Peter Orszag’s “Fairy” Tale

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

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  First, Orszag admitted that he used an out-of-date 2011 CBO report to characterize the 2012 House Republican proposal; he claimed he did so because the 2011 CBO analysis “was the only one that CBO has evaluated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

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

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

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

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

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

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

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

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

Democrats’ Mediscare Rhetoric Exposed

Over the past week, two articles have appeared challenging the tired allegation from President Obama and Democrats that premium support proposals would raise seniors’ Medicare premiums by $6,400.  First, the Washington Post’s Fact Checker gave Democrats Two Pinocchios for basing their allegations on the House Republican budget created in April 2011, even though that plan was substantially modified earlier this year: “The policy differences on Medicare are substantial, but that still does not justify using out-of-date figures from last year’s plan — especially because the plan has been updated and made more generous to deal with some of the original criticisms made by Democrats.”

Second, this week’s Health Matters column in CongressDaily (subscription required) pointed out another key flaw in Democrats’ allegations.  The CBO analysis on which the Democrat attacks are based assumes that Medicare premium support results in ZERO budgetary savings from plans competing head-to-head to see which can offer Medicare benefits most efficiently:

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

That’s because most health economists have no idea what really happens when insurance companies truly compete for Medicare beneficiaries.  The studies aren’t there….

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

It’s particularly ironic that the Obama Administration is relying on an analysis that assumes no savings from competition – because the Administration is perfectly willing to trumpet savings from competitive bidding when it suits its own purposes.  Last year, the Administration sent out a press release trumpeting Medicare’s competitive bidding process for durable medical equipment.  Among the quotes in that press release:

[Then-CMS Administrator Donald Berwick:]  “By expanding our successful competitive bidding program, we can ensure that Medicare pays a fair rate for these goods.”

[Medicare head Jonathan Blum:]  “The success we’ve had in the first phase tells us that we can achieve these savings with no disruption for patients’ access and no negative effect on patients’ health.”

So if the Administration admits that competitive bidding can work for durable medical equipment purchases within Medicare – saving taxpayers (and seniors) money without harming beneficiaries – why can’t the same tactics work for the Medicare program as a whole?  Or are Democrats’ objections to premium support primarily ideological – because liberals can’t stomach the idea of seniors choosing their own private health insurance plan, rather than participating in an entitlement run by the federal government…?

The Essential Cynicism Behind HHS’ Decision on Essential Benefits

Various press reports regarding Friday’s HHS guidance on essential health benefits have highlighted the fact that the “decision” amounted to a political punt for the Administration.  The Wall Street Journal noted how the guidance “sidestepp[ed] contentious fights” as part of “an attempt by the Administration to defuse Republican criticism that the law gives the federal government too much control over Americans’ medical care.”

The political gamesmanship by the Administration goes even further than that.  The guidance noted that if a state chooses not to select a benchmark for the essential health benefits, the default benchmark will be a typical small employer plan, a position consistent with the Institute of Medicine report on the essential health benefits released in October.  But HHS also allowed states the “flexibility” to benchmark their coverage package to the federal employees’ Blue Cross plan, which HHS stated contains 95 percent of all benefit mandates.

As we noted on Friday, had HHS chosen to keep the essential health benefits benchmark to the cost of a typical small business plan, states that wanted to require additional mandates would have had to foot the bill for those mandates themselves, under Section 1311 of the Obamacare statute.  Instead, HHS’ “flexibility” gave the states carte blanche to impose all the new mandates they like – knowing that federal taxpayers will foot the bill through higher subsidy payments.

CongressDaily reported that the guidance “likely means that the intense lobbying efforts to ensure certain benefits are in or out of the package will now shift from the federal government to the states, as interest groups try to influence which plan state officials choose as their model.”  In other words, the Administration just gave “consumer groups” – i.e., their liberal base – a nice big incentive to go out and mount political campaigns in the states to tack on even more benefit mandates, because states imposing additional mandates won’t have to pay the bill for their own decisions.

The political undertones of incentivizing liberal groups to go out and mount a series of pro-Obamacare lobbying campaigns in an election year cannot be denied.  Unfortunately though, taxpayers are likely to foot the bill for this gamesmanship.  States have collectively imposed more than 2,000 separate benefit mandates to date due to lobbying from special interest groups.  And the “beggar they neighbor” attitude promoted by the HHS guidance, whereby Washington foots the bill for state giveaways to special interest groups, will only encourage more feats of fiscal irresponsibility.

Dizzy Yet with HHS’ U-Turns on CLASS?

Politico reports this afternoon that the Administration is attempting to “knock down” rumors – reported here and elsewhere – that HHS will be closing the CLASS Act office.  According to the Politico piece, the HHS statement said:

  • The Administration is not killing the CLASS program; but
  • The Administration has not decided to go forward with the CLASS program; and
  • The Administration has not closed the CLASS office; but
  • All the employees in the CLASS office are being re-assigned.

