Sunday, January 30, 2011

The Apothecary is Moving to Forbes.com

The blog is dead. Long live the blog.

I’m pleased to announce that The Apothecary is moving to Forbes.com (http://blogs.forbes.com/aroy). Forbes.com is one of the more widely-read websites in the world, with more than 23 million unique visitors a month. One of the things I’ve found most rewarding about The Apothecary is that it has attracted a politically diverse audience, and I’m optimistic that joining Forbes will help further that trend. Avikroy.org will continue to host my prior work, along with that of Austin Bramwell, and I’m sure I’ll be referring to old blog posts from here for quite some time.

Forbes has invested considerable resources into online media, exemplified by their recent acquisition of Lewis DVorkin’s True/Slant. Lewis now heads up new media development for Forbes, where he is implementing his vision of “entrepreneurial journalism.” To me, this concept makes perfect sense. I’m grateful to Bob Langreth and Matt Herper at Forbes for giving me the opportunity to participate.

I’m also grateful to Rich Lowry and Reihan Salam at National Review, for whom I will continue to write, and also Yuval Levin at National Affairs, who gave me my start as a writer on health policy. I’ve learned much from all three, and I would be nowhere without their sponsorship of my work.

Most of all, I want to thank you, my readers, without whom this exercise would be pointless, and especially those of you who’ve taken the time to post your comments. (This is as fitting a time as any to recognize my all-time commenting champion, Steve.)

When I created The Apothecary in March of 2009, sitting around in my pajamas, I was concerned about what I saw around me. While health care reform was the central ambition of President Obama and the progressive political movement, I saw skeptical indifference among conservatives. Conservatives had successfully defeated HillaryCare by arguing, as Bob Dole did on the floor of the Senate in 1993, that we have “the best health care system the world has ever known.” While our health care system could be improved by incremental, common-sense reforms, most conservatives believed, there was nothing urgently wrong with our system, nothing that required conservatives’ intellectual and political energy. As Patrick Ruffini put it after Obamacare passed the House,
On health care, I have no idea what our basic guiding principle is. Seriously, I don’t…There are certainly many very good conservative health care scholars whose work I should have been reading more closely these last few years. But politics is a battle of perceptions, and the perception—that became reality—was that Republicans brought a knife to a gun fight when it came a debate about the scope and reach of health care reform.
This conservative skeptical indifference to health care policy has deep historical roots. The modern American conservative movement was founded in the 1950s by men such as William F. Buckley, Jr., Friedrich Hayek, and Russell Kirk, for whom the New Deal, World War II, and the Soviet Union were formative. The grand ambition of American conservatives in the second half of the twentieth century was defeating communism abroad, and expanding free markets at home. In those days, the government played a relatively small role in health care policy, and so these men had bigger fish to fry.

For the generation of conservatives who were reared by the Buckleys and the Kirks, 1964 was a seminal year. It was the year of Barry Goldwater’s campaign for the Presidency: the first true free-market conservative to gain the Republican nomination since Calvin Coolidge. Goldwater’s uncompromising defense of individual liberty inspired millions of Americans. Ronald Reagan’s speech at the 1964 Republican National Convention—a speech that anyone who thinks of Reagan as an “amiable duncemust watch—launched the Californian to national prominence. When Reagan was elected President in 1980, and in 1989 when the Berlin Wall fell, it appeared that conservatives had gained the epochal victories that they had worked for half a century to achieve. To those conservatives who had worked in the Reagan White House and had built the institutions that supplied that White House with intellectual energy, 1964 was a year of triumph, a year in which true-blue conservatives took control of a major political party.



There was only one problem. Goldwater got annihilated in the election of 1964. Lyndon Johnson was swept into office with one of the largest ideological majorities since the Civil War. Johnson embarked on a “war on poverty,” and signed the Medicare and Medicaid programs into law. Though conservatives fought against these programs, many saw conservatives’ opposition, as Lionel Trilling had put it, as an “irritable mental gesture.” After all, the government projected that Medicare would cost approximately $12 billion by 1990, inclusive of inflation. Wasn’t it worth it to guarantee health care for the elderly for that price?

But, when 1990 finally came around, we weren’t spending $12 billion on Medicare, but $107 billion. In 2010, we spent $520 billion on Medicare, and a similar amount on Medicaid. Today, according to long-term projections of the Congressional Budget Office, every dollar of growth in federal spending as a percentage of gross domestic product is a result of increased spending on federal health care entitlements.


In the mid-1960s, a group of New York progressives became disillusioned with Johnson’s war on poverty, finding that the real-life consequences of Johnson’s war were to extend and ossify poverty, rather than to relieve it. In 1965, two of them—Daniel Bell and Irving Kristol—founded a journal called The Public Interest. Its first issue published essays not only from Bell and Kristol, but also a future Hall-of-Fame cast including Robert Solow, Jacques Barzun, Robert Nisbet, and Daniel Patrick Moynihan.

Kristol et al. did not oppose statism on philosophical grounds—indeed, most of Kristol’s crew had supported Johnson in 1964. But they were liberals who had, in Kristol’s immortal words, been mugged by reality: a reality that Johnson’s “war on poverty” had made worse.

When landmark welfare reform legislation was signed into law in 1996, it was because Kristol and his intellectual descendants had succeeded where Goldwater had not: by persuading even moderate Democrats that the old model of welfare dependency was harming the poor. Those moderates were swayed not by philosophical appeals to Jefferson or Locke, but by the overwhelming evidence that they could best help the poor by incentivizing them to gain private employment.

Despite hyperbole from many on the Left that welfare reform would cause poor children to starve, the Personal Responsibility and Work Opportunity Act of 1996 was a dramatic success, leading even The New Republic to opine in 2006 that “a broad consensus now holds welfare reform was certainly not a disaster—and that it may, in fact, have worked much as its designers had hoped.”

The great health reform debate of 2009 and 2010 called attention to the fact that conservatives had not put as much energy into health care reform as they had into welfare reform. Medicare drug benefit aside, Republicans controlled the White House and Congress for most of 2001 to 2006 without being particularly concerned about the fact that health care entitlements were spinning out of control. Members of both parties expanded Medicaid without putting any thought into how the program was deeply harming those it was intended to help.

Those days of blissful ignorance must end. It may not yet look this way to the average voter, but our health care system is on the verge of collapse: increasingly inaccessible to individuals and unaffordable to the Treasury. Liberals who claim to represent the interests of the poor need to reflect honestly on how well the poor are served by our present government-run system. Conservatives who speak abstractly of lower spending have a lot of work to do before they can earn the electorate’s trust to enact reforms of their own.

Obamacare, in my mind, is disastrously misguided. But it has served one useful purpose. Since the fall of the Berlin Wall, conservatives have strained to identify a central, unifying domestic policy goal. With the passage of PPACA, they have found it. As the editors of National Review put it in a recent editorial,
This will be a long struggle. The proponents of government-run health care are dug in, and will do anything to stop repeal [of PPACA]. Republicans must bring an equal amount of determination and persistence to the fight—because the stakes could not be higher. In terms of spending, deficits, debt, and size of government, health care is the central battlefield. If Obamacare is allowed to stand, no matter what else happens, the country will move steadily toward ever higher levels of spending and taxation, slower growth and less opportunity, and lower-quality health care. That cannot be allowed to happen. And today’s vote gives us hope that it won’t.
I would emphasize that last part: lower-quality health care. Because, at the end of the day, that’s what it’s all about: will Americans gain better health care with a government-run system, or with a free-market one, or some combination thereof? If there is ever to be a bipartisan solution to our health care conundrum, it will be because moderates on both sides come to agreement as to how government policy can best serve the interests of patients and their families.

I’ve spent my whole life in the health care world: as the son of a molecular biologist, as a student of science and medicine, and as an analyst of, and investor in, health care institutions. We’re having a critically important debate about the future of our health care system, because the future of our health care system is inextricably tied to the future of our country. I hope I can play a small part in that debate. I hope you will too.

Thursday, January 27, 2011

Standard and Poor's Downgrades Japan

Cross-posted from The Corner on National Review Online.


