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Posts Tagged ‘Health Care’

With Christmas approaching, people are putting together their lists for Santa Claus.

I’m not sure I’ll find any of these things under my tree, but here’s what I want.

In the joyous spirit of the season, now let’s add to this collection by targeting the Department of Veterans Affairs.

The is the agency that put veterans on secret waiting lists, leading to needless and tragic deaths. And then the bureaucrats awarded themselves big bonuses (nice work if you can get it!).

And the shoddy treatment of America’s former warriors continues. Here are some excerpts from a story in the Daily Caller.

…almost 600 veterans who received dental care may have been infected with HIV or hepatitis. …the VA is notifying 592 veterans who had dental procedures from a particular dental provider… If any veterans test positive for HIV or hepatitis, they can receive free treatment.

Gee, that’s a great deal. You may get a life-altering illness, but the bureaucracy that enabled the illness will give you additional treatments.

Oh, and you’ll be glad to know that the VA dentist who potentially exposed the veterans is continuing to draw a government paycheck.

Instead of being fired, that dentist has been reassigned to an administrative role, despite potentially exposing almost 600 veterans to HIV or hepatitis.

Like I said, nice work if you can get it.

The VA’s penchant for secrecy wasn’t limited to waiting lists. The bureaucracy also has tried to cover up poor performance at dozens of local medical facilities.

Stars and Stripes has revealed the unseemly details.

A veterans group has blasted the Department of Veterans Affairs over leaked internal documents showing dozens of medical facilities performing at below-average levels. USA Today obtained the documents and published them Wednesday, revealing the secret system. The VA had previously refused to make the ratings public, claiming the system is for internal use only. It rates each of the VA’s medical centers on a scale of one to five, with one being the worst. …The worst performing centers are in Dallas and El Paso, Texas, and in Nashville, Memphis and Murfreesboro, Tenn. The documents also show that some medical centers have not improved despite scandals and scrutiny from Congress. The Phoenix VA still sits at a one-star rating despite a 2014 scandal revealing veterans died while waiting for care and that staff manipulated wait-time data there and at other VA hospitals across the country.

You’ll be happy to learn, however, that there were some consequences for the Phoenix division.

In response the malfeasance, neglect, and mistreatment of veterans, the leaders of the VA in Washington decided to punish the local bureaucracy by…well, take a wild guess.

The VA announced last October it plans to allocate $28 million to the Phoenix center in addition to its annual budget.

While these scandals are maddening, they are a distraction from the bigger problem. Simply stated, the core structure of the VA is misguided and the entire bureaucracy should be shut down.

Two of my colleagues, Michael Cannon and Chris Preble, explained the problem in a column for the New York Times.

Even when the department works exactly as intended, it helps inflict great harm on veterans, active-duty military personnel and civilians. Here’s how. Veterans’ health and disability benefits are some of the largest costs involved in any military conflict, but they are delayed costs, typically reaching their peak 40 or 50 years after the conflict ends. …when Congress debates whether to authorize and fund military action, it can act as if those costs don’t exist. But concealing those costs makes military conflicts appear less burdensome and therefore increases their likelihood. It’s as if Congress deliberately structured veterans’ benefits to make it easier to start wars. …The scandal isn’t at the Department of Veterans Affairs. The scandal is the Department of Veterans Affairs.

They proposed an idea which would lead to honest budgeting and make the Department of Veterans Affairs superfluous.

We propose a system of veterans’ benefits that would be funded by Congress in advance. It would allow veterans to purchase life, disability and health insurance from private insurers. Those policies would cover losses related to their term of service, and would pay benefits when they left active duty through the remainder of their lives. To cover the cost, military personnel would receive additional pay sufficient to purchase a statutorily defined package of benefits at actuarially fair rates. …Insurers and providers would be more responsive because veterans could fire them — something they cannot do to the Department of Veterans Affairs. Veterans’ insurance premiums would also reveal, and enable recruits and active-duty personnel to compare, the risks posed by various military jobs and career paths. Most important, under this system, when a military conflict increases the risk to life and limb, insurers would adjust veterans’ insurance premiums upward, and Congress would have to increase military pay immediately to enable military personnel to cover those added costs.

Jonah Goldberg of National Review takes a different approach, but reaches the same conclusion.

He starts by pointing out more bad behavior by the VA.

There is only one guaranteed way to get fired from the Department of Veterans’ Affairs. Falsifying records won’t do it. Prescribing obsolete drugs won’t do it. Cutting all manner of corners on health and safety is, at worst, going to get you a reprimand. No, the only sure-fire way to get canned at the VA is to report any of these matters to authorities who might do something about it. …“Our concern is really about the pattern that we’re seeing, where whistleblowers who disclose wrongdoing are facing trumped-up punishment, but the employees who put veterans’ health at risk are going unpunished,” Special Counsel Carolyn Lerner recently told National Public Radio.

And he then says the only real solution is to eliminate the bureaucracy.

The real fix is to get rid of the VA entirely. The United States has an absolute obligation to do right by veterans. It does not have an absolute obligation to run a lousy, wasteful, unaccountable, corrupt, and inefficient bureaucracy out of Washington. …Imagine that the federal government simply gave all of the VA hospitals to the states they’re in. Instead of the VA budget, Congress just cut checks to states to spend on their veterans. You’d still have problems, of course. But what you would also have are local elected officials — city councilmen, state legislators, mayors, governors, etc. — whom voters could hold directly accountable. …this process would allow everyone to learn from both mistakes and successes in a way that a centralized bureaucracy cannot or will not. Personally, I’d rather see the money spent on veterans go straight to the veterans themselves, in the form of cash payments or vouchers to be used for health care in the private sector.

