The free market fix for health care

You might remember last year when Whole Foods CEO John Mackey sparked a furor among progressives for having the temerity to exercise his First Amendment rights and pen an Op-Ed in the Wall Street Journal that proposed an alternative to the big government takeover of health care that Obama/Pelosi and Reid have been pursuing.  Mackey had the gall to point out a central truth that the left seems to ignore time and time again: incentives matter.  If you continue to shield patients from the true cost of care through an overly regulated, overly complex system,  while insisting that they not be financially responsible for all but a tiny fraction of their treatment, you will get abuse of the so-called "health care dollar".  It's a pretty basic concept for those who understand (and accept) that human behavior is sensitive to incentives: when things are perceived as "free" or when someone else is paying, consumption goes up.  When people have "skin in the game" they require more information, look harder at choices and tend to make better (more cost-effective) decisions. Businessmen like Mackey at Whole Foods and Steven Burd, the CEO of Safeway, understand this much better than do the politicians in Washington.  Of course, Mackey and Burd view the health care issue as a problem in search of a rational solution, rather than as an opportunity for government to achieve its ideological goals while taking over one-seventh of our economy.  They both instinctively know that doubling down on government entitlement programs like Medicare and Social Security are not the answer. Burd, in particular, has written a number of outstanding op-eds on how Safeway has used incentives to drive down the cost of their company's health care programs, principally by rewarding healthy behavior and making employees financially responsible for a portion of their out-of-pocket health care costs.  As Burd notes, what Safeway has done has been successful beyond dispute:

As a self-insured employer, Safeway designed just such a plan in 2005 and has made continuous improvements each year. The results have been remarkable. During this four-year period, we have kept our per capita health-care costs flat (that includes both the employee and the employer portion), while most American companies' costs have increased 38% over the same four years.

It is clear to me after watching the recent "Health Care Summit" that neither Obama, Pelosi, Reid or their fellow ideologues on the left are really interested in solving the health care cost problem.  If they were, they would be looking at the real world examples where market-based solutions have worked.

And its not just in the private sector.  Indiana Governor Mitch Daniels -- who has been getting a lot of positive attention recently for his handling of Indiana's fiscal house during the recession -- has penned an opinion piece today that takes the Safeway model and expands it for government workers.  The foundation of Daniels' program are Health Savings Accounts (HSA) that put tax-free cash into accounts for patients to use for their own health care.  It's the kind of market-based innovation that promises to create incentives for patients to ask questions about how much things cost and about how effective a given treatment is (not surprisingly, ObamaCare eliminates the use of HSA's altogether -- all the better to keep patients out of their own health care decisions.)  Daniels describes this as "individually owned and directed health care coverage" -- a description that big government progressives will undoubtedly dislike, since it actually puts power in the hands of people.  But the Indiana experience shows that in health care plans where the patient has "skin in the game" the use of medical care is more judicious and effectively applied.  Indiana state employees enrolled in the plan will save some $8 million in 2010 compared to their co-workers enrolled in the old-fashioned PPO system where the employee pays nothing more than a co-pay.

It should be no surprise that the real solution to rising health care costs is to let the free market work: empower consumers with more information, give them a stake in the process and then let dollars flow to the most efficient, effective providers.  Health care has an example it can look at today in the area of cosmetic surgery -- a fee-for-service market place that is highly competitive.  Patients shop for the best combination of quality and price because they are generally paying out of pocket for the service; the result is a true market where providers actually compete for business.  Its the best way to enforce the twin goals of quality and cost.

One can only hope that Pelosi and her band of merry socialists fail to jam through Obamacare now, and that a new Republican majority in November will enact a series of market-based solutions that will work to make care both more accessible and affordable.

BHO 2010 echoes FDR 1938

When praising his own “accomplishments” Barack Obama has an unusual fondness for the word “unprecedented” though invariably his assertions lack any historical validity. In contrast the voters of Massachusetts can now claim an accomplishment that entirely justifies the use of that word. To find an event in American history reasonably comparable in character and impact to the Massachusetts Earthquake we must go all the way back to Franklin Roosevelt’s 1937 attempt to “pack” the Supreme Court. That is the last-perhaps the only- time in our history that a President commanding huge congressional majorities sought with breathtaking arrogance to redesign the constitutional, social and economic foundations of the country and was stunningly defeated by the very people who long had been his party’s staunchest supporters.

