President Obama and other leading Demo- crats have proposed creating a new government health insurance program as an option for Americans under the age of 65, within the context of a new, federally regulated market—typically described as a “National Health Insurance Exchange.” Supporters claim that a new govern- ment program could deliver higher-quality health care at a lower cost than private insurance, and that competition from a government pro- gram would force private insurers to improve. A full accounting shows that government programs cost more and deliver lower-quality care than private insurance. The central problem with proposals to create a new government pro- gram, however, is not that government is less efficient than private insurers, but that govern- ment can hide its inefficiencies and draw con- sumers away from private insurance, despite offering an inferior product. A health insurance “exchange,” where con- sumers choose between private health plans with artificially high premiums and a government pro- gram with artificially low premiums, would not increase competition. Instead, it would reduce competition by driving lower-cost private health plans out of business. President Obama’s vision of a health insurance exchange is not a market, but a prelude to a government takeover of the health care sector. In the process, millions of Americans would be ousted from their existing health plans. If Congress wants to make health care more efficient and increase competition in health insurance markets, there are far better options. Congress should reject proposals to create a new government health insurance program—not for the sake of private insurers, who would be subject to unfair competition, but for the sake of American patients, who would be subject to unnecessary morbidity and mortality. Fannie Med? Why a “Public Option” Is Hazardous to Your Health by Michael F. Cannon _____________________________________________________________________________________________________ Michael F. Cannon is director of health policy studies at the Cato Institute and coauthor of Healthy Competition: What’s Holding Back Health Care and How to Free It. Executive Summary No. 642 August 6, 2009
President Obama and other leading Demo-crats have proposed creating a new governmenthealth insurance program as an option forAmericans under the age of 65, within the contextof a new, federally regulated market—typicallydescribed as a “National Health InsuranceExchange.” Supporters claim that a new govern-ment program could deliver higher-qualityhealth care at a lower cost than private insurance,and that competition from a government pro-gram would force private insurers to improve.
A full accounting shows that governmentprograms cost more and deliver lower-qualitycare than private insurance. The central problemwith proposals to create a new government pro-gram, however, is not that government is lessefficient than private insurers, but that govern-ment can hide its inefficiencies and draw con-sumers away from private insurance, despiteoffering an inferior product.
A health insurance “exchange,” where con-sumers choose between private health plans withartificially high premiums and a government pro-gram with artificially low premiums, would notincrease competition. Instead, it would reducecompetition by driving lower-cost private healthplans out of business. President Obama’s vision ofa health insurance exchange is not a market, but aprelude to a government takeover of the healthcare sector. In the process, millions of Americanswould be ousted from their existing health plans.
If Congress wants to make health care moreefficient and increase competition in healthinsurance markets, there are far better options.
Congress should reject proposals to create anew government health insurance program—notfor the sake of private insurers, who would besubject to unfair competition, but for the sake ofAmerican patients, who would be subject tounnecessary morbidity and mortality.
Fannie Med?Why a “Public Option” Is Hazardous to Your Health
Michael F. Cannon is director of health policy studies at the Cato Institute and coauthor of HealthyCompetition: What’s Holding Back Health Care and How to Free It.
Executive Summary
No. 642 August 6, 2009
365411_PA642_1stclass:365411_PA642_1stclass 7/29/2009 6:31 AM Page 1
Introduction
President Obama,1 Senate Finance Commit-tee chairman Max Baucus (D-MT),2 and otherleading Democrats have proposed creating a newgovernment health insurance program as an“option” for Americans under the age of 65. Thisprogram would operate within the context of anew, federally regulated market—typicallydescribed as a “National Health InsuranceExchange.” House Speaker Nancy Pelosi (D-CA)3
and four House caucuses representing more than100 Democrats4 have stated that a new govern-ment health insurance program modeled onMedicare is the sine qua non of health carereform. Sixteen Democratic senators have signeda letter signaling their support.5 Senate Health,Education, Labor, and Pensions Committeechairman Edward M. Kennedy (D-MA) has pro-posed legislation that would create such a pro-gram,6 as have three key House committees.7
Others have suggested that Congressshould adopt a different model. Senate BudgetCommittee chairman Kent Conrad (D-ND)and Sen. Charles Schumer (D-NY) have pro-posed that Congress create one or more health-insurance “cooperatives,” although eachendorses different structures and different lev-els of government support. Cooperatives aremember-run health plans that already exist inmany areas of the country; for instance, GroupHealth Cooperative already covers 580,000Americans in the states of Washington andIdaho.8 Schumer proposes that Congressspend $10 billion to create a single nationwidecooperative, which would be governed by a fed-eral board and endowed with the power to useMedicare-like price controls.9 Conrad proposesmultiple cooperatives10 with start-up subsidiesin the neighborhood of $4 billion.11
Advocates of a new government healthinsurance program claim that governmentprovides coverage more efficiently than the pri-vate sector. University of California–Berkeleypolitical scientist Jacob Hacker writes:
The public Medicare plan’s adminis-trative overhead costs (in the range of 3
percent) are well below the overheadcosts of large companies that are self-insured (5 to 10 percent of premiums),companies in the small group market(25 to 27 percent of premiums), andindividual insurance (40 percent ofpremiums).12
Supporters claim they are willing to put gov-ernment to the test by having it competeagainst private plans in the context of a newgovernment-run “exchange.” President Obamaclaims that a new government program “givesconsumers more choices, and it helps keep theprivate sector honest, because there’s somecompetition out there.”13 The House Demo-crats’ legislation would create a “public healthinsurance option” that would be “self-sustain-ing and compet[e] on [a] ‘level field’ with pri-vate insurers.”14 Columnist E. J. Dionne writes,“The public-option idea . . . would allow theUnited States to move gradually toward a gov-ernment-run system if—and only if—a substan-tial number of consumers freely chose to joinsuch a plan. The market would test the idea’sstrength.”15
A full accounting, however, shows thatgovernment programs are less efficient thanprivate insurance. Administrative costs arehigher in government programs such asMedicare, because they avoid administrativeactivities that increase efficiency and incurother administrative costs that are purelywasteful. Government programs also sup-press innovation, and thereby reduce thequality of care for all patients, whether pub-licly or privately insured.
The central problem with proposals to cre-ate a new government program is not thatgovernment is less efficient than private insur-ers, however, but that government can hide itsinefficiencies and draw consumers away fromprivate insurance, despite offering an inferiorproduct. If the government plan’s premiumsreflected its full costs—and private insurancepremiums reflected only their actual costs—there would be no reason not to let the gov-ernment enter the market. As Dionne sug-gests, the market would test the idea’s
2
The central problem withproposals to create a new government
strength. Yet government possesses both thepower to hide its true costs (which keeps itspremiums artificially low) and to impose costson its competitors (which unnecessarily push-es private insurance premiums higher). Itmakes no difference whether a new programadopts a “co-operative” model or any other.The government possesses so many tools forsubsidizing its own program and increasingcosts for private insurers—and has such a longhistory of subsidizing and protecting favoredenterprises—that unfair advantages areinevitable. This is in no small part becausesupporters of a new government programwant it to have unfair advantages.
Literally Ousting Patients from TheirHealth Plans
In a speech to the American MedicalAssociation, President Obama reiterated apromise that he has made repeatedly since the2008 presidential campaign:
No matter how we reform health care,we will keep this promise to theAmerican people. If you like your doc-tor, you will be able to keep your doc-tor, period. If you like your health careplan, you’ll be able to keep your healthcare plan, period. No one will take itaway, no matter what.16
After the Congressional Budget Office estimatedthat as many as 15 million Americans could losetheir existing coverage under Senator Kennedy’slegislation,17 the Associated Press reported,“White House officials suggest the president’srhetoric shouldn’t be taken literally.”18
Indeed, a new government program wouldliterally oust millions of Americans from theircurrent health plans and threaten their rela-tionships with their doctors, as employerschoose to drop their current employee healthplans and as private health plans close down. ALewin Group analysis estimated that Obama’scampaign proposal would move 32 millionAmericans into a new government-run plan.19
Lewin subsequently estimated that if Congressused Medicare’s price controls and opened the
new program to everyone, it could pull 120 mil-lion Americans out of private insurance—morethan half of the private market.20 The share ofAmericans who depend on government fortheir health care would rise from just over one-quarter to two-thirds.21 Many of those millionswould be involuntarily ousted from their cur-rent health plans—much like President Obamasuggested ousting 10 million seniors22 fromtheir private Medicare Advantage plans andforcing them into the traditional Medicare pro-gram.23 Yet even those who voluntarily chose anew government program over their existingcoverage would do so not because the govern-ment program provides better value for themoney, but because the government programwould hide some of its cost.
