More on Medicare Administrative Costs

Robert A. Book, a Senior Research Fellow at The Heritage Foundation, argues that Medicare’s per-person administrative costs are, in fact, higher than those of the average private insurer (via Greg Mankiw):

Medicare beneficiaries are by definition elderly, disabled, or patients with end-stage renal disease. Private insurance beneficiaries may include a small percentage of people in those categories, but they consist primarily of people are who under age 65 and not disabled.

Naturally, Medicare beneficiaries need, on average, more health care services than those who are privately insured. Yet the bulk of administrative costs are incurred on a fixed program-level or a per-beneficiary basis. Expressing administrative costs as a percentage of total costs makes Medicare's administrative costs appear lower not because Medicare is necessarily more efficient but merely because its administrative costs are spread over a larger base of actual health care costs. When administrative costs are compared on a per-person basis, the picture changes. In 2005, Medicare's administrative costs were $509 per primary beneficiary, compared to private-sector administrative costs of $453.

I don’t know all the methodological details of Book's analysis (and I'm skeptical of any study produced by Heritage), but his essential point should extend well beyond the health care debate. The question of how to compare unique data sets is often very complicated, even in the absence of politics. Basic considerations -- like whether to measure in terms of absolute numbers or proportions -- are often controversial. We should be particularly wary of unqualified statistical comparisons presented in the context of an emotionally charged policy debate.

They’re often very misleading.

How Embarrassing . . .

I really wish I'd never written this:

Whatever Palin's shortcomings, stupidity is certainly not among them. She wouldn't have been chosen if McCain didn't believe she could stand up against Joe Biden in a debate.

I have a good feeling she'll surprise everyone . . .

Oh, how wrong I was.

But apparently I'm not the only one who regrets giving Palin the benefit of the doubt, particularly after her embarrassingly awful resignation speech:

I liked Sarah Palin and supported her inclusion on the GOP ticket last fall. I thought she had more toughness than this. It’s a big disappointment, and it’s the end of any hope of Palin getting taken seriously as a politician on the national level in the future.

What's Happening in Honduras?

I really don't know anything about Central America, but I recently came across this excellent article in TIME Magazine explaining the roots of the Honduran conflict.

It seems that the ousting of the left-wing president Manuel Zelaya is really the culmination of a decades-old class struggle in Honduras, which has divided the country into two distinct political factions. Zelaya's largely socialist reforms have sparked intense hostility among wealthy business owners and other entrenched powers:

The mustachioed, sombrero-wearing Zelaya makes for an unlikely leftist hero. A 56-year-old former rancher and timber merchant, he took office in 2006 after campaigning on a centrist platform. But once in power, he drew close to Venezuelan President Hugo Chávez and quickly copied his formula for popularity: giving handouts to the poor and blaming all the country's problems on the rich. Amid rising crime and a spluttering economy, the establishment turned on Zelaya. The flashpoint came in June, when he called for a nonbinding referendum on changing the constitution to allow Presidents to stand for a second term. The Supreme Court ruled the vote illegal and soldiers whisked Zelaya away before it could take place, leaving Congressman Roberto Micheletti to be sworn in as the new President.

The Organization of American States has threatened to suspend Honduras' membership unless Zelaya is quickly restored to power, and the United States finds itself in the unusual position of supporting a leader who has aligned himself with Hugo Chávez and other left-leaning regimes.

Some conservatives have criticized President Obama for his stance, arguing that the removal of Zelaya was both legal and beneficial to the United States. But the Obama administration has, in fact, been slower than most European states to recall its ambassador from Tegucigalpa, perhaps aware that the threat of violence looms large if Zelaya decides to return to the country and attempt to retake power.

The situation in Honduras will likely provide an interesting test of Obama's foreign policy realism, with which I tend to sympathize. At the very least, we should all hope that this conflict ends not with a bang, but a whimper . . .

The Latest Health Care Reform Bill

In a letter to Senator Kennedy, the CBO offered its initial assessment of the new draft legislation on health care reform. The bill would add just under $600 billion to the national debt over ten years, and would likely cover about 2/5 of the uninsured.

