Why We Should Be Optimistic about Repealing Obamacare and Fixing the Healthcare System

I’m going to make an assertion that seems utterly absurd.

The enactment of Obamacare may have been good news.

Before sending a team of medical attendants to cart me off to a sanitarium, allow me to elaborate. I’m not saying Obamacare is good policy. After all, I’ve written over and over again that it is a budget-busting boondoggle that will exacerbate our real healthcare crisis of third-party payer.

What I am saying, though, is that Obamacare may turn out to be a major political mistake for the left, one that sets the stage for sweeping free market reforms.

Here’s my six-part hypothesis.

1. Our healthcare system as a mess before Obamacare. Normal market forces were crippled by government programs such as Medicare and Medicaid and also undermined by government intervention in the tax code that resulted in pervasive over-insurance that exacerbated the third-party payer problem.
2. These various forms of intervention led to all sorts of problems, such as rising prices and indecipherable complexity, and most people blamed that the “free market” and “private” healthcare.
3. Obamacare was enacted in 2010, and it was perceived to be a paradigm-shifting change in the healthcare system, even though it was just another layer of bad policy on top of lots of other bad policy. Immediately after the legislation was approved, I offered a rough estimate that we went from a system that was 68 percent dictated by government to one that was 79 percent dictated by government.
4. Not surprisingly, all of the same problems still exist, but now they’re exacerbated by the mistakes in Obamacare.
5. But because people think we’ve had a paradigm shift and government now is in charge (pay attention, since this is my key argument), they will be much more likely to blame “Obamacare” and “government” for all the warts and inefficiencies of the healthcare system.
6. This means the public will be more receptive to pro-market policies, such as Obamacare repeal, tax reforms to reduce over-insurance, as well as the Medicaid and Medicare reforms in the Ryan budget.

All this will be much easier said than done, of course, and it is disconcerting that we’ll probably have to rely on feckless Republicans to implement these reforms.

But at least there’s a plausible scenario for systemic reform, and that wasn’t the case before Obamacare was enacted. In other words, the President’s signature achievement may turn out to be a Pyrrhic victory for the left.

P.S. Watch this excellent video from Reason TV to see how a genuine free market could deliver health care at lower cost and with greater efficiency. For another example, here’s a report from North Carolina on free-market healthcare in action.

P.P.S. This post is part of my let’s-be-optimistic series. Previous editions include:

• The fiscal cliff was a smaller loss than I expected.
• The sequester was a real victory.
• We have good evidence that the Tea Party has made a positive difference.
• The Democratic-controlled Senate rejected a permanent expansion of funds for the IMF.
• The burden of government fiscal policy has been reduced since the 2010 elections.
• The Democrat-controlled Senate approved dynamic scoring.

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Pick Your Favorite April Fool’s Day Prank

Even though I appreciate clever humor, I’ve never shared any April Fool’s Day jokes.

• Looking back in my archives, I didn’t post anything on April 1, 2009.
• I did post a joke about the IRS on April 1, 2010, but it had nothing to do with April Fool’s Day.
• In 2011, I posted about Paul Krugman’s misreading of budget data from the United Kingdom. That should have been an April Fool’s joke, but he was serious.
• I also shared some horrifying stories about the welfare state on April 1, 2012. I wish they were April Fool’s jokes, but they’re sadly true.

Indeed, the only time I even referenced April Fool’s Day came on the following day, when I stated that America’s high corporate tax rate meant that every day was April Fool’s Day for American companies.

So it’s time for me to remedy my oversights by sharing four good examples of April Fool’s Day humor.

Our first contribution is from Senator Ted Cruz. He takes a jab at President Obama for the budget-busting Obamacare legislation.

Our next contribution comes from Americans for Tax Reform. They’ve issued a press release announcing that America’s leading crony capitalist will voluntarily subject himself to the higher taxes he advocates for other Americans.

As you can see from this video, don’t hold your breath waiting for that to happen.

Then we have some mockery of Chris Matthews from the Media Research Center. There are a bunch of absurd, yet mostly believable, quotes.

Since I’m a fan of entitlement reform, here’s the one I’m highlighting.

But the most implausible April Fool’s Day joke comes from CNS.

America’s Spender-in-Chief wants to be a role model of fiscal rectitude.

Hey, maybe the President can give every teenager an unlimited credit card and tell them that more spending is good for the economy according to Keynesian economics. Though I’m not sure whether who that joke will hurt the most, the kids, the parents, the economy, or the nation?

Feel free to add any good April Fool’s Day humor in the comments section.

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Which Nation Has the Most Per-Capita Government Spending on Healthcare: France, Italy, the United States, Sweden, Canada, Greece, or the United Kingdom?

What government spends the most on health care?

• Is it Canada or the United Kingdom, which are famous (or, if these stories are any indication, infamous would be a better description) for single-payer healthcare systems?
• Is it Sweden, the home of the cradle-to-grave welfare state?
• Or France, the land of the world’s most statist people?
• How about Italy or Greece, nations that have spent themselves into fiscal crisis?

Nope, nope, nope, and nope.

The United States spends more money, on a per-capita basis, than any of those countries. Here’s a chart from a Forbes analysis prepared by Doug Holtz-Eakin and Avik Roy.

There are three big reasons why there’s more government-financed healthcare spending in the United States.

1. Richer nations tend to spend more, regardless of how they structure their healthcare systems.

2. As you can see at the 1:18 mark of this video, the United States is halfway down the road to a single-payer system thanks to programs such as Medicare and Medicaid.

3. America’s pervasive government-created third-party payer system leads to high prices and costly inefficiency.

So what’s the moral of the story? Simple, notwithstanding the shallow rhetoric that dominates much of the debate, the United States does not have anything close to a free-market healthcare system.

That was true before Obamacare and it’s even more true now that Obamacare has been enacted.

Indeed, it’s quite likely that many nations with “guaranteed” health care actually have more market-oriented systems than the United States.

Avik Roy argues, for instance, that Switzerland’s system is the best in the world. And the chart above certainly shows less direct government spending.

And there’s also the example of Singapore, which also is a very rich nation that has far less government spending on healthcare than the United States.

If you read the Avik Roy articles linked above, and also this study by my Cato colleague Mike Tanner, you’ll see that there’s no perfect system.

Our challenge is that it’s very difficult to put toothpaste back in a tube. Thanks to government programs and backdoor intervention through the tax code, the United States healthcare system is nowhere close to a free market (with a few minor exceptions such as cosmetic surgery and – regardless of what you think of the procedure – abortion).

Yes, I think entitlement reform can make things better, though fixing Medicare and Medicaid should be seen as a necessary but not sufficient condition. As I show in this post, we would simply move a little bit in the right direction on the spectrum between markets and statism.

Tax reform could solve another part of the problem by removing the bias for over-insurance, which presumably would lead people to pay out of pocket and use insurance for large, unexpected costs.

Fundamental tax reform is also the best way to improve the healthcare system. Under current law, compensation in the form of fringe benefits such as health insurance is tax free. Not only is it deductible to employers and non-taxable to employees, it also isn’t hit by the payroll tax. This creates a huge incentive for gold-plated health insurance policies that cover routine costs and have very low deductibles. …Shifting to a flat tax means that all forms of employee compensation are taxed at the same low rate, a reform that presumably over time will encourage both employers and employees to migrate away from the inefficient over-use of insurance that characterizes the current system. For all intents and purposes, the health insurance market presumably would begin to resemble the vastly more efficient and consumer-friendly auto insurance and homeowner’s insurance markets.

In other words, as this poster suggests, government is the problem and less government is the solution.

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What’s the Difference Between Romneycare and Obamacare?

That’s a trick question, of course, as illustrated by this biting Henry Payne cartoon.

But let’s look at one of the commonalities of Romneycare and Obamacare – higher premiums, thanks to mandates and third-party payer.

Here’s a quick look at what’s been happening to premiums in Massachusetts.

The same thing is already happening with Obamacare, as explained in a Wall Street Journal column by Merrill Matthews and Mark Litow.

