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Critical Condition

NRO’s health-care blog.

The Truth About Obamacare’s Tax Subsidies and Marriage Penalty



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It was supposed to be the centerpiece of his presidency. It was the heart of his legislative agenda. When he signed the Affordable Care Act (a.k.a. Obamacare) into law, the president proudly proclaimed that “this legislation will also lower [health-care] costs for families and for businesses and for the federal government, reducing our deficit by over $1 trillion in the next two decades. It is paid for. It is fiscally responsible. And it will help lift a decades-long drag on our economy.”

Nineteen months later, the president’s crowning achievement is falling apart.

Federal judges have ruled that Obamacare’s individual mandate is unconstitutional, as it “would invite unbridled exercise of federal police powers.”

In April, Congress repealed the job-killing 1099 provision that would have saddled small businesses with unprecedented costly and time-consuming tax requirements.

Last month, the Department of Health and Human Services (HHS), after spending months defending the bill’s Community Living Assistance Services and Supports (CLASS) Program, realized that it wasn’t the cost-saving program they said it was — determining that it would actually cost taxpayers money — and suspended its implementation.

As it turns out, one of the law’s supposed benefits — tax subsidies to assist certain households with the purchase of health insurance — introduces a substantial marriage tax penalty, expands welfare through the tax code, discriminates against people with workplace health insurance, and will likely further explode the nation’s deficit.

The Congressional Budget Office (CBO) has projected that Obamacare’s refundable health-insurance tax credits and Medicaid expansion will increase the nation’s debt burden by $1.36 trillion in the first seven years that these provisions are fully implemented.

The CBO estimates that about three-quarters of the cost of the Obamacare tax credits will be new spending, since many of the filers who claim the health-insurance tax credit will lack positive income tax to offset.

In fact, the CBO is estimating that, over time, Obamacare’s health-insurance tax credits will grow significantly more expensive. The tax credits are projected to increase the deficit by $55 billion in 2015, $87 billion in 2016, $104 billion in 2017, $115 billion in 2018, $123 billion in 2019, $130 billion in 2020, and $137 billion in 2021 — the last year of the ten-year budget window.

The House Committee on Oversight and Government Reform has released a report detailing new data provided by the Joint Committee on Taxation (JCT) that reveals new estimates that in 2020 about 14 million tax filers will claim Obamacare’s health-insurance credit, but only about 2 million of these households will have positive income-tax liability after benefiting from the credit.

The JCT estimates also reveal that Obamacare created a massive new marriage penalty. They estimate that only 14 percent of tax filers who claim the subsidy will be married. About half of the beneficiaries will be single individuals without dependent children. The reason for the marriage penalty is two-fold.

First, the subsidy is linked to 400 percent of the federal poverty level (FPL), which is estimated to be $45,600 for a one-person household and $61,600 for a two-person household in 2014. The result of linking the tax credit to the FPL is that two individuals who make between $61,600 and $91,200 in 2014 will not benefit from the tax credit if they decide to marry, but both individuals can qualify for the tax credit if they remain unmarried or if they decide to divorce.

Second, a recent HHS rule prevents families from accessing the subsidy if either parent has an offer of coverage at work — but in cases where only self-only coverage is offered, the rest of the family cannot claim a subsidy. Essentially, Obamacare treats otherwise identical individuals very differently, depending on the source of their health insurance rather than the quality of it.

The president often talks about the need for tax reform, but his signature legislative accomplishment made the tax code more complex and less fair. A massive expansion of government meant to increase the quality of care and decrease health-care costs has turned into a public-policy nightmare that is falling short of the litany of promises made in order to get it enacted.

It turns out that House Democratic Leader Nancy Pelosi’s (D., Calif.) prophetic words were more accurate than anyone at the time realized — we had to “pass the bill so that you can find out what is in it.”

— Rep. Darrell Issa (R., Calif.) is the chairman of the House Committee on Oversight and Government Reform and represents the 49th Congressional District of California.

 

The Truth About Obamacare’s Tax Subsidies and Marriage Penalty



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It was supposed to be the centerpiece of his presidency. It was the heart of his legislative agenda. When he signed the Affordable Care Act (a.k.a. Obamacare) into law, the President proudly proclaimed that “this legislation will also lower [health care] costs for families and for businesses and for the federal government, reducing our deficit by over $1 trillion in the next two decades. It is paid for. It is fiscally responsible. And it will help lift a decades-long drag on our economy.”

19 months later, the president’s crowning achievement is falling apart.

Federal judges have ruled that Obamacare’s individual mandate is unconstitutional as it “would invite unbridled exercise of federal police powers.”

In April, Congress repealed the job-killing 1099 provision that would have saddled small businesses with unprecedented costly and time-consuming tax requirements.

Last month, the Department of Health and Human Services (HHS), after spending months defending the bill’s Community Living Assistance Services and Supports (CLASS) Program, realized that it wasn’t the cost-saving program they said it was — determining it would actually cost taxpayers money and has suspended its implementation.

As it turns out, one of the law’s supposed benefits — tax subsidies to assist certain households with the purchase of health insurance — introduces a substantial marriage tax penalty, expands welfare through the tax code, discriminates against people with workplace health insurance, and will likely further explode the nation’s deficit.

The Congressional Budget Office (CBO) has projected that Obamacare’s refundable health insurance tax credits and Medicaid expansion will increase the nation’s debt burden by $1.36 trillion in the first seven years that these provisions are fully implemented.

The CBO estimates that about three-quarters of the cost of the Obamacare tax credits will be new spending since many of the filers who claim the health insurance tax credit will lack positive income tax to offset.

In fact, over time, CBO is estimating that Obamacare’s health insurance tax credits will grow significantly more expensive. The tax credits are projected to increase the deficit by $55 billion in 2015, $87 billion in 2016, $104 billion in 2017, $115 billion in 2018, $123 billion in 2019, $130 billion in 2020, and $137 billion in 2021 — the last year of the ten-year budget window.

The House Committee on Oversight and Government Reform has released a report detailing new data provided by the Joint Committee on Taxation (JCT) that reveals new estimates that in 2020 about 14 million tax filers will claim Obamacare’s health insurance credit but only about two million of these households will have positive income tax liability after benefitting from the credit.

The JCT estimates also reveal that Obamacare created a massive new marriage penalty.

They estimate that only 14 percent of tax-filers who claim the subsidy will be married. About half of the beneficiaries will be single individuals without dependent children. The reason for the marriage penalty is two-fold.

First, the subsidy is linked to 400 percent of the federal poverty level (FPL) which is estimated to be $45,600 for a one-person household and $61,600 for a two-person household in 2014. The result of linking the tax credit to the FPL is that two individuals who make between $61,600 and $91,200 in 2014 will not benefit from the tax credit if they decide to marry but both individuals can qualify for the tax credit if they remain unmarried or if they decide to divorce.

Second, a recent HHS rule prevents families from accessing the subsidy if either parent has an offer of coverage at work — but in cases where only self-only coverage is offered, the rest of the family cannot claim a subsidy. Essentially, Obamacare treats otherwise identical individuals very differently, depending on the source of their health insurance rather than the quality of it.

The president often talks about the need for tax reform, but his signature legislative accomplishment made the tax code more complex and less fair. A massive expansion of government meant to increase quality care and decrease health care costs has turned into a public policy nightmare that is falling short of the litany of promises made in order to justify its implementation.

It turns out that House Democratic Leader Nancy Pelosi’s (D., Calif.) prophetic words were more accurate than anyone at the time realized — we had to “pass the bill so that you can find out what is in it…”

Rep. Darrell Issa (R., Calif.) is the chairman of the House Committee on Oversight and Government Reform and represents the 49th Congressional District of California.