A health insurance “exchange,” where con-sumers choose between private health planswith artificially high premiums and a govern-ment program with artificially low premiums,would not increase competition. Instead, itwould reduce competition by driving lower-cost private health plans out of business.President Obama’s vision of a health insuranceexchange is not a market, but a prelude to agovernment takeover of the health care sector.In the process, millions of Americans would beousted from their existing health plans, and allwould suffer the consequences of government-run health care.
Is GovernmentMore Efficient?
Supporters of a new government programnote that private insurers spend resources on awide range of administrative costs that govern-ment programs do not. These include market-ing, underwriting, reviewing claims for legiti-macy, and profits. The fact that governmentavoids these expenditures, however, does notnecessarily make it more efficient. Many of theadministrative activities that private insurersundertake serve to increase the insurers’ effi-ciency. Avoiding those activities would there-fore make a health plan less efficient. Existinggovernment health programs also incur
3
PresidentObama’s visionof a health insuranceexchange is not amarket, but a prelude to a governmenttakeover of thehealth care sector.
administrative costs that are purely wasteful.In the final analysis, private insurance is moreefficient than government insurance.
Administrative CostsTimemagazine’s Joe Klein argues that “the
profits made by insurance companies are agood part of what makes health care so expen-sive in the U.S. and that a public option is need-ed to keep the insurers honest.”24 All else beingequal, the fact that a government programwould not need to turn a profit suggests that itmight enjoy a price advantage over for-profitinsurers. If so, that price advantage would beslight. According to the Congressional BudgetOffice, profits account for less than 3 percentof private health insurance premiums.25
Furthermore, government’s lack of a profitmotive may not be an advantage at all. Profitsare an important market signal that increaseefficiency by encouraging producers to findlower-cost ways of meeting consumers’needs.26 The lack of a profit motive could leada government program to be less efficient thanprivate insurance, not more.
Moreover, all else is not equal. Governmentprograms typically keep administrative expen-ditures low by avoiding activities like utilizationor claims review. Yet avoiding those activitiesincreases overall costs. The CBO writes, “Thetraditional fee-for-service Medicare programdoes relatively little to manage benefits, whichtends to reduce its administrative costs but mayraise its overall spending relative to a more tightlymanaged approach.”27 Similarly, the MedicarePayment Advisory Commission writes:
[The Centers for Medicare & MedicaidServices] estimates that about $9.8 billionin erroneous payments were made in thefee-for-service program in 2007, a figuremore than double what CMS spent forclaims processing and review activities. InMedicare Advantage, CMS estimates thaterroneous payments equaled $6.8 billionin 2006, or approximately 10.6 percent ofpayments. . . . The significant size ofMedicare’s erroneous payments suggeststhat the program’s low administrative
costs may come at a price. 28
CMS further estimates that it made $10.4 bil-lion in improper payments in the fee-for-ser-vice Medicare program in 2008.29
Medicare keeps its measured administra-tive-cost ratio relatively low by avoidingimportant administrative activities (whichshrinks the numerator) and tolerating vastamounts of wasteful and fraudulent claims(which inflates the denominator).30 That is avice, yet advocates of a new government pro-gram praise it as a virtue.31
Medicare also keeps its administrativeexpenditures down by conducting almost noquality-improvement activities. JournalistShannon Brownlee and Obama adviser EzekielEmanuel write:
[S]ome administrative costs are not onlynecessary but beneficial. Followingheart-attack or cancer patients to seewhich interventions work best is anadministrative cost, but it’s also invalu-able if you want to improve care.Tracking the rate of heart attacks fromdrugs such as Avandia is key to ensuringsafe pharmaceuticals.32
According to the CBO, private insurers spendnearly 1 percent of premiums on “medicalmanagement.”33 The fact that Medicarekeeps administrative expenditures low byavoiding such quality-improvement activitiesmay likewise result in higher overall costs—inthis case by suppressing the quality of care.
Supporters who praise Medicare’s appar-ently low administrative costs often fail to notethat some of those costs are hidden costs thatare borne by other federal agencies, and thusfail to appear in the standard 3-percent esti-mate.34 These include “parts of salaries for leg-islators, staff and others working on Medicare,building costs, marketing costs, collection ofpremiums and taxes, accounting includingauditing and fraud issues, etc.”35
Also, Medicare’s administrative costsshould be understood to include the dead-weight loss from the taxes that fund the pro-
4
In the final analysis, private
insurance is moreefficient than governmentinsurance.
gram. Economists estimate that it can easilycost society $1.30 to raise just $1 in tax revenue,and it may sometimes cost as much as $2.36
That “excess burden” of taxation is a very realcost of administering (i.e., collecting the taxesfor) compulsory health insurance programslike Medicare, even though it appears in nogovernment budgets.
Comparing administrative expenditures inthe traditional “fee-for-service” Medicare pro-gram to private Medicare Advantage plans cansomewhat control for these factors. Hackercites a CBO estimate that administrative costsare 2 percent of expenditures in traditionalMedicare versus 11 percent for MedicareAdvantage plans. He writes further: “A recentGeneral Accounting Office report found thatin 2006, Medicare Advantage plans spent 83.3percent of their revenue on medical expenses,with 10.1 percent going to nonmedical expens-es and 6.6 percent to profits—a 16.7 percentadministrative share.”37
Yet such comparisons still do not establishthat government programs are more efficientthan private insurers. The CBO writes of itsown estimate: “The higher administrative costsof private plans do not imply that those plansare less efficient than the traditional FFS pro-gram. Some of the plans’ administrativeexpenses are for functions such as utilizationmanagement and quality improvement thatare designed to increase the efficiency of caredelivery.”38 Moreover, a portion of theMedicare Advantage plans’ administrativecosts could reflect factors inherent to govern-ment programs rather than private insurance.For example, Congress uses price controls todetermine how much to pay MedicareAdvantage plans. If Congress sets those pricesat supracompetitive levels, as many expertsbelieve is the case,39 then that may boostMedicare Advantage plans’ profitabilitybeyond what they would earn in a competitivemarket. Those supracompetitive profits wouldbe a product of the forces that would guide anew government program—that is, Congress,the political system, and price controls—ratherthan any inherent feature of private insurance.
Economists who have tallied the full admin-
istrative burden of government health insuranceprograms conclude that administrative costs arefar higher in government programs than in pri-vate insurance. In 1992, University ofPennsylvania economist Patricia Danzon esti-mated that total administrative costs were morethan 45 percent of claims in Canada’s Medicaresystem, compared to less than 8 percent ofclaims for private insurance in the UnitedStates.40 Pacific Research Institute economistBen Zycher writes that a “realistic assumption”about the size of the deadweight burden puts“the true cost of delivering Medicare benefits [at]about 52 percent of Medicare outlays, orbetween four and five times the net cost of pri-vate health insurance.”41
Administrative costs can appear quite low ifyou only count some of them. Medicare hidesits higher administrative costs from enrolleesand taxpayers, and public-plan supporters relyon the hidden nature of those costs when theyargue in favor of a new government program.
Cost Containment vs. SpendingContainment
Advocates of a new government health careprogram also claim that government containsoverall costs better than private insurance.Jacob Hacker writes, “public insurance has abetter track record than private insurancewhen it comes to reining in costs while pre-serving access. By way of illustration, between1997 and 2006, health spending per enrollee (forcomparable benefits) grew at 4.6 percent a yearunder Medicare, compared with 7.3 percent a yearunder private health insurance.”42 In fact, lookingat a broader period, from 1970 to 2006, showsthat per-enrollee spending by private insur-ance grew just 1 percentage point faster peryear than Medicare spending, rather than 2.7percentage points.43 That still omits the1966–1969 period, which saw rapid growth inMedicare spending.
