Health Insurance Reform Should Be About Better Insurance, Not Entitlements

Hedge fund manager Cliff Asness writes in a Bloomberg article that true health insurance reform should focus on restoring the true purpose of insurance:  "True insurance comprises two things. The first one is a goal: to protect against very large losses. The second one is a method: the proper assessment and pricing of risk."

He argues health care costs are too high partly because "All incentive for the consumer to control costs is abandoned."  Why?  Most health care costs, "including routine and minor care," are paid for by someone else, and the most common someone else (your employer) has a tax incentive to provide more health care benefits.

In pursuit of social "equality", politicians are moving toward arguing "the same premium must be charged for a well-protected, unscathed house as for one that is already on fire."  "The business of insurance is about determining risk and charging accordingly. It’s why insurance companies exist. If we eliminate that, medical insurers are just form-processing companies for the government."

Instead of heavily regulating insurance for everyone due to the few that have extremely high health costs and poor (or no) insurance, Asness claims "direct state subsidy is far more efficient."  Not an easy thing for a libertarian like Asness to say.

Problems with Obama's Criticisms of Insurance Rates

The New York Times reports that the President "will propose on Monday giving the federal government new power to block excessive rate increases by health insurance companies." The policy is intended "to frame his debate with Republicans over health policy at a televised meeting on Thursday" by "seizing on outrage over recent premium increases of up to 39 percent announced by Anthem Blue Cross of California."

I have at least 4 problems with all of this: one about the uncritical media coverage, one about the political games being played, one about unintended consequences, and the last about the role of government.

1) news story after news story is reporting Anthem's rate hikes as "up to 39 percent". I have yet to find one news story that digs into this number. Out of the 700,000 affected customers, how many will see 39% increases? One? All of them? What's the average increase? Is anyone seeing a rate decrease? With all the coverage this is getting, you think someone would look into this instead of just repeating the number, which has the effect of supporting Obama.  This statistic is becoming the new "47 million Americans are uninsured."

2) The article says "the legislation unveiled on Monday will actually be the first comprehensive proposal put forward by the White House." The President keeps criticizing the Republicans for not having good ideas, but he comes out with new proposals, immediately before a televised meeting with them? I hope voters see that "seizing on outrage" = "pandering"; it does not equal good policy based on a long-term strategy. Senate Republican leader, Mitch McConnell said “If they are going to lay out the plan they want to pass four days in advance, what are we discussing on Thursday?”

3) The House and Senate health insurance proposals will require insurers to cover more high-risk patients, and will regulate how much more insurers can charge high-risk patients, compared with low-risk ones. To comply, insurers will have to raise rates overall, and particularly to low-risk patients because the new regulations are an explicit subsidy from the healthy to the sick. Part of these rate hikes are certainly due to the bad economy, but how much is a result of the oncoming Obamacare train? Is Obama criticizing something here that is actually the direct result of what he is proposing?  This WSJ editorial thinks so.

4) Who decides what is an "excessive rate increase"? If customers are not getting value for their money, they should be able to choose a different insurance plan. The government should take steps to increase competition so that consumers can make these choices, instead of waiting for a government panel to decide what is appropriate.

Advice for Republicans?

A commenter on Megan McArdle's article has some advice for Republicans:

"Republicans should do exactly what Democrats do: Promise to pay for everyone's health care and give each person a unicorn. That's how you get elected."

Somehow, I don't think that would be good for anyone but the professional Republican politicians.  If Republicans do this, I really hope voters would see right through this and vote with their feet (i.e. even more Republicans become Independents).

Insurance Doesn't Always Have to be a Government Program

The story of Vic Chesnutt, a singer-songwriter who died in December, has been circulating on the internet. He had been in a coma for some time, the cause of which is uncertain, but is rumored to be the result of a suicide attempt. He struggled with depression much of his life, partly due to a car accident that made him a paraplegic at a young age.

Chesnutt was also facing $70,000 in medical bills, and some groups have picked him up as a poster child for Americans who die because of a lack of health insurance.

"Insurance" is simply a mechanism for sharing costs and risks across a group of people - it doesn't require a complicated corporation or government program. Chesnutt was a minor celebrity - was he really unable (or unwilling) to raise $70,000 from other, willing Americans? Americans are proving themselves to be generous - look at all the millions flowing into Haiti every day.

In his acceptance speech in Grant Park last year, President Obama said "we know that government cant solve every problem" and "let us summon a new spirit of patriotism; of service and responsibility where each of us resolves to pitch in and work harder and look after not only ourselves, but each other."

Wouldn't it be wonderful if Obama used his State of the Union address to tell Americans not to wait for government to solve their problems...to tell Americans that sometimes people don't die from lack of health insurance - they sometimes die from lack of a community where people reach out and help each other - directly, with no government program telling them they must.

I'm sure Obama can find other words, but "my fellow Americans: ask not what your country can do for you - ask what you can do for your country" would be a good sentiment right now.

Is Obama Principled or Pandering?

President Obama told ABC's Diane Sawyer that "I'd rather be a really good one-term president than a mediocre two-term president." "You know, there is a tendency in Washington to believe our job description, of elected officials, is to get reelected. That's not our job description," Obama said. "Our job description is to solve problems and to help people."