Amen.

National defense is a legitimate function of the federal government, so that means fairly compensating the people who give service to the country. Especially if they suffer wounds that require short-run or long-run care.

But as both my colleagues and Jonah Goldberg have explained, none of that means we need a cumbersome and blundering (and sometimes venal) bureaucracy.

Donald Trump shouldn’t be figuring out who to pick to head the VA, he should be putting together a plan to get rid of it.

To conclude, I found a nice chart that shows when various departments were created, which I have helpfully augmented by crossing out the ones that I’ve explained should be abolished. As you can see, there is still some low-hanging fruit to go after.

By the way, the White House website says the Small Business Administration has “the status of Cabinet-rank,” whatever that means. I guess it’s sort of like a participation trophy for the SBA.

In any event, I’ve also explained why that useless bureaucracy should be wiped out.

And I guess it’s good news that the Postal Service is no longer part of the cabinet, though that’s secondary to the more important issue of getting the government out of the business of delivering mail.

P.S. The VA also is capable of wasting money in ways that don’t involve premature deaths for veterans, so it’s a full-service bureaucracy!

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Economists are sometimes considered to be a bit odd, and the same thing is sometimes said about libertarians.

And since I’m a libertarian economist, I realize that makes me doubly suspect.

So when I’ve written about the desirability of market-based organ transplants (see here, here, and here), I realize some people will instinctively object because selling one’s organs is somehow distasteful and icky.

Or it makes people subject to exploitation. For instance, writing for the Washington Post, Scott Carney argues that organ sales would take advantage of the poor.

What would happen if the United States legalized the sale of human organs? …Whether we like it or not, we live in the era of globalization, and if the U.S. legalizes the market for body parts, there is no reason to think that international economies won’t play a role in how a patient decides to procure transplant organs. …According to the National Foundation for Transplants, a kidney transplant costs about $260,000. In the illegal organ markets in India, Egypt and Pakistan, the same procedure rings in at just shy of $20,000 — certified organ included. …The only thing stopping the typical American transplant patient from going abroad and buying an organ is the difficulty of making contact with a broker and the threat of what might happen if they get caught. …the market for human body parts is a lot like the one for used cars: They’re only worth what someone is willing to sell them for. …hundreds of thousands of people are available and willing to sell their flesh for pennies on the dollar.

My view, for what it’s worth, is that I shouldn’t be allowed (and the government shouldn’t be allowed) to block a willing seller and a willing buyer from engaging in a mutually beneficial exchange.

But folks like Mr. Carney think that poor people will get exploited.

…it’s helpful to review what happened in the market for human surrogate babies. In the United States, it is legal to pay a woman to carry a child… Once the market was clearly defined in the United States, other countries, with looser definitions of human rights, fought for their share of the market. In 2002, India became the go-to destination for procuring a budget surrogate womb. To the surprise of no one, the Indian industry soon began to cut corners. Women were housed under lock and key in houses known to the press as “baby factories.” …Late last year, India finally outlawed surrogacy tourism after non-stop incidents and official inquiries into the surrogates’ well-being. Now the commercial surrogacy boom seems to be moving to Cambodia where regulations are still loose.

So what’s his bottom line?

We cannot solve our own organ shortage by exploiting the poor and helpless people on the other side of the world.

I don’t doubt that there are shady people willing to exploit the poor by not giving them relevant information and/or not fully compensating them, though that’s not an argument against organ sales (just as similar periodic bad behavior by car salesmen and insurance brokers isn’t an argument against markets for automobiles and life insurance).

Instead, it’s an argument for governments in places such as India to do a better job at protecting and upholding the rule of law, which is one of the few proper and legitimate functions of a state.

A Wall Street Journal column by two attorneys from the Institute for Justice approaches the issue more dispassionately, noting that a market for bone marrow could save many lives.

Hemeos is aimed at one of the most pressing problems in medicine: the shortage of bone-marrow donors to combat deadly blood diseases. Thousands of Americans are waiting for a lifesaving donor, and thousands more have died waiting. Marrow donors provide blood stem cells, which reproduce continuously in the patient and restore the ability to make healthy blood. …Blood is drawn from one arm, the blood stem cells are skimmed out, and the blood is returned through the other arm. Donated marrow cells regenerate quickly and fully. Despite the ease of donating, thousands of patients with leukemia or other blood-related disorders are desperately searching for donors because a specific genetic match is required. …Hemeos plans to revolutionize donor recruitment by taking one simple step: compensating donors with a check for around $2,000. As with every other valuable thing in the world, we will get more marrow cells when we pay for them. It’s Econ 101.

Sounds great, right? A classic example of a win-win situation!

Except, well, government.

In 1984 the National Organ Transplant Act (NOTA) made it a federal crime to pay donors. Unlike plasma, sperm and egg donation—for which compensation is legal and common—paying marrow donors remains illegal. The result? Shortages, waiting lists and unnecessary suffering.

Fortunately, the courts have stepped in.

Ms. Flynn has three girls with Fanconi anemia, a genetic disorder that causes marrow failure. Wanting to do everything to save her girls and others, Ms. Flynn, along with several cancer patients in need of bone marrow, sued the Justice Department to end the ban on compensating marrow donors. A federal appeals court ruled in 2011 that because Congress expressly said that NOTA wouldn’t affect compensation for blood donation, …Congress couldn’t have intended the law to restrict compensation for marrow donations using modern, nonsurgical techniques.

But, still, government is government.