More importantly, Hacker’s comparisoncommits the fallacy of conflating spending andcosts. Even if government contains health carespending better than private insurance (whichis not at all clear), it could still impose greateroverall costs on enrollees and society than pri-
5
Medicare hidesits higher administrativecosts fromenrollees and taxpayers, andpublic-plan supporters relyon the hiddennature of thosecosts when theyargue in favor of a new governmentprogram.
vate insurance. For example, if a governmentprogram refused to pay for lifesaving medicalprocedures, it would incur considerable non-monetary costs (i.e., needless suffering anddeath). Yet it would look better in Hacker’scomparison than a private health plan thatsaved lives by spending money on those ser-vices. Medicare’s inflexibility also imposescosts on enrollees. Medicare took 30 yearslonger than private insurance to incorporateprescription drug coverage into its basic bene-fits package. The taxes that finance Medicareimpose costs on society in the range of 30 per-cent of Medicare spending.44 In contrast, thereis no deadweight loss associated with the vol-untary purchase of private health insurance.
Hacker nods in the direction of nonspend-ing costs when he writes, “Medicare has main-tained high levels of . . . patient access tocare.”45 Yet there are many dimensions of qual-ity other than access to care. It is in those areasthat government programs impose theirgreatest hidden costs, on both publicly andprivately insured patients.
Government Programs Suppress Quality,Cost Lives
Supporters also claim that governmentprograms outperform private health insur-ance on quality. On the surface, the quality ofmedical care in government programs tendsto be similar to, or worse than, the quality ofcare under private insurance. This may belargely due to the fact that government pro-grams uniformly lag private insurance inadopting quality innovations. Beneath thesurface, however, government programs sup-press the quality of care for all patients,whether publicly or privately insured.
Researchers estimate that patients receivehigh-quality, evidence-based care only abouthalf of the time, regardless of whether they areenrolled in Medicare, Medicaid, or privateinsurance.46 A recent Minnesota study found,however, “On eight of the nine statewide mea-sures, performance in achieving high-qualitycare was significantly lower at both thestatewide and medical group levels for[Medicaid and other government programs]
compared with [private insurance].”47 Patientswith Medicaid coverage experience moreunmet medical needs than similar patientswith private insurance.48 Studies have foundthat Medicaid patients suffer worse outcomesthan similar privately insured patients when itcomes to cancer,49 unstable angina,50 andcoronary artery bypass graft surgery.51 TheVeterans’ Health Administration appears tooutperform private insurance on some dimen-sions of quality,52 but exhibits serious defi-ciencies in others.53 President Obama’s secre-tary of Health and Human Services, KathleenSebelius, has called the government-runIndian Health Service a “historic failure.”54
Nevertheless, supporters make the demon-strably false claim that government programsare more innovative than private insurance.Hacker writes, “Medicare has been slow toadopt quality innovations—though generallyquicker than private health plans.”55 PeterHarbage and Karen Davenport of the Centerfor American Progress cite Medicare’s policyon “never events”—severe medical errors thatshould “never” happen—as proof of govern-ment’s superior ability to promote quality:“Witness steps such as Medicare’s refusal topay medical care providers for ‘never events,’where a patient suffers a knowable and cata-strophic mistake, such as having the wronglimb removed. This is something other majorinsurers are now adopting.”56
In reality, Medicare and other governmentprograms uniformly lag private insurers whenit comes to quality innovations. For example,private insurers began experimenting with“pay-for-performance” financial incentivesalmost an entire decade before Medicare.57
“Never events” provide an even clearer illus-tration. In 2003, an estimated 181,000 severemedical errors occurred in hospitals alone.58
Throughout its 43-year history, Medicare hasactually encouraged such errors by financiallyrewarding health care providers when an errorleads to more services, and financially penaliz-ing providers who reduce error rates.59 InOctober 2008, Medicare eliminated those per-verse incentives for a short list of medicalerrors called “never events.” That policy will
likely discourage some medical errors by forc-ing providers to pay for some of the associatedcosts. Yet the first private health plan to forceproviders to bear the full financial cost of allmedical errors was offered by the Ross-LoosClinic in 1929.60 Kaiser Permanente has doneso since the 1940s. Medicare didn’t even play aleading role on “never events” among fee-for-service plans, as Harbage and Davenportclaim. HealthPartners of Minnesota stoppedpaying for “never events” in January 2005.61
Medicare merely followed suit.
Stagnation Costs LivesGovernment programs are not merely slow
to innovate, they are outright hostile to quali-ty innovations. Government programs injectrigidity into health care markets that sup-presses the quality of care for publicly and pri-vately insured patients alike. The result isgreater morbidity and mortality.
This can be seen most clearly in the way gov-ernment suppresses competition between dif-ferent methods of paying doctors, hospitals,and other health care providers. As noted above,Medicare financially rewards medical errorsand penalizes error-reduction efforts because itpays providers on a fee-for-service basis. Fee-for-service payment, as the name suggests, meansthat providers collect an additional fee for eachadditional service they provide. Conversely, ifproviders deliver fewer services, they collect lessrevenue. Fee-for-service payment thus creates aperverse incentive: if low-quality care (e.g., amedical error, poor coordination betweenproviders, insufficient attention to medical evi-dence) results in a patient requiring more ser-vices, then low-quality providers will receivemore revenue than providers who adopt quali-ty innovations. According to the New YorkTimes, for example:
Park Nicollet Health Services, a hospitaland clinic system based in St. Louis Park,Minn[esota] . . . started . . . spending asmuch as $750,000 annually on morenurses and on sophisticated software totrack heart failure patients after they leftthe hospital. It reduced readmissions for
such patients to only 1 in 25, down fromnearly 1 in 6. But the reduction has beena losing proposition. Although theeffort saved Medicare roughly $5 milliona year, Park Nicollet is not paid to pro-vide the follow-up care. Meanwhile, few-er returning hospital patients mean low-er revenue for Park Nicollet. “We’ve keptit up out of a sense of moral obligationto these patients, but we’re gettingkilled,” said David K. Wessner, chiefexecutive of Park Nicollet. “We will total-ly run out of gas.”62
Medicare suppresses countless qualityinnovations by making them “a losingproposition.”
A free market would use competition fromdifferent methods of paying providers to keepthose perverse incentives in check. Under “pre-payment” or “capitation,” for example,providers receive a flat fee to provide medicalcare for a given patient or group of patients.Group Health Cooperative is an example of anintegrated, prepaid health plan. Prepaymentrewards providers for avoiding unnecessaryand harmful services: whatever moneyproviders save by avoiding medical errors, forexample, the providers get to keep. It is nocoincidence that prepaid health plans, likeKaiser Permanente, lead the market in innova-tions such as coordinated care and electronicmedical records, which help avoid unneces-sary services. Prepayment also creates its ownperverse incentive: providers get to keep what-ever money they save by denying access toneeded care as well. In a free market, however,competition from fee-for-service providerswould force them not to stint on necessarycare. By the same token, competition fromprepaid plans would force fee-for-serviceproviders to coordinate care, offer electronicmedical records, and avoid medical errors.
Government health insurance programs—principally Medicare—block competitionbetween different payment systems, and there-fore dramatically reduce the quality of care. Asthe largest purchaser of medical services in theUnited States, Medicare accounts for two-
7
Government programs injectrigidity intohealth care markets that suppresses thequality of care forpublicly and privately insuredpatients alike.The result isgreater morbidityand mortality.
thirds to four-fifths of revenues for many hos-pitals and specialties.63 Medicare’s influence isso vast that hospitals and other providersorganize the delivery of medical care aroundthe financial incentives it creates. Providerslike Park Nicollet Health Services cannot stayin business by providing high-quality coordi-nated care, because that means less revenuefrom Medicare. Because privately insuredpatients use the same doctors and hospitals,that means Medicare suppresses the quality ofcare even for privately insured patients.64
The main reason that the U.S. health caresector lacks coordinated care, electronic med-ical records, and comparative-effectivenessresearch is that government rewards providerswho avoid these quality innovations andpenalizes providers who adopt them. Themain reason that as many as 100,000Americans die from medical errors each year isthat the nation’s largest health care purchaserrewards providers who tolerate medical errorsand punishes providers who reduce them.
Congress cannot solve this problem byreforming Medicare’s payment system, creat-ing a new program that uses a different pay-ment system, or attempting to incorporatesuch competition into a government program.All methods of paying health care providerscreate perverse incentives. If Medicare or a newprogram adopts the payment system used atGroup Health Cooperative, Congress willmerely trade the perverse incentives of fee-for-service payment (uncoordinated care, medicalerrors) for those of prepayment (less providerchoice, greater rationing). Only competitionbetween different payment systems can holdthose perverse incentives in check. Yet govern-ment programs like Medicare and Medicaidstifle such competition. Medicare Advantageattempts to allow such competition, yet differ-ent health plans with different payment sys-tems constantly lobby Congress for specialadvantages. Meanwhile, politicians, such asPresident Obama, propose eliminating suchcompetition entirely.
