Analyzing the Gimmicks in Warren’s Health Care Plan

Six weeks ago, this publication published “Elizabeth Warren Has a Plan…For Avoiding Your Health Care Questions.” That plan came to fruition last Friday, when Warren released a paper (and two accompanying analyses) claiming that she can fund her single-payer health care program without raising taxes on the middle class.

Both her opponents in the Democratic presidential primary and conservative commentators immediately criticized Warren’s plan for the gimmicks and assumptions used to arrive at her estimate. Her paper claims she can reduce the 10-year cost of single payer—the amount of new federal revenues needed to fund the program, over and above the dollars already spent on health care (e.g., existing federal spending on Medicare, Medicaid, etc.)—from $34 trillion in an October Urban Institute estimate to only $20.5 trillion. On top of this 40 percent reduction in the cost of single payer, Warren claims she can raise the $20.5 trillion without a middle-class tax increase.

How Single-Payer Supporters Defy Common Sense

The move to enact single-payer health care in the United States always suffered from major math problems. This week, it revived another: Common sense.

On Monday, the Mercatus Center published an analysis of single-payer legislation like that promoted by socialist Sen. Bernie Sanders (I-VT). While conservatives highlighted the estimated $32.6 trillion price tag for the legislation, liberals rejoiced.

Riiiiiigggggggghhhhhhhhhttttt. As the old saying goes, if something sounds too good to be true, it usually is. Given that even single-payer supporters have now admitted that the plan will lead to rationing of health care, the public shouldn’t just walk away from Sanders’ plan—they should run.

National Versus Federal Health Spending

Sanders’ claim arises because of two different terms the Mercatus paper uses. While Mercatus emphasized the way the bill would increase federal health spending, Sanders chose to focus on the study’s estimates about national health spending.

Although it sounds large in absolute terms, the Mercatus paper assumes only a slight drop for health spending in relative terms. It estimates a total of $2.05 trillion in lower national health expenditures over a decade from single-payer. But national health expenditures would total $59.7 trillion over the same time span—meaning that, if Mercatus’ assumptions prove correct, single-payer would reduce national health expenditures by roughly 3.4 percent.

Four Favorable Assumptions Skew the Results

However, to arrive at their estimate that single-payer would reduce overall health spending, the Mercatus paper relies on four highly favorable assumptions. Removing any one of these assumptions could mean that instead of lowering health care spending, single-payer legislation would instead raise it.

First, Mercatus adjusted projected health spending upward, to reflect that single-payer health care would cover all Americans. Because the Sanders plan would also abolish deductibles and co-payments for most procedures, study author Chuck Blahous added an additional factor reflecting induced demand by the currently insured, because patients will see the doctor more when they face no co-payments for doing so.

Second, the Mercatus study assumes that a single-payer plan can successfully use Medicare reimbursement rates. However, the non-partisan Medicare actuary has concluded that those rates already will cause half of hospitals to have overall negative total facility margins by 2040, jeopardizing access to care for seniors.

Expanding these lower payment rates to all patients would jeopardize even more hospitals’ financial solvency. But paying doctors and hospitals market-level reimbursement rates for patients would raise the cost of a single-payer system by $5.4 trillion over ten years—more than wiping away any supposed “savings” from the bill.

Finally, the Mercatus paper “assumes substantial administrative cost savings,” relying on “an aggressive estimate” that replacing private insurance with one single-payer system will lower health spending. Mercatus made such an assumption even though spending on administrative costs increased by nearly $26 billion, or more than 12.3 percent, in 2014, Obamacare’s first year of full implementation.

Likewise, government programs, unlike private insurance, have less incentive to fight fraud, as only the latter face financial ruin from it. The $60 billion problem of fraud in Medicare provides more than enough reason to doubt much administrative savings from a single-payer system.

Apply the Common Sense Test

But put all the technical arguments aside for a moment. As I noted above, whether a single-payer health-care system will reduce overall health expenses rests on a relatively simple question: Will doctors and hospitals agree to provide more care to more patients for the same amount of money?

