Critical Condition

NRO’s health-care blog.

Obamacare Decision May Invite Supremes to Limit Federal Power


The Sixth Circuit was the first of several appeals courts to rule on the validity of Obamacare’s individual mandate, and conservatives are disappointed about Wednesday’s 2-1 decision upholding the law. They shouldn’t be.

A careful reading of the entire 64-page document shows the swing judge may in fact be inviting the U.S. Supreme Court to use the case to finally put the brakes on the seemingly unlimited expansion of federal powers under the Constitution’s Commerce Clause.

The key vote in Wednesday’s decision was Judge Jeffrey S. Sutton, a George W. Bush appointee and a former law clerk to Supreme Court Justice Antonin Scalia. He sends a very loud signal that it’s time, with this case, for the Supreme Court to reverse course.

Therefore, the celebration by those on the left who believe that this decision will give more impetus for the mandate to be upheld in other cases should put the corks back in the champagne.

The Supreme Court has allowed the Commerce Clause to be used for decades to expand the power of the federal government to reach into virtually every corner of our economy and our lives. Judge Sutton explained that lower-court judges have a “duty to respect the language and direction of the Court’s precedents.” He said it is not within the powers of any lower court to reverse those precedents. “A court of appeals cannot” move beyond these judicial precedents, he repeats. Hence his vote to uphold the law was based upon previous liberal interpretations of the Commerce Clause.

Only the Supreme Court can decide if interpretations of its previous decisions (about a farmer’s production of wheat or growing marijuana) have “outstripped the facts,” or if subsequent interpretations have made “broader and more extravagant assertions of legislative power . . . impervious to challenge,” Sutton writes.

The judge argues that “commerce power has ‘evolved over time’ in favor of greater congressional power,” but adds that this “need not invariably be the case, lest each expansion of federal power beget another, piling one inference of an unlimited national police power onto another.”

But he suggests that the health law presents the Supreme Court with the opportunity to finally put the brakes on the extravagant use of the Commerce Clause to expand federal power to unprecedented levels.

Sutton wrote: “Today’s ‘question’ about the ‘extent of the powers’ granted to Congress goes primarily to its commerce power to compel individuals to buy something they do not want (medical insurance) as part of a regulatory system that a majority of elected representatives do want (national health care). If the commerce power permits Congress to force individuals to enter whatever markets it chooses, any remaining hold on national power will evaporate.”

It sounds like an open invitation for the U.S. Supreme Court to put limits on Commerce Clause interpretations. “The basic policy idea, for better or worse (and courts must assume better), is to compel individuals with the requisite income to pay now rather than later for health care. . . . Call this mandate what you will — an affront to individual autonomy or an imperative of national health care — it meets the requirement of regulating activities that substantially affect interstate commerce” under previous Court interpretations, Sutton wrote.

Sutton asks the crucial questions many are asking:

That brings me to the lingering intuition — shared by most Americans, I suspect — that Congress should not be able to compel citizens to buy products they do not want. If Congress can require Americans to buy medical insurance today, what of tomorrow? Could it compel individuals to buy health care itself in the form of an annual check-up or for that matter a health-club membership? Could it require computer companies to sell medical-insurance policies in the open market in order to widen the asset pool available to pay insurance claims? And if Congress can do this in the health-care field, what of other fields of commerce and other products?

Sutton concludes that precedent in interpretation of the Commerce Clause gives Congress the power to mandate the purchase of health insurance, but adds that “nothing about this view of the case precludes individuals from bringing” future challenges to the mandate by arguing that Congress crossed a constitutional line in imposing “this unprecedented requirement.” So even a Supreme Court decision may not be the last word.

The 2-1 circuit-court decision came down over the question of the extent of “Congress’s power to regulate activities that substantially affect interstate commerce” by requiring individuals to maintain a minimum level of health coverage.

Judge Boyce F. Martin Jr., a Democratic appointee, voted to uphold the health law, along with Sutton. Judge James L. Graham, appointed by President Reagan, disagreed with their core finding about the mandate’s unconstitutionality (see below). The case, brought by the Michigan-based Thomas More Law Center, was argued June 1, and the decision was unexpectedly speedy.

The court decided that “the minimum-coverage provision regulates activity that is decidedly economic.” It concluded that people who “self-insure” — i.e., go without insurance — have an impact on interstate commerce if they require health care for which they cannot pay: “Thus, where Congress comprehensively regulates interstate economic activity, it may regulate non-economic intrastate activity if it rationally believes that, in the aggregate, the failure to do so would undermine the effectiveness of the overlying regulatory scheme.”

The court found that the law’s strict insurance regulations (guaranteed issue and community rating) require more regulation through the individual mandate in order to protect the sellers of insurance from free riders who could “undercut its overlying economic regulatory scheme.” It said “the minimum-coverage requirement is essential to its broader reforms to the national markets in health-care delivery and health insurance.”

That means the Commerce Clause is now being used to say that the Congress can insist on ever more onerous regulations to implement its previous onerous regulations. How’s that for a constitutional principle!

The court also cited evidence that is damning of the health law: “The legislative record demonstrated that the seven states that had enacted guaranteed-issue reforms without minimum-coverage provisions [an individual mandate] suffered detrimental effects to their insurance markets, such as escalating costs and insurance companies exiting the market.”

Judge Graham, the Reagan appointee, gets the last word in the opinion, saying what Sutton implied: “I believe the Court remains committed to the path laid down by Chief Justice Rehnquist and Justices O’Connor, Scalia, Kennedy, and Thomas to establish a framework of meaningful limitations on congressional power under the Commerce Clause. The current case is an opportunity to prove it so.

“If the exercise of power is allowed and the mandate upheld, it is difficult to see what the limits on Congress’s Commerce Clause authority would be. What aspect of human activity would escape federal power?” Graham asked. “The ultimate issue in this case is this: Does the notion of federalism still have vitality? To approve the exercise of power would arm Congress with the authority to force individuals to do whatever it sees fit (within boundaries like the First Amendment and Due Process Clause), as long as the regulation concerns an activity or decision that, when aggregated, can be said to have some loose, but-for type of economic connection, which nearly all human activity does.

“Such a power feels very much like the general police power that the Tenth Amendment reserves to the States and the people. A structural shift of that magnitude can be accomplished legitimately only through constitutional amendment,” he concludes.

Liberals are celebrating prematurely. The Supremes will rule, and the decision that the Left perceives as a victory plants the seeds for a tectonic shift in a constitutional interpretation to limit federal powers.

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

Sixth Circuit: ‘There is No Constitutional Impediment to … Regulating Inactivity’


Today, in the case of the Thomas More Law Center v. Obama, the U.S. Court of Appeals for the Sixth Circuit upheld a lower court ruling that Obamacare’s individual mandate was indeed constitutional. This is the first decision by a federal appeals court out of three expected this year, and then everything will end up in the Supreme Court.

The ruling is particularly notable because the Sixth Circuit’s three-judge panel included two Republican appointees — Jeffrey Sutton (George W. Bush) and James Graham (Reagan) — along with a Carter appointee, Boyce Martin. It’s the first time that a Republican-appointed judge has upheld the mandate: Martin wrote the main opinion, with Sutton concurring in part and Graham dissenting in part.

It won’t surprise you to learn that I think Graham’s dissent is the most persuasive of the three — and the one that makes exactly the arguments that the plaintiffs in other cases should use. But we’ll get to that in a minute.

Jeffrey Sutton’s concurrence
We’ll start with Judge Sutton’s concurrence, because it was Sutton’s vote that allowed the government to win the case. Ilya Shapiro describes Sutton’s opinion as “an exercise in overzealous judicial deference [by Sutton], who avoided the logical implications of this ruling and punted the main issue to the Supreme Court” (h/t Hadley Heath).

Judge Sutton notes that the Supreme Court “has given Congress wide berth in regulating commerce, frequently adopting limits on that authority and just as frequently abandoning them, all while continuing to deny that Congress has unlimited national police powers.” The Supreme Court’s schizophrenic Commerce Clause jurisprudence is frustrating to Sutton:

At one level, past is precedent, and one tilts at hopeless causes in proposing new categorical limits on the commerce power. But there is another way to look at these precedents—that the Court either should stop saying that a meaningful limit on Congress’s commerce powers exists or prove that it is so. The stakes of identifying such a limit are high.

Sutton notes that the mandate is unprecedented in scope:

The plaintiffs thus present (1) a theory of constitutional invalidity that the Court has never considered before, (2) a legislative line that Congress has never crossed before, and (3) a theory of commerce power that has the potential to succeed where others have failed: by placing a categorical cap on congressional power.

Nonetheless, Sutton says, “in my opinion, the government has the better of the arguments,” because “few people escape the need to obtain health care at some point in their lives,” and therefore the mandate “meets the requirement of regulating activities that substantially affect interstate commerce.” He concurs with Boyce Martin (see below) that the Commerce Clause does not “contain an action/inaction dichotomy that limits congressional power.”