The actuary whose departure e-mail sparked this little controversy spoke to CongressDaily about his claim the CLASS office is being closed: “I don’t think that’s the official line.”  Then again, given the confusing and slightly bewildering nature of the HHS statements on the matter, it’s somewhat hard to figure out what “the official line” really is.

The bigger question is why this change – whatever HHS wants to call it – is happening in the first place.  HHS has had 18 months to figure out how to implement CLASS.  Today’s developments do nothing to resolve the major questions regarding solvency – in fact, they only adds to them.  If the Administration can’t figure out how to implement the program after a year and a half, why hasn’t HHS decided to “fish or cut bait” about whether or not the program can be implemented in a fiscally responsible manner?  Is the Administration attempting to hide a major policy problem related to Obamacare in advance of the President’s re-election bid – because HHS and the White House do not want to admit that they allowed a fundamentally insolvent program to be enacted by Congress?

Do House Democrat Leaders Oppose Obamacare?

This morning’s CongressDaily features an article on the debt limit negotiations, and Democrats’ adamant insistence that any agreement include job-crushing taxes.  The article quoted House Democrat Caucus Chairman John Larson as saying that “the only way ‘conceivably to get Democratic support’ on Medicare cuts was to direct any savings back into the Medicare program, in addition to increasing government revenues.”

This comment was a curious statement to make, as non-partisan budget analysts and even President Obama himself have admitted that the health care law uses more than $500 billion in Medicare funds to pay for new entitlements:

  • Medicare actuary Foster has written that the Medicare provisions in Obamacare “cannot be simultaneously used to finance other Federal outlays (such as the coverage expansions under the PPACA) and to extend the [Medicare] trust fund, despite the appearance of this result from the respective accounting conventions.”
  • The Congressional Budget Office agreed with the Medicare actuary, writing that the Medicare provisions in Obamacare “would not enhance the ability of the government to pay for future Medicare benefits.”
  • President Obama in an interview with Fox News last year admitted that “You can’t say that you are saving on Medicare and then spending the money twice.”

Last year then-Speaker Pelosi famously said we had to pass the bill to find out what’s in it.  Some might suggest Democrats need to take her  advice, to rediscover how Obamacare uses more than half a trillion dollars in Medicare savings – not to improve Medicare’s fiscal situation, but to create new and unsustainable entitlements.

Democrats Support Benefits for Billionaires

CongressDaily this afternoon reports on comments by several Democrats regarding possible means-testing of Medicare benefits and/or eligibility.  HELP Committee Chairman Harkin said in an interview: “Just as Social Security is not means-tested, neither is Medicare.  We have a program that is means-tested, and it’s called Medicaid.  Medicare should not be means-tested.”  Likewise, Sen. Mikulski said she was “absolutely opposed to means-testing” benefits.  Meanwhile, Finance Committee Chairman Baucus said “we’ve got to have revenue…we need revenue.”

To sum up:  Democrats want to obtain new revenue – largely by raising taxes on small businesses and other American job creators – in order to ensure that Warren Buffett will continue to receive his Social Security pension and Bill Gates can obtain taxpayer-funded Medicare benefits.  It appears rather perplexing that Democrats are willing to raise taxes on “millionaires and billionaires” in order to fund entitlement benefits for those same individuals.  This contradiction is heightened when you consider that means-testing entitlement benefits for wealthy individuals is much less likely to have secondary economic impacts than raising taxes on job creators.

It’s this kind of flawed economic and fiscal logic – raising taxes on job creators in order to fund benefits for billionaires – that explains why Democrats’ trillion-dollar stimulus has failed to deliver the jobs it promised, or why the health care law has failed to deliver the $2,500 per family reduction in premiums candidate Obama promised.

Two Friday Afternoon Reads

Before the weekend begins, two items I wanted to pass on.  The first comes from Charlie Cook’s National Journal column today, entitled “Too Good to Last,” about Medicare’s unsustainable condition.  Cook cites a study released by the Urban Institute in January highlighting that at virtually all income brackets, seniors receive many times more in benefits than they pay out in taxes.  For instance, male would-be beneficiaries turning 65 this year will receive an average $110,000 more in benefits than in taxes paid, and women turning 65 this year will receive a net average lifetime benefit of $131,000. The graphical description of that study is below, and perfectly illustrates why Medicare needs fundamental reform.

Finally, this morning’s CongressDaily featured an excellent column on the unpopularity of the health care law, based in large part on Democrats’ strategic miscalculation to ram through the 2700-page measure despite public outrage.

Democrats Dropped the Ball on Jobs — To Pass a Job-Destroying Law

In his CongressDaily column this morning, Charlie Cook analyzed how in early 2009 Democrats “pivoted too quickly” from the economy “to addressing climate change and health care.  These were the signature issues in voters’ minds that defined the legislative objectives of Obama and the Democratic Congress.”  He goes on: “One can argue that there was a reticence [by Democrats] to spend too much political capital” on fixing the economy “because they wanted to hold it back” to pass a major health care bill.

