The Tough Cost-Benefit Choices Facing Policymakers Regarding Coronavirus

Right now, the United States, like most of the rest of the world, faces two critical, yet diametrically opposed, priorities: Stopping a global pandemic without causing a global economic depression.

Balancing these two priorities presents tough choices—all else equal, revitalizing the economy will exacerbate the pandemic, and fighting the pandemic will worsen economic misery. Yet, as they navigate this Scylla and Charybdis, some policymakers have taken positions contrary to their prior instincts.

In his daily press briefing Tuesday, Gov. Andrew Cuomo (D-NY) discussed the false choice between the economy and public health. He made the following assertions:

My mother is not expendable, your mother is not expendable, and our brothers and sisters are not expendable, and we’re not going to accept the premise that human life is disposable, and we’re not going to put a dollar figure on human life. The first order of business is to save lives, period. Whatever it costs….

If you ask the American people to choose between public health and the economy then it’s no contest. No American is going to say accelerate the economy at the cost of human life because no American is going to say how much a life is worth.

On this count, Cuomo is flat wrong. Entities in both the United States and elsewhere—including within his own state government—put a dollar figure on human life on a regular basis.

Rationing on Cost Grounds Already Happens

Consider the below statement describing the National Institute of Health and Care Excellence (NICE), a British institution that determines coverage guidelines for the country’s National Health Service (NHS). NICE uses the quality-adjusted life year (QALY) formula, which puts a value on human life and then judges whether a new treatment exceeds its “worth” to society:

As a treatment approaches a cost of £20,000 [about $24,000 at current exchange rates] per QALY gained over existing best practice, NICE will scrutinize it closely. It will consider how robust the analysis relating to its cost- and clinical-effectiveness is, how innovative the treatment is, and other factors. As the cost rises above £30,000 [about $36,000] per QALY, NICE states that ‘an increasingly stronger case for supporting the technology as an effective use of NHS resources’ is necessary.

Entities in the United States undertake similar research. The Institute for Clinical and Economic Review (ICER) also performs cost-effectiveness research using the QALY metric. The organization’s website notes that “the state of New York has used [ICER] reports as an input into its Medicaid program of negotiating drug prices.” In other words, Cuomo’s own administration places a value on human life when determining what the state’s Medicaid program will and won’t pay for pharmaceuticals.

Cost-Effectiveness Thresholds

Cuomo represents but one example of the contradictions in the current coronavirus debate. Donald Berwick, an official in the Obama administration and recent advisor to the presidential campaign of Sen. Elizabeth Warren (D-MA), infamously discussed the need to “ration with our eyes open” While many liberals like him have traditionally endorsed rationing health care on cost grounds, few seem willing to prioritize economic growth over fighting the pandemic.

Conversely, conservatives often oppose rationing as an example of government harming the most vulnerable by placing an arbitrary value on human life. Nonetheless, the recent voices wanting to prioritize a return to economic activity over fighting the pandemic have come largely from the right.

The calls to reopen the economy came in part from an Imperial College London study examining outcomes from the pandemic. The paper concluded that an unmitigated epidemic (i.e., one where officials made no attempt to stop the virus’ spread) would cost approximately 2.2 million lives in the United States. Mitigation strategies like social distancing would reduce the virus’ impact and save lives, but would prolong the outbreak—and harm the economy—for more than a year.

The paper’s most interesting nugget lies at its end: “Even if all patients were able to be treated”—meaning hospitals would not get overwhelmed with a surge of patients when the pandemic peaks—“we predict there would still be in the order of…1.1-1.2 million [deaths] in the US.” Based on the Imperial College model, shutting down the economy so as not to let the virus run rampant would save approximately 1 million lives compared to the worst-case scenario.

A Cost of $1 Million Per Estimated Life Saved

Some crude economic math suggests the value a pandemic-inspired economic “pause” might place on human life. Based on a U.S. gross domestic product of approximately $21 trillion, a 5 percent reduction in GDP—which seems realistic, or perhaps even conservative, based on current worldwide projections—would erase roughly $1.05 trillion in economic growth. The Imperial College estimate that mitigation and social distancing measures would save roughly 1 million lives would therefore place the value of each life saved at approximately $1 million.

Of course, these calculations depend in large part on inputs and assumptions—how quickly the virus spreads, whether large numbers of Americans have already become infected asymptomatically, whether already infected individuals gain immunity from future infection, how much the slowdown harms economic growth in both the short and long-term, and many, many more. Other assumptions could yield quite different results.