Harbage and Davenport write that a newgovernment program “will create incentivesfor effective performance just as today’s
Medicare program promotes quality carealongside cost containment.”65 That is precise-ly the problem. A new government programwould suppress quality, just as Medicare has,by further stifling competition between pay-ment systems. Sebelius says that makingMedicare “a strong and sustainable programdepends on our ability to fix what’s broken inthe rest of the system.”66 Sebelius has it exact-ly backward: Medicare is what’s broken in therest of the system.
We need not look to Canada to find horrorstories about government-run health care.Estimates of 100,000 deaths each year in theUnited States from medical errors should befrightening enough.67 A new government pro-gram, whether modeled on Medicare or not,would further suppress health care qualityand cause additional morbidity and mortality.
The Fair-CompetitionFantasy
President Obama admits, “I think there canbe some legitimate concerns on the part of pri-vate insurers that if any public plan is simplybeing subsidized by taxpayers endlessly, that overtime they can’t compete with the governmentjust printing money.”68 Nevertheless, supportersclaim that Congress can create a new govern-ment program that competes with private insur-ers on a level playing field. The “Blue DogCoalition” of moderate House Democrats hasoffered several criteria that a new program wouldhave to satisfy in order to do so.69 The Blue Dogsinsist, for example, that the program would haveto be completely self-sustaining (i.e., premiumrevenue would cover all costs), that the govern-ment not leverage its market power to favor thenew program, and that government not enactany regulations that favor a new governmentprogram over private insurers. Supporters suchas Len Nichols and John Bertko of the NewAmerica Foundation claim that a new programcan satisfy those conditions.70
Yet the government need neither subsidizeits own program with taxpayer money, nornewly printed money, nor must it do so “end-
8
Harbage andDavenport write
that a new government
program “willcreate incentives
for effective performance just
as today’sMedicare program promotes qualitycare alongside
lessly,” to supplant private insurance with aninferior option. Indeed, government has count-less other ways to prevent the true cost of a newprogram from appearing in its premiums, andto increase the premiums of its competitors.Moreover, government’s long history of subsi-dizing, protecting, and bailing out favoredenterprises shows that such special advantageswould be inevitable. For example, Amtrakrequires repeated taxpayer subsidies to stayafloat.71 And Congress famously bailed outFannie Mae and Freddie Mac.
Congress has made Medicare increasingly lessself-sustaining over time. When Congress creat-ed Medicare in 1965, enrollee premiums covered50 percent of the cost of physician services.Under pressure from Medicare enrollees, subse-quent Congresses gradually reduced that shareto 25 percent. The U.S. Postal Service is similarlyunable to sustain itself. According to one critic:
Make no mistake . . . the Postal Service isnot self-sufficient. It is kept afloat by anumber of hidden taxpayer subsidies.For starters, it has a monopoly on FirstClass and Standard mail. No privatecompany can deliver a letter for less than$3 or twice what USPS charges, whichev-er is greater. . . . Meanwhile, USPS isimmune from antitrust lawsuits andexempt from taxes on its massive real-estate holdings. . . . It enjoys power ofeminent domain. And it doesn’t evenpay parking tickets.72
It calculates the amount of corporateincome tax it would owe if it were a pri-vate company—and then pays thatamount to itself.73
Likewise, state governments have repeatedlycrowded out private insurance in markets forworkers’ compensation insurance, crop andflood insurance, and reinsurance for medicalmalpractice and natural disasters, accordingto University of Pennsylvania economistScott Harrington, because “the public sectoris supported by various types of subsidies orspecial rules that allow it to compete with theprivate sector.”74
Direct SubsidiesAmong the many ways that Congress
could favor a new government program isthrough direct subsidies—that is, realresources provided to the government pro-gram, yet withheld from private insurers:
• The federal and state governmentsfinance Medicaid and the StateChildren’s Health Insurance Programalmost entirely through tax revenue. Asa result, those programs crowd out pri-vate insurance among individuals whocould otherwise obtain coverage on theirown.75 Likewise, taxpayer subsidies fundnearly 90 percent of Medicare spending,which helps that program almost com-pletely crowd out private health insur-ance for the elderly.76
• Creating a new program aroundMedicare’s existing infrastructure, assome supporters propose, would bestowstart-up subsidies not available to newprivate health plans.77 Senator Schumerhas insisted that a government-spon-sored “co-operative” receive $10 billionin start-up subsidies.• The leading Democratic proposalswould create a “risk-adjustment” mech-anism that would essentially tax allhealth plans to compensate those thatattract a disproportionate share of high-cost patients and/or that do little toreduce wasteful expenditures.78Whethera new government program proves to bemore attractive to high-cost patients ordoes a poorer job of controlling unnec-essary expenditures, the risk-adjustmentprogram could easily become a tool fortaxing private insurers to subsidize thegovernment plan. • When estimating Medicare’s adminis-trative costs, the federal governmentdoes not count the cost of activitiesundertaken by other federal agencies tosupport Medicare.79 If the governmentfails to include such costs when calculat-ing the premiums for a new program,that would constitute an implicit sub-
9
Government hascountless ways toprevent the truecost of a new program fromappearing in itspremiums, and toincrease the premiums of itscompetitors.
sidy and enable the new program to setits premiums below its true costs.
To the extent that a new government pro-gram receives direct subsidies that are notavailable to private insurers, its relative costwould also be higher due to the deadweightloss of taxation, yet that added cost likewisewould not appear in the government pro-gram’s premiums.
Indirect SubsidiesTo subsidize a new government program,
Congress need not hand it bags of cash or usecreative accounting when setting premiums.Congress can instead subsidize its programindirectly, whether by granting it special statusor increasing its competitors’ costs:
• The taxpayer subsidies and other advan-tages granted to Medicare give the feder-al government a degree of market powerthat private insurers cannot match. Thatmarket power in turn creates opportuni-ties for Congress to grant other specialadvantages to a new government pro-gram. Many supporters propose that anew program should adopt price con-trols identical or similar to Medicare’s,or that the federal government shouldrequire providers to participate in thenew program as a condition of Medicareparticipation.80 Sen. Jay Rockefeller (D-WV) proposes to let a new program useMedicare’s price controls for two years,and to require doctors who participatein Medicare to participate in the newprogram for three years;81 yet those timeframes could easily be extended to fouryears, six years, or beyond. Leveragingthe special advantages granted toMedicare would enable a new govern-ment program to achieve a level ofprovider participation at a lower costthan private insurers. • Adopting Medicare-like price controlswould also increase the prices thatproviders charge private insurers. Expertsdisagree about the exact mechanism that
drives prices higher for private insurers.82
Whatever the case, such price controlswould increase the cost of private insur-ance relative to a new government pro-gram.• Tightening the price controls thatMedicaid uses to purchase prescriptiondrugs, or expanding those price controlsinto either Medicare or a new govern-ment program, would likewise increasecosts for the new program’s private com-petitors. The price controls thatCongress imposes on drug purchasesthrough the Medicaid program have theeffect of increasing prices for privateinsurers by an estimated 15 percent.83
The Senate Finance Committee has sug-gested tightening this price control,84
while House Energy and CommerceCommittee chairman Henry Waxman(D-CA) has proposed importing thoseprice controls into Medicare.85 Eithermove would further increase costs forprivate insurers.• Any new program would come with animplicit guarantee that Congress wouldbail it out if premiums proved insuffi-cient to cover its costs. Hacker argues foran explicit bailout guarantee when hewrites that reserve requirements “wouldnot make sense for the public healthinsurance plan, which has the full faithand credit of the federal governmentbehind it.”86 Even if the bailout guaran-tee were only implicit, that would enablethe new program to set its premiumsbelow costs. According to a 1996Treasury Department report signed byLarry Summers, who is now PresidentObama’s National Economic Councilchairman, a similar implicit guaranteesaved Fannie Mae and Freddie Mac anestimated $6 billion per year.87
Meanwhile, private insurers would effec-tively face higher reserve requirementsthan the government program. • Unlike many private insurers, govern-ment programs pay no taxes. The pres-ence of corporate income taxes, invest-
10
AdoptingMedicare-likeprice controlswould increasethe prices that
ment taxes, etc., increases the price ofprivate insurance relative to a govern-ment program. The CBO estimates thattaxes account for 1.2 percent of privatehealth insurance premiums, on aver-age.88 Government could further advan-tage its program by raising taxes on pri-vate insurers, such as through the specialtax on insurance-company profits pro-posed by Senator Schumer.89
• Government can increase the effectivecost of private insurance by imposingpenalties on consumers who choose itinstead of the government plan. Federalregulations penalize seniors who opt outof Medicare to obtain private healthinsurance by taking away their SocialSecurity benefits, past and future.90
That penalty exists in spite of a provisionin the Medicare statute called, “Optionto Individuals to Obtain Other HealthInsurance Protection,” which reads:“Nothing contained in this title shall beconstrued to preclude . . . any individualfrom purchasing or otherwise securing,protection against the cost of any healthservices.”91
Even if Congress could create a new govern-ment program with no special advantages, atruly level playing field would require a credibleguarantee that no future Congress and nofuture regulator would ever confer any specialadvantages on that program. Given the bailoutcraze of 2008–2009, it is not credible to suggestthe government would not bail itself out if pre-miums were insufficient to support the newprogram’s outlays. That public perceptionwould itself create an implicit bailout guaran-tee, and redound to the exclusive benefit of anew government program. Moreover, today’sCongress cannot bind future Congresses.Supporters of a new program know this, andthey are already contemplating future effortsto secure special advantages for any new pro-gram that Congress creates.92
Medicare AdvantageMedicare Advantage demonstrates that the
playing field between a government programand private insurers could never be level. TheMedicare Advantage program allows privateinsurers to compete with the traditional, gov-ernment-run Medicare program. The playingfield shifts depending on whether the party inpower prefers government or private insur-ance. In 2003, President George W. Bush and aRepublican Congress adopted fairly high pricecontrols for the Medicare Advantage plans.More recently, a Democratic Congress hassought stricter price controls. PresidentObama even proposed to throw private plansout of Medicare entirely, which is not so mucha level playing field as it is a cliff.