Japan has long had the highest debt-to-GDP ratio in the developed world, at approximately 200 percent of GDP. (The U.S. is around 60 percent.) Today, Standard & Poor’s, the bond-rating agency, downgraded Japanese sovereign debt from AA to AA-. Here is what S&P had to say (h/t ZeroHedge):
The downgrade reflects our appraisal that Japan’s government debt ratios–already among the highest for rated sovereigns–will continue to rise further than we envisaged before the global economic recession hit the country and will peak only in the mid-2020s. Specifically, we expect general government fiscal deficits to fall only modestly from an estimated 9.1% of GDP in fiscal 2010 (ending March 31, 2011) to 8.0% in fiscal 2013. In the medium term, we do not forecast the government achieving a primary balance before 2020 unless a significant fiscal consolidation program is implemented beforehand.

Japan’s debt dynamics are further depressed by persistent deflation. Falling prices have matched Japan’s growth in aggregate output since 1992, meaning the size of the economy is unchanged in nominal terms. In addition, Japan’s fast-aging population challenges both its fiscal and economic outlooks. The nation’s total social security related expenses now make up 31% of the government’s fiscal 2011 budget, and this ratio will rise absent reforms beyond those enacted in 2004. An aging and shrinking labor force contributes to our modest medium-term growth estimate of around 1%.

In our opinion, the Democratic Party of Japan-led government lacks a coherent strategy to address these negative aspects of the country’s debt dynamics, in part due to the coalition having lost its majority in the upper house of parliament last summer. We think there is a low chance that the government’s announced 2011 reviews of the nation’s social security and consumption tax systems will lead to material improvements to the intertemporal solvency of the state. We even see a risk that the Diet might not approve budget-related bills for fiscal 2011, including government financing authorization. Thus, notwithstanding the still strong domestic demand for government debt and corresponding low real interest rates, we expect Japan’s fiscal flexibility to diminish.
One thing that most Americans have yet to consider is what would happen if the bond rating agencies ever downgraded U.S. Treasury debt. Moody’s has indicated that U.S. debt could be downgraded later this decade. If this were to happen, interest rates would rise, further destabilizing our fiscal position and raising borrowing costs for ordinary Americans, and there would be a risk of significant instability in the financial markets.

Wednesday, January 26, 2011

Shooting the CBO First and Asking Questions Later

Cross-posted from The Agenda on National Review Online.


Today, in an earlier post, I wrote the following:
What’s ironic is that last year, the CBO projected a 2011 budget deficit of just $980 billion. What’s a $500 billion, 50 percent error among friends?
Indeed, I am the one who committed the error: that’s what I get for blogging immediately upon reading the CBO’s top-line summary, before I was able to read the entire report this afternoon. It turns out that $390 billion of the increase in the 2011 deficit was, according to CBO scoring, a result of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (see page 8 of the full CBO report). So, I owe an apology to the good people of the CBO.

However, Kevin Drum and others are also mistaken in arguing that “virtually all of [the $500 billion difference in projections] is due to the extension of the Bush tax cuts.” Page 9 of the full CBO report shows that only $103 billion of the $390 billion is attributable to renewing the Bush tax cuts: $98 billion for “tax rates, credits, and deductions initially enacted in 2001, 2003, and 2009,” and $5 billion for estate and gift taxes.

The rest of the provisions were unrelated to the Bush tax cuts: a patch in the Alternative Minimum Tax, a eternal budgeting device similar to the Medicare “doc fix”; a payroll tax holiday; a tax credit for purchases of equipment by businesses; and an extension of “emergency” unemployment benefits.

One of the most common complaints that conservatives have with CBO projections is that they do not take into account how changes in tax rates affect behavior and economic growth. Nick Gillespie makes an important point about the Bush tax cuts: the top decile paid more in taxes in 2008, as a share of total revenues, than they did in 2000. Conversely, the share of the bottom half of earners was lower in 2008 than it was in 2000. This, at least, confounds the widely accepted view that “tax cuts for the rich” under Bush worsened the deficit.

While we’re on the subject of the CBO’s new deficit projections, it’s worth highlighting some key passages from the new report (emphasis added):
CBO’s baseline projections…incorporate the assumption that current laws governing taxes and spending will remain unchanged. In particular, the baseline projections in this report are based on the following assumptions:

    * Sharp reductions in Medicare’s payment rates for physicians’ services take effect as scheduled at the end of 2011;

    * Extensions of unemployment compensation, the one-year reduction in the payroll tax, and the two-year extension of provisions designed to limit the reach of the alternative minimum tax all expire as scheduled at the end of 2011;

    * Other provisions of the 2010 tax act, including extensions of lower tax rates and expanded credits and deductions originally enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001, the Jobs and Growth Tax Relief Reconciliation Act of 2003, and ARRA, expire as scheduled at the end of 2012; and

    * Funding for discretionary spending increases with inflation rather than at the considerably faster pace seen over the dozen years leading up to the recent recession.

The projected deficits over the latter part of the coming decade are much smaller relative to GDP than is the current deficit, mostly because, under those assumptions and with a continuing economic expansion, revenues as a share of GDP are projected to rise steadily—from about 15 percent of GDP in 2011 to 21 percent by 2021.

As a result, the baseline projections understate the budget deficits that would arise if many policies currently in place were extended, rather than allowed to expire as scheduled under current law.
Tyler Durden also makes some important points that have significant consequences for the stability of the dollar and of U.S. sovereign debt:
So between 2010′s $1.3 trillion, 2011 $1.5 trillion, and 2012′s revised $1.1 trillion, we have $3.9 trillion just in deficit costs to plug. And as Zero Hedge has repeatedly demonstrated the actual debt to be issued is usually about 33% higher than the deficit funding need, meaning that over the next 3 years the US will need to issue about $5 trillion in debt. Which means further debt monetization is guaranteed as foreign investors have now fully withdrawn and the Fed is all alone in gobbling up every dollar in gross issuance. QE3 is guaranteed and we are stunned that the market continues not to realize this.
Finally, there is a kind of epistemological divide in thinking about deficits. Those who believe that tax cuts are to blame for our deficit are, by definition, of the view that federal spending at 25 percent of GDP is acceptable, despite its deviation from the historical average of 20 percent. There is at least a plausible argument to be made that 20 percent of GDP should be enough for the federal government to fulfill all functions that are appropriate for it to take on.

What's Half a Trillion Dollars Among Friends?

Cross-posted from The Corner on National Review Online.


For those who see the Congressional Budget Office as the most accurate arbiter of future deficit projections, it’s worth noting that its latest projection for the 2011 budget deficit is $1.5 trillion, or 9.8 percent of GDP.

If you don’t find that number astounding on its own merits, note that total projected revenues for 2011 are $2.2 trillion. In other words, taxes would have to go up on every American by 66 percent, at projected levels of economic activity, in order to pay for our 2011 spending commitments, including interest on the debt.

What’s ironic is that last year, the CBO projected a 2011 budget deficit of just $980 billion. What’s a $500 billion, 50 percent error among friends?

UPDATE: Some are pointing out that the extension of the Bush tax cuts is responsible for a portion of the difference between the CBO's 2011 and 2012 estimates, which is a fair point. However: (1) only in part: the rest of the difference comes from spending growing faster than predicted and economic growth growing slower than predicted; (2) the CBO's static scoring system underestimates the impact of tax changes on economic growth, exaggerating the fiscal impact of the tax cut extension. Check out the links above for a detailed discussion.

UPDATE 2: See my follow-up post for an important correction.

Tuesday, January 25, 2011

The Apothecary's Official Response to the State of the Union

Cross-posted from Critical Condition on National Review Online.


Tonight, according to the advance text of his State of the Union speech, the President will address health care policy in two sections. In the first, he addresses Republicans’ efforts to repeal Obamacare:
Now, I’ve heard rumors that a few of you have some concerns about the new health care law. So let me be the first to say that anything can be improved. If you have ideas about how to improve this law by making care better or more affordable, I am eager to work with you. We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses.

What I’m not willing to do is go back to the days when insurance companies could deny someone coverage because of a pre-existing condition.  I’m not willing to tell James Howard, a brain cancer patient from Texas, that his treatment might not be covered. I’m not willing to tell Jim Houser, a small business owner from Oregon, that he has to go back to paying $5,000 more to cover his employees.  As we speak, this law is making prescription drugs cheaper for seniors and giving uninsured students a chance to stay on their parents’ coverage. So instead of re-fighting the battles of the last two years, let’s fix what needs fixing and move forward.
PPACA’s infamous 1099 rule, which requires individuals and businesses to fill out a separate IRS form for any vendor they spend more than $600 on in a given year, was one of the fiscal devices the law’s authors used in order to improve its CBO score. Repealing it appears to have garnered bipartisan support. If Republicans intend to offset this tax increase with spending cuts or other tax increases, it is strategically important that those offsets are unrelated to PPACA, so as to improve the CBO score for repealing the law at a later time under reconciliation rules.