But a year after Ms. Flynn won her case, the Department of Health and Human Services announced that it might enact a regulation effectively nullifying the court’s ruling—and thus Ms. Flynn’s victory. …And while HHS fiddles, patients die. Thousands of Americans have died awaiting a marrow transplant since HHS embarked on this needless diversion. How many could have been saved? And of those still alive, how many could have received a transplant faster and with a better-quality donor? This is a lesson in how a faceless, lumbering bureaucracy smothers innovation and optimism.

Here’s a very powerful video from IJ on this issue.

It’s hard to watch that video and think about what you would do if your children faced the risk of death.

Sally Satel of the American Enterprise Institute adds her two cents, writing on kidney sales from the unique perspective of being someone who has received two kidneys solely because of human kindness.

I am almost obscenely lucky. Within a 10-year period, two glorious women rescued me from years of grueling dialysis and a guarantee of premature death. …tremendous generosity allowed me to live many years in peace instead of constant worry. …I understood the general reluctance to donate. After all, giving a kidney is by no means risk-free (roughly a 0.02 percent, or 2 in 10,000 mortality rate, a 3–5 percent rate of serious complications, and perhaps a 25 percent chance of minor complications). Also, some people want to “save” their kidney lest, say, their own child needs it. Then, too, a lot of people are simply put off by surgery, and some handful—no one knows the extent of this group—can’t afford time off and lost wages. Of the 120,000 people waiting for organs, 101,000 are waiting for kidneys.

And for those who aren’t as lucky, Sally points out that current policy puts them in a very difficult position.

My transplants were a matter of private policy. My friends saved me—out of empathy, out of principle, out of affection. I’m beyond fortunate for them, because our public policy is failing far too many people who need organs. Twenty-two people die each day because they cannot survive the wait for an organ; 12 of those die from lack of a kidney in particular. The core of the problem is that prospective donors are legally required to relinquish an organ in the spirit of “altruism.” Despite the risk they take on, they are not allowed to benefit materially in any way. This mandate is part of the 1984 National Organ Transplant Act, the law that established the national system of organ procurement and distribution. Any exchange of an organ for any sort of “valuable consideration,” is a felony punishable by up to five years in prison and/or a $50,000 fine.

Indeed, current policy is causing people to needlessly die.

The original law was intended in good faith. The point was to prevent a classic free market where only wealthier patients could afford to buy organs; it also sought to avert the scenario where poor donors were the “suppliers” for the well-off. …But more than enough time has now elapsed to conclude with certainty that an altruism-only system is sorely inadequate. And as in so many realms, it is the poor (especially poor minorities) that have suffered the most because of the deficit. They are less likely to be referred for transplant, more likely to die on dialysis, and less likely to receive an organ from the national pool even when they are referred.

One lawmaker is trying to push policy in the right direction.

In May, Pennsylvania Rep. Matt Cartwright introduced a bill called the Organ Donor Clarification Act of 2016. Its goal is to permit study of the effect of rewarding people who are willing to save the life of a stranger through living donation: Not through a free market with direct cash payments… Rather than large sums of cash, potential rewards could include a contribution to the donor’s retirement fund, an income tax credit or a tuition voucher, lifetime health insurance, a contribution to a charity of the donor’s choice, or loan forgiveness. Only the government, or a government-designated charity, would be allowed to distribute these benefits. (The funds could potentially come from the savings of stopping dialysis, which costs roughly $80,000 a year per person.) In other words, needy patients would receive kidneys regardless of their ability to reward donors out of their own pockets. …The donors’ kidneys would be distributed to people on the waiting list according to the rules now in place.

Congressman Cartwright’s proposal obviously wouldn’t create a genuine free market. But it would allow compensation to become part of the equation. So his proposal presumably would save lives compared to the current system.

Oh, by the way, it’s worth noting that criminalization of organ sales doesn’t fully stop the practice. Other nations step in, often with policies that are disgusting.

…one of the most horrific markets operating today: Communist China’s selling of organs harvested from prisoners of conscience. Ten thousand “transplant tourists” travel annually to communist China, where they pay top dollar to get organs transplanted on demand. …Free countries may not be able to stop this horrific practice, but they could reduce the demand for these organs by allowing free people to exercise the choice to sell their organs. Currently, free countries rely only on altruism, which has resulted in severe shortages of organs and black markets.

In other words, the policies advocated by Mr. Carney (the first story cited at the start of this column) would enhance the profitability of the Chinese organ-harvesting system. That doesn’t seem like a good outcome.

Here’s a map showing how the kidney trade works right now, with the underground economy playing a big role.

My bottom line is that poor people would get more money and have more legal protections if the system was fully legalized and operating above ground.

P.S. When I wasn’t busy causing trouble in college, I would sell my plasma twice weekly. The $15 I received from the medical company was sufficient to cover my food budget. They exploited me and I exploited them.

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Way back in 2009, some folks on the left shared a chart showing that national expenditures on healthcare compared to life expectancy.

This comparison was not favorable to the United States, which easily spent the most money but didn’t have concomitantly impressive life expectancy.

At the very least, people looking at the chart were supposed to conclude that other nations had better healthcare systems.

And since the chart circulated while Obamacare was being debated, supporters of that initiative clearly wanted people to believe that the U.S. somehow could get better results at lower cost if the government played a bigger role in the healthcare sector.

There were all sorts of reasons to think that chart was misleading (higher average incomes in the United States, more obesity in the United States, different demographics in the United States, etc), but my main gripe was that the chart was being used to advance the cause of bigger government when it actually showed – at least in part – the consequences of government intervention.

