Public Policy

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A Dishonest Budget?

February 25, 2011 in Public Policy | No comments

The most recent Federal Budget leaves much to be desired.  There are spending cuts.  The Economist reports that although Mr Obama’s team projects that his budget will cause the deficit will fall “…from a post-war record 11% of GDP in the current fiscal year to 3.1% by 2021. That would stabilise the debt, albeit at a still-lofty 77% of GDP.”  However, the CBO believes that a these figures are too rosy, and it is more likely the deficit will only fall to 7% by 2021.

More important, President Obama did little to reduce the looming three-headed budget catastrophe of Medicare, Medicaid and Social Security.  Michael Cannon notes in particular that the President did little to correct the “Doc Fix”.  To reduce physician payments over time, Medicare implemented the sustainable growth rate (SGR) in 1998.  Congress, however, reverses the reimbursement reductions every year.  Thus, if the full SGR would go into place next year, Medicare physicians would receive 25% less revenue per service than the year before.  This is of course untenable.

Michael Cannon explains how President Obama addressed the ‘Doc Fix’ in the FY2012 Budget.

“Rather than propose a permanent ‘doc fix,’ the Obama administration proposes a temporary and dishonest one.  As shown by the blue bars in the below graph, the administration proposes to delay these cuts until 2014 at a cost of $54 billion.  As shown by the black line, the administration proposes to pay for this additional spending by reducing the rate of spending growth in other areas of Medicare by $62 billion over the next 10 years.  Note that only 6 percent of these Medicare ‘cuts’ will occur in 2012 and 2013.  The other 94 percent of the ‘cuts’ will come after the administration has spent the $54 billion it wants to spend.  Note also that the vast majority of the ‘cuts’ would take effect after Barack Obama is no longer president.   Finally, the president offers no proposals to deal with the cuts in physician payments during the last eight years of the 10-year budget window (as shown by the purple bars).”

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Publicly Provided Prevention Health Plan

January 15, 2009 in Health Insurance, Public Policy | 3 comments

Most physicians, public health officials and economists believe that most individuals do not receive sufficient levels of preventive care.  Only half of American adults receive all recommended screening and preventive care.

The Partnership for Prevention has a plan to increase preventive care utilization. The organization proposes introducing:

“..federally funded insurance programs [that] would provide highly cost-effective clinical preventive services with no deductibles or co-pays, while Congress would provide incentives to states, health care providers and employers to deliver such services. Meanwhile, a stand-alone revenue source would be established to fund state and local efforts to create healthy environments and promote healthy lifestyles, while a Public Health Advisory Commission would be created to recommend how that funding should be allocated.”

Is this a good idea?  There are benefits to this plan.  Individuals without health insurance would have access to some of these preventive measures.  The Vaccines for Children (VFC) program currently provides free vaccines to poor children, and this program has generally been seen as a success.

Overall, however, I do not endorse this plan.  Here is why:

  • Cost effectiveness: The idea is being presented as a cost saving initiative.  While effective preventive care can increase longevity and improve the quality of life, it often increases health care costs.
  • Carve-out problem.  Enacting a universal, government provided health care system may be a good or bad thing depending out your point of view.  However, a limited, carve-out program for preventive care will be…well…limited.  Let us say the prevention health plan covers mammograms.  If an uninsured individual receives a mammogram using the proposed program and finds a cancerous tumor what is the next step?  The prevention health program will not cover surgery so the uninsured individual will be left with bad news and, if they are poor, few options to treat the disease.  This will lead to…
  • Coverage creep.  In the example above, I anticipate an outcry for individuals from uninsured individuals who have breast cancer.  They will lead to an expansion of coverage to treatments that are less-cost effective.  Physicians will lobby to have certain treatments included in this national prevention health plan.  Thus, what may start out as a health plan which only targets cost-effective treatments, will likely expand into other areas.  For instance, the $700 billion bailout was targeted for financial firms only.  Unsurprisingly, politically powerful sectors (e.g., the auto industry) have been lobbying for their share of the pie.
  • Cost shifting.  Private insurance companies who currently offer preventive services will not be able to shift their costs to the public sector.  A profit-maximizing strategy is to shift as much cost to the public sector as possible.  Thus, insurance companies will try to categorize as much medical as possible under a “prevention-eligible” diagnostic code.
  • Paternalism.  The plan will also pay for health care targeted to reduce tobacco and alcohol use, improve the patient’s diet and increase the patient’s physical inactivity.  Most people know that using less drugs, exercising more and eating less will improve longevity.  I personally do not think that it is the government’s job to tell you how to live your life.  If you want a shorter life filled with more cheesecake, that should be left up to the individual.

