Thursday’s (10/08/09) much heralded CBO report telling us that the Senate Finance Committee health care reform bill will cut the federal deficit by $81 billion over the next ten years is a diversion at best and accounting fiction at worst. Any way you slice it, this health reform bill is going to cost you more.

First of all, any second year accounting student could drive a homecoming float through the loopholes in the CBO’s numbers. Just one example: the analysis includes ten years of increased government taxes and fees, but only six years of health reform expenses. It also assumes that Medicare will cut Medicare doctor fees by a whopping 25% in 2011 and then make below-inflation-rate adjustments after that. The reality is that the Congress has scheduled cuts every year since 2003 but has cancelled them all at the last minute in the face of massive physician lobbying. But what if this time is different and these cuts actually do go through? If past is prologue, then doctors will simply intensify what many have already done in the face of Medicare’s increasingly punitive reimbursement rates:

  • Stop accepting new Medicare patients.
  • Increase the number of chargeable services, such as requiring pricey office visits instead of free phone calls for prescription refills.
  • Increase their fees to the rest of us to make up the difference.

The net result is that Medicare still won’t save any money while the rest of us will have to pay more for our private insurance.

Then there is the proposed $201 billion tax on so-called Cadillac health plans (presumably named after the General Motors product because, once the tax is passed on expensive health plans, nobody will want to buy them either). This is intended as a rifle shot at excessive perks for highly-paid executives, but is actually a shotgun blast that will target union workers with rich negotiated benefits, the middle class in high-cost medical areas, and eventually everybody everywhere as medical inflation continues to outstrip the CPI. So if health care costs are too high now, we’re supposed to make them cheaper by taxing them? Somewhere, George Orwell is laughing his ephemeral head off.

But wait, there’s more. The Baucus bill contains a raft of revenue hits, taxes, fees, and mandated payments imposed on health insurance companies ($67 billion), drug companies ($23 billion), medical device makers ($40 billion), hospitals ($45 billion), employers ($2 billion), the states ($33 billion), along with miscellaneous reductions in payments and subsidies for other providers and Medicare beneficiaries ($22 billion) —all of which will increase the cost of health care in the private sector, further burdening our only engine of economic growth and job creation. Thus, while all this may indeed reduce the federal deficit, it does nothing to decrease total national health care costs—it’s just parasitic government cost shifting on a massive scale. And the CBO estimates there will still be 17 million uninsured Americans after the smoke clears on the Baucus legislation.

I must add that the $33 billion in increased state expenditures to pay for federally-mandated Medicaid increases will not apply to Nevada, which will be fully funded by the federal government. By amazing coincidence, Nevada is also the home of Senate Majority Leader Harry Reid. Go figure.

The CBO report is nothing more than window dressing on a reform process that utterly ignores the real driver of uncontrolled medical inflation—the lack of market discipline that could be driving medical costs down and quality up, as market dynamics have done in every other sector of our consumer economy. The Baucus bill is yet another example of the government’s long-held focus on treating the symptoms of our national health care disease rather than its cause.  While the good Senator’s bill might temporarily help some people—maybe a lot of people—it will do nothing to prevent the looming train wreck for our national health care system.

There is no doubt that we need effective health reform, but it has to enable dynamic market solutions, not more rigid bureaucracies. The reality is that everyone—providers, employers, and consumers—will always game any economic system to their own benefit. Bureaucracies are inherently incapable of coping with this. Constantly changing markets thrive because of it.

This entry was posted in Government vs Markets, Health Costs, Health Reform Goals, The Health Care Crisis and tagged , , , , . Bookmark the permalink.


  1. j says:

    While you raise some good points and some points for study and debate, you sound like a typical fiscal conservative who thinks “the market” will take care of everything. There is no “dynamic market” or “market discipline.” Do you mean the market discipline that creates absoulutely no real competition so that the big pharma and insurance companies and health networks are oligopolies with no accountability to anyone? What about anti-trust, price fixing, lobbying for favorable rules and laws, setting market rates by collusion and all of the other “non-markety” activities that large powerful players can do in the “the market?” What about the public subsidies given to big Pharma and health care providers, what about generous governmental contracts with large profits given to private insurers through Medicare? What about the fact that if we allowed some REAL competition and some reasonable regulatory accountability in exchange for all this government subsidy, insurance premiums would not simply go up and be “passed on to the rest of us.” Through ACTUAL competition, health costs/premiums would decrease (Economics 101: more competition equals decreased prices). Real competition would allow the “market” to work better because it would allow the huge, inflated, unreasonable profits of these companies to simply deflate to a reasonable level, and this would compensate for increased costs. Fiscal conservatives always claim that “rising costs” will HAVE to be passed on to consumers. They do not have to be, it is a choice. We simply must provide more actual competition and APPROPRIATE regulation so large greedy companies can not simply set the profit level they desire and CREATE the “market” to give it to them, no matter what they have to do to consumers to achieve it. They could simply accept a more reasonable profit, but they have the power to reject that option now, so they can and do simply pass any increasing costs on to consumers. Some of that increasing cost is cost they create themselves by their inept business decisions (for example bad investments), and they then ask consumers to bail them out, not only through premiums, but bail outs- AIG comes to mind.

  2. Stephen Hyde says:

    Steve’s reply:
    Actually, I don’t believe that “the market” will take care of everything. If it could, then it would have done so prior to 1965, thus eliminating any need to enact Medicare and Medicaid in that year. In fact, medical care is unique among our necessities of life (the others being food, clothing, housing, and transportation)in that it suffers from a fundamental market failure: there is no way that any naturally-arising market will ever provide everyone with the health insurance they need to obtain medically necessary, otherwise unaffordable medical care.

    However, it is a market failure that the federal government could have corrected with relatively straightforward regulatory and safety net programs at any time during the past 80 years or so. Tragically, it never did that, nor does it propose to do it today.

    Instead, the government has ignored market-worthy solutions in favor of direct market interventions in attempting to address the needs of those left behind by the market’s failure: i.e., the elderly and disabled (with Medicare), the poor (with Medicaid & SCHIP), and now the uninsured (with proposed employer mandates and a health insurance exchange). All these government solutions are proving themselves unsustainable. So is the employer-based private insurance system. While I believe you overstate the nature and magnitude of specific problems with competition in medical care, the lack of effective competition is a very real phenomenon that is a predictable outcome of our current system.

    I strongly support fundamental health insurance reform that will provide sustainable, portable, affordable health insurance to everyone who wants it, along with wide consumer choice of insurers and providers and strong incentives for healthy living. It is just such a program I describe as The American Choice Health Plan in my book, “Cured! The Insider’s Handbook For Health Care Reform.”

    Many thanks(!) for your passionate, thoughtful comments.

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