The real problem, I argued, was third-party payer. Thanks to programs such as Medicare and Medicaid, government already was paying for nearly 50 percent of all heath spending in the United States (indeed, the U.S. has more government spending for health programs than some nations with single-payer systems!).

But that’s just party of the story. Thanks to a loophole in the tax code for fringe benefits (a.k.a., the healthcare exclusion), there’s a huge incentive for both employers and employees to provide compensation in the form of very generous health insurance policies. And this means a big chunk of health spending is paid by insurance companies.

The combination of these direct and indirect government policies is that consumers pay very little for their healthcare. Or, to be more precise, they may pay a lot in terms of taxes and foregone cash compensation, but their direct out-of-pocket expenditures are relatively modest.

And this is why I said the national health spending vs life expectancy chart was far less important than a chart I put together showing the relentless expansion of third-party payer. And the reason this chart is so important is that it helps to explain why healthcare costs are so high and why there’s so much inefficiency in the health sector.

Simply stated, doctors, hospitals, and other providers have very little market-based incentive to control costs and be efficient because they know that the overwhelming majority of consumers won’t care because they are buying care with other people’s money.

To get this point across, I sometimes ask audiences how their behavior would change if I told them I would pay 89 percent of their dinner bill on Friday night. Would they be more likely to eat at McDonald’s or a fancy steakhouse? The answer is obvious (or should be obvious) since they are in box 2 of Milton Friedman’s matrix.

So why, then, would anybody think that Obamacare – a program that was designed to expand third-party payer – was going to control costs?

Though I guess it doesn’t matter what anybody thought at the time. The sad reality is that Obamacare was enacted. The President famously promised healthcare would be more affordable under his new system, both for consumers and for taxpayers.

So what happened?

Well, the law’s clearly been bad news for taxpayers.

But let’s focus today on households, which have borne the brunt of the President’s bad policies. The Wall Street Journal had a report a few days ago about what’s been happening to the spending patterns of middle-class households.

The numbers are rather grim, at least for those who thought Obamacare would control health costs.

A June Brookings Institution study found middle-income households now devote the largest share of their spending to health care, 8.9%… By 2014, middle-income households’ health-care spending was 25% higher than what they were spending before the recession that began in 2007, even as spending fell for other “basic needs” such as food, housing, clothing and transportation, according to an analysis for The Wall Street Journal by Brookings senior fellow Diane Schanzenbach. …Workers aren’t the only ones feeling the pain of rising health-care costs. Employers still typically pay roughly 80% of individual health-insurance premiums… In 2015, 8% of Americans’ household spending went toward health care, up from 5.8% in 2007, according to the Labor Department.

Here’s a chart from the story. It looks at data from 2007-2014, so it surely wouldn’t be fair to say Obamacare caused all the increase. But it would be fair to say that the law hasn’t delivered on the empty promise of lower costs.

Let’s close with a few important observations.

First, there’s a very strong case to repeal Obamacare, but nobody should be under the illusion that this will solve the myriad problems in the health sector. It would be a good start, but never forget that the third-party payer problem existed before Obamacare.

Second, undoing third-party payer will be like putting toothpaste back in a tube. Even though there are some powerful examples of how healthcare costs are constrained when genuine market forces are allowed to operate, consumers will be very worried about shifting to a system where they pay directly for a greater share of their healthcare costs.

Third, there’s one part of Obamacare that shouldn’t be repealed. The so-called Cadillac Tax may not be the right way to deal with the distorting impact of the healthcare exclusion, but it’s better than nothing.

Actually, we could add one final observation since the Obama era will soon be ending. When historians write about his presidency, will his main legacy be the Obamacare failure? Or will they focus more on the failed stimulus? Or maybe the economic stagnation that was caused by his policies?

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At the risk of understatement, Obamacare is a mess.

It’s been bad for taxpayers, bad for consumers, and bad for healthcare.

It’s even been bad for some of the special interest groups that backed the legislation. The big insurance companies supported the law, for instance, because they thought it would be good to have the government force people to buy their products.

And these corrupt firms even got a provision in the law promising bailouts from taxpayers if the Obamacare system didn’t work.

Given the miserable track record of the public sector, that was probably a crafty move.

But the companies mistakenly assumed their sleazy pact with Obama, Pelosi, and Reid was permanent. Fortunately, their Faustian bargain appears to be backfiring.

Senator Marco Rubio has led the fight to stop bailouts for the big insurance companies.

Here are some excerpts from his recent column in the Wall Street Journal.

Six years after being signed into law, ObamaCare is a costly and unsustainable disaster. …ObamaCare is also bringing out corporate America’s worst crony-capitalist impulses. The health-insurance lobby has teamed up with trial lawyers to sue the federal government—through individual lawsuits and a $5 billion class action—for not following through on a sweetheart bailout deal buried in the law. This provision of ObamaCare would have required taxpayers to bail out insurers.

But in a rare victory for taxpayers, the Florida Senator got the law changed to restrict bailouts.

My conservative colleagues and I sounded the alarm about the likelihood of a taxpayer-funded bailout of health insurers (and were mocked as Chicken Littles for it). …When it came time to pass a spending bill at the end of 2014, we succeeded in making it the law of the land that the ObamaCare bailout program could not cost taxpayers a single cent—which ended up saving taxpayers $2.5 billion. In December of last year, we came back and repeated the feat. Now I am urging leaders in both the House and Senate to make this a priority and stop the bailout a third time.

As you might imagine, there’s a counterattack by the corrupt insurance companies that conspired with the White House to impose Obamacare on the nation.

