Obamacare to Come: Seven Bad Ideas for Health Care Reform · eventually extending such rationing to...

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President Obama has made it clear thatreforming the American health care system will beone of his top priorities. In response, congression-al leaders have promised to introduce legislationby this summer, and they hope for an initial votein the Senate before the Labor Day recess.

While the Obama administration has not, anddoes not seem likely to, put forward a specific re-form plan, it is possible to discern the key compo-nents of any plan likely to emerge from Congress:

• At a time of rising unemployment, the gov-ernment would raise the cost of hiring work-ers by requiring employers to provide healthinsurance to their workers or pay a fee (tax)to subsidize government coverage. • Every American would be required to buy aninsurance policy that meets certain govern-ment requirements. Even individuals whoare currently insured—and happy with theirinsurance—will have to switch to insurancethat meets the government’s definition of“acceptable insurance.”•A government-run plan similar to Medicarewould be set up in competition with privateinsurance, with people able to choose either pri-vate insurance or the taxpayer-subsidized pub-lic plan. Subsidies and cost-shifting would en-

courage Americans to shift to the governmentplan.•The government would undertake compara-tive-effectiveness research and cost-effective-ness research, and use the results of thatresearch to impose practice guidelines onproviders—initially, in government programssuch as Medicare and Medicaid, but possiblyeventually extending such rationing to pri-vate insurance plans. • Private insurance would face a host of newregulations, including a requirement to in-sure all applicants and a prohibition on pric-ing premiums on the basis of risk. • Subsidies would be available to help middle-income people purchase insurance, whilegovernment programs such as Medicare andMedicaid would be expanded. • Finally, the government would subsidizeand manage the development of a nationalsystem of electronic medical records.

Taken individually, each of these proposalswould be a bad idea. Taken collectively, they woulddramatically transform the American health caresystem in a way that would harm taxpayers, healthcare providers, and—most importantly—the quali-ty and range of care given to patients.

Obamacare to ComeSeven Bad Ideas for Health Care Reform

by Michael Tanner

_____________________________________________________________________________________________________

Michael Tanner is a senior fellow with the Cato Institute and coauthor of Healthy Competition: What’sHolding Back Health Care and How to Free It (2007).

Executive Summary

No. 638 May 21, 2009

363592_PA638_1stClass:363592_PA638_1stClass 5/19/2009 12:11 PM

Introduction

President Obama has made it clear thatreforming the American health care system willbe one of his top priorities. Administrationofficials have repeatedly referred to health carereform as Obama’s “top fiscal priority” andcalled the need to restrain the growth in healthcare costs “the single most important thing wecan do to improve the long-term fiscal healthof our nation.”1 In his first address to Con-gress, President Obama said, “Health care re-form cannot wait, it must not wait, and it willnot wait another year.”2 And at a February2009 White House Summit on health care re-form that included many of the congressionaland industry stakeholders, President Obamainsisted that health care reform must be passed“this year.”3 Obama’s proposed 2009 budgetincluded $634 billion as a “down payment” topay for health care reform, although it con-tains no details about how that money wouldbe spent.4

In response, congressional leaders havepromised to introduce legislation by thissummer, and they hope for an initial vote inthe Senate before the Labor Day recess.5

President Obama apparently does not planto put forward a specific plan for reform.Rather, the Obama administration is offeringgeneral guidance and direction, while leavingthe details up to Congress. As Obama’s budgetdirector, Peter Orszag, told a congressionalcommittee, “On exactly what the administra-tion does and does not favor on the benefitsand coverage side, you should not expect andyou will not be receiving definitive answersfrom me.”6

This strategy stems from the belief of manyadministration analysts that one reason forthe failure of President Clinton’s attempt athealth care reform was that the Clintonadministration developed a specific plan insecret, without congressional input, thenattempted to force Congress to accept it. AsPresident Obama told ABC News, “They wentbehind closed doors and tried to come up witha plan all by themselves.”7

Still it is possible to discern the outlines ofwhat a health care reform proposal acceptableto the White House will look like. PresidentObama outlined his ideas in considerabledetail during the campaign. His first choice forsecretary of health and human services, formerSouth Dakota senator Tom Daschle, wrote abook on health care reform last year.8 WhileDaschle’s nomination had to be withdrawndue to his failure to pay income taxes, his coau-thor, Jeanne Lambrew, remains as deputydirector of the White House Office of HealthReform, ensuring that Daschle’s views remainprominent. And Obama’s second choice forsecretary of Health and Human Services,Kathleen Sebelius, pushed several health initia-tives during her time as governor of Kansas.9

In Congress, Sen. Max Baucus (D-MT),chairman of the Senate Finance Committee,has released the outlines of a proposal.10 Sinceany health care legislation will have to passthrough his committee, Baucus will help shapeany final bill. Baucus has been working closelywith Sen. Edward Kennedy (D-MA), who seeshealth care reform as his final legacy.11 SenatorKennedy has been meeting with industrystakeholders and is preparing to draft legisla-tion. While the meetings have been held insecret, some conceptual outlines have leakedout.12 In addition, a bipartisan bill, sponsoredby Sens. Ron Wyden (D-OR) and RobertBennett (R-UT), has drawn White House atten-tion.13

And finally, the $1.3 trillion stimulus bill,officially known as the American Recovery andReinvestment Act, contained a number of pro-visions laying the groundwork for PresidentObama’s vision of health care reform.14

If one looks at these various proposals,outlines, and statements, the broad parame-ters of the final proposal begin to emerge. Itwould not initially create a government-run,single-payer system such as in Canada orBritain. Private insurance would still exist, atleast for a time, but it would be reduced to lit-tle more than a public utility, operatingmuch like, for example, the electric company,with the government regulating and control-ling every aspect of its operation.

2

It is possible to discern the outlines of ahealth care

reform proposalthat would be

acceptable to theWhite House.


Coverage would be mandated, both foremployers and individuals. A government-runplan, similar to Medicare, would be set up incompetition with private insurers. Peoplecould choose either private insurance or thepublic plan. The government would under-take comparative-effectiveness and cost-effec-tiveness research, and use the results of thatresearch to impose practice guidelines onproviders—initially in government programssuch as Medicare and Medicaid, but possiblyeventually extending such rationing to privateinsurance plans. Private insurance would facea host of new regulations, including a require-ment to insure all applicants and a prohibi-tion on pricing premiums on the basis of risk.Subsidies would be available to help low- and(most likely) middle-income people purchaseinsurance. And the government would subsi-dize and manage the development of a nation-al system of electronic medical records.

The net result would be an unprecedentedlevel of government control over one-sixth ofthe U.S. economy and some of the most impor-tant, personal, and private decisions thatAmericans make. This approach sets the stagefor the eventual evolution into a single-payersystem. The result would be disastrous forAmerican taxpayers, the health care industry,and most importantly, health care consumers.

Let us look at some of the likely provi-sions of a health care reform plan in moredetail.

An Employer Mandate

As a candidate, Barack Obama said hewould require all employers to provide theirworkers with insurance through a “play orpay” mandate. Employers who do not provide“meaningful coverage” for their workerswould be required to pay a penalty equal tosome percentage of their payroll into a nation-al fund that would provide insurance to thoseuncovered workers.15

This is an idea that will almost certainly findfavor with congressional Democrats. SenatorBaucus, for example, has endorsed such an

approach, using a sliding scale for the requiredcontribution with small and mid-sized compa-nies paying less than large firms.16 And SenatorKennedy has long supported an employer man-date. In the House, the chairmen of the threemost relevant committees—Charles Rangel (D-NY) of the Ways and Means Committee, HenryWaxman (D-CA) of the Energy and CommerceCommittee, and George Miller (D-CA) of theEducation and Labor Committee—are all back-ers of an employer mandate.17

It is easy to understand why reformerswould consider an employer mandate. Healthinsurance through their employers is alreadythe way that roughly 70 percent of Americansunder the age of 65 get their health insurance,which makes it an obvious platform on whichto build.18 In addition, large group purchasers,such as employers, enjoy economies of scalethat may reduce average administrative costs.

However, there are several problems withan employer mandate. First, such a mandate issimply a disguised tax on employment. AsPrinceton University professor Uwe Reinhardt(the “dean of health care economists”) pointsout, “[Just because] the fiscal flows triggeredby mandate would not flow directly throughthe public budgets does not detract from themeasure’s status of a bona fide tax.”19

And although it might be politically appeal-ing to claim that business will bear the new taxburden, nearly all economists see it quite dif-ferently. The amount of compensation that aworker receives is a function of his or her pro-ductivity. The employer is generally indifferentto the composition of that compensation: itcan be in the form of wages, benefits, or taxes.What really matters is the total cost of hiringthat worker. Mandating an increase in the costof hiring a worker by adding a new payroll taxdoes nothing to increase that worker’s produc-tivity. Employers will therefore seek ways to off-set the added costs by: raising prices (the mostunlikely solution in a competitive market);lowering wages; reducing future wage increas-es; reducing other benefits (such as pensions);cutting back on hiring; laying off current work-ers; shifting workers from full-time to part-time; or outsourcing.

3

Although it might be politically appealing toclaim that business will bear the new tax burden, nearly alleconomists see itquite differently.