The revised draft that came out of the HELP committee includes an employer mandate, which "would virtually eliminate the migration of employees from their employer-based insurance to public insurance, thereby reducing the financial burden on the government." This equates to a dramatic $400 billion reduction in the net cost to the federal government.

In addition, employees would no longer receive a federal subsidy to purchase coverage through the insurance "gateways" if their employer is already offering insurance -- even if that employer-provided coverage has been deemed "unaffordable."

Regarding the public option, the CBO estimates no "substantial effect on the cost or enrollment projections, largely because the public plan would pay providers of health care at rates comparable to privately negotiated rates -- and thus was not projected to have premiums lower than those charged by private insurance plans in the exchanges."

Greg Mankiw sees this latter point as a vindication of his earlier position on the public option. Meanwhile, Ezra Klein offers pragmatic support for the employer mandate . . . well, sort of.

The problem with employer-provided insurance, as many economists have pointed out, is that it distorts price signals and encourages consumers to "buy" more health care. When you're not paying for something directly, you tend use more of it. But employees really are paying for their employer-provided coverage -- the cost is generally passed on to workers through lower wages.

If it's true that employer-provided coverage encourages overuse of health care and deflates wages, will an employer mandate really help to reduce health care costs in the long-run?

Eating Our Way to More Expensive Health Care?

An interesting article on the growing levels of obesity among baby boomers and the likely effect on Medicare expenditures.

Obesity rates among adults rose in 23 states over the past year and didn't decline anywhere, says a new report from the Trust for America's Health and the Robert Wood Johnson Foundation. And while the nation has long been bracing for a surge in Medicare as the boomers start turning 65, the new report makes clear that fat, not just age, will fuel much of those bills.

...

Health economists once made the harsh financial calculation that the obese would save money by dying sooner, notes Jeff Levi, executive director of the Trust, a nonprofit public health group. But more recent research instead suggests they live nearly as long but are much sicker for longer, requiring such costly interventions as knee replacements and diabetes care and dialysis.

Studies show Medicare spends anywhere from $1,400 to $6,000 more annually on health care for an obese senior than for the non-obese.

Taking Care of Our Unlimited Wants

In a recent post, I criticized conservative pundits who've portrayed the administration’s health care reform proposal as a move toward "socialized medicine." Opponents of the so-called "public option" seem to be among the most eager to frame these reforms as a wholesale government takeover of the health care industry.

As I've said, I believe this is a false argument. But underneath this bit of conservative sophistry is a fundamental truth about the nature of our health care dilemma.

The debate over national heath care is really a debate over social priorities. For many opponents of the Obama plan – most of whom legitimately fear that the public option is a backdoor to single-payer – the central question in this debate is whether those who have health insurance should be compelled through the tax system to financially support those who lack insurance. Progressives tend to see this as a no-brainer – health care is, after all, a "basic right" – but the issue becomes increasingly complicated when we begin to consider expensive medical innovations that are available to only the wealthiest citizens.

If every American is entitled to health care, what level of care should be provided to each American? Should every citizen be afforded access to the most cutting edge medical technology? I think most progressives would agree that we cannot provide every citizen with the best possible care – the cost would be far too high. So how do we decide which illnesses should take precedence, and which procedures should be funded?

The Obama administration’s push to address these difficult questions through comparative effectiveness research not only oversimplifies an extremely complex problem – it also ignores the moral dimensions of the problem. Those who criticize the inequity and inefficiency of the market must describe what they believe are the best – and most ethical – ways to prioritize treatment through the government.

These are not simply scientific questions; they are questions that involve serious moral judgment. We live in a country with limited resources and unlimited wants – this is the fundamental economic problem that all societies face. If the market is no longer rationing health care resources, the government must. But so far, those who advocate broader government control of the health care industry have been hesitant to acknowledge this point – or to explain their moral priorities.

It’s true that the government will not be taking over the health care system, but if we do move toward single-payer – as many progressives would like – the government may be purchasing most people's care. Even with their enormous bargaining power, the feds simply cannot afford to fund our unlimited wants.

