Recent Second Opinion:

Post-Election Predictions for Obamacare
November 11, 2010

Improving the FDA's REMS Program
August 05, 2010

Are Foreign Clinical Drug Trials Safe?
July 08, 2010

FDA's Bad Ad Program
June 03, 2010

Obesity and Public Health
May 05, 2010

The Route to Reconciliation
March 05, 2010

Conflict of Interest
January 28, 2010

Analyzing the Healthcare Bills
November 18, 2009

President Obama's Plan for Reform
August 24, 2009

The Healthcare Reform Debate
July 23, 2009

Priorities for the New FDA Commissioner
December 19, 2008

PhRMA's New Marketing Code
August 28, 2008

Personal Genetics Testing
July 29, 2008

Where health care policy experts have their say
June 13, 2008

Sources of Medical Research Funding
April 24, 2008

Off-Labeling Marketing
March 17, 2008

Second Opinion:
Where health care policy experts have their say

July 23, 2009:
The Healthcare Reform Debate

Recently the Congressional Budget Office dealt a blow to arguments anticipating significant cost savings in the primary health care bills under consideration in Congress. Notes the Washington Post:

Under questioning by members of the Senate Budget Committee, CBO director Douglas Elmendorf said bills crafted by House leaders and the Senate health committee do not propose "the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount."

"On the contrary," Elmendorf said, "the legislation significantly expands the federal responsibility for health-care costs."

From a cost perspective, what are the most problematic elements in the legislation under discussion? What reforms aren't on the table, but should be?

This edition of our expert panel includes:

• Joseph Antos, Wilson H. Taylor Scholar in Health Care and Retirement Policy
• Diana Furchtgott-Roth, an adjunct fellow at the Manhattan Institute and a columnist for RealClearMarkets.com
• Douglas Holtz-Eakin, former CBO director
• Benjamin Zycher, senior fellow at the Pacific Research Institute

By Joseph Antos

Democrats in Congress are bent on biting off more than the American people can chew. Every proposal sets into motion new programs, regulations, and subsidies that would continue well past the 10-year budget scoring window. New federal spending is held to an "affordable" trillion dollars by waiting a few years before enrolling people in subsidized insurance programs. No one is willing to admit that federal spending during the second 10 years will almost certainly top $2 trillion.

The silver bullet cost-savers—including comparative effectiveness analysis, health information technology, medical homes, and accountable care organizations—are not ready for prime time now or even a decade from now. The public plan, which is supposed to force competition on private insurers, will follow in the footsteps of Medicare into fiscal crisis. The best reforms would promote real competition, not cost-shifting from the government plan to private payers. Capping the income tax exclusion for health insurance would encourage employers and insurers to develop plan options that offer better value. With better choices and better information, consumers can be counted on to make sensible purchasing decisions.

Joseph Antos, is also a commissioner of the Maryland Health Services Cost Review Commission, a health adviser to the Congressional Budget Office, and an adjunct professor at the Gillings School of Global Public Health at the University of North Carolina at Chapel Hill. Before joining AEI, Mr. Antos was Assistant Director for Health and Human Resources at the Congressional Budget Office. At AEI, Mr. Antos's research focuses on the economics of health policy, including Medicare reform, health insurance regulation, and the uninsured. He has written and spoken extensively on the Medicare drug benefit and has led a team of experienced independent actuaries and cost estimators in a study to evaluate various proposals to extend health coverage to the uninsured. Mr. Antos also writes for AEI's Health Policy Outlook series.

By Diana Furchtgott-Roth

The most problematic element of the House bill is getting rid of competition among health insurance plans. The bill would create a new Health Insurance Exchange, where "qualified health benefit plans" are allowed to advertise their health insurance plans to individuals and firms. Only qualified health benefit plans are permitted to participate. In order to achieve the status of a qualified plan, an insurance company has to offer a gold-plated package of benefits, meet guidelines on who can sign up, and agree to limits on profitability. It is unlikely that insurance companies can meet these requirements and stay in business.

Insurers would be required to accept all applicants, no matter how sick, and would be always required to renew coverage. With the exception of age, everyone, no matter how sick or healthy, would be charged the same premiums. When pricing by age, the highest premiums could not be more than twice as high as the lowest. If companies were to make more than a certain level profit in a particular year, they need to return funds as rebates to enrollees. This prevents insurance companies from building up a reserve in some years to guard against losses in other years.

This pricing mechanism would quickly force private plans in the Health Exchange out of business—and leave consumers with the public plan, whose costs would soon rise as quickly as Medicare costs are rising today.

In order to prevent insurance companies from offering plans outside the Health Exchange, Americans who receive financial help in paying for insurance would be required to buy plans in the Exchange. They could not select "bare bones" or catastrophic insurance plans sold on the open market.