Economists are divided about the mostlikely way that the cost of an employer man-date would be passed along to employees.Some suggest that most of the mandate’s costwould be offset through lower wages. A studyby Jonathan Gruber, for example, which looksat the impact of a requirement that healthinsurance cover comprehensive childbirthbenefits found strong evidence that employersreduced wages to pay for the benefits.20 AndAlan Krueger and Uwe Reinhardt suggest thatin the long run, the cost of the employer man-date would be shifted to the employee notthrough immediate wage cuts but throughsmaller future wage increases than would oth-erwise occur.21

On the other hand, a large group of econo-mists believe that most of the offset costs wouldcome in the form of job loss. They argue thatworkers are likely to resist current wage reduc-tions, particularly if they value wage compensa-tion over heath insurance, which seems likelyfor many of the currently uninsured.22 In addi-tion, minimum wage laws provide a floor forhow far employers could reduce wages. As LarrySummers, now head of the White House’sNational Economic Council, once wrote, theminimum wage means that “wages cannot fallto offset employers’ cost of providing a man-dated benefit, so it is likely to create unemploy-ment.”23

Mark Pauly of the Wharton School sug-gests that mandated employer health bene-fits are particularly pernicious because thecost of paying premiums is likely to rise overtime, building in a de facto cost of living esca-lator, and the cost of benefits is also likely torise as employees age and have families withhigher health care expenses. Thus the elastic-ity of employment, or increase in unemploy-ment, would likely be higher with regard tomandated health insurance than with someother mandated benefits, such as an increasein minimum wage.24

Moreover, not all of those who would becovered under an employer mandate werepreviously uninsured. To cite just one exam-ple, they might currently be covered under aspouse’s policy. The mandate would also fall

on firms that were providing insurance, butwhose employer contribution fell below theminimum required amount, or who provid-ed benefits that differed from the minimumbenefit package specified by the government.For instance, high-deductible policies orhealth savings accounts might be prohibited.And it is not just the direct cost of insurancethat would be imposed on employers: busi-ness would also incur significant administra-tive costs.25

Low-skilled and low-wage workers would beparticularly at risk. Roughly 43 percent of unin-sured workers are working within three dollarsof the minimum wage. The mandated insur-ance costs will represent a proportionately sig-nificant increase in the cost of employing thoseworkers. At the same time, since their wages arealready low, and those workers receive few oth-er employment benefits, employers’ ability toshift costs will be constrained. The most likelyoutcome will be greater unemployment forworkers whose lack of skills does not justify theincreased cost. Economists Katherine Baickerof Harvard and Helen Levy of the University ofMichigan estimate that a nationwide employerhealth insurance mandate would result in theloss of approximately 315,000 low-skill jobs.26

Others put the number of potential joblosses much higher. In a study for the NationalFederation of Independent Business, MichaelChow and Bruce Phillips estimate that asmany as 1.6 million jobs could be lost in thefirst five years after an employer mandate wasimposed, of which two-thirds would be fromsmall businesses with fewer than 500 employ-ees. Of those small businesses, 55 percent arecompanies with fewer than 100 employees,and 28.9 percent are companies with just 20employees or fewer.27 An analysis of a pro-posed employer mandate for California busi-nesses suggested a potential job loss in thatstate alone of more than 70,000.28 Projectingthat estimate nationwide would mean a loss of630,000 jobs.

Limiting the mandate to large firms wouldundoubtedly reduce the harm but would alsoreduce the mandate’s effectiveness. Congres-sional Budget Office estimates that a mandate

4

As many as 1.6 million jobscould be lost in

the first five yearsafter an employer

mandate wasimposed.


limited to large companies would increase thenumber of insured Americans by only about300,000 people.29 Therefore, any mandate islikely to include “all but the smallest business-es,” as President Obama said during the cam-paign.30

A second problem with an employer man-date is that it would further lock us into ourcurrent employer-based health care system.Employer-based health insurance is a histori-cal accident, stemming from a combinationof labor shortages and wage-price controlsinitiated during World War II.31 It limits con-sumer choice by giving decisions over insur-ance coverage to employers rather than work-ers. It means that workers who lose their jobslose their insurance.

And it means that individuals who do notreceive employer-provided insurance face anincreased financial burden when they try topurchase insurance on their own. Indeed, theNew York Times recently pointed out in a storytitled, “When a Job Disappears, So Does theHealth Care,” that the poor economy and ris-ing unemployment are leading to an increasein the number of people without insurance:32

According to a study by Georgetown Universi-ty’s Center for Children and Families, 4.1 mil-lion people lost their employer-sponsoredhealth insurance in 2008.33

We should be moving away from an em-ployment-based system toward one whereworkers have personal and portable insurancethat is not linked to their employer’s prefer-ence or their employment status. Therefore,an employer mandate would actually repre-sent a step backwards in terms of a more effec-tive and compassionate health policy.

An Individual Mandate

During the presidential campaign, BarackObama opposed a requirement that everyAmerican buy health insurance. Indeed,Obama’s opposition to an individual mandatewas a principal area of disagreement withHillary Clinton during the Democratic pri-maries.34 However, administration sources are

now indicating that, while President Obamawill not propose such a mandate, he willaccept one if Congress includes it.35

And it is extremely likely that the final billwill include an individual mandate. SenatorBaucus calls for one, saying that as a matter of“individual responsibility . . . it will be eachindividual’s responsibility to have coverage.”36

In the House, Rangel, Waxman, and Millersupport it, although they prefer to phrase it as“everyone will participate, and everyone willbenefit.”37 Not surprisingly, the idea of anindividual mandate has been endorsed by sev-eral key industry groups and stakeholders,particularly those who stand to benefit mostby such a mandate—health insurers and physi-cians.38

An individual mandate also has at leastsome Republican support. Former Republi-can presidential candidate Mitt Romneysigned into law the nation’s first—and so far,only—individual mandate for health insur-ance when he was governor of Massachu-setts.39 Former House Speaker Newt Gingrichalso supports an individual mandate.40 Anindividual mandate is included in the biparti-san Wyden-Bennett bill.41 And analysts fromsome conservative groups, such as the Heri-tage Foundation, have endorsed an individualmandate.42

As is the case with an employer mandate,an individual mandate is simply a disguisedtax. After all, if the government takes moneydirectly from person A and gives the moneyto person B, everyone would agree that it is atax. It is no different if the government man-dates that person A simply pay the moneydirectly to person B. At the end of the day,Person A has less money to spend as hechooses.

Advocates of an individual mandate gener-ally give two reasons for supporting such aproposal. Neither is without merit, but ulti-mately both are unpersuasive. The first is toprevent cost-shifting from the uninsured. AsSenator Baucus points out, when an individ-ual without health insurance becomes sick orinjured, he or she still receives medical treat-ment.43 In fact, hospitals have a legal require-

5

An individualmandate is simply a disguised tax.


ment to provide emergency care regardless ofthe patient’s ability to pay. Physicians do notface the same legal requirement, but few arewilling to deny treatment because a patientlacks insurance. However, such treatment isnot free. The cost is simply shifted to others—those with insurance, or more often—taxpay-ers.44 In fact, although Baucus does not put adollar amount on such uncompensated care,others estimate the cost to be as much as $40.7billion per year, with 85 percent of that costborne by federal, state, and local govern-ments.45

But it is important to keep this cost in per-spective. The United States currently spendsroughly $2.4 trillion annually on health care.46

By Baucus’s own estimates, uncompensatedcare, then, amounts to about 1.7 percent of thetotal U.S. health care spending. Other esti-mates put it slightly higher, at 3–5 percent.47

While that cost should not be casually dis-missed, neither is it so grave a problem as tojustify the distortions and regulations thatwill inevitably flow from an individual man-date.

Second, advocates argue that bringing allAmericans into the insurance pool would“ensure that insurance markets function effec-tively.”48 Those most likely to go withouthealth insurance are the young and relativelyhealthy. For example, although 18-to 24-year-olds are only 10 percent of the U.S. popula-tion, they are 21 percent of the long-termuninsured.49 For these young, healthy individ-uals, going without health insurance is often alogical decision. However, this becomes a formof adverse selection. Removing the young andhealthy from the insurance pool means thatthose remaining in the pool will be older andsicker. This results in higher insurance premi-ums for those who are insured.

However, this argument is true only ifthere are cross-subsidies in existing pools. Ifeveryone’s rates are actuarially fair, thenyoung people’s explicit or implicit premiumsdo not result in lower or higher premiums foranyone else. There are legitimate argumentsabout how to best subsidize the needy withinthe health care system, but an individual

mandate would be an excessive response towhat is, in essence, an artificial problem.

The most obvious question about an indi-vidual mandate is how it would be enforced.The government would need some way todetermine whether Americans are insured ornot and to penalize those who have not com-plied with the mandate.

It seems likely that the mandate suggestedby Senator Baucus “would be enforced possi-bly through the tax system or some otherpoint of contact between individuals and theU.S. government.”50 But about 18 millionAmericans are not required to file income tax-es, mostly because their incomes are too low.51

Another 9 million Americans who are requiredto file tax returns nonetheless fail to do so.52

That is potentially 27 million Americans whowould not be providing proof of insurance.Moreover, only about 30 percent of uninsuredAmericans have been uninsured for a full year.In fact, nearly 45 percent will regain insurancewithin four months.53 Therefore, many peoplewho lack health insurance at some pointthroughout the year, will in fact be insured atthe time they file their taxes. Presumably, the“proof of insurance” could include of thelength of time that the person was insured,but that would raise the complexity of compli-ance procedures considerably. It would alsoincrease the incentive to lie.

If the government were able to determinethat someone has not purchased health insur-ance, what penalty would apply? Presumably,some sort of tax penalty is the most likelyapproach. But that is much easier said thandone. Eugene Steuerle, currently with the Peter-son Foundation, has noted that the adminis-trative and enforcement costs of collecting thepenalty would be enormous. The IRS relieslargely on voluntary compliance backed up by aslow and cumbersome legal process to collecttaxes. And it does not require those with verysmall amounts of income to file. Even so, asnoted above, millions of Americans cheat or failto file. Collecting a penalty for failure to insurewould be much more difficult. “The [IRS] issimply incapable of going to millions of house-holds, many of modest means, and collecting

6

The most obviousquestion about an individual

mandate is how it would be enforced.


significant penalties at the end of the year,”Steuerle warns.54

Many of those who fail to comply with themandate will indeed be low-income Americans.Of those without health insurance today, nearlyone-quarter have household incomes of lessthan $25,000 per year.55 These individuals willalmost certainly lack the resources to pay anypenalty, particularly a lump-sum penalty as-sessed at year’s end.

While implementation of an individualmandate creates a number of practical diffi-culties, an even more significant issue is thatit represents the first in a series of dominoesthat will inevitably lead to greater govern-ment control of the health care system.

To implement an insurance mandate, thegovernment will have to define what sort ofinsurance fulfills that mandate. As the CBOputs it, “An individual mandate . . . wouldrequire people to purchase a specific servicethat would have to be heavily regulated by thefederal government.”56 At the very least,deductible levels and lifetime caps will have tobe specified, and some form of specific mini-mum benefit package will likely be spelled out.That means that the often repeated promisethat “if you are happy with your current insur-ance, you can keep it” is simply untrue.Millions of Americans who are currently satis-fied with their coverage will have to give upthat coverage and purchase the insurance thatthe government wants them to have, even ifthe new insurance is more expensive or coversbenefits that the buyer does not want.

Whatever the initial minimum benefitspackage consists of, special interests represent-ing various health care providers and diseaseconstituencies can certainly be expected tolobby for inclusion under any mandated ben-efits package. To see this in action, one simplyhas to look to state mandates for health insur-ance benefits. The number of laws requiringthat all insurance policies sold in a state pro-vide coverage for specified diseases, condi-tions, and providers has been skyrocketing. Inthe 1960s there were only a handful of suchmandates, but today there are more than1,800.57 And when the Clinton administration

proposed a minimum benefits package as partof its 1993 health care reform plan, providerlobbying groups spent millions of dollars inadvertising calling for the inclusion of specificprovider groups or coverage of specific condi-tions.

