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Medicare For All … and Tax Hikes, Long Waits, Inferior Care

23 Thursday Jun 2022

Posted by Nuetzel in Health Care, Health Insurance

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Avik Roy, Bernie Sanders, Elizabeth Warren, Health Care Monopolies, Hospital Insurance Trust Fund, Insolvency, J.D. Tuccille, Jacqueline Pohida, John C. Goodman, Medicaid, Medicare Advantage, Medicare Buy-Ins, Medicare For All, Medicare Supplements, Michael F. Cannon, Obamacare, P.J. O'Rourke, Phillip L. Swagel, Public Option, Quality of Care, Reimbursement Rates, Spending Caps. Affordable Care Act, Stephen Green

Political humorist P.J. O’Rourke once quipped that if you think health care is expensive now, wait till it’s free! A Stephen Green post reminded me of the source of that wisdom. But there are many who say they don’t understand why we simply don’t offer the Medicare program to everyone … free! Well, the reasons are quite simple: we can’t afford it, and it would be bad policy. In fact, it’s too costly and bad policy even if it isn’t free! Medicare is technically insolvent as it is — broke, in plain language. According to the Medicare Trustees 2022 Report linked above, the Hospital Insurance Trust Fund will be depleted by 2028. That only means the Medicare system has authority to take funds the Treasury borrows to pay ongoing benefits through 2028, so the remaining trust fund balance is little consolation. The long-term actuarial deficit is $700 billion, but it’s possibly as high as $1.5 trillion under an alternative, high-cost scenario shown in the Trustee’s report.

Single Payer Medicare?

Extending free Medicare to the entire population would cost over $30 trillion in the first 10 years, and that’s a conservative estimate. And be forewarned: single-payer health care is government health care, which invariably leads to rationed access and protracted waiting times, poor quality, and escalating costs. For a detailed look at many of the quality problems suffered by Medicare patients, see this paper by Michael Cannon and Jacqueline Pohida. Don’t be deceived by claims that Medicare’s administrative costs are lower than private insurance: The real cost of Medicare is largely hidden through the imposition of low reimbursement rates to providers, while taxpayers get stuck with a significant bill.

Avik Roy has discussed variations on “Medicare For All” (M4A), most of which share very little with today’s Medicare. Not only would they fail to address its shortcomings; they would be much worse. Some do not include the range of private plans currently offered through Medicare Advantage. In fact, under the plans offered by Bernie Sanders and Elizabeth Warren, Medicare Advantage would be terminated, as would all other private insurance for the working-age population. Medicaid would also be eliminated. “Medicare”, in its surviving form, would be the single-payer system, “free” at the point of care and without premiums. Again, a free health care buffet would unleash gluttonous demand, so certain restrictions must be in place to limit pricing and access to care. Think rationing, which should sound ominous to those whose health is failing.

Physician reimbursement rates under traditional Medicare are now only about 60% of private reimbursements, and that filters down to the wages earned by other workers in the health care sector. Naturally, broadening Medicare’s reach will cause providers and their employees to drop-out or cut back. And again, services will be subject to various other forms of rationing. These are unavoidable failings of free or heavily-subsidized health care systems, not to mention the massive burden on taxpayers. And by the way, the “rich” are nowhere near rich enough to pay for all of it.

As to the overall effects, here’s what CBO Director Phillip L. Swagel told the Senate Budget Committee recently, as quoted in Reason by JD Tuccille:

“The increase in demand for personal health care would exceed the increase in supply, resulting in greater unmet demand than the amount under current law. The increase in unmet demand would correspond to increased congestion in the health care system, including delays and forgone care.”

The “increase in supply” mentioned by Swagel is something of a pipe dream.

Buy-Ins and Public Option

There are less drastic proposals than full-blown M4A, such as so-called Medicare buy-ins. For example, those age 50 – 64 might be given the option to “buy-in” to Medicare coverage. It’s not clear whether that would include a choice of Medicare Advantage plans. Many would find the coverage available through traditional Medicare and Medicare Advantage to be inadequate. It is often inferior to private plans, including the lack of dependent coverage and no out-of-pocket maximum for traditional Medicare. Supplemental coverage would be necessary for many individuals choosing the latter.