With a righteousness and sense of invincibility engendered by three consecutive triumphal election cycles that had given him and his party an extraordinary dominance Roosevelt sought to demonize the “nine old men” of the Supreme Court who had the temerity to strike down key elements of the New Deal as unconstitutional. With little consultation outside his inner circle and apparent indifference to how such a radical move would be received in the country Roosevelt advanced sweeping legislation that would increase the membership of the Supreme Court from nine to fifteen and replace lifetime appointment with mandatory retirement ages, moves which would enable him to swiftly “pack” the Court with hand-picked minions.

It was at this point that ordinary Americans and several key Democratic leaders like Montana’s Senator Burton K. Wheeler decided that Roosevelt’s radical power grab was going too far and actively threatened the nation’s hallowed Constitutional traditions. The Court “packing” scheme was decisively defeated in the Congress and the final political result was the Democratic Party losing seven Senate and 80 House seats in the 1938 mid-term elections.

That was America’s last peacetime election before World War II restored the country’s economy, ended the Great Depression, and redeemed the political fortunes and historical reputation of Franklin Roosevelt. Nonetheless 1937 remains a decisive turning point in American history when the overarching ambition of a well-intended but tone deaf President were dramatically rebuffed by a most unlikely combination of opponents who read the national mood far better than he.

The week that saw the unbelievably improbable election of Scott Brown in Massachusetts also witnessed the startling collapse of the recently “inevitable” Obamacare legislation, and the absolute implosion of the Democratic Party in a tawdry spectacle of shock, fear, anger, finger-pointing, pseudo-contrition, confusion, chaos, and general cluelessness.

Not in living memory has a dominant political party been so devastated, so quickly by a single wildly unpredictable event.

It is easier to search the past for perspective on this American melodrama, than to divine its future conclusion. Much will turn on the choices made by the Democratic Party. Will there be a Clintonesque dash to the center, (“the end of big government and welfare as we know it”) by a President in hot pursuit of re-election?

Or, will the Party in certain knowledge that it will never again enjoy such Congressional dominance heed the frenzied howls of its far left and “double-down” on the strategies of bigger government, redistributionist legislation, and intolerable taxation that have so alienated the public?

Rational calculation would seem to demand the former direction, but in critical degree today’s Democratic Party is far more radical than the Party that was dethroned in 1994. The dominant Furies that energize and fund the Democrats are of an ideologically obsessed mindset unlike anything that ever before captured control of a major American political party.

President Obama’s utterances since the upheaval are suggestive of self-pity and delusion. Excusing his inattentiveness because he was “so busy getting stuff done” and then claiming that both he and Scott Brown were elected by the same anger at George Bush bespeaks a man quite out of touch with reality. His lame attempt at populism-Let’s punish those greedy bankers- is nothing but the class warfare and general assault on capitalism that has been the thinly disguised agenda of the Obama-Pelosi-Reid Axis from the beginning. What’s new is that now the American people know it and are determined with their votes to decisively defeat it.

Dems still not listening

Senator Michael Bennet has acknowledged that the Massachusetts voters' choice of Scott Brown signals their justified demand to be heard. (Denver Post, "Deciphering Voter Message," 1/21/2010) While claiming that Colorado legislators do listen to us, however, Bennet demonstrated just the opposite. He's still not listening. Massachusetts voters did indeed vigorously proclaim that governments all governments, at all levels work for us, not the other way around. That's what "representative government" means.

Missed, though, was the rest of the message. Massachusetts voters also signaled their massive rejection of the liberal agenda. Bennet didn't hear that part or chose to ignore it. Obama and all his liberal pack, including both of Colorado's senators and most our state officials, apparently are in denial.

Through op/ed letters, polls and public rallies, American voters have declared again and again that we cherish our freedoms and our open economy. We deplore excessive government spending, anti-business interference and nannyism.

At a grass-roots rally early this week a Coloradan aptly expressed his disgust, "We don't want handouts. We want hands off."