If the only reason people think the job of a politician is to get reelection is cynicism, then Obama is making a strong, principled statement here. However, he is not a king. Obama is serving in a representative democracy, which means that Obama's job is to solve the problems that the voters want him to solve, not the ones that he, in his apparently lofty wisdom, decide need to be solved. Therefore, his job is to get reelected, because in a democracy that is ultimately how the people tell Obama whether he did his job or not.

Obama campaigned on a staggering multitude of issues, promises, and expectations, many of which were contradictory, and therefore went into office with a multitude of constituencies. He was expected to solve a lot of problems and help a lot of people, at no cost to anyone. During his time in office, he has inevitably let people down, and turned his back on many constituents. If Obama is being principled now, which constituencies' principles is he standing on, and which is he rejecting? On health care reform, he has chosen to pander to the political left, while simultaneously, and quite obviously, telling independents to take a hike because he intends to get it done before they can vote him out of office.

Think of it as a 'principled' way of flipping independents the bird.

Martha Coakley, Single-Party Rule, and Scary Secularism

Martha Coakley, who is running for a Senate seat in Massachusetts as I write, said in a radio interview that "You can have religious freedom but you shouldn't work in an emergency room." That is, that Catholics should be prevented from working there, because this is a "church and state" issue. Well, most hospital jobs are not government jobs, and forbidding Catholics from working there would be a violation of the liberties of Catholics. Imagine if a right-winger said atheists should be banned from becoming EMTs.

There is already a shortage of health care workers, and Coakley wants to exclude Catholics, which make up 53% of Massachusetts according to exit polls from 2008? Catholic organizations provide a huge portion of the health care in the US. If Coakley loses this election, voters are sending a message that they are tired of single-party rule where politicians can spout partisan ideologies and claim they are right because "they won". I think voters want a reasonable, working government and are tired of the culture wars from both sides.

However, what really scares me is thinking about how Coakley's views could be implemented by government. Suppose the US had universal, government-run health care and Catholics were banned by law from working in emergancy rooms. How would this be enforced? If a hospital hired a Catholic, would they be fined? If they fought the fine, would someone be convicted and thrown in prison?

Here's hoping that voters have learned to ignore Obama's promises of bipartisanship and decide to take their grievances to the ballot box.

How much do votes cost?

This recent Washington Post column by Dana Milbank summarizes the "many backroom deals that were made to buy, er, secure the 60 votes needed to "invoke cloture" -- the legislative term for cutting off debate and holding a final vote." The bill itself has acquired the nickname "Cash for Cloture", while several of the provisions in the bill have their own nicknames:

Louisiana Purchase
Cornhusker Kickback
U Con
Bayh Off
Gator Aid
Handout Montana

So, how does one calculate the cost of buying these votes to the taxpayer? Is it merely the sum of these provisions, or is it the cost of the entire bill, which likely would not pass without them?

"Reform" That Prohibits Reform

The House's health care bill offers to make incentive payments to "to each State that has an alternative medical liability law in compliance with this section." Then the bill defines what kind of medical malpractice reform states need to implement to get this payment from the Feds. Ok, so this bill is making an effort to encourage states to reduce the cost of our crazy malpractice system. Good news? No.

Commentarymagazine.com points out that if states don't get the incentive if they “limit attorneys’ fees or impose caps on damages.” (here) This "reform" bill is effectively saying states can do any kind of medical malpractice reform, as long as they don't actually address the problem. Genius.

So this is what lawyers get for their political contributions and connections...

A 70% Tax on the Poor?

Talk about unintended consequences - the phase-out of subsidies for health insurance in the Baucus bill could end up contributing to a 70% or higher marginal tax rate for people earning between 100% and 200% of the poverty level!

According to James Capretta (here), using the CBO analysis of the Baucus bill, the US government (taxpayers) would provide a $16,500 subsidy for families at the poverty line. As incomes rise, the subsidy declines. A family earning twice the poverty rate would only get a subsidy of $9,072. So, by earning $24,000 more, this family loses $7,428 in government subsidies, or almost 31% of their added income.

Capretta points out other existing government tax breaks that phase out over these income levels, like the Earned Income Tax Credit, which phases out at about $0.21 for each additional dollar earned. This family would lose about $5,000 of their EITC, about another 20% of their added income.

Economist Greg Mankiw (here) adds in additional effects of the payroll tax that bring the marginal tax rate closer to 80%. So, a family of four in 2016 when the Baucus bill would be in full effect, would only get to keep 20-30% of their additional income if they move from the poverty line to double that.

The unintended consequence is that this family has every incentive to just remain poor and beg their Congressmen for additional help. Why work harder if the benefits you lose are almost as big as the extra money you earn? And why not ask for more benefits when you aren't the one paying for them?

Right-wing, wacko...Anesthesiologists?

Apparently the American Society of Anesthesiologists (ASA) is an "un-American" organization because they are encouraging their members to show up at town-hall meetings and protest, according to Nancy Pelosi and Steny Hoyer's NY Times editorial last Monday. A "Congressional Recess update and action alert" posted on the ASA website says "NOW IS NOT THE TIME FOR REST, BUT FOR ACTION" (caps are theirs).

What is the ASA's objection? They call it their "33 percent problem" - "GAO, the investigatory arm of Congress, has found that Medicare pays anesthesiologists 33 percent of what private insurers pay for anesthesia services." The public plan proposed in H.R. 3200 will continue to use this rate, which the ASA says doesn't even come close to covering their costs, which include very high malpractice premiums.