He gets to the key question on page 51, “the lingering intuition — shared by most Americans, I suspect — that Congress should not be able to compel citizens to buy products they do not want”:

If Congress can require Americans to buy medical insurance today, what of tomorrow? Could it compel individuals to buy health care itself in the form of an annual check-up or for that matter a health-club membership? Could it require computer companies to sell medical-insurance policies in the open market in order to widen the asset pool available to pay insurance claims? And if Congress can do this in the healthcare field, what of other fields of commerce and other products?

But Sutton says, unpersuasively, that health care is different, because it involves “regulating how citizens pay for what they already receive.” He points out that Congress could pass a universal health care tax and deduct it for those who buy insurance, achieving the same thing as a mandate — which is true, but hardly means that a mandate is constitutional.

In sum, Sutton asks the right questions, but fizzles on the answers. For those, we go to James Graham’s dissent.

James Graham’s dissent

As Graham points out, “no prior exercise of [the Commerce Clause power] has required individuals to purchase a good or service. This fact alone does not answer the constitutional question, but it does highlight the need for judicial scrutiny.” Graham is the only judge of the three who actually gets the key point: “the requirement that all citizens obtain health insurance does not depend on them receiving health care services in the first place.”

The government’s argument turns the mandate into something it is not. The requirement that all citizens obtain health insurance does not depend on them receiving health care services in the first place. Individuals must carry insurance each and every month regardless of whether they have actually entered the market for health services. Simply put, the mandate does not regulate the commercial activity of obtaining health care. It regulates the status of being uninsured.

He points out that, yeah, forcing everyone to buy insurance will affect interstate commerce. But that is an effect of the mandate, not a cause of it. “Congress cannot be tolerated to justify its exercise of power by creating its own substantial effects.”

Plaintiffs have not bought or sold a good or service, nor have they manufactured, distributed, or consumed a commodity…Rather, they are strangers to the health insurance market. This readily differentiates the present case from others cited by the government…In no other instance has Congress before attempted to force a non-participant into a market.

Graham points out, rightly, that “the mandate and its penalty are not conditioned on the failure to pay for health care services, or, for that matter, conditioned on the consumption of health care.” He gets it. “The proper object of Congress’ power is interstate commerce, not private decisions to refrain from commerce.” He points out, unlike the other judges, that “the free-riding problem is substantially one of Congress’ own creation.”

Graham also points out that the mandate intrudes on the Tenth Amendment:

Here, Congress’s exercise of power intrudes on both the States and the people. It brings an end to state experimentation and overrides the expressed legislative will of several states that have guaranteed to their citizens the freedom to choose not to purchase health insurance. See Idaho Code Ann. § 39-9003; Utah Code Ann. § 63M-1-2505.5; Va. Code Ann. § 38.2-3430.1:1. The mandate forces law-abiding individuals to purchase a product – an expensive product, no less – and thereby invades the realm of an individual’s financial planning decisions. Cf. Maryland v. Wirtz, 392 U.S. 183, 196 n.27 (1968) (“Neither here nor in Wickard had the Court declared that Congress may use a relatively trivial impact on commerce as an excuse for broad general regulation of state or private activities.”). In the absence of the mandate, individuals have the right to decide how to finance medical expenses. The mandate extinguishes that right.

Finally, Graham gets to the heart of the matter: that if Congress can force people to buy insurance, it can force people to do just about anything. Taking on the government’s “common refrain” that the health-care market is constitutionally unique, and therefore that the mandate doesn’t have broader implications, he writes that “this assurance is troubling on many levels and should hardly be heard to come from a body with limited powers”:

The uniqueness that justifies one exercise of power becomes precedent for the next contemplated exercise. And permitting the mandate would clear the path for Congress to cause or contribute to certain “unique” factors, such as free-riding and adverse selection, and then impose a solution that is ill-fitted to the others.

Graham’s concluding paragraph says it all: “If the exercise of power is allowed and the mandate upheld, it is difficult to see what the limits on Congress’ Commerce Clause authority would be.”

What aspect of human activity would escape federal power? The ultimate issue in this case is this: Does the notion of federalism still have vitality? To approve the exercise of power would arm Congress with the authority to force individuals to do whatever it sees fit (within boundaries like the First Amendment and Due Process Clause), as long as the regulation concerns an activity or decision that, when aggregated, can be said to have some loose, but-for type of economic connection, which nearly all human activity does. See Lopez, 514 U.S. at 565 (“[D]epending on the level of generality, any activity can be looked upon as commercial.”). Such a power feels very much like the general police power that the Tenth Amendment reserves to the States and the people. A structural shift of that magnitude can be accomplished legitimately only through constitutional amendment.

This is the whole ball of wax. If the mandate is upheld, “what aspect of human activity would escape federal power?” It’s a question that is notably ignored in Boyce Martin’s ruling.

Boyce Martin’s opinion

Martin’s opinion is actually a bit boring. It breaks little new ground, relative to the other judges who have upheld the mandate. As you might expect, Martin never addresses the implications of the individual mandate: that, if the mandate is constitutional, there are effectively no limits on what Congress can force people to buy.

The crux of the ruling comes on page 19, where Martin determines that failing to buy health insurance “is no less economic [activity] than the activity of purchasing an insurance plan”:

The activity of foregoing health insurance and attempting to cover the cost of health care needs by self-insuring is no less economic than the activity of purchasing an insurance plan. Thus, the financing of health care services, and specifically the practice of self-insuring, is economic activity.

Martin cites the seminal Supreme Court case Wickard v. Filburn, in which a farmer growing wheat on his own land for personal use was subject to the Commerce Clause, as providing sufficient grounds for the individual mandate:

Similar to the causal relationship in Wickard, self-insuring individuals are attempting to fulfill their own demand for a commodity rather than resort to the market and are thereby thwarting Congress’s efforts to stabilize prices. Therefore, the minimum coverage provision is a valid exercise of the Commerce Power because Congress had a rational basis for concluding that, in the aggregate, the practice of self-insuring for the cost of health care substantially affects interstate commerce.

But even if one accepts the argument that choosing not to buy insurance “were not economic activity with a substantial effect on interstate commerce,” Congress still has the right to enforce a mandate because “the minimum coverage provision is an essential part of a broader economic regulatory scheme.” To justify this, Martin cites the insidious 2005 Supreme Court decision, Gonzales v. Raich, in which a 6–3 majority ruled that Congress could criminalize the home-grown production and personal use of marijuana under the Commerce Clause:

Thus, where Congress comprehensively regulates interstate economic activity, it may regulate non-economic intrastate activity if it rationally believes that, in the aggregate, the failure to do so would undermine the effectiveness of the overlying regulatory scheme.

Martin dismisses the argument that there’s a difference between economic activity and inactivity, because “the text of the Commerce Clause does not acknowledge a constitutional distinction between activity and inactivity, and neither does the Supreme Court.” This doesn’t make a lot of sense. Can Congress force me to subscribe to the New York Post? Can Congress force me to buy broccoli? No one can credibly argue that the authors of the Commerce Clause, nor its ratifiers, wished to give Congress that power.

But Martin thinks otherwise: indeed, according to the court, “there is no constitutional impediment to enacting legislation that could be characterized as regulating inactivity.”

Here’s where Martin veers into illogic. He argues that, “far from regulating inactivity, the minimum coverage provision regulates individuals who are, in the aggregate, active in the health care market.” In the aggregate, yes. But not individually. If I am perfectly healthy for all of my life, and then die one day in my sleep, I haven’t participated in the health-care market. To take a more common example, I could choose to buy insurance at the age of 40, but not before, precisely because insurance for the young is a rotten deal: you pay thousands of dollars a year without consuming many, or any, health-care services.

Indeed, it’s precisely these “young invincibles” — young, healthy people who make the perfectly rational choice not to pay for overpriced insurance that they don’t need — who are the mandate’s targets. The entire purpose of the individual mandate is to force young, healthy people to further subsidize the health care of the old and infirm.

The bottom line
What’s telling in reading these three opinions is how they perfectly represent the three schools of judicial thought about the mandate. Martin’s opinion represents the standard liberal jurisprudential model, in which Congress can do whatever it wants under the Commerce Clause. Graham’s dissent is full of well-argued concern with the mandate’s trampling of individual liberties and its assertion of unlimited federal power. And Sutton’s “punt” is representative of a minority of conservatives, who seem to suffer from a kind of constitutional fatigue, shrugging their shoulders because the Supreme Court has already run roughshod over the Commerce Clause.

The only question that matters is: Will Anthony Kennedy fall in the Graham or Sutton camp? We’ll find out next year.

— Avik Roy is an equity research analyst at Monness, Crespi, Hardt & Co., and blogs on health-care policy at The Apothecary. You can follow him on Twitter at @aviksaroy.


Why We Need an FDA 2.0


Michael Mandel, from the Progressive Policy Institute, just released a great short paper, “How the FDA Impedes Innovation: A Case Study in Overregulation.”

He discusses the FDA’s decision to deny approval for a new diagnostic device called MelaFind, which is designed to help physicians identify cancerous lesions while they’re still small enough to be treated successfully. Melanoma is a type of cancer that can be treated very cheaply and successfully if its caught early, and is often rapidly fatal if it’s not. There aren’t many good treatments available for metastatic melanoma, although new treatments are coming online.