Even former Obama Administration officials admit that they “dropped the ball” when it came to focusing on the economy in the fall of 2009.  Here’s how former Council of Economic Advisers Chairman Christina Romer described it in a speech last month:

The Administration and Congress should have done more in the fall of 2009 and early 2010 to aid the recovery.  I remember that fall of 2009 as a very frustrating one.  It was very clear to me that the economy was still struggling, but the will to do more to help it had died.

After the town hall meetings that dominated August of 2009, Democrats could have decided to abandon their unpopular health care bill, admit the “stimulus” had failed to reduce unemployment, and work with Republicans on solutions to create jobs – for instance, the payroll tax holiday included in last December’s tax agreement, or rolling back regulations that harm American job creators.  Instead, the Democrats proceeded to spend the remainder of 2009 – and the entire first quarter of 2010 – ramming through an unpopular 2700-page measure.

It’s worth pointing out the nearly $800 billion in higher taxes in the law aren’t likely to help American job creators.  In fact, the non-partisan Congressional Budget Office has previously noted that 800,000 fewer jobs will exist thanks to the law’s perverse incentives, which discourage work.  But Obamacare has harmed the economy in a second way – namely, the opportunity cost of Democrats’ single-minded devotion (some would argue obsession) to passing a health care bill at all costs, despite the fact that unemployment was (and remains) at 26-year highs.  These twin effects – Democrats’ sins of both commission and omission – stand as one of the major economic legacies of the Obama Administration.

More on Mandates and Lawsuits

In light of yesterday’s arguments at the Fourth Circuit Court of Appeals, it’s worth pointing out a few key issues.  First, as yesterday morning’s CongressDaily noted, the federal government appears to have changed its argument when it comes to defending the individual mandate.  Rather than attempting to say that Congress can regulate the “inactivity” of purchasing health insurance, the Solicitor General is now arguing that the individual mandate is regulating the decision to purchase health care.  As Georgetown University law professor Randy Barnett noted in the article, the change in strategy suggests the Administration “decided the earlier argument wasn’t working so well.”

Second, HHS’ Office of Planning and Evaluation released a report yesterday discussing the lack of ability by the currently uninsured to pay hospital bills – a report that the Administration will doubtless use to justify the individual mandate on the basis of uncompensated care costs incurred by hospitals.  There’s just one problem with that strategy however:  The head of HHS’ Office of Planning and Evaluation previously published an article in April 2008 in which she stated that “the magnitude [of uncompensated care] is quite small,” and that the “most important benefit of mandates is symbolic.”  It’s worth noting the cognitive dissonance of an HHS office that released a report undermining assertions made by its head just three short years ago.  Just as important, as has previously been noted, some may question why the Administration is imposing this unprecedented mandate on Americans in order to have a “symbolic” effect on solving a “quite small” uncompensated care problem.

Finally, the Yale Law Journal recently published an article supporting the individual mandate.  The article calls constitutional objections to the mandate “silly,” and then proceeds with this modest assertion: “There may be no need for judicially imposed limits on Congressional power.”  So not only is the idea of a constitutional objection to government forcing individuals to buy a product “silly,” apparently the entire notion of limited government is as well.

Easy Health Care Savings?

This morning’s Health Matters column in CongressDaily discusses “some fairly simple and even relatively noncontroversial ways to achieve substantial savings.”  Most of the rest of the column focuses on a recent study finding that the relatively less expensive Avastin performed relatively equally to treat macular degeneration of the eyes when compared to the more expensive drug Lucentis.  The article therefore concludes that the results from this study could “save a quick $5.9 billion dollars for Medicare next year without cutting benefits.”

While it obviously makes sense for patients to choose the less expensive treatment, all other things being equal, frequently when it comes to medical innovations and treatments all things are NOT equal.  Some individual patients may not respond to certain therapies, or less expensive treatments may be ineffective for certain segments of the population.  Given ongoing advances in personalized medicine, the idea that “A is always better than B” may be a misguided premise – in many cases, the options available may not represent a simple binary choice between one option or another; in other cases, clear-cut research may not exist; in other cases, option A will work better for some patients, while option B will work better for others.  Moreover, even if all options were proved equal in this ONE case (i.e., Avastin vs. Lucentis), it would be dangerous to infer from this one example that Medicare or other federal programs can determine the most effective treatment in ALL cases – because such an implication could lead to government-imposed rationing in cases where the evidence base, or the difference between treatment options, is much less clear cut.

Innovation has brought about dramatic benefits in life and health for millions of Americans in recent decades – and research into the best uses for these innovations can deliver powerful information to patients.  However, using that research to determine government coverage policies, no matter how well intended, could have significant costs for patients, over and above the potential savings for the federal government.