As to the President’s policy-via-selective-anecdotes: (1) The incidence of insurers refusing to cover people because they have pre-existing conditions is vanishingly low; (2) Obamacare will drive health costs skyward, placing severe burdens on individuals and small businesses; (3) closing the Medicare prescription drug “donut hole” will increase wasteful Medicare spending, make entitlement reform more difficult, and increase the price of important medicines; (4) forcing all plans to cover “adult children” up to the age of 26 drives the cost of insurance up, making it less affordable for the very people who need it.

Here’s what the President had to say about entitlement reform:
The bipartisan Fiscal Commission I created last year made this crystal clear. I don’t agree with all their proposals, but they made important progress. And their conclusion is that the only way to tackle our deficit is to cut excessive spending wherever we find it – in domestic spending, defense spending, health care spending, and spending through tax breaks and loopholes.

This means further reducing health care costs, including programs like Medicare and Medicaid, which are the single biggest contributor to our long-term deficit.  Health insurance reform will slow these rising costs, which is part of why nonpartisan economists have said that repealing the health care law would add a quarter of a trillion dollars to our deficit. Still, I’m willing to look at other ideas to bring down costs, including one that Republicans suggested last year: medical malpractice reform to rein in frivolous lawsuits.
When it comes to health care, the Fiscal Commission accomplished very little, so the fact that the President finds himself to the left of that body is telling. Furthermore, it’s laughable for him to say that Obamacare will “slow these rising costs,” when the law includes trillions of dollars in new entitlement spending.

The one area where Republicans and the President might be able to make progress is malpractice reform, though given his disinterest in the issue during the Obamacare debate, one can’t be too optimistic.

I’ll put out a new post with comments on Paul Ryan’s response, either later tonight or tomorrow.

UPDATE: Paul Ryan has posted his prepared SOTU response. It paints in broad brush strokes (appropriate in an all-encompassing, but brief, speech):
Then the President and his party made matters even worse, by creating a new open-ended health care entitlement.

What we already know about the President’s health care law is this: Costs are going up, premiums are rising, and millions of people will lose the coverage they currently have. Job creation is being stifled by all of its taxes, penalties, mandates and fees.

Businesses and unions from around the country are asking the Obama Administration for waivers from the mandates. Washington should not be in the business of picking winners and losers. The President mentioned the need for regulatory reform to ease the burden on American businesses. We agree – and we think his health care law would be a great place to start.

Last week, House Republicans voted for a full repeal of this law, as we pledged to do, and we will work to replace it with fiscally responsible, patient-centered reforms that actually reduce costs and expand coverage.

Health care spending is driving the explosive growth of our debt. And the President’s law is accelerating our country toward bankruptcy.
Ryan makes the important point about entitlement reform: that it’s future retirees who are most at risk if we don’t tackle Medicare now:
Just take a look at what’s happening to Greece, Ireland, the United Kingdom and other nations in Europe. They didn’t act soon enough; and now their governments have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody.

Monday, January 24, 2011

You Think Health Care is Pricey Now?

Reprinted from the April 19, 2010 issue of National Review.

From the moment Democrats introduced health-care legislation last year, Republicans focused on the adverse impact it would have on the federal debt. But what is remarkable about the Patient Protection and Affordable Care Act is that its effect on the debt is not even its worst feature. That distinction goes to its devastating consequences for the cost of health insurance.

Consider the numbers: Based on the gimmick-free assessment of former Congressional Budget Office director Douglas Holtz-Eakin, from 2010 to 2019 the act will increase the debt by $562 billion—almost $5,000 per household. Not great news, to be sure. But a PriceWaterhouseCoopers analysis projected that, over the same ten-year period, Obamacare will increase the cost of health insurance by approximately $20,000 per family.

This cost will be borne primarily by the young, who will be forced to subsidize the care of the middle-aged; by freelancers and small-business owners, who will not benefit from the exemptions afforded to large, self-insured employers; and by middle-class families, who will most feel the squeeze of higher insurance costs yet will also be expected to finance the health care of others.

The effects of this legislation on the debt are worrisome indeed. But, barring a Weimar-style collapse of the U.S. economy, they will be less visible to the typical family than health-care inflation will be. Rapidly rising insurance premiums will blow a hole directly in the monthly paychecks of tens of millions of middle-class households.

In his stump speech on health-care reform, President Obama liked to say that the Democratic plan incorporated “almost every single serious idea from across the political spectrum about how to contain the rising costs of health care.” The opposite is closer to the truth: The best ideas for lowering health-care costs—unshackling insurance from employment, expanding consumer choice, and enacting malpractice-litigation reform—are either absent or unrecognizably weakened in the law. On the other hand, its blizzard of new insurance mandates, its dramatic expansion of Medicaid, its array of new taxes, and its protection of hospital monopolies will most assuredly accelerate the growth of the cost of health insurance.

Take the mandates. The law compels insurers to accept all comers, regardless of preexisting conditions, something that prior law had already required for those with preexisting insurance. The new stipulation incentivizes people to wait until they are sick before buying insurance. If insurers receive premiums only when people are sick, they will have to charge more.

Indeed, this provision obliterates the whole point of insurance, which is to average the high cost of caring for the ailing few with the low cost of caring for the healthy multitudes. The individual mandate, which requires that healthy people buy insurance or pay a $750 fine, will do little to mitigate the perverse incentives of this provision. The annual cost of insurance is far greater than $750. Many healthy people will prefer the fine; they can always buy insurance later.

The law contains other thoughtless but pleasant-sounding regulations, nearly all of which will drive up the cost of insurance. These include: banning preexisting condition exclusions for children; eliminating lifetime and annual limits on insurance payouts; constraining the degree to which insurers can charge less to the young; and stipulating the percentage of premium revenues that must go to patient care. Each of these requirements, by increasing what insurers must spend on health care, increases what they must charge their policyholders.

Another reason for the current high cost of private health insurance is the fact that government-sponsored health care, in the form of Medicare for the elderly and Medicaid for the poor, underpays hospitals and doctors for their services. Health-care providers are thereby forced to charge more to those with private insurance, to the tune of $90 billion a year. Obamacare will make the problem worse by adding as many as 20 million more Americans to the rolls of Medicaid. Democrats claim that by reducing the degree to which the uninsured use the system for free, expanding Medicaid will reduce overall costs. But it turns out that cost-shifting from the uninsured to the insured amounts to only a fraction of the cost-shifting caused by Medicaid and Medicare underpayment. The more these new Medicaid enrollees take advantage of their benefits, the more private health-care costs will rise.

Unsurprisingly, taxes will play a role in the impact of Obamacare on health-care costs. The law imposes annual excise taxes of $2.3 billion on pharmaceutical products, $2 billion on medical devices, and $6.7 billion on health insurance. Companies will be forced to pass these taxes on to consumers. The logic of taxing the sale of health-care products in order to subsidize their purchase is sublimely Washingtonian.

One of the biggest causes of health-care inflation is hospital monopolies. Many American communities are served by only a single hospital or hospital chain. These hospitals are free to jack up prices at will, knowing that insurers have no choice but to pay them. Across the country, small groups of physicians have banded together to found specialty hospitals focused on one area of medicine, such as heart surgery or injury rehabilitation. These smaller outfits draw patients away from the larger hospitals by offering lower prices, higher quality, and better service. But the big incumbent hospitals usually are among the largest employers in their communities and thereby hold considerable sway with politicians of both parties. Inevitably, hospital lobbyists had their say on the health-care bill: They inserted provisions banning the construction of new physician-owned hospitals, and restraining the growth of those already in operation.

In all of these ways, Obamacare will drive up health-care costs. These concerns are not theoretical: They are borne out by an examination of insurance prices in the 50 states. Those states that impose onerous mandates, subsidize health-care spending, raise taxes, limit hospital competition, and ignore malpractice litigation are those in which costs have risen the fastest.

Over the next several years, as the new law accelerates health-care inflation, don’t expect Democrats to take responsibility for the problems they will have caused. Instead, they will blame them on the demonic greed of insurance companies. But insurers are caught between two rocks and a hard place: They can raise premiums to reflect rising costs, deny care to policyholders, or go broke. That’s a lose-lose-lose proposition for consumers—but, for the Left, it’s win-win-win. Any of these outcomes will be exploited to argue that the free market can’t work in health care, and that the only solution is a European-style single-payer system.