MelaFind is designed to help dermatologists or other physicians home in on suspicious lesions for followup — a kind of quick digital second opinion. The technology isn’t perfect yet, but then again, neither is dermatology. Identifying suspicious lesions is at least part art, and inexperienced dermatologists can easily misdiagnose potential melanomas (or biopsy ugly lesions that are harmless). 

Still, the FDA’s concern about the technology, Mandel writes, appears to be that MelaFind doesn’t work as well as experienced, board-certified dermatologists. Mandel writes,

This is a standard that no first-generation device can ever reach.  If the FDA fails to approve MelaFind, it would be the equivalent of rejecting the first cell phone on the grounds that callers might mishear important messages. 

This is a great metaphor. Let’s press it a little further. 

First-generation cell phones were horribly clunky, finicky devices. They were the size of bricks and weighed nearly as much. They cost thousands of dollars. They bear almost no resemblance to the sleek computer/encyclopedia/camera/camcorder/GPS/music library that you carry in your pocket today. Arguably, the least interesting thing you can do on your iPhone is make phone calls. 

Back to MelaFind. What would happen if the FDA approved MelaFind?

Some insurers would cover it. Some wouldn’t. Some doctors would use it, and complain to the company when it didn’t work as advertised. They’d improve it. Some competitors would develop a better algorithm for detecting melanoma, or a super-fast biopsy probe you could carry in your pocket, or a 99 cent app on the iTunes store that worked nearly as well. And maybe some daring charity would distribute MelaFind to dozens of tiny villages in rural countries where there are no dermatologists.  And so on.

Or maybe insurers and doctors would decide it didn’t work at all, and throw it on the dust heap of mediocre ideas. 

No government agency mandated any of the astonishing innovation surrounding cell phones — as Mandel points out — and if you had to wait for the iPhone before any cell phones could be sold, there wouldn’t be an iPhone today. Or we’d have to wait a few more decades for it.

We’re not talking about a chemotherapy drug. Or an invasive surgery. We’re talking about a platform for ideas. For innovation and competition.  

The FDA needs to recognize this and find a way to fast-track devices like MelaFind with the recognition that they are works in progress. Right now, the agency is saying, “Don’t bother us until you’re perfect.”

Innovative companies and their investors developing novel tech will just hear “don’t bother.”

Medicaid and the Middle Class


Recent reports tell us that an obscure provision of the health-care rationing reform legislation will allow up to three million early retirees with incomes up to $64,000 to obtain health coverage under Medicaid. This purportedly might cost $450 billion in terms of federal outlays (an understatement of true economic costs for the economy as a whole). 

I think that this cost estimate is dubious, but not for the usual reasons. No one joins Medicaid unless that is the only feasible option: Reimbursements for doctors and hospitals are so low that Medicaid beneficiaries are finding it difficult to obtain actual health care. (So much for the mindless claim that “universal coverage” will bestow the blessing of modern health care upon the poor and relieve the pressures on the emergency rooms.) And that is one of the central conservative/libertarian arguments against centralization of health coverage in the Beltway: “Cost savings” inevitably will be defined as reductions in federal outlays rather than the medical services no longer obtained because of explicit or implicit rationing.

Accordingly: Those arguing that the “cost” (increased federal outlays) associated with this hidden provision in Obamacare will be high not only are likely to be incorrect (because the middle class is unlikely to opt for Medicaid in large numbers), but also are undercutting one of the central arguments in support of repeal. Not a wise stance to take.

— Benjamin Zycher is a senior fellow at the Pacific Research Institute.


Losing Your Coverage under Obamacare


The White House is in apoplexy over a survey released two weeks ago by McKinsey & Company and has done everything it can to discredit the detailed survey of 1,300 employers, which showed a significant percentage of companies will drop health insurance after Obamacare kicks in in 2014.

McKinsey met the criticism with the facts. It released the survey questions, methodology, and data, putting to rest questions about the objectivity. The survey was paid for by McKinsey and not any of its clients; it was administered by an internationally-recognized survey firm; the survey’s descriptions were largely fact-based and generic in nature; and it surveyed a large, representative sample of the nation’s employers.

Obamacare supporters are desperately trying to convince us that employers will be more, not less, likely to offer health insurance under the new health-overhaul law. Case in point: A new study by Urban Institute researchers released on Tuesday which concludes that small employers will be more likely to offer health insurance as a result of the health law.

These conclusions defy evidence, trends, and common sense. Small business owners across the country — and all employers — are considering paying the $2,000 fine for not providing health insurance rather than up to $10,000 for federally-prescribed health insurance for each worker.

The McKinsey survey found that 30 percent of employers overall will definitely or probably stop offering health insurance to their workers. However, among employers with a high awareness of the health-reform law, the share increases to more than 50 percent. I conclude this will mean as many as 78 million workers and their families will lose the health insurance they now get at work. Many of them will be forced into the government-run health-insurance exchanges.

In a study last year, Douglas Holtz-Eakin, a former director of the Congressional Budget Office, estimated that the CBO underestimated the law’s impact on job-based health insurance. He says that the incentives in the law will drive 35 million more workers out of employer plans and into subsidized coverage, and that this would add about $1 trillion to the total cost of the health law over the next decade. McKinsey’s survey implies that the cost to taxpayers could be significantly more.

Other facts to note:

The share of Americans with employer-sponsored insurance dropped from 69 percent in 1999–2000 to 61 percent in 2008–2009. This is part of a larger trend which Obamacare will accelerate.

A PriceWaterhouse Coopers survey of employers found that nearly half of all employers “indicated they were likely to change subsidies for employee medical coverage” thanks to the law.

An Associated Press story from last fall included quotes from a Deloitte consultant saying that “I don’t know if the intent was to find an exit strategy for providing benefits, but the bill as written provides the mechanism” and from the head of the American Benefits Council claiming that the law “could begin to dismantle the employer-based system.”

Former Tennessee Governor Phil Bredesen — a Democrat — in an op-ed said that Tennessee could drop coverage for its state employees, pay the $2,000 per employee penalty to the federal government, give their workers cash raises to compensate for the loss in health benefits, and still come out at least $146 million per year ahead.

Democrats didn’t face the facts about the damage that Obamacare would do before the legislation was passed, and they are refusing to accept the reality of its consequences now.


McKinsey Rebuts Critics of Its Health Insurance Survey


Obamacare’s defenders have worked themselves into a tizzy, attacking the recent study published by McKinsey & Co., the world’s leading management consulting firm. The study indicated that 30 percent of surveyed employers were “definitely or probably” planning on discontinuing employer-sponsored health insurance after 2014.

Because McKinsey had refused to release details of the methodology used in their work, Democrats and left-of-center writers accused the company of having something to hide. A “keyed-in source says McKinsey is unlikely to release the survey materials because ‘it would be damaging to them,’” asserted Brian Beutler in Talking Points Memo. Sen. Max Baucus (D., Mont.) wrote a letter to McKinsey demanding they release the survey’s methodology, with three House committees intending to follow suit.

Well, lo and behold, McKinsey decided to release the details: the full questionnaire used in their survey, along with a 206-page report detailing the survey’s complete results. Accompanying these details was a thoughtful discussion of the survey’s methodology, one that pops the balloon of those who tried to tar McKinsey as some sort of careless, partisan outfit. Despite reporting which implied that McKinsey wanted to distance itself from its own work, the company declared, “We stand by the integrity and methodology of the survey.”

The survey was funded by McKinsey

One of the silliest criticisms of the McKinsey study was that the company didn’t declare its funding source. It’s a silly criticism because the funding source doesn’t tell you anything about the truth value of the study. If ExxonMobil declares that 2 plus 2 equals 4, is arithmetic suddenly corrupt? At any rate, the company put the speculation to rest by making the entirely unsurprising disclosure that “the opinion survey was paid for entirely by McKinsey as part of its routine, proprietary research.”

The survey was conducted by Ipsos, a well-established opinion research firm

A more plausible criticism of the study was that McKinsey didn’t release the actual questions they used in their survey. In response, as I noted above, the company released the entire questionnaire, which was formulated by Ipsos, one of the largest market and opinion research firms in the world. Ipsos happens to be headquartered in that noted right-wing capital, Paris.

Contrary to those who suggested that the McKinsey survey did not adhere to well-accepted standards for public opinion research, McKinsey points out that “Ipsos fully adheres to the CASRO Code of Standards and Ethics for Survey Research, the ESOMAR International Code of Marketing and Social Research and the American Association of Public Opinion Research (AAPOR).”

The companies surveyed were representative of the broader economy

Another concern: Was the survey of 1,329 employers representative of the broader economy, in terms of the size of the companies surveyed, their locations within the U.S., and the industries they represented? I had speculated that the survey may have been biased towards McKinsey clients, which are typically larger companies, implying that the survey actually underestimated the problem of employer dumping. However, McKinsey says, “Respondents were drawn from a panel of nearly 600,000 people maintained by Ipsos, not from McKinsey clients.” The detailed survey results make clear that respondents came from nearly every state, every industry, and every size category. Indeed, the survey contained a large number of smaller companies; 20.5 percent had fewer than 20 employees, and 51.6 percent had fewer than 100 employees.