This "33 percent problem" prompted an editorial in today's WSJ by anesthesiologist Ronald Dworkin which points out:

Every medical student learns an old adage: You can skimp on some medicine, but you can't skimp on obstetrics or anesthesiology. An elderly surgeon explained it to me this way, "In surgery, people die in days and weeks—a doctor has time to fix a mistake. But in obstetrics and anesthesiology, they die in minutes and seconds."

Also:

In no medical specialty is the spread between the Medicare rates and private insurance rates greater. Progressives expect to pay anesthesiologists Medicare rates, which are 65% less than private insurance rates, without any change in the system. But there will be changes. Some anesthesiologists will leave the field. They are already faced with lawsuits at every turn.

There is already a shortage of anesthesiologists, and Dworkin gives his thoughts on the possible effects of losing more of them:

Quality of care will inevitably decline. That decline will come first in obstetrics. At the hospital where I work, two anesthesiologists work in obstetrics almost around the clock, so that a woman in labor need not wait more than five minutes for her epidural. Other hospitals are less fortunate, and have on staff at most one anesthesiologist in obstetrics. The economic crunch will eventually force these hospitals to cover obstetrics "when anesthesiology is available," meaning in between regular operating room cases.

During an obstetrical emergency, these short-staffed anesthesia departments will scramble to send someone to perform the C-section. Don't forget, a baby has only nine minutes of oxygen when the umbilical cord prolapses, so time is of the essence.

At the very least, pregnant women will be waiting a lot longer for epidurals.

After this, further shortages become a matter of life and death according to Dworkin:

More pain on the labor floor is only the beginning. If hospitals delay the administration of anesthesia because Congress skimped, needless deaths will certainly result.

On the other hand, this rules out the "death panels". There won't be enough anesthesiologists to perform the euthanasia.

"It's a Matter of Trust"

Daniel Henninger, on the opinion page of today's WSJ, explains the public's frustration with Obama on health care reform by quoting Billy Joel: "It's a matter of trust." The public just doesn't believe the government has any ability to cut cost, only to expand entitlements:

In his op-ed Sunday for the New York Times [Obama] said, "We'll cut hundreds of billions in waste and inefficiency in federal health programs like Medicare and Medicaid." Hundreds of billions? Just like that? This is nothing but an assertion by one man. It's close to Peter Pan telling the children that thinking lovely thoughts will make them fly.

When the AARP corrected the President's assertion that they had endorsed his plan, they said "AARP will not endorse a health care reform bill that would reduce Medicare benefits." They simply don't think this Congress and President are capable of reforming health care without killing it, and apparently a majority of Americans don't think so either.

Yet Another Bad Post Office Analogy

Last night, Rep. Jesse Jackson, Jr. (D-Ill.) suggested on CNN (video here) that the Post Office keeps DHL, UPS and FedEx honest, and so a public health care option would keep insurers honest:

"Look at it this way: There's Federal Express, there's UPS, and there's DHL," Jackson told CNN host Larry King. "The public option is a stamp; it's email. And because of the email system, because of the post office, it keeps DHL from charging $100 for an overnight letter, or UPS from charging $100 for an overnight letter."

This is a flawed analogy on several points:

First, this "honesty" comes with a price, which he fails to acknowledge. The Post Office is projected to lose $7 billion dollars this year, in spite of raising the prices of stamps several times recently. Where is that $7 billion going to come from? It will be subsidized with tax dollars. Where do tax dollars come from? The profits of corporations and the wages of individuals.

However, it is a good analogy in the sense that Medicare is bleeding money, just like the Post Office. While many claim Medicare is "working" because it has (so far) been able to provide a reasonable level of care, the Trustees of the Medicare trust funds say Medicare payroll taxes would have to more than double ($3.88 more will be taken out of everyone's paycheck for each $100 earned), or services would have be immediately cut in half to cover Medicare's budget shortfall. Until either of these happen, the Medicare deficit is paid out of general funds, which is the money collected through income tax.

By suggesting that whenever a private business is making too much money, the solution is to create a massive, money-losing, taxpayer-funded competitor to keep everyone "honest", Jackson seems to think there is no limit to government revenue and what people are willing to pay for and tolerate. Should the Post Office, or a public health insurance option, exist merely as a mechanism for transferring money from successful businesses to failed ones, with the goal of keeping everyone "honest"? If we keep subsidizing money-losing government "businesses" for this purpose, we might end up running out of profitable businesses.

Second, the example shows a misunderstanding of microeconomics. Suppose UPS raised its rate to $100, far above current rates. They would lose all their business to others who charge less, assuming the service quality is similar. Therefore, UPS would have to reduce their rate to a level that allows them to provide the service without losing money.

So, the Post Office isn't keeping UPS from charging $100 - DHL, FedEx, and the Post Office together are competing. Also - $100 is just a ridiculous price for an overnight letter! If a business charges more than people are willing to pay for something, customers will keep you honest by finding another way, and with no government subsidy!

Third, Health care in America isn't expensive because everyone is charging consumers $100 for something that should cost $10. It's expensive because there has been an explosion in technological innovation that enables us to treat things that were recently untreatable. Waste, fraud, profits, and other factors have contributed, but according to the Congressional Budget Office, technological change accounts for 40 to 65% of the increase in health care costs from 1940 to 1990 based on their analysis of several studies (see table 2 on page 8, here).