…the health-insurance companies are suing to try to get their bailout…professional attorneys from the Congressional Research Service…said that the administration’s practice of making other payments to insurers under the ObamaCare reinsurance program “would appear to be in conflict with the plain text” of the law. …Health insurers can hire all the high-paid trial lawyers they want, but they will run into a constitutional buzz saw: America’s founding document grants Congress the power of the purse… Health-insurance companies need to wake up to the reality that this…money they are fighting for, and that the Obama administration is trying to weasel a way to somehow give them, belongs to taxpayers. Taxpayers get to decide—through me and others in Congress—whether to bail them out. And the people have spoken: No, we will not bail out health insurance companies for ObamaCare’s failures.

Amen to Senator Rubio.

Let’s hope Congress continues to oppose bailouts, and let’s also hope the White House isn’t successful in somehow giving our money to the big insurance companies.

Speaking of which, here’s what Investor’s Business Daily wrote about the bailout controversy.

Right when you think Washington can’t get any worse, it does. That much was evident at a recent U.S. House of Representatives committee hearing into the Obama administration’s bailout of private health insurance companies. It’s a textbook case of government officials ignoring federal law to put special interests before the interests of American taxpayers and families.

Here’s how the mess was created…and how the Obama White House chose to respond.

Thanks to the Affordable Care Act’s labyrinthine mandates, health insurance companies have collectively lost billions of dollars on the exchanges, leading to an increasing number of them limiting their participation in or exiting the exchanges altogether. As a result, many insurers have demanded larger subsidy payments. …responding to insurance industry demands — in November the Obama administration promised to “explore other sources of funding” for payments to insurers. Yet rather than work with Congress, the administration flouted the law entirely — and in this case, that means using tax dollars to bail out insurers left on the exchanges. CMS simply decided to ignore the law.

Unfortunately, ordinary people don’t have that option.

They simply pay more to get less.

Meanwhile, Americans rightly wonder who’s looking out for them. Premiums have actually risen faster in the five years after passage of the Affordable Care Act than in the five years before, while deductibles average nearly $3,000 for the most popular exchange plans.

Isn’t that typical.

Big government makes life worse for the average person while the special interests get special deals.

Speaking of special deals, let’s look at another Obamacare rescue for a privileged group.

Bob Moffit of the Heritage Foundation explains the contortions needed to keep health insurance subsidies flowing to Capitol Hill.

…one scandal is truly bipartisan: How key administration and congressional officials connived to create, under cover of the Affordable Care Act, also known as Obamacare, special health insurance subsidies for members of Congress.

Here’s the background.

Rushing to enact the giant Obamacare bill in March 2010, Congress voted itself out of its own employer-sponsored health insurance coverage—the Federal Employees Health Benefits Program. …But in pulling out of the Federal Employees Health Benefits Program, they also cut themselves off from their employer-based insurance contributions.

Subjecting themselves and their staff to Obamacare may have been smart politics, if only to avoid the charge of hypocrisy, but that created a different problem.

Obamacare’s insurance subsidies for ordinary Americans are generous, but capped by income. No one with an annual income over $47,080 gets a subsidy. That’s well below typical Capitol Hill salaries. Members of Congress make $174,000 annually, and many on their staff have impressive, upper-middle-class paychecks. …Realizing what they had done, congressional leaders sought desperately to get fatter taxpayer subsidies in the Obamacare exchange system. …The standard excuse was that, without a special “sweetener,” a Capitol Hill “brain drain” would ensue; the best and brightest would flee to the private sector to get more affordable employment-based coverage.

Gee, it would have been a shame if the people who have screwed up public policy had to get jobs in the private sector (or, more likely, the parasitic lobbying sector).

But the law oftentimes is not an obstacle when the Obama White House wants something to happen.

…at a July 31 closed-door meeting with Senate Democrats, President Barack Obama had promised he would “fix” the mess they made of their health coverage. So, on Aug. 7, 2013, just as Congress was getting out of town for the August recess, the Office of Personnel Management ruled that members of Congress and staff enrolled in the exchange program would get Federal Employees Health Benefits Program subsidies, even though they were no longer in the program.

But how exactly did the White House evade the law?

…the Office of Personnel Management declared that Congress and staff were eligible to enroll in the Washington, D.C., “SHOP” Exchange, a health insurance exchange reserved for small businesses with fewer than 50 employees. The exchange offers special insurance subsidies to participating small businesses. The problem was, of course, that Congress is not a “small business,” at least under any clinically sane definition of the term, and no section of the Affordable Care Act provided for any congressional exemption from the ban on large employer participation in the SHOP exchanges.

By the way, as a former staffer on Capitol Hill, I do have some sympathy for the lower-level folks who didn’t create the Obamacare mess and would suddenly be in a position of having to pay all their health costs out of pocket if the law was obeyed.

But that’s not a reason to engage in legal chicanery.

As part of tax and entitlement reform, by all means let’s shift to a system where we address the third-party payer crisis by having most health care expenses directly financed by consumers (reserving insurance for large, unpredictable expenses). That new system should include all people, including politicians and their staff.

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What’s the worst loophole (properly defined) in the cluttered internal revenue code?

I think the deduction for state and local taxes is very bad policy since it enables higher tax burdens in states such as California, New Jersey, and Illinois. The exemption for municipal bond interest is another misguided provision since it makes it easier for states to finance spending with debt.

Special favors in the tax code for ethanol also deserve scorn and disdain, and I’m also not a fan of the charitable deduction or the ways in which housing gets preferential treatment.

But if I had to pick just one tax preference to repeal, it would be the so-called healthcare exclusion. This is the policy that enables employers to deduct the cost of health insurance policies they buy for their employees.