The congressional Democrats who crafted the legislation ignored virtually every actuarial principle governing rational insurance pricing. Premiums will soon reflect that disregard—indeed, premiums are already reflecting it. …Guaranteed issue incentivizes people to forgo buying a policy until they get sick and need coverage (and then drop the policy after they get well). While ObamaCare imposes a financial penalty—or is it a tax?—to discourage people from gaming the system, it is too low to be a real disincentive. The result will be insurance pools that are smaller and sicker, and therefore more expensive.

How bad will it be? Well…

Many actuaries, such as those in the international consulting firm Oliver Wyman, are now predicting an average increase of roughly 50% in premiums for some in the individual market for the same coverage. …Arizona, Arkansas, Georgia, Idaho, Iowa, Kentucky, Missouri, Ohio, Oklahoma, Tennessee, Utah, Wyoming and Virginia will likely see the largest increases—somewhere between 65% and 100%. Another 18 states, including Texas and Michigan, could see their rates rise between 35% and 65%.

Which is why 2014 is the “Year of the Snake” in more places than just China.

If you like Ramirez cartoons, you can see some of my favorites here, here, here, here, and here.

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What’s the Best Term for Describing Obamanomics and Obamacare?

I’m a big fan of John Mackey, the CEO of Whole Foods. Not only is he a successful, job-creating entrepreneur, but he also cited my work (specifically, this budget analysis) when interviewed by the statists at Mother Jones.

He also has some good insights about the economics of Obamacare. Here’s the key passage from the Washington Times report.

The CEO of Whole Foods compared President Obama’s health care law to “fascism” in a radio interview on Wednesday, a turnabout from earlier comments in which he compared the signature reforms to socialism. “Technically speaking, it’s more like fascism,” John Mackey told NPR’s Morning Edition. “Socialism is where the government owns the means of production. In fascism, the government doesn’t own the means of production, but they do control it — and that’s what’s happening with our health care programs and these reforms.”

I’ve already provided my two cents on the underlying theory of Obamanomics, and I agree that socialism is not the right term.

Like Thomas Sowell and John Mackey, I think that it’s technically more accurate to say that Obamacare is fascism – nominal private ownership but government control.

But I’ve also concluded that it’s a distraction to use that term. Which is why I prefer to call Obama a statist or corporatist. Though maybe we should add redistributionist to that list.

P.S. Here’s the Obama version of Socialism for Kids.

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More Stomach-Turning Horror Stories from the UK Government-Run Healthcare System

During the Obamacare debate, Paul Krugman told us we could ignore stories about what was happening across the ocean, writing that “In Britain, the government itself runs the hospitals and employs the doctors. We’ve all heard scare stories about how that works in practice; these stories are false.”

Every so often, I wonder how Krugman would define a “scare story.” How about starving babies to death, as I wrote about last month? Would he say that’s “false,” or simply not a “scare story”?

Let’s look at some new information from the U.K.’s government-run system and see whether we can expect our healthcare to improve or deteriorate now that Obamacare’s beginning to get implemented.

We’ll start with a look at how the overall British system is performing, including the remarkable and depressing fact that more than 1 in 10 patients are victimized by “basic errors,” leading to 5.2 percent of deaths.

The largest and most detailed survey into hospital deaths has revealed that almost 12,000 patients are needlessly dying every year as a result of poor patient care. The researchers from The London School of Hygiene and Tropical Medicine based the study on 1,000 deaths at 10 NHS trusts during 2009. The study revealed that basic errors were made in more than one in 10 cases, leading to 5.2% of deaths, which was the equivalent of nearly 12,000 preventable deaths in hospitals in England every year. The research published in the British Medical Journal’s Quality and Safety publication found that errors occurred when hospital staff made an incorrect diagnosis, prescribed the wrong drugs, failed to monitor a patient’s condition or react when a patient deteriorated. Errors in omission were more frequent than active mistakes. The majority of patients who died were elderly suffering with multiple health conditions, but the study found that some patients whose deaths were preventable were aged in their 30s and 40s.

Now let’s look at healthcare – if you use the term loosely – at one Government-run hospital. The UK-based Telegraph has the stomach-turning details.

Hundreds of hospital patients died needlessly. In the wards, people lay starving, thirsty and in soiled bedclothes, buzzers droning hopelessly as their cries for help went ignored. Some received the wrong medication; some, none at all.Over 139 days, the public inquiry into the Stafford hospital scandal has heard testimony from scores of witnesses about how an institution which was supposed to care for the most vulnerable instead became a place of danger. Decisions about which patients to treat were left to receptionists…and nurses switched off equipment because they did not know how to use it. …patients were left so dehydrated that some began drinking from flower vases. By the time the hospital’s failings were exposed by regulators, in 2009, up to 1,200 patients had died needlessly between 2005 and 2008. …on the wards, patients – most of them elderly – were left in agony and screaming for pain relief, as their loved ones desperately begged for help. The human toll was dreadful. In the course of 18 months, one family lost four members, including a newborn baby girl, after a catalogue of failings by the hospital. …Patients were left without medication, food and drink, and left on commodes. Basic hygiene was neglected: a woman was left unwashed for the last four weeks of her life. Relatives tried to keep their loved ones clean, scrubbing down beds and furniture and even bringing in clean linen. One consultant described how amid the chaos, it seemed at though nurses became “immune to the sound of pain”.

It’s disturbing to read something like this, but can you imagine the horror of having a sick child in one of these wretched British institutions?

I’m not saying there aren’t mistakes and instances of sub-standard care in U.S. hospitals. I’m sure that’s the case. And regular readers know that I’ve complained about the absurd government-caused inefficiency of the American healthcare system.

The point I’m making is that horror stories are more common from the U.K. because the entire system is a bureaucracy. The nurses and doctors on that side of the Atlantic are akin to clerks at the Postal Service and DMV on this side of the Atlantic.

P.S. If you want more horror stories about government-run healthcare in the United Kingdom click here, here, here, here, here, here, here, here, here, here, here, here, here and here.

P.P.S. And to close on an upbeat note, click here to learn how we can save America’s healthcare system.

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The Sadistic Brutality of England’s Government-Run Healthcare

I’m not easily grossed out or nauseated. Heck, I’m on email lists for a half-dozen softball teams and you can only imagine the strange/filthy/nasty things that guys send to each other.

But I read a story about the death panels in the United Kingdom that left me discombobulated. I can’t even begin to describe how I feel.

Here’s the intro of a disturbing report in the Daily Mail.

Sick children are being discharged from NHS hospitals to die at home or in hospices on controversial ‘death pathways’. Until now, end of life regime the Liverpool Care Pathway was thought to have involved only elderly and terminally-ill adults. But the Mail can reveal the practice of withdrawing food and fluid by tube is being used on young patients as well as severely disabled newborn babies.

And here are some of the horrifying details. Read at your own risk.

One doctor has admitted starving and dehydrating ten babies to death in the neonatal unit of one hospital alone. Writing in a leading medical journal, the physician revealed the process can take an average of ten days during which a  baby becomes ‘smaller and shrunken’. The LCP – on which 130,000 elderly and terminally-ill adult patients die each year – is now the subject of an independent inquiry ordered by ministers. …Earlier this month, an un-named doctor wrote of the agony of watching the protracted deaths of babies. …‘I know, as they cannot, the unique horror of witnessing a child become smaller and shrunken, as the only route out of a life that has become excruciating to the patient or to the parents who love their baby.’ …Bernadette Lloyd, a hospice paediatric nurse, has written to the Cabinet Office and the Department of Health to criticise the use of death pathways for children. She said: ‘The parents feel coerced, at a very traumatic time, into agreeing that this is correct for their child whom they are told by doctors has only has a few days to live. It is very difficult to predict death. I have seen a “reasonable” number of children recover after being taken off the pathway. …‘I have also seen children die in terrible thirst because fluids are withdrawn from them until they die. ‘I witnessed a 14 year-old boy with cancer die with his tongue stuck to the roof of his mouth when doctors refused to give him liquids by tube. His death was agonising for him, and for us nurses to watch. This is euthanasia by the backdoor.’

My first reaction is to hope that this story is wildly wrong, filled with exaggerations and lies.