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U.S. spends $700 billion on unnecessary medical tests

November 7, 2008 in Health Insurance, Public Policy | 16 comments

“Peter Orszag, director of the Congressional Budget Office, estimates that 5 percent of the nation’s gross domestic product-—$700 billion per year –goes to tests and procedures that do not actually improve health outcomes…The unreasonably high cost of health care in the United States is a deeply entrenched problem that must be attacked at its root.”

This quotation comes from a Progressive Policy Institute (PPI) report.  There is little doubt that much of health care is unnecessary or at least is not worthwhile in the cost-benefit sense.  However, how do we fix this problem?  PPI has some suggestions which the Healthcare Economist will scrutinize.

  1. Prospective Payment.  Currently, a majority of physicians are paid on a fee-for-service basis.  This encourages physicians to work harder (they get paid more for doing more services), but also encourages them to recommend unnecessary treatments to patients.  My own research finds that when specialists are paid on a fee-for-service basis, surgery rates increase 78% compared to when they are paid on a capitation or salaried basis.  Using a prospective payment system would give physicians an incentive to under-provide services.  Further, insurance companies could collect rents by enrolling only healthier patients so that the cost of care would be less for these individuals.  Prospective payment could work for specific diagnoses (as in the DRG system), but one must worry about DRG creep.  Also, if there is a high variance in the cost of treating a specific disease, than a fee-for-service compensation may be superior.   While the prospective payment system does have appeal in cutting costs, it could reduce patient access to medical care as well.
  2. Let individuals choose their own plan. This proposition has great appeal for those who favor consumer choice.  Everyone likes choice.  However, issues of adverse selection can negate any welfare gains from additional choice.  High risk individuals have a hard time getting insurance and if they do the price is often unaffordable.  PPI suggests setting a up a local area purchasing pool to counteract the issues of adverse selection. I am not exactly sure how the PPI proposal would be implemented (do insurance companies charge a fixed rate for all individuals enrolled? do they adjust premium by age or sex?)  Would enrollment in this pooling mechanism be mandatory?  If so, this could drive down costs and significantly reduces issues of adverse selection.  However, mandatory enrollment in the pool could also reduce consumer choice.
  3. Create a “Health Fed”.  ”A Health Fed, as former Sen. Tom Daschle has proposed, would set national goals for health-care spending and patient outcomes based on the potential gains for integrated care.”  This I think is a horrible idea.  Having the federal government try to reduce costs and improve quality at such a high level is likely to be expensive and counter-productive.  Spending money on medical is not a bad thing; good health is one of the items individuals value most in life.   Thus, if the federal government set medical spending limits, this could lead to rationing.  What we want to happen is to reduce medical spending for unnecessary or wasteful medical procedures.  I don’t think a “Health Fed” would be very helpful in accomplishing this goal.

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Age Inflation

September 16, 2008 in Medicaid/Medicare, Public Policy, Social Security | Permalink

Medicare was implemented in 1965 to cover the medical costs of the oldest members in society.  In 1965,  the U.S. life expectancy was only 70 years old.  Now, however, life expectancy at birth is over 78 years.  Medicare is now not just covering the oldest of the old, it also covers the “moderately” old since we are living so much longer.

An NBER working paper by  John B. Shoven, Gopi Shah Goda examines what eligibility ages for programs such as Medicare and Social Security would be today and in 2050 if adjustments for mortality improvement were taken into account.  The authors conclude the following:

“We find that historical adjustment of eligibility ages for age inflation would have increased ages of eligibility by approximately 0.15 years annually. Failure to adjust for mortality improvement implies the percent of the population eligible to receive full Social Security benefits and Medicare will increase substantially relative to the share eligible under a policy of age adjustment.”

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Funding the Montgomery County margarita machine

July 18, 2008 in Current Events, Public Policy | Permalink

What happens to seized drug money? According to the Economist, in Montgomery County, Texas the sized drug money was used to fund the beer and liquor needs of the district attorney at their local county fair. The funds were also used to purchase a margarita machine.

Looks like seized illegal drugs were used to fund legal drug use (alcohol).

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