You may think that deduction is reasonable. After all, employers also can deduct the wages and salaries they pay their employees. But here’s the catch. Employees pay tax on their wages and salaries, but they don’t have to pay tax on the value of their health insurance, even though such policies obviously are a form of compensation.

Moreover, since this type of compensation is shielded from both income taxes and payroll taxes, the playing field is therefore very tilted, which generates some very perverse results.

First, some background. As part of a broader analysis of the non-taxation of fringe benefits, Scott Greenberg of the Tax Foundation explains how government has created a big incentive to take income in the form of fringe benefits rather than wages and salaries.

…eighty years ago, it was relatively uncommon to offer workers compensation other than their regular wages and salaries. In 1929, only 1.9 percent of employee pay took the form of fringe benefits. By 2014, fringe benefits had risen to 19.2 percent of worker compensation.

Here’s a chart looking at the historical data.

Greenberg says this distortion in the tax code is unfair.

…the growing trend of unreported fringe benefits is “inequitable and inefficient.” This claim is spot on. For an illustration, imagine two employees, one of whom makes a salary of $100,000, and one of whom makes a salary of $80,000 and benefits worth $20,000, which largely go unreported. Although both workers receive the same overall compensation, the first employee is subject to a significantly higher tax burden than the second, which seems plainly unfair.

Moreover, the distortion lures people into making economically foolish choices.

Furthermore, this arrangement incentivizes companies to shift more compensation towards benefits, to help employees avoid taxes. This leads to an inefficient allocation of resources, towards services that employers might not have been willing to pay for in the absence of tax incentives.

He’s correct

Writing for the Weekly Standards, Ike Brannon looks specifically at the biggest tax-free fringe benefit.

…allowing employers to provide health insurance tax-free to their workers is terrible policy, a truism that any honest economist—whether liberal, conservative, or otherwise—would agree with. …First, workers end up with more health insurance than they would ever purchase on their own (since tax-free health insurance is worth more than income that’s taxed at 30%-50%), which gives people less take-home pay to spend as they see fit. Second, more generous health insurance entails lower co-pays as well as other provisions that insulate the worker from the actual cost of their health care. As a result, people become less sensitive to prices when seeking health care, and they consume more of it—most of which does nothing to improve health outcomes, numerous studies have shown.

For further details on this unfortunate tax preference, A. Barton Hinkle looks at the evolution of the health exclusion in a column for Reason.

…the original sin of the American health-care marketplace…was committed back in World War 2, when inflation led workers to demand higher wages – which many employers could not afford to pay because of price controls. …With wages frozen, employers needed another way to compete for labor made scarce by the draft. So some began offering health coverage. The practice took root, spread, and outlasted the war. In 1949 the National Labor Relations Board ruled that health benefits counted as wages for the purpose of union negotiations. Five years later, the IRS ruled that health coverage was not taxable income. The result was a double incentive for employers to offer fatter health benefits in lieu of fatter paychecks. …The result: a skyrocketing, ultimately unsustainable increase in national outlays for health care. …In short, for decades the federal government has encouraged employers to provide gold-plated health-care plans.

Joe Antos of the American Enterprise Institute explains how the “healthcare exclusion” is bad fiscal policy, bad health policy, and bad economic policy.

If we hope to move to an efficient healthcare system that is fair to everyone, Congress will have to take on the largest subsidy in the tax code. …Premiums paid for employment-based health insurance are excluded from federal income and payroll taxes.

When describing provisions that allow people to keep more of their own money, I would prefer to say largest distortion rather than largest subsidy, but I realize I’m being pedantic. Regardless of word choice, the net effect of this preference is negative.

The tax exclusion…fuels the rapid growth of health spending, contributes to stagnating wage growth, and disadvantages low-wage workers. Because there is no limit on how much can be excluded from taxes, workers are encouraged to buy more expensive coverage than they would otherwise…makes consumers less sensitive to prices and promotes the use of medical services, including services that may not provide much value to the patient.

Let’s take a closer look at some of the problems associated with the exclusion.

The exclusion has caused a shift in compensation from taxable cash wages to greater health benefits which are not taxed. Between 1999 and 2015, the average employer contribution for family coverage nearly tripled while wage rates increased by only about half.

By the way, our leftists friends should oppose the exclusion for class-warfare reasons.

…workers in higher tax brackets benefit the most from the exclusion. The Joint Committee on Taxation found that the average savings for tax filers with incomes less than $30,000 was about $1,650 compared to about $4,580 for those with incomes over $200,000.

To deal with these negative effects, Antos proposes a modified version of the “Cadillac tax” from Obamacare combined with tax credits for consumers who purchase their own health insurance.

That’s better than the status quo, but the ideal solution is a flat tax, which would eliminate the deduction provided to employers for compensation in the form of fringe benefits.

In their book on tax reform, Professors Hall and Rabushka explain the obvious beneficial consequence of a level playing field for all forms of compensation.

The flat tax eliminates the distortion toward fringe benefits created by the fact that employers can deduct them, thereby receiving a subsidy that can be passed on to their employees. The best alternative, and one we expect your employer to select, is to offer you higher pay in exchange for lower fringes. You can then use the extra cash to buy whatever combination of benefits you desire.

This will make the healthcare marketplace much more efficient.

Here’s what I wrote about the healthcare exclusion way back in 2009, as part of a column on government-created inefficiency in the health sector.