Respondents were required to be either the “primary decision maker” or “have some influence in the decision-making process” for employee health benefits

Another criticism was: are the people participating in the survey the ones who actually make decisions about employee health benefits? Well, it turns out that the McKinsey survey required participants to have just such a role. Those participating in the survey were asked, in the very first question: “In your job, do you play a role in choosing which benefits your company provides to employees?” If respondents replied “do not play a role in this decision” or “not sure,” they were not allowed to continue answering the survey’s questions.

Of the 1,329 respondents who were allowed to continue on with the survey, 683 (51.4 percent) reported that they were the “primary decision maker,” while the remaining 646 (48.6 percent) said they “have some influence in the decision-making process.” As McKinsey writes in their discussion, “The top five reported respondent occupations were: owner, head of human resources, head of procurement, CEO/president, vice president of compensation or benefits director/manager.”

Most tellingly, primary decision makers were significantly more likely to drop employee health benefits: 36.5 percent of primary decision makers said they “definitely or probably” would drop benefits, compared  to 22.4 percent of those who simply had some influence over the decision.

Respondents were informed of Obamacare’s exchange subsidies in a neutral, factual manner

Yet another criticism of the McKinsey work is that the study informed respondents of Obamacare’s exchange subsidies, which the law’s defenders asserted would bias the results. As I wrote previously, this criticism doesn’t make sense: “It would be one thing if McKinsey were, say, a Republican push-polling firm trying to scare people into voting against Obama. But McKinsey’s only agenda is to give its clients sound strategic and business advice.”

It turns out that McKinsey engaged in the entirely reasonable practice of providing neutral, factual information about the exchanges, before asking respondents what they were likely to do. “No information was offered on whether a particular provision or particular action would benefit or have an adverse impact on the employer or the employee. Nor was information provided on existing benefit rules, regulation, and taxes.”

The relevant survey questions, #41a and #41b, live up to that claim, describing Obamacare’s exchange subsidies in a straightforward manner. Contrary to premature allegations that the survey biased respondents in favor of employer dumping, question 41b directly states, “You would also pay a penalty of $2,000 per employee after the first 30 employees” for discontinuing employer-sponsored health insurance.

Employer surveys and economic simulations are different

One of the White House talking points against the McKinsey study was that the McKinsey study was an “outlier,” because its results are discordant with a handful of cherry-picked economic analyses which suggest that Obamacare will not result in widespread employer dumping.

McKinsey, in an effort to duck from Democratic projectiles, writes in its discussion that their survey “was not intended as a predictive economic analysis of the impact of the Affordable Care Act [and is therefore] not comparable to the healthcare research and analysis conducted by others such as the Congressional Budget Office, RAND and the Urban Institute.” However, as Paul Winfree has noted, the simulation models used in the studies more favorable to Obamacare are significantly flawed. And, as I have pointed out several times, there are a number of other studies that echo the McKinsey survey’s conclusions.

Only 29 percent of respondents “definitely or probably would not” drop employer-sponsored insurance

The details of the survey are even less flattering to Obamacare than had been previously reported. We knew that 30 percent (29.7 percent, to be exact) of respondents would “definitely or probably” drop employer-sponsored insurance. But the raw data shows that another 41.6 percent of respondents were undecided on the subject. Only 28.7 percent of respondents “definitely or probably would not” drop worker health coverage.

Among companies with under 50 employees, 36.6 percent would “definitely or probably” drop coverage, compared to 21.5 percent for companies with 500 or more workers. Among those who had low awareness of Obamacare’s provisions, 24.0 percent would definitely or probably drop coverage, compared to 54.0 percent of those with high awareness.

What’s next for McKinsey critics?

As far as I can tell, there’s little to nothing wrong with the way McKinsey conducted this survey. I’ll be interested to hear what Obamacare’s defenders say now. By falsely portraying McKinsey as some sort of right-wing conspirator, they set themselves up for disappointment.

— Avik Roy is an equity research analyst at Monness, Crespi, Hardt & Co., and blogs on health-care policy at The Apothecary. You can follow him on Twitter at @aviksaroy.

McCarthy, Olsen, and Grim Reality on Medicare


As one of the first conservatives to criticize Paul Ryan’s Medicare reform (here and here), I was pretty excited to read Andrew McCarthy’s spirited attack against the very existence of Medicare (latest here). According to McCarthy, it’s a wholesale scam, and he doesn’t mind telling everyone because he’s neither running for office nor responsible for getting anyone else elected.

Sure, I’ll admit I had the urge to jump up and down and pump my fists in the air. But then I read Henry Olsen’s warning about alienating blue-collar voters (upon which he expanded in the June 20 National Review print edition), and I decided that while McCarthy’s scorched-earth approach may be the right one for the conservative patriot to adopt when challenged by al-Quaeda or the Taliban, it might not be quite the thing for dealing with the median American voter, who desperately clings to the increasingly exposed false promise of Medicare.

I think we have a bigger problem than has yet been recognized. Olsen describes blue-collar voters swinging from one party to another on fear and hope for Medicare. But the entitlement struggle of the age of Obama is unique in its hyperpartisanship. As I have previously described, both Medicare and Social Security were passed with significant Republican support. Indeed, if you review all related legislation from 1935 through 1996, you’ll see bipartisanship. The 1996 welfare reform, of course, sticks in conservatives’ memory as Newt Gingrich’s high-water mark.

Only the 2003 Medicare Modernization Act approximates the bitterness of the 2009 law — and some of that came from Republicans appalled by the expensive Part D drug benefit! The MMA split 220–215 in the House, but only 16 Democrats voted for it and only 25 Republicans against.  And the legacy of the MMA is in tatters: The 2009 reform crushes Medicare Advantage, a key achievement of the MMA; and the so-called “free-market” elements of the Medicare Part D prescription plan are soon to fall prey to newly enacted rationing measures, such as the Independent Payment Advisory Board.

I don’t believe that voters trust politicians of either party to reform Medicare unilaterally. The Ryan Medicare reform, which the House eventually passed, relabeled vouchers as “premium support” in order to identify Democratic pedigree. But that did not earn it bipartisan support.

This poses a difficult challenge. If the next president does sign legislation repealing the 2009 reform, and proceeds to sign a solely Republican alternative reform, there is a significant chance that we’ll end up right where we were in 2008. No matter how good it is, such legislation will fail in the court of public opinion, and itself be threatened with repeal in 2017.

Defund Obamacare’s Insurance-Rate Reviews


On May 23, the Department of Health and Human Services published its regulations for implementing Obamacare’s health-insurance-rate reviews, effective September 1.

They are another instance, as Kevin Williamson notes, of the kind of arbitrary and politically manipulated regulations that inevitably result when Congress enacts vague, subjective, and aspirational legislation rather than clear, objective, and specific statutes.

Fortunately, this bad idea is one of many in Obamacare that can be defunded.

These rate-review provisions were an entirely political exercise from the start. They were only added to Obamacare in the fall of 2009 — after the health-insurance industry had the temerity to point out that other provisions of the legislation would drive up premiums — in order to give HHS authority to review so-called “unreasonable” premium increases (but not the authority to block those increases, nor a definition of “unreasonable”). Blame for Obamacare’s inevitable cost increases could thereby be deflected onto insurers.

In addition to being transparently political, these provisions have negative practical implications. For example, the proposed rule setting an arbitrary 10 percent price-increase threshold could cause insurers to target rate increases to just below the limit.

Indeed, it is a well-documented effect of price controls that sellers respond to the imposition of price “ceilings” by turning them into price “floors.” The less competitive the market on which price controls are imposed, the sooner that phenomenon occurs.

Under these regulations, any rate increase of 9.9 percent or less will not trigger a burdensome, publicized federal rate review, so why should an insurer limit a rate increase to, say, 6 or 7 percent? Theoretically, competitive pricing pressure might discourage such behavior. But these and other Obamacare insurance regulations will reduce competition by driving smaller carriers out of the market, and after 2014 the remaining insurers will be selling to customers who are required to buy their products. Thus, the perfectly rational response will be for the remaining insurers to have 9.9 percent annual premium increases ad infinitum.

An even bigger problem with these regulations is that they are contrary to the legitimate purpose of insurance-rate supervision — which is to make sure that carriers charge high enough premiums to cover their claims costs. In a competitive insurance market, regulators don’t need to worry much about possible “price-gouging,” since competition checks such behavior. However, regulators do need to be concerned about insurers trying to attract more business by under-pricing coverage while complacently underestimating their future losses — the actuarial equivalent of “rosy scenarios.” The danger is that if premium income isn’t sufficient to cover claims costs, an insurer risks becoming insolvent. That harms everyone, including policyholders or taxpayers who can be left liable for claims the insurer can’t pay. Indeed, as I noted last year, it was exactly such behavior that produced the collapse of AIG and its resulting taxpayer bailout.

Thus, any rate-regulation regime that focuses only on holding down rates while ignoring insurer solvency is inherently dangerous.