 

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How Doctors Die



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Here is a fascinating piece, based on anecdotal evidence collected by a member of the field, about how doctors choose to die. It turns out that while they obviously have plenty of first-hand knowledge and connections, they are more likely to swear off heroic, expensive measures. 

The whole thing is worth reading, but here’s a key passage:

 

Of course, doctors don’t want to die; they want to live. But they know enough about modern medicine to know its limits. And they know enough about death to know what all people fear most: dying in pain, and dying alone. They’ve talked about this with their families. They want to be sure, when the time comes, that no heroic measures will happen — that they will never experience, during their last moments on earth, someone breaking their ribs in an attempt to resuscitate them with CPR (that’s what happens if CPR is done right).

Almost all medical professionals have seen what we call “futile care” being performed on people. That’s when doctors bring the cutting edge of technology to bear on a grievously ill person near the end of life. The patient will get cut open, perforated with tubes, hooked up to machines, and assaulted with drugs. All of this occurs in the Intensive Care Unit at a cost of tens of thousands of dollars a day. What it buys is misery we would not inflict on a terrorist. I cannot count the number of times fellow physicians have told me, in words that vary only slightly, “Promise me if you find me like this that you’ll kill me.” They mean it. Some medical personnel wear medallions stamped “NO CODE” to tell physicians not to perform CPR on them. I have even seen it as a tattoo.

This gave me an idea for containing health-care costs: Insurance companies (and government-provided insurance plans) should offer people a discount or rebate for agreeing ahead of time to go without expensive, long-shot, last-minute interventions — or even less speculative measures that extend life only briefly. The discount could increase as a patient ages and the promise becomes more valuable.

There’s nothing wrong with deciding that you’d rather extend your life as much as possible, no matter the cost and no matter the misery of the extra time, but there’s no reason everyone else your insurer covers should have to pay for it. And making the price explicit would encourage people to consider the costs and benefits, and to make their wishes clear to their doctors and loved ones.

Okay, that’s rather morbid, but I like it anyway.

Hat tip: Volokh Conspiracy.

Obamacare’s Fatal Flaws



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Congress made a serious drafting error in the health-overhaul law when it said that subsidies could be delivered through state exchanges but not through any federal fallback exchanges. (Michael Cannon of the Cato Institute wrote about this in the Wall Street Journal recently.) The Obama administration has been trying an end-run around the problem by ordering the IRS to simply say in its proposed regulations that the subsidies can be delivered through either type of exchange. This is a big issue because a growing number of states are refusing to create exchanges. If they don’t, the feds can come in and set one up, but these will be relatively useless if they can’t deliver subsidies.

Sen. Orrin Hatch, the ranking Republican on the Senate Finance Committee, this week blew the whistle on the proposed IRS rule. In a letter to Treasury Secretary Tim Geithner and IRS Commissioner Doug Shulman, Hatch says the law is clear that only state exchanges can offer the subsidies, emphasizing that the administration doesn’t have the authority to go beyond the language of the law.

“Contrary to the clear wording of the statute, your proposed regulations suggest otherwise, extending the availability of premium credits to those participating in federal exchanges,” Hatch wrote. “I am concerned that if finalized, these rules would exceed your regulatory authority, violating the Constitution’s separation of powers.”

One more reason to throw the law overboard.


SICKER EMPLOYEES COULD BE SHOVED OUT
Two University of Minnesota law professors write that Obamacare actually provides incentives for “targeted employer dumping” of sicker workers into taxpayer-subsidized health exchanges. The article — “Will employers undermine health care reform by dumping sick employees?” by Amy Monahan and Daniel Schwarcz — explains how companies could redesign their health benefit programs to make it more costly for sicker employees to stay with the company health plan and encourage them to opt instead for the exchanges.

Monahan and Schwarcz write that this “would expose these exchanges to adverse selection caused by the entrance of a disproportionately high-risk segment of the population into the insured pool.” They conclude, “Not only would this undermine the spirit of health care reform, but it would jeopardize the sustainability of the insurance exchanges.” (NPR had a good story about the threat yesterday.)

In spite of this, senior HHS officials have said it would be a good thing for employers to “dump [their] people into the exchange.” Speaker Pelosi talked favorably about Obamacare as a way “for businesses to be emancipated from health care costs because they have a way out or whatever works for them.”

The only problem is that it would not be good for sicker employees, who would have greater difficulty finding physicians to see them under what surely will be lower payment rates in the exchanges, and it would be bad for taxpayers, who will have a much bigger bill to pay for exchange subsidies.

A second reason to jettison the law.


MORE LOST JOBS
A Michigan-based medical device company, Stryker, announced that it would be shedding “five percent of its workforce over concerns about the impending 2.3 percent medical device tax prescribed by” Obamacare.

A press release from the Kalamazoo company noted that “the targeted reductions [i.e., layoffs] … are being initiated … in advance of the new medical device excise tax scheduled to begin in 2013” under Obamacare.

With jobs creation the top priority of the American people, this is definitely not good news.

And the list of reasons to dump Obamacare goes on and on.

CLASS Act: Not Dead Yet



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The House Energy and Commerce Committee has approved a bill to repeal the controversial long-term entitlement program — the CLASS Act — in Obamacare, following the administration’s admission that the Ponzi scheme program is unworkable. This vote paves the way for the full House of Representatives to vote on repealing the entitlement program.

“We must erase a program that we know will not work; a program that was never structured to work, and that we could never afford,” committee chairman Rep. Fred Upton said. “I believe we have to start over on long-term-care reform — an issue that will affect millions of Americans as they or a loved one need care.”

Three Democrats joined 30 Republicans on the committee to vote for repeal. But even though CLASS has been deemed unworkable by his own administration, and HHS Secretary Sebelius has pulled the plug on implementing it, the president still has vowed to veto any repeal legislation.

But if CLASS were left on the books, Secretary Sebelius might be required to find a way to implement it next year. The Congressional Research Service has concluded as follows: “Assuming that the Secretary takes no further action to comply with the CLASS Act’s statutory mandate to designate a benefit plan by October 1, 2012, the Secretary would appear to be committing a facial violation of the statutory requirement to designate such a plan.”

The report continues: “The Secretary does not appear to have discretion to decide whether or not to designate a plan by October 1, 2012.”

Given this, you might assume that Secretary Sebelius would encourage the president to sign the repeal legislation, lest she and her department face legal action for violating the law they worked so hard to enact.

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‘Shoot Me Last’ Is Not a Viable Health-Care Business Strategy



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Earlier this week I interviewed Rep. Paul Ryan on Obamacare’s impact on health-care innovation, and he explained how Washington’s addiction to health-care price controls breeds Stockholm syndrome among the myriad hospitals, physicians, and drug companies who pay millions to D.C. lobbyists to try and stave off execution via reimbursement formula one more day (or, in this case, one more budget cycle):

For providers in an [Independent Payment Advisory Board] price-controlled system, they’re really just trying to pay their hostage takers to shoot them last, and that simply won’t work. Providers are beginning to realize this. They’re beginning to realize that hard-core price controls don’t pay them based on quality. Even if they innovate, even if they work hard, even if they increase productivity, they’re paid the same as anybody else who doesn’t do that. They’re not being rewarded in the way the market would reward them for [innovation].

If Obamacare has improved the prospects for true market-based health-care reforms, it is only because it has made it starkly clear that the status quo is unsustainable. Innovative companies and physicians know that if we go forward, they will find themselves squabbling over an ever shrinking pool of reimbursements, with no ability to appeal to the market (i.e., consumers) for the rewards commensurate with their investment in health-improving innovations. 