Replacing the new law with a more sensible set of reforms is imperative. It is true that Obamacare will expand the size of our debt and the reach of our government. But it will also leave Americans with unaffordable health care—the very opposite of what they were promised, and the harbinger of a far graver crisis.

Douthat on Reforming PPACA

Cross-posted from The Agenda on National Review Online.


Ross Douthat has a useful piece out today on something I’ve been spending a lot of time on lately: what Republicans should do if and when their initial repeal effort fails. Here are some of his policy recommendations:
To address the first problem, Republicans should work to deregulate the new health care exchanges, so that high-deductible, catastrophic coverage can be purchased as easily as comprehensive plans. To address the second, they should propose capping the subsidies for the uninsured, so that they don’t dramatically exceed the value of the existing tax subsidy for employer-provided insurance.
Both of these are constructive ideas. House Republicans can ensure that high-deductible plans are not only eligible for the exchanges, but that the definition of HDHPs is broadened, such that individuals can put more money away in health savings accounts, and with more flexibility around out-of-pocket costs and deductible ceilings.

In addition, capping the dollar amount of subsidies in the exchanges could provide a backstop to the growth of subsidies, in case Republicans are ultimately unsuccessful in repealing PPACA.

Both of these efforts must be pursued with foremost consideration for how they would affect the CBO score of a repeal bill under reconciliation. As a reminder, Republicans will only be able to repeal PPACA via reconciliation if each provision of their repeal measure contributes to deficit reduction.

Ross goes on to endorse a limited enrollment period, something that we have advocated in this space:
The mandate is a harder puzzle, since it works in tandem with the requirement — popular enough to have many Republican supporters — that insurers cease denying coverage to customers with pre-existing conditions. If you repealed the mandate without repealing that requirement, people could simply wait until they were sick to buy insurance, driving everyone’s prices up.

But Republicans could propose dealing with the same problem in a less coercive way. One alternative would establish limited enrollment periods (every two years, for instance) when people with pre-existing conditions could buy into the new exchanges without being denied coverage. Anyone who failed to take advantage wouldn’t be able to get coverage for a pre-existing condition until the next enrollment period arrived. This would reduce the incentive to game the system, without directly penalizing Americans who decline to buy insurance.

Personally, I think two years is too short of an enrollment period: four-to-five years is better, as the German experience demonstrates. But the idea is sound.

Sunday, January 23, 2011

Weekend Links

Because you really didn’t have anything better to do this weekend than read about health policy.


I’m late to the party, but you have to smile at Harvard economist Greg Mankiw’s take on the fiscal responsibility of Obamacare:
I have a plan to reduce the budget deficit. The essence of the plan is the federal government writing me a check for $1 billion. The plan will be financed by $3 billion of tax increases. According to my back-of-the envelope calculations, giving me that $1 billion will reduce the budget deficit by $2 billion.

Now, you may be tempted to say that giving me that $1 billion will not really reduce the budget deficit. Rather, you might say, it is the tax increases, which have nothing to do with my handout, that are reducing the budget deficit. But if you are tempted by that kind of sloppy thinking, you have not been following the debate over healthcare reform.
I’m sure there will come a point where we all get sick of Xtranormal, but it hasn’t happened yet, so check out this hilarious video entitled “Medical Loss Ratio Explained,” which explains the Obamacare debate better than I could with a year’s worth of blog posts:



One thing that the Left does well, but the Right does poorly, is talk about how real people are affected by health care policy. The Heritage Foundation has launched a series of videos to address this issue, and here is the latest (h/t InsureBlog):



Saturday, January 22, 2011

Health Wonk Review Review: Does PPACA Control Health Costs?

Cross-posted from The Agenda on National Review Online.

The latest edition of Health Wonk Review was hosted by Joe Paduda of Managed Care Matters. Fittingly, it touched on Republican efforts to repeal PPACA. Count Joe among those who are irked by the “Obamacare” moniker: “the President signed a bill that was sent him by the Senate; BaucusCare would be much more accurate.” Does this mean we get to refer to the “Bush tax cuts” as the Lott/Daschle tax cuts, and the “Clinton balanced budget” as the Gingrich balanced budget?

Paduda also weighed in on the debate regarding the CBO’s assessment of PPACA’s fiscal impact, arguing we should trust the CBO because “they’ve no axe to grind, unlike the pols.” (My take on the matter is somewhat less sanguine.)

Austin Frakt of the Incidental Economist is the left-of-center health wonk who is most engaged with right-of-center analysts. So I was surprised to see him approvingly cite this quotation from health economist Henry Aaron:
[T]he bill contains, at least in embryonic form, virtually every idea for cost control that any analyst has come up with…The most practical cost-control strategy that is now available to Congress is to accelerate the implementation of these provisions, not to stymie them.

This argument that “every idea for cost control that any analyst has come up with” was incorporated into PPACA is only true of you entirely exclude the right side of the spectrum. I can tick off a laundry list of cost-control strategies that weren’t included in the law: means-testing Medicare benefits; defined contribution reforms; indexing Medicare eligibility to life expectancy; serious tort reform; FEHBP-modeled reforms, etc. etc.

Furthermore, I and most other free-market-oriented health policy analysts argue that PPACA will increase costs by further subsidizing the overconsumption of health care. If you increase demand, while keeping supply constant, prices go up.

The opportunity for cost control that most excites center-to-left health wonks is PPACA-sanctioned accountable care organizations, or ACOs. Indeed, the January 2011 issue of Health Affairs is devoted to the topic. ACOs work by assembling a group of hospitals, doctors, and clinics who agree to be paid based on quality-driven measures, instead of simply on a fee-for-service basis. With this in mind, Jason Shafrin of Healthcare Economist has identified some legal barriers to ACO implementation that ACOs will need to seek waivers from.

Jeff Goldsmith of the Health Affairs Blog has an unconventional approach to Medicare’s “doc fix”; i.e., Sustainable Growth Rate, problem: “writing off the SGR ‘debt’ to the federal budget as ‘uncollectable’ and demanding both sacrifice and reform from the physician community in exchange.” The end result of the proposal put forth by the President’s deficit commission was somewhat similar: various Medicare and health spending cuts used to offset a long-term doc fix.

Rich Elmore of Healthcare Technology News links to a report from the International Federation of Health Plans that finds that the U.S. has the highest hospital and physician fees in the world. Could this mean that the “doc fix” doesn’t need to be fixed?

David Harlow of HealthBlawg has an interesting piece on an ongoing lawsuit to overturn one aspect of the Massachusetts individual mandate. The issues are quite different from those surrounding the PPACA mandate, as you can imagine.

The rest of this fortnight’s Health Wonk Review can be found here.

Friday, January 21, 2011

Wasn't Obamacare Supposed to Stop Insurance Rate Hikes?

Cross-posted from Critical Condition on National Review Online.


Supporters of Obamacare often attempt to reassure themselves by claiming that opponents of the law are ignorant and demagogic. The PPACA Pack, on the other hand, is enlightened, cerebral, and compassionate.

In reality, however, Democrats are the ones who speak most demagogically about health care. Like when the Democratic National Committee says that “insurance companies … overcharge for insurance just to boost their profits and CEO bonuses.” Indeed, the DNC went so far as to claim that Obamacare “frees Americans from the fear of insurance companies raising premiums by double digits with no recourse or accountability.” Kathleen Sebelius and the DNC would have you believe that Obamacare prevents rate hikes by cracking down on those demonic, profit-hungry insurance companies, and that repealing the law would allow insurers to once again run amok.

So, then, how to explain the news this month that Blue Shield of California was “seeking cumulative hikes of as much as 59% for tens of thousands of customers” this year? Wasn’t PPACA supposed to stop these supposedly abusive practices?

Unfortunately not. Blue Shield has stated that the new rates “meet the federal requirement that 80 percent of premiums are spent on healthcare expenses,” putting paid to the nonsensical argument that marketing expenses and CEO bonuses are driving premium increases. As Blue Shield detailed in a lengthy statement, the rate hikes correlate directly to increases in the cost of health care, including 4 percent “to cover the costs of enhanced benefits required under healthcare reform.” Despite these increases, Blue Shield expects to lose $10-20 million in 2010 and $20-30 million in 2011 on their individual plans.