HHS admits that this is a serious flaw in the statute: “We acknowledge that inadequate rate increases can be problematic.” But HHS blithely dismisses those concerns, stating that since the statute “does not identify adequacy among the criteria to be considered when determining unreasonableness,” the Department isn’t going to consider it either. HHS then insouciantly notes that “many States do explicitly consider the adequacy of rates during their reviews, and nothing in this regulation prevents or prohibits a State from continuing to consider this factor in their review in the future.”

This is where Congressional defunding comes into play. Included in Obamacare’s $105 billion of advanced appropriations was $250 million for HHS to distribute in grants to state insurance regulators to implement stricter rate regulation. The purpose of those grants is to bribe state insurance departments into enforcing Obamacare’s new federal price controls.

Last summer, HHS distributed $46 million of that $250 million to 45 states and the District of Columbia ($1 million to each) in the first round of rate-review grants. HHS intends to award a second round of grants in the fall. Congressional appropriators need to intervene and rescind at least the remaining $204 million earmarked for rate-review grants.

Meanwhile, the five states that did not apply for the first round of grants (Alaska, Georgia, Iowa, Minnesota, and Wyoming) should continue to refrain from doing so, while states that received the initial funding should follow the lead of Oklahoma’s Insurance Department and return the money. Doing so is in the interests of state lawmakers, who should want to preserve the independence and integrity of their state insurance departments in light of the inherent conflicts that will arise between the new federal rate regulations and existing state insurer-solvency laws.

— Edmund F. Haislmaier is a senior research fellow in the Heritage Foundation’s Center for Health Policy Studies.

The Real Race to the Bottom


Kaiser Health News — perhaps the most prominent cheerleader for ever-greater “coverage” (that is, third-party payment of medical bills and the perverse incentives attendant upon it) – reports that Blue Shield of California “will cap profits at 2 percent and issue millions in policyholder refunds…” 

Blue Shield formally is nonprofit, meaning that no group analogous to shareholders has the legal right to the profits remaining after all costs have been paid. In contrast, for-profit insurers must answer to a world capital market, and so will not be able so easily to capitulate to the politically correct view that “profits” are the source of the massive inefficiencies afflicting the U.S. market for health care and health insurance.

Let us shunt aside the larger reality that it is not “profits” — always the favorite target of leftists seeking to avoid scrutiny of the adverse effects of their own policy preferences — that explain the problems characterizing the U.S. health-care market. Instead, let us merely mention two related issues that loom large as a result of the Blue Shield willingness to muddy the waters. First, “profits,” however defined, are hardly constant over time; they can be strong one year, weak the next, and negative the following. If profits are capped but losses are not, then — obviously — over time capital invested in the provision of health insurance services will fail to earn a competitive return. Only by severely limiting actual coverage of actual medical services can such a “cap” be viable.  Has anyone at Blue Shield thought about this?

Second, in the short run the “cap” means lower premiums, whether ex ante or ex post in the form of refunds. Consumers will gravitate toward the insurers offering such goodies. Will there be adverse selection in reverse, with Blue Shield attempting to preserve its economic viability by turning away sicker patients?  The limits on coverage noted above are an implicit way to do this. Has anyone at Blue Shield thought about this, either?

In short: There are no free lunches. If Blue Shield prefers to cap its profits rather than stand tall and tell hard truths about the actual sources of our health coverage mess, fine; but let us harbor no illusions about who the ultimate losers will be.  Those poor souls will be patients generally, and the sicker among them in particular. Such are the fruits of political compassion.

Benjamin Zycher is a senior fellow at the Pacific Research Institute.

Premium Subsidies Lay a Trap for Small Businesses


One of the main criticisms of Obamacare is that it will significantly reduce the incentive for small businesses to hire — especially once the premium subsidies become available in 2014.

The premium subsidies are Obamacare’s way of making health insurance more affordable for low-income earners who buy coverage in the new exchanges. Eligibility for a subsidy is limited to people with incomes les than four times the poverty line who lack public or employment-based insurance. The values of the subsidies are set so as to limit the amount a person contributes towards insurance as a percent of income.

But the actual implementation will be complex, thanks to an odd retroactive feature.

Say you’re under 65 and not on Medicaid (or CHIP), and the year you would be eligible to purchase insurance through an exchange is 2014. Your premium subsidy is determined by your income and family structure from two years earlier (in this case 2012), applied against the poverty level for the calendar year in which you purchase the insurance (2014).

Though complicated to determine, the consequences of the retroactively applied subsidy information are far worse.

For instance, what if your income or family structure is different in 2014 than it was in 2012? Obamacare allows people to apply for “changes in circumstances” if they got married or had children in the interim. It also allows those who lose a job or expect to experience significant reductions in income (a decrease of 20 percent or more) to apply for an adjustment to their subsidy.

However, those who experience a significant increase in income will have to pay additional taxes equal to the amount of the overpayment in the premium subsidy for the tax year in which the credits are used to buy insurance. Originally, Obamacare capped the amount the IRS could collect at $400 a family. Congress increased that cap to pay for the most recent Medicare “doc fix,” giving the IRS authority to go after amounts as low as $600 for people making less than two times the poverty line, and as high as $3,500 in overpayment for people making under five times the poverty line.

Does anyone experience such large swings in income? Small business owners can experience a tremendous amount of year-to-year change in income. In fact, it’s easy to imagine a small business owner who qualifies for a tax credit to buy insurance in 2014 based on income in 2012 and experiences a profitable year in 2014 only to owe the value of the tax credit (on top of their other taxes) in April 2015, regardless of how well the business is doing by that time.

Unless they have a crystal ball, small-business owners who qualify for the tax credit must consider the possibility that their income may jump, which would force them to pay back a large portion of the overpayment. This threat of a potentially large tax bill could induce many of the more 4 million small-business owners who would likely qualify for premium subsidies to save money for the taxman rather than invest in their business or hire new employees.

Take a 50-year-old small business owner — married, with two children and a household income of about $80,000 in 2012. Based on data from the Kaiser Health Reform Subsidy Calculator, her household will qualify for a premium subsidy of more than $9,000 in 2014. However, if she makes $20,000 more in 2014 relative to 2012, she will have to pay back $3,000 on top of the taxes she will already pay. In other words, she’ll owe the government about 60 percent of the $20,000 (including payroll and state taxes) by having a more successful year in 2014 relative to 2012.

How will this influence her decision to hire new employees or invest in the business? Tax economists have studied how small-business owners respond to changes in personal income tax rates. Based on the findings of those studies, the likelihood of the business owner in this example hiring new workers is reduced by about a third.

As the economy struggles to recover, such a policy is more than just administratively burdensome. It could be economically catastrophic.

— Paul Winfree is a senior policy analyst in the Center for Data Analysis at the Heritage Foundation.

Needed: Lessons in Leadership


Former American Medical Assocation president Donald Palmisano, M.D., knows a thing or two about leadership, and the updated and amplified version of his book could not be more appropriate for our times. On Leadership: Essential Principles for Business, Political and Personal Success serves as an indispensible guide with lessons from successful leaders whose decisions have a sweeping impact on nations and from those whose decisions save a single life.

The book is a mixture of true stories, including some of the author’s own, that exemplify the essential characteristics of a leader: courage, persistence, decisiveness, communication, creativity, and doing your homework.

We can only conclude that the outcome of Obamacare would have been very different had Dr. Palmisano still been in charge of the AMA when it gave its support to that legislation at a crucial time in return for . . . nothing, really.

This law will be terrible for physicians and worse for patients. Sixty percent of physicians said the new law will force them to stop serving or restrict  services to certain categories of patients, especially in Medicare and Medicaid, and an alarming number of doctors are planning to leave the practice of medicine as soon as they can.

The experienced and invaluable leadership in the medical profession will be lost as physicians are forced to turn over more and more of their authority to government officials dictating the practice of medicine. Most say they will leave medicine rather than subject their patients to medical decisions made by bureaucrats rather than physicians.

Dr. Palmisano, a practicing physician in New Orleans, gives an example of why medical care in America has been the best in the world, and why we want experienced and decisive doctors in charge.

In his chapter on persistence, he quotes Winston Churchill from the dark days of World War II saying, “Never give in — never, never, never, in nothing great or small, large or petty, give in.”

Dr. Palmisano reports on working with another surgeon to try to save a 23-year-old man badly injured in an automobile accident. After significant ER intervention, the patient’s heart stopped beating. Let him tell the story:

External cardiac compression was done, but it did not restore the heartbeat. The anesthesiologist shook his head and said, “There is nothing more we can do. We must pronounce him dead.”

At that moment, I refused to believe that this young man was dead. Everything that was supposed to be done was done. I pulled back the drapes covering the patient’s chest, splashed antiseptic on his chest and cut it open. I reached for his lifeless heart and began to squeeze it between my hands. I told the anesthesiologist to keep squeezing the breathing bag filled with oxygen. I could not leave the room without saying to myself that EVERYTHING possible had been done. Suddenly, between squeezes on the heart, I felt it start beating!