Lobbying Congress to shift cuts to your competitors is no longer a viable option when IPAB will cap Medicare spending at GDP+1 (or, in the case of President Obama’s latest proposal, GDP+.5), and the cuts have to fall annually. Providers’ only solution is to stop seeing Medicare patients entirely, or to treat them as widgets and pump them into and out of the system as fast as you can — hardly a recipe for quality health care. The only real alternative is to embrace something like Chairman Ryan’s proposal for a defined-contribution structure for Medicare, and for the health-care sector as a whole (via tax reform).

And then there’s the “size” problem. In an age when the Internet, electronic health records, and personalized medicine should enable more individualized care, Obamacare ratchets up the costs for small physicians’ groups and insurers and then drowns them in red tape. The end result is a monopsonist federal government negotiating with handful of oligopolies, as Walter Russell Meade writes in a recent blog post:

Health care reform needs to encourage innovation and flexibility. The rise of enormous, super-empowered HMOs closely tied to government regulations suggests we are headed further in the direction of building a corporatist, medico-industrial complex whose powerful lobbies will fight reforms, abuse monopoly powers and further congeal the American health care system into an unmanageable and unaffordable form that will undermine living standards while providing ever-less-satisfactory care.

This leaves us with Yuval Levin’s observation that “the core case against Obamacare must be a sustained political case made on policy grounds,” not the outcome of any Supreme Court case.  Whether or not the nation’s health care policies change course — no matter what SCOTUS rules in June — will largely depend on the articulation and defense of a superior vision for health-care reform that captures the hearts and minds of voters who’ve been told that they can’t trust markets to provide quality health care.

Paul Ryan has articulated much of that vision. Whether it will be adequately defended will not be known until next November.

Supremes Will Hear Obamacare Challenge



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The Supreme Court’s decision to hear arguments in the 26-state challenge to Obamacare sets the stage for the most important constitutional test of freedom and individual liberty in at least a generation.

The court will hear arguments next spring in the case brought by Florida, 25 other states, and the National Federation of Independent Business — the highest-profile challenge to the health-overhaul law.

The justices will allow a remarkable five and a half hours of oral argument to discuss at least four issues: the individual mandate, the law’s requirement that states expand Medicaid coverage, whether federal tax law, under the Anti-Injunction Act, keeps the court from reviewing of the mandate until someone has paid a penalty in 2015, and severability, i.e., and what provisions of the law should be struck if the mandate is found to be unconstitutional.

The core of the case is the constitutionality of the “individual mandate” — the federal requirement that all citizens must have government-prescribed health insurance. The Eleventh Circuit Court of Appeals ruled against the mandate in the Florida case in August, saying that if Congress can require “that individuals enter into contracts with private insurance companies for the purchase of an expensive product from the time they are born until the time they die,” then there will be “no limiting principles in which to confine Congress’s enumerated power.”

The Obama administration has insisted in its arguments that the mandate is the heart and soul of the health-overhaul law, its lawyers saying at least 14 times in lower court arguments last year that the mandate was an “essential” part of the act and its reforms cannot survive without it. The act itself says, “If there were no [individual mandate], many individuals would wait to purchase health insurance until they needed care … The [individual mandate] is essential to creating effective insurance markets in which improved health insurance products that are guaranteed issue and do not exclude coverage of pre-existing conditions can be sold.”

“Because the individual mandate is unconstitutional and not severable, the entire Act must be declared void,” U.S. District Judge Roger Vinson concluded. The Eleventh Circuit Court of Appeals, unwilling to go as far as Vinson, struck the mandate down but let the rest of the law stand.

The Obama administration decided to build in a protection and, in its appeal to the Supreme Court, asked that if it strikes the mandate, it also strike the guaranteed-issue and community-rating provisions in the law.

But the mandate is crumbling and will fall either to the courts, to Congress, or functionally as the American people reject it. It is emblematic of the inevitable collapse of the whole law.

There is a consistent theme among those who have concluded that the individual mandate is constitutional. In his Eleventh Circuit dissent, Judge Stanley Marcus repeatedly says that health care is uniquely important, that everyone will need it, and that it is therefore within the purview of Congress to regulate this form of commerce. That was the basic argument in the disappointing D.C. Circuit Court of Appeals decision last week, led by Judge Laurence Silberman. But the majority in the Eleventh Circuit disagreed, saying, “It simply will not suffice to say that, because Congress has regulated broadly in a field, it may regulate in any fashion it pleases.”

The Eleventh Circuit said it could find no precedent for a mandate on individuals to purchase government-approved health insurance:

Few powers, if any, could be more attractive to Congress than compelling the purchase of certain products . . . [But even] in the face of a Great Depression, a World War, a Cold War, recessions, oil shocks, inflation, and unemployment, Congress never sought to require the purchase of wheat or war bonds, force a higher savings rate or greater consumption of American goods, or require every American to purchase a more fuel efficient vehicle.

The government’s position amounts to an argument that the mere fact of an individual’s existence substantially affects interstate commerce, and therefore Congress may regulate them at every point of their life. This theory affords no limiting principles in which to confine Congress’s enumerated power.

The real question in all of these decisions is whether or not the U.S. Supreme Court will use this case to finally put the brakes on the expansive use of the Commerce Clause to regulate all forms of commerce and our behavior as we engage in that commerce.

As with so many other issues in this historic debate, it ultimately all comes down to freedom — and whether it will be lost or preserved by the Supreme Court and the voters next year.

Grace-Marie Turner is president of the Galen Institute and a co-author of Why ObamaCare Is Wrong for America, Broadside/HarperCollins, 2011.

Obama Signs Order to End to Promos, After Spending $3 Million of Medicare’s Money on Andy Griffith



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From the White House this morning, “President Obama will sign an Executive Order that will cut waste and promote more efficient spending across the federal government.” Top targets are to include: reduced spending on travel and conferences, cutting duplicative and unnecessary employee information technology devices, ending unnecessary printing, and stopping swag or government promotions.

Obama’s new effort goes beyond the tired retread of what has now become a presidential rite of passage to “root out waste,” and entered a whole new realm of hubris. This executive order comes almost a year after the Obama administration green-lighted a $3 million promotional advertising campaign featuring Andy Griffith to “sell” seniors on the new health-care law’s changes to Medicare.

The sheer irony is that after last year’s wasteful Medicare advertising campaign, seniors decided they liked the law even less. We can only hope the American people will come to a similar conclusion a year from now when evaluating President Obama’s policies.

— Michael Ramlet is director of health policy at the American Action Forum.

Silberman’s Lazy Endorsement of Obamacare’s Individual Mandate



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Yesterday, the U.S. Court of Appeals for the D.C. Circuit handed down its decision in Seven-Sky v. Holder, the latest of the Obamacare constitutional challenges making their way up the federal appeals court system. In a 2–1 ruling, the court upheld the health law’s mandate that forces all Americans to purchase health insurance. The ruling is notable for two things: one, that Laurence Silberman, a highly regarded judicial conservative, wrote the majority’s opinion; two, how important he shows it is for conservatives to overturn Wickard v. Filburn, the original sin of left-wing jurisprudence.

Judge Silberman’s 32-page opinion can be divided roughly into two parts. The first half is devoted to agreeing with the vast majority of other judges that the individual mandate is a penalty, not a tax, and therefore that the parties do have standing to sue. (If the individual mandate is a tax, under the Anti-Injunction Act, parties don’t have standing to sue until the tax goes into effect in 2014.) The second half reviews the constitutionality of the mandate itself.

I wrote in September that oral argument in this case pointed the way to the mandate’s defeat. As Randy Barnett reported from the hearing, “The low point for the government was when Judges Kavanaugh and Silberman pressed counsel for about 10 minutes for a single example of any economic mandate that would be unconstitutional under the government’s theory of constitutionality. To their evident frustration, she refused.”