Public choice dynamics are such thatproviders (who would make money from theincreased demand for their services) and dis-ease constituencies (whose members naturallyhave an urgent desire for coverage of their ill-ness or condition) will always have a strongincentive to lobby lawmakers for inclusionunder any minimum benefits package. Thepublic at large will likely see resisting the smallpremium increase caused by any particularadditional benefit as unworthy of a similareffort. It is a simple case of concentrated bene-fits and diffuse costs.

Massachusetts’s experience provides a cau-tionary tale on both counts. In 2005, Massa-chusetts became the first—and so far only—state to mandate that nearly all residentspurchase health insurance as part of a com-prehensive health care reform plan. Sincethen, Massachusetts has significantly reducedthe number of people in the state who lackhealth insurance. However, it has not achieved,nor does it expect to reach, universal coverage.(The best estimates suggest that more than200,000 state residents remain uninsured).58

Significantly, roughly 60 percent of newlyinsured state residents are receiving subsidizedcoverage, suggesting that the increase in insur-ance coverage has more to do with increasedsubsidies than with the mandate.59

The cost of those subsidies in the face ofpredictably rising health care costs has led toprogram costs that are far higher than origi-nally predicted (see below). And the mandatehas indeed led to an increase in regulationand mandated benefits. The state is phasingin a requirement that all insurance plans cov-er prescription drugs and has limited bothdeductibles and lifetime payout limits. Withthe cost of the program rising, the state hasbeen forced to raise taxes, and it is now con-sidering imposing caps on insurance premi-ums.60

7

The often repeated promisethat “if you arehappy with your currentinsurance, youcan keep it” issimply untrue.


An individual mandate would be an un-precedented expansion of government powerand intrusion into the lives of every Ameri-can. While it is unlikely to achieve the desiredgoal of universal coverage, it sets the stage forincreased regulation of the health care sys-tem in a way that will ultimately harm healthcare consumers.

The “Public Option”

Perhaps one of the most contentious issuesin health care reform is whether the govern-ment should establish a government-runhealth care plan, similar to Medicare, whichwould compete with private insurance. Theinclusion of such a government-run plan hasbecome a line in the sand for many liberalhealth care reformers, especially those whowould actually prefer a single-payer system.

When, at the White House Summit onHealth Care Reform, Sen. Charles Grassley (R-IA) asked President Obama whether he stillsupported such a proposal, the president saidthat he was “not going to respond definitively.”But he then went on to note that “the thinkingon the public option is that it gives consumersmore choices and it helps . . . keep the privatesector honest, because there’s competition outthere.”61 House speaker Nancy Pelosi insiststhat a government-run plan be part of any finalreform package.62 Senator Baucus is also onthe record supporting such a “public option.”63

And at her nomination hearing, HHS Sec-retary Kathleen Sebelius called for “a publicoption, side-by-side with private insurers.”64

What exactly such a “public option” wouldbe remains unsettled. Some proponents envi-sion an expansion of the current Medicare pro-gram to those younger than 65. Others arguethat an entirely new government programshould be created, while still others wouldallow a buy-in to the Federal Employee HealthBenefit Program. The program might beadministered directly by the government, orclaims management and other functionsmight be bid out to private insurers on a con-tractual basis.

Regardless of how it was structured or ad-ministered, such a government-run plan wouldhave an inherent advantage in the marketplacebecause it would ultimately be subsidized byAmerican taxpayers. The government plancould, for instance, keep its premiums artificial-ly low or offer extra benefits since it can turn tothe U.S. Treasury to cover any shortfalls. Con-sumers would naturally be attracted to the low-er-cost, higher-benefit government program,which would undercut the private market.

A government program would also have anadvantage since its enormous market presencewould allow it to impose much lower reim-bursement rates on doctors and hospitals.65

Government plans such as Medicare andMedicaid traditionally reimburse providers atrates considerably below those of privateinsurance. Providers recoup the lost income byshifting costs onto those with private insur-ance. Indeed, it is estimated that privatelyinsured patients pay $89 billion annually inadditional insurance costs because of cost-shifting from government programs.66 If oneassumes that the new public option wouldhave similar reimbursement policies, it wouldresult in additional cost-shifting as much as$36.4 billion annually. Such cost-shiftingwould force insurers to raise their premiums,making them even less competitive with thetaxpayer-subsidized public plan. The resultwould be a death spiral for private insurance.

Medicaid provides a useful example of howpublic programs “crowd out” private coverage.As income eligibility levels for Medicaid areraised, many of the newly eligible are already cov-ered by employer-provided or individually pur-chased insurance. Many of these individualsshift from the private to the public systems. Infact, a Robert Wood Johnson Foundation sur-vey of 22 studies of the relationship betweengovernment insurance programs and privatecoverage concluded that substitution of govern-ment for private coverage “seems inevitable.”67

And the CBO estimates that between one-thirdand one-half of children who were be added tothe State Children’s Health Insurance Programunder its recent expansion were already coveredby private health insurance.68

8

A government-run plan would

have an inherentadvantage in the

marketplacebecause it would

ultimately be subsidized by

American taxpayers.


Companies, in particular, would have anincentive to try to shift workers into the pub-lic market. Even with an employer-mandate inplace, companies could do so by maximizingemployee contributions or moving to plansthat restrict employee options. And if, as theObama administration has discussed, limitsare placed on the deductibility of employer-provided health insurance,69 there will be aneven greater incentive for companies to dumpworkers into the public plan.70 That meanstens of millions of workers who would ratherstay with their current job-based plan wouldno longer have that as a choice. They wouldeffectively be forced into the government plan.

The actuarial firm Lewin Associates esti-mates that, depending on how premiums,benefits, reimbursement rates, and subsidieswere structured, as many as 118.5 million peo-ple would shift from private to public cover-age.71 That would mean a nearly 60 percentreduction in the number of Americans withprivate insurance.72

Some advocates of the public option com-pare it to states where the state governmentself-insures its state employee health plan, oran option under that plan.73 However, in thosecases, the state is simply assuming the financialrisk of insurance in the same way that mostlarge employers do. Roughly 89 percent ofcompanies with more than 5,000 employeesself-insure.74 The self-insured state plans areadministered by private insurers and, unlikeexisting federal government health plans, oper-ate under the same rules as private insurance.As Paul Ginsberg, president of the Center forStudying Health System Change explains, “Al-though they specify the benefit structure andwhether there should be disease managementor wellness programs, they are basically buyinginto provider networks that the insurer hasdeveloped for all of its enrollees.”75

It is virtually inconceivable that the newfederal public option would operate underidentical rules as private insurance. If that werethe case, there would be no point to havingsuch an option. Indeed, the biggest reasonthat advocates support such a plan is that itcan use its monopsony purchasing power to

demand or impose reduced reimbursementrates. “A public plan is capable of using its con-centrated purchasing power to reduce costs,”states a new study by Jacob Hacker for theInstitute for America’s Future.76

Moreover, how long could a Congress thatis busy bailing out banks and automobilecompanies because they are “too big to fail”resist subsidizing the government’s insur-ance plan if it began to lose money? Could aCongress that has been unable to control theunsustainable cost of Medicare set and keeppremiums at market levels? It seems unlikely.

Whatever rules the public plan startedwith, they would soon be changed to ensure itsadvantage over private insurance. Indeed, togauge the attitude that public option support-ers have toward private sector competition, weneed look no farther than Medicare Advan-tage.77Democrats have raged against competi-tion from those private plans, and PresidentObama has even suggested eliminating Medi-care Advantage outright.78 Most congression-al Democrats also strongly opposed the inclu-sion of private insurance plans under theMedicare prescription drug benefit.

Given that many of the most outspokenadvocates of the “public option” have, in thepast, supported a government-run single-pay-er system, it is reasonable to assume that theysupport a public option precisely because itwould squeeze out private insurance and even-tually lead to a government-run single-payersystem. President Obama himself has said thatif he were designing a health care system fromscratch, his preference would be for a single-payer system “managed like Canada’s.”79 Andhe has suggested that, while he has proposed aless radical approach, “it may be that we endup transitioning to such a system.”80

In this context, it is notable that congres-sional Democrats are also proposing toexpand existing government programs. Forexample, leading Democratic proposalswould increase eligibility levels for Medicaidand would eliminate the two-year waitingperiod for people with disabilities to becomeeligible for Medicare.81 Senator Baucus hasalso suggested that individuals between ages

9

Whatever rulesthe public planstarted with, they would soonbe changed toensure its advantage.


55 and 65 should be able to “buy in” toMedicare.82 Thus, private insurance wouldfind itself squeezed by competition from thebottom (Medicaid), top (Medicare), and sides(the government option) at the same timethat it is being subjected to heavy new regu-lation and costs are being increasingly shift-ed from public to private programs. It isunlikely that any significant private insur-ance market could continue to exist undersuch circumstances. America would be firm-ly on the road to a single-payer health caresystem with all the dangers that presents.

Government Playing Doctor

Buried in the giant $1.3 trillion stimulusbill was a provision authorizing $1.1 billionfor the federal Agency for Healthcare Researchand Quality to conduct a “comparative-effec-tiveness research program.”83 The bill also cre-ated a Federal Coordinating Council forComparative Effectiveness Research, to coor-dinate comparative-effectiveness researchthroughout various federal departments andagencies.84 These provisions, seemingly incon-sequential in themselves, represent the firstbuilding blocks in what is almost certain to bea key component of any comprehensive healthcare reform proposal.

Many health care reform advocates believethat much of U.S. health care spending iswasteful or unnecessary. Certainly it is impos-sible to draw any sort of direct correlationbetween the amount of health care spendingand outcomes.85 In fact, by some estimates asmuch as 30 percent of all U.S. health spendingproduces no discernable value.86 Medicarespending, for instance, varies wildly fromregion to region, without any evidence thatthe variation is reflected in the health ofpatients or procedural outcomes.87 The CBOsuggests that we could save as much as $700billion annually if we could avoid treatmentsthat do not result in the best outcomes.88

It makes sense, therefore, to test anddevelop information on the effectiveness ofvarious treatments and technology. But there

are a number of problems with having thegovernment undertake this research.89

First, “quality” and “value” are not unidi-mensional terms. In fact, such concepts arehighly idiosyncratic with every individualhaving different ideas of what quality andvalue mean to them, based on such things asa person’s pain tolerance, lifestyle, feelingsabout hospitalization, desire to return towork, and so forth. For example, a surgeonmay tell you that the only way to ensure acure for prostate cancer is a radical prostec-tomy. But that procedure’s side effects canseverely impact quality of life—so some peo-ple prefer a procedure with a lower survivalrate but fewer side effects.90 Who is bettersuited to determine which of those proce-dures represents quality and value, a govern-ment board or the person directly affected?