The patient recovered and went on to become an accomplished engineer, sending post cards to Dr. Palmisano from all over the world.

Persistence pays off.

Dr. Palmisano and the many stories he reports will inspire you and give you hope for America, from courageous and persistent politicians like Rep. Paul Ryan and Sen. Marco Rubio to examples of failures in leadership by “Brownie” during Hurricane Katrina. The book is a wealth of life lessons from Dr. Palmisano’s extensive experience — from public speaking and debate prep to his love of technology and how it can extend our expertise.

Each chapter ends with lessons learned. The lessons in the concluding chapter about “Emerging leaders in a time of crisis” seem most relevant: “It’s time for a new generation of leaders,” he declares, and he believes that the American people are ready.

There’s No Choice but Change


The outrageous distortions about the Ryan Medicare reform plan are coming from people who are accelerating the program’s path to insolvency.

Medicare is being used as a piggy bank by Democrats, with $575 billion in payment cuts used to finance two massive new entitlement programs in Obamacare. And this April, the president proposed taking another $480 billion out of the program to lower the deficit.

Payments to providers will be cut so deeply that seniors will find it harder and harder to get care. Doctors will stop taking Medicare or go bankrupt. A whopping 87 percent of doctors say they will stop seeing or will restrict the number of Medicare patients they see, further shrinking the pool of providers and further restricting access to care.

The powerful, 15-member Independent Payment Advisory Board will use price controls to meet ever-elusive spending targets. Rationing is inevitable, especially of newer medicines and technologies.

House Energy and Commerce chairman Fred Upton explained, “Last year, Medicare expenditures reached $523 billion, but the income was only $486 billion — leaving a $37 billion deficit in just one year. And with 10,000 new individuals becoming eligible each day, it’s only going to get worse.”

Medicare is $38 trillion in the red, and it accelerated five years toward insolvency in just the last year, according to the Medicare Trustees’ latest report.

Sen. Marco Rubio captured it best in a new video, saying, “Medicare will go broke in as little as nine years … and anyone who is in favor of doing nothing to deal with this fact is in favor of bankrupting it.”

House Budget chairman Paul Ryan recognized that reality with his plan to begin modernizing the program, starting ten years from now. He wants to give baby boomers the option of private coverage in a plan that works much like the one members of Congress have today.

Access to coverage would be guaranteed, and payments would be tailored to meet a person’s age, health status, and income level.

Medicare is a government-run, politically-driven health-care program with so many gaps that people have to buy supplementary coverage. Not surprisingly, one fourth of today’s seniors have voluntarily decided to opt out of traditional Medicare by joining private plans in Medicare Advantage. These plans are competing for their business, offering better benefits often at lower costs to beneficiaries.

Rather than slashing this popular program as Obamacare does, it should be put on an equal and sound financial footing to continue to give seniors choices in the future. This model of seniors selecting from competing private plans is what Paul Ryan is proposing ten years hence, with premium-support payments to help pay for the cost of that plan.

Here are the facts of the Ryan plan: Paul Ryan’s plan does keep the payment reductions in Medicare under current law for ten years; he doesn’t use them to create two massive new entitlement programs but to preserve Medicare.

Beginning in 2022, beneficiaries are guaranteed a choice among Medicare-approved private health options. As the Congressional Budget Office notes: “Plans would have to issue insurance to all people eligible for Medicare who applied.” In other words, all Medicare beneficiaries are guaranteed that a health plan will be available for them.

This is in stark contrast to what would happen to Medicare under current law. Without a serious course adjustment, Medicare will become a third-rate, price-controlled program that rations a lower quality of care through waiting lines and other restrictions. If the antiquated, open-ended, fee-for-service model isn’t reformed, then we will continue to pour deficit-funded dollars into the program or raise taxes to levels that would topple the economy as millions of baby boomers hit retirement.

The only way to save Medicare is to change it.

Will Kathy Hochul Vote to Repeal Obamacare?


The surprise victory of the Democratic candidate in NY-26’s special election yesterday teaches a curious lesson: Seniors who rose up against Obamacare’s Medicare cuts at town-hall meetings in the summer of 2009 appear to have risen up against Paul Ryan’s Medicare plan in the spring of 2011.

Or maybe they didn’t. Certainly the faux Tea Party candidate who won 9 percent of the vote confused the outcome, as did the Democratic candidate’s “conservative” attacks on the Republican candidate, Jane Corwin. Kathy Hochul’s ads criticized Corwin for voting against Governor Cuomo’s budget cuts in the state legislature; and one of Hochul’s deficit-cutting promises is slashing foreign aid to Pakistan.

Nevertheless, it may well be that voters have hopelessly short-term political memories. In fact, Ryan’s plan would restore some of the cuts to Medicare already legislated by Obamacare through the early 2020s (as shown clearly in these charts). How soon we forget!

It looks like the Medicare debate — at least on 30-second TV ads — has settled into Republicans accusing Democrats of “cutting Medicare and raising taxes” and Democrats accusing Republicans of “cutting Medicare and giving tax breaks to the rich” (neglecting that President Obama has already extended the Bush tax cuts for a couple of years).

In her TV ads, Hochul promised to protect Medicare. Does that include rolling back Obamacare’s almost half trillion dollars of cuts to the program? Surely not. But even repealing Obamacare cannot solve Medicare.

Medicare cannot go on unchanged. Since at least 2009, we have received reports of physicians declining to accept new Medicare patients (as I wrote here). Asking the American people whether they want any flavor of reform versus “Medicare continuing the same as it is now” is like asking the Titanic passengers if they’d like the same dinner menu every evening until the ship docks.

Maybe NY-26 was a referendum on Ryan’s Medicare proposal. But the job of a leader, as Ryan recently put it, is to change the polls, not to follow them

Next Step in De-Funding Obamacare


On May 3, the House of Representatives voted to repeal Obamacare’s new health-insurance exchanges and rescind funding for setting up those exchanges. Like the earlier House-passed measure to repeal all of Obamacare, this legislation is unlikely to pass the Democratic Senate. And even if it did, it would face a presidential veto.

While such symbolic measures have their place, it is important that congressional opponents of Obamacare also pursue strategies with better prospects for stopping other funding in the near term.

A case in point is the continuing resolution to fund the federal government for the remainder of the current fiscal year. It was passed and signed into law in early April, and it rescinded $2.2 billion of the $6 billion appropriated in Obamacare for the Department of Health and Human Services (HHS) to distribute as start-up grants and loans to create so-called co-op health plans. As House appropriators begin drafting appropriations bills for the next fiscal year, rescinding the remaining $3.8 billion of co-op funding would be a good next step.

House appropriators could include a number of separate provisions to de-fund discrete elements of Obamacare in future appropriations bills. The advantage of this strategy is that it gives the House multiple “bargaining chips” to deploy when negotiating in conference with the Senate over the final versions of those appropriations bills.

There some good reasons to put full de-funding of the co-op provisions at the top of House appropriators’ agenda. The co-op provisions in Section 1322 of Obamacare are a case of Congress trying to reinvent something that already exists in a way that is likely to prove unworkable.

Apparently, those who drafted Obamacare were unaware that policyholder-owned, cooperative insurance companies have existed in the U.S. for well over a century. Such entities are called “mutual” insurers, and some of them (such as Northwestern Mutual Life or State Farm) are today major insurance companies. In fact, mutual insurers were among the earliest types of insurance companies organized when the modern insurance industry first developed in the mid–19th century.

Thus, there is no need for Congress to specify, as it does in Section 1322, how a “cooperative” insurance company is to be organized or operated, or to spend billions in tax dollars promoting the concept. Indeed, if Congress wants to encourage true “cooperative” health insurers — which is a reasonable idea — a simple and almost no-cost change in tax law granting mutual health insurers tax-exempt status (the same as currently enjoyed by credit unions, which are essentially “cooperative” banks) would suffice. But that is not the case under Obamacare.

Furthermore, several provisions in Section 1322 actually make it less likely that these co-ops will work. To start with, the legislation expressly prohibits the most likely and sensible path to setting up a co-op insurer, namely, a divestiture or conversion by an existing health insurer. Thus, neither an existing nonprofit health insurer (such as Kaiser Permanente) nor an existing stockholder-owned insurer (such as Aetna) could become a co-op under the provisions of Section 1322. Nor would either of them be allowed to spin off a portion of their existing business as a co-op. The only way to create one of the proposed co-op insurers is to start one from scratch — an inherently lengthy, uncertain, and expensive task.

The $6 billion in federal funding for start-up grants and loans for co-ops was included as Congress’s solution to overcome this flaw. However, even that approach is unlikely to work, since Section 1322 also specifies that “no portion of the funds made available by any loan or grant under this section may be used . . . for marketing.” Because Section 1322 requires new co-ops to be organized as nonprofit entities, they will clearly be unable to sell equity stakes through public or private share offerings to raise the start-up capital needed to fund initial sales and marketing. It is also hard to envision why anyone would loan money for that purpose to a new business that has no sales or customers. Thus, as a practical matter, it is uncertain whether any co-op insurers will actually be created.