Nichols and Bertko admit that the playingfield isn’t level in Medicare Advantage due tocongressional interference, and they claim thatsuch interference is “not inherent in public-pri-vate competition.”93 Yet when Congress createsa federal health insurance program and a fed-eral bureaucracy to craft and enforce the rulesof competition between that program and pri-vate plans, nothing is more inherent to such ascheme than Congress and its whims.
If wise philosopher-kings could somehowcreate a new government health insurance pro-gram and (permanently) deny it of any specialadvantages, it would cease to be a government pro-gram. It would be just another private insurer. Ifthat is what supporters of a new governmentprogram want, there is no need for Congress toact. Supporters can gather investors andlaunch their own private health plan right now.The only rationale for having Congress con-struct a new health plan is to create sociallyharmful competition whose objective is a gov-ernment takeover of the U.S. health care sector.
Conclusion
A new government program would sup-plant private insurance, despite offering inferi-or care at a higher cost. The program wouldattract consumers not by virtue of its superiorperformance, but by government’s ability toprevent the full cost of its program fromappearing in enrollee premiums and its ability
11
The only rationale for having Congressconstruct a newhealth plan is tocreate sociallyharmful competitionwhose objective isa governmenttakeover of theU.S. health caresector.
to increase the cost of private options. As thenew program’s artificially low premiumscrowd out private insurance, the governmentwould exert even greater downward pressureon quality. Any new government health insur-ance program would shortly lead to a govern-ment takeover of health insurance markets—and the entire health care sector.
No one should be surprised. PresidentObama has repeatedly affirmed his preferencefor a single-payer, government-run health caresystem, such as exists in Canada.94 Many peo-ple, including New York Times columnist PaulKrugman, support a new government pro-gram precisely because they believe it will leadto a single-payer system.95 Hacker hasquipped, “Someone once said to me, ‘This is aTrojan Horse for single-payer,’ and I said,‘Well, it’s not a Trojan Horse—it’s right there!I’m telling you: we’re going to get there, overtime, slowly.’”96
If Congress wants to make health care moreefficient and increase competition in healthinsurance markets, there are far better options.Congress should let consumers—rather thanemployers or the government—control theirhealth care dollars and choose their health plan.It should convert Medicare into a program thatgives seniors a voucher and frees them to pur-chase any health plan on the market.97
Reforming the tax treatment of employer-spon-sored insurance with “large” health savingsaccounts would give workers the thousands ofdollars of their earnings that employers cur-rently control, and likewise free workers to pur-chase any health plan on the market.98 Finally,Congress should expand competition by pro-hibiting states from denying market entry tohealth plans and providers licensed by otherstates—that is, by making clinician and health-insurance licenses portable across state lines.99
Those reforms would reduce costs, increaseinnovation, and reduce the number of unin-sured—without higher taxes or additional gov-ernment spending.
Congress should reject proposals to create anew government health insurance program—not for the sake of private insurers, who wouldbe subject to unfair competition, but for the
sake of American patients, who would be sub-ject to unnecessary morbidity and mortality.
Notes1. See Obama ’08, “Barack Obama and Joe Biden’sPlan to Lower Health Care Costs and EnsureAffordable, Accessible Health Coverage for All,”http://www.barackobama.com/pdf/issues/HealthCareFullPlan.pdf.
2. Max Baucus, “Call to Action: Health Reform2009” (white paper, Senate Finance Committee,November 12, 2008), http://finance.senate.gov/healthreform2009/finalwhitepaper.pdf.
3. Ryan Grim, “Pelosi: Health Care Reform Can’tPass Without Public Option,” Huffington Post,June 11, 2009, http://www.huffingtonpost.com/2009/06/11/pelosi-health-care-reform_n_214303.html.
4. “Caucuses Unite behind Public Health InsurancePlan Option” (press release, The CongressionalBlack Caucus, April 28, 2009), http://www.house.gov/apps/list/speech/mi13_kilpatrick/morenews/04_28_09_Public_Plan_ Option.html.
5. Sherrod Brown, “Letter to Senator Kennedyand Senator Baucus,” April 29, 2009, http://brown.senate.gov/imo/media/doc/Letter.pdf.
6. Ceci Connolly, “Kennedy Readies Health-CareBill,” Washington Post, June 6, 2009, http://www.washingtonpost.com/wp-dyn/content/article/2009/06/05/AR2009060504036.html; and SenateCommittee on Health, Education, Labor, andPensions, “Affordable Health Choices Act,” http://help.senate.gov/BAI09A84_xml.pdf.
7. House of Representatives Committee on Waysand Means, “Key Features of the Tri-CommitteeHealth Reform Draft Proposal in the U.S. Houseof Representatives,” June 9, 2009, http://waysandmeans.house.gov/media/pdf/111/tri.pdf.
8.Group Health, “Group Health Overview,” http://www.ghc.org/about_gh/co-op_overview/index.jhtml.
9. Dana Bash and Ted Barrett, “Negotiations overHealth Insurance Co-Ops at Impasse,” CNN.com,June 23, 2009, http://www.cnn.com/2009/POLITICS/ 06/23/health.care/.
10. Kent Conrad, “Bridging the Divide with aCooperative Health Care Proposal” (press release, June30, 2009), http://conrad.senate.gov/pressroom/record.cfm?id=315210&.
12
If Congress wantsto make health
care more efficient and
increase competition in
health insurancemarkets, there arefar better options.
11. Kevin Sack, “Health Co-op Offers Model forOverhaul,” New York Times, July 6, 2009,http://www.nytimes.com/2009/07/07/healthpolicy/07coop. html.
12. Jacob S. Hacker, “The Case for Public PlanChoice in National Health Reform: Key to CostControl and Quality Coverage,” Center for Health,Economic and Family Security, University ofCalifornia–Berkeley School of Law, and the Institutefor America’s Future, December 16, 2008, p. 5,http://institute.ourfuture.org/files/Jacob_Hacker_Public_Plan_Choice.pdf.
13. Reed Abelson, “A Health Plan for All and theConcerns It Raises,” New York Times, March 24,2009, http://www.nytimes.com/2009/03/25/health/policy/25medicare.html.
14. House of Representatives Committee on Waysand Means, “Key Features of the Tri-CommitteeHealth Reform Draft Proposal in the U.S. House ofRepresentatives,” June 9, 2009, p. 3, http://waysandmeans.house.gov/media/pdf/111/tri.pdf.