My second reaction (and this is why I got so agitated) is to imagine what it must be like for the parents. They get talked into letting their kids die, which must be agonizing, and then (assuming they stick around) they have to watch them slowly starve to death or die of thirst. Wouldn’t it be better to just give your kid a fatal injection? Setting aside the moral issue of deciding to let a kid die because he’s disabled or something like that, doesn’t simple decency mean that death should be painless rather than agonizing?

My final reaction is to wonder what Paul Krugman would say about this scandalous neglect and mistreatment. During the Obamacare debate, he told us we could ignore stories about what was happening across the ocean, writing that “In Britain, the government itself runs the hospitals and employs the doctors. We’ve all heard scare stories about how that works in practice; these stories are false.” So I guess starving children don’t qualify as a scare story.

P.S. If you want more horror stories about government-run healthcare in the United Kingdom click here, here, here, here, here, here, here, here, here, here, here, here, here and here.

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Must-Watch Video From Reason TV on How Free Markets – not Obamacare – Can Solve the Healthcare Mess

When I travel, particularly overseas, I run into a lot of people who are totally confused about the American healthcare system.

For all intents and purposes, they think the United States relies on the free market and that government (at least in the pre-Obamacare era) was largely absent.

So they are baffled when I tell them that nearly one-half of all health expenditures in America are directly financed by taxpayers  and that the supposedly private part of our healthcare system is massively distorted by government interference and intervention.

When explaining how government has screwed up private health insurance, I talk about third-party payer and  how genuinely private insurance works for home ownership and automobiles. And I cite examples of genuine free markets for cosmetic surgery and even (regardless of your views) abortion.

But from now on, I think I will simply tell people to watch this superb video from Reason TV.

This shows how a true free market operates. Efficiency and low prices are the norm, and consumers get a good deal.

My only quibble is that the video doesn’t explain how government policies – such as the healthcare exclusion in the tax code – should be blamed for the grotesque waste, inefficiency, and featherbedding in most parts of the medical industry.

But that’s a minor gripe. You should share this post with any and all fuzzy-headed friends and colleagues and tell them this is how smoothly the market would work if the government simply would get out of the way.

And if they want another example, here’s a report from North Carolina on free-market healthcare in action.

If we want this kind of system to be the rule rather than the exception, we need to scrap the healthcare exclusion in the tax code as part of a switch to a simple and fair flat tax. That will help bring some rationality to the health insurance market and address the part of the third-party payer crisis caused by indirect government intervention.

Then we also should reform Medicaid and Medicare to help address the part of the third-party payer crisis caused by the direct government intervention.

P.S. As this poster cleverly illustrates (and as Ronald Reagan correctly warned in the second video of this post), government is the problem, not the solution.

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Rewarding Hospitals to Let Old People Die? That’s the Wrong Way to Cut Government Spending

I used to think I was in favor of every possible step to reduce the burden of government spending.

• Are agricultural subsidies wasteful and corrupt? Yes, so get rid of the Department of Agriculture.
• Is Medicaid spending out of control? Yes, so cap outlay growth and block grant the program to the states.
• Has NATO outlived its usefulness? Yes, so let’s save money and bring troops home from Europe.

But I confess I’ve come across a budget-cutting strategy that even I can’t support. And it’s not in the area of national defense or public safety, which even I agree are legitimate functions of government.

Instead, I’m talking about the government-run healthcare system in the United Kingdom, which apparently is bribing hospitals to make greater use of the “Liverpool Care Pathway,” which is the UK version of a death panel. Here are some jaw-dropping excerpts from the Daily Mail.

Hospitals are paid millions to hit targets for the number of patients who die on the Liverpool Care Pathway, the Mail can reveal. The incentives have been paid to hospitals that ensure a set percentage of patients who die on their wards have been put on the controversial regime. In some cases, hospitals have been set targets that between a third and two thirds of all the deaths should be on the LCP, which critics say is a way of hastening the deaths of terminally ill patients. At least £30million in extra money from taxpayers is estimated to have been handed to hospitals over the past three years to achieve these goals. Critics of the method warned last night that financial incentives for hospitals could influence the work of doctors.

Here’s some additional info of how the program works.

The use of CQUIN payments to encourage the spread of the LCP through the wards and to persuade doctors to meet Pathway targets was revealed in answers to Freedom of Information requests. Among trusts that confirmed the use of targets was Aintree University Hospitals NHS Foundation Trust, which said that in the financial year which ended in March the percentage of patients who died on the Pathway was ’43 per cent against a target of 35 per cent’. Over the year the Trust received £308,000 for achieving ‘goals involving the Liverpool Care Pathway’. Salford Royal NHS Foundation Trust had CQUIN payments connected to the Liverpool Care Pathway almost halved after failing to reach targets.

Somebody should ask Paul Krugman about this horrific story. Even if the occasionally overly sensational British press is exaggerating and the real story is only half as bad as these excerpts, this is a nightmare. And it definitely shows that Krugman was wrong in 2009 when he wrote that, “In Britain, the government itself runs the hospitals and employs the doctors. We’ve all heard scare stories about how that works in practice; these stories are false.”

Unless, of course, proponents of bigger government don’t think bribing hospitals to hasten death qualifies as a “scare story.” In that case, I’ll give them credit for being consistent, but only if the political elite has to live (or, in this case, die) by the same set of rules.

For some reason, though, I don’t think the Paul Krugmans, David Camerons, and Gordon Browns or the world will be subjected to the same treatment as the rest of us peasants.

And that’s also an issue with Obamacare. When push comes to shove, I strongly suspect the politically well connected somehow will avoid any of the headaches that are bound to result from that costly legislation.

If rationing is going to happen, I’d rather it be the result of markets rather than connections.

P.S. Other horror stories about the UK health system can be perused here, here, here, here, here, here, here, here, here, here, here, here and here.

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The Deadly Impact of Government-Run Healthcare in the United Kingdom

I’m not a fan of the American healthcare system. It suffers from huge inefficiencies because of problems such as third-party payer, which is caused by government programs such as Medicare and Medicaid along with a system of tax code-driven over-insurance in the supposedly private sector.

But regardless of how much I grouse about the damage government causes in the United States, I can say with considerable confidence that the government-run system in the United Kingdom has even larger problems.

Here are some of the shocking details from a report in the UK-based Daily Mail.

Patients having major surgery in NHS hospitals face a much higher risk of dying than those in America, research has revealed. Doctors found that people who have treatment here are four times more likely to die than US citizens undergoing similar operations. The most seriously ill NHS patients were seven times more likely to die than their American counterparts. Experts blame the British fatality figures on a shortage of specialists and lack of intensive care beds for post-operative recovery. They also suggest that long waiting lists mean diseases are more advanced before they are treated. Researchers from University College London and Columbia University, in New York, studied 1,000 surgery patients at the Mount Sinai Hospital, Manhattan, and compared them to nearly 1,100 people who had similar operations at the Queen Alexandra Hospital, in Portsmouth. The results showed that just under ten per cent of British patients died in hospital afterwards compared to 2.5 per cent in America. Among the most seriously ill cases there was a seven-fold difference in the death rates.

Here are some additional findings.

Professor Monty Mythen, head of anaesthesia at University College London and Great Ormond Street Hospital, said: “In America, after surgery, everyone would go into a critical care bed in a highly-monitored environment. That doesn’t happen routinely in the UK. …Prof Mythen said waiting lists in the NHS would “put patients at greater risk”. He added: “We would be suspicious that the diseases would be more advanced simply because the waiting lists (in the UK) are longer.”

Since I’m in London right now, I guess the moral of the story is to stay healthy.

On a slightly more serious note, I wish I had this story in front of me when I was guest-hosting Larry Kudow’s show a couple of years ago and my lefty British co-host got all agitated when I said the British system was worse for patients.

I think I saw this guy at the Paddington tube station this morning

And on a completely serious note, the point of this post is not to say the United States has a perfect system. I hope that’s obvious from my opening paragraph. And nor am I asserting that the UK system is universally bad. In my limited understanding, British doctors and nurses do a fairly good job with basic medicine and emergency medicine.