Whether single-payer will lead to less paperwork for doctors remains an open question. Given the amount of time people spend filing their taxes every year, I have my doubts that a fully government-run system would generate major improvements.

But regardless of whether providers get any paperwork relief from single-payer, the additional patients will come to their doors seeking care, and existing patients will demand more services once government provides them for “free.” Yet doctors and hospitals won’t get paid any more for providing those additional services. The Mercatus study estimates that spending reductions due to the application of Medicare’s price controls to the entire population will all but wipe out the increase in spending from new patient demand.

If Sanders wants to take a “victory lap” for a study arguing that millions of health care workers will receive the same amount of money for doing more work, I have four words for him: Good luck with that.

Health Care Rationing Ahead

I’ll give the last word to, of all things, a “socialist perspective.” One blog post yesterday actually claimed the Mercatus study underestimated the potential savings under single-payer: “[The study] assumes utilization of health services will increase by 11 percent, but aggregate health service utilization is ultimately dependent on the capacity to provide services, meaning utilization could hit a hard limit below the level [it] projects” (emphasis mine).

In other words, spending will fall because so many will demand “free” health care that government will have to ration it. To socialists who yearningly long to exercise such power over their fellow citizens, such rationing sounds like their utopian dream. But therein lies their logic problem, for any American with common sense would disagree.

This post was originally published at The Federalist.

Obamacare Burying America in Paperwork

The Administration’s latest “reg dump” of proposed rules, released last Friday, includes some interesting new requirements on health insurers.  According to pages 259-260 of the proposed rule, the Department of Health and Human Services will impose a mandate of more than half a billion dollars on insurers, to track “9 billion claims and enrollment files:”

Issuers will be directed to make risk adjustment and reinsurance data accessible to HHS in a way that conforms to HHS-established guidelines and applicable standards for electronic data collection and submission, storage, privacy and security, and processing.  In addition, in §153.720(a), we propose requiring these issuers to establish a unique masked enrollee identification number for each enrollee, in accordance with HHS-defined requirements and maintain the same masked enrollee identification number for enrollees that enroll in different plans within the issuer, within the State, during a benefit year….

We estimate that this data submission requirement will affect 1,800 issuers, and will cost each issuer approximately $327,600 in total labor and capital costs (including the average cost of $15,000 for a data processing server) during the start-up year.  This cost will be lower in future years when fixed costs decrease.  This cost reflects an estimate of 3 full-time equivalent employees (5,460 hours per year) at an average hourly rate of $59.39 per hour.  We anticipate that approximately 400 data processing servers will be established across the market in 2014, and these servers will process approximately 9 billion claims and enrollment files.  Therefore, we estimate an aggregate burden, including labor and capital costs, of $589,680,000 for all issuers as a result of these requirements.

Over and above the obvious privacy implications these new Washington-inspired requirements present, there’s one obvious question: How does imposing more than half a billion dollars in costly new mandates help lower health costs?  Candidate Obama promised repeatedly that his health plan would CUT premiums by an average of $2,500 per family – but creating new paperwork requirements seems like a great way to RAISE costs, not lower them.

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 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.”

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.

Three More Reasons Medicaid Is (Already) Unsustainable

In the past week, three separate news stories have demonstrated how the Medicaid program – on which much of the coverage expansion in Obamacare is based – is fundamentally unsustainable.  To wit:

  1. Nearly One Third of Doctors Reject Medicaid Patients; Low Reimbursements an Issue:  An article published in Health Affairs yesterday (subscription required) found that nearly one-third (31%) of physicians are not accepting any new Medicaid patients; by comparison, under 20 percent of physicians are not accepting any new patients with Medicare or private insurance.  The study also found that “acceptance rates of new Medicaid patients were higher in states with higher Medicaid-to-Medicare fee-for-service fee ratios.”  In other words, many doctors choose not to participate in the Medicaid program – and a problem exacerbated in states with low Medicaid reimbursement levels.
  2. States Are Already Cutting Access to Drug Services for Existing Medicaid Beneficiaries:  Kaiser Health News reported last week that “Illinois Medicaid recipients have been limited to four prescription drugs as the state becomes the latest to cap how many medicines it will cover in the state-federal health insurance program for the poor.”  A total of 16 states impose monthly limits on prescription drugs for beneficiaries, “and seven states have either enacted such caps or tightened them in the past two years,” due in part to the lingering impact of the economic slowdown on state budgets.
  3. States Believe Obamacare Will Impose Additional Costs on their Medicaid Programs:  A survey of states, conducted as part of a GAO report on Obamacare’s Medicaid expansion, found that “the majority of state budget directors believe that three aspects of Medicaid expansion will contribute to costs: 1) the administration for managing Medicaid enrollment, 2) the acquisition or modification of information technology systems to support Medicaid, and 3) enrolling previously eligible but not enrolled individuals in Medicaid.”  While more than 30 budget directors believe these three provisions of Obamacare will cost states, a much smaller number believe provisions in Obamacare will save their states money, as the chart below demonstrates:

Medicaid is already unsustainable – states cannot afford their current programs, and have lowered reimbursement rates and imposed new restrictions on things like pharmaceuticals, both of which impede beneficiary access.  Yet Obamacare is placing even more fiscal burdens on this already fiscally troubled program.  That’s not health “reform” – that’s the furthest thing from it.

Obamacare’s Medicaid Shambles

The Washington Post has a new story this morning on Democrat governors’ concern about Obamacare’s massive Medicaid expansion, coming ahead of this weekend’s National Governors Association summer meeting.  Among the story’s highlights:

  • “At least seven Democratic governors have been noncommittal about their willingness to go along with expanding their Medicaid programs, the chief means by which the law would extend coverage to millions of Americans with incomes below or near the poverty line.”
  • “‘Unlike the federal government, Montana can’t just print money,’ Gov. Brian Schweitzer (D) said in a statement Wednesday.”
  • “Asked at a forum Wednesday to describe state reactions to the Supreme Court ruling, Dan Crippen, executive director of the National Governors Association, offered a one word reply: ‘confusion.’”
  • “Last week, [Democrat Arkansas Governor Mike] Beebe asked officials at the Centers for Medicare and Medicaid whether, in the event of an unforeseen future fiscal calamity, Arkansas would be able to tighten its eligibility rules and still get the full federal match for those who continued to qualify for its Medicaid program.  To date, Beebe has received no answer.”
  • “In a letter to the governors Tuesday, [HHS Secretary Kathleen] Sebelius assured them, ‘I appreciate that states have questions.’  However, she offered little in the way of specific guidance, promising instead to address their concerns at a series of meetings scheduled in various cities across the country beginning July 31.”

Liberal advocacy groups have attempted to claim that states should not turn down the “free” money Obamacare will offer to the states in the form of a higher Medicaid match.  But this money is NOT free, in two respects.  First, the federal match comes from the massive new federal taxes needed to fund Obamacare – taxes which will harm economic growth and jobs nationwide.  Second, the state share of the Medicaid spending – including new administrative costs that easily could exceed $10 billion – will have to come from somewhere too: From cuts to education, transportation, and other state priorities, or from yet more destructive tax increases imposed at the state level.

Even some Democrat governors understand that money does not grow on trees, and the massive Medicaid expansions included in Obamacare will have major costs.  Unfortunately, the Administration and its liberal allies continue to ignore the fiscal implications of this unsustainable law, resulting in the current implementation shambles less than 18 months before Obamacare’s coverage expansions are scheduled to “go live.”

Federalism’s Quiet Victory

More than a week after the Supreme Court ruling on Obamacare, some have discovered the ruling was not the unqualified victory for the Obama Administration that reporters made it out to be on the day of the decision.  Multiple press reports have focused on statements by governors indicating they may not, or will not, participate in the law’s now-optional expansion of Medicaid. (A good summary of where states stand on the expansion based on public comments to date can be found here.)