…social engineering in the tax code created this mess. Specifically, most of us get some of our compensation in the form of health insurance policies from our employers. And because that type of income is exempt from taxation, this encourages so-called Cadillac health plans.  …our gold-plated health plans now mean we use insurance for routine medical costs. This means, of course, we have the paperwork issues discussed above, but that’s just a small part of the problem. Even more problematic, our pre-paid health care system is somewhat akin to going to an all-you-can-eat restaurant. We have an incentive to over-consume since we’ve already paid. Except this analogy is insufficient. When we go to all-you-can-eat restaurants, at least we know we’re paying a certain amount of money for an unlimited amount of food. Many Americans, by contrast, have no idea how much of their compensation is being diverted to purchase health plans. …this messed-up approach causes inefficiency and higher costs. We consumers don’t feel any need to be careful shoppers since we perceive that our health care is being paid by someone else. Should we be surprised, then, that normal market forces don’t seem to be working? (though it is worth noting that costs keep falling and quality keeps rising in the few areas – such as laser-eye surgery and cosmetic surgery – that are not covered by insurance) Imagine if auto insurance worked this way? Or homeowner’s insurance? Would it make sense to file insurance forms to get an oil change? Or to buy a new couch? That sounds crazy. The system would be needlessly bureaucratic, and costs would rise because we would act like we were spending other people’s money.  But that’s what would probably happen if government intervened in the same way it does in the health-care sector.

By the way, to make sure politicians don’t get a windfall of new revenue, the healthcare exclusion should only be repealed as part of a reform that also lowers tax rates.

Here’s a video from the Center for Freedom and Prosperity that highlights how the healthcare exclusion is a major cause of the third-party payer problem.

And if you like videos, I strongly recommend this Reason TV explanation of how simple and affordable healthcare can be in the absence of government-created third-party payer.

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The ongoing cluster-you-know-what of Obamacare is a source of unhappy satisfaction.

Part of me is glad the law is such a failure, but it’s tragic that millions of people are suffering adverse consequences. These are folks who did nothing wrong, but now are paying more, losing employment, suffering income losses, and/or being forced to find new plans and new doctors.

And it seems we get more bad news every day, as noted in a new editorial from Investor’s Business Daily.

ObamaCare rates will skyrocket next year, according to its former chief. Enrollment is tumbling this year. And a big insurer is quitting most exchanges. That’s what we learned in just the past few days.

Why do we know these three bad things are happening? Because that’s what we’re being told by Mary Tavenner, the former head of the Center for Medicare and Medicaid Services for the Obama Administration who has now cashed out and is pimping for the health insurance companies that got in bed with the White House to foist Obamacare on the American people.

IBD gives us the sordid details.

Why will 2017 rates spike even higher? In addition to the cost of complying with ObamaCare’s insurance regulations and mandates, there’s the fact that the ObamaCare exchanges have failed to attract enough young and healthy people needed to keep premiums down. Plus, two industry bailout programs expire this year, Tavenner notes. Oh, and she admits that people are gaming ObamaCare just like critics said they would: buying coverage after they get sick — since insurance companies can no longer turn them down or charge them more — then dropping it when they’re done with treatments. “That churn increases premiums. So you have to kind of price over that.”

And that’s just one slice of bad news.

Here’s more.

ObamaCare enrollment has already dropped an average of more than 14% in five states since February — a faster rate of decline than last year — as people get kicked off for not paying premiums. Finally, we learned on Tuesday that UnitedHealth Group (UNH) is planning to drop out of almost every ObamaCare market it currently serves after losing $1 billion on those policies. …Skyrocketing premiums, fewer choices in the marketplace, and people fleeing ObamaCare in droves after signing up. This isn’t exactly what Obama promised when he signed ObamaCare into law.

For those who were paying attention, none of this is a surprise. It was always a fantasy to think that more government intervention was going to improve a healthcare system that already was cumbersome and expensive because of previous government interventions.

By the way, IBD isn’t the only outlet to notice the ongoing disaster of Obamacare.

Let’s look at some other recent revelations.

Chris Jacobs writes that “For millions of Americans, the Left’s insurance utopia has rapidly deteriorated into a bleak dystopia” and that “the ‘cheaper prices’ that the president promised evaporated as quickly as the morning dew.”

John Graham explains that “CBO estimates Obamacare will leave 27 million uninsured through 2019 – an increase of almost one quarter” and that “CBO estimates 68 million will be dependent on the program this year through 2019 – an increase of almost one third in the welfare caseload.”

Betsy McCaughey opines that, “Obamacare is already hugely in the red. …over the next ten years Obamacare will add $1.4 trillion to the nation’s debt” and that “Insurers struggling with Obamacare are already drastically reducing your choice of doctors and hospitals to cut costs.”

Devon Herrick reveals that “Obamacare has caused more people to reach for their wallets after a medical encounter — not less” and that “all but the most heavily subsidized Obamacare enrollees would be better off financially if they skipped coverage and pay for their own medical care out of pocket.”

Jeffrey Anderson observes that “it seems possible that Obamacare has actually reduced the number of people with private health insurance” and that “Obamacare is basically an expensive Medicaid expansion coupled with 2,400 pages of liberty-sapping mandates.”

John Goodman notes that “Prior to Obamacare, many employers of low-wage workers offered their employees a “mini med” plan, covering, say, the first $25,000 of expenses” and that “Those plans are now gone… employees…are…completely uninsured”

The CEO of CKE Restaurants warns that “fewer people buying insurance through the exchanges, the economics aren’t holding up” and that “Ten of the 23 innovative health-insurance plans known as co-ops—established with $2.4 billion in ObamaCare loans—will be out of business by the end of 2015 because of weak balance sheets.”