But any system is likely to deteriorate and suffer adverse effects as government takes a larger role. I’ve had fun over the past few years with anecdotal horror stories about government-run healthcare in the United Kingdom. But as you can see from all the links in this post, I sometimes share those just for the enjoyment of mocking Paul Krugman.

The academic study linked above is far more important if you want to assess the damage of giving politicians and bureaucrats even more control over healthcare.

That’s actually a good rule for just about everything. As shown in this poster, if you ever think the answer is more government, you’ve asked the wrong question.

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Another British Healthcare Horror Story, but It’s “False” According to Paul Krugman

Paul Krugman assured us back in 2009 that, “In Britain, the government itself runs the hospitals and employs the doctors. We’ve all heard scare stories about how that works in practice; these stories are false.”

If that’s the case, then the British press is filled with liars who deliberately make up horror stories about their nation’s healthcare system, as you can see here, here, here, here, here, here, here, here, here, here, here and here.

We now have another nightmare to add to this list. Here are some of the horrific details from the UK-based Daily Mail.

An elderly woman died alone after doctors failed to tell relatives they were ending her life on the controversial Liverpool Care Pathway. Olive Goom, 85, passed away with no one by her side after medics neglected to consult with her family about her treatment at Chelsea and Westminster Hospital. …As Miss Goom lay dying alone, staff reassured relatives on the phone just hours before her death that there was no urgent need to visit – even though doctors had already removed tubes providing vital food and fluids. Her family discovered that she had died only when her niece went to visit her and found she was already being prepared for the mortuary. They said last night that they will never be able to stop feeling guilty that no one was there in her final hours. The Mail has been contacted by several families who claim that relatives were put on the Liverpool Care Pathway – the controversial system designed to ease the suffering of the dying in their final hours – without any consultation. Some said they found out that their relatives were on the pathway only after they happened to read their medical notes; and by that time it was too late.

Keep in mind, by the way, that the Liverpool Care Pathway is sort of akin to the IPAB “death panel” in Obamacare.

Defenders of government-run healthcare say that’s nonsense and assert that there won’t be any rationing, denial of care, or requirements for euthanasia. That’s technically true, but the Obamacare death panel will be determining what’s an acceptable treatment and what’s the government-approved payment schedule.

Crushed by Obamacare?

So it’s sort of like holding a rock in your hand, standing over a kitten, letting go of the rock, watching it hit the kitten, but then claiming that you did nothing wrong because gravity caused the rock to fall.

Okay, that’s a morbid example, but you get the point. And my concern isn’t that rationing only exists with a government-run system. Any healthcare system will involve rationing. The real issue is whether individuals are part of a free society so they can make the choice of how to ration.

(h/t: Ben Domenech)

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The Federalism Solution to the Medicaid Nightmare

This election season has seen lots of talk (and demagoguery) about whether investors, entrepreneurs, and small business owners should be hit with class-warfare tax policy.

And there’s also been lots of sturm and drang about the best way of averting bankruptcy for Medicare, which is the federal government’s health care program for the elderly.

But there’s been surprisingly little discussion so far about the issue of Medicaid, which is the federal government’s health program for poor people.

I’m not prone to optimism, but I can’t help but wonder if this is because even statists grudgingly accept that the program needs to be reformed.

If so, the right approach is block-granting the program back to the states. Here’s some of what Paul Howard and Russell Sykes had to say about the issue in the Wall Street Journal.

Medicaid, America’s safety-net program for more than 62 million low-income uninsured Americans, is broken. It’s broken at the state level, where program costs are swamping state budgets. It’s broken for federal taxpayers, as Medicaid waste, fraud and abuse drain tens of billions of dollars from federal coffers every year. …The best hope for Medicaid reforms that can improve care for low-income enrollees, reduce fraud, and put the program on a sustainable trajectory is to cap federal spending to the states by using block grants. Block grants would offer states a predictable source of federal funding in return for broad state flexibility in Medicaid administration, benefits and copays.

Howard and Sykes explain that the federalism approach already has been tried with welfare reform, which was very successful.

We know that well-designed block grants can work and attract bipartisan support. The best example is the successful 1996 Temporary Assistance for Needy Families program for welfare reform, which helped move millions of women and children out of poverty and into the workforce. Critics of Medicaid block grants argue that they would leave insufficient funds to cover new state expenses, creating a “race to the bottom” as states slashed funding on services for the poor. But such objections were also raised about block-granting welfare, and they turned out to be wrong.

They also reveal some very useful and interesting information about a test program in Rhode Island that shows the benefits of shifting health care decisions to the state level.

In 2009, Rhode Island accepted a five-year cap on combined state and federal Medicaid spending as part of a waiver from the federal government. ..To date, Rhode Island projects that by various new measures—focusing on community-based care that keeps seniors out of expensive nursing homes, for instance, and medical supervision that can keep children and adults out of emergency rooms—the state has saved $100 million. The flexibility to plan care has also helped reduce its projected Medicaid spending rate to 3% from 8% annually.

It’s worth noting, by the way, that Rhode Island is a very left-leaning state. Indeed, one of the reasons why I’m semi-optimistic about Medicaid reform is that governors and state legislatures – regardless of partisan affiliation – know that the current Medicaid system is unsustainable.

For more information, here’s my video explaining why block grants and federalism are the right way of dealing with Medicaid.

Since I’m not used to being optimistic, let me also give you a nightmare scenario for how this issue could evolve. My greatest fear is that a future president (perhaps Romney!) will decide to impose a value-added tax. In normal circumstances, that might upset state politicians since it would complicate their efforts to impose sales taxes.

But if a future President promised to have the federal government take over 100 percent of Medicaid financing, I suspect state politicians would jump at the trade.

So we would get the worst of all worlds. A giant new tax and more centralization.

P.S. Here’s the full three-part video series on entitlement reform.

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Maybe It Is Possible to Reform Health Entitlements

I’m never guilty of being an optimist, but two items caught my attention today that suggest the tide may be turning on entitlement reform.

We’ll start with something from the New York Times.

Regular readers know that I’ve criticized that paper on a few occasions.

Sometimes it’s because of silly editorializing, such as this bit of amateur political analysis by Thomas Friedman, this foolish look at international taxation by the editors, and this laughable column arguing that America should copy Italy’s fiscal policy.

I also hit them for ignorant reporting, such as the story implying that things are free when they’re financed by government, this column that inadvertently makes the opposite point from what was intended, and this story mis-characterizing tax reform.

Paul Krugman, needless to say, is in a league of his own. I’ll just cite this beatdown about Estonia and leave it at that.

But it’s also important to cite good journalism when it occurs, and a new story in the New York Times on healthcare is a prime example. It’s straightforward and unbiased. And it shows the benefits of even small steps in the direction of markets. Here’s some of what Robert Pear wrote.

Even as President Obama accuses Mitt Romney and Representative Paul D. Ryan of trying to privatize and “voucherize” Medicare, his administration crows about the success of private health plans in delivering prescription drug benefits and other services to Medicare beneficiaries. More than a quarter of the 50 million beneficiaries receive coverage through private Medicare Advantage plans, mostly health maintenance organizations, and Medicare’s drug benefits are delivered exclusively by private insurers, subsidized by the government. …“Medicare Advantage premiums down 7 percent on average, enrollment up 10 percent,” the administration announced in February, and it said the quality of care under Medicare Advantage was improving. This month the administration reported the results of competitive bidding for 2013: “Medicare prescription drug premiums to remain steady for third straight year.” Federal spending on Medicare drug benefits has been about 30 percent lower than the Congressional Budget Office predicted when the drug legislation was passed in 2003. Mr. Ryan, a Wisconsin Republican who is the chairman of the House Budget Committee, said the drug program “came in below cost projections because it harnessed the power of choice and competition.”

Pear’s article raises an interesting issue about incremental reform. Proponents of liberty and markets obviously don’t like government-financed healthcare, but there are very-bad ways of doing the wrong thing and there are less-bad ways of doing the wrong thing.

That’s never an argument for doing something bad, but if bad policies already are implemented, then it does make sense to grab any opportunity to make those policies less destructive.