Finally, all of the remaining $3.8 billion in co-op funding can be rescinded, as HHS has not yet obligated any of the funds. Indeed, HHS hasn’t even produced the necessary co-op regulations, which it must first do before it can even begin the process of soliciting applications for co-op funding. And there is no political constituency behind Obamacare’s co-op provisions, so de-funding them will not generate interest-group opposition.

In sum, Obamacare’s co-op funds are over-ripe, low-hanging fruit for congressional budget-cutters. It is true that, in the context of the federal government’s broader fiscal imbalance, $3.8 billion may not seem like much. But in the (possibly apocryphal) quip attributed to the late senator Everett Dirksen, “A billion here, a billion there, and pretty soon you’re talking about real money.”

— Edmund F. Haislmaier is a senior research fellow in health-policy studies at the Heritage Foundation.

FDA to Companies: Social Media Is for Me, Not for Thee


Imagine for a moment being told that you can’t tweet or use Facebook without getting guidelines for how to do so from the federal government, and that the government won’t tell you what those guidelines are.  That is basically the situation that the FDA is continuing to impose on the life-sciences industry by delaying — again — guidelines on how companies can use social media to promote medical products.

FDA had a public meeting on the subject of Internet promotion of products in 1996, and another meeting after the development of social media in November of 2009, but has yet to issue guidelines indicating when the world can expect guidance. FDA initially promised guidance by the end of 2010, then by the first quarter of 2011, and after missing those deadlines, they have stopped giving out dates.  Just this week, it opened a new comment period indicating that the agency is engaging in further study of this issue. As former FDA official Peter Pitts put it, the latest announcement indicates that the guidelines are “still a long way off.”

The FDA itself, however, needs no further study to understand social media or its advantages. As this letter from PhRMA indicates, the FDA “is making almost daily use of Twitter, Facebook and other social media.” This includes information regarding approvals and efficacy, even though FDA can’t fit all of a drug’s risks into Twitter’s 140 character limit. As PhRMA notes, “Clearly, social media can be used to discuss new medical advances in appropriate ways that benefit patients and healthcare professionals, and improve the public health.”

In the meantime, FDA has sent out official letters to companies, including Novartis, complaining of promotional activities in this sphere. Without guidance from FDA, though, there is no way to figure out in advance what FDA will and won’t approve in terms of social media outreach.

FDA is understandably concerned that companies could make unproven assertions about their products or highlight benefits without acknowledging risks. If that is the case, though, they should let companies — and everyone else — know so that social-media campaigns can be tailored to official guidelines. As it stands now, companies are playing a guessing game about what FDA will let slide and what could prompt FDA’s enforcement arm to spring into action. Issuing the guidance will involve challenges of its own in terms of figuring out appropriate parameters, but the agency needs to bring this guessing game to an end.

Who Is the Republican Health-Care Candidate?


The Wall Street Journal and most NRO writers have pretty much written off both Mitt Romney and Newt Gingrich as acceptable Republican presidential candidates because of perceived weaknesses on health care. Health care has become the third rail of American politics — just not the way we used to understand it.

Until recently, a Republican could churn out crowd-pleasing sound bites about fixing health care but never put the pedal to the metal by investing political capital in a serious proposal for reform. Republicans understood that when the talk turned to health care, Democrats won the debate and Republicans lost. It was just a fact of life. Not anymore.

As Romney and Gingrich bind their wounds, I’m sure that they are more surprised than anybody at the hostile response their recent comments have drawn. After all, it is true that trace elements of the “individual mandate” can be found in conservative policy proposals from the days of yore. Our friends at the Heritage Foundation considered such a mandate in the 1990s, but have long since rejected it. And the quality and quantity of the Heritage Foundation’s current research on health policy, which  unambiguously rejects every part of Obamacare in favor individual choice and fiscal responsibility, leaves no room for excuses that there are no conservative alternatives to mandates and tax hikes.

On the other hand, when I look at Gingrich’s campaign website’s section on health care, I see nothing inexcusable. He champions repealing Obamacare and lists ten reforms, all of which one can find in the publications of one conservative think tank or another. (I don’t find all ten convincing, but while I don’t think it’s Congress’ job to pass a law on medical-malpractice liability, for example, it wouldn’t be the end of the Tenth Amendment either.)

So, how did one unfortunate interview on a Sunday TV show do so much damage to the launch of his campaign? I think it’s a matter of trust. Repealing Obamacare is not something Republicans can waffle on in the slightest. And attacking the congressional caucus that voted for Medicare reform is very close to attacking their vote for repeal.

We cannot afford a “national conversation” on repealing Obamacare. Every day that it persists is another day that doctors, hospitals, pharmaceutical firms, health insurers, medical-device manufacturers, and all the other concerns in the health sector invest more time and energy “implementing” its harmful provisions. Every day that goes by is another day in which those interests dig themselves deeper into the new status quo, making Obamacare harder to defeat.

Every single Republican presidential candidate will promise to repeal Obamacare; that’s the price of a ticket to the dance. But between election night on November 6, 2012, and the inauguration on January 20, 2013, there will be plenty of opportunities for the president-elect to find excuses for delaying repeal in favor of a “national conversation.” After all, that’s what many business interests will want.

And conservative voters know it, too.  Campaign bromides won’t work this time.  The winning Republican candidate will have to prove beyond any shadow of a doubt that he (or she) will immediately sign the one-page repeal bill that will be the first legislation to land on the president’s desk after the inauguration. There can be no risk of dithering in favor of a “national conversation.”

I don’t know what a candidate can say to prove that he (or she) will do this. But now I know what he cannot say.

Newt Gingrich Makes Mitt Romney Look Good


Yesterday on Meet the Press, former House speaker Newt Gingrich had some interesting things to say about health-care policy and entitlement reform — and by “interesting” I mean that it’s hard to see how, after his remarks, he can continue to be considered a plausible conservative spokesman on health policy.

When host David Gregory asked Gingrich for his thoughts on Paul Ryan’s Path to Prosperity, Gingrich called it a “radical” plan that amounted to “right-wing social engineering”:

I don’t think right-wing social engineering is any more desirable than left-wing social engineering. I don’t think imposing radical change from the right or the left is a very good way for a free society to operate… I’m against Obamacare, which is imposing radical change, and I would be against a conservative imposing radical change.

So what’s Newt’s grand plan for reining in runaway entitlement spending? The old 1970’s classic — waste, fraud, and abuse:

I think we need a national conversation to get to a better Medicare system with more choices for seniors.  But there are specific things you can do. At the Center for Health Transformation, which I helped found, we published a book called ‘Stop Paying the Crooks.’ We thought that was a clear enough, simple enough idea, even for Washington. Between Medicare and Medicaid, we pay between $70-120 billion a year to crooks.

Stopping waste, fraud, and abuse would be a good thing, except that waste, fraud, and abuse are inherent in government-run systems. Unless institutions and individuals have an economic incentive to root out waste, as they do in the free market, it will never happen. As a platform for Medicare reform, merely aspiring to “Stop Paying the Crooks” is unserious.

Gingrich explicitly defended Mitt Romney’s advocacy of the individual mandate:

I agree that all of us have a responsibility to help pay for health care. I think that there are ways to do it that make most libertarians relatively happy. I’ve said consistently we ought to have some requirement that you have health insurance or you post a bond or in some way you indicate that you’re going to be held accountable. It’s a variation on [the individual mandate]…I don’t think that having a free rider system in health is any more appropriate than having a free-rider system in any other part of our society.

The so-called “free-rider” problem is a manufactured one: it is an artifact of unfunded government mandates, for which the prescribed solution (forcing everyone to buy comprehensive insurance) is overkill, and requires massive taxpayer subsidies that far exceed the cost of uncompensated emergency care.

What’s funny about Gingrich’s fusillade against Paul Ryan is that Gingrich had a substantially different opinion of Ryan’s plan six weeks ago. Here’s Byron York quoting from an interview of Gingrich by Bill Bennett on April 5:

At that time, Gingrich was full of praise for the Ryan budget. “Paul Ryan has stepped up to the plate,” Gingrich said. “This is a very, very serious budget and I think rivals with [what] John Kasich did as budget chairman in getting to a balanced budget in the 1990s, just for the scale and courage involved…Paul Ryan is going to define modern conservatism at a serious level,” Gingrich continued. “You can quibble over details but the general shape of what he’s doing will define 2012 for Republicans.”

As David Gregory noted on Sunday, back in 1993, Gingrich advocated a Swiss-style system that was even bolder than the Ryan plan: “I am prepared to vote for a voucher system which would give individuals on a sliding scale a government subsidy so to ensure that everyone as individuals have health insurance.”

Clearly, Gingrich’s health policy positions have been all over the place. While we’re on the subject, however, it’s worth noting what Gingrich actually achieved on health care while he was Speaker of the House. His two most consequential pieces of health care legislation were passed as part of the Balanced Budget Act of 1997: the creation of the State Children’s Health Insurance Program, or S-CHIP; and the imposition of the Medicare Sustainable Growth Rate, or SGR.

