Baucus Bill

A Cure Worse than the Disease

by Greg Conko on October 22, 2009 · 2 comments

in Culture, Features, Health and Illness, Healthcare, Insurance, Nanny State, Personal Liberty, Regulation, Zeitgeist

With Democratic support coalescing around Sen. Max Baucus’s (D-Mt.) health care reform proposal, passage of a comprehensive overhaul now appears more likely than ever.  Opponents had their summer of protests.  But, Democrats have shown a renewed sense of energy since discrediting Sarah Palin’s “death panels” and Sen. Charles Grassley’s claim that ObamaCare would “pull the plug on grandma.” Still, while those charges may have been a little overwrought, there is plenty to be concerned about with the Democratic health reform effort.

As I explain in a new Competitive Enterprise Institute paper out today, “A Cure Worse than the Disease: Obama Care Won’t Cut Costs, But May Cut Quality,” most of the alleged cost-cutting measures in the Baucus bill merely shift costs from the federal government onto the states or private payers, without affecting long-term health care inflation.  The only measures that could reduce the annual rate of growth in health care costs would erect government barriers between patients and their doctors, while jeopardizing long-term medical innovation.

Skeptics have made hay arguing that the so-called Sustainable Growth Rate can’t be counted on to cut $245-billion in Medicare spending. But Senate Finance Committee negotiators have designed a Medicare Commission—what the White House previously called an Independent Medicare Advisory Commission—to make similar cuts in physician and hospital payment rates in a more opaque way.

In an April New York Times interview, President Obama suggested that such a group, working outside of “normal political channels,” should guide decisions regarding that “huge driver of cost…the chronically ill and those toward the end of their lives.”  That’s not exactly a death panel roving the country to pull the plug on innocent grandmas who’ve survived past their sell-by dates, but the effects could be equally pernicious.

What the Medicare Commission is likely to do is work with the Patient-Centered Outcomes Research Institute also established by the Baucus bill to incorporate comparative clinical effectiveness recommendations into Medicare and Medicaid payment policies.

In theory, there’s nothing wrong with comparative effectiveness research, or what used to be called evidence-based medicine.  Good research comparing the clinical effectiveness, risks, and benefits of two or more medical treatments can help doctors better understand the likely benefits of the treatments they prescribe and improve the quality of care they deliver.  But patients vary substantially in their individual physiology, their response rates to drugs and surgical procedures, and their willingness to tolerate side effects.  Doctors know this, and they realize that one size definitely does not fit all. That’s why, in practice, evidence-based medicine in the U.S. and abroad has produced incrementally useful information, but has failed to systematically change the practice of medicine.

Generally, we should encourage efforts to eliminate waste and reduce the use of ineffective treatments, especially when we’re talking about public programs and taxpayer money.  But the only way these programs would result in significant savings is if legislation or subsequent implementation tries to force the square peg of comparative effectiveness research results into the round hole of clinical practice by requiring physicians to always pick the treatment deemed best for the average patient.

That’s not just bad for patients in the near term, it would also wreak havoc on long term medical innovation.  If every new medicine were required, immediately upon gaining regulatory approval, to be effective and cheap enough to get the support of bureaucratic bean counters, research on the next generation of treatments for cancer, heart disease, and countless other serious conditions would slow to a snail’s pace.

Get used to the innovative medical treatments that we already have today.  If these programs become part of our health care system, we’ll be seeing a lot fewer treatment innovations tomorrow.

Health Insurer Competition and Democratic Saber Rattling

by Greg Conko on October 20, 2009

in Culture, Health and Illness, Healthcare, Insurance, Regulation, Zeitgeist

Last week, after the industry association America’s Health Insurance Plans released a study showing that premiums would rise 18 percent under the Senate Finance Committee’s reform proposal, top Democrats took to the airwaves to condemn the industry for standing in the way of health care reform.  President Obama used his Saturday radio address to accuse the industry of using “deceptive and dishonest” attacks to derail reform legislation.  And Obama and congressional Democrats threatened to repeal the McCarran-Ferguson Act, which exempts insurers from most federal regulation, including antitrust laws.

It is true that a handful of states have highly concentrated markets.  In Hawaii, Rhode Island, and Alaska, for example, 95 percent or more of the health insurance market is served by just two insurers.  But, federal intervention would do nothing to address this problem.  After all, insurers are still governed by state competition law, which prohibits anticompetitive practices.

The main benefit insurers get from McCarran-Ferguson is antitrust immunity for sharing the actuarial data on which firms individually base their premiums.  Ordinarily, information sharing of that kind of  would be a big no no, since it suggests pricing collusion.  But, state insurance laws permit it because it helps small insurers gain access to a sufficiently large pool of information to set premiums at an appropriate level.

The only way federal antitrust enforcement could significantly reduce market concentration would be to break up the firms into smaller pieces—think of the dissolution of John D. Rockefeller’s Standard Oil trust, or the break up of AT&T’s local service monopoly into seven regional Baby Bells.  But, as Boston University health economist Austin Frakt  notes:

“Taxpayers will be best served by insurers with sufficient market power to bargain down provider rates, but with not quite enough power to keep the savings (“rents”) for themselves.  … How to balance the power of insurers and providers is far from simple. Many have pointed to the alleged dominant market position of insurers as a substantial source of high health care costs. However, the health economics literature supports the notion that recent increased market power of insurers does not lead toward monopolistic pricing, but rather it provides a counter-balance to the power held by hospitals and provider groups.”  (Hat tip, Tyler Cowen.)

Democrats know this of course.  And, in the end, it’s not clear that they really do intend to repeal McCarran-Ferguson, or if they’re just sending a signal to health insurers and other dissenters that “this is how we deal with people who stand in our way.”  As my wife said yesterday, they’re playing Chicago hard ball now.  They’ll do whatever it takes to win.