce overall health expenditures. While it is true for specific individuals, it is generally false for the population as a whole, because you end up spending money on preventive care for people who would not otherwise have gotten sick. The Congressional Budget Office takes a skeptical view toward the claim that this will save money, at least in the 5-10 year short run.

The second problem with the announcement is that it is unverifiable. We obviously cannot wait ten years to test the claim, and countless other factors will have changed during that time, making it impossible to know what the growth rate would otherwise would have been.

The third problem is that there is no obvious linkage between today’s announcement and the government, much less the President. Today the President said,

Their efforts will help us take the next and most important step — comprehensive health care reform — so that we can do what I pledged to do as a candidate and save a typical family an average of $2,500 on their health care costs in the coming years. Let me repeat that point. What they’re doing is complementary to and is going to compatible with a strong, aggressive effort to move health care reform in Washington with an ultimate result of saving health care costs for families, businesses and the government.

The President is attempting to claim credit for savings that (a) do not yet exist, (b) are not backed up by any specific changes in industry practices or government policies, and (c) are related to him only in that the groups announced they were adopting his quantitative goal. For all three of these reasons, the President’s claim that these savings will materialize is wildly unrealistic, and it is absurd to attach a per-family savings number to it. This is like the Mayor claiming credit for the 40 additional wins now, and telling fans that he will be responsible for the team winning the pennant. No one should take these claims seriously.

This artfully constructed sentence misleads:

What they’re doing is complementary to and is going to be compatible with a strong, aggressive effort to move health care reform in Washington with an ultimate result of saving health care costs for families, businesses, and the government.

If the groups had specific plans to change industry practices to hit their new quantitative goal, then those changes in private-sector behavior would save money for families, businesses, and government.

The President deserves credit for proposing some modest changes to Medicare and Medicaid that would slow the growth of government spending, although not nearly enough.

But the President has not yet proposed any policy changes as part of “health care reform in Washington” that would save families or businesses any money. He has proposed government spending increases that would improve the information available, but has proposed no changes to the financial incentives that people or firms have to use that information. Information by itself won’t significantly slow the growth of health care spending. You need incentives as well. (The Congressional Budget Office agrees.)

While the President’s announcement was silly and meaningless as a policy matter, it is tactically significant as the legislative battle over expanding taxpayer-financed health care heats up. The health insurance companies were a major industry opponent of HillaryCare in 1993-1994, and it appears they are trying to ingratiate themselves with the new President. Similarly, the drug manufacturers, who have historically aligned themselves with Republicans, are doing everything possible to get on the President’s good side. They want to share in the spoils of increased government spending on health care, they want to avoid being the political and policy targets of legislation, and they see no political downside to supporting a popular and powerful President with Democratic supermajorities in both the House and Senate.

Today’s announcement was about a budding political coalition that could support the President’s legislative push. Nothing more.