Second, comparative-effectiveness researchtoo often has a tendency to gear its resultstoward the “average” patient. But many pa-tients are outliers, whose response to any par-ticular treatment, for either good or ill, canvary significantly from the average. This mat-ters little when the research is simply informa-tive. However, if the research becomes the basisfor more prescriptive requirements, for exam-ple prohibiting reimbursements for sometypes of treatment, the impact on patient out-liers could be severe.

Third, comparative-effectiveness researchcan create a time lag for the introduction ofnew technologies, drugs, and procedures.The FDA, for example, has already causeddelays in introducing drugs, which hasresulted in unnecessary deaths.91 Dependingon how the final program is structured, com-parative-effectiveness research could createanother layer of bureaucracy and testingbetween the development of a new drug andits introduction into the health care system.One only has to look at the difficulty inexpanding Medicaid drug formularies to seehow this could become a problem.

Finally, and perhaps most importantly,there is also the question of whether qualityor value includes consideration of the relativecost of a treatment. Supporters of govern-

10

“Quality” and“value” are notunidimensional

terms.


ment-sponsored comparative-effectivenessresearch strongly deny that it would ever beused to ration care simply on the basis ofcost. As Elliott Fisher of Dartmouth MedicalSchool says, “It’s an absurd mischaracteriza-tion of effectiveness research to equate it withcost-benefit analysis.”92

Yet, there is reason to believe that that sortof cost-benefit analysis is exactly what someadvocates of comparative-effectiveness re-search and practice guidelines support. Forinstance, House Appropriations Committeechairman David Obey (D-WI) inserted lan-guage in the report accompanying the origi-nal House version of the economic stimulusbill in which he said:

By knowing what works best and pre-senting this information more broadly topatients and health care professionals,those items, procedures, and interven-tions that are most effective to prevent,control, and treat health conditions willbe utilized, while those that are found tobe less effective and in some cases moreexpensive, will no longer be prescribed.93

Acting National Institutes of Healthdirector Raynard Kington told Congress thatthe NIH may include comparisons of the costof medical treatments in its research.94 Sincethe NIH will be conducting much of thisresearch, that has raised a number of redflags. And, the Senate voted 44–54 against anamendment to the budget offered by Sen.Jon Kyl (R-AZ) that would have prohibitedcost from being considered in comparative-effectiveness research.95

Even this would not be a major cause forconcern if the government’s goal were simplyto provide information. After all, if a less expen-sive treatment provided the same results as amore expensive one, shouldn’t doctors—andconsumers—know about it? However, a muchmore serious question arises when the ques-tion of cost-effectiveness bumps up againstmoral or values-based questions, when the pos-itive nature of science and the normativenature of value and political systems are mixed.

For example, should there be a presump-tion that saving the life of a person in dangerof dying automatically takes precedence overimproving the quality of life for someonewhose life is not in immediate danger? Whatabout immediately saving a real life versussaving some number of hypothetical futurelives? Or to put it more practically—andbluntly—what is the value of performing anexpensive procedure such as, say, hip-replace-ment surgery on an elderly patient whomight only survive for a few more years any-way? Should we use extraordinary means toextend the life of a cancer patient by a fewmonths?

Such questions are by definition values-based and cannot be answered through the sci-entific process. As John Kraemer and LawrenceGostin of Georgetown University wrote in arecent issue of the Journal of the American MedicalAssociation, when people say that the cost oftreating a condition is too expensive and there-fore should not be used, they are actually mak-ing three separate assertions based on a mix ofscientific and values-based claims: 1) the costof treatment equals a certain amount (a posi-tive or scientific claim), 2) treatments costingmore than a certain amount are not cost-effec-tive (both a positive claim and a normative orvalues-based claim), and 3) cost-effectivenessshould be the basis for allocating health careresources (a normative claim).96

If such questions cannot be answered scien-tifically, we should then ask whether theyshould be made by individuals or by the largersociety through the political process. Advocatesof government rationing explicitly favor the lat-ter. For example, Knut Erik Tranoy, professoremeritus at the Centre for Medical Ethics of theUniversity of Oslo, who is an original memberof Norway’s Health Care Priorities Commis-sion and a prominent philosophical advocateof rationing, decries “a health care system wherepatients buy services in a market, and where jus-tice means equality of opportunity to buy whatyou need. Decisions about alternative use arethen (largely) patients’ decisions.”97 Accordingto Tranoy “it is neither medically nor morallydefensible to put scarce resources to uses which

11

Such questionsare by definitionvalues-based and cannot beansweredthrough the scientific process.


will foreseeably yield less favorable outcomesthan other uses—save fewer lives, cure fewerpatients.”98

This inevitably leads to the question ofwhether comparative-effectiveness researchwill simply be used to provide information,or whether it will be used to impose a gov-ernment-dictated way to practice medicine.

For those seeking to use comparative-effec-tiveness research as a means to reduce overallhealth care spending, there is a good reason formaking the use of such information the basisfor mandatory practice guidelines. As the CBOnotes, “[T]o affect medical treatment andreduce health care spending in a meaningfulway, the results of comparative-effectivenessanalyses would not only have to be persua sivebut also would have to be used in ways thatchanged the behavior of doctors, other healthprofessionals, and patients.”99 America’s HealthInsurance Plans estimates that, if implementedon a purely voluntary basis, comparative-effec-tiveness research would produce a savings ofonly 0.3 percent in national health expendi-tures over 10 years.100 The CBO estimates thatthe voluntary implementation of comparative-effectiveness research would reduce federalhealth spending by a mere “one one-hundredthof one percent” over the next 10 years.101

Therefore, if there is to be any significantcost savings, the results of the research wouldhave to be imposed on a mandatory basis in away that proscribes treatments deemed notcost-effective. Logically, the restrictions wouldstart with government programs such asMedicare and Medicaid.102 However, it is note-worthy that Sen. Daschle has suggested thatCongress should “link the tax exclusion forhealth insurance to insurance that complieswith [comparative-effectiveness] recommen-dations.”103

There is no doubt that national healthcare systems in other countries use compara-tive-effectiveness research as the basis forrationing. For example, in Great Britain, theNational Institute on Clinical Effectivenessmakes such decisions, including a controver-sial determination that certain cancer drugsare “too expensive.”104

It seems unlikely that most Americans arewilling to accept the idea that governmentshould make decisions about what types oftreatments their doctor can provide. Moreover,even if such rationing were desirable, there isno evidence that the government would be ableto make those decisions on a scientific basis. Agovernment body deciding on the compara-tive-effectiveness or cost-effectiveness of med-ical treatments will inevitably base its decisionsas much on politics as on science. As UweReinhardt warns, government comparative-effectiveness research would be “vulnerable tolobbying by interest groups, because one or afew members of Congress could easily imperil[the research agency’s] existence through theappropriations process.”105

Consider Oregon’s attempt to prioritizeMedicaid services. In 1992, Oregon guaranteedall state residents under the poverty line a basiclevel of health care. At the same time, becausefunding was limited, the Oregon HealthServices Commission drafted a priority-rankedlist of medical services available to Oregonians.The state would fund services deemed priorityon the basis of such factors as cost, duration ofa treatment’s benefit, improvement in thepatient’s quality of life, and community values.Services that did not qualify under these crite-ria would not be funded.106 However, politicalcalculations quickly became part of the rank-ing process, with the program becoming a bat-tleground for special interests associated withvarious disease constituencies and health carespecialties. Groups battled with each other tomake sure that their needs or services wereincluded in the list of covered services. The listwas repeatedly revised to reflect not the bestmedical judgment but outside pressure. Thelegislature repeatedly intervened. The U.S.Office of Technology Assessment concludedthat the Oregon’s prioritization plan “has notoperated as the scientific vessel of rationingthat it was advertised to be. Although initialrankings were based in large part on mathe-matical values, controversies around the listforced administrators to make political conces-sions and move medical services ‘by hand’ tosatisfy constituency pressures.”107

12

National healthcare systems inother countries

use comparative-effectiveness

research as thebasis for

rationing.


At the federal level, agencies like theCouncil on Health Technology, Agency forHealth Care Policy and Research, and theAgency for Health Care Research and Qualityhave had their funding cut when theirresearch conflicted with the desires of power-ful interest groups.108

The government even interferes with pri-vate sector attempts to make comparative-effectiveness decisions when those decisionsimpact powerful interest groups or votingblocks. For example, the Connecticut attorneygeneral has attacked the Infectious DiseaseSociety of America for recommending againstthe use of long-term antibiotics to treat chron-ic Lyme disease. Although the IDSA based itsnon-binding recommendation on the over-whelming scientific evidence, the Internation-al Lyme and Associated Diseases Society, awell-connected and media-savvy advocacygroup for those with Lyme disease, protestedby taking its case to the Connecticut politicalestablishment. As a result, Connecticut attor-ney general Richard Blumenthal sued theIDSA under the state’s anti-trust laws.109

Already, special-interest groups are maneu-vering to influence the outcome of compara-tive-effectiveness research. To cite just one ex-ample, the Partnership to Improve PatientCare is funded by groups such as Easter Seals,Friends of Cancer Research, the Alliance forAging Research, the Advanced Medical Tech-nology Association, and the pharmaceuticaland biotech industry lobbies. It seeks to “refo-cus” the comparative-research debate to en-sure that its members’ interests are protect-ed.110

There is no need for the government to getinvolved in comparative-effectiveness research:the private sector is already heavily involved insuch research. As the CBO has pointed out,“private health plans—most commonly thelarger or more integrated ones—conduct theirown reviews of evidence and sometimesundertake new analysis of comparative effec-tiveness.”111 These companies use the researchto “shape their policies regarding coverage andpayment.”112 Most health plans, for example,have pharmacy and therapeutic committees

that make recommendations about whichprescription drugs should be covered on thebasis of comparative effectiveness. In addition,Blue Cross Blue Shield’s Technology Evalu-ation Center; Hayes, Inc.; the ECRI Institute;the Tufts–New England Medical Center; theHMO Research Network; and InfoPOEMsperform or collect comparative research, andsome even offer the information for sale.113

Universities and medical schools also performsuch research and publish their results.Therefore, rather than produce new informa-tion on comparative-effectiveness, a govern-ment program is likely to simply crowd outprivate research that is already occurring.