15. E. J. Dionne Jr., “Not Yesterday’s HealthFight,” Washington Post, April 23, 2009, http://www.washingtonpost.com/wp-dyn/content/article/2009/04/22/AR2009042203091.html. Emphasisin original.
16. “Remarks by the President at the AnnualConference of the American Medical Association”(White House press release, June 15, 2009),http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-to-the-Annual-Conference-of-the-American-Medical-Association/.
17. Congressional Budget Office (letter to theHonorable Edward M. Kennedy, June 15, 2009, p.1), http://www.cbo.gov/ftpdocs/103xx/doc10310/06-15-HealthChoicesAct.pdf.
18. Ricardo Alonso-Zaldivar, “Promises, Promises:Obama’s Health Plan Guarantee,” AssociatedPress, June 19, 2009, http://www.google.com/hostednews/ap/article/ALeqM5gK8UACQa5gEv1cZ-SRxXDc3XDwRw D98TPSP80.
19. The Lewin Group, “McCain and ObamaHealth Care Policies: Cost and Coverage Com-pared,” October 15, 2008, p. ES-3, http://www.lewin.com/content/Files/The_Lewin_Group_McCain- Obama_Health_Reform_Report_and_Appendix.pdf.
20. John Sheils and Randy Haught, “The Cost andCoverage Impacts of a Public Plan: Alternative andDesign Options,” The Lewin Group Staff WorkingPaper no. 4, April 8, 2009, http://www.lewin.
21. Author’s calculations based on CarmenDeNavas-Walt, Bernadette Proctor, and JessicaSmith, “Income, Poverty, and Health InsuranceCoverage in the United States: 2007,” U.S. Bureauof the Census, August 2008, p. 61, http://www.census.gov/prod/2008pubs/p60-235.pdf.
22. Kaiser Family Foundation, “Medicare FactSheet: Medicare Advantage,” April 2009, http://www.kff.org/medicare/upload/2052-12.pdf.
23. President-elect Obama opined, “We’ve got toeliminate programs that don’t work, and I’ll giveyou an example in the health care area. We arespending a lot of money subsidizing the insurancecompanies around something called MedicareAdvantage, a program that gives them subsidies toaccept Medicare recipients but doesn’t necessarilymake people on Medicare healthier. And if we elim-inate that and other programs, we can potentiallysave $200 billion out of the health care system thatwe’re currently spending, and take that money anduse it in ways that are actually going to make peo-ple healthier and improve quality. So what ourchallenge is going to be is identifying what worksand putting more money into that, eliminatingthings that don’t work, and making things that wehave more efficient.” ABC News, This Week withGeorge Stephanopolous, January 12, 2009, http://media.bulletinnews.com/playclip.aspx?clipid=8cb4275f6a44ad3.
24. Joe Klein, “The Fire This Time: Is This HealthCare’s Moment?” Time Magazine, May 7, 2009, http://www.time.com/time/politics/article/0,8599,1896574,00.html.
25. Congressional Budget Office, “Key Issues inAnalyzing Major Health Insurance Proposals,”December 2008, p. 69, http://www.cbo.gov/ftpdocs/99xx/doc9924/12-18-KeyIssues.pdf.
26. If profits fail to serve that purpose in privatehealth insurance markets, the reason may be thatgovernment gives employers control over 70 per-cent of all spending on private health insurance,which forces insurers to respond to the needs ofemployers more than consumers. U.S. Centers forMedicare & Medicaid Services, “Sponsors ofHealth Care Costs: Businesses, Households, andGovernments, 1987–2007,” http://www.cms.hhs.gov/NationalHealthExpendData/downloads/bhg07.pdf; and author’s calculations.
27. Congressional Budget Office, “Key Issues,” p. 93,http://www.cbo.gov/ftpdocs/99xx/doc9924/
13
12-18-KeyIssues.pdf. Emphasis added.
28. Medicare Payment Advisory Commission,Report to the Congress: Medicare Payment Policy,March 2009, p. 12, http://medpac.gov/documents/Mar09_EntireReport.pdf.
29. Lewis Morris (testimony before Senate FinanceCommittee, U.S. Department of Health andHuman Services, Office of the Inspector General,April 21, 2009, p. 2), http://finance.senate.gov/hearings/testimony/2009test/042109lmtest.pdf.
30. The Department of Health and HumanServices’ Office of the Inspector General estimatesthat every $1 it spends on Medicare audits saves tax-payers $17. Morris, p. 1, http://finance.senate.gov/hearings/testimony/2009test/042109lmtest.pdf. A rational health care purchaser would keepincreasing such audits until $1 of oversight yieldedexactly $1 of savings—in economic jargon, the mar-ginal return would be $1. Unfortunately, the OIGdoes not calculate the marginal return on invest-ment for Medicare audits. Donald B. White,Department of Health and Human Services’ Officeof the Inspector General, Public Affairs, e-mail mes-sage to author, July 9, 2009. However, the averagereturn on investment is not only high, but has beensteadily rising in recent years. U.S. Department ofHealth and Human Services, Office of the InspectorGeneral, “FY 2010 Online Performance Appendix,”http://www.oig.hhs.gov/publications/docs/budget/FY2010_online_performance_appendix.pdf. At aminimum, that raises the question of whetherMedicare underinvests in claims auditing.
31. On the vices of government health insuranceprograms, see generally, David A. Hyman,Medicare Meets Mephistopheles (Washington: CatoInstitute, 2006).
32. Shannon Brownlee and Ezekiel Emanuel, “5Myths about Our Ailing Health Care System,”Washington Post, November 23, 2008, http://www.washingtonpost.com/wp-dyn/content/article/2008/11/20/AR2008112002420.html.
34. Hacker is a notable exception. See Hacker, “TheCase for Public Plan Choice,” p. 6, http://institute.ourfuture.org/files/Jacob_Hacker_Public_Plan_Choice.pdf.
35. Mark E. Litow, “Medicare versus PrivateHealth Insurance: The Cost of Administration,”Milliman, January 6, 2006, p. 4, http://www.cahi.org/cahi_contents/resources/pdf/CAHIMedicareTechnicalPaper.pdf.
36. Martin Feldstein, “How Big Should Govern-ment Be?” National Tax Journal 50, no. 2 (June1997): 197, http://ntj.tax.org/wwtax%5Cntjrec.nsf/36CFE3E5BCCB188C85256863004A5939/$FILE/v50n2197.pdf.
37. Hacker, “The Case for Public Plan Choice,” p. 6,http://institute.ourfuture.org/files/Jacob_Hacker_Public_Plan_Choice.pdf.
38. Congressional Budget Office, “Designing aPremium Support System for Medicare,” Decem-ber 2006, p. 12, http://www.cbo.gov/ftpdocs/76xx/doc7697/12-08-Medicare.pdf.
39. Medicare Payment Advisory Commission,Report to the Congress: Medicare Payment Policy,March 2009, p. 252, http://medpac.gov/docu-ments/Mar09_EntireReport.pdf.
40. Patricia M. Danzon, “Hidden Overhead Costs: IsCanada’s System Really Less Expensive?” HealthAffairs 11, no. 1 (Spring 1992): 40, http://content.healthaffairs.org/cgi/reprint/11/1/21.pdf.
41. Benjamin Zycher, “Comparing Public andPrivate Health Insurance: Would A Single-PayerSystem Save Enough to Cover the Uninsured?”Manhattan Institute Medical Progress Report no. 5,October 2007, http://www.manhattan-institute.org/html/mpr_05.htm. Private health insurancein the United States is no doubt less efficient thanit could be. Danzon writes, “Although there maywell be waste in U.S. private insurance markets, itis attributable primarily to tax and regulatory fac-tors and is not intrinsic to private health insur-ance.” Danzon, p. 40. Yet Medicare’s administra-tive costs are still higher.
42. Hacker, “The Case for Public Plan Choice,” p. i,http://institute.ourfuture.org/files/Jacob_Hacker_Public_Plan_Choice.pdf. Emphasis in original.
43. Medicare Payment Advisory Commission, Report tothe Congress: Medicare Payment Policy, March 2009, p. 10,http://medpac.gov/documents/Mar09_EntireReport.pdf.