There will have to be tradeoffs, and those who support a single-payer system should be honest about those tradeoffs.

The Right Decision in Ricci v. DeStefano

In a 5-4 decision, the Supreme Court ruled in favor of the New Haven firefighters.

Justice Ginsburg wrote the dissent, arguing that there was "substantial evidence of multiple flaws in the tests New Haven used."

The problem with this argument is that the City of New Haven refused a technical review of the exam by IOS (the company that designed the test), and moved to strike evidence of test validity when it was originally presented by the Petitioner in district court. The City contended that "[e]vidence of pre-examination planning and test validity is . . . irrelevant because the issue is not whether the tests were valid." [See Petitioner's Reply Brief - Footnote 18]

Even if Ginsburg believes that the test was invalid, this was not the reason why the city vacated the results. City officials vacated the results because of an imbalanced racial outcome, which they feared would lead to lawsuit.

How Do We Value Mental Health?

Another example of how international health care comparisons often oversimplify things (via Tyler Cowen):

Researchers from the Peninsula Medical School, the University of Cambridge and the University of Michigan have carried out the first international comparison of cognitive function in nationally representative samples of older adults in the US and England and discovered that US seniors performed significantly better that their English counterparts . . . .

Two researchers from the Peninsula Medical School worked on the study, Dr Iain Lang and Dr David Llewellyn. Dr Iain Lang commented: "While we in England may not like the results of this study, there are important lessons to be gleaned regarding the differences in lifestyle and the treatment of cardiovascular diseases between the US and England. Given the good results achieved by the American oldest-old, we can hypothesise that the more aggressive diagnosis and treatment of hypertension and possibly other cardiovascular risks that occurs in the US, may lead to less cognitive decline. US citizens tend to retire later than those in England, and this too can have an effect on cognitive performance – there may be a connection between early retirement and the early onset of cognitive decline."

Dr David Llewellyn added: "It is possible that the results of this study could lead to other research designed to improve cognitive performance for older people in England. Certainly, with the population of the world ageing at a rapid rate future cross-national studies regarding medical and social factors and ageing can only make significant contributions to the quality and delivery of public health – not least in providing possible savings for health and social care providers such as the NHS."

I think most people would agree that mental health is an essential component of our overall quality of life. Any comparison between the United States' health care system and international health care systems should certainly take this into account.

Is the Public Option a Backdoor to Single-Payer?

Greg Mankiw offers his take on the public option in tomorrow's New York Times:

An important question about any public provider of health insurance is whether it would have access to taxpayer funds. If not, the public plan would have to stand on its own financially, as private plans do, covering all expenses with premiums from those who signed up for it.

But if such a plan were desirable and feasible, nothing would stop someone from setting it up right now. In essence, a public plan without taxpayer support would be yet another nonprofit company offering health insurance. The fundamental viability of the enterprise does not depend on whether the employees are called “nonprofit administrators” or “civil servants.”

In practice, however, if a public option is available, it will probably enjoy taxpayer subsidies. Indeed, even if the initial legislation rejected them, such subsidies would be hard to avoid in the long run. Fannie Mae and Freddie Mac, the mortgage giants created by federal law, were once private companies. Yet many investors believed — correctly, as it turned out — that the federal government would stand behind Fannie’s and Freddie’s debts, and this perception gave these companies access to cheap credit. Similarly, a public health insurance plan would enjoy the presumption of a government backstop.

Such explicit or implicit subsidies would prevent a public plan from providing honest competition for private suppliers of health insurance. Instead, the public plan would likely undercut private firms and get an undue share of the market.

President Obama might not be disappointed if that turned out to be the case. During the presidential campaign, he said, “If I were designing a system from scratch, I would probably go ahead with a single-payer system.”

Of course, we are not starting from scratch. Because many Americans are happy with their current health care, moving immediately to a single-payer system is too radical a change to be politically tenable. But for those who see single-payer as the ideal, a public option that uses taxpayer funds to tilt the playing field may be an attractive second best. If the subsidies are big enough, over time more and more consumers will be induced to switch.