Another question is how employers would adjust to a segment of their work force in the 50-64 age group opting-out of sponsored coverage. Would the company be required to pick-up the Medicare tab? Would there be compensatory adjustments in wages? Fully compensatory changes are unlikely. Even with partial adjustments, how would an employer adjust company-wide wage scales for younger workers who perform the same or similar duties as those opting into Medicare. And what of the tax-free benefit for workers on employer-paid premiums? Medicare premiums are not tax deductible… at least not yet!

All of the other concerns about low provider reimbursement rates would apply to a Medicare buy-in. The supply of medical care, particularly to the segment buying in, might prove thin. The buy-in option would have very little impact on the number of uninsured individuals. However, several studies have found that the buy-in option would increase premiums for private plans on the individual market (see the last link). That’s largely because providers will try to stick private insurers and patients with the burden of cross-subsidizing Medicare buy-ins.

Another proposal is for a Medicare plan or similar public option to be made available to all in the exchange marketplace. This would take a more massive toll on taxpayers and health care access and quality than the buy-in approach. Moreover, because of pressure for cross-subsidies, private plans will struggle to stay in business. The destruction would be gradual, but the public option would slowly eliminate choice from the marketplace. Cannon and Pohida believe that offering a public option could lead to improvements if the private and public plans are allowed to compete on a level playing field, largely in terms of subsidies and regulatory hurdles, but that is highly unlikely.

Cuts Ahead?

A lesser known issue is the impact of spending caps put in place under the Affordable Care Act. These apply to Medicare and Medicaid as well as federal subsidies on policies purchased on the Obamacare exchanges. When those caps are exceeded, access becomes temporarily restricted, with some practices actually closing their doors for a period of days or weeks. Health economist John Goodman notes that seniors tend to eat into the allowable spending amounts much faster than younger cohorts. That means seniors might be denied costlier forms of care. To the extent that any variation on M4A covers a broader age range, there might be more pressure to curtail certain forms of care for seniors, which would be a most unfortunate case of policy-induced age discrimination.

As for Medicare as it stands now, Goodman describes the potential cuts that are coming. These include the possibility of reduced amenities (e.g., hospital wards with more patients per room and lower-cost meals), and as already mentioned, longer waits and restricted availability of costlier treatments. Goodman states that the necessary cuts to make Medicare whole would be equivalent to the loss of three years of coverage for a 65-year old, and the cuts will affect both traditional Medicare and privately-issued (but publicly subsidized) Advantage plans.

Conclusion

There’s no chance any form of M4A would reduce the cost of care or improve access to care. An expanded Medicare would bear the hallmarks of central planning that have accelerated the monopolization of health care under Obamacare. And like Obamacare, the final form of any M4A plan will be the product of negotiations between self-interested politicians, corporatists and regulators. Big pharmaceutical companies, insurers, large hospital systems, and other interest groups will wrangle for the rents that “reform” legislation might bring. Costs will rise and access to care will be restricted. Taxpayers will be saddled with a large chunk of the cost.

In the end it’s likely to be a mess. Far better to adopt reforms that would bring more innovation, choice, and competition to the markets for health insurance and health care. That includes expanding the range of options available under private Medicare (Advantage). At the same time, Obamacare should be scrapped in favor of a range of a greater range of private options with income-dependent subsidies, including catastrophic coverage only, as well as reduced regulation of insurers and providers.

Break the Market, Blame It, Then Break It Some More

28 Sunday Nov 2021

Posted by Nuetzel in Energy, Environmental Fascism, Free markets, Uncategorized

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Antitrust, Asymmetric Information, Build Back Better, Capital Controls, central planning, Endangered Species Act, Energy Policy, Externalities, Fossil fuels, Fracking, FTC, Government Failure, Green New Deal, Greenbook, Hart Energy, Industrial Policy, Industry Concentration, Joe Biden, Keystone XL Pipeline, Knowledge Problem, Line 5 Pipeline, Mark Theisen, Market Failure, Monetary policy, OPEC, Price Gouging, Principles of Economics, Quotas, Regulatory Overreach, Stephen Green, Strategic Petroleum Reserve, Subsidies, Tariffs, Taxes, The Fatal Conceit

Much of what is labeled market failure is a consequence of government failure, or rather, failure caused by misguided public intervention, not just in individual markets but in the economy more generally. Misguided efforts to correct perceived excesses in pricing are often the problem, but there are myriad cases of regulatory overreach, ham-handed application of taxes and subsidies for various enterprises, and widespread cronyism. But it is often convenient for politicians to appear as if they are doing something, which makes activism and active blame of private enterprise a tempting path. The Biden Administration’s energy crisis offers a case in point. First, a digression on the efficiency of free markets. Skip the next two sections to get straight to Biden’s mess.