But if these types of calculations, particularly when performed with varying assumptions and inputs, replicate the results of the crude math above, policymakers likely will sit up and take notice. Given that Britain’s National Health Service makes coverage decisions by valuing life as worth tens of thousands of pounds, far less than millions of dollars, it seems contradictory to keep pursuing a pandemic strategy resulting in economic damage many multiples of that amount for every life saved.

Tough Cost-Benefit Analysis

Unfortunately, lawmakers the world over face awful choices, and can merely attempt to select the least-bad option based on the best evidence available to them at the time. Slogans like “Why put your job over your grandmother?” or “If you worry about the virus, just stay home” belie the very real consequences the country could face.

Consider possible scenarios if officials loosen economic restrictions while the pandemic persists. Some individuals with health conditions could face the prospect of returning to work in an environment they find potentially hazardous, or losing their jobs. Individuals who stay home to avoid the virus, yet develop medical conditions unrelated to the virus—a heart attack, for instance—could die due to their inability to access care, as hospitals become swarmed with coronavirus patients. And on and on.

The president said on Tuesday he would like to start reopening the economy by Easter, a timeline that seems highly optimistic, at best. If by that time the situation in New York City deteriorates to something resembling Italy’s coronavirus crisis—and well it could—both the president and the American people may take quite a different view towards reopening the economy immediately. (And governors, who have more direct power over their states, could decide to ignore Trump and keep state-based restrictions on economic activity in place regardless of what he says.)

Nonetheless, everyone understands that the economy cannot remain in suspended animation forever. Hopefully, better data, more rapid viral testing, and the emergence of potential treatments will allow the United States and the world to begin re-establishing some sense of normalcy, at the minimum possible cost to both human life and economic growth.

This post was originally published at The Federalist.

Warren Advisor Admits Her Health Plan Raises Middle Class Taxes

That didn’t last long. Five days after Sen. Elizabeth Warren released a health plan (chock full of gimmicks) that she claimed would not raise taxes on the middle class, one of the authors of that plan contradicted her claims.

In an interview with Axios published on Wednesday, but which took place before the plan’s release, Warren advisor and former Centers for Medicare and Medicaid Services Administrator Donald Berwick said the following:

Q: Many people may not know their employers cover 70% or more of their entire premium — money that otherwise would go to their pay. Is this the main problem when talking about reforms?

DB: The basics are not that complicated. Every single dollar — every nickel spent on health care in this country — is coming from workers. There’s no other source. [Emphasis mine.]

Compare that phraseology to what Joe Biden’s campaign spokesperson said on Friday about Warren’s plan and its effects:

For months, Elizabeth Warren has refused to say if her health care plan would raise taxes on the middle class, and now we know why: Because it does….Senator Warren would place a new tax of nearly $9 trillion that will fall on American workers. [Emphasis mine.]

In response to the Biden campaign’s criticism, Warren said last Friday that her health plan’s projections “were authenticated by President Obama’s head of Medicare”—meaning Berwick. Unfortunately for Warren, Berwick, by virtue of his comments in his interview with Axios, also “authenticated” Biden’s attack that her required employer contribution will hit workers, and thus middle-class families.

Warren also tried to defend her plan on Friday by claiming that “the employer contribution is already part of” Obamacare. Obamacare does include an employer contribution requirement, but that requirement:

  • Is capped at no more than $3,000 per worker, far less than the average employer contribution for workers’ health coverage—$14,561 for family coverage as of 2019— which will form the initial basis of Warren’s required employer contribution;
  • Does not apply to employers at all if the firm offers “affordable” coverage—an option not available under Warren’s plan, which would make private insurance coverage “unlawful;” and
  • Will raise an estimated $74 billion in the coming decade, according to the Congressional Budget Office—less than 1 percent of the $8.8 trillion Warren claims her required employer contribution would raise.

While Obamacare and Warrencare both have employer contributions, the similarities pretty much end there. Calling the two equal would equate a log cabin to Buckingham Palace. Sure, they’re both houses, but differ greatly in size. Warren’s “contribution”—which Berwick, her advisor, admits will fall on middle-class workers—stands orders of magnitude greater than anything in Obamacare.

Public Accountability?

In the same Axios interview, Berwick highlighted what he termed a tradeoff “between public accountability and private accountability.” He continued: “By not having a publicly accountable system, we are paying an enormous price in lack of transparency.”

His comments echo prior justification of his infamous “rationing with our eyes open” quote in a 2009 interview. As he explained to The New York Times as he departed CMS in late 2011, “Someone, like your health insurance company, is going to limit what you can get….The government, unlike many private health insurance plans, is working in the daylight. That’s a strength.”