On his blog "Happiness in this World", Dr. Alex Lickerman says:

Heart attacks used to be treated with aspirin and prayer. Now they’re treated with drugs to control shock, pulmonary edema, and arrhythmias as well as thrombolytic therapy, cardiac catheterization with angioplasty or stenting, and coronary artery bypass grafting. You don’t have to be an economist to figure out which scenario ends up being more expensive.

Will Reducing Health Care Profits "Bend the Curve"?

I keep seeing comments on how outrageous it is that health care companies make profits, and how those profits are adding so much to the cost of American's health care. President Obama has said a public option is needed to "keep the insurance companies honest". "Right now, at the time when everybody's getting hammered, they're making record profits," he said in his July 22nd prime-time press conference. Can the high cost of health care in the U.S. be attributed to the profits of the insurance companies?

Based on all the rhetoric about how horrible these profits are, one might think reducing these profits would have a big impact on the overall cost of health care. So, for the sake of argument, let's assume that a public option, or some other reform, is enacted and is so effective that it eliminates all the profits of publicly traded health insurance companies. What would the impact be?

I pulled the net income (aka profit) for the last 8 quarters of all publicly traded companies that are part of the Russell 3000 Index, which includes nearly all stocks. Insurance companies are part of the Health Care Providers & Services industry, according to S&P. Although not all companies in this industry are insurers, I include them all anyway, which makes a list of 95 companies, which includes Aetna, Wellpoint, Cigna, and many others.

To level out changes over time, I averaged the last 8 quarters, then multiplied this by 4 to get an estimate for a year. Then I added them all up.

By this method, I estimate that all publicly-traded health insurance companies made $18.8 billion in profit, on average, over the last two years.

Big number, right?

However, consider that total health care expenditures for 2008 are estimated to be $2.394 trillion. (See table 1, page 3, here)

Therefore, if all profits of the health insurance industry were somehow eliminated, the U.S. would save 0.8% of its total health care costs. Not what I would call "bending the curve."

What if we include all health care companies - biotech, pharma, medical device companies, etc?

This results in a list of the largest 404 health care companies, which, using the methods above, make an estimated $73.5 billion of profit. Removing this profit from the system would save us 3.1% of our total health care costs. Again, not a major impact. Instead of health care costing us 15.3% of GDP, it would cost 14.8%.

Although blaming our health care problems on the profits of companies might make some people feel better, even getting rid of them entirely will barely dent the cost problem, and would almost certainly result in other problems.

Note: This analysis was inspired by similar work in Alex Lickerman's "A Prescription for the Health Care Crisis" (here). I strongly recommend you read his thoughtful analysis of why our health care is so costly. (Hint: it's not because of profits.)

Sausage Making and the Health Care Bill

An August 1 Washington Post article quotes Rep. John B. Lawson (Conn.), head of the House Democratic Caucus saying: "Two things that shouldn't be observed: the sausage being made and a bill becoming law." The article described the messy process involved, but didn't quite live up to the old School House Rock "I'm Just a Bill" video.

Here are some excerpts from the article, with my comments:

Although everyone talks about "the bill", or the "Obama plan", there is no such thing yet. Right now, there are several versions being worked on by several different groups within Congress:

"Both chambers have, between them, three health-care reform bills -- one in the House and two in the Senate. Only one of the Senate bills has won committee approval...The huge cut-and-paste job now goes to the House Rules Committee, to be smoothed out into a final product to send to the House floor...Almost every major provision of health reform remains very much in play."

Each member of Congress fights to get their pieces of legislation in. They need to make sure the bill reflects their personal convictions and/or those of their constituents, resulting in many amendments:

"The bill, a work in progress called H.R. 3200, is already phone-book thick...Some 250 amendments had appeared by Wednesday night, and the number jumped to 350 by Thursday afternoon. The amendments filled 39 file boxes on chairs, under desks and in the aisles."

There is a great picture on the Washington Post website of a legislative aide surrounded by boxes and boxes of paper containing just the amendments.

In spite of President Obama's promises of a more accountable and transparent administration that would broadcast all of the health care debate on TV:

"All week, there were closed-door meetings among disparate ideological factions. The negotiations are invisible not only to the media and the public, but also to most other members of Congress."

Much of the fighting is between Democrats, who are struggling to craft a final bill, in spite of controlling the White House, and both houses of Congress:

"Democrats have large majorities in both chambers, but they have discovered the perils of being a party that yokes together Northern California liberals and Deep South good ol' boys."

But, even if there was only one version, and all members of Congress read it, they still wouldn't necessarily understand it:

"the bills are not exactly beach reading. They are legal documents crammed with legislative coding, sentence fragments and assorted gibberish that modifies laws already on the books somewhere. To really understand what a bill says, you'd need to have the existing laws memorized.

Here's a fairly typical passage from H.R. 3200:

Section 1834(a)(7)(A)(iii) of the Social Security Act (42 U.S.C. 1395m(a)(7)(A)(iii)) is amended

(1) in the heading, by inserting 'CERTAIN COMPLEX REHABILITATIVE' after 'OPTION FOR'; and

(2) by striking 'power-driven wheelchair' and inserting 'complex rehabilitative power-driven wheelchair recognized by the Secretary as classified within group 3 or higher.'

And that goes on for a thousand pages."

Is it really a surprise that there is so much confusion over what is in "the bill"? When Americans claim they trust Congressmen only slightly more than used car salesmen, should we trust them when they say something is, or isn't in there, especially when it's constantly changing and so complex?