Ideally, we should restore free markets overnight. But given the constraints of the political system, I’ll gladly take the modest reforms that Paul Ryan is proposing for Medicare and Medicaid.

Here’s a back-on-the-envelope image I created to show the spectrum of healthcare policy. It’s obviously very simplified, but I think the overall point about Ryan’s reforms being very incremental is correct.

One final point about the political implications. President Obama clearly wants to scare seniors into thinking that the Ryan reforms are radical, but this is why the New York Times article is significant. It shows that Ryan isn’t proposing anything unusual, and it shows that the incremental reforms being proposed have a successful track record.

This may be why we’re now seeing some remarkable poll results.

Despite a furious onslaught of negative ads and harsh rhetoric, neither President Obama nor Mitt Romney has much of an advantage on critical issues heading into the fall campaign. …On Medicare — long considered a political vulnerability for Romney and his running-mate Paul Ryan — 49 percent of likely voters say Obama would handle the issue better while 48 percent prefer Romney. On health care, voters are just as divided — with 49 percent favoring Obama’s policies and 48 percent favoring Romney.

P.S. Since I’m favorably commenting on an article from the New York Times, allow me to remind you that the paper does publish good material every so often. They allowed this great column on tax sovereignty on their editorial pages, this powerful expose of IRS abuse by a business columnist, and this great graphic on the connection between big banks and government bailouts in Europe.

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The Higher-Education Bubble and Third-Party Payer

Taxes and spending are two of the most obvious burdens imposed by government, and I’m glad that many people are fighting against a political class that seems to have a limitless appetite for a bigger public sector.

But politicians also can do great damage to an economy with mandates, regulations, and other forms of intervention. And because they are indirect and somewhat hidden, these costs are poorly understood by most voters even though the burdens can be enormous.

Interfering with the price system is an especially pernicious form of intervention.

When functioning properly, prices enable the wants and needs of consumers to be properly channeled to producers and suppliers in a way that promotes prosperity and efficiency.

Unfortunately, governments hinder this system with all sorts of misguided policies such as subsidies and price controls.

One of the worst manifestations of this type of intervention is the system of third-party payer, which occurs when government policies artificially reduce the perceived prices of goods and services.

In this post, let’s look at markets for higher education, housing, and health care to get a better understand of how third-party payer leads to rising prices and damaging bubbles.

Let’s start with the market for college education. Glenn Reynolds of Instapundit has been promoting the idea of a higher-education bubble for years. His theory, as he explained in the Washington Examiner, makes a lot of sense.

A couple of years back, I suggested in these pages that higher education was facing a bubble much like the housing bubble: An overpriced good, propped up by cheap government-subsidized credit, luring borrowers and lenders alike into a potentially disastrous mess. …This is a simple case of inflation: When you artificially pump up the supply of something (whether it’s currency or diplomas), the value drops. The reason why a bachelor’s degree on its own no longer conveys intelligence and capability is that the government decided that as many people as possible should have bachelor’s degrees. There’s something of a pattern here. The government decides to try to increase the middle class by subsidizing things that middle class people have: If middle class people go to college and own homes, then surely if more people go to college and own homes, we’ll have more middle class people. But homeownership and college aren’t causes of middle-class status, they’re markers for possessing the kinds of traits — self-discipline, the ability to defer gratification, etc. — that let you enter, and stay in, the middle class. Subsidizing the markers doesn’t produce the traits; if anything, it undermines them. One might as well try to promote basketball skills by distributing expensive sneakers.

I hope he’s right, and I also hope the bubble bursts quickly. The last of my three kids is a senior in high school, so anything that lowers tuition and fees would be most welcome.

But let’s look at some data and think about whether this will happen.

This first chart, using data from the Bureau of Labor Statistics on college tuition and fees, certainly shows a big jump in the cost of higher education. Indeed, tuition and fees have climbed more than twice as fast as the overall consumer price index.

Now let’s look at the Case-Schiller data on housing prices in the second chart. While the lines aren’t identical, it certainly seems like Instapundit is on to something. When the government intervenes in a sector of the economy with lots of subsidies, prices climb rapidly.

The key question, of course, is whether the market for higher education will behave the same way as the market for housing. In other words, has the government created a house of cards that inevitably will collapse?

As noted above, I hope there’s a bubble that’s on the verge of bursting. But since I tend to be a pessimist, I’m worried that the education market may be more similar to the healthcare market rather than the housing market. Take a look at this final chart, showing what seems to be endlessly rising prices for medical care.

So why do I worry that higher education may be more like healthcare? Because both benefit from third-party payer, which happens when someone other than the consumer pays a significant share of the cost of a product. For instance, consumers directly pay for only 12 cents of every dollar of healthcare they consume. So why care about rising prices when somebody else is picking up the tab?

Indeed, in the few areas where out-of-pocket expenditures dominate, such as cosmetic surgery and abortion, we find that prices are stable or even falling.

In the case of higher education, there is substantial third-party payer because of money funneled to students in the form of grants and loans, as well as funds channeled directly to colleges and universities.

There is some third-party payer in the housing market, but the bubble that recently popped was more the result of (hopefully) one-time factors such as the Fed’s easy-money policy and Fannie Mae and Freddie Mac subsidies that caused reckless lending and foolish speculation.

So what does all this mean? The honest answer is that I don’t know, but I fear that there is no looming collapse in the price of higher education. At best, we have probably reached a point where prices have leveled off, but that’s more a function of a glut in certain fields such as law.

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President Obama’s HHS Mandate: Religious Intolerance and Economic Ignorance

The Obama Administration is in a bit of hot water because it wants to coerce just about everyone – including a lot of religious institutions -  to provide health insurance policies that cover the cost of birth control and certain abortion-inducing drugs.

The White House already has tried to defuse the controversy by shifting the coverage mandate from insurance buyers to the insurance companies, but everyone with an IQ above room temperature realizes that is a meaningless cosmetic change.

Regardless of how one feels about abortion or birth control (or even how one feels about religion), this is a bad policy. Decisions about what  sort of insurance to provide shouldn’t be the result of a one-size-fits-all government mandate.

Yes, the Administration’s religious intolerance is unseemly, but it is also symptomatic of why government intervention in the health sector is the underlying problem.

John Cochrane, an economist at the University of Chicago (and an Adjunct Scholar at Cato!) addresses the economic issues in a Wall Street Journal column. Here are some key passages.

Insurance is supposed to mean a contract, by which a company pays for large, unanticipated expenses in return for a premium: expenses like your house burning down, your car getting stolen or a big medical bill. Insurance is a bad idea for small, regular and predictable expenses. There are good reasons that your car insurance company doesn’t add $100 per year to your premium and then cover oil changes, and that your health insurance doesn’t charge $50 more per year and cover toothpaste. You’d have to fill out mountains of paperwork, the oil-change and toothpaste markets would become much less competitive, and you’d end up spending more. …Doubling the number of wellness visits and free pills sounds great, but who’s going to pay for it? There is a liberal dream that by mandating coverage the government can make something free. Sorry. Every increase in coverage means an increase in premiums. If your employer is paying for your health insurance, he could be paying you more in salary instead.

For all intents and purposes, Professor Cochrane is explaining the economics of third-party payer, which occurs when government intervention undermines the ability of markets to promote efficiency and low prices.

He also delves into the moral issues and explains that the only solution is to get the government out of health care.

Our nation is divided on social issues. The natural compromise is simple: Birth control, abortion and other contentious practices are permitted. But those who object don’t have to pay for them. The federal takeover of medicine prevents us from reaching these natural compromises and needlessly divides our society. The critics fell for a trap. By focusing on an exemption for church-related institutions, critics effectively admit that it is right for the rest of us to be subjected to this sort of mandate. They accept the horribly misnamed Patient Protection and Affordable Care Act, and they resign themselves to chipping away at its edges. No, we should throw it out, and fix the terrible distortions in the health-insurance and health-care markets. Sure, churches should be exempt. We should all be exempt.

I’ve explained four principles that should guide policy makers as they try to put the toothpaste back in the tube and restore free markets to healthcare.