Silberman notes this remarkable development in his ruling. “The Government concedes the novelty of the mandate and the lack of any doctrinal limiting principles,” he writes. “Indeed, at oral argument, the Government could not identify any mandate to purchase a product or service in interstate commerce that would be unconstitutional, at least under the Commerce Clause.” Silberman charitably “acknowledge[s] some discomfort with the Government’s failure to advance any clear doctrinal principles limiting congressional mandates,” but such limits aren’t obvious to him either:

We acknowledge some discomfort with the Government’s failure to advance any clear doctrinal principles limiting congressional mandates that any American purchase any product or service in interstate commerce. But to tell the truth, those limits are not apparent to us, either because the power to require the entry into commerce is symmetrical with the power to prohibit or condition commercial behavior, or because we have not yet perceived a qualitative limitation.

Worst of all, Silberman gets suckered by the “health care is unique” trope: that someone because “virtually everyone will enter or affect” the health care market, the framers of the Constitution meant to give it an exception to the traditional understanding of limited government:

It suffices for this case to recognize, as noted earlier, that the health insurance market is a rather unique one, both because virtually everyone will enter or affect it, and because the uninsured inflict a disproportionate harm on the rest of the market as a result of their later consumption of health care services.

But the core of Silberman’s argument is one that we’ve seem time and time again in this case: that Supreme Court rulings since the New Deal have already granted Congress virtually unlimited power through the Commerce Clause. Specifically, in the 1942 case of Wickard v. Filburn, the Supremes ruled that Roscoe Filburn could not grow wheat on his own farm for his own animals’ consumption, because doing so would frustrate the federal government’s scheme for wheat price controls.

The Supreme Court endorsed Wickard as recently as 2005, when in Gonzalez v. Raich, a 6–3 majority found that the federal government could bar Angel Raich from consuming home-grown medical marijuana, despite the fact that such marijuana was legal in the state of California.

After a lengthy review of these precedents, Silberman concludes that the individual mandate is not out-of-line with previous, similar Congressional actions, such as the Civil Rights Act of 1964. “It certainly is an encroachment on individual liberty,” he writes, “but it is no more so than a command that restaurants or hotels are obliged to serve all customers regardless of race, that gravely ill individuals cannot use a substance their doctors described as the only effective palliative for excruciating pain, or that a farmer cannot grow enough wheat to support his own family.”

This gets me to a point that has gotten too little attention in the coverage of the Obamacare litigation: the central importance of Wickard v. Filburn to the pro-mandate cause. The Supreme Court has twisted itself into a pretzel in order to justify Congressional intrusion into previously local affairs. While conservative judicial activists have justly focused on Roe v. Wade as a “litmus test” of judicial conservatism, it’s high time that conservatives also demand that judges commit to overturning the injustice done to Roscoe Filburn.

Ruling Proves Obamacare Opponents Should Rely on Politics, Not the Courts



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Yesterday’s ruling by a D.C. Circuit Court panel will have little (if any) effect on how the Supreme Court will ultimately rule on Obamacare.  But it provides further evidence that the overwhelming majority of Americans who oppose Obamacare shouldn’t entrust this nation-defining issue to the courts. 

Of course, that’s not to say that we shouldn’t hope for a favorable verdict. There are six ways that the Supreme Court could presumably rule on Obamacare. It could (1) let all of it stand, ruling that the individual mandate is a legitimate exercise of Congress’s power to regulate interstate commerce; (2) let all of it stand, ruling that the individual mandate isn’t really a mandate but a tax, which is justified under Congress’s taxing power; (3) strike down the individual mandate but let everything else stand; (4) strike down the individual mandate and also the “guaranteed issue” and “community rating” provisions that rely on the mandate to function; (5) strike it all down; or (6) decide that the 26 states who claim that Obamacare is unconstitutional lack standing or the Court lacks jurisdiction. 
 
Two of the three judges on the Circuit Court panel chose the first option, while the other dissented from the panel’s opinion and chose the sixth. In going with the option #1, the circuit court panel essentially declared that Congress not only has the power to regulate commerce but to compel it. It has the power to require Americans to buy products of the federal government’s choosing — at least when the government (and the judiciary) thinks that the market in which the product is to be purchased “is a rather unique one” that “virtually everyone will enter” or else cause “disproportionate harm” by not entering. In addition to sanctioning a truly frightening level of federal power, how’s that for an exact standard of constitutional adjudication?
 
Above all, the D.C. ruling serves as a welcome reminder that the coalition of Republicans and independents (and a smattering of Democrats) who oppose Obamacare shouldn’t rely on the courts — and ultimately the Court — to take care of the matter. Relying on the Court is like rolling one die and hoping that the either a 4 or a 5 comes up (as those are the only two of the six potential rulings that would provide an even remotely satisfactory result). (Number 3, which entails having the Court strike down the individual mandate but nothing else, wouldn’t reduce the importance of a political resolution whatsoever.)
 
There’s only one sure way to spare ourselves and our offspring from Obamacare — and that’s to repeal it. Maximizing the chances that this will happen requires having a Republican nominee who’ll make repeal a centerpiece of the campaign and can speak persuasively about why Obamacare is the worst piece of legislation in any of our lifetimes. It will require that nominee to win. And it will require the newly inaugurated GOP president to show somewhere near as much willpower to get repeal legislation through the Senate as President Obama showed in imposing Obamacare on the country. 
 
Victory lies through the political process. Far too much is at stake to rely on the Court.

Depo Provera: What the NYT Did Not See Fit to Print



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The New York Times recently gave front-page, above-the-fold treatment to an article by Pam Belluck concerning the doubled risk of HIV acquisition among couples using the injectable contraceptive Depo Provera. In less than a month, the story has generated over 4 million mentions online, many of which cite concerns about the drug, but none (that I read) giving the whole ugly truth about Depo Provera. A summary of Depo’s shortcomings is offered below, but first let’s turn to the question of why the new study has attracted so much interest.

One reason for the high level of publicity and counter-spin following Belluck’s article is that the study she describes undercuts a major reason given for including all FDA-approved contraceptives under “preventive services” in the Affordable Care Act: to eliminate the cost barrier for women who otherwise would use more effective but very expensive long-acting reversible contraceptives (referred to as “LARCs” in the literature). If the advantage of the more effective LARCs is hugely offset by the awful health risks they pose, then why would anyone encourage a switch to their use?

Planned Parenthood and manufacturers of contraceptives have hundreds of millions of reasons to encourage the switch: their huge windfall from taxpayer-funded LARC will help offset the pharmaceuticals’ settlements and liability judgments due to deaths and serious adverse events associated with the use of their products.

How much money are we talking about? Instead of handing out cheap condoms and cheap, government-subsidized birth-control pills, Planned Parenthood stands to profit handsomely from the LARCs. Its website puts the cost of Implanon (including insertion) at $400–600, and of an IUD (with insertion) at $500–$1,000. This is almost as lucrative as performing a first-trimester abortions! Depo looks like a comparative bargain at $300–400 a year, however, office exams when getting the quarterly injections can quickly run the price up.

But don’t even think about switching to Depo or other types of LARC until you’ve heard the rest of the story. There was much that the New York Times did not find fit to print.

The very first words of Belluck’s article are “The most popular contraceptive for women in eastern and southern Africa.” This could lead one to think that the doubled risk of acquiring HIV must be offset by fabulous benefits inherent in Depo, to make it so hugely popular. Not so.

Depo Provera is popular in much the same way that chlamydia is “popular” on college campuses — it is widespread. In eastern and southern Africa, 12 million women use Depo, equal to 6 percent of all women of reproductive age, but only because Western suppliers of “reproductive health care” to the world’s poorer nations are foisting it on them, as it doesn’t require remembering to take a pill every day. One just shows up every three months for a shot.