New California insurance commissioner Dave Jones, in his first act in office, fired off a letter to Blue Shield, calling on the insurer to suspend its rate hike. “I wish to satisfy myself that all the pending proposed increases have been thoroughly and excessively reviewed.”

But Blue Shield of California is a not-for-profit entity “that has long advocated for universal coverage,” and the company was not cowed by Jones’ posturing. Instead, Blue Shield CEO Bruce Bodaken said the company would have its increases reviewed by an independent actuarial consultant, promising to refund Blue Shield’s policyholders with interest if the company had calculated its rate increases incorrectly.

But neither independent consultants nor press releases from politicians can change the basic facts of health costs. As Jordan Rau recently chronicled in an insightful piece for Kaiser Health News, hospitals are taking advantage of their monopoly status to charge more for their services, and insurers have no choice but to pass those increases onto their policyholders, or they would go out of business.

Indeed, Obamacare is guaranteed to increase, not decrease, underlying health costs. The law subsidizes excessive health spending, and imposes costly mandates on insurance plans that drive costs upward. Those who are genuinely concerned about rising health costs must start by repealing that law.

Thursday, January 20, 2011

Obamacare: The End of the Beginning

Cross-posted from National Review Online.


Sixty-eight years ago, after a long-sought victory in Egypt that marked a turning point in World War II, Winston Churchill said, “This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

In what will be a long and arduous struggle to bring fiscal stability and true reform to our tottering health-care system, partial Republican control of Congress was a necessary first step. But, now, the hard work begins.

The Republican health-care platform, such as it is, is pretty simple: Repeal Obamacare and replace it with incremental, common-sense, politically popular reforms. The GOP’s “Pledge to America” may therefore have been an appropriate platform for a midterm election. However, the document barely begins to address the profound and difficult issues that any serious government must. Indeed, if the early signals are any indication, the troubling reality is that the Republican health-care agenda for 2011 and 2012 may actually make it harder to repeal Obamacare in 2013, and thereby harder to achieve conservatives’ long-term goal of a humane, efficient, and fiscally sustainable health-care system.

The best way to grasp the enormous difficulties ahead is to work backwards.

Runaway growth in government spending is America’s biggest fiscal problem today. Growth in Medicare and Medicaid spending, in turn, accounts for nearly all the projected future growth in government outlays relative to GDP. If the principal domestic-policy goal of conservatives is to restore the country to a truly limited government that can live within its means, we can achieve that goal only through serious and thoughtful reform of health-care entitlements.

That is to say: For the foreseeable future, health care must become the single dominant focus of conservative domestic policy.

Hence, our first and most important problem is intellectual. Conservatives speak often of repealing and replacing Obamacare. But how many can articulate a conservative vision of what our health-care system should look like? Leading Republican politicians have plenty of detailed opinions on a broad range of subjects. But does anyone know what John Boehner’s vision is for the future of American health care? How about the main contenders for the 2012 Republican presidential nomination? To ask the question is to answer it.

FREEDOM, SECURITY, AND INNOVATION

It should be said that, within the diminutive circle of conservative health-policy wonks, there is a fair amount of agreement as to where we should go. But translating that wonkery into plain English isn’t easy.

Among less specialized conservatives, a common refrain is, “I’m not clear on the details, but that Paul Ryan sounds like he knows what he’s talking about.” And Rep. Paul Ryan’s plan is indeed a solid start. But unless other Republican leaders fully immerse themselves in health-care policy, they will be able neither to articulate the core principles of free-market health care, nor to address new issues as they arise, nor to persuade American voters that they should be trusted to enact far-reaching reforms.

The core health-care principles that Republicans should embrace can be summarized in three words: freedom, security, and innovation.

First, the conservative vision must, out of both principle and pragmatism, hold that the best health-care system is one that trusts individuals to make the choices that are best for them and their families. The liberal view of health care is the opposite: that individuals are neither knowledgeable enough nor wise enough to make health-care decisions for themselves; instead, these decisions are best left to unelected government experts.

Second, conservatives must stand firmly behind the principle of a safety net for those who are genuinely down on their luck, and also for the principle that those who pay for insurance and play by the rules will get the care that they’ve earned, without losing out on technicalities. Liberals might agree rhetorically with these principles, but they use them as a pretext for expanding the entitlement state, with destructive effects: extension of government insurance to those who don’t need it, at a cost the country can’t afford, and strangulation of private insurers with onerous regulations that the market can’t sustain.

Third, conservatives must always keep in mind that the entire point of health care is to extend and enhance life. Thus their vision can include, but must be broader than, the hot-button issues of abortion and stem-cell research. A pro-life health-care policy involves accelerating the pace of medical innovation, by reducing the regulatory and financial burdens we place on the pharmaceutical and medical-device industries. That means strengthening the influence of market forces, as opposed to subsidies and price controls, on the development of drugs and devices. It also means streamlining the FDA so that innovative new therapies can reach the market more quickly and cheaply. It means minimizing, and if possible eliminating, the ability of federal bureaucrats to deny life-extending care.

Liberals, on the other hand, tend to look askance at medical innovation. Most progressive health-care economists blame new medical technologies for rising health-care costs: costs that can, in their view, be lowered only by restricting patients’ access to those technologies. In addition, new drugs and medical technologies are developed by private companies, for profit: a concept to which many on the Left are instinctively hostile.

Health-care policy is exceedingly complex, and translating these basic principles of freedom, security, and innovation into actual legislation will not be easy. Doing so must start with three policy goals.

First, Republicans must foster a truly free market for health insurance by eliminating the differing tax treatment of employer-sponsored and individually purchased insurance. Second, Republicans must make dramatic improvements to Medicaid, using Mitch Daniels’s impressive reforms in Indiana as a template. Third, Republicans must move Medicare onto a sustainable path that puts financial control in the hands of seniors themselves rather than central planners.

On all three fronts, Obamacare moves us in exactly the opposite direction. The law will force employers to provide insurance for their employees, instead of allowing them to leave that money in their employees’ paychecks so that they can buy insurance for themselves. The law will dramatically expand Medicaid in ways that will accelerate the pending bankruptcy of several large states, even though Medicaid provides far worse care than people can obtain on their own. And the law will effectively eliminate Medicare Advantage and other programs that helped move Medicare from its traditional single-payer approach into a more market-oriented one.

THE OBAMACARE TRAP

And so, it remains true that the most critical task for Republicans in the 112th Congress is to lay the groundwork for the ultimate repeal of Obamacare. Given that House Republicans don’t have the power to repeal the law by themselves, what can they do in the meantime? More importantly, what should they do in the meantime? The question has been asked, but it hasn’t been adequately answered.

We must remind ourselves of the electoral realities. For Republicans to succeed in repealing the Patient Protection and Affordable Care Act (PPACA), they will need to control the House, the Senate, and the White House. From a political standpoint, if Republicans are not able to achieve this in 2012, they are unlikely ever to repeal Obamacare.

This means that influential Republican activists must — must — coalesce around the most electable Republican presidential candidate who can articulate conservative health-care principles. This is no time for single-issue small-ball or personal score-settling. A GOP nominee who passes all the litmus tests but can’t win in November would only succeed in making Obamacare permanent. One who can win but isn’t capable of pushing for real health-care reform wouldn’t be much better.

In turn, this means that Republican presidential aspirants must place health-care policy front and center in their campaigns. They must avoid the easy rhetorical flourishes and expend the time and effort to gain fluency in the complexities and trade-offs of health-care policy. A politician who regularly speaks of fiscal responsibility and limited government without building a mandate for actual, specific legislation to achieve them will not move the country in his direction. This is a time for serious government, and there can be no greater test of a politician’s seriousness than his command of health-care policy.

And, of course, in order to repeal Obamacare, Republicans also have to gain control of the Senate. Here, too, we cannot afford any more Delaware Debacles: We need candidates who, whatever their flaws, are electable and who pledge to vote for repeal. A realistic best-case scenario is that Republicans get to between 51 and 55 seats in the upper chamber: a majority, but not a filibuster-proof majority. In the 2010 wave election, they gained six seats, raising their total to 47. Despite the favorable turf in 2012, they are unlikely to win the 13 additional seats needed to reach 60.

Hence, full repeal of Obamacare will require the participation of Democrats. There may be some Democratic senators willing to go along with a repeal effort: Joe Manchin in West Virginia, Ben Nelson in Nebraska, and a few others. But it is very likely that even with those Democrats, there won’t be 60 repeal votes in the Senate. If that is the case, then Republicans will need to turn to the reconciliation process to roll back the law.