At the end of the article, they describe the truly scary part. After all the potential amendments and versions are considered, after all the town halls and all the "read the bill!" rhetoric, congressional leaders (i.e. a small number of Democrats) get to re-write the bill and make a version that everyone will vote on - possibly within a few hours. As happened with the carbon cap-and-trade bill, someone could add on a massive amendment at this point in the process.

"Before either chamber can vote on a bill, the committee chairmen, along with congressional leaders, will have to merge the disparate versions into a single bill to bring to the floor. Whatever is passed by the two chambers must then be reconciled again in "conference."

The conference committee would then produce a final bill that would have to be voted on by each chamber. If passed, the bill would go to the president. If he found it acceptable, he would sign it.

And, simple as that, it would be the law of the land."

No wonder the legislative process is compared to the making of sausage. With all these things in mind, consider:

1) Obama is not keeping his promises of transparency and pushed very hard to rush this through before the August recess, making people think he has something to hide. It seems he doesn't want everyone to know the ingredients of the sausage,
2) Obama, Barney Frank and others are on record as being in favor of things they currently claim to be against, such as a single-payer system, reducing their credibility,
3) The 24-hour news cycle and the internet have made more people aware of how the legislative sausage is made,
4) Pelosi and other leaders in Congress have a recent history of rushing things through and making last minute changes, so people don't trust Congress not to change the bill.

Ronald Reagan said "A government bureaucracy is the closest thing to eternal life we'll ever see on this Earth." If this passes, there will be absolutely no way to reverse it, whether it works or not. This is a big part of why so many people are scared of this bill.

Obama Makes "Fishy" Statement About AARP Support

President Obama said: “We have the AARP on board because they know this is a good deal for our seniors.”

The AARP said: "While the President was correct that AARP will not endorse a health care reform bill that would reduce Medicare benefits, indications that we have endorsed any of the major health care reform bills currently under consideration in Congress are inaccurate."

The remainder of the AARP's statement explains that, while they agree with the need for health care reform, they are "working with leaders of both parties, including the President, to build a final package we could endorse." (Which means they are lobbying, an activity the President is endorsing by trying to cite their support.)

They seem as unsure as the rest of us that the final bill will look like the versions currently being discussed. In other words, they don't trust this President or this Congress.

"Fishy" statements from the CBO

Keith Hennessey, formerly a senior White House economic advisor to President George W. Bush, posted an email he sent to flag@whitehouse.gov on his blog, reporting "fishy" staements about health care reform "made by a gentleman named Dr. Douglas Elmendorf. He claims to be Director of the “Congressional Budget Office” and has posted frequently about health care reform on his website, cbo.gov. This information takes the form of personal posts on his Director’s Blog, as well as in-depth reports that have the veneer of competent, thorough, impartial professional analysis. The IP address of his site is 206.106.246.254, and his organization has named their hideout the “Ford House Office Building.”"

Read his post here to see a list of fishy statements made by Mr. Elmendorf and the CBO.

Checking the Health Reform "Reality Check"

The White House has published a FAQ to give people "the facts about the stability and security you get from health insurance reform," so I decided to check it out. Go read the FAQ, then come back here.

So, has the White house convinced you? It's all benefits and no costs, right?

Not really - first consider that there is currently no single bill being considered, so how does the White House know the "facts", when they haven't been decided yet? A 309-page amendment was added to the carbon cap-and-trade bill just a few hours before the vote - will the same thing happen to this bill? Will anyone have time to read the final health care bill, when there actually is one? Will the President post the bill for public review for 5 days as he promised, or should we judge this future, hypothetical bill based on the "facts" posted here? Keep in mind that this President also promised to have a bipartisan bill, and to have the entire debate over health care reform televised so we could hold Congress and the White House accountable.

Second, much of what is presented here as "fact" are statements about the future. Note the present tense used when they describe the FAQ - this is what "you get" from reform. Yes, before it's even written or passed, all of these things will come true! President Obama is a very gifted speaker, but I didn't realise he was a seer as well. Anyway, all legislation has unintended consequences, and people and businesses change their behavior under new laws, making many predictions look foolish in hindsight. So, this FAQ not only makes statements about a bill that doesn't exist yet, but it makes statements about the future effects of these future laws.

Also, consider that some of the statements in the FAQ contradict each other, contradict available evidence, or present idealistic benefits while distorting the associated costs. Here are some examples, in no particular order.

#1 -- Under the question: "Why should people with insurance pay to cover those who don’t have it? They are already paying for the uninsured," the FAQ says some of the uninsured are "younger, healthier people" and that bringing them "into the system will spread the risk."

However, spreading risk is not the same as reducing cost. If these "younger, healthier people" are working, they are already paying for Medicare through the FICA payroll tax. Under the current system, if they elect not to have insurance for whatever reason, they still pay this tax, but get no benefit. If the new system requires them to have insurance, they will still pay the tax, but the government or a private insurer will be giving them benefits. So, more people will have benefits, and the same money will be coming in. How does this lower the overall cost of health care when they are getting benefits they didn't get before? Even though these people are healthier, the cost of their health care benefits is not $0.

#2 -- In one part of the FAQ they say "With health insurance reform, we will also put treatment decisions back into the hands of doctors in consultation with their patients." In another part, they say "Health insurance reform must also encourage the kinds of reforms we know will save money in the long run: preventive care; computerized record-keeping; and comparative effectiveness studies to expose wasteful procedures and hospitalizations and give doctors the tools to make the right treatments for you." (emphasis mine)

The stated purpose of the comparative effectiveness studies is to determine which treatments are better and/or cheaper than comparable available treatments, then to tell doctors which ones to use. This is not putting treatment decisions in the hands of doctors - it is second-guessing the judgement of individual doctors dealing with individual patients, using a system that studies what works generally.