Except that Berwick, as CMS administrator, went to absurd lengths to hide from public scrutiny after his series of remarks. He would gladly meet with health-care lobbyists behind closed doors, but refused to answer questions from reporters, going so far as to duck behind curtains and request security escorts to avoid doing so.

Warren apparently has taken a lesson in opacity from Berwick’s time as CMS administrator. At first, she avoided releasing a specific health care proposal at all, only to follow up by issuing a “plan” containing so many absurd assumptions as to render it irrelevant as a serious blueprint for legislating.

Unfortunately for her, however, Berwick committed the unforgivable sin of speaking an inconvenient truth about the effects of her proposal. Eight years after leaving office as CMS administrator, Berwick, however belated and however unwittingly, delivered some much-needed public accountability for Warren’s health plan.

This post was originally published at The Federalist.

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.

We Told You So: Companies Hiring Fewer Full-Time Workers

The Wall Street Journal has a must-read article this morning highlighting one of Obamacare’s effects – companies are replacing full-time workers with part-time employees to avoid the law’s soon-to-be-imposed $2,000 employer mandate penalty.  Because full-time employees working more than 30 hours will incur a penalty while part-time workers will not, many firms are in the process of shifting their workforce, as the article outlines:

Some low-wage employers are moving toward hiring part-time workers instead of full-time ones to mitigate the health-care overhaul’s requirement that large companies provide health insurance for full-time workers or pay a fee.  Several restaurants, hotels and retailers have started or are preparing to limit schedules of hourly workers to below 30 hours a week.  That is the threshold at which large employers in 2014 would have to offer workers a minimum level of insurance or pay a penalty starting at $2,000 for each worker.

Pillar Hotels & Resorts this summer began to focus more on hiring part-time workers among its 5,500 employees, after the Supreme Court upheld the health-care overhaul, said Chief Executive Chris Russell.  The company has 210 franchise hotels, under the Sheraton, Fairfield Inns, Hampton Inns and Holiday Inns brands.  “The tendency is to say, ‘Let me fill this position with a 40-hour-a-week employee.’”  Mr. Russell said. “I think we have to think differently.”…

CKE Restaurants Inc., parent of the Carl’s Jr. and Hardee’s burger chains, began two months ago to hire part-time workers to replace full-time employees who left, said Andy Puzder, CEO of the Carpinteria, Calif., company.  CKE, which is owned by private-equity firm Apollo Management LP, offers limited-benefit plans to all restaurant employees, but the federal government won’t allow those policies to be sold starting in 2014 because of low caps on payouts.  Mr. Puzder said he has advised Mr. Romney’s campaign on economic issues in an unpaid capacity.

Home retailer Anna’s Linens Inc. is considering cutting hours for some full-time employees to avoid the insurance mandate if the health-care law isn’t repealed, said CEO Alan Gladstone.  Mr. Gladstone said the costs of providing coverage to all 1,100 sales associates who work at least 30 hours a week would be prohibitive, although he was weighing alternative options, such as raising prices….

Benefits consultants said most retail and hotel clients have explored shifting toward part-time workers.  Those industries are less likely to offer health coverage now, and if they do, the plans typically are too skimpy to meet the minimum-coverage requirements.  “They’ve all considered it,” Matthew Stevenson, a workforce-strategy principal at Mercer.  In a July survey, 32% of retail and hospitality company respondents told the consulting firm that they were likely to reduce the number of employees working 30 hours a week or more.

Not only is this response predictable – it was predicted, and not just by Republicans but by non-partisan experts.  Here’s what the Congressional Budget Office wrote more than two years ago about the Obamacare mandate taxes:

Those penalties…will, over time, generally be passed on to workers through reductions in wages…However, firms generally cannot reduce workers’ wages below the minimum wage, which will probably cause some employers to respond by hiring fewer low-wage workers.  Alternatively, because firms are penalized only if their full-time employees receive subsidies from exchanges, some firms may instead hire more part-time or seasonal employees.

CBO also said that “the expansion of Medicaid” and the health insurance subsidies “will encourage some people to work fewer hours or to withdraw from the labor market.  In addition, the phaseout of the subsidies as income rises will effectively increase marginal tax rates, which will also discourage work.”

Two years ago, Speaker Pelosi famously said we had to pass the bill to find out what’s in it.  It turns out what’s in Obamacare is exactly what non-partisan experts said – provisions that will cost jobs and harm the American economy.