As we learned last year, the reconciliation process is different from the normal legislative process. The Senate parliamentarian, using Congressional Budget Office estimates, certifies measures that, either by raising taxes or by cutting spending, will reduce the budget deficit. Only deficit-reducing measures can be passed using reconciliation.

The problem for Republicans is that the CBO estimated that the PPACA would reduce the deficit by $132 billion over the 2010–2019 period. Because of amendments passed in late 2010, it’s likely that the CBO’s estimate of the cost of repeal will be even higher in 2013. Hence, a simple, two-paragraph repeal measure won’t get through reconciliation.

This is where the agenda of the next Congress comes in. In place of comprehensive health-care reform, House Republicans are promising to reverse some of Obamacare’s most unpopular elements: for example, the new 1099 provision, which requires that all businesses issue an IRS form 1099 for any payments to vendors of more than $600 per year. The CBO scores this measure as raising $18 billion for the government over ten years: indeed, that’s why it was included in the PPACA in the first place. If Congress reduces Obamacare spending elsewhere to “pay for” this tax cut, ultimate repeal could become more difficult.

The individual mandate is a more worrisome example. Last June, the CBO projected that repealing the individual mandate would reduce the deficit by $252 billion in the 2011–2020 timeframe. In making that calculation, the CBO is counting on some people under PPACA paying the fine for not purchasing health insurance, thus increasing revenues to the government; however, repeal of the mandate would generate savings by reducing the number of people who rely on Medicaid and exchange subsidies. If the mandate is eliminated, repealing the rest of Obamacare will become $252 billion harder.

Hence, if Republicans in the 112th Congress succeed in eliminating some of these provisions, they will increase the fiscal cost, as scored by the CBO, of repealing the rest of Obamacare in the next Congress. In addition, every unpopular tax increase that is eliminated now will need to be offset by additional tax increases or spending cuts, which will complicate things when the real repeal effort starts in 2013. Republicans, therefore, may be setting a trap for themselves.

THE REGULATORY INTERREGNUM

Another problem with Obamacare is regulation. The PPACA dramatically expands federal regulatory control over the health-care system, concentrating enormous power within the Department of Health and Human Services. But, because most regulations aren’t germane to the budget, from a parliamentary standpoint, it’s far from clear that Republicans will be able to use the reconciliation process to reverse Obamacare’s substantial regulatory provisions. For example, the PPACA provision requiring health insurers to keep their medical-loss ratios above 80 percent — a technicality that will drive many insurers out of business — isn’t germane to the budget, but it is highly relevant to the future of the private insurance market.

Precisely because these regulations do not affect the fiscal calculus, and therefore will not undermine Republicans’ ability to repeal Obamacare after 2012, it is here that the new House majority can be most constructive.

In other words, Republicans will be well advised to adopt a two-track strategy: using the conventional legislative process to turn back as much of Obamacare’s regulatory architecture as possible, while waiting until 2013 and then using the reconciliation process, to repeal Obamacare’s tax and spending increases.

Hence, in the near term, Republican policy experts and legislative staffers will need to come up with a comprehensive regulatory strategy, one that will entirely replace Obamacare’s regulatory architecture with a sounder one that hews more closely to conservative market principles.

The politics of smart regulatory reform are favorable, too. Remember that many of the negative headlines about Obamacare since the law passed have had to do with new regulations: the fact that McDonald’s almost dropped health coverage for its junior employees; the aforementioned medical-loss-ratio mandates, which will force many insurers to drop out of the market; the lobbyist-driven ban on new hospital construction, which preserves local hospital monopolies; and on and on. Regulatory reform is an important way for the Republican House to earn its credibility on health-care reform, while calling attention to Obamacare’s many flaws.

One other thing to keep in mind: The Prescription Drug User Fee Act — the law that Congress uses to oversee the FDA — is up for reauthorization in 2012. House Republicans should use this opportunity to reform the FDA and demonstrate that they are on the side of patients who want faster access to innovative new medicines.

MEDICARE AND MEDICAID REFORM

Finally, House Republicans must begin to build the case for real entitlement reform. Medicare is the most politically sensitive subject, but it is one where Paul Ryan has already done most of the necessary groundwork. Medicaid is an even more urgent issue, as many states are sinking under the weight of reckless commitments made by their governors in flusher times.

It will be difficult for Republicans in the next Congress to achieve much on these issues without leadership from the other side. If President Obama’s deficit commission is any indication, that leadership does not exist. The commission’s report effectively advocated rearranging Medicare’s deck chairs, and it proposed essentially nothing to address the grave problems with Medicaid.

There is one Medicare-related issue that the next Congress will be forced to deal with: the never-ending saga of Medicare’s Sustainable Growth Rate, a.k.a. the “doc fix,” which governs how Medicare reimburses doctors and hospitals for their services. Remember that the doc fix was kept out of Obamacare because it would have added $239 billion over ten years to the law’s price tag. Republicans will be under significant pressure from the American Medical Association and others to continue to pay doctors and hospitals at current rates, instead of the roughly 25 percent lower rates required by the 1997 Balanced Budget Act.

It’s not clear that Republicans should go along. For one thing, the AMA was a strong supporter of Obamacare (albeit over the dissent of many of its members). More importantly, perpetuating the doc fix will cost tens of billions of dollars: money that will have to come out of some other vital priority. Republicans in the 112th Congress will need to consider ways to address the doc fix, and other pressing problems, without jeopardizing their ability to repeal Obamacare in the 113th.

Recent history is not encouraging. In December, with bipartisan support, Congress passed doc-fix legislation that froze reimbursement rates at 2010 levels for 2011, at a cost of $19 billion. The law was “paid for” using gimmickry: an amendment to Obamacare that would require some individuals to pay back insurance subsidies they may receive at some point in the future. Republicans saw this as a victory, as the compromise reduces future Obamacare spending, albeit in a manner that will be difficult to enforce. However, in the medium term, it is a victory for the Democrats, as the measure adds to the difficulty of repealing the entirety of Obamacare using the reconciliation process.

A TIME FOR GROWN-UPS

It has been said that we campaign in poetry and govern in prose. But the experience of Ronald Reagan adds a corollary: Only those leaders who have a command of public policy before their candidacies begin can succeed at both campaigning and governing.

The problems we face are grave. If their solutions were simple, they would already have been tried. Our presidential aspirants and congressional luminaries, as well as the people who elect them, must face up to the difficult choices ahead. If they do, we just may succeed in turning Obamacare back, and putting something much better in its place.

Wednesday, January 19, 2011

American Imbecilism

Cross-posted from @TAC.

I regret to say that this is another post on “American Exceptionalism” – to my mind, the most bogus ideological construct since Theodore White likened the Kennedy administration to the Knights of the Round Table. ”American Exceptionalism” is truism gussied up as philosophy. Of course America is exceptional in some respects. So is every other nation. Nor is there any political or intellectual figure who seriously proposes (or can be seriously be construed as proposing) to obliterate all differences between America and rest of the world. Object to universal health care or defend America’s military extravagance if you will: Inflating the merely exceptional into the “Exceptionalist” will add nothing to your arguments but bombast.

Yet to hear conservative intellectuals carry on, you would think that “American Exceptionalism” was the most groundbreaking political idea since universal manhood suffrage. No less an eminence than Harvard’s Harvey Mansfield takes up the idea this weekend in The Wall Street Journal. If Mansfield can’t make sense of it, then, depend on it, none of the lesser lights of the conservative movement can either.

Mansfield begins portentously. Asking how much Alexis de Tocqueville learned by actually visiting America (as opposed to contemplating it from afar), and by what method, Mansfield writes:
These questions [regarding Tocqueville] engage the assertion known today as American Exceptionalism, a recent issue between Republicans, who trumpet it as the justification for American patriotism, and Democrats, who deprecate it as nothing special, unless it is special to be leader of all other unexceptional countries.
The “assertion” (it is not anything so pitifully monosyllabic as a “claim” or “point,” mind you) is known today as American Exceptionalism. In previous eras, it was presumably known by different names. Whatever it was called before, say, Obama took office, Mansfield leads us to understand that the question of American Exceptionalism has perennial significance — so much significance, indeed, that one must consult the immortal Tocqueville to understand it.