To argue against government involvement incomparative-effectiveness research is not toargue against comparative-effectiveness research.Private sector research is occurring and shouldcontinue. Providers should make greater use ofthe information provided by such research. Butgovernment-directed research is unlikely to beeffective, and it poses a distinct threat that it willevolve into government-imposed rationing ofcare. In fact, it is liable to yield the worst of all pos-sible worlds—not only rationing, but rationingthat is based on special-interest lobbying ratherthan science.

In short, the government should not besubstituting its judgment for that of doctorsand patients.

Community Rating/Guaranteed Issue

It seems almost a certainty that any healthinsurance reform plan to emerge from Con-gress will contain a host of new insurance reg-ulations. Among the likeliest is a requirementthat insurers accept all applicants regardless oftheir health (guaranteed issue), and a stipula-tion that forbids insurers from basing premi-ums on risk factors such as health or age(community rating).

The regulations would be an attempt todeal with the problem of preexisting condi-tions. That is, people today who are unin-sured, and who are suffering from expensive

13

To argue againstgovernmentinvolvement in comparative-effectivenessresearch is not to argue againstcomparative-effectivenessresearch.


medical conditions, have great difficultyfinding affordable health insurance, if theycan get coverage at all.114 Congress, therefore,seeks to prohibit the practice of excludingpeople with preexisting conditions or charg-ing them more.

Most big insurance companies, more con-cerned with other threats, seem willing to goalong, especially if such a requirement werecombined with an individual mandate.115

Nonetheless, imposing community ratingand guaranteed issue would create far moreproblems than it would solve.

As the CBO has noted, community ratingand guaranteed issue make it more likely thatpeople will choose to go without health insur-ance.116 For example, in the year after NewYork imposed community rating in 1993, anestimated 500,000 people cancelled theirinsurance.117 This happens because communi-ty rating raises premiums for young andhealthy individuals, whereas both communityrating and guaranteed issue reduce or elimi-nate the penalty for waiting to purchase insur-ance until a person is older or sicker. As aresult, the young and healthy make the verylogical choice to forgo health insurance,assuming that they can always purchase insur-ance later when they need it. It is as if youcould buy retroactive auto insurance afteryou’ve had an accident. As the healthy leavethe insurance pool, the proportion of sick inthe pool grows ever greater—leading to higherpremiums which in turn causes the healthiestremaining individuals to leave in whatamounts to an insurance death spiral.

Of course, an individual mandate will the-oretically prevent the young and healthyfrom dropping out of the insurance market.On the other hand, combining communityrating/guaranteed issue with a mandate willforce young healthy individuals to purchaseinsurance with much higher premiums thanwould otherwise be the case.

In addition, by prohibiting insurers frompricing care on the basis of risk, communityrating/guaranteed issue creates an incentive toover-provide care for the healthy, while under-providing it to the sick. That is because under

community rating, insurance premiums arebased not on the expected cost of caring for aspecific individual, but on the average cost ofcare for all patients. Because of the way healthcare costs are distributed, most of the insuredunder that plan will have actual costs that arelower than their premiums, while a few willhave costs in excess of their premiums, andsome far in excess (about 5 percent of the pop-ulation accounts for nearly half of health careexpenses).118

Therefore, for an insurance company tomaximize its profitability, it will seek to dotwo things. First, it will want to reduce the costof caring for its high-cost sick people, or—bet-ter yet—induce them to switch to anotherplan. The easiest way to do that is not to havethe doctors and facilities sick people want. AsAlain Enthoven has pointed out, “A good wayto avoid enrolling diabetics is to have noendocrinologists on staff. . . . A good way toavoid cancer patients is to have a poor oncolo-gy department.”119

Second, an insurance company will seekto retain its low-cost healthy customers, andin fact, it will try to attract more such indi-viduals. That means doing exactly the oppo-site of what the insurer does with sick people:it will offer services that will be attractive tohealthy people, such as cancer screenings,sports medicine facilities, or even health clubmemberships.

Thus, while guaranteed issue and com-munity rating may make health insurancemore available and affordable for those withpreexisting conditions, it may well have theperverse result of lowering the quality of carethat those individuals receive.

Yet there are far less intrusive ways to dealwith the admittedly pressing problem of pro-viding a way to cover individuals with preex-isting conditions. Some have suggested great-er use of state-based high-risk pools. Whileimperfect, such proposals would represent afar less damaging way to cover those with pre-existing conditions. A new and far morepromising proposal is “health-status insur-ance,” which provides a lump-sum paymentsufficient to pay the higher premiums that

14

Community rating and

guaranteed issuemake it more

likely that peoplewill choose to gowithout health

insurance.


insurers charge to those people with preexist-ing conditions. Health-status insurance coversthe risk of premium reclassification, just asmedical insurance covers the risk of medicalexpenses.120

Middle-Class Subsidies

Almost any health care reform plan isgoing to contain a certain amount of subsidyto help low-income individuals obtain cover-age. After all, the number one reason thatpeople give for not purchasing insurance isthat they cannot afford it.121 However, if suchsubsidies go too far up the income ladder,they can easily create more problems thanthey solve.

Until the actual legislation is finallyunveiled, it is impossible to know just howextensive the subsidies will be. Yet, recent con-gressional actions provide cause for concern.Notably, Congress this year passed an exten-sion of the State Children’s Health InsuranceProgram that made it possible for states tosubsidize families with incomes as high as 400percent of the poverty level ($83,000 for a fam-ily of four).122 Indeed, if one considers “incomedisregards” that deduct certain expenses suchas mortgage payments, some families withannual incomes as high as $100,000 couldreceive subsidies.123 Democratic congressionalleaders have indicated that they envision a fur-ther expansion of Medicaid eligibility as partof any comprehensive health care plan.124

The expansion of subsidies will greatlyincrease the number of people dependent ongovernment, extending government welfareprograms well into the middle class. As withall means-tested government programs, wecan expect this new middle-class welfare bene-fit to discourage work, family formation,wealth accumulation, and self-sufficiency,while creating a voting constituency thatfavors ever-expanding benefits.

And such subsidies are expensive. As partof its reform plan, Massachusetts agreed tosubsidize families with incomes up to 300 per-cent of the poverty line ($63,500 for a family of

four). Spending for the Commonwealth Caresubsidized program has doubled, from $630million in 2007 to an estimated $1.3 billionfor 2009. Despite assessing insurers and hos-pitals, raising the penalty on noncompliantbusinesses, increasing premiums and copay-ments for consumers, and raising the statetobacco tax, the program’s financing remainson an unsustainable course.125

In addition, such subsidies are poorly tar-geted. Many of those eligible for coveragealready have health insurance. As discussedabove, this crowding-out phenomenon hasbeen readily apparent with both the tradi-tional Medicaid and SCHIP programs.

Therefore, the subsidies should not be seenjust as a method of increasing coverage, but asa way of shifting a large portion of insurancecosts from individuals to the tax system. Itbecomes simply another form of income redis-tribution. While many taxpayers may acceptsuch redistribution to the truly poor, how willthey feel about financing transfers to the mid-dle class?

Government-DirectedHealth Information

TechnologyOne area of health care reform where there

is a broad-based consensus is the need forincreased use of electronic medical recordsand other health information technologies.

Too many medical records are still main-tained on paper, making it slow and difficultto pass needed information from physician tophysician. Just 17 percent of U.S. physiciansare currently using electronic medical recordsfor their patients.126 For hospitals, the num-bers are even worse—just 9.1 percent have evena basic system, and just 1.5 percent have acomprehensive system.127 Where electronicrecords do exist, hospital and physician sys-tems are often incompatible. The unavailabili-ty and incompatibility of electronic medicalrecords contributes to the unnecessary deathsof up to 8,000 people each year because ofmedication errors.128

15

The expansion of subsidies willgreatly increasethe number ofpeople dependenton government.


In response, the Obama administrationincluded $19 billion in the stimulus bill forhealth information technology. Most of thosefunds will be used to subsidize and provideincentives for doctors and hospitals to movefrom paper to electronic recordkeeping.Beginning in 2011, both the Medicare andMedicaid programs will provide subsidies tophysicians who adopt “meaningful use” of a“certified” electronic medical record system.Those payments could run as high as $18,000in the first year for those complying in 2011,with subsidies declining in future years.Hospitals will be eligible for a one-time $2 mil-lion payment, plus an increase in their Medi-care diagnosis-related group fees. However, inaddition to the subsidy carrot, the stimulus billalso contained a stick. Those physicians whodo not comply by 2015 will lose 1 percent oftheir Medicare fees, escalating to 3 percent by2017. Noncompliant hospitals will have theirDRG-based fees reduced.

More controversially, the stimulus bill alsoincluded funding to significantly expand andstrengthen the office of the National Coordi-nator of Health Information Technology, ini-tially created by the Bush administration, tocoordinate federal efforts to ensure that thatevery American has a “certified electronichealth record” by 2014.

Some conservatives expressed concernthat this provision, combined with the pro-posals for government-sponsored compara-tive-effectiveness research, would use suchelectronic records to “monitor treatments tomake sure your doctor is doing what the fed-eral government deems appropriate and cost-effective,” as Betsy McCaughey, an adjunctsenior fellow at the Hudson Institute, wrotefor Bloomberg.com.129

While such concerns should not be dis-missed out of hand, it seems more likely thatthe goal at this point is simply to make cer-tain that government has “a seat at the table”as the private sector develops standards forelectronic medical records, as a spokesmanfor the Obama administration has said.130

That alone is reason enough for concern.The private sector is already mounting an

ambitious effort to develop electronic medicalrecords. Health care IT spending is expected toexceed $28.4 billion in 2009, an increase of 6.6percent over 2008.131 And while the recessionhas forced a cutback in most types of ITspending, health care IT spending is expectedto grow.132 In fact, health care IT spending inthe future is expected to exceed IT spending inall other industry sectors.133 Google HealthRecords Online has led the way, while Micro-soft has teamed up with Kaiser Permamenteto offer its own electronic medical record soft-ware.134 Telemedicine companies, like Tela-Doc, and patient advocacy organizations, likePinnacleCare, collect and digitize medicalrecords for their customers.135

On the other hand, the government’s trackrecord on IT is not particularly inspiring. TheFBI spent four years and $170 million trying tocomputerize its case system, only to abandonthe project in 2005. Before that, the FederalAviation Administration wasted more than $1billion on a so-far unsuccessful attempt tooverhaul the air traffic control computer sys-tem.136

The stimulus bill did not define “meaning-ful use” or “certified electronic health re-cords.”137 A restrictive interpretation of theseterms could well stifle private sector innova-tion. Moreover, imposing a single set of federalstandards on health IT means the entire sys-tem will be locked in to those standards forvery long time to come and future innovationwill be limited. The federal government is notnoted for its ability to respond rapidly tochanging technology and circumstances.