On the substance, it’s easy to see why states would be greatly concerned.  As Matt Salo, head of the National Association of Medicaid Directors, stated, the idea that the Medicaid expansion is “free” to states is nothing but a massive prevarication:

State officials retort that the notion that expansion is free for states until 2017 is “a big lie,” in Salo’s words.  While the federal government will pay many of the administrative costs, states will share in the expense of some information technology and personnel.  And the requirement that most individuals carry insurance is expected to spur at least some of an estimated 13 million people who currently qualify for Medicaid, but are not enrolled to sign up, Salo said.  States will receive their traditional federal funding match for those people.

Those administrative costs will be significant – one Heritage Foundation study pegged them at nearly $12 billion in the first six years alone.  And there’s also the fact that the law’s spending reductions are widely predicted by experts to be unsustainable, meaning it’s entirely possible Congress could reduce the federal Medicaid match – sticking the states with even more added costs – down the line if lawmakers need to undo Medicare payment reductions to ensure seniors still have access to care.

More fundamentally, however, the ruling gives states something they have not had in their relations with the federal government in quite some time – leverage.  The federal government will no longer be able blithely to dismiss state concerns, or order them to expand Medicaid just as Washington says – or else.  It’s particularly noteworthy that just one day after the Supreme Court ruling, former Speaker Pelosi publicly floated the idea of “re-thinking” the federal Medicaid match – increasing the federal share to compensate states for their unfunded mandates.  It’s unclear whether that would actually happen – or if so, how the increased federal payments would be paid for – but it shows that in light of the ruling, federal politicians cannot ignore states’ concerns, a step in the right direction in restoring the long-lost balance between Washington and the states.

And that is as the Framers intended it to be.  In Federalist 46, James Madison wrote that federal infringements on the states would spark popular outrage, just as Obamacare sparked a majority of states to sue the federal government for exercising unconstitutional coercive power on their sovereignty:

Should an unwarrantable measure of the federal government be unpopular in particular States, which would seldom fail to be the case, or even a warrantable measure be so, which may sometimes be the case, the means of opposition to it are powerful and at hand.  The disquietude of the people; their repugnance and, perhaps, refusal to co-operate with the officers of the Union; the frowns of the executive magistracy of the State; the embarrassments created by legislative devices, which would often be added on such occasions, would oppose, in any State, difficulties not to be despised; would form, in a large State, very serious impediments; and where the sentiments of several adjoining States happened to be in unison, would present obstructions which the federal government would hardly be willing to encounter.

But ambitious encroachments of the federal government, on the authority of the State governments, would not excite the opposition of a single State, or of a few States only.  They would be signals of general alarm.  Every government would espouse the common cause.  A correspondence would be opened. Plans of resistance would be concerted. One spirit would animate and conduct the whole.  The same combinations, in short, would result from an apprehension of the federal, as was produced by the dread of a foreign, yoke; and unless the projected innovations should be voluntarily renounced, the same appeal to a trial of force would be made in the one case as was made in the other.

The Court’s ruling echoed Madison’s comments about the “general alarm” that the law has inflicted upon the states; it struck down the coercive requirements of the Medicaid expansion as “economic dragooning” that puts “a gun to the head” of states.  What’s more, Chief Justice Roberts’ ruling laid down a marker implying that additional laws could also be struck down as unconstitutional impositions on states: “We have no need to fix a line [defining coercion] either.  It is enough for today that wherever that line may be, this statute is surely beyond it.”

Whatever one thinks of the merits of the Chief Justice’s opinion on the individual mandate, the Court’s ruling on the Medicaid expansion is already having an impact on politics and policy in dozens of states – and the constitutional implications of the decision could influence the state-federal relationship for years to come.  This at least is an outcome some conservatives can value.