For all the importance he attributes to American Exceptionalism, however, Mansfield nowhere deigns to define it. Suppose that of instead of, “These questions engage the assertion known today as American Exceptionalism,” Mansfield had written simply, “These questions help us figure out whether America is different.” The latter statement accurately translates Mansfield’s Really Smart Person Talk, yet hardly calls for a close reading of Tocqueville. You don’t need to read Democracy in America to notice that, yes, America does of course differ from other countries. To define American Exceptionalism — the idea that America is in some ways unlike other countries — is to reveal just how banal it really is.

Mansfield goes on to contend that Democrats deprecate “American Exceptionalism.” If he had tuned into President Obama’s State of the Union address, he might on the contrary have heard the following:
We [Republicans and Democrats] have fought fiercely for our beliefs . . . That’s what helps set us apart as a nation. . . .

We believe that in a country where every race and faith and point of view can be found . . . That, too, is what sets us apart as a nation.

At stake right now is . . . whether we sustain the leadership that has made America not just a place on a map, but the light to the world.

America still has the largest, most prosperous economy in the world.

What’s more, we are the first nation to be founded for the sake of an idea — the idea that each of us deserves the chance to shape our own destiny.

What America does better than anyone else is spark the creativity and imagination of our people.

Recent events [in Tunisia] have shown us that what sets us apart must not just be our power — it must also be the purpose behind it.
That’s seven claims of American Exceptionalism already. There are dozens more: I only stop excerpting them because they consume perhaps a third of the entire State of the Union address. Moreover, the very examples Obama cites of America’s alleged uniqueness are the ones that conservative intellectuals warn are under attack — in particular, that America has a quasi-religious mission to spread its ideas to the rest of the world. Mansfield’s coolly self-assured claims to the contrary, Democrats not only endorse American Exceptionalism but have made it the core of their governing philosophy.

Very well, perhaps Mansfield is not the most reliable observer of contemporary politics, to put it mildly. No matter: He’s the William R. Kenan, Jr. Professor of Government, not Political Punditry. Surely his performance will surely improve when he plunges not beyond his depth but stays within his area of expertise.

Alas, that is not the case. Mansfield argues that Tocqueville believed in “American Exceptionalism” yet Mansfield’s evidence proves the opposite. He concedes that Tocqueville didn’t think much — indeed, Tocqueville barely even seems to have noticed — the unique intellectual achievement of the Founders. Ignoring theory, Tocqueville looked instead at how Americans actually practiced democracy. Mansfield quotes Tocqueville’s own summary of what he found (or thought that he had found): America was “more than America . . . an image of democracy itself.” Or, as Mansfield puts it, “America was democracy complete and as a whole, the material and source of its image.”

In other words, Tocqueville saw America as unique because America had taken the practice of democracy the furthest. One doesn’t have to get very far into Tocqueville to learn that he believed that the whole world was moving in America’s direction — i.e., away from tradition and aristocracy and toward equality of condition. If Tocqueville saw America as a living model of democracy, then it follows that Tocqueville did not see America as very exceptional at all. Americans were in Tocqueville’s view merely the most advanced. Under a Tocquevillian interpretation of the present, Americans could not even boast of that, for the world now brims with democracies. To save American Exceptionalism, one must either downplay the very features that Tocqueville found so notable, or else recharacterize them as American idiosyncracies rather than (as Tocqueville saw them) byproducts of equality.

Mansfield’s ends his attempt to build a Tocquevillian theory of “American Exceptionalism” with this baffling swipe at the social sciences:
Tocqueville asks intelligent questions of intelligent people and presses them to face their contradictions and explain themselves; he thinks and learns as he surveys. Today’s survey researcher asks bland questions of average respondents, has an assistant code the responses, restates and manipulates them mathematically, and then interprets them according to a model that he can persuade his professional colleagues to accept. Which method produces the better result? To answer the question, consider that Tocqueville addresses the question of American Exceptionalism, the question of what America is all about, while social science assumes it is meaningless or answerable and evades it.
Mansfield has spent a lifetime in the academy, but his description of the social sciences is unrecognizable. Asking “bland questions of average respondents”: is this really how economists proceed? Linguists? Psychologists? International Relations theorists? Not at all. At best, Mansfield has characterized a single research program — namely, the study public opinion — and somehow confused the (minuscule) part for the (vast) whole. Tocqueville’s methods are not even obviously superior to those of pollsters. So most people have trouble coming up with cogent philosophical reasons for their beliefs and actions. What of it? As any economist could tell you, cognitive resources, like most others, are scarce. If Americans in Tocqueville’s day could not justify their institutions to an imperious Frenchman, then that may prove only that they have better things to do with their time. If Mansfield was trying to vindicate some alternative social science agenda (presumably, his own), he failed.

Perhaps the idea of “American Exceptionalism” has simply dulled his wits, as it has those of so many of his allies.

Tuesday, January 18, 2011

Come on, Kathleen

Cross-posted from Critical Condition on National Review Online.


This morning, the Department of Health and Human Services released a report headlined, “At Risk: Pre-Existing Conditions Could Affect 1 in 2 Americans: 129 Million Could Be Denied Affordable Coverage Without Health Reform.” Get the implication? Without Obamacare, half of America would be left without health insurance.

Well, admits the actual report, maybe not exactly. The HHS estimates that anywhere between 50 to 129 million non-elderly Americans have “some type of pre-existing condition.” Between 50 and 129 — I’ve gotten more reliable estimates of next year’s weather. But the real laugher is in how the HHS takes the term “pre-existing condition” and mutates it beyond all recognition, in order to prop up our benighted new health-care law.

Let’s understand first what the problem of preexisting conditions is.

Because our World War II–era tax system allows employers to buy health insurance tax-free, while making individuals buy it with after-tax dollars, the vast majority of those under 65 get health insurance from their employers. This, in turn, creates the phenomenon of job lock: Individuals who fall ill at one job (or have family members who fall ill under their health plan) are afraid to leave that job, because switching jobs means switching insurance plans, and a new insurance plan is likely charge more to cover someone who is already sick.

Note that the words “denied coverage” are not present in the preceding paragraph. Indeed, as Michael Cannon points out, a 2001 HHS survey found that only one percent of Americans had ever been denied health insurance for any reason. Cannon brings us to two other studies, one by a Wharton economist and one by the RAND Corporation, both of which echo the HHS data. As Cannon writes,
It is true that insurers charge higher premiums to many people with pre-existing conditions — and it is crucial that they have the freedom to do so.  Risk-based premiums create virtuous incentives for people to buy insurance while they are healthy and to be cost-conscious consumers.  They also encourage insurers to develop innovative products that protect against the risk of higher premiums.  The real problem here is that the government has created an employment-based health insurance system that denies consumers the protections that unregulated markets already provide, as well as additional protections that insurers would develop absent this government intervention.
Our health-care system, pre-Obamacare, was far from perfect. But it’s exceptionally dishonest to say that half of Americans are at risk of losing their coverage without Obamacare’s blizzard of mandates and controls. Instead of creating two new entitlements and hundreds of thousands of pages of new regulations, we could have done something much simpler: equalize the tax treatment of individual and employer-sponsored health insurance.

There are lots of ways to do this, depending on if you want to increase or reduce taxes. You can eliminate the employer loophole altogether, raising taxes by over $300 billion a year, making a huge dent in the budget deficit. Or, you can extend the tax break to all individuals, whether employed, self-employed, or unemployed. Finally, you could split the difference: reducing the tax break for employers, but increasing it for individuals.

Once people are buying insurance for themselves, rather than depending upon their employer, their insurance stays with them. If you lose your job or change jobs, your insurance will still be yours, just as your auto insurance and your life insurance stays with you regardless of where you work. And if you have insurance, like most Americans do, the issue about preexisting conditions is irrelevant: If you are sick, your insurance provides the coverage it is meant to provide.

Sebelius and her HHS colleagues try to morph the definition of “preexisting conditions” into “conditions.” Take this random sample of Sebelius’ assault on the English language:
An analysis of a survey that follows people over time found that, among healthy people—reporting very good or excellent health with no chronic conditions—today, 15 to 30 percent (depending on their age) will develop a pre-existing condition within the next eight years.
So, let’s get this straight. Fifteen to 30 percent of Americans will, in the future, develop a preexisting condition. This only makes sense if the HHS has also invented time travel.

A person who has health insurance, and later becomes ill, does not have a preexisting condition. He has a condition of the plain old “existing” kind—one that his insurance will help pay for. This is exactly how insurance is supposed to work.