"Affordability credits" would be given to Americans who earn too much to be eligible for Medicaid—over 133% of the poverty line, now $29,000 for a family of four—but less than 400% of the poverty line, now $88,000. Hence, health insurance assistance would be extended well above the median income for American households, now $55,000. Americans could only spend "affordability credits" on one of the programs in the Health Exchange. In addition, employers’ plans would have to been the standards in the health exchange. So catastrophic health insurance plans, which cover emergencies and allow people to shop around for routine care, would be unavailable to most Americans.

Suffocating competition raises health care prices rather than lowering them, as we have seen from Medicare. Rather than a new public plan and regulations on private plans, Republicans Senator Tom Coburn and Representative Paul Ryan have proposed giving everyone tax credits to shop around for health insurance, just they shop for home and auto insurance. Coupled with tax-free savings accounts for routine care, this would bring health care prices down, rather than up.

Diana Furchtgott-Roth is an adjunct fellow at the Manhattan Institute and a columnist for RealClearMarkets.com. She is also a senior fellow at the Hudson Institute, where she directs the Center for Employment Policy. From 2003 to 2005, Ms. Furchtgott-Roth was Chief Economist of the U.S. Department of Labor. From 2001 to 2002 she served as chief of staff at the President's Council of Economic Advisers.

Ms. Furchtgott-Roth is the editor of Overcoming Barriers to Entrepreneurship in the United States (Rowman and Littlefield, 2008) and the coauthor of The Feminist Dilemma: When Success Is Not Enough (AEI Press, 2001) and Women's Figures: An Illustrated Guide to the Economics of Women in America (AEI Press, 1999). From 2006 to 2008 she was a weekly economics columnist for the New York Sun, and now writes for Reuters.com. Her articles have been published in The Washington Post, The Financial Times, The Wall Street Journal, Investor's Business Daily, The Los Angeles Times, and Le Figaro, among others.

By Douglas Holtz-Eakin

The most problematic part of the House legislation is the creation of a large, new unfunded entitlement program. The entitlement to health subsidies would carry with it a new "public option" government bureaucracy, an expansion of the already-broken Medicaid program, and new claims on taxpayer subsidies for insurance. The cost of the bill is disguised by burying some of it in an employer mandate, some in an individual mandate, and some in the jobs destroyed. But even the acknowledged budgetary cost would barely be financed over the first 10 years. Thereafter, burgeoning spending will outstrip by a wide margin any new funds. In short, the bill doubles down on the basic problem in the federal budget: promises of spending beyond the ability to pay for it.

Douglas Holtz-Eakin is president of DHE Consulting, LLC. He served most recently as director of domestic and economic policy for the John McCain presidential campaign. He has also recently been a senior fellow at the Peter G. Peterson Institute for International Economics, the director of the Maurice R. Greenberg Center for Geoeconomic Studies, and the Paul A. Volcker Chair in International Economics at the Council on Foreign Relations. Previously, Dr. Holtz-Eakin was the sixth director of the Congressional Budget Office, where he was appointed for a four-year term beginning February 4, 2003.

Dr. Holtz-Eakin served for eighteen months as chief economist for the President’s Council of Economic Advisers. Prior to that, he was a trustee professor of economics at the Maxwell School, Syracuse University, where he served as chairman of the Department of Economics and associate director of the Center for Policy Research.

By Benjamin Zycher

The cost estimates in the health care legislation under consideration are biased downward both in the short and the long runs. For the short run, the "reforms" take effect in 2013, paid for by various taxes and gimmickry beginning in 2011; accordingly, the ten-year budget effect, even if all other assumptions are accepted, is unrepresentative of a true ten-year budget horizon in which both cost and revenue flows are observed for the full decade. For the long run, the legislation defines cost "reductions" that are nothing of the kind. Instead, they consist largely of implicit taxes imposed upon doctors, hospitals, pharmaceutical producers and other providers, in the form of reimbursements smaller than those that would be observed in a competitive contracting environment. More important, the increasing health-care demands engendered by expanded "coverage" will force the federal government to ration care—no other outcome is possible even in principle—which means that another large implicit tax will be imposed upon patients. Universal "coverage" is the opposite of actual health care.

Benjamin Zycher is a senior fellow at the Pacific Research Institute, the President of Benjamin Zycher Economics Associates, and an adjunct Professor of Economics and Business at the Martin V. Smith School of Business and Economics, California State University, Channel Islands. In addition, he is a member of the advisory board of the quarterly journal Regulation, of the advisory council of USA for Innovation, and the advisory council of Consumer Alert.