#3 -- In that same section, they mention preventive care as a cost-saving measure. I'm in favor of preventive medicine where it makes sense, but let's not pretend it's free. The CBO recently said that "although different types of preventive care have different effects on spending, the evidence suggests that for most preventive services, expanded utilization leads to higher, not lower, medical spending overall." In other words, an ounce of prevention is not always worth a pound of cure. You can read the CBO release, or other studies, but the main argument is that, in order to prevent one illness, you have to test many, many people that will not have the illness. Some counter this saying that testing will be "targeted", but how do you know who to target, prior to testing them? In addition, the mere act of testing often has negative side effects.

#4 -- The FAQ also says that "our incentives are perverse: Doctors are paid by the procedure, rather than for quality. We want reform that rewards quality of care not quantity of procedures. Having dozens of procedures doesn’t necessarily make you better."

Preventive care means that doctors will need to preform more tests in an attempt to identify future diseases. This will require that the doctors are "paid by the procedure, rather than for quality" because most of these preventive tests and screens will result in no improvement in care, and sometimes will result in harmful side effects. Talk about perverse incentives.

Also, Obama has ruled out malpractice reform, although the current malpractice status quo contains several "perverse" incentives. Our medical malpractice system encourages many of these "extra" procedures for the purpose of avoiding lawsuits. Charles Krauthammer of the Washington Post puts it this way: "An authoritative Massachusetts Medical Society study found that five out of six doctors admitted they order tests, procedures and referrals -- amounting to about 25 percent of the total -- solely as protection from lawsuits. Defensive medicine, estimates the libertarian/conservative Pacific Research Institute, wastes more than $200 billion a year."

The FAQ acknowledges that "right now roughly 100,000 Americans die every year from medical errors, which, in many cases, were the result of treatments that were wrong for them." Without malpractice reform the number of unneccesary procedures might go up, not down, as doctors continue to practice defensive medicine, in addition to newly-required preventive measures.

The astronomical costs of malpractice insurance is also forcing many doctors out of practice altogether leading to doctor shortages in some fields, including obstetrics. See my other post on "Malpractice Nonsense" here.

#6 -- "We are also committed to creating a pathway for the approval of generic biologic drugs...It is important to make generic versions of these drugs available as soon as possible. " However, "A U.S. House committee, voting 47-11, approved an amendment that would give brand-name makers of biologic drugs 12 years of exclusivity, dealing a setback to efforts by President Barack Obama and consumer groups to open the market to generic drug makers sooner," according to a WSJ article.

Is this just because the pharmaceutical companies are greedy and evil? No - why would they invest billions of dollars in developing a drug if the government will not allow them to recover that cost? "Amgen said in a recent statement that "without a fair and sustainable cycle of investment and returns in innovative R&D, biotech discovery will be stifled." Either someone will pay for ongoing innovation, or innovation will decrease. No matter how clever the legislation might be, Congress can't write the massive cost of developing a new drug out of existence.

#7 -- "The savings being proposed from Medicare won’t harm patient care. In fact it will improve it." The FAQ follows this with a non sequitor - nearly the entire section has to do with fraud, waste and financial issues, rather than ways patient care will be improved. Reducing fraud may reduce the cost of care, but it doesn't make the care better. The points in this section that are related to increasing quality of care - biologic drug availability and preventive care - are dubious (see my points #3 and #6).

#8 -- "Health Insurance Reform will prevent insurance companies from denying coverage because you have a pre-existing condition; prevent them for canceling coverage because you get sick; ban annual and lifetime limits on coverage..."

While I can't disagree that this is a good idea, and that, ideally, reform should include some of these items, everyone must recognize that the reason these practices exist is to cut cost - which is a major goal of health care reform. How can eliminating these same practices also cut cost?

#9 -- "Resources that are devoted to health care cannot be used to provide the other goods and services that Americans want, including education, investment, and infrastructure."
Following this logic, perhaps our government should have reformed health care before pushing through the massive $787 billion stimulus package, which includes many "education, investment, and infrastructure" projects, in addition to many pieces of health reform that were piled in?

#10 -- "The majority of the initiatives that would pay for reform will come from cutting waste, fraud, and abuse within existing government health programs."

Advocates of a broader public health plan have argued that Medicare's adminstrative costs are far lower than those of private insurers. If this is true, then there would not be much "waste, fraud and abuse" to cut out.

On the other hand, those against a private plan argue this is fuzzy math, or that these costs are lower because Medicare doesn't do enough to combat fraud and abuse. Estimates of fraud and abuse costs vary, but a 2005 study by the GAO indicated that the government doesn't even allocate enough people and resources to detecting fraud and abuse to come up with a reasonable estimate. However, "even a rate as low as 3 percent would mean a loss of almost $4.6 billion in federal funds in fiscal year 2003...roughly the amount that the federal government spent in fiscal year 2003 on the State Children’s Health Insurance Program."

So, if the government really wants to combat this, it will not be free, and it will require increased coordination with states. It will take several years for the "savings" to materialize.