So, start really listening. Or prepare for Colorado voters' judgment in November.

Health care the capitalist way: Part 3

In an arrogant display on Christmas Eve morning, the U.S. Senate gave the American people a big, dark piece of coal when it passed a massive health care package that simply does not address the primary problem with our system: skyrocketing costs. According to the non-partisan Congressional Budget Office, premiums would rise by as much as $2,000 for a family policy. The government’s Centers for Medicare and Medicaid Services assert a 5.1 percent increase in healthcare-to-GDP spending (to 21.1 percent, currently 16 percent) with reform compared to a 4.8 percent increase by doing nothing. And for those under 30, premiums could rise by 50 or 60 percent, according to Robert Zirkelbach of America’s Health Insurance Plans.

Congress should just scrap their big-government healthcare schemes and instead adopt the “Capitalist Manifesto for Healthcare Reform,” several specific, free-market fixes for healthcare. Previously in the series, I proposed several cost-cutting initiatives: increasing competition for individual consumers and permitting it across state lines, decreasing pharmeceutical regulation and permitting the importation of prescription drugs.

Now, in the final installment, we will examine lowering costs by freeing up medical malpractice, the regulatory system and Medicare and Medicaid, all critical reform components.

Reforming Medical Malpractice: If you’re a doctor, you better have malpractice insurance. Otherwise, you’re taking a huge risk. No matter what happens, even if a doctor does her job right and everything turns out well, you’re in danger of a class action lawsuit, known as “tort.”

According to Dr. Russell Turk, “[A] September survey of more than 5,000 obstetricians/gynecologists conducted by the American College of Obstetricians and Gynecologists' (ACOG) [found that] in Florida, the state with the highest premiums, ob/gyns pay an average of $195,000 annually…The ACOG survey found that 63 percent of ob/gyns report making changes to their practice due to the fear of liability claims or litigation. In addition, 8 percent said they had stopped practicing obstetrics altogether.”

Doctors across the country are in such risk of getting hit with a massive lawsuit that their costs in malpractice insurance are astronomical. I agree with Dr. Turk when he says, “I fully support the idea of doctors being penalized and disciplined when they have been negligent. But you can do everything right and still get sued for a poor outcome.” As he notes, this also affects how doctors practice medicine, like what risks they’re willing to take to save lives.

Medical malpractice concerns also encourage greater use of defensive medicine, meaning doctors conduct tests they wouldn’t otherwise do to prevent lawsuits. In fact, defensive medicine costs the system an estimated $70 billion a year. Doctors should neither be prevented from doing what is necessary to serve their patients, nor forced into doing what is unnecessary and costly, just to protect themselves.

Tort reform, therefore, is absolutely essential for doctors, which will in turn pass on lower costs to consumers and insurance companies. It is imperative that punitive awards for medical malpractice be capped. In addition, those things for which one can go to court to seek damages should be reexamined and limited somewhat to prevent the application of inappropriate pressure on doctors from doing what may really be necessary to serve the needs of their patients.

However, the reforms that are necessary to lower costs and doctors’ concerns cannot all be undertaken at the federal level, due to federalism. Therefore, there are actions that must be taken at the federal and state levels, and the feds should perhaps consider providing incentives to states to do their part. It is imperative that, as part of a comprehensive healthcare reform package, both levels of government begin taking steps to reform the oppressive tort laws that are strangling the nation’s medical practitioners and pushing costs up.

Don’t Hate; Deregulate: I know what you’re thinking. Deregulation…isn’t that what got us into financial crisis in the first place? In fact, as economist Walter Williams points out, “In the banking and finance industries [from which the crisis stems], regulatory spending between 1980 and 2007 almost tripled, rising from $725 million to $2.07 billion.”

Economist Jeffrey Friedman noted, “The financial crisis was caused by the complex, constantly growing web of regulations designed to constrain and redirect modern capitalism. This complexity made investors, bankers and perhaps regulators themselves ignorant of regulations previously promulgated across decades and in different ‘fields’ of regulation.”