And I’ve cited a real-world example of how the system would work if the third-party payer crisis was fixed.

We can implement free-market reforms, though they won’t be easy. Or we can keep on the current path, lose more of our freedom, and eventually have life-and-death decisions controlled by bureaucrats.

Should be an easy choice.

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Block-Granting Medicaid Is a Long-Overdue Way of Restoring Federalism and Promoting Good Fiscal Policy

This new video from the Center for Freedom and Prosperity explains why Medicaid should be shifted to the states. As I note in the title of this post, it’s good federalism policy and good fiscal policy. But the video also explains that Medicaid reform is good health policy since it creates an opportunity to deal with the third-party payer problem.

One of the key observations of the video is that Medicaid block grants would replicate the success of welfare reform. Getting rid of the federal welfare entitlement in the 1990s and shifting the program to the states was a very successful policy, saving billions of dollars for taxpayers and significantly reducing poverty. There is every reason to think ending the Medicaid entitlement will have similar positive results.

Medicaid block grants were included in Congressman Ryan’s budget, so this reform is definitely part of the current fiscal debate. Unfortunately, the Senate apparently is not going to produce any budget, and the White House also has expressed opposition. On the left, reducing dependency is sometimes seen as a bad thing, even though poor people are the biggest victims of big government.

It’s wroth noting that Medicaid reform and Medicare reform often are lumped together, but they are separate policies. Instead of block grants, Medicare reform is based on something akin to vouchers, sort of like the health system available for Members of Congress. This video from last month explains the details.

In closing, I suppose it would be worth mentioning that there are two alternatives to Medicaid and Medicare reform. The first alternative is to do nothing and allow America to become another Greece. The second alternative is to impose bureaucratic restrictions on access to health care – what is colloquially known as the death panel approach. Neither option seems terribly attractive compared to the pro-market reforms discussed above.

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The Ryan and Rubio Medicare Videos: The GOP Begins to Fight Back

Republicans have finally woken up and are beginning to explain why Medicare needs to be reformed.

Here’s a very good new video from Congressman Paul Ryan, Chairman of the House Budget Committee. He hits on key points regarding market competition versus government monopolies, and warns about the danger of giving control of the health care system to Obama’s panel of bureaucrats.

Senator Marco Rubio, meanwhile, has a video emphasizing the need for reform. He also trashes the demagoguery of the left.

Not surprisingly, I can’t resist adding my video to the mix. I’m not as polished as the two lawmakers, but I hope the information in my video is a very important complement to the issues discussed by Rep. Ryan and Sen. Rubio.

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The Joys of Government-Run Healthcare: More Spending, Longer Waiting Lines, Fewer Patients Treated

I’m a glass-half-full guy, so I’m always looking for the silver lining to any dark cloud. For example, the unfortunate people of the United Kingdom are saddled with a government-run healthcare system that is deficient in some important categories yet still costs a lot of money. But the good news is that this system at least serves as an example of what not to do.

And even left-wing newspapers in the United Kingdom feel compelled to acknowledge the shortcoming of the system. Here are some newly-released grim details from the Guardian.

New NHS performance data reveal that the number of people in England who are being forced to wait more than 18 weeks has risen by 26% in the last year, while the number who had to wait longer than six months has shot up by 43%. …Despite rising demand for healthcare caused by the increasingly elderly population and growing numbers of people with long-term conditions, the NHS treated 16,201 fewer people as inpatients in March 2011 compared to March 2010, the latest Referral To Treatment data disclose. …

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Who’s Right on Medicare Reform, Ryan and Rivlin or Obama and Gingrich?

This new video from the Center for Freedom and Prosperity discusses a proposal to solve Medicare’s bankrupt finances by replacing an unsustainable entitlement with a “premium-support” system for private insurance, also known as vouchers.

This topic is very hot right now, in part because Medicare reform is included in the bold budget approved by House Republicans, but also because Newt Gingrich inexplicably has decided to echo White House talking points by attacking Congressman Ryan’s voucher plan.

Narrated by yours truly, the video has two sections. The first part reviews Congressman Ryan’s proposal and notes that it is based on a plan put together with Alice Rivlin, who served as Director of the Office of Management and Budget under Bill Clinton. Among serious budget people (as opposed to the hacks on Capitol Hill), this is an important sign of bipartisan support.

The video also notes that the “voucher” proposal is actually very similar to the plan that is used by Members of Congress and their staff. This is a selling point that proponents should emphasize since most Americans realize that lawmakers would never subject themselves to something that didn’t work.

The second part discusses the economics of the health care sector, and explains the critical need to address the third-party payer crisis. More specifically, 88 percent of every health care dollar in America is paid for by someone other than the consumer. People do pay huge amounts for health care, to be sure, but not at the point of delivery. Instead, they pay high tax burdens and have huge shares of their compensation diverted to pay for insurance policies.

I’ve explained before that this inefficient system causes spiraling costs and bureaucratic inefficiency because it erodes any incentive to be a smart shopper when buying health care services (much as it’s difficult to maintain a good diet by pre-paying for a year of dining at all-you-can-eat restaurants).  In other words, government intervention has largely eroded market forces in health care. And this was true even before Obamacare was enacted.

Medicare reform, by itself, won’t solve the third-party payer problem, but it could be part of the solution – especially if seniors used their vouchers to purchase real insurance (i.e., for large, unexpected expenses) rather than the inefficient pre-paid health plans that are so prevalent today.

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Everything You Need to Know about Healthcare Economics in One Chart

The title of this post may be a slight exaggeration. I actually recommend you read the entire two-page paper by Devon Herrick of the National Center for Policy Analysis. But this chart from that study is an excellent visual display of what’s wrong with the health care system.

You can see that the price of medical care is rising twice as fast as inflation, but you can also see that prices for cosmetic services are rising only half as fast as the general price level. Why are general health care prices soaring, yet prices in one segment of the health care world are very stable (and actually falling relative to all other prices)? The answer is simple. As Devon writes:

A primary reason why health care costs are soaring is that most of the time when people enter the medical marketplace, they are spending someone else’s money. When patients pay their own medical bills, they are conservative consumers. Economic studies and common sense confirm that people are less likely to be prudent, careful shoppers if someone else is picking up the tab. Thus, the increase in spending has occurred because third parties – employers, insurance companies or government – pay almost all the bills.

Study this image for two minutes and contemplate the implications. After that, you’ll know more about healthcare economics than 98 percent of all politicians (though that’s not exactly a huge accomplishment).

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Are House Republicans already Selling Out?!?

I don’t want to give anyone indigestion, but The Hill is reporting that GOPers on Capitol Hill want to require insurance companies to cover pre-existing conditions, which is one of the key provisions of Obamacare.

Speaking to more than 100 students at American University, Cantor said, “What you will see us do is to push for repeal of the healthcare bill, and at the same time, contemporaneously, submit our replacement bill, that has in it the provisions [barring discrimination due to pre-existing conditions and offering young people affordable care options].” Cantor stressed that while he supports full repeal of the current law, Republicans share some of the same goals as Democrats, although they propose different ways of achieving them. “We too don’t want to accept any insurance company’s denial of someone and coverage for that person because he or she may have pre-existing condition,” Cantor said, addressing a young woman in the audience who noted that she had a pre-existing health condition.

This story initially was seen as a sign that House Republicans were planning to keep certain provisions of Obamacare, but Cantor’s office claims he was misquoted and the story now includes a correction indicating that “House Republicans are pursuing a full repeal of healthcare reform while addressing issues in the law, such as pre-existing conditions.”

It doesn’t matter to me, though, whether Republicans violate free markets and ignore the laws of economics by keeping an Obamacare provision or by doing the same thing in a different way with a brand new provision. The bottom line is that private insurance markets will be seriously damaged if the government imposes a mandate requiring companies to provide policies (with no price adjustment) that cover pre-existing conditions.