Even if successful, there are reasons toquestion the administration’s estimates forthe effectiveness of health IT, most notablyprojections for how much it can reducehealth care spending. Proponents of govern-ment spending for health IT generally cite aRAND Corporation analysis from 2005 thatpredicted $77 billion in annual savings andimproved outcomes.138 But the study alsosays that level of savings won’t be reacheduntil 2019.

Moreover, numerous experts have disput-ed this estimate. For example, the CBO criti-

16

The government’strack record on ITis not particularly

inspiring.


cized the RAND study as an overly opti-mistic, best-case scenario, and says that sim-ply adopting electronic medical records “byitself, is generally not sufficient”to reducecosts.139

Privacy advocates raise additional con-cerns about a nationwide network of elec-tronic medical records, particularly onedeveloped and monitored by the govern-ment. If fully implemented, the Obama blue-print would produce nationwide databasescontaining all of a patient’s medical informa-tion—including illnesses and genetic predis-positions, alcohol and drug addiction, andmedication—all attached to personal identi-fiers like Social Security numbers. The lan-guage in the stimulus bill appears to have sig-nificantly eroded patient privacy protections,allowing personal health data to be sold forpublic or private purposes.140 The govern-ment has further always maintained that lawenforcement must have access to otherwiseprivate medical data.141

Even without deliberate governmentaction, there are threats to patient privacy andthe security of electronic medical records. AsRobert Bazell of NBC recently reported, “Therehave been privacy breaches already: hackersgetting into hospital systems, doctors losinglaptops, and medical staff looking at recordsthey don’t need to see.”142 The government, inparticular, has had several notorious privacybreeches, such as the theft of a VeteransAdministration laptop (which contained per-sonal data, including Social Security numbers)and the National Institute of Health’s loss of alaptop (which contained sensitive medicalinformation on 2,500 patients enrolled in NIHstudies).143

Such privacy breaches are probably un-avoidable as health records naturally migrateto online formats. But a single nationwide net-work under government supervision wouldmagnify the danger.

As with comparative-effectiveness research,health IT is desirable because it is somethingthat could ultimately improve health care andreduce costs. However, just because somethingis worth doing does not mean, therefore, that

the government should do it. The private sec-tor is already making strides in developingeffective electronic medical records. Increasedgovernment involvement threatens to slowdown this progress, creats new dangers forpatient privacy, and potentially threatens bothpatient and physician choice.

A Brief Word about Cost

No one knows how much the final healthcare reform plan will cost. As mentionedabove, the Obama administration’s proposed2009 budget sets aside $634 billion as a con-tingency “down payment.” Other estimatesput the total costs in the range of $1.5–1.7trillion over a 10-year period.144

However, cost estimates for governmentprograms have been wildly optimistic overthe years, especially for health care programs.For example, when Medicare was institutedin 1965, it was estimated that the cost ofMedicare Part A would be $9 billion by 1990.In actuality, it was seven times higher—$67billion.145 Similarly, in 1987, Medicaid’s spe-cial hospitals subsidy was projected to cost$100 million annually by 1992 (just five yearslater); however, it actually cost $11 billion—more than 100 times as much.146 And in1988, when Medicare’s home care benefit wasestablished, the projected cost for 1993 was$4 billion, but the actual cost was $10 bil-lion.147 If the current estimates for the cost ofObamacare are off by similar orders of mag-nitude, we would be enacting a new entitle-ment that could bury future generationsunder mountains of debt and taxes.

The administration has raised a number ofideas for how to pay for the program. Theirbudget would fund the $634 billion downpayment through a number of measures,including reducing payments to private insur-ers under the Medicare Advantage Program;reducing the rate at which taxpayers with over$250,000 in annual income can itemize taxdeductions; and a number of smaller propos-als to increase efficiency and reduce waste.148

However, these proposals were stripped out of

17

Just becausesomething isworth doing does not mean,therefore, thatthe governmentshould do it.


the budget resolution that was approved byCongress. Reform supporters must now lookfor other funding mechanisms. For example,Sen. Kent Conrad (D-ND), chairman of theSenate Budget Committee, has suggested thathe is open to “energy taxes” as a way to pay forhealth care reform.149 However, such measureswill fall far short of what is necessary to pay forthe full costs of the reform plan. It will be nec-essary therefore to either run up more nation-al debt—at a time when massive future budgetdeficits threaten to bankrupt the country—orto break President Obama’s pledge not to raisetaxes on the middle class.150

As humorist P. J. O’Rourke once said, “Ifyou think health care is expensive now, waituntil you see what it costs when it's free.”151

Conclusion

It is likely that Congress will vote on ahealth care reform bill before the end of theyear.152 While the details of that bill have notyet been revealed, its broad outlines are readilyapparent from the campaign promises andmore recent statements of President Obama,the writings and statements of the Obamaadministration’s health care advisers, and pro-posals by the congressional Democrats whohave been leading the administration’s effortson Capitol Hill.

Unfortunately, it appears that the final pro-posal will be a cornucopia of bad policy ideas. Itwould impose an unprecedented level of gov-ernment control over one-sixth of the U.S. econ-omy and over some of the most important, per-sonal, and private decisions that Americansmake, while setting the stage for the eventualevolution into a single-payer system.

Given the problems facing our health caresystem—high costs, uneven quality, millions ofAmericans without health insurance—it some-times seems that things couldn’t possibly getany worse. But if the final health care reformplan contains most or all of these bad ideas,things could indeed get worse—much worse.

For the economy, Obamacare could meantrillions of dollars in new taxes and the loss of

hundreds of thousands of jobs. Health careproviders could find their ability to practicemedicine constrained and directed by far awaygovernment bureaucracies. But for individualhealth care consumers the consequencescould be far worse: they would face far fewerchoices and the possibility of far poorer care.

Health care clearly needs reform—but get-ting that reform right is more importantthan just doing something.153 Obamacare,unless it is drastically revised in the comingmonths, gets that reform wrong.

Notes1. Lori Montgomery and Amy Goldstein, “HealthCare Tops Fiscal Need List,” Washington Post, Feb-ruary 24, 2009.

2. Barack Obama (address to a Joint Session ofCongress, February 24, 2009), http://www.realclearpolitics.com/articles/2009/02/obama_address_to_congress.html.

3. Barack Obama (remarks to the White HouseHealth Care Summit, March 5, 2009), http://www.washingtonpost.com/wp-dyn/content/article/2009/03/05/AR2009030501850.html?sid=ST2009030501895.

4. Total costs are estimated to be in the range of$1.5–1.7 trillion over 10 years. Ricardo Alonso-Zaldivar, “Health Care Overhaul May Cost about$1.5 Trillion,” Associated Press, March 17, 2009,http://apnews.myway.com/article/20090317/D97023500.html .

5. Drew Armstrong, “Baucus Wants Health Over-haul on Senate Floor by Summer,” CQ Daily On-line, March 3, 2009, http://www.cqpolitics.com/wmspage.cfm?docID=news-000003064848#.

6. Erica Warner, “White House Budget DirectorGrilled on Health Plan Details,” Associated Press,March 10, 2009.

7. ABC World News Tonight, March 5, 2009.

8. Tom Daschle, Scott Greenberger, and JeanneLambrew, Critical: What We Can Do about the Health-Care Crisis (New York: Thomas Dunne Books,2008).

9. See http://wonkroom.thinkprogress.org/2009/02/19/sebelius-hhs/.

10. Max Baucus, “Call to Action: Health Reform

18

The final proposal would

impose anunprecedentedlevel of govern-

ment control overone-sixth of theU.S. economy.


2009,” Senate Finance Committee, November 12,2008.

11. David Drucker, “Legislating the Legacy of aLion,” Roll Call, January 13, 2009.

12. Robert Pear, “Democrats Agree on a HealthPlan; Now Comes the Hard Part,” New York Times,April 1, 2009.

13. “The Healthy Americans Act,” S 334, 111thCong., 1st sess.

14. The $1.3 trillion price tag includes interest andrepresents the real cost to taxpayers. The actualappropriation was $787 billion. “The AmericanRecovery and Reinvestment Act of 2009,” HR 1,111th Cong., 1st sess.

15. “Barack Obama’s Plan for a Healthy America:Lowering Health Care Costs and Ensuring Afford-able, High-Quality Health care for All,” Obama ’08,www.BarackObama.com.

16. Baucus.

17. Robert Pear, “Team Effort in House to Over-haul Health Care,” New York Times, March 18, 2009.

18. Carmen DeNavas-Walt et al., “Income, Poverty,and Health Insurance Coverage in the United States:2006,” Current Population Reports, U.S. CensusBureau, August 2007.

19. Quoted in Lawrence H. Summers, “Some SimpleEconomics of Mandated Benefits,” American Eco-nomic Review 79, no. 2 (May 1989): 177–83.

20. Jonathan Gruber, “The Incidence of MandatedMaternity Benefits,” American Economic Review 84,no. 3 (June 1994): 662–41.

21. Alan Krueger and Uwe Reinhardt, “The Eco-nomics of Employer Versus Individual Mandates,”Health Affairs 13, no. 2 (Spring II, 1994): 34–53.

22. Aaron Yelowitz, “Pay-or-Play Health InsuranceMandates: Lessons from California,” Public PolicyInstitute of California, http://www.ppic.org/content/pubs/cep/EP_1006AYEP.pdf.

23. Lawrence Summers, “Some Simple Economicsof Mandated Benefits,” American Economic Review79, no. 2 (May 1989): 177–83.

24. Mark Pauly, Health Benefits at Work: An Economicand Political Analysis of Employment-Based HealthInsurance (Ann Arbor, MI: University of MichiganPress, 1998), p 103.

25. Michael Chow and Bruce Phillips, “Small Busi-ness Effects of a National Employer Healthcare

Mandate,” National Federation of IndependentBusiness, January 26, 2009.

26. Katherine Baicker and Helen Levy, “EmployerHealth Insurance Mandates and the Risk ofUnemployment,” Employment Policies Institute,June 2005.

27. Chow and Phillips.

28. Yelowitz.

29. “Options for expanding Health Insurance Cov-erage and Controlling Costs” (statement of DouglasElmendorf, director, Congressional Budget Office,before the U.S. Senate Committee on Finance,February 25, 2009), p. 12.