Deregulation was not the real cause of the financial crisis; regulation was. Furthermore, the healthcare and financial sectors are entirely different in nature, and the fact of the matter is, healthcare is one of the most heavily regulated industries in the country. According to Duke University’s Chris Conover, a policy analyst at the Cato Institute, the net cost of health regulation is $169 billion a year, after subtracting beneficial regulatory costs. As with any industry, in order to pay for the dictates of the government, institutions of health are forced to raise costs, which extends to consumers in the form of higher prices—a whopping $1,500 per household in this case.

Bear in mind that the regulations I’m talking about are not your essential safety regulations, but $169 billion in excessive, burdensome regulations, like the tort system, FDA regulations like those addressed in Column #2 and regulation of health facilities.

In fact, Conover’s research has shown that while roughly 18,000 Americans die from lack of health insurance, 22,000 die due to health services regulation, and seven million uninsured owe their state to excessive regulation. Cutting back on those unnecessary and cumbersome, but targeted and non-essential requirements/restrictions at both the federal and state levels would free up the market and enable health providers to lower costs.

Fixing Medicare and Medicaid: Medicare and Medicaid are the two most prominent government-run healthcare programs currently on the books. Medicare provides medical insurance for the elderly, and Medicaid is a massive federal-state partnership affording healthcare to the poor and indigent. While both of these programs are well-intentioned, they are financially unsustainable and require updates for application in a 21st century world.

Medicaid is a drain on federal and state budgets. To help control costs, states should be given near-absolute flexibility in determining how Medicaid is to be doled out—not more money. In fact, how Medicaid funding is given to the states encourages fraud and waste. And both Medicaid and Medicare reimburse doctors at as much as 30 percent below the normal rate—meaning costs are distributed to others. Fraud, abuse, waste and inefficiency need to be identified and cut from both of these programs. Fund distribution methods must be altered, and we must reexamine who is allowed to benefit from them, particularly from Medicare.

We need to start taming the Medicare leviathan, which has $89.3 trillion in unfunded liabilities. The layman’s solution to Medicare lies in allowing qualified individuals to opt out of the program if they so choose; slapping a grandfather clause on the 2003 Medicare Part D prescription drug benefit, meaning that those who are not currently on the program will not receive expansionist Part D benefits; and making Medicare means-tested, meaning that folks like Bill Gates would be ineligible for benefits.

Whether or not a person qualifies for Medicare benefits should rely on several factors, principally income level but perhaps also including yearly expenses, savings and the number of dependents. The switch to a means-tested structure should pertain solely to those who are currently under the age of 50 or 55; that way, all who are already anticipating on entering the Medicare program soon will be able to. The program will slowly work its way down, and the increased cost burden it shifts to the private healthcare industry will shrink as a result.

By taking these three critical steps toward reforming what we've got right now and thereby expanding freedom in the marketplace, we will undoubtedly be able to pull the brakes on skyrocketing healthcare costs as our system speeds on its way to the cliff of no return.

Do no harm?

The one health care lesson the Congress should have learned in crafting their "reform" bill is the most fundamental tenet of medicine: do no harm.Unfortunately, the Congress is now playing the role of Dr. Kervorkian. So destructive are its politically-motivated machinations that it is in the process of setting back American medicine -- and the economy -- a generation. It may never be fully resuscitated.

And now that Joe Lieberman has lost his minute of sanity -- opposing the public option and the expansion of Medicare -- it seems certain that this colossus of social engineering will get passed in the Senate. It will ultimately reach Obama's desk and will be signed in a lavish "historic" signing ceremony, where it will be hailed as a monumental accomplishment in "bending the health care cost curve" or some such nonsensical lie.

Believe me: the only thing this bill bends is the truth.

Here are some facts to chew on:

-- The true cost of this bill is $2.5 Trillion -- not the $900 billion the CBO will say it is. How does it get away with being three times more expensive than they say it will be? Because the ten year CBO "score" is based on gimmickry: it accounts for ten years of taxes to pay for it, but only provides SIX years of services. The true cost of the next ten years will be in the trillions of dollars as the program becomes "pay as you go" in year 11.