Behold the Bounty

I always spent part of the first class session teaching Principles of Economics on some incredible things that happen each and every day. Most college freshmen seem to take them for granted: the endless variety of goods that arrive on shelves each day; the ongoing flow of services, many appearing like magic at the flick of a switch; the high degree of coincidence between specific wants and all these fresh supplies; the variety and flow of raw materials and skills that are brought to bear; the fantastic array of sophisticated equipment deployed to assist in these efforts; and the massive social coordination necessary to accomplish all this. How does it all happen? Who collects all the information on what is wanted, and by whom? On the feasibility of actually producing and distributing various things? What miracle computer processes the vast set of information guiding these decisions and actions? Does some superior intelligence within an agency plan all this stuff?

The answer is simple. The seemingly infinite set of knowledge is marshaled, and all these tasks are performed, by the greatest institution of social cooperation to ever emerge: decentralized, free markets! Buying decisions are guided by individual needs and wants. Production and selling decisions are guided by resource availability and technology. And all sides react to evolving prices. Preferences, resources, and technology are in a constant state of flux, but prices react, signaling producers and consumers to make individual adjustments that correct larger imbalances. It is tempting to describe the process as the evolving solution to a gigantic set of dynamic equations.

The Impossible Conceit

No human planner or government agency is capable of solving this problem as seamlessly and efficiently as markets, nor can they hope to achieve the surplus welfare that redound to buyers and sellers in markets. Central planners or intervening authorities cannot possess the knowledge and coordinating power of the market mechanism. That doesn’t mean markets are “perfect”, of course. Things like external costs and benefits, dominant sellers, and asymmetric information can cause market outcomes to deviate from the competitive “ideal”. Inequities can arise from some of these imperfections as well.

What can be much worse is the damage to market performance caused by government policy. Usually the intent is to “correct” imperfections, and the rationale might be defensible. The knowledge to do it very well is often lacking, however. Taxes, subsidies, regulations, tariffs, quotas, capital controls, and manipulation of interest rates (and monetary and credit aggregates) are very general categories of distortion caused by the public sector. Then there is competition for resources via government procurement, which is frequently graft-ridden or price-insensitive.

Many public interventions create advantages for large sellers, leading to greater market concentration. This might best serve the private political power of the wealthy or might convey advantages to investments that happen to be in vogue among the political class. These are the true roots of fascism, which leverages coercive state power for the benefit of private interests.

Energy Vampires

Now we have the curious case of the Biden Administration and it’s purposeful disruption of energy markets in an effort to incentivize a hurried transition from fossil fuels to renewable energy. As I described in a recent post on stagflation,

“… Biden took several steps to hamstring the domestic fossil fuel industry at a time when the economy was still recovering from the pandemic. This included revoking permits for the Keystone pipeline, a ban on drilling on federal lands and federally-controlled waters in the Gulf, shutting down production on some private lands on the pretext of enforcing the Endangered Species Act, and capping methane emissions by oil and gas producers. And all that was apparently just a start.

As Mark Theisen notes, when you promise to destroy a particular industry, as Joe Biden has, by taxing and regulating it to death, who wants to invest in or even maintain production facilities? Some leftists with apparent influence on the administration are threatening penalties against the industry up to and including prosecution for ‘crimes against humanity’!”

In addition to killing Keystone, there remains a strong possibility that Biden will shut down the Line 5 pipeline in Michigan, and there are other pipelines currently under federal review. Biden’s EPA also conducted a purge of science advisors considered “too friendly” to oil and gas industry. This was intertwined with a “review” of new methane rules, which harm smaller, independent oil and gas drillers disproportionately.