Fact Check: Slowing Cost Growth

The President attempted to take credit for the slowdown in health costs of late, attributing it to Obamacare.  But estimates of national health spending released by the non-partisan Medicare actuary in July suggest otherwise.  The actuary’s report confirmed that – contrary to the President’s assertions – the private sector is NOT doing fine, and that the economic downturn continues to affect the health care sector.  Specifically, health spending in 2011 rose by a comparatively small amount due to the “lingering effects of the recent recession and modest recovery,” as high unemployment and stagnant wages often result in financially strapped individuals putting off elective surgeries and trips to the doctor.  Just as prior studies from the non-partisan actuary have concluded, spending growth was slower than projected NOT because Obamacare worked, but because the Obama “stimulus” didn’t.

Two Math Lessons for President Obama

In his speech to the Democratic National Convention a few weeks ago, President Clinton said that one of the new ideas Democrats brought to Washington was “arithmetic.”  Which is particularly ironic, given two developments associated with yesterday’s updated CBO estimates of the mandate taxes associated with Obamacare:

  1. The Administration claimed that the tax increase wouldn’t harm middle-class families because the tax “will only affect people who can afford health care but choose not to buy it.”  But the Congressional Budget Office estimated that 600,000 people with incomes UNDER the federal poverty level – that’s $15,130 for a family of two in 2012 – would pay higher taxes due to the Obamacare mandate.  CBO has also projected that the average premium in the Exchange will be $15,200 per family per year.  Last time I checked, $15,200 was greater than $15,130 – meaning some people may face higher taxes because Obamacare forces them to buy health insurance whose total premium could cost more than their family’s entire income.
  2. CBO also admitted that “most of the increase—about 85 percent—in the number of people who are expected to pay the penalty tax [since CBO’s April 2010 estimate] stems from changes in CBO and JCT’s baseline projections since April 2010, including the effects of legislation enacted since that time, [and] changes in the economic outlook, primarily a higher unemployment rate and lower wages and salaries.”  I could be wrong, but I thought it was better for unemployment to be going down, not up, and for wages to be going up rather than down.  In which case a President running for re-election on a slogan of moving “Forward” has in reality moved the American economy backward since CBO made its initial estimates two years ago.

CBO Report Exposes Record of Obamanomics

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

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

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

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

A couple of other related points from the CBO report:

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

Obamacare Bad for Businesses

In the past 24 hours, two new polls have once again demonstrated that Obamacare is causing uncertainty for businesses, thereby hindering economic growth.  In a Gallup survey, 57% of Americans thought Obamacare would make things worse for businesses — a margin just short of the 60% of Americans who thought the law would make things worse for taxpayers as a whole.

A separate survey of small businesses conducted by the US Chamber of Commerce echoes the Gallup findings.  That survey found that 72% of small business owners concluded that Obamacare makes it harder for their firms to take on new workers, compared to only 3% who said that the clarity of the Supreme Court’s decision on the law would lead to new hiring.  Many owners also commented that the law would encourage their firm to reduce the size of their labor force, and/or cancel health insurance entirely and dump their workers on to Obamacare Exchanges.

President Obama has attracted controversy in recent days on the basis of remarks he made Friday implying that government is the source for businesses’ success.  Yesterday’s Obamacare surveys reveal, however, that under Obamanomics, those businesses who still can succeed aren’t succeeding because of government intrusion — but despite 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.”

Just the Facts, Mr. President…

Campaigning in Ohio yesterday, President Obama – in typically modest fashion – said this about the health care law: “The law I passed* is here to stay.”  He followed that up by making the following statement at another campaign event:  “We don’t have to re-litigate the last two years.  I don’t want us to keep having political arguments that are based on politics and not on facts.”  Herewith, two compelling facts:

Fact No. 1:  The Supreme Court upheld the law’s individual mandate as a tax – and ONLY as a taxIf the President doesn’t want to re-litigate the past two years, as he claims, then why doesn’t he acknowledge that the mandate is a tax increase?  Because some would argue that to do otherwise might be based on politics – not on facts.

Fact No. 2:  More Americans think the law will harm the economy than will help it.  So said a new Gallup poll released yesterday.  Which means that if the law really is here to stay, as the President claims, then the American people think the current economic malaise is here to stay as well.  Not an ideal platform on which to run for re-election.


* One could also point out Fact No. 3:  Presidents don’t pass laws, Congress does.  While all the Democrat Members of Congress who lost thanks to Obamacare might thank the President for his implicit assertion that he can unilaterally waive his wand and pass a law, it doesn’t actually work that way.  One wouldn’t think a constitutional law professor would make such casual yet incorrect statements.  But then again, one wouldn’t think a constitutional law professor would put half of the health care law’s coverage expansions in jeopardy by signing a bill with unconstitutional provisions either.