-- The foundation of this plan is to compel -- under the penalty of prison -- people to buy insurance. The 10% of the uninsured in this country who have decided not to spend their money on insurance -- either because they are young and healthy or have decided to take the risk -- will now not have that option. But don't worry -- in the spirit of income redistribution, "other people" will pay for much of it in the form of subsidies. Still, the reality is that the Congress is infusing government into the private lives of people in a way that they never had before. The Nanny state on steroids.

-- The taxes on this will be enormous -- and will hit everyone regardless of age or economic status. Remember that pledge Obama made to not raise taxes on anyone making "less than $250,000 per year"? Fuggedaboutit! Everyone's going to pay on this one -- from new taxes to higher insurance premiums. And that's for starters. When this starts to break the bank, taxes on everything will rise, and you can bet that there are plans for a Value Added Tax and other stealth taxes in the works. Your pocketbook just became a lot thinner!

-- This bill includes command and control facilities run by the Federal Government that will control the private insurance industry, putting new and pernicious controls on coverage and underwriting. At the end of this road, government will be controlling every aspect of the coverage provided, and will be in charge of determining insurance premium rates and coverage levels -- and will, when things get tight, become a "rationing board". It may not be "Death Panels" -- but it will be pretty darn close.

-- The new burden on states to expand Medicaid will create even bigger problems in already-strained state budgets -- amounting to a massive new unfunded mandate. States like California that are already $20 billion in the red will have to come up with another $3 billion or so to cover the new state portion of Medicaid expansion. This will result in -- you guessed it -- new taxes to cover the short-fall.

-- There is nothing in this bill that will restrain medical malpractice liability or the massive cost that the health care tort bar places on medicine. The trial lawyers have gotten the pass that they have bought and paid for. The Democrats in Congress are in their pockets, and thus an important element of truly containing health care costs has been left out of this "historic" reform bill.

-- This bill does nothing to fix the current government health care entitlement, Medicare, which is a giant ponzi scheme that will be insolvent within 1o years.

-- The net effect of this health care bill, the trillion dollar stimulus packages and the vast unfunded entitlements in the current fiscal 2010-2011 budget are a disaster in the making. As the Wall Street Journal points out today in its lead editorial, the Democrats are now pushing for a $2 trillion increase in the federal debt ceiling, so they can not be burdened by any vestige of fiscal restraint:

It's a sign of how deep the fiscal pathologies run in this Congress that $2 trillion will buy the federal government only one year before it has to seek another debt hike—conveniently timed to come after the midterm elections. Since Democrats began running Congress again in 2007, the federal debt limit has climbed by 39%. The new hike will lift the borrowing cap by another 15%.

Our concern is that the Administration and Congress view this debt as a way to force a permanently higher tax base for decades to come. The liberal grand strategy is to use their accidentally large majorities this year to pass new entitlements that start small but will explode in future years. U.S. creditors will then demand higher taxes—taking income taxes back to their pre-Reagan rates and adding a value-added tax too. This would expand federal spending as a share of GDP to as much as 30% from the pre-crisis 20%.

And of course this is the grand design -- to resurrect the pre-Reagan 70% marginal tax rates that will maximally punish wealth creation and success. Remember, this Congress is hostile to profit and capitalism, and would prefer to see a social democratic system ala Sweden, with 90% taxes and massive government programs to support every element of social interaction.

At the end of the day, all of this is being done on a purely partisan, party-line basis. There won't be one Republican voting for any of this. The 55 million people who voted for John McCain have been effectively told "screw you" by a president who campaigned as a "uniter" and as a "post-partisan" leader. What a joke. This is the most partisan president and most divided Congress in history. That this kind of vast social change can be foisted on the public -- 60% who now oppose it -- without a single bipartisan vote is an offense to republican democracy. When Medicare was passed it did so on a largely bipartisan basis -- 24 Republicans voted in favor in 1965. Today we have an even larger rework of the American economy and society and it will be a complete partisan putsch.

And that is typical of the left, which always thinks it knows best. The notion that conservatives might have some good ideas on health care has been scoffed at. Instead, you have a massive experiment in socialism being foisted on the American people by 60 left wing ideologues.

We are being sold down the river in a 2,000 page, $2.5 trillion boondoggle that no one understands -- but that we will be paying for in generations to come.