In the U.S., where women have more contraceptive choices, there are only 1.2 million users (about 3.2 percent of reproductive age women), but the 3.2 percent usage figure is a misleading measure of contraceptive “choice.” The level of use is a high 20 percent among sexually active teenagers, who are easily talked into getting Depo shots instead of pills so their parents won’t discover a telltale pill pack lying around. And many Depo users in the United States discontinue the shots fairly quickly.

For example, a two-year study of over 5,000 women receiving Depo injections at Planned Parenthood of the Rocky Mountains reported: “Of the 5,178 women who received an initial injection, only 57% returned for a second administration; [another third dropped out after two shots]. . . . The overall one-year continuation rate was 23%.

The main reason women gave for not returning for subsequent injections was “difficulty tolerating side effects.”

Belluck did not point out that the study she summarized — R. Heffron et al., “Use of Hormonal Contraceptives and Risk of HIV-1 Transmission: a Prospective Cohort Study” — is but the last in a very long line of studies finding an increased risk of HIV and/or STD acquisition among those using hormonal contraceptives, and not just Depo.

The Heffron study describes plausible reasons given in the scientific literature explaining why hormonal contraceptives would actually increase women’s risk of becoming infected: “Clinical and laboratory studies have suggested possible mechanisms by which hormonal contraception could influence HIV-1 susceptibility and infectiousness including changes to vaginal structure, cytokine regulation, CCR5 expression, and cervicovaginal HIV-1 shedding” (emphasis added).

Some more ugly truths about Depo:

Returning to the 77 percent of women in Planned Parenthood’s study who discontinued Depo in the first year, their decision to quit may have had little to do with the risk of acquiring HIV and a lot to do (as they reported) with some nasty side effects or from recent FDA warnings, for example:

WARNING: LOSS OF BONE MINERAL DENSITY

Women who use Depo-Provera Contraceptive Injection may lose significant bone mineral density. Bone loss is greater with increasing duration of use and may not be completely reversible. 

Depo-Provera Contraceptive Injection should not be used as a long-term birth control method (i.e., longer than 2 years).

Other warnings and precautions include the following:

Serious thrombotic events (blood clots), which can lead to cardiac arrest and stroke. Here’s a helpful tip for doctors: “Do not readminister Depo-Provera CI pending examination if there is a sudden partial or complete loss of vision.”

Breast cancer: Hormone sensitive breast cancers (which often strike younger women) occur twice as often in women under 35 who have used Depo in the previous four years. After discontinuation, the additional risk diminishes over time.

Ectopic pregnancy: Women who become pregnant while using Depo have an increased risk of a potentially life-threatening ectopic pregnancy.

Depression, irritability, and mood swings are frequent complaints of women discussing their reactions to Depo online, but the drug label does not provide statistics on frequency in actual use (post-trials) other than noting these may occur.

Bleeding irregularities” are described on the drug label and include “irregular or unpredictable bleeding or spotting, prolonged spotting or bleeding, and heavy bleeding.” By the twelfth month of use, 55 percent of women had stopped menstruating entirely.

Excessive weight gain (as well as fluid retention and bloating) are factors women often cite for discontinuing Depo use. In clinical trials, almost one in four women gained over 10 pounds in 24 months.

The list of post-marketing adverse reactions is too long to repeat in its entirety. Here are some highlights:

Cardiovascular — syncope, tachycardia, thrombophlebitis, deep vein thrombosis, pulmonary embolus

Digestive — changes in appetite, gastrointestinal disturbances, jaundice, excessive thirst

Hematologic — anemia, blood dyscrasia

Musculoskeletal — osteoporosis

Nervous — paralysis, facial palsy, paresthesia, drowsiness

Skin and appendages — hirsutism, excessive sweating and body odor, dry skin, scleroderma

Urogenital — cervical cancer, breast cancer, lack of return to fertility, unexpected pregnancy, prevention of lactation, breast lumps, nipple bleeding or milky discharge

In light of all this, even when it’s “free” under the Affordable Care Act, Depo Provera does not look like much of a bargain. But Depo has one advantage over some other contraceptives — the Ortho Evra patch and NuvaRing, for example. Depo’s awful side effects usually get women off Depo before irreversible harm occurs. Not so with the patch and the vaginal ring.            

About 130 deaths have been linked to the patch, and over 2,400 women have claimed that the patch caused them to have blood clots that resulted in heart attack, stroke or pulmonary embolism. The doubled risk of these events has resulted in settlements totaling over $68 million. NuvaRing has caused only 40 known deaths so far (per the FDA database), but the manufacturer is facing 730 lawsuits for blood clot-related injuries and deaths.

The sobering risks and side effects of every contraceptive drug and device are described on its drug label, posted on the FDA website. Learn the facts before you become the victim of a contraceptive-related injury or death.

Cain Shows He’s Savvy on Health-Care Policy



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Herman Cain spoke with passion and conviction today before a Capitol Hill audience about the essential importance of repealing Obamacare and replacing it with “market-driven, patient-centered reform.”

He spoke at a forum organized by the Congressional Health Care Caucus, chaired by Texas Rep. Michael Burgess, M.D., that was inundated with dozens of reporters and televisions cameras. They got a big dose of health reform when what they really wanted was to ask him about the National Restaurant Association sexual-harassment controversy. He didn’t take those questions.

Instead, he talked about the destructive impact of Obamacare, which is driving up costs and forcing at least 1,500 companies to seek waivers just to keep offering health insurance to their workers. “The problem with health costs in America goes back to 1943,” he explained, which set the foundation for the employer-based health insurance system that insulates people from the costs of health care and puts employers in charge of choices. 

As for medical care, “We have the best health care system in the world,” he said, as he recounted his own experience in 2006 with stage four cancer of the liver and colon, saying he is alive today because of the immediate, high-quality care he received. “I was finished with two rounds of chemotherapy and two surgeries in nine months — less than the time it would take to get a CT scan in countries with socialized health care systems,” he said.

He then took questions from members of Congress: Rep. Andy Harris (R., Md.), a physician, asked him how to help people understand the critical importance of reforming Medicare. “I would paint a clear picture of the disastrous path we are on if we don’t act,” Cain said. He also said he wants to work with states, hospitals, and doctors to push decisions closer to the people who are using medical services and would block grant Medicaid for the same reason.

House Energy and Commerce Health Subcommittee Chairman Joe Pitts (R., Pa.) asked about the Independent Payment Advisory Board “whose decisions can’t be appealed and that takes a 2/3 vote of Congress to overrule.” Cain said he encourages members to do everything they can to “educate the public about how this takes away freedom.” He urged members to push for repeal now and to help the American people see why the whole law must be repealed.

Cain said he wants to sign a repeal bill on March 23, 2013 — the third anniversary of passage of Obamacare.

Rep. Glenn Thompson (R., Pa.) asked about medical malpractice reform, and Cain said he strongly supports medical liability reform to cut down on “frivolous lawsuits.”

Rep. Billy Long (R., Mo.) asked what Cain would do about preexisting conditions and interstate competition for health insurance. Cain said he strongly supports cross-state purchasing of health insurance, and he said he believes it is a proper role for government to provide a safety-net, with both state and national contributions. “We don’t want to leave anybody out of getting health insurance coverage,” he said.

As a good “starting point for reform,” Cain says he supports HR 3400, introduced by Rep. Tom Price, a physician and chairman of the House Republican Policy Committee. (The measure was re-introduced as HR 3000 in this Congress.)

Cain spoke without notes and clearly had ownership of the business of health care, the powerful impact of the tax treatment of health insurance in shaping the American health sector, and the crucial importance of repealing Obamacare to provide a path to change that put doctors and patients in charge of choices.