Such an approach leads to a couple of problems. First, such a mandate will create a bad incentive structure since consumers will be tempted to wait until they’re sick before purchasing insurance. Second, regardless of when they obtain insurance, the mandate would result in higher premiums for everybody else, contributing to what is sometimes referred to as adverse selection, which occurs when relatively healthy people decide to leave the system because government rules push up prices by forcing them to subsidize other consumers. Insurance companies are then left with consumers that are more expensive to cover, which leads to even higher rates, which leads even more consumers to opt out of insurance (which is why this process sometimes is referred to as the health insurance death spiral).

Ironically, the Democrats supposedly solved this problem in Obamacare by imposing the insurance mandate, which helps explain why the big companies were supportive of the legislation.

So what’s the answer? I’ve been around the political system long enough that I actually can sympathize with GOPers who don’t want to appear heartless when dealing with tough issues such as pre-existing conditions, but they better figure out an approach that doesn’t lead to an especially destructive version of “Mitchell’s Law,” which is when one bad government policy (such as a mandate to cover pre-existing conditions) leads to even worse government policy (a health insurance mandate or a single-payer system).

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Low-Income Workers Are the Second Victims of Obamacare

This blog already has noted that Obamacare crippled the market for “kids only” health insurance policies. Unsurprisingly, that is just the beginning of the bad news. The latest development is that health policies designed to provide insurance to low-income workers may no longer be economically feasible. The Wall Street Journal comments.

Among President Obama’s core health-care promises was that Americans can keep their current coverage if they like it. Among the reasons that a new ObamaCare squall blows in every other day is that this claim simply is not true, as people are discovering. The latest fracas was incited by Janet Adamy’s scoop in the Journal this week that McDonald’s Corp. may be forced to cancel its current coverage for 29,500 employees as a result of ObamaCare. McDonald’s told Health and Human Services regulators that new mandates will make its plans “economically prohibitive” and cause “a huge disruption” unless it gets a waiver. …The entire philosophical and policy architecture of ObamaCare is explicitly designed to standardize health benefits and how those benefits should be paid for. Those choices and tradeoffs will be made for everyone by Ms. Sebelius’s regulators. …Around 2.5 million consumers are covered by “mini-med” policies, most of them concentrated in low-wage industries like fast food, hospitality and retail that have large numbers of part-time or temporary workers. In the case of the restaurants, 75% of the workforce turns over every year and nearly half are under age 25. Mini-med plans are a temporary stopgap for businesses that have low margins and face high labor and health costs. But Democrats hate mini-med and other skinny-benefit plans, calling them “underinsurance.” ObamaCare is meant to run them out of the market by mandating benefits, eliminating coverage caps and certain technical rules about how premiums must be spent. …In other words, the choice is between relatively affordable coverage that isn’t as generous as Democrats think it should be and dumping coverage entirely. McDonald’s may eventually offer the high-cost plans that Ms. Sebelius favors, or get its waiver, but many of its less profitable or smaller competitors won’t. While subsidized ObamaCare options will be available in 2014, those costs will merely be transferred to taxpayers.

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Government-Created Third-Party Payer Is the Number One Problem in America’s Health Care System

John Goodman of the NCPA has a great article about how the current healthcare system is heavily distorted by government policies that result in people making decision with other people’s money (or at least what they perceive as other people’s money). The excerpt below is a good summary of John’s key points, but I’ll add a couple of rhetorical questions. What do you think would happen if government created a tax break that made it attractive to expand auto insurance to cover the cost of oil changes and trips to the gas station? Would that make that market more efficient or less efficient? Would Jiffy Lube and Sunoco charge higher prices or lower prices? What would happen to administrative costs?

Almost everyone believes there is an enormous amount of waste and inefficiency in health care. But why is that? In a normal market, wherever there is waste, entrepreneurs are likely to be in hot pursuit — figuring out ways to profit from its elimination by cost-reducing, quality-enhancing innovations. Why isn’t this happening in health care? As it turns out, there is a lot of innovation here. But all too often, it’s the wrong kind. There has been an enormous amount of innovation in the medical marketplace regarding the organization and financing of care. And wherever health insurers are paying the bills (almost 90 percent of the market) it has been of two forms: (1) helping the supply side of the market maximize against third-party reimbursement formulas, or (2) helping the third-party payers minimize what they pay out. Of course, these developments have only a tangential relationship to the quality of care patients receive or its efficient delivery. The tiny sliver of the market (less than 10 percent) where patients pay out of pocket has also been teeming with entrepreneurial activity.  In this area, however, the entrepreneurs have been lowering cost and raising quality — what most of us wish would happen everywhere else. …Wherever there is third-party payment, the goal of innovation is to produce more products that qualify for reimbursement, even if the effects on patient outcomes are only marginal. Wherever there is no third-party reimbursement, innovators are focused on ways to lower cost and raise quality. Take cosmetic surgery. Over the past two decades there has been an enormous amount of innovation in the field — all of the cost-lowering, quality-raising variety. That explains why the volume of cosmetic surgeries grew six-fold over the past 20 years, while the real price declined by more than one-third. Similarly, there has been remarkable innovation in LASIK surgery — another area where third-party payers are not. Yet the real price of LASIK surgery has declined by 25 percent over the past decade. The same principle can be seen at work in the international marketplace. For example, India has a potentially huge market for medical care. But 80 percent of health care spending in that country is private and there is very little health insurance. So some of the companies that make expensive technology for the developed world are now finding ways to produce the same services for a fraction of the price. GE Healthcare, for example, has introduced a portable electrocardiogram machine into the Indian market that will perform the heart exam for 20 cents (compared to a normal price of $50). Siemens (another maker of high-end, expensive equipment) has built mobile diagnostics units for the Indian market with X-ray, ultrasound and pathology systems.

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Another Sad Example of Mitchell’s Law

I’ve decided my one legacy to the world is the phrase, “Bad government policy begets more bad government policy.” This term, which I am modestly calling Mitchell’s Law, describes what happens when government intervention (Fannie and Freddie, for example, or Medicare and Medicaid) causes problems in a particular market (a housing bubble or a third-party payer crisis), which leads the politicians to impose more misguided intervention (bailouts or Obamacare).

Here’s a good example from Germany. The politicians created government-run healthcare. Overweight people are putting a larger burden on the system, imposing costs on taxpayers. The logical response is to shift to a market-based system where people are in charge of their own healthcare costs. Not surprisingly, that option isn’t being considered. Instead, politicians are using the situation as an excuse to consider even more taxes.

Marco Wanderwitz, a conservative member of parliament for the German state of Saxony, said it is unfair and unsustainable for the taxpayer to carry the entire cost of treating obesity-related illnesses in the public health system. “I think that it would be sensible if those who deliberately lead unhealthy lives would be held financially accountable for that,” Wanderwitz said, according to Reuters. Germany, famed for its beer, pork and chocolates, is one of the fattest countries in Europe. Twenty-one percent of German adults were obese in 2007, and the German newspaper Bild estimates that the cost of treating obesity-related illnesses is about 17 billion euro, or $21.7 billion, a year. …Health economist Jurgen Wasem called for Germany to tackle the problem of fattening snacks in order to raise money and reduce obesity. “One should, as with tobacco, tax the purchase of unhealthy consumer goods at a higher rate and partly maintain the health system,” Wasem said, according to Germany’s English-language newspaper The Local. “That applies to alcohol, chocolate or risky sporting equipment such as hang-gliders.” Others are suggesting even more extreme measures. The German teachers association recently called for school kids to be weighed each day, The Daily Telegraph said. The fat kids could then be reported to social services, who could send them to health clinics.

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Great Moments in Government-Run Healthcare

While it will be nice to say “I told you so” when Obamacare leads to bad results in America, I would much prefer to avoid having stories like this appear in the American press. But in the United Kingdom, where government controls more than 90 percent of the healthcare system (as opposed to my rough guess of less than 70 percent in America), these kinds of disasters are becoming increasingly common. Here’s a blurb from a story in the UK-based Telegraph.