30. Barack Obama (speech delivered at the Uni-versity of Iowa, May 29, 2007).

31. For a look at how we ended up with an employ-ment-based health care system, see David Blumen-thal, “Employer-Sponsored Health Insurance in theUnited States—Origins and Implications,” NewEngland Journal of Medicine 355, no. 1 (July 6, 2006):82–88.

32. Robert Pear, “When a Job Disappears, So Doesthe Health Care,” New York Times, December 6, 2008.

33. Liz Arjun, Jocelyn Guyer, and Martha Heber-lein, “Keeping the Promise to Children and Familiesin Tough Economic Times,” Georgetown Universi-ty Health Policy Institute Center for Children andFamilies, November 2008, http://ccf.georgetown.edu/index/cms-filesystem-action?file=ccf%20publications/uninsured/economy%20es.pdf.

34. Laura Meckler, “Clinton, Obama Split on In-surance Mandate,” Wall Street Journal, February 23,2008. Obama did, though, support a mandate thatparents purchase insurance to cover their children(generously defined as up to age 25). “BarackObama’s Plan for a Healthy America: LoweringHealth Care Costs and Ensuring Affordable, High-Quality Health Care for All,” Obama ’08, www.BarackObama.com.

35. Ezra Klein, “Obama’s Health Care Plan expectsan Individual Mandate,” American Prospect Blog,February 24, 2009, http://www.prospect.org/csnc/blogs/ezraklein_archive?month=02&year=2009&base_name=obamas_health_care_plan_expect.

36. Baucus.

37. Robert Pear, “Team Effort in House to OverhaulHealthy Care,” New York Times, March 18, 2009.

38. Donna Smith, “U.S. Health Insurers Seek In-dividual Coverage Mandate,” Reuters, March 24,

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2009; “AMA Seeks Mandatory Health Insurancefor All,” Bloomberg News, June 14, 2006.

39. “Romney Plan Would Require All to Buy HealthInsurance . . . Or Else,” Associated Press, June 23,2005.

40. Anna Jo Bratton, “Gingrich Suggests InsuranceMandate for Some,” Associated Press, June 11,2008.

41. “Healthy Americans Act,” S 334, 111th Cong.,1st sess.

42. The Heritage Foundation first spelled out thedetails of its proposal in 1994. Stuart Butler, “TheHeritage Foundation Proposal” (presentation to aHeritage Foundation conference on “Is Tax Reformthe Key to Health Care Reform?” Heritage Lecturesno. 298, October 23, 1990). However, the founda-tion has reaffirmed its support for an individualmandate as recently as 2003. Stuart Butler, “Layingthe Groundwork for Universal Health Care Cov-erage” (testimony before the Special Committee onAging, United States Senate, March 10, 2003).

43. Baucus, p 15.

44. Ibid.

45. Jack Hadley and John Holahan, “The Cost ofCare for the Uninsured: What Do We Spend, WhoPays, and What Would Full Coverage Add to Med-ical Spending?” Kaiser Commission on Medicaidand the Uninsured, May 10, 2004.

46. Andrea Sisko, Christopher Truffer, Sheila Smith,Sean Keehan, Jonathan Cylus, John A. Poisal, M.Kent Clemens, and Joseph Lizonitz, “Health Spend-ing Projections Through 2018: Recession EffectsAdd Uncertainty to the Outlook,” Health Affairs 28,no. 2 (2009): w346–w357.

47. See Greg Scandlen, “The Pitfalls of MandatingHealth Insurance,” Council for Affordable HealthInsurance Issues and Answers no. 135, April 2006.

48. Baucus, , p iii.

49. Rob Stewart and Jeffrey Rhoades, “The Long-Term Uninsured,” Research Note, U.S. Census Bu-reau, http://aspe.hhs.gov/health/long-term-uninsured04/report.pdf.

50. Baucus, p 15.

51. Peter Orszag and Matthew Hall, “Nonfilers andFilers with Modest Tax Liabilities,” Tax Notes, TaxPolicy Center, Urban Institute and Brookings In-stitution, August 4, 2003, http://www.urban.org/UploadedPDF/1000548_TaxFacts_080403.pdf.

52. Nina Olsen, “National Taxpayer Advocate 2003Annual Report to Congress,” Taxpayer AdvocateService, December 31, 2003, http://www.irs.gov/pub/irs-utl/nta_2003_annual_update_mcw_1-15-042.pdf.

53. Lyle Nelson, “How Many People Lack HealthInsurance and for How Long?” CongressionalBudget Office, May 12, 2003.

54. C. Eugene Steuerle, “Implementing Employerand Individual Mandates,” Health Affairs 13, no. 2(Spring II, 1994): 62.

55. Carmen DeNavas-Walt, Bernadette Proctor,and Jessica Smith, “Income, Poverty, and HealthInsurance Coverage in the United States, 2007,”U.S. Census Bureau, August 2008, Table 6, p. 22,http://www.census.gov/prod/2008pubs/p60-235.pdf.

56. Hartman and Van de Water, “The BudgetaryTreatment of an Individual Mandate to Buy HealthInsurance” (Congressional Budget Office memo-randum, August 1994), p. 1 (emphasis added).

57. Victoria Craig Bunce and J. P. Wieske, “HealthInsurance Mandates in the States: 2007,” Councilfor Affordable Health Insurance, January 2007,http://www.cahi.org/cahi_contents/resources/pdf/MandatesInTheStates2007.pdf.

58. Rachel Nardin, “Massachusetts’ Plan: A FailedModel for Health Care Reform,” February 18, 2009,http://www.pnhp.org/mass_report/mass_report_Final.pdf.

59. Kevin Sack, “Massachusetts Faces Costs of BigHealth Care Plan, New York Times, March 15, 2009.

60. Ibid.

61. Ricardo Alonso-Zaldivar, “Consensus Bid Couldbe Derailed by Health Overhaul,” Washington Post,March 9, 2009.

62. Laura Litvan, “ House Health Plan to IncludeGovernment-Run Option,” Bloomberg, March26, 2009.

63. Baucus, p. 18.


65. Reed Abelson, “A Health Plan for All and theConcerns It Raises,” New York Times, March 25, 2009.

66. Ronald Williams, CEO, Aetna Insurance Com-pany (testimony before the Senate Committee on

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Health, Education, Labor, and Pensions, March 24,2009).

67. Getsur Davidson et al., “Public Program Crowd-Out of Private Coverage: What Are the Issues?” Rob-ert Woods Johnson Foundation Research SynthesisReport no. 5, June 2004. Conversely, studies haveshown that when government programs are cutback, private coverage increases. George Borjas,“Welfare Reform, Labor Supply, and Health In-surance in the Immigrant Population,” Journal ofHealth Economics 22, no. 6 (2003): 956–57.

68. Congressional Budget Office, “The StateChildren’s Health Insurance Program,” May 2007.

69. Jackie Calmes and Robert Pear, “Administra-tion is Open to Taxing Health Benefits,” New YorkTimes, March 14, 2009.

70. The employer mandate would not alleviatethis problem. The incentives would be such that itwould be easier and less expensive for employersto “pay” rather than “play.” Lewin Group (presen-tation to Senate Finance committee RepublicanStaff, December 5, 2008).

71. Ibid.

72. There are currently about 202 million Ameri-cans with private health insurance. U.S. Census Bu-reau Current Population Report, August 2008, http://www.census.gov/prod/2008pubs/p60-235.pdf.

73. See, for example, Len Nichols, “A ModestProposal for a Competing Public Health Plan,”New America Foundation, March 11, 2009.

74. “Health Plan Differences: Fully-Insured vs. Self-Insured,” Employee Benefits Research InstituteFast Facts no. 114, February 11, 2009.

75. “The Public Plan Time Bomb?” National JournalOnline, March 23, 2009, http://healthcare.nationaljournal.com/2009/03/the-public-plan-time-bomb.php.

76. Jacob Hacker, “The Case for Public Plan Choicein National Health Reform: Key to Cost Control andQuality Coverage,” Institute for America’s Future,December 17, 2008.

77. Medicare Advantage, also known as MedicarePart C or Medicare+Choice, allows Medicare ben-eficiaries to receive coverage through privateinsurers who contract with the Medicare programto provide basic Medicare services, plus a varietyof additional services not normally covered byMedicare.

78. Statement by Barack Obama on “This Week

with George Stephanopoulos,” January 19, 2009,http://media.bulletinnews.com/playclip.aspx?clipid=8cb4275f6a44ad3.

79. Larissa MacFarquhar, “The Conciliator,” NewYorker, May 7, 2007.

80. “Seniors Town Hall in Ames,” CommunityBlogs, September 21, 2007, http://iowa.barackobama.com/page/community/tag/Ames.


82. Baucus.

83. American Recovery and Reinvestment Act of2009, HR 1, 111th Cong., 1st sess., CongressionalRecord 155 (February 12, 2009): H 1423.

84. Ibid., p. H 1326.

85. Gerard Anderson and Kalipso Chalkidou,“Spending on Medical Care: More Is Better?” Journ-al of American Medical Association 299, no. 20, May28, 2008, pp. 2444–45.

86. Elliott Fisher, “Expert Voices: More Care IsNot Better Care,” National Institute for HealthCare Management,” January 2005.

87. See, for example, “Elliott Fisher, Julie Bynum,and Jonathan Skinner, “Slowing the Growth ofHealth Care Costs—Lessons from Regional Vari-ation,” New England Journal of Medicine 360, no. 9(2009): 849–52.

88. Peter Orszag, “Opportunities to IncreaseEfficiency in Health Care” (statement to the Con-gressional Budget Office, at the Health ReformSummit of the Committee on Finance, UnitedStates Senate, June 16, 2008).

89. Advocates of government-sponsored compara-tive-effectiveness research argue that only govern-ment can effectively provide this information sincecomparative-effectiveness information has charac-teristics of a “public good,” meaning that marketswill not generate the efficiency-maximizing quanti-ty. However, as my colleague Michael Cannon hasshown, economic theory does not conclude thatgovernment should provide comparative-effective-ness research, nor that government provisionwould increase social welfare. Michael Cannon, “ABetter Way to Generate and Use Comparative-Effectiveness Research,” Cato Institute Policy Anal-ysis no. 632, February 6, 2009.

90. National Cancer Institute, “Treatment Choicesfor Men with Early Stage Prostate Cancer,” Feb-

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ruary 14, 2006, http://www.cancer.gov/cancertopics/prostate-cancer-treatment-choices.