S-CHIP, at the time, was the largest entitlement expansion in a generation, and is today one of the fastest-growing components of government spending. Effectively, it expanded Medicaid to cover uninsured children in families whose incomes were too high to qualify for traditional Medicaid.

The Medicare Sustainable Growth Rate, a revision of an old system called the Medicare Volume Performance Standard, required that increases in Medicare spending could not exceed GDP growth. If spending did exceed GDP growth, Congress would be authorized to cut payments to doctors and hospitals so as to bring spending in line. However, since 1997, both Republican and Democratic Congresses have overridden the required cuts, resulting in endless “doc fix” legislation. Even more perniciously, the fiction of SGR-driven Medicare cuts has introduced a massive accounting gimmick into government budget projections, making our future budget deficit seem much smaller than it actually is.

Gingrich says he opposes both “right-wing social engineering” as much as “left-wing social engineering.” But when he was in office, he actively supported left-wing social engineering. So what does that make him now?

— Avik Roy is an equity research analyst at Monness, Crespi, Hardt & Co., and blogs on health-care policy at The Apothecary. You can follow him on Twitter at @aviksaroy.

The Real Medicare Trustees’ Report


The headline news from today’s release of the 2011 Medicare Trustees’ report is that the Hospital Insurance trust fund is scheduled to be depleted in 2024, five years earlier than projected in last year’s report. The primary reason for the erosion in the condition of the trust fund is, apparently, the anemic economic recovery. It’s even worse than what was projected just a few months ago.

But important as this information appears to be, it’s really not the most important information found in the report. To get that, one needs to skip past all the mind-numbing tables and graphs to the final few pages, specifically page 265. There you will find a “Statement of Actuarial Opinion,” signed by the Chief Actuary of the program, Richard Foster. And in that statement, Mr. Foster once again warns the public not to rely on the information provided in the preceding 264 pages.

Why? Because Obamacare’s arbitrary, across-the-board cuts in what Medicare pays for services will force a large portion of health-care providers to stop seeing Medicare patients. When that occurs, Medicare would be insurance in name only, as the enrollees would have a terrible time actually getting the care they need.

Here’s how Foster puts it:

By the end of the long-range projection period, Medicare prices for hospital, skilled nursing facility, home health, hospice, ambulatory surgical center, diagnostic laboratory, and many other services would be less than half of their level under the prior law. Medicare prices would be considerably below the current relative level of Medicaid prices, which have already led to access problems for Medicaid enrollees, and far below the levels paid by private health insurance. Well before that point, Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result. . . .

For these reasons, the financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range (as a result of the unsustainable reductions in physician payment rates) or the long range (because of the strong likelihood that the statutory reductions in price updates for most categories of Medicare provider services will not be viable). I encourage readers to review the “illustrative alternative” projections that are based on more sustainable assumptions for physician and other Medicare price updates. These projections are available at

Unfortunately, the alternative scenario referenced by Foster in his statement does not yet appear to be available on the CMS website. When it is available, it will almost certainly resemble the alternative projection released at the time of last year’s trustees’ report, which effectively showed that, using realistic assumptions, Medicare’s finances are no better off now than they were before Obamacare was enacted.

Indeed, the program is actually far worse off now because of the shameless double-counting in Obamacare. The Medicare cuts — unrealistic as they are — were used to partially “pay for” massive new entitlement promises to 32 million more Americans. When the Medicare cuts inevitably melt away, the entitlement promises made to millions of other Americans will not. The result will be that the federal government will go even deeper into debt, making it that much harder to find a way to meet future Medicare obligations.

Even before Obamacare was enacted, the nation’s most difficult long-term economic challenge was runaway entitlement spending. Obamacare is more gasoline on what’s already a raging fire. The law included no real reform of Medicare or Medicaid. It simply doubled down on the failed model of command-and-control payment rate reductions. Those have never worked before to make the programs sustainable, and they won’t work this time either.

Mitt’s Millstone Still Weighs Him Down


In January 2006, when Massachusetts governor Mitt Romney unveiled his plan to remake the Bay State’s health-care system, I was an early critic. The governor’s two goals, like those of President Obama, were universal coverage and reducing health-care costs. The bill was passed into law in April and Romneycare just celebrated its fifth anniversary.

Two main pillars of his plan were the individual mandate and the insurance exchange or Commonwealth Connector. The former has been a millstone around Romney’s neck. He has spent the last few years trying to explain to the American people how it was right for Massachusetts but not for the country. There is no question in my mind that Romneycare and Obamacare are one and the same. As MIT economics professor Jonathan Gruber who helped design both plans has said, Romneycare was the basis for Obamacare. 

Yesterday, everyone was waiting with bated breath for his speech at the University of Michigan. The media was awash with speculation as to whether he would defend his health-care plan or denounce it. He could have said that, having seen the impact of his reform on coverage and costs, he had changed his mind. That would have given him more credibility in his quest for the presidential nomination. In fact, if he is serious about his candidacy, he should have renounced his health-care plan two years ago. Alas, it was not to be. He is still defending his plan even though the results from the Bay State’s reforms are very disappointing.

Universal coverage has not been achieved: About 100,000 are still uninsured even with the individual mandate, and costs are out of control. This year the plan will cost taxpayers about $1.8 billion, and, according to the Massachusetts Taxpayers Foundation, over the next 10 years Romneycare will likely cost $2 billion more than projected.

Coverage was expanded by putting more people on the dole. Since 2006, 440,000 have been added to the state-funded insurance rolls; Medicaid enrollment is up almost 25 percent, and emergency-room use between 2004 and 2008 was up by 9 percent or 3 million visits. One of the goals of Romneycare was to reduce ER use, not increase it. And, the average employer-sponsored family plan costs nearly $14,000 — higher than anywhere else in the nation.

A survey released on May 9 by the Massachusetts Medical Society contained dire news for the people of the Bay State. According to the release, fewer than half of primary-care practices are taking new patients, down from 70 percent in 2007. The average wait for a routine examination with an internist is now 48 days. The wait for an appointment with a gastroenterologist is now 43 days, up from 36 days last year. It appears that the state is trying to catch up to Canada where under its “Medicare for all system,” the average wait from seeing a primary-care doctor to getting treatment by a specialist is 18.2 weeks. 

So much for Romney’s bold statement in 2006 that, “Every uninsured citizen in Massachusetts will soon have affordable health insurance and the cost of health care will be reduced.” By not renouncing this plan in his speech in Ann Arbor, he has ensured that the American people will not trust his many statements on how his reforms will differ from Obamacare. While he gave his latest speech at the cardiovascular center at the University of Michigan, it did not reduce the heartburn that Americans feel about Romneycare or his plan if elected president. He promised that on his first day in office he would issue an executive order paving the way for the states to obtain waivers to opt out of Obamacare. He subsequently added that he would call on Congress to fully repeal the health-care law. But Mitt Romney’s ideas for reform will not bring about affordable, accessible quality care for all Americans, which should be the goal of any plan to repeal and replace Obamacare.

— Sally C. Pipes is president, ceo, and Taube Fellow in Health Care Studies at the Pacific Research Institute.  Her latest book is The Truth About Obamacare (Regnery).

Missed Hit by Mitt


Former governor Mitt Romney may very well have hoped he could put health care behind him with his major speech in Ann Arbor, but judging from the results so far of the National Review Online poll, it’s clear he still has a lot of work to do: By a margin of about seven to one, readers said they thought the speech hurt him.

It’s hard to hate Obamacare and love Romneycare. For example, Romney continued to defend the individual mandate — the most despised part of Obamacare — as right for Massachusetts but wrong for the country.

Four years after reform, Massachusetts still has the highest health-insurance premiums in the country. For small employers, the rise is about 14 percent beyond those in the rest of the nation.

And it’s increasingly difficult to get a doctor’s appointment. A recent survey by the Massachusetts Medical Society reveals that fewer than half of the state’s primary-care practices are accepting new patients, and the average wait time to get an appointment with an internist is 48 days. The result: The use of hospital emergency rooms in Massachusetts by people seeking routine care has increased. This was another problem Romneycare was supposed to fix.

The five-point plan that Governor Romney outlined to structure the health-reform initiative he would undertake as president is sound and based upon solid principles. But it’s hard to see how voters will give him a chance unless he admits that the health plan he developed for Massachusetts went seriously wrong.

He was emphatic about calling for repeal of Obamacare and said he will issue an executive order paving the way for the states to get a waiver from the health-overhaul law while Congress works to repeal it. 

But you can’t use an executive order to wipe out two massive new federal entitlement programs, $550 billion in new and higher taxes, a vast expansion of Medicaid, and federal mandates on individuals, businesses, and the states. Waivers are not a solution. 

In a political debate, President Obama would be sure to point out that there is little contrast between Romney’s call for these initial waivers for the states and the president’s call to give states an early waiver to implement Obamacare their own way.

Full repeal is the only solution. Earlier this year, the Republican House passed a repeal bill within a few weeks of taking power. If there were a majority in the Senate supporting repeal, then a new president could have a bill to sign on his desk within a month or two of taking office.

Voters needed to see more contrast today, and they would demand it in a general-election battle.


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