Also, this type of reform is very difficult politically. For example, in some states, once a person qualifies for Medicaid under "means testing", they can continue on the program until they notify the state that they no longer want it. So, people can, and do, stay on Medicaid indefinitely. One way to "reform" this would be to make everyone undergo "means testing" again and re-enroll. Now pretend you are a politician trying to sell that idea in a town-hall meeting.

#11 -- "Adding more people to a broken system will only cost us more in the long run." Agreed - so fix the system, then work on expanding coverage to the uninsured. Don't try to cram it all through in one massive bill that nobody understands and that is full of hope and promise.

Obama's decision to do it all at once reveals his cynicism that the U.S. Congress can only get such difficult legislation done by not letting "a crisis go to waste". But, I thought Obama's brand of politics was supposed to be above petty things like cynicism?

Malpractice Nonsense

In her book, Another Day in the Frontal Lobe: A Brain Surgeon Exposes Life on the Inside, neurosurgeon Katrina Firlik says:

"One reason physicians are so unhappy these days is that the definition of malpractice has changed. Malpractice is no longer defined as truly negligent or improper behavior. Now, a poor outcome alone triggers claims of 'malpractice.' The quality of care may be irrelevant.

I have never been sued, but expect to be. The entire new generation of surgeons expects to be sued...It doesn't matter how good you are or how carefully you practice."

Firlik distinguishes between medical errors that are inherent in risky procedures and errors that are the result of professional mistakes. Like anything else in life, medical procedures are not 100% reliable, even if performed or prescribed perfectly. Firlik points out that, in spite of everyone's best efforts, surgical procedures result in infection about 1% of the time.

Under the old definition of malpractice, plaintiffs could sue and win primarily only for professional mistakes. For example, if it could be proven that an infection happened because of a failure to follow standard procedure in sterilization.

Under the new definition, plaintiffs can sue and win whenever they get an infection, even though 1% of all procedures result in infection, in spite of a perfectly-executed surgery according to the most current medical standards.

When you combine this with America's cherished trial-by-jury system, it results in extraordinary legal payouts for plaintiffs, much of which goes to the lawyers. An example of where this is particularly true is in obstetrics, where the involvement of children can lead to emotional jury decisions and larger-than-normal payouts.

Former Senator and Vice Presidential candidate John Edwards made his career (and fortune) coaxing large financial rewards out of juries who blamed birth defects on doctors who botched deliveries.

A Boston Globe article from 2003 points out how Edwards' courtroom pleas for empathy (in the form of dollars) became near-legendary:

His summations routinely went beyond a recitation of his case to a heart-wrenching plea to jurors to listen to the unspoken voices of injured children.

"I have to tell you right now -- I didn't plan to talk about this -- right now I feel her, I feel her presence," he said in his record-setting 1985 lawsuit on behalf of Jennifer Campbell, born brain-damaged after being deprived of oxygen during labor. "She's inside me and she's talking to you. . . . And this is what she says to you. She says, `I don't ask for your pity. What I ask for is your strength. And I don't ask for your sympathy, but I do ask for your courage.' "

The result of the changing definition of malpractice, combined with an empathetic jury system is that doctors cannot risk practicing medicine without buying malpractice insurance. The premiums for this are, naturally, rising. According to this website,

"A survey on medical liability issues conducted in 2006 by the American College of Obstetricians revealed that approximately 90 percent of the obstetricians in the United States had been sued at least once. Of the approximately 10,000 obstetrician respondents, the average number of lawsuits over a career is between two and three...

Florida is the highest [malpractice] premium state, with base premium rates as high as $238,728 in 2008 for Miami and Dade Counties, followed by states that include Illinois, New York, Pennsylvania and Massachusetts."

So, who pays for this? When a plaintiff wins $2 million dollars in a malpractice suit, the doctor's insurance company makes the payment, which is split between many parties including the plaintiff (or plaintiffs), the lawyer(s), and others. The insurance company pays from its collected premiums. The premiums come from the many doctors using the insurance company. The doctors pay the premiums out of their salary (possibly with some help from their employer). The doctors or hospitals pass the cost on to YOU.

Another, indirect, financial cost of high malpractice awards is that they encourage "defensive medicine". Doctors, aware that a prosecutor might propose "what if?" scenarios to a jury, order extra tests and procedures to protect themselves from legal damages. What if Dr. X had ordered another sonogram or CT scan? Would that have saved the patient from these horrible consequences? But, Dr. X didn't do this, and therefore you, the responsible jury that you are, must declare that this doctor did not perform his professional duty! Never mind that these tests may rarely, or never, reduce the risk of the procedure, and that the machines required to perform these extra tests may cost millions of dollars, which is passed on to the patient in one form or another.

In addition to the financial costs, high premiums are leading to doctor shortages in some areas, where patients simply can't find an obstetrician. According to this May 2009 press release from the The American College of Obstetricians and Gynecologists:

Malpractice insurance costs have forced many obstetricians in New York to stop practicing obstetrics, refuse to care for high risk pregnancies, or leave the state...Many physicians are forced to give up obstetrics – or move to states that have appropriate and fair liability insurance rates...Eight New York counties have zero obstetricians: Essex, Greene, Seneca, Tioga, Washington, Yates, Schoharie and Hamilton. In addition, 18 counties have less than five practicing ob-gyns.