More Price Controls, Fewer Jobs, and Less Innovation



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One common deficit-reduction idea — proposed by President Obama and floated in Congress’ bipartisan “supercommittee” — is to impose additional rebates on Part D drugs for “dual eligibles.” In other words, the government would force drug companies to partially reimburse it for the drugs purchased by seniors who participate in the Medicare Part D program (which gives seniors a subsidy so they can buy a private drug plan) but are also eligible for Medicaid (which simply requires drug companies to give large rebates if they want their drugs to be covered). Put more simply, the president wants to impose price controls on a large portion of the pharmaceutical market. According to the president’s proposal, mandatory rebates for these populations would reduce the deficit by approximately $135 billion over ten years.

Before Medicare Part D went into effect in 2006, drug companies had to pay Medicaid’s required rebates for seniors who were eligible for the program; now, when a Medicaid-eligible senior enrolls in Part D instead, drug companies have to pay only the rebate they negotiate with the private insurance company, which is typically lower. Therefore, the argument goes, Part D is a “giveaway” to drug makers.

First of all, Part D isn’t a “giveaway,” since the program requires drug companies to compete with each other to offer significant discounts to all Part D enrollees —  in 2009, these discounts totaled about 11 percent of prescription-drug costs, although they can reach as high as 20 or 30 percent for some brand-name drugs, according to the most recent report by the Medicare trustees. (The required Medicaid rebates are 23.1 percent for brand-name drugs and 13 percent for generics.) Part D’s strategy of using market competition to keep prices low has worked much better than almost anyone expected, with Part D costs to tax payers about 40 percent less than originally estimated.

So what? critics might reply. Let’s just take $135 billion more from those greedy pharmaceutical companies. The problem, as former Massachusetts governor Mitt Romney observed not too long ago, is that corporations are people too. Or rather, they are legal fictions that represent their employees, their shareholders, their vendors, and the patients who rely on them for a steady stream of innovative new products — in this case, medicines.

As a result, Medicare Part D price controls will affect people in a number of different ways. Maybe companies would just take a hit to their bottom-line profits and eat the rebates. But even if that happened, investors would respond to the lower profitability by shifting their money elsewhere, depriving the industry of the money it needs to develop drugs and dealing damage to the companies’ share prices. If you happen to have a 401(k) with any drug-company stocks in it, you’d feel the pain.

Instead, companies would probably pursue two other basic options: cut costs or raise prices.

Cost cutting would come in the form of laying off workers (or reducing pay and benefits), sending more jobs and manufacturing facilities to low-cost countries abroad, or reducing investment in discovering new medicines. None of these responses should count as a winner for the U.S. economy. One recent study found that the president’s proposal could reduce direct and indirect employment in the pharmaceutical industry by up to 238,000 jobs by 2021.

Reducing research-and-development spending might seem like a clear “winner” for the supercommittee, since fewer expensive new drugs would come on the market. The government’s drug tab would decline rapidly (aided by the expiration of existing drug patents), but as the U.S. population aged and more people became afflicted by cancer, Alzheimer’s, and other expensive chronic illnesses, we’d just spend more money on hospital care and physician care — actually increasing overall health-care spending. (Economist Frank Lichtenberg estimates that for every $1 that Medicare spends on newer medicines, it saves about $6 in other health-care costs, mainly from reduced hospital costs.)

Finally, companies could respond to larger rebates by increasing prices (or decreasing discounts) in the rest of the Part D program, or for non-Medicare insurers. Given the size of the cuts the president has proposed, companies would likely do all of this to some degree — raising premiums for non-dual-eligible seniors, and thus requiring the government to give higher subsidies for non-dual-eligible Part D recipients (reducing the expected deficit savings).

Given the complexity of the underlying markets, it’s hard to say exactly what mix of job losses, research-and-development cuts, and price increases would follow from the president’s proposal. What is certain is that these are all bad outcomes for patients and the country.

They are particularly bad because they are hitting an industry in the midst of enormous revenue losses from patent expirations, rapid increases in the costs of developing FDA-approved drugs, and new hurdles from health-care reform, such as Medicare’s Independent Payment Advisory Board, that will make bringing new drugs to market even more of a financial risk than it is today.

A better alternative for Medicare reform is to enact something like House Budget Chairman Paul Ryan’s premium-support plan. Similar plans have been proposed by bipartisan experts for years, and such a model would introduce market forces to correct the inefficiencies that have plagued the program for so long.

Ryan’s plan, rather than penalizing innovators, would reward them for finding better ways to hold costs down. The president’s plan to impose price controls on Medicare Part D would kill jobs, strangle medical innovation, and shift health-care costs to other seniors and private insurers. It’s a bad idea, and the supercommittee can do much, much better.

— Paul Howard is director of and a senior fellow at the Manhattan Institute’s Center for Medical Progress, and the managing editor of MedicalProgressToday.com.

Immediate Medicare Reforms Could Slash Nation’s Debt



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When it comes to the super-committee’s duty to reform Medicare, you’ll likely to hear the same tired and unsuccessful methods for lowering Medicare’s soaring costs: raising taxes, manipulating payment formulas, or making even deeper payment cuts to doctors and hospitals. 

The best way to reform Medicare is transform it into a premium-support program, which provides a defined contribution to seniors’ chosen health plans, which include a variety of private plans as well as traditional Medicare fee-for-service. This approach — based on injecting consumer choice and competition into Medicare — has a long history of bipartisan support, going back to the early 1980s.  

Congress could adopt this approach through a two-stage, ten-year structural reform, which the Heritage Foundation outlined in its long-term deficit plan, “Saving the American Dream.” When compared with the Congressional Budget Office’s baseline, Heritage’s two-stage Medicare reform plan would result in $9.4 trillion in savings by 2035.

During the initial five-year transition period, Congress could make immediate changes to help secure the program’s fiscal solvency. Calculations from Heritage’s Center for Data Analysis show the initial reforms would result in nearly $299 billion in savings. These savings could eliminate shortfalls in the Hospital Insurance (HI) trust fund — which CBO estimates to go broke by 2020—and “fix” the Medicare physician payment formula, which threatens a 30 percent payment cut next year to doctors who see Medicare patients.

Here’s what Congress could do right now, while transitioning Medicare into a sustainable premium-support program:

Add a catastrophic benefit to protect Medicare patients. Traditional Medicare, which is broken up into four parts, does not provide seniors with any protection against the costs of a catastrophic illness. To cover this and other gaps, nine out of ten seniors buy a supplemental policy that provides “wraparound” coverage. But because these policies also provide “first-dollar” coverage, they fuel excessive utilization of medical care and cost taxpayers tens of billions of additional dollars. .

Instead of recovering those costs through a “Medigap” premium tax, as some have recommended, Congress could provide seniors a catastrophic benefit in lieu of the more costly supplemental insurance. Senior could choose the benefit or keep the more expensive supplemental coverage, but catastrophic coverage would guarantee peace of mind. In a future premium-support program, all health plans would have catastrophic coverage. Meanwhile, structured properly, a catastrophic benefit could reverse harmful incentives and yield real savings.

Eliminate Medicare hospital deficits with a temporary premium. Medicare’s Part A (hospitalization) spends more than it takes in through payroll taxes. Washington’s historical response to this has been to raise payroll taxes on working families, or cut spending through tougher price controls and tighter regulation. But rather than raise taxes in a recession or slash hospital payments even more, Congress could establish an annual supplemental premium — just enough to cover the shortfalls.

The premium would be flexible, and guarantee the financing of seniors’ hospitalization during the transition to a premium-support program. A temporary monthly premium, if applied equally to all beneficiaries, would be about $30 or less per enrollee. This is a much better option than continuing to allow endless deficits or hiking the federal payroll tax in a struggling economy with a 9.1 percent unemployment rate.   