Women in labour have been forced to wait while epidural equipment was borrowed from other hospitals, while other patients have been denied chest drains and radiology supplies, according to doctors at South London Healthcare Trust. Minutes of a meeting between medical staff and the trust’s chief executive say “cash flow” problems at the trust which has a £50 million deficit, mean vital equipment is regularly not ordered. A separate letter sent to managers of the trust, one of the largest in the country, says consultants have been misled into carrying out operations when it was not safe to go ahead because of bed shortages. …Doctors told managers “again and again” that consultants were unable to know that equipment was missing until the last item had been used, when their patient was already lying on the table, according to the minutes of June 16 meeting. The document states that Chris Streather, the trust’s chief executive said the situation had improved to the extent that the trust could now pay some of its bills, but that he could not promise that the problem would not recur. It describes “significant risks” to patient safety because of shortages of beds, and “chaotic” failures dealing with such crises at the trust, which also runs Queen Mary’s Hospital in Sidcup, in Kent, and Queen Elizabeth Hospital in Woolwich, London, and NHS units in Orpington and Beckenham, in Kent. Patients affected include a woman who had undergone major cancer surgery who could not be found a bed.

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Abortion, Third-Party Payer, and the Cost of Health Care

A major problem with America’s healthcare system, both before and after Obamacare, is the fact that consumers very rarely spend their own money when obtaining healthcare. Known as third-party payer, this problem exists in part because government directly finances almost 50 percent of healthcare expenditures. But even a majority of supposedly private healthcare spending is financed by employer-provided policies that are heavily distorted by a preference in the tax code that encourages insurance payments even for routine expenses. According to government data, only 12 percent of healthcare costs are financed directly by consumers. And since consumers almost always are buying healthcare with somebody else’s money, it should come as no surprise that this system results in rising costs and inefficiency. This is why repealing Obamacare is just the first step that is needed if policymakers genuinely want to restore a free market healthcare system (all of which is explained in this 4-minute video).

Unfortunately, many people think that market forces don’t work in the healthcare system and that costs will always rise faster than prices for other goods and services. There are a few examples showing that this is not true, and proponents of liberalization usually cite cosmetic surgery and laser-eye surgery as examples of treatments that generally are financed by out-of-pocket payments. Not surprisingly, prices for these treatments have been quite stable - particularly when increases in quality are added to the equation.

I just ran across another example, and this one could be important since it may resonate with those who normally are very suspicious of free markets. As the chart from the Alan Guttmacher Institute shows, the price of an abortion has been remarkably stable over the past 20-plus years. Let’s connect the dots to make everything clear. Abortions generally are financed by out-of-pocket payments. People therefore have an incentive to shop carefully and get good value since they are spending their own money. And because market forces are allowed, the cost of abortions is stable. The logical conclusion to draw from this, of course, is that allowing market forces for other medical services will generate the same positive results in terms of cost and efficiency.

None of this analysis, by the way, implies that abortion is good or bad, or that it should be legal or illegal. The only lesson to be learned is that market forces control costs and promote efficiency and that more government spending and intervention exacerbate the third-party payer crisis.

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Are Reporters for the New York Times Biased or Stupid?

The Obama Administration has decided to mandate that insurance companies provide dozens of tests to consumers at no charge. Any person with an IQ that is above room temperature understands, of course, that this doesn’t mean there is no cost for the tests. It just means that the costs are borne indirectly, most likely in the form of higher premiums charged by insurance companies. Yet Robert Pear, a reporter for the New York Times, leads off his story by saying that the tests are now free and this will be beneficial for consumers. And at no point in the story does he mention any of the various – and unavoidable – effects of the new government mandate. The only logical conclusion is that he is either completely oblivious to indirect costs or that he is an opinion writer masking as a reporter because he wants to advance an ideological agenda. You choose.

The White House on Wednesday issued new rules requiring health insurance companies to provide free coverage for dozens of screenings, laboratory tests and other types of preventive care. The new requirements promise significant benefits for consumers — if they take advantage of the services that should now be more readily available and affordable. …The rules will eliminate co-payments, deductibles and other charges for blood pressure, diabetes and cholesterol tests; many cancer screenings; routine vaccinations; prenatal care; and regular wellness visits for infants and children.

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Video Explains that Repealing Obamacare Should Be the First of Many Reforms to Restore Free Markets to Health Care

Eline van den Broek probably is not happy today since she was in South Africa watching her team lose a high-scoring battle with Spain, but she should be very proud of the new video she narrated that urges the repeal of Obamacare – and also points out some of the other reforms that are needed to restore markets to the US healthcare system.

Her comments on how the American healthcare system was a mess even before Obamacare are particularly important.

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The Way Healthcare Should Function

This article from the Weekly Standard almost makes me want to cry with frustration. It shows how the healthcare system generally would function in the absence of government-imposed distortions such as Medicare, Medicaid, and (especially!) the tax loophole for employer-provided insurance. Sadly, Obamacare will push the system even further in the wrong direction. And when those bad results become obvious, I can safely predict politicians will blame the free market and use the mess as an excuse for even more government intervention. This is “Mitchell’s Law”: Bad policy begets more bad policy.

On a wall inside Dr. Brian Forrest’s medical office in a suburb of Raleigh, North Carolina, is something you won’t find in most doctors’ offices, a price list… Forrest doesn’t take insurance. If he did, the prices would be far higher and not nearly as transparent. He says listing prices up front is about trying to do business in a straightforward way, “like a Jiffy Lube.” Forrest’s practice, Access Healthcare, was born out of his frustration with the bureaucratic system run by major health care providers and insurance companies. His epiphany came about 10 years ago, as he was completing his family medicine residency at Wake Forest University. “I was basically being told I needed to see 30 patients a day every day, and that’s what we had to do,” he recalls, speaking with a soft drawl. He didn’t care for that pace, preferring to spend 45 minutes to an hour with each patient. …Because he doesn’t have to file insurance forms, he only needs a single office assistant, and the low overhead allows him to charge less than other doctors. Occasionally, his charges wind up being less than just the co-pays for Medicare or private insurance. He’s negotiated deals with a lab company to reduce his patients’ costs for tests. The lab loves being paid on the spot for services rendered and allows Forrest to charge his patients $30, for example, for a prostate-cancer screening test that the company bills to an insurer at $184. “For specialists, cash in the hand is better than a bigger amount charged to insurance,” he says. He’s found other doctors happy to join in, such as a cardiologist who’s willing to give discounts of 80 to 90 percent to his patients if he’s paid cash up front. “The discovery I made was that by getting rid of administrative, bureaucratic hassles, I was able to do very well financially and at the same time have high patient satisfaction and good quality of care,” he says. Even more surprising, most of his patients are not wealthy. Half have no insurance, and another 15 percent are on Medicare. …in recent months, he’s been flooded with inquiries from fellow doctors. “Since the health care reform bill passed, you wouldn’t believe the number of doctors who have said they’ve had it and want to operate outside the system,” he says.

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Great Moments in Government-Run Healthcare

British healthcare is often criticized for long waiting lines and slovenly conditions, but that’s just part of the story. Here’s a frightening story about a women who actually got treated – and died as a result. To be fair, this presumably is a tragic exception and most people in the United Kingdom surely receive adequate care. That being said, how can medical professionals miss a six-inch handle stuck in someone’s butt?!? Here’s an excerpt from the Sun newspaper:

A young mum died after a series of blunders by doctors who failed to spot a six-inch long toilet brush handle embedded in her buttock, an inquest was told today. Cindy Corton, 35, was left with the bizarre injury after a drunken fall in a friend’s bathroom in 2005 but “serious errors” by doctors then led to her death. It was two years before Cindy, who was in constant pain, was able to convince doctors that the thin serrated plastic handle was stuck in the flesh of her bottom. By then what should have been a routine procedure to remove it had become much more dangerous because the handle had become embedded in her pelvis. After two unsuccessful operations in 2007 the mother-of-one was in such agony that she agreed to undergo further surgery in June last year despite being told it could prove fatal. Cindy of Sleaford, Lincs, spent more than ten hours in surgery at Nottingham’s Queens Medical Centre but died from massive blood loss. …Cindy’s husband, a construction manager, is now taking legal action against United Lincolnshire Hospitals Trust. …He added: “Cindy got a very poor service from the NHS. I’m sure she would have got better treatment in foreign countries.”

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