44. See, for example, Amy Finkelstein and RobinMcKnight, “What Did Medicare Do? The InitialImpact of Medicare on Mortality and Out-of-PocketMedical Spending,” Journal of Public Economics92, no.7 (2008): 1660, http://econpapers. repec.org/article/eeepubeco/v_3a92_3ay_3a2008_3ai_3a7_3ap_3a1644-1668.htm.
45. Hacker, “The Case for Public Plan Choice,” p. i,http://institute.ourfuture.org/files/Jacob_Hacker_Public_Plan_Choice.pdf.
Receiving Poor-Quality Health Care?” New EnglandJournal of Medicine 354 (March 16, 2006): 1147–56,http://content.nejm.org/cgi/reprint/354/11/1147.pdf.
47. Anne M. Snowden et al., “2008 Health CareDisparities Report for Minnesota Health CarePrograms,” Minnesota Community Measurement,Minnesota Department of Human Services, 2009, p.2, http://www.mncm.org/site/assets/reports/2008_Health%20Care%20Disparities%20Report_Final.pdf
48. Amy J. Davidoff, Bowen Garrett, and AlshadyeYemane, “Medicaid-Eligible Adults Who Are NotEnrolled: Who Are They and Do They Get the CareThey Need?” Urban Institute Policy Brief, series A,no. A-48, October 1, 2001, p. 1, http:// www.urban.org/UploadedPDF/310378_anf_a48.pdf.
49. Cathy J. Bradley et al., “Cancer, MedicaidEnrollment, and Survival Disparities,” Cancer 103(2005): 1712–18.
50. Salpy V. Pamboukin et al., “Disparities byInsurance Status in Quality of Care for ElderlyPatients with Unstable Angina,” Ethnicity andDisease 16 (Autumn 2006): 799–807.
51. Anoar Zacharias et al., “Operative and LateCoronary Artery Bypass Grafting Outcomes inMatched African-American versus CaucasianPatients: Evidence of a Late Survival-MedicaidAssociation,” Journal of the American College ofCardiology 46 (2005):1526–35.
52. See, for example, Eve A. Kerr et al., “DiabetesCare Quality in the Veterans Affairs Health CareSystem and Commercial Managed Care: the TriadStudy,” Annals of Internal Medicine 141, no. 4 (April17, 2004): 272–81, http://www.annals.org/cgi/content/abstract/141/4/272; and Steven M.Asch et al., “Comparison of Quality of Care forPatients in the Veterans Health Administrationand Patients in a National Sample,” Annals ofInternal Medicine 141, no. 12 (December 21, 2004):938–45, http://www.annals.org/cgi/content/abstract/141/12/938.
53. See Jim Powell, “U.S.-Run Health Care? Ask aVeteran,” Orange County Register, April 12, 2009,http://www.cato.org/pub_display.php?pub_id=10125; and Marie McCullough, “Specter Plans Hearingon VA Prostate Cancer Treatment,” PhiladelphiaInquirer, June 23, 2009, http://www.philly.com/inquirer/front_page/20090623_Specter_plans_hearing_on_VA_prostate_cancer_treatment.html.Notably, the leading Democratic reform plans donot propose to model a new government programon the Veterans Health Administration.
54. Mary Clare Jalonick, “AP Interview: Sebelius
to Boost Indian Health Care,” Associated Press,June 16, 2009, http://abcnews.go.com/Politics/wireStory?id=7851097.
55. Jacob S. Hacker, “Healthy Competition: How toStructure Public Health Insurance Plan Choice toEnsure Risk-Sharing, Cost Control, and QualityImprovement,” Berkeley Center on Health,Economic and Family Security, University ofCalifornia–Berkeley School of Law, and the Institutefor America’s Future, April 2009, p. 4, http://www.ourfuture.org/files/Hacker_Healthy_Competition_FINAL.pdf.
56. Peter Harbage and Karen Davenport,“Competitive Health Care: A Public HealthInsurance Plan that Delivers Market Discipline,”Center for American Progress Action Fund, March2009, p. 2, http://www.americanprogressaction.org/issues/2009/03/pdf/competitive_health.pdf.
57. Michael F. Cannon, “Pay-for-Performance: IsMedicare a Good Candidate?” Yale Journal ofHealth Policy, Law & Ethics 7, no. 1 (Winter 2007):3, http://www.cato.org/pubs/papers/cannon_p4p.pdf.
58. Congressional Budget Office, “Key Issues,” p. 151,http://www.cbo.gov/ftpdocs/99xx/doc9924/12-18-KeyIssues.pdf.
59. See generally, Medicare Payment AdvisoryCommission, Report to the Congress: Variation andInnovation in Medicare (2003), p. 108, http://www.medpac.gov/publications/congressional_reports/June03_Entire_Report.pdf; and Michael F.Cannon and Alain Enthoven, “Life SavingInsurers,” American Spectator (online), May 13,2008, http://spectator.org/archives/2008/05/13/life-saving-insurers.
60. Paul Starr, The Social Transformation of AmericanMedicine (New York: Basic Books, 1982 [actuallypublished in January 1983]), p. 301.
62. Reed Abelson, “Hospitals Pay for Cutting CostlyReadmissions,” New York Times, May 8, 2009,http://www.nytimes.com/2009/05/09/business/09relapse.html.
63. See, for example, Uwe E. Reinhardt, “TheMedicare World from Both Sides: A Conversationwith Tom Scully,” Health Affairs 22, no. 6 (2003):167–74, http://content.healthaffairs.org/cgi/con-tent/abstract/22/6/167.
of Justice, Improving Health Care: A Dose ofCompetition, July 2004, p. 28, http://www.ftc.gov/reports/healthcare/040723healthcarer pt.pdf.
65. Peter Harbage and Karen Davenport,“Competitive Health Care: A Public HealthInsurance Plan that Delivers Market Discipline,”Center for American Progress Action Fund, March2009, p. 2, http://www.americanprogressaction.org/issues/2009/03/pdf/competitive_health.pdf.
66. Kathleen Sebelius, “Statement on New MedicareTrustees Report” (press release, U.S. Department ofHealth and Human Services, May 12, 2009),http://www.hhs.gov/news/press/2009pres/05/20090512a.html.
67. Institute of Medicine, To Err Is Human: Buildinga Safer Health System (Washington: NationalAcademy Press, 2000).
68. “Press Conference by the President” (WhiteHouse transcript, June 23, 2009), http://www.whitehouse.gov/the_press_office/Press-Conference-by-the-President-6-23-09/.
69. Blue Dog Coalition, “Health Care Reform:Ensuring Choice in the Marketplace,” June 4, 2009,http://www.house.gov/melancon/BlueDogs/Press%20Releases/Health%20Care%20Reform%20-%20Ensuring%20Choice%20in%20the%20Marketplace.pdf.
70. Len M. Nichols and John M. Bertko, “A ModestProposal for a Competing Public Health Plan,”New America Foundation, March 2009, http://www.newamerica.net/files/CompetingPublicHealthPlan.pdf.
71. “With a history of operating losses, Amtrak ishighly dependent on federal government subsidiesto sustain its operations.” Government Account-ability Office, “Activities of the Amtrak InspectorGeneral” (letter to the Honorable John F. Tierney,U.S. House of Representatives, March 4, 2005),http://www.gao.gov/new.items/d05306r.pdf. Seealso Michael W. Lynch, “Amtrak Accounting,”Reason, May 2000, http://www.reason.com/news/show/27688.html.
72. Robert R. Schrum, “Don’t Bail out the Mail,”Forbes, January 19, 2009, http://www.forbes.com/2009/01/19/usps-privatize-postal-oped-cx_rs_0119schrum.html.
73. Robert R. Schrum, “Postal Service Fails toDeliver for Consumers,” The Virginian-Pilot, March30, 2009, http://lexingtoninstitute.org/1390.shtml.
74. Scott Harrington, “Public Plan Option: Com-petitor or Predator?” (presentation at an Ameri-can Enterprise Institute event, “The Five (Not So)
Easy Pieces of Health Reform,” June 4, 2009),http://www.aei.org/audio/100486; see also http://www.aei.org/docLib/Harrington%20Presentation. pdf.