91. See, for example, Daniel Klein, “Policy Medi-cine versus Policy Quackery: Economists againstthe FDA,” Journal of Knowledge, Technology & Policy13, no. 1 (March 2000): 92–101.

92. Quoted in Sharon Begley, “Why Doctors HateScience,” Newsweek, February 28, 2009.

93. House Committee on Appropriations, Ameri-can Recovery and Reinvestment Act of 2009 DiscussionDraft, 111th Cong., 1st sess., 2009, p. 52 (emphasisadded). Of course, such report language is notactually part of the law, but it is frequently used bythe executive branch and, significantly, by thecourts as an authoritative method of determiningthe meaning and purpose of legislation.

94. John Reichard, “NIH Chief Doesn’t Rule OutCost Component to Comparative Studies,” CQHealthbeat News, March 26, 2009.

95. “Senate Rejects Amendment to Ban Cost inComparative-Effectiveness Studies,” InsideHealthPolicy.com, April 2, 2009, http://www.insidehealthpolicy.com/.

96. John Kraemer and Lawrence Gostin, “Science,Politics, and Values: The Politicization of PracticeGuidelines,” Journal of the American Medical Associ-ation 301, no. 6 (2009): 665–67.

97. Knut Erik Tranoy, “Ethical Principles in PublicHealth Care in “Scandinavia: With a Remark aboutRelativism and the Cultural Foundations of HealthCare Ethics,” in Darryl R. J. Macer, ed., Bioethics for thePeople by the People (Eubios Ethics Institute, 1994), p. 57.

98. Ibid., p. 57.

99. Congressional Budget Office, “Research on theComparative Effectiveness of Medical Treatments,”December 2007.

100. America’s Health Insurance Plans, Center forPolicy and Research, “Technical Memo: Estimatesof the Potential Reduction in Health Care Costsfrom AHIP’s Affordability Proposals,” June 2008,p. 3, Table 1.

101. Congressional Budget Office, “Research onthe Comparative Effectiveness of Medical Treat-ments,” December 2007.

102. A case could certainly be made that taxpayersshould not have to subsidize health care that hasnot proven to be effective, nor can Medicare andMedicaid pay for every possible treatment regard-

less of cost-effectiveness. However, that does notdeal with the other problems surrounding gov-ernment-sponsored comparative-effectiveness re-search that are discussed in this chapter. In theend, the answer to Medicare and Medicaid’s open-ended subsidies is to change the structure ofthose programs, shifting the subsidy (to thedegree that there is one) directly to the consumerthrough some form of capped premium support.The consumer would then be required to makecomparative cost-value decisions.

103. Tom Daschle, Scott Greenberger, and JeanneLambrew, Critical: What We Can Do about the Health-Care Crisis (New York: Thomas Dunne Books, 2008),p. 179.

104. Jacob Goldstein, “U.K. Says Glaxo’s BreastCancer Drug Isn’t Worth the Money,” Wall StreetJournal, July 7, 2008.

105. Uwe Reinhardt, “An Information Infrastructurefor the Pharmaceutical Market,” Health Affairs23, no.1 (January/February 2004): 107–12.

106. Prioritization of Health Services: A Report tothe Governor and Legislature, Oregon HealthServices Commission, 1991.

107. United States Office of Technology Assess-ment, Evaluation of the Oregon Medicaid Proposal(1992), quoted in Jonathan Oberlander, TheodoreMarmor and Lawrence Jacobs, “Rationing MedicalCare: Rhetoric and Reality in the Oregon HealthPlan,” Canadian Medical Association Journal 164, no.11 (May 29, 2001): 1586.

108. See Cannon for more information about thesorry history of congressional interference withgovernment health care research.

109. Kraemer and Gostin.

110. Erica Werner, “New Debate on How to DecideBest Health Treatments,” Associated Press, March12, 2009.

111. Congressional Budget Office, “Research on theComparative Effectiveness of Medical Treatments,”December 2007.

112. Ibid.

113. Cannon.

114. The actual number of people with preexist-ing conditions is extremely hard to come by. TheCommonwealth Fund suggests that 21 percent ofworking-age adults fall into this category, butthat includes not only those who are turned downfor insurance, but those who are charged a higher

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premium, or have had certain exclusions on theindividual market due to a preexisting condition,http://www.commonwealthfund.org/~/media/Files/News/News%20Releases/2006/Sep/Nearly%20Nine%20of%20Ten%20Who%20Seek%20Individual%20Market%20Health%20Insurance%20Never%20Buy%20a%20Plan/Squeezed_Release_Collins_9%2012%2006%20pdf.

115. Ricardo Alonso-Zaldivar, “Insurers Offer toStop Charging Sick People More,” Associated Press,March 24, 2009. The industry offer may not bequite as clear-cut as has been reported, however.While willing to forgo strict medical underwriting,the industry plans to continue varying premiumsaccording to factors such as age and geographiclocation, which often serve as proxies for health sta-tus.

116. Congressional Budget Office, “The Price Sensi-tivity of Demand for Nongroup Health Insurance,”Background Paper, August 2005, http://www.cbo.gov/ftpdocs/66xx/doc6620/08-24-HealthInsurance.pdf .

117. Mark Liow and Drew Davidoff, “The Impactof Guaranteed Issue and Community Rating inthe State of New York,” Milliman & Robertson,August 18, 1994.

118. Mark W. Stanton, “High Concentration ofU.S. Health Care Expenditures,” AHRQ Researchin Action, Issue 19, June 2006.

119. Alain Enthoven, “The History and Principlesof Managed Competition,” Health Affairs 12, sup-plemental (1993): 35.

120. John Cochrane, “Health-Status Insurance: HowMarkets Can Provide Health Security,” Cato Insti-tute Policy Analysis no. 633, February 18, 2009.

121. “The Uninsured: A Primer, Key Facts AboutAmericans Without Health Insurance,” KaiserFamily Foundation, December 2003.

122. Dawn Horner, Jocelyn Guyer, Cindy Mann,and Joan Alker, “The Children’s Health InsuranceProgram Reauthorization Act of 2009: Overviewand Summary,” Georgetown University HealthPolicy Institute Center for Children and Families,March 2009, p. 2. By way of comparison, the medi-an family income in the United States for 2007 was$50,233. U.S. Census Bureau, “Household IncomesRise, Poverty Rate Unchanged, Number of Unin-sured Down” (press release, August 26, 2008), http://www.census.gov/Press-Release/www/releases/archives/income_wealth/012528.html.

123. Richard Land, “Giant Steps toward a Govern-ment Takeover of the Health Care System?” The

Ethics and Religious Liberty Commission, Feb. 3,2009, http://erlc.com/article/giant-steps-toward-a-government-takeover-of-the-health-care-system/.

124. Robert Pear, “Democrats Agree on a HealthPlan.”

125. Sack.

126. Bill Crounse, “Electronic Medical Records:The Right Medicine for an Ailing Healthcare Sys-tem,” Microsoft News for Healthcare Providers,November 22, 2005, http://www.microsoft.com/industry/healthcare/providers/businessvalue/housecalls/emr.mspx.

127. Akish Jha et al., “Use of Electronic HealthRecords in U.S. Hospitals,” New England Journal ofMedicine 360, no. 16 (April 16, 2009): 1628–38.

128. Andrea Stone, “Former Foes Clinton, GingrichBand Up on Health Care Plan,” USA Today, May 11,2005. An additional 1.5 million patients are report-edly injured, and at least 400,000 of those injuries areconsidered preventable. See “Medication ErrorsInjure 1.5 Million People and Cost Billions of DollarsAnnually,” National Academy of Sciences (pressrelease, July 20, 2006).

129. Betsy McCaughey, “Ruin Your Health withthe Obama Stimulus Plan,” Bloomberg.com. Feb-ruary 9, 2009, http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_mccaughey&sid=aLzfDxfbwhzs.

130. Ed O’Keefe, “Stimulus Debate Shines Lighton Health IT Job,” WashingtonPost.com, February11, 2009, http://voices.washingtonpost.com/federal-eye/2009/02/in_a_likely_preview_of.html.

131. Howard Anderson, “Gartner: I.T. Spendingto Grow 2.6%,” Health Data Management, February24, 2009, http://www.healthdatamanagement.com/news/I.T._spending27781-1.html.

132. Anne Ziegler, “Healthcare IT Spending Grow-ing, Despite Broader IT Slowdown,” http://www.fiercehealthit.com/story/study-healthcare-it-spending-growing-despite-broader-it-slowdown/2008-09-21?utm_medium=rss&utm_source=healthcare_Obama&cmp-id=OTC-RSS-FHI0.

133. Neil Versel, “Tech Spending Grows Fastest inHealth Care,” Modern Physician, November 19, 2003.

134. Steve Lohr, “Google Offers Personal HealthRecords on the Web,” New York Times, May 20, 2008;Amy Thompson, “Microsoft, Kaiser Plan OnlineHealth Records System,” Bloomberg, July 10, 2008.

135. See the TelaDoc website at http://www.tel

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PA Masthead.indd 2PA Masthead.indd 2PA Masthead.indd 2PA Masthead.indd 2PA Masthead.indd 2PA Masthead.indd 2PA Masthead.indd 2PA Masthead.indd 2PA Masthead.indd 2PA Masthead.indd 2PA Masthead.indd 2PA Masthead.indd 2PA Masthead.indd 2PA Masthead.indd 2PA Masthead.indd 2PA Masthead.indd 2PA Masthead.indd 2PA Masthead.indd 2PA Masthead.indd 2 2/9/06 2:08:35 PM2/9/06 2:08:35 PM2/9/06 2:08:35 PM2/9/06 2:08:35 PM2/9/06 2:08:35 PM2/9/06 2:08:35 PM2/9/06 2:08:35 PM2/9/06 2:08:35 PM2/9/06 2:08:35 PM2/9/06 2:08:35 PM2/9/06 2:08:35 PM2/9/06 2:08:35 PM2/9/06 2:08:35 PM2/9/06 2:08:35 PM2/9/06 2:08:35 PM2/9/06 2:08:35 PM2/9/06 2:08:35 PM2/9/06 2:08:35 PM

adoc.com/home.php and the PinnacleCare web-site at http://www.pinnaclecare.com. (Here I mustmake a full disclosure: my wife works for Pinna-cleCare.)

136. Erica Werner, “Questions Surround HealthIT Money,” Associated Press, March 23, 2009.

137. The federal government currently contractswith a private organization, the Certification Com-mission on Health Information Technology, to cer-tify whether electronic record systems meet mini-mum government standards.

138. Richard