Insurance premiums are one of the reasons doctors in the U.S. require higher salaries than doctors in other countries, a statistic commonly cited in current debate on health care costs. However, other countries have taken steps to limit malpractice rewards. In Sweden, malpractice claims are handled by filling out a form, which is reviewed by a committee. In the UK, complaints are heard through the National Health Service, which avoids the lottery award system found in the U.S. Ironically, some have claimed that malpractice is less of a problem in the UK because the NHS is so inefficient and cash-strapped that people feel guilty suing them, even when the malpractice is very severe. (Example here) This bulletin from the American College of Surgeons explains how the Swedish system works, and that the primary opposition to such systems in the U.S. comes from a cultural expectation of very large awards for medical errors, from trial lawyers who would make less money, and resistance to making malpractice an exception to our trial-by-jury system.

Obama says everything is "on the table" when it comes to health care reform. Why isn't President Obama demanding reforms in malpractice insurance, which is part of everyone's medical costs? Perhaps it is because he is a lawyer, and feels empathy for others in his profession who might make less money under a reformed system? Perhaps it is because lawyers make up a large part of his donor base, and might stop contributing to his campaigns? Perhaps it is because he sees jury awards as a way to redistribute wealth from doctors who may have had advantages in life that the plaintiffs did not?

Our failed malpractice system increases the costs of health care in several financial and non-financial ways. These costs are passed on to you, through higher taxes, higher insurance premiums, higher deductibles, or other ways. "The government" doesn't pay for it. "The government" is the taxpayer, and the taxpayer is you. Obama says this is the time to fix health care. Let's do it.

Krauthammer's "Why Obamacare is Sinking"

Some excerpts from Charles Krauthammer's column in today's Washington Post:

"What happened to Obamacare? Rhetoric met reality...President Obama premised the need for reform on the claim that medical costs are destroying the economy. True. But now we learn -- surprise! -- that universal coverage increases costs."

"This is not about politics? Then why is it, to take but the most egregious example, that in this grand health-care debate we hear not a word about one of the worst sources of waste in American medicine: the insane cost and arbitrary rewards of our malpractice system?...the greatest waste is the hidden cost of defensive medicine: tests and procedures that doctors order for no good reason other than to protect themselves from lawsuits...Tort reform would yield tens of billions in savings. Yet you cannot find it in the Democratic bills. And Obama breathed not a word about it in the full hour of his health-care news conference. Why? No mystery. The Democrats are parasitically dependent on huge donations from trial lawyers."

"The only thing he hasn't promised is to extirpate evil from the human heart. That legislation will be introduced next week."

Moon Landings, the Human Genome Project, Blue Pills, and Red Pills.

The 40-year anniversary of the Apollo landing was a reminder of the potential for great human achievement. In addition to the amazing feat of sending people to the moon, many technologies grew out of the program (some cool ones here) that may not have been developed had the U.S. government not made a massive investment in this "moonshot" project.

The anniversary also generated stories about other great achievements, including the mapping of the human genome. Although scientists have mapped the genome, "the work on interpretation of genome data is still in its initial stages. It is anticipated that detailed knowledge of the human genome will provide new avenues for advances in medicine and biotechnology," (emphasis mine) according to the Wikipedia entry. In the late '90s, there was a stock market bubble in biotech stocks (around the same time as the .com bubble), based on the massive potential of the project. Human Genome Sciences (HGS) was one of the companies riding the wave, rising from below 5 to over 100, then crashing again when investors realized real, marketable treatments were years, or decades, away.

Many medical treatments work on some people, but not others. Sometimes drugs work better on certain ethnicities or other identifiable characteristics, and sometimes not. For example, I take a daily pill for allergies. I have tried many different pills for the same symptoms. Some work better than others, but doctors can't predict with certainty which one will work in advance. Drugs for mental health and many other things have a similar problem. The medical technology needed to target pills to specific patients simply does not exist yet in most cases.

Thus, private investors and the government, invested in a "moonshot" - the human genome project.

HGS's mission was to map human DNA so that someday, a doctor might be able to analyse my genes and prescribe the right allergy (or other) medicine based on that. However, almost 10 years after the biotech stock bubble, HGS is still an investment in potential and hope, although there is significant progress. According to the company website, "HGS has a well balanced and deep portfolio of novel drugs directed toward diseases that represent significant unmet medical need. Three of these products are in late-stage development." In other words, after more than a decade and billions of dollars of research, all of their products are still in development.

In Obama's news conference last night, he said "If there's a blue pill and a red pill, and the blue pill is half the price of the red pill and works just as well, why not pay half price for the thing that's going to make you well?" First, HMOs already try to do this, but the same pill might not be effective for all people, and the government cannot regulate this problem away. Second, very often we don't know which pill will work, contrary to Obama's rhetoric. This is one of many assumptions the President is asking us to make in order to restructure the health care system - that we have already achieved all of the goals of the human genome project. That medical science is more advanced than it really is. However, the truth is that Apollo is still on the launch pad.

Someday, we hope genetic researchers will be able to develop more reliable medicines. HGS stock tripled on Monday due to a successful trial of a potential lupus treatment, but it wasn't even noticable on the long-term stock chart. Investors, many burned when the last bubble burst, still generally see success as being far in the future. In contrast, Obama is asking us to commit billions of taxpayer money by the end of this year while the necessary medical technology could be decades away (I hope it's not, but it probably is).

Just as stock investors rushed into HGS years ago on the hope of medical miracles, Obama wants taxpayers to rush into medical "reform" on the hope of an unlikely combination of the same medical miracles, plus a slew of regulatory ones. Taxpayers should wait.