75. See, for example, Jonathan Gruber and KosaliSimon, “Crowd-out 10 Years Later: Have RecentPublic Insurance Expansions Crowded out PrivateHealth Insurance?” Journal of Health Economics 27,no. 2, (March 2008): 201–17; Michael F. Cannon,“Medicaid’s Unseen Costs,” Cato Institute PolicyAnalysis no. 548, August 18, 2005, http://www.cato.org/pub_display.php?pub_id=4049; andMichael F. Cannon, “Sinking SCHIP: A First Steptoward Stopping the Growth of GovernmentHealth Programs,” Cato Institute Briefing Paper no.99, September 13, 2007, http://www.cato.org/pub_display.php?pub_id=8697.
76. See generally, Sue Blevins, Medicare’s MidlifeCrisis (Washington: Cato Institute, 2001).
77. Hacker, “Healthy Competition,” p. 7, http://www.ourfuture.org/files/Hacker_Healthy_Competition_FINAL.pdf; and http://www.washingtonpost.com/wp-dyn/content/article/2009/06/05/AR2009060504036.html.
78. See, for example, Senate Committee on Health,Education, Labor, and Pensions, “Affordable HealthChoices Act,” p. 46–47, http://help.senate.gov/BAI09A84_xml.pdf.
79 Benjamin Zycher, “Comparing Public and PrivateHealth Insurance: Would A Single-Payer SystemSave Enough to Cover the Uninsured?” ManhattanInstitute Medical Progress Report no. 5, October2007, http://www.manhattan-institute.org/html/mpr_05.htm.
80. See, for example, Commission on a High Per-formance Health System, “The Path to a HighPerformance U.S. Health System: A 2020 Visionand the Policies to Pave the Way,” The Common-wealth Fund, February 19, 2009, http://www.commonwealthfund.org/~/media/Files/Publications/Fund%20Report/2009/Feb/The%20Path%20to%20a%20High%20Performance%20US%20Health%20System/1237_Commission_path_high_perform_US_hlt_sys_WEB_rev_03052009.pdf;also see Connolly, “Kennedy Readies Health-CareBill,” http://www.washingtonpost.com/wp-dyn/content/article/2009/06/05/AR2009060504036.html.
81. Jay Rockefeller, “Rockefeller Introduces BillDetailing Public Plan Option” (press release, June17, 2009); and draft legislation, p. 7–8, http://rockefeller.senate.gov/press/Rockefeller%20Consumers%20Health%20Care%20Act%20Bill%20Text.pdf.
Office, “Key Issues,” p. 114–16, http://www.cbo.gov/ftpdocs/99xx/doc9924/12-18-KeyIssues.pdf;Paul Ginsburg, “Can Hospitals and PhysiciansShift the Effects of Cuts in Medicare Reimburse-ment to Private Payers?” Health Affairs web exclu-sive (October 3, 2008): W3-472–79, http://healthaff.highwire.org/cgi/reprint/hlthaff.w3.472v1.pdf; Michael A. Morrissey, “Cost-Shifting: NewMyths, Old Confusion, and Enduring Reality,”Health Affairsweb exclusive (October 3, 2008): W3-472–79, http://content.healthaffairs.org/cgi/reprint/hlthaff.w3.489v1.pdf; and Michael A.Morrissey, Cost-Shifting in Health Care:SeparatingRhetoric from Evidence (Washington: AEI Press,1994), p. 41–45.
83. “[T]he average price of a non-Medicaid prescrip-tion would have been 13.3 percent lower in 2002 inthe absence of Medicaid’s pricing rule.” MarkDuggan and Fiona M. Scott Morton, “The Distor-tionary Effects of Government Procurement: Evi-dence from Medicaid Prescription Drug Purchas-ing,” Quarterly Journal of Economics 121, no. 1(February 2006): 4, http://www.mitpressjournals.org/doi/pdf/10.1162/qjec.2006.121.1.1?cookieSet=1.
84. Senate Committee on Finance, “FinancingComprehensive Health Care Reform: ProposedHealth System Savings and Revenue Options” (whitepaper, p. 11), http://finance.senate.govb/sitepages/leg/LEG%202009/051809%20Health%20Care%20Description%20of%20Policy%20Options.pdf.
85. David Rogers, “Drug Deal May Be Bad Trip forDems,” Politico, July 6, 2009, http://www.politico.com/news/stories/0709/24546.html.
86. Hacker, “Healthy Competition,” p. 7, http://www.ourfuture.org/files/Hacker_Healthy_Competition_FINAL.pdf.
87. U.S. Department of the Treasury, “GovernmentSponsorship of the Federal National MortgageAssociation and the Federal Home Loan MortgageCorporation,” July 11, 1996, p 10, http://www.archive.org/stream/governmentsponso00uni#page/10/mode/1up.
89. Laura Litvan and Kristin Jensen, “Insurers MayFace Fees to Help Fund Health Overhaul,” Bloomberg.com, July 16, 2009, http://www.bloomberg.com/apps/news?pid=20601103&sid=aIoDa2C7wCKo.
90. See, for example, Brian Hall et al. v. Michael Leavittet al., “Plaintiffs’ Memorandum of Points andAuthorities in Opposition to Defendants’ Motion toDismiss and in Support of Plaintiffs’ Motion for
Summary Judgment,” filed March 18, 2009,http://www.medicarelawsuit.org/pdf/MemoranduminOppositiontoMotiontoDismiss.pdf.
92. “Congress could always step in and fix the pro-gram later. . . . Political bargains struck today . . . can-not . . . bind a fiscally desperate future Congress . . .”Harold Pollack, “Should We Finesse One ofReform’s Thorniest Issues?” New Republic, March 23,2009, http://blogs.tnr.com/tnr/blogs/the_treatment/archive/2009/03/23/the-pros-and-cons-of-compromising-on-a-public-plan.aspx.
93. “Imbalances in the competition [in MedicareAdvantage] that have arisen from time to time were(and are) the result of payment formulae beingimposed (against professional judgment) byCongress, but are not inherent in public-privatecompetition with appropriately structured gover-nance and accountability mechanisms.” Nicholsand Bertko, http://www.newamerica.net/files/CompetingPublicHealthPlan.pdf.
94. See Physicians for a National Health Program,“Barack Obama on Single Payer in 2003” (video,June 4, 2008), http://www.pnhp.org/news/2008/june/barack_obama_on_sing.php; Amy Chozick,“Obama Touts Single-Payer System for HealthCare,” Wall Street Journal, August 19, 2008, http://blogs.wsj.com/washwire/2008/08/19/obama-touts-single-payer-system/; and “Remarks by the Presidentin Rio Rancho Town Hall on Credit Card Reform”(White House transcript, May 14, 2009), http://www.koat.com/money/19463436/ detail.html.
95. Paul Krugman, “Why Not Single-Payer?” NewYork Times, October 7, 2007, http://krugman.blogs.nytimes.com/2007/10/07/why-not-singlepayer/.
96. Patients United Now, “The Public PlanDeception—It’s Not About Choice” (video), http://www.youtube.com/watch?v=zZ-6ebku3_E.
97. See Michael F. Cannon, “Medicare,” CatoHandbook for Policymakers, 7th ed. (Washington: CatoInstitute, 2009), p. 125, http://www. cato.org/pubs/handbook/hb111/hb111-12.pdf.
98. Ibid., “The Tax Treatment of Health Care,” CatoHandbook for Policymakers, 7th ed. (Washington:Cato Institute, 2009), p. 141, http://www. cato.org/pubs/ handbook/hb111/hb111-14.pdf.
99. Ibid., “Health Care Regulation,”Cato Handbook forPolicymakers, 7th ed. (Washington: Cato Institute,2009), pp. 151, 167, http://www.cato. org/pubs/hand-book/hb111/hb111-15.pdf, http://www.cato.org/pubs/handbook/hb111/ hb111-16.pdf.
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605. The Public Education Tax Credit by Adam B. Schaeffer (December 5, 2007)
604. A Gift of Life Deserves Compensation: How to Increase Living KidneyDonation with Realistic Incentives by Arthur J. Matas (November 7, 2007)
603. What Can the United States Learn from the Nordic Model? by Daniel J. Mitchell (November 5, 2007)
602. Do You Know the Way to L.A.? San Jose Shows How to Turn an UrbanArea into Los Angeles in Three Stressful Decades by Randal O’Toole (October 17, 2007)
601. The Freedom to Spend Your Own Money on Medical Care: A Common Casualty of Universal Coverage by Kent Masterson Brown (October 15,2007)
600. Taiwan’s Defense Budget: How Taipei’s Free Riding Risks War by Justin Logan and Ted Galen Carpenter (September 13, 2007)
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