Reduce taxpayer burdens for Medicare Parts B and D.  When Medicare was enacted in 1965, Part B premiums were split 50–50 between Medicare beneficiaries and taxpayers. But over the years, taxpayers ended up paying 75 percent of premiums. Beneficiaries should pay more for their benefits. Therefore, Congress should slowly raise (over five years) the premiums that patients pay for parts B (doctor visits) and D (prescription-drug coverage), from 25 percent to 35 percent. This is only fair to taxpayers who struggle to pay their increasing health costs as well as the exploding entitlement costs. Of course, current protections for Medicare beneficiaries with limited means — such as Medicare patients not paying Part B premium increases if they exceed their Social Security benefits’ cost-of-living adjustment — would remain.

Cut taxpayer subsidies for the wealthiest Medicare patients. Today, a retiree with an annual income of more than $85,000 pays higher Medicare premiums than retirees with lower incomes. The White House wants wealthy people to pay more in taxes. But instead of adopting this “soak-the-rich” tax policy, why not gradually reduce taxpayer subsidies for upper-income retirees? To maximize the savings, start the phase-down more gradually for single seniors with annual retirement incomes of more than $55,000.

That’s more than $12,000 above the average annual income for today’s American worker. Under the Heritage proposal, taxpayer subsidies for Medicare would be phased out entirely for a retiree with an annual income of $110,000 or more. Of course, wealthy seniors could enroll in Medicare, and get all of the program’s special insurance advantages. But they would pay the full premium costs. Meanwhile, the Heritage proposal would direct more financial assistance to poorer seniors who need the most help.

Slowly increase the program’s eligibility age to 68. The average lifespan when Medicare started was 70.2 years. Today, it’s 78.2 years. Today’s retirement age doesn’t reflect the growth in longevity, nor the crushing tax burden that a smaller work force faces in financing a growing Medicare population that will reach more than 80 million enrollees by 2030.

Additionally, Congress should provide significant tax breaks to Americans who work past the normal retirement age to help delay enrollment in Medicare and Social Security. Heritage’s tax reform proposes a yearly $10,000 tax deduction for any American, regardless of income, who works beyond regular retirement.

Introduce a co-payment for Medicare home health care. While only 10 percent of Medicare patients use home health care, it is an expensive benefit for taxpayers. Today, there is no cost-sharing requirement in the program, despite a sharp increase in usage and staff visits. Adding a 10 percent co-payment for the cost of each home health care episode (home health care for 60 days) would save taxpayers an estimated $14 billion over the first five years.

These steps — taken together with reforms that guarantee provider access — would not only start a turnaround in Medicare’s financial condition, but also improve seniors’ access to quality care. They are real solutions that will make Medicare work for seniors and taxpayers, and be viable for future generations.

— Robert Moffit is a senior fellow in the Center for Policy Innovation at the Heritage Foundation.

Vitter Must Decide Which Side of Big-Government Health Care He’s On



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Earlier this month, U.S. Senator David Vitter (R-LA) ostentatiously accepted a petition with over 1.6 million signatures demanding the repeal of Obamacare. Good for him. But Senator Vitter is inconsistent in his response to big government in health care. When it comes to prescription drugs, he has frequently proposed legislation that expands the power of the federal government in questionable and irresponsible ways.

On October 18, Senator Vitter proposed an amendment (to an agricultural bill) that would have given federal approval to the international piracy of prescription drugs — what Senator Vitter and others describe as “importation.” Specifically, Senator Vitter’s amendment states that an individual (who is not in the business of importing medicines) may “import” an unlimited amount of medicines from Canada. Why Canada? Senator Vitter knows that many prescription drugs floating around the world, and available via the Internet, are not from reputable pharmacies at all. But Canada is a friendly, civilized nation where brand-name prescription drug prices are generally lower than they are in this country. Senator Vitter hopes to dampen people’s fears of taking cheap, fake medicines while abandoning any legal recourse in case of harm.

Government has a legitimate role with respect to policing the labeling of products — the federal government especially, with respect to international trade. So one would expect a U.S. legislator proposing such an amendment to be able to point to a treaty with Canada that requires the FDA and its Canadian counterpart to collaborate on this critical function. But no such treaty exists. The Canadian government has no interest in Canada’s limited supply of brand-name prescription drugs being diverted to the U.S. in violation of distribution contracts negotiated in good faith between brand-name drugmakers and wholesalers. It knows that international drugmakers would reduce the supply of medicines to Canada.

Another problem with Vitter’s amendment is that intellectual-property laws are national. There is at least one U.S. patent for every medicine that Senator Vitter wants to expose to international piracy. Indeed, many of these patents are issued to Canadian, British, Japanese, or European drugmakers, all of whom compete against each other on a level playing field in the U.S.

Canada has a different patent law — and some of the countries from which so-called “Canadian” medicines would be shipped have no effective intellectual-property law at all. If Senator Vitter really believes that inventors of new medicines should be uniquely disqualified from patent protection, he is free to make this case – but he should do it in a more above-board way.

Countless branded products in international commerce — from Coca-Cola to iPhones to group licenses for Microsoft Office — sell for widely different prices in different countries. Generally speaking, these prices are determined by differences in national incomes per capita, but also by countless laws and regulations. Manufacturers and distributors of these products could not participate in international trade if national laws prevented them from entering into legally enforceable contracts with distributors that allow them to tailor their offerings for different countries. Senator Vitter cannot explain why drugmakers should be uniquely excluded from laws that protect every other enterprise.

Senator Vitter has a worthy goal: reducing the prices of prescription drugs in the U.S. He can achieve this by reducing the power of the federal government. For example: loosening up the FDA’s monopoly power to approve drugs; removing the federal government’s power to determine whether a medicine can be dispensed over-the-counter or by prescription only; and allowing drugmakers to communicate to patients in plain English instead of incomprehensible bureaucratese. All of these are better avenues for his efforts than allowing the international piracy of medicines.

Obama’s Plan to Reduce Drug Costs for Federal Workers: Price Fixing



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One of the largest and most successful group-health-insurance programs in history, the Federal Employees Health Benefits Program (FEHBP), is based on consumer choice and competition. Its market-based character — hundreds of private health plans competing for the business of millions of individual consumers on a level playing field — is a welcome exception in the distorted health-care sector of America’s economy.

Incredibly, the Obama administration wants to surgically remove a key feature of the FEHBP: the competitive pricing and purchasing of prescription drugs. It would outlaw private-sector drug negotiation in the competitive market, and replace it with direct government purchasing of drugs for federal workers, retirees, and their dependents, roughly 8 million Americans.

On Oct. 14, Sen. Daniel J. Akaka (D., Hawaii) wrote the Joint Select Committee on Deficit Reduction (a.k.a. the super-committee), urging it to include the president’s recommendation, “because it would give OPM greater purchasing power and helps ensure lower prescription drug prices that will reduce costs not only for enrollees but also for the taxpayer.”

OPM’s direct purchasing of drugs, according to administration figures, would secure savings of just $1.6 billion over ten years. What’s the point? FEHBP’s annual cost is roughly $40 billion, and these savings would appear miniscule over a ten-year period. Of course, the issue is not now, and never has been, savings; the issue is centralized control over drug financing and delivery. Officially, the administration’s argument is that the government will “negotiate” a better deal for federal workers and retirees than private health plans in a competitive market.

There is one little problem. The government does not “negotiate” anything. The policy: Take it or leave it. You accept the government “price,” which is unrelated to consumer demand for the benefit, or you are excluded from the “market.” It’s another form of price fixing, pure and simple. Can you get savings that way? Well, Yes You Can! But only if you reduce the level of benefits you provide at the artificially low government price, which is what the Veterans Administration (VA) does today. Not surprisingly, roughly one third of the patients covered by the VA, which provides “cheap” or “free” drugs, are nonetheless enrolled in Medicare Part D, which provides a much broader range of competitively priced drugs.