I think this is the point that some progressives are willfully evading. Ezra Klein recently described one possible version of the public option that "would have no special advantages over private insurers. It couldn't use the low rates that Medicare sets or access taxpayer subsidies. It couldn't force its way into networks. It would simply be another insurer, albeit with different incentives than traditional insurers."

If the president and his supporters truly believe that a public option would have no advantage over private plans, why are they pushing for it? Proponents of the public option seem to be arguing that simply taking the profit motive out of health insurance could generate lower prices. But there are already many nonprofit health care organizations, and their rates are comparable to other private health insurance companies.

So what's the real purpose of the public option? Is it, as the doubters claim, simply a backdoor to single-payer?

Health Care Deception

The debate over a public health care option has seen a number of seductive but false claims arising from both sides of the political arena. I thought I’d take a few minutes to address what I think are some of the most wrongheaded and deceptive arguments in the discussion over national health care.

1) A public option is socialized medicine. This is patently false. Ezra Klein has pointed out that socialized medicine is "a system in which the government owns the means of providing medicine." The National Health Service in the United Kingdom an example of socialized medicine; a public option is not socialized medicine. There are no proposals on the table for socialized medicine or even single-payer. Even those who believe that a public option is simply a "backdoor" to single-payer are misusing the term socialized medicine to describe what should more accurately be called a government "monopsony." There are many reasonable criticisms of the public option, but those who cry that a public option constitutes socialized medicine are being wildly unfair and, in my view, deliberately anti-intellectual.

2) Medicare has much lower administrative costs than private insurance companies. A number of liberal economists, most notably Paul Krugman, have argued that because "Medicare has much lower administrative costs than private insurance companies . . . [t]here’s every reason to believe that a public option could achieve similar savings." The comparison is totally unfair. First, the Social Security Administration determines eligibility and collects premium payments for Medicare beneficiaries; CMS does not do this. Second, Medicare outsources much of its administrative management to private insurance companies. My grandmother, for example, used to have her Medicare Advantage benefits administered through a private fee for service plan. Third, as John Calfee stated in his recent WSJ article, "what 'insurance' firms actually sell to large employers – which account for the single largest segment of the entire health-care market – is usually administrative services, not actual insurance. (Large companies are not insured; they pay benefits directly.)" Medicare does not do this. In fact, it generally takes advantage of these private services. Fourth, Medicare is a federally subsidized entitlement program which is available to virtually everyone over the age of 65. Most seniors are automatically enrolled in Medicare. Entitlement programs do not typically compete for market share and, thus, do not have to incur the cost of advertising.

3) Other countries pay less for health care and have better health care outcomes. Greg Mankiw explained in a recent blog post that in order "[t]o make comparisons in health outcomes, you need to control for other variables. Without such controls, the simple correlations have little meaning." When you take cultural factors into account, the comparisons with other countries become much murkier. There are many reasons why Americans have poorer health outcomes, but those reasons have much more to do with cultural habits and lifestyle choices than how we pay for care. International comparisons do not take into account rates of obesity, homicide, vehicle collisions, teenage pregnancies, or any other cultural factors that could skew the data. This makes them deceptive, at best.

The question of whether a public option – or, for that matter, a single-payer system – could dramatically lower per capita health care costs while expanding coverage and keeping America’s health care innovation machine intact is extremely complex. Reasonable people can disagree over the proper structure of our health care system and the best way to achieve cost reduction while simultaneously increasing coverage.

Pundits on the right need to stop attacking every plan that involves government participation as "socialism," while offering limited, impractical, or downright silly alternatives. Those on the left must stop accusing conservatives of callous indifference to the plight of the uninsured, while putting forth deceptive arguments that rely on incomplete or misleading facts and comparisons.

The only way to construct a workable health care plan for all Americans is to have an honest discussion about our cultural priorities that begins with a fair accounting of the costs and benefits as they apply to our health care delivery system.

(Bonus reading: Robert Reich’s endorsement of the public option.)