Obamacare’s Big Winners: Government Bureaucrats

Last week we summarized the release of the Medicare actuary’s annual projections for health care spending in the coming decade.  However, there’s one nugget in the report that initially skipped our attention – which is the fact that by far the greatest growth in health care spending comes from the category devoted to government administration.  As the chart below demonstrates, the actuary’s report estimates health spending in 24 distinct categories, and spending on government administration outclasses them all:

  • A 12.3% increase in 2011 – the only double-digit increase, and more than twice the next-highest growth rate (5.8%) among health spending sub-categories
  • An 11.0% increase this year – again, the only projected double-digit increase, and nearly four percentage points higher than the next-fastest growing sub-category
  • A 6.3% increase in 2013 – the second-fastest growing sub-category of health care spending
  • A whopping 11.7% increase in 2014, the year Obamacare’s mandate and Exchanges take effect – the fastest-growing sub-category of health spending

In three of the first four years of Obamacare, government spending will be the fastest growing segment of health costs – and in the fourth year, government spending will be the second-fastest growing segment.

Given this record, some may find particularly ironic this quote from this morning’s Wall Street Journal regarding the French elections: Socialist President Francois Hollande “may have to shelve some of his costly proposals – such as hiring 12,000 civil servants a year.”  Last week’s report from the Medicare actuary demonstrates the Obama Administration has shown no similar compunction to stop hiring new bureaucrats and spending more money on government as it attempts to implement its 2700-page health care law.  Or, to put it another way, thanks to Obamacare, public sector bureaucrats are doing just fine.

We Passed the Bill, But We STILL Don’t Know What’s In It…

The Mercatus Center is out today with several papers examining the quality of Obamacare regulations.  The papers take a specific look at eight Obamacare-related interim final rules – those rules that took effect WITHOUT prior public comment – published last year, and effectively undermine Speaker Pelosi’s famous quote that we had to pass the bill to find out what’s in it.  According to the studies, the regulatory analysis performed by the HHS bureaucrats to justify these Obamacare regulations is so poor, we passed the bill and we STILL don’t know what’s in it:

  • The health care [regulatory impact analyses] presented no monetary estimates of benefits, often overestimated the number of people who would benefit, and usually underestimated costs – often by hundreds of millions or billions of dollars.”
  • “The regulation establishing subsidies for early retiree health insurance failed to consider the possibility of “crowd out,” meaning a substantial portion of the subsidies would be given to employers who were going to continue health insurance for early retirees anyway.  This omission means the analysis substantially overstates the number of people who would retain coverage as a result of the regulation.”
  • “None of the regulations consider “moral hazard” – the risk that individuals will engage in wasteful health care spending or unhealthy activities because the insurance company is paying most of the cost.”
  • For at least three and possibly five of the eight rules, more accurate estimates of benefits and costs would likely have reversed the conclusion that benefits outweighed costs.”
  • In numerous cases, the agencies neglected to analyze alternatives that would have been obvious to researchers familiar with the health policy literature.  For the regulation extending health insurance coverage to adult dependent children up to age 26, the analysis did not even consider using the established Internal Revenue Service (IRS) definition of “dependent,” even though that arguably would have made compliance much simpler. Instead, the regulation involved a whole new definition.”
  • “The analysis of the regulation mandating coverage of preventive services did not consider alternative criteria for covered services, such as services that produce net cost savings or that produce results at some specified cost per outcome.  In addition, this analysis selectively cited literature that conveyed the impression that most preventive services pay for themselves by reducing the need for future health care expenditures, when in reality only a minority of such services do.”

Another Mercatus analysis found that Obamacare regulations scored significantly lower than other federal regulations with respect to their quality.  When judged on 12 criteria such as data documentation (How verifiable are the data used in the analysis?) and goal metrics (Does the rule establish measures to track its future performance?), the eight Obamacare regulations scored lower than other federal regulations issued in 2008 and 2009, including those issued by HHS.

As a reminder, through the end of 2011 the Administration had ALREADY issued more than 10,000 pages of Obamacare-related regulations and notices in the Federal Register.  By noting the weak analyses that regulators have used to justify these Obamacare regulations, the Mercatus studies have made the case not only that Obamacare’s impact on business could be more costly than advertised, but also that the supposed benefits of these regulations may end up being illusory – meaning at a time of economic weakness, businesses have been saddled with additional costs for no great purpose.