Federal workers might not be so lucky. When crunch time comes to secure bigger savings, OPM will, like the VA, resort to a tougher drug formulary, which will reduce workers and retirees’ access to a broader range of prescription drugs and therapies. (Expect frenzied lobbying efforts to block formulary restrictions.) Today, if you are in the FEHBP and you don’t like a health plan’s drug coverage, you dump that plan and get a better one. Tomorrow, if Obama’s allies in Congress are successful, you will not have that option: You will get the restricted range of drug options that government officials decide to give you. That’s the way it’s done in Medicaid, for example, the poorly performing welfare program for the poor and the indigent.

Politically, if one is an ideological zealot for central planning, the attack on the FEHBP makes perfect sense. The FEHBP has been a successful model for the opposite: plan competition. For 2012, for example, FEHBP premium increases are projected to grow by 3.8 percent, while growth in private employer premiums is projected to be at least 5.4 percent, according to a September 2011 Mercer survey. While performance varies from year to year, the FEHBP enjoys historical superiority in cost control. Choice and competition work.

Like private-sector workers enrolled in comprehensive employer coverage, federal workers enjoy ample drug coverage. Because FEHBP also enrolls retirees, as well as an older active workforce, the demand for medical services is proportionately higher than that found in conventional employment plans covering younger workers. Older workers and retirees are often sicker, more likely to suffer from chronic conditions, and have higher rates of health-care spending than younger workers. So, of course, there is a higher demand for drug coverage. The administration estimates that drug payments represent 30 percent of FEHBP claims. Among retirees who are enrolled in Medicare Part A and B, FEHBP drug coverage is provided as supplemental coverage. Not only is that strong demand for drug coverage not surprising, recent research confirms that appropriate drug utilization can offset other health-care spending, reducing hospital costs.

This latest attack on competition in FEHBP is the prelude for yet another assault on Medicare Part D. That’s the ultimate target. In the FEHBP, just as in conventional employment-based insurance or in Medicare Part D, the common practice is for private health plans to negotiate with prescription-drug companies and secure drug discounts. In Medicare Part D, the Medicare Modernization Act of 2003 preserves these private market negotiations to ensure a system of competitive pricing. That private market delivery system has been an enormous success. According to Medicare’s Office of the Actuary, the competitive system of Part D has resulted in a reduction of its projected ten-year cost of over 41 percent.

The FEHBP is one of the few areas in health care that already does a good job of controlling costs, thanks to market forces. Meanwhile, the White House is doing a superb job of making a mess of the rest of the health-care system, accompanied by extravagant health-care promises that it cannot and will not keep. Federal workers would be best served if the administration kept its hands off the FEHBP.

— Robert E. Moffit is a senior fellow at the Heritage Foundation’s Center for Policy Innovation.

Yes on Three



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Obamacare Extends Its Tentacles



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The Institute of Medicine (IOM) has released its long-awaited report outlining criteria for the Obama administration to determine what medical services most health insurance policies will be required to cover starting in 2014.

Since the federal government is mandating that people purchase health insurance and will spend trillions of dollars in taxpayer subsidies, it therefore must define what qualifies as an acceptable policy. Deciding what will be in this “essential benefits package” is going to be a long, painful process that the political system is ill-equipped to handle.

The IOM advisory panel didn’t specify down to the level of which tests and procedures must be covered — HHS will do that. Instead, the IOM urged officials to use the benefits offered by a typical small employer plan as the basis for the government plan.

That sounds like a reasonable start, but this is only the first shoe to drop for this particular Obamacare centipede. The IOM recommended that the Obama administration detail by next May which specific benefits should be required in order to give health plans time to prepare for the major rollout of insurance coverage the following year.

This is very new territory in which the federal government — not employers or individuals — will decide what private health plans must cover. The IOM says the treatments should be cost-effective and also “demonstrate meaningful improvement” over current services and treatments — a very high bar. The IOM recommended that if the services don’t meet these and other criteria, they could be excluded from the benefits package. And that, of course, will lead to another level of government rules.

This is just what the American people feared. Of course cost-benefit analyses are important — employers and others buying health insurance make those judgments every time they purchase a policy. But how many of us want the government to decide?

The IOM report sets out utopian goals: “The [package] must be affordable, maximize the number of people with insurance, protect the most vulnerable individuals, promote better care, ensure stewardship of limited financial resources by focusing on high value services of proven effectiveness, promote shared responsibility for improving our health, and address the medical concerns of greatest importance to us all,” said the report. One wonders why the government doesn’t wave a magic wand over Medicare and Medicaid to do this.

Defining an affordable premium target became a “central tenet” of the IOM committee because, the committee concluded, if cost is not taken into account, the essential health-benefits package will become increasingly unaffordable for both individuals and small businesses.

Fair enough. But the big question most Americans are likely to ask is whether they want government to be making these decisions or whether they want to decide for themselves.

CLASS Is Out



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Obamacare is collapsing. The latest example is last week’s brouhaha over the maybe-it’s-closing, maybe-it’s-not office that is tasked with implementing the CLASS Act.

It has been clear from the beginning that the CLASS program was a sham. It was dubbed so by Sen. Kent Conrad, Democrat of North Dakota: “A Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of.” HHS secretary Kathleen Sebelius admitted to Congress this year the program is “totally unsustainable.”

CLASS is a brand new entitlement program to provide government-run long-term care insurance. It played an important role in the fictional accounting of Obamacare, since it starts collecting money five years before any benefits are paid.

Bob Yee, the actuary charged with the impossible task of making the program work, sent out a clearly unauthorized e-mail last week telling colleagues his office was closing.

The White House denied it, but a Senate Appropriations Committee staffer earlier had told reporters that the administration had asked Senate Democrats not to provide any funding for the long-term care program offices for the next fiscal year.

So while Yee says he’s been relieved of his duties and everyone else in the office has been reassigned, HHS still insists that “reports that the CLASS office is closing are not accurate.” Yet there’s no money to run the office.

Connie Garner, a former staffer to the late Sen. Ted Kennedy and architect of the CLASS Act, pointed out that the program was created by law, and that the administration can’t just terminate it.

That’s especially true since CLASS was being milked to provide $70 billion toward the up-front cost of Obamacare.

So where is the money going to come from to make up the difference? Good riddance to this program, but Congress still needs to ask the question.

CLASS Gets Expelled



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Jim Capretta, Andrew Stiles, and others have written in these pages about the looming fiscal disaster that is CLASS, Obamacare’s long-term care entitlement. This morning, CLASS’s chief actuary — the official in charge of designing the program’s structure — sent out an e-mail stating that “HHS has decided to close down the CLASS Office effective tomorrow.” The actuary went on to tell National Journal that “all of the people [in the CLASS office] are being reassigned.”

As I describe on my Forbes blog, the White House says that reports of CLASS’s demise are “flat-out false,” and HHS is claiming that, “While the staff of the CLASS office has been reduced, reports that the CLASS office is closing are not accurate …We are continuing our analysis of this program … It is an open question whether the program will be implemented.”

However, it’s not obvious how you can lay off and/or reassign everyone in the CLASS office, including the program’s most important official, and continue to run the program. A more likely explanation is that the administration wanted CLASS to die quietly. That way, they could minimize complaints from special interests, including AARP, for whom CLASS was essential to their support for Obamacare.

— Avik Roy is an equity research analyst at Monness, Crespi, Hardt & Co. in New York City. He blogs on health-care issues at The Apothecary.

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