Joe Biden’s “Build Back Better” (BBB) legislation, as clumsy in policy as it is in name, introduces a number of “Green New Deal” provisions that would further disadvantage the production and use of fossil fuels. Hart Energy provides descriptions of various tax changes that appeared in the Treasury’s so-called “Greenbook”, a collection of revenue proposals, many of which appear in the BBB legislation that recently passed in the House. These include rollbacks of various deductions for drilling costs, depletion allowances, and recovery rules, as well as hikes in certain excise taxes as well as taxes on foreign oil income. And all this while granting generous subsidies to intermittent and otherwise uneconomic technologies that happen to be in political favor. This is a fine payoff for cronies having invested significantly in these rent seeking opportunities. While the bill still faces an uphill fight in the Senate, apparently Biden has executive orders, held in abeyance, that would inflict more pain on consumers and producers of fossil fuels.

Biden’s energy policies are obviously intended to reduce supplies of oil, gas, and other fossil fuels. Prices have responded, as Green notes:

“Gas is up an average of 57% this year, with corresponding increases of 44% for diesel and a whopping 60% for fuel oil.”

The upward price pressure is not limited to petroleum: electricity rates are jumping as well. Consumers and shippers have noticed. In fact, while Biden crows about wanting “the rich” to pay for BBB, his energy policies are steeply regressive in their impact, as energy absorbs a much larger share of budgets among the poor than the rich. This is politically suicidal, but Biden’s advisors have chosen a most cynical tact as the reality has dawned on them.

Abusive Victim Blaming

Who to blame? After the predictable results of cramping domestic production and attacking fossil fuel producers, the Biden team naturally blames them for rising prices! “Price gouging” is a charge made by political opportunists and those who lack an understanding of how markets allocate scarce resources. More severe scarcity means that prices must rise to ration available quantities and to incentivize those capable of bringing forth additional product under difficult circumstances. That is how a market is supposed to function, and it mitigates scarcity!

But here comes the mendacious and Bumbling Buster Biden. He wants antitrust authorities at the FTC to investigate oil pricing. Again from Stephen Green:

“… the Biden Administration has decided to launch a vindictive legal campaign against oil producers in order to deflect blame for the results of Biden’s policies: Biden’s Solution to Rising Gas Prices Appears to Be Accusing Oil Companies of Price Gouging.”

There’s nothing quite like a threat to market participants to prevent the price mechanism from performing its proper social function. But a failure to price rationally is a prescription for more severe shortages.

Biden has also ordered the Strategic Petroleum Reserve (SPR) to release 50 million barrels of oil, a move that replaces a total of 2.75 days of monthly consumption in the U.S. The SPR is supposed to be drawn upon only in the case of emergencies like natural disasters, so this draw-down is as irresponsible as it is impotent. In fact, OPEC is prepared to offset the SPR release with a production cut. Biden has resorted to begging OPEC to increase production, which is pathetic because the U.S. was a net exporter of oil not long ago … until Biden took charge.

Conclusion

Properly stated, the challenge mounted against markets as an institution is not that they fall short of “perfection”. It is that some other system would lead to superior results in terms of efficiency and/or equity. Central planning, including the kind exercised by the Biden Administration in it’s hurried and foolish effort to tear down and remake the energy economy, is not even a serious candidate on either count.

Granted, there is a long history of subsidies to the oil and gas sector. I cannot defend those, but the development of the technology (even fracking) largely preceded the fruits of the industry’s rent seeking. At this point, green fuels receive far more subsidies (despite some claims to the contrary). Furthermore, the primacy of fossil fuels was not achieved by tearing down competing technologies and infrastructure. In contrast, the current round of central planning requires destruction of entire sectors of the economy that could otherwise produce efficiently for the foreseeable future, if left unmolested.

The Biden Administration has adopted the radical green agenda. Their playbook calls for a severe tilting of price incentives in favor uneconomic, renewable energy sources, despite the economy’s heretofore sensible reliance on plentiful fossil fuels. It’s no surprise that Biden’s policy is unpopular across the economic spectrum. His natural inclination is to blame a competitive industry victimized by his policy. It’s a futile attempt to avoid accountability, as if he thinks doubling down on the fascism will help convince the electorate that oil and gas producers dreamt up this new, nefarious strategy of overcharging customers. People aren’t that dumb, but it’s typical for the elitist Left presume otherwise.

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