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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

November 18, 2009:
Analyzing the Healthcare Bills

The Congressional Budget Office has released several scores of the Democrats health reform bills offered in the House and Senate, with 10 year “scores” just under the President’s preferred price tag: $900 billion over ten years. Outside observers, however, have voiced skepticism not about the CBO scoring but with the political assumptions made by the bills. For instance, Congress has repeatedly voted to override the “automatic” physician reimbursement cuts under the SGR formula since 2003, although both the Democrats bills assume substantial (more than 20%) cuts in physician fees starting in 2011. Looking at these bills from this perspective, what are the realistic price tags for the Democrats bills? How will these bills affect long term health care inflation, tax, and government spending trends?

This edition of our expert panel includes:

  • Josh Barro, senior fellow at the Manhattan Institute
  • Thomas Miller, resident fellow at the American Enterprise Institute
  • Richard Ralston, executive director of American for Free Choice in Medicine

By Josh Barro

The House bill pays for nearly half its $894 billion price tag with cuts to Medicare. Despite all the rhetoric about eliminating waste and streamlining processes, the savings come largely through two avenues: ending subsidies for Medicare Advantage and reducing the growth of provider reimbursement rates.

Neither of these moves will be popular. The former will take away added benefits currently enjoyed by the 23% of seniors who participate in Medicare Advantage. The latter will reduce the pool of providers offering Medicare services.

As these changes come into effect, outcry from doctors and seniors will ensue. It is highly likely that Congress will undo these changes in future years, just as it annually “fixes” (read: raises) Medicare physician reimbursement rates. Therefore, I would not expect the bill to cut the deficit by $104 billion over 10 years, as promised in the CBO score. A rise in future deficits is more likely.

While the Senate bill will likely engage in the same Medicare cutting gimmicks, it will also include one genuine cost-cutting measure not seen in the House bill: a “Cadillac” excise tax on high-price health insurance plans. This proposal effectively undoes the tax preference for high price plans that currently fosters overconsumption of health care.

Josh Barro is a Manhattan Institute Senior Fellow focusing on state and local fiscal policy. Prior to joining the Manhattan Institute, he served as a Staff Economist at the Tax Foundation, where he wrote the 2009 State Business Tax Climate Index and the 2009 “Tax Freedom Day” report.

* * *

By Thomas Miller

The traditional scoring rules of the Congressional Budget Office (CBO), in the best of circumstances, generally provide only a partial picture of the full economic and budgetary consequences of major health policy legislation. This year’s set of Democratic health “reform” bills offers a particularly massive and complex concoction of long-term spending commitments, interwoven cross-subsidies, price distortions, and regulatory unknowns of the future. Scoring the unscorable presents a daunting challenge for any forecaster.

Nevertheless, CBO pretends to go where taxpayers, insurance premium payers, and future Treasury bond holders fear to tread. As long as its budget analysts are going to present imperfect and limited numbers as if they actually tell us something meaningful, CBO at least should examine some broader issues and apply the same (or better) levels of scrutiny to them. A short list would include:

  1. The fully loaded, as implemented, 10-year costs of proposed health reform legislation (brought forward to 2009 dollar equivalents).
  2. The economic effects on future GDP growth, employment, and productivity from the disincentives of steadily climbing marginal tax rates as some, but not all, Americans maneuver through the income-based ladder of tax subsidies and caps for out-of-pocket premiums and direct health expenses within the limited insurance offerings of the national health insurance exchanges.
  3. The labor market distortions triggered by predictably unsuccessful efforts to erect and maintain a firewall to keep workers insured by employer-sponsored coverage from accessing exchange-based subsidies, while others at the same income level but purchasing insurance as individuals can do so. An analysis of how otherwise similarly situated individuals would fare by purchasing within the subsidized exchanges versus outside of them – in terms of all-in premiums (employer plus employer share) and out-of-pocket expenses, as a percentage of income, would be particularly illuminating.
  4. An updated forecast of the relative share of health spending that would be distributed – post reform -- by “publicly” financed sources (Medicare, Medicaid, tax expenditures, other government health programs) versus privately funded ones (private insurance plus out of pocket payment)
  5. A longer-range (10 to 20 years ahead) projection of the change in levels of subsidies, tax obligations, and health spending burdens for various income cohorts due to limited, or non-existent, indexing for general (or medical) inflation of various thresholds and ceilings for subsidies and taxes.
  6. A full balance sheet accounting of how changes in reimbursement levels and spending commitments for Medicare will either empty its mythical trust funds of the future OR can’t be used as financing for subsidized coverage in the below-65 health market OR won’t be available as one of the few remaining sources of future general budget deficit reduction.
  7. The economic consequences of uncertainty and churning in health insurance and labor markets, due to the unprecedented level of congressional delegation to future bureaucratic rule writers and regulatory whisperers to determine what almost 2000 pages of alternately prescriptive and vague legislation actually means in practice.
  8. The long-term costs to future human capital and economic growth from depleting even more of the resources available to younger generations, in order to expand and increase already generous subsidies for the health spending-specific demands of the more affluent elderly and near-elderly.
  9. A view beyond the blinders of the official federal budget to examine the overall effects of the proposed House and Senate legislation on national health spending levels and (unsubsidized) insurance premium costs.
  10. Finally, a more politically realistic set of probabilistic estimates regarding the likelihood and sustainability of purported budget “savings” through such devices as the unsustainable Sustainable Growth Rate formula for Medicare reimbursements to physicians. Earlier this decade, other CBO analysts re-examined proposals to reform another set of long-term entitlement commitments – Social Security – by taking into account the uncertainty in any forecast of that program’s finances--especially over the 75-year time frame used by the program's trustees. CBO provided an overview of that uncertainty and illustrated the range of possible financial forecasts using time-series analysis of historical data and a long-term actuarial model. This stochastic analysis presented more realistic ranges of probability for the economic and demographic variables that underlie projections for program finances over 75 years. At a minimum, we need a similar level of analysis of the limits of our knowledge regarding presumed Medicare “savings” as a whole, and ideally the larger matrix of health spending entitlements ahead.

Thomas Miller is a former senior health economist for the Joint Economic Committee. He studies health care policy and regulation. A lawyer by training and a former journalist, Mr. Miller has worked on issues ranging from Medicare prescription drug benefits to medical savings accounts

* * *

By Richard Ralston

The Congressional Budget Office scores should include the costs which will be shifted to premium payers of private insurance. New fees and taxes imposed by the legislation will increase the cost of premiums. Forcing acceptance by insurance companies of those with prior conditions, whose premiums will never recover the cost of their medical treatments, will increase the premiums of all other policy holders. Limiting the size of deductibles and co-payments will increase costs which must be shifted to premium payments, while further severing the contribution to costs from those who demand more services which will drive up premiums even more. The legal requirement that everyone must buy insurance that includes coverage of additional treatments and procedures mandated by government decree, whether policy holders want coverage for them or not, will also increase the cost of premiums. The CBO must recognize that a perfect storm of increased government spending combined with forcing higher costs on insurance companies and their policy holder will cause insurance premiums to soar.

Could it be that is the intent of the legislation--to make it impossible for insurance companies to "compete" with a public option?

Richard E. Ralston has been Executive Director of Americans for Free Choice in Medicine since joining the part-time staff of AFCM in 2002. His letters and columns written in support of individual rights and personal choice in health-care policy have since been published in dozens of major newspapers in the United States.

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Project FDA.
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