Critics of Obamacare now get to say “we told you so.”

As the Washington Examiner opines:

…conservatives screamed a simple fact from the rooftops: Obamacare will not work. No one wanted to listen then, but their warnings are now coming into fruition. Obamacare, as constructed, attempted to fix a dysfunctional health care payment system by creating an even more complicated system on top of it, filled with subsidies, coverage mandates, and other artificial government incentives. But its result has been a system that plucked Americans out of coverage they like and forced them to pay more for less. …Taxpayers and insurance customers alike should demand replacing Obamacare with a system that reduces costs and improves quality by injecting actual choice and competition into the insurance market.

I especially like the last part of the excerpt. Which is why we need to go well beyond simply repealing Obamacare if we want to restore market forces to the healthcare sector.

P.S. I wrote about that it’s tragic that so many people are suffering because of Obamacare. I should add that there are some victims who actually are getting what they deserve.

P.P.S. In the long run, I fear taxpayers will be the biggest (and most undeserving) victims.

P.P.P.S.Though, in fairness, the law does have at least one redeeming feature.

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My colleague Michael Cannon has been a tireless advocated for market-based health reform. His research has helped pave the way for good Medicare and Medicaid reform proposals on Capitol Hill and he is justifiably famous for his dogged opposition to Obamacare.

With that glowing introduction, you may be surprised to learn that Michael has stirred up a hornet’s nest among conservatives by asserting that Marco Rubio’s healthcare reform legislation contains an Obama-like mandate.

…where is conservative outrage over Marco Rubio’s health plan, which actually contains an individual mandate? …The centerpiece of Rubio’s proposal… If you purchase a government-approved health plan, you could save, for example, $2,000 on your taxes. If you don’t, you pay that $2,000 to the government. That is exactly how Obamacare’s individual mandate works.

As you might expect, this rubs a lot of people the wrong way.

Writing for Forbes, Ryan Ellis argues that tax preferences aren’t mandates.

By this twisted, Orwellian logic, there is a government mandate to have kids (child tax credit), buy a house (mortgage interest deduction) and save for retirement (401(k) plans).

James Capretta is similarly critical in his column for National Review.

Cannon’s logic is absurd. Senator Rubio…wants to make sure that all Americans get a comparable tax break for health insurance, regardless of whether or not they get their insurance through their place of work. …No one would be required to do anything.

Grace-Marie Turner, in her column for Forbes, echoes those statements.

The Rubio plan does not and would not involve a mandate, and there are no enforcement penalties for not taking the credit. …Claiming that the Rubio plan is at least as bad as Obamacare is an irresponsible position.

Wow, Michael is apparently twisted, absurd and irresponsible. And these are statements from his friends and allies! When I get slammed, by contrast, it’s by leftists.

So what gives? At the risk of sounding like a mealy-mouthed politician, I’m going to argue that both Michael and his critics are right and that this fight is not really about a “mandate” but instead is a battle over whether (and how) government should use fiscal policy to induce certain healthcare decisions.

First, let me explain why Michael is right. His core argument, as captured by this excerpt from his article, is very straightforward.

Rubio’s tax credit would…give the federal government as much power to force you to purchase unwanted coverage as Obamacare does.

And he’s basically right. Under Obamacare, you can choose to buy a health insurance policy in order to pay less to the IRS. Under Rubio’s plan, you can choose to buy a health insurance policy in order to pay less to the IRS.

To be sure, the mechanisms are different. Under Obamacare, you pay less to the IRS because you’re not being fined. Under Rubio’s plan, you pay less to the IRS because you’re taking advantage of a tax credit. But the net result is still somewhat similar, at least from an economic perspective.

Now here’s why Michael’s critics are right. Notwithstanding a degree of economic equivalence, most people do not think a penalty and a bribe are the same.

The average person probably won’t get offended if you tell them they can have $1,000 if they touch a hot stove. They may say yes or they may say no, and they may think you’re weird for making the offer, but there presumably won’t be hard feelings.

On the other hand, if you tell the average person that you will coercively deprive them of $1,000 if they don’t touch a hot stove, they will probably be upset that you’re putting them in an unpleasant position. And regardless of what they choose, they’ll resent you.

This helps to explain why many people don’t like Obamacare. It forces them to choose between two things they may not want.

But in Rubio’s plan, the choice is whether you should choose something in order to get something. That’s a more pleasing scenario.

Now let’s shift to the real issue, which is the degree to which fiscal policy should be used to encourage health insurance.

Michael is an advocate of large health savings accounts and most everyone else prefers tax credits (and they prefer refundable credits, akin to the EITC, which means Uncle Sam would give money to people who don’t earn enough to pay tax).

Digging into that issue is not the goal of today’s column. Suffice to say that if your long-run goal is to get government out of the health sector, you’ll probably be more sympathetic to Michael’s view. If you think getting government out of the health sector is a pipe dream, you’ll probably be more sympathetic to tax credits.

The bottom line is that this isn’t a fight between good guys and bad guys. It’s a tactical disagreement among people who realize that government intervention has screwed up our healthcare system and don’t fully agree on how to get the toothpaste back in the tube.

P.S. Shifting to a different topic, it’s time to savor a rare victory. Regular readers may recall the postscript in a column last year about the IRS stealing the bank account of a guy who runs a convenience store in North Carolina. That was horrible and disgusting (and there are many other examples of similar misbehavior by the feds). But the good news is that the bureaucrats have been forced to return the money.

But remember that this is just a victory in one battle. We won’t win the war until the disgusting practice of civil asset forfeiture is abolished.

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