Millions of young, healthy people who can afford health insurance today choose not to buy it. Obamacare will allow them to buy it after they get sick — because, aha! They now have a “preexisting condition.” This is exactly the opposite of how insurance is supposed to work.

Obamacare’s advocates want you to believe that, without their 2,300-page, trillion-dollar extravagance, half of America would lose their health insurance. The reality is that preexisting conditions is a problem affecting a minute fraction of Americans, a problem that could be solved with a simple, one-page bill.

If Republicans repeal Obamacare and replace it with a straightforward law that equalized the tax treatment of employer-sponsored and individually-purchased health insurance, they will have done more for real health-care reform, and for people with real preexisting conditions, than the last forty Congresses put together. Let’s hope they get their chance.

Monday, January 17, 2011

The DNC's Talking Points on Repealing Obamacare

Cross-posted from Critical Condition on National Review Online.


As Republicans assumed power in the House of Representatives, vowing to repeal Obamacare, Democrats began readying for an intensive campaign to oppose them. With this in mind, the Democratic National Committee released a set of talking points with which they hope to persuade the public that Republican repeal efforts are misguided. Let’s see what the DNC’s sharpest operatives came up with:
Instead of working to find bipartisan solutions to create jobs, grow the economy, and make America more competitive, Republicans in Congress are spending all of their time re-fighting the political wars of the last two years by trying to repeal health reform and give control over your health care back to insurance companies. The Affordable Care Act provides Americans with more freedom and control in their health care choices.
The Democrats claim that labeling PPACA a “government take-over” is unfair. But the above paragraph gives the game away: to the degree that insurers no longer “control” health care, it’s because control has been consolidated in Washington. It’s great that Democrats claim to want to “provide Americans with more freedom and control in their health care choices,” because from a policy standpoint, providing Americans with more freedom and control means adopting free-market policies: creating a truly free, individual market for health insurance, in which consumers control their own health spending.
• [PPACA] gives families the freedom from worrying about losing their insurance, or having it capped unexpectedly if someone is in an accident or becomes sick.
Unbeknownst to many, due to spin from Obamacare advocates, the Health Insurance Portability and Accountability Act, passed in 1996, already contains all of the consumer protections that Obamacare claims to institute anew. If we had a true individual market for health insurance, in which people bought policies for themselves instead of getting them from their employers, HIPAA would never have been necessary.

Prohibiting lifetime caps on insurance payouts will drive up the cost of insurance for everyone, essentially forcing individuals to buy extra insurance that they, in all likelihood, will never need.
• It frees Americans from the fear of insurance companies raising premiums by double digits with no recourse or accountability.
This is perhaps the most ridiculous claim on the whole list. Health-care costs are not rising because of greedy, profiteering insurers. They are rising because socialized medicine incentivizes people to use more health care than they need. As Obamacare does nothing to address the rising cost of health care, insurers will continue to be forced to pass these costs onto policyholders.

As to the issue of recourse and accountability: every state in the Union has an insurance commissioner, who is responsible for reviewing and approving rate increases. Obamacare installs a redundant layer of federal regulation atop this system.
• It frees Americans from discrimination when insurance companies deny women health insurance because they are pregnant, or refuse to provide coverage to children who are born with disabilities.
Allowing women to buy insurance after they are pregnant, instead of beforehand, goes against the very nature of insurance: paying a small amount now to avoid financial risk in the future. It will incentivize women to wait until they are pregnant to buy insurance, driving up the cost of insurance for non-pregnant women.

Requiring policies to cover children born with disabilities is actually a good idea, as it will mitigate the need for subsidized high-risk pools, and reduce a significant incentive for abortion. Republicans don’t have a problem with this.
• It provides parents the choice of providing health coverage for a child after they finish school.
This is an Orwellian description of the PPACA provision that requires all new health plans to cover a worker’s “adult children” until they are 26. “Mandate” is an antonym of “choice.” This insurance mandate, like all the others in Obamacare, forces people to buy insurance they may or may not need: driving up the cost of insurance for everyone.
• It provides people the freedom to change jobs without worrying about losing one’s health insurance, or even retire a little earlier without having to worry about losing one’s coverage.
As described above, HIPAA already provided these protections, protections that an individual insurance market would achieve by definition. Contrary to the above bullet point, Obamacare-driven tax increases have incentivized companies to drop private coverage for their retirees, dumping more people into Medicare.
• It provides seniors with the freedom to get the care they need, including free preventive care, lower cost prescription drugs, and Medicare that they can count on.
Again, note the Orwellian equation of mandates with “freedom.” Closing the “donut hole” for prescription drugs under Medicare will destabilize the program by encouraging seniors to spend more on drugs than they need to, driving Medicare further into insolvency.
• And, it gives small business owners the power of competing with large employers by providing small business tax credits to make employees’ health coverage more affordable, and by increasing their purchasing power through competitive private health insurance Exchanges.
Obamacare, by driving the cost of insurance even higher with its numerous mandates, incentivizes employers to drop coverage for their employees so they can receive federally subsidized insurance. According to Dan Danner, president of the National Federation of Independent Business, “fewer than one-third of small businsesses” even qualify for the tax credit, which only lasts for a maximum of six years anyway.
• Finally, it frees our children from the threat of out-of-control government debt and deficits by holding government accountable for its spending. Independent estimates show it will reduce the deficit by a trillion dollars by cracking down on waste, fraud and abuse, and stopping hundreds of billions in unfair and irresponsible subsidies to insurance companies that are now paid by taxpayers.
If you believe this, then I have a trillion dollars of subprime debt I’d like to sell you. I, among others, have addressed this issue at length. Democrats have had two years to persuade the voters that Obamacare will reduce the deficit, and have gotten pretty much nowhere.
These new choices, freedoms and options are only possible because the Affordable Care Act holds insurance companies accountable.

With this law, insurance companies can no longer overcharge for insurance just to boost their profits and CEO bonuses. They won’t be able to deny women coverage because they are pregnant, something they classify as a preexisting condition. The law has already stopped them from denying kids coverage if they are born with a medical problem or disability. And insurance companies can no longer use fine print, or legal tricks to deny medical treatments that are covered under people’s policies.

Now, Republicans in Congress want to unravel the law that holds insurance companies in check.
Even before Obamacare, health care plans were one of the least profitable industries in America, with profit margins consistently in the 4-6 percent range: lower than those for brewers, railroads, and utilities. The idea that insurer profiteering is behind rising health costs is patently ludicrous, and you won’t even find many left-of-center health policy experts who believe it.

It’s already illegal for insurers to “deny medical treatments that are covered under people’s policies,” because that would be a violation of the insurance contract. Insurers — and consumers — have a legitimate need for protection against those who intentionally omit information about preexisting conditions from their insurance applications. Obamacare eliminates those protections, thereby allowing unscrupulous consumers to game the system, driving up the cost of insurance for everyone else.

A better reform would be to allow people to buy insurance for themselves, in a national market, where independent consumer groups can criticize plans that have worrisome fine print.
• The insurance company lobbyists are working overtime with Republicans to return to the days when insurance companies were free to do whatever they want, including raising premiums and imposing higher costs on families and businesses to protect their CEO bonuses and corporate profits.
This is simply dishonest rhetoric from the DNC. The idea that health insurance was an unregulated jungle before Obamacare came along would come as news to every state insurance commissioner. Obamacare is the best thing that has ever happened to special interests and lobbyists; increasing government control of the health care industry requires industry participants to spend more of their money on politicians’ campaigns instead of health care.
• Republicans will allow insurance companies to once again DENY coverage to children with existing conditions, CANCEL coverage when people get sick, and LIMIT the amount of care you can get − even if you need it.

• When the insurance companies are free to pursue their profits without any accountability, people have fewer choices, fewer options, and little recourse.

• And, by rolling back the Affordable Care Act, Republicans are adding a TRILLION dollars to the deficit.

• They would give back to insurance companies subsidies of hundreds of billions of taxpayer dollars. And they would cut back on efforts in the law to stop waste, fraud, and abuse in government spending. We can NOT afford to add another trillion dollars in debt that our children and grandchildren will have to pay – especially when it goes to wasteful spending and outrageous subsides for insurance companies.
Republicans are opposed to stopping “waste, fraud and abuse in government spending”? That’s a good one.

Liberals have long complained that the reason that Obamacare is unpopular is because Democrats haven’t spend enough time communicating why the law is so great. But the DNC’s talking points illustrate the real problem: the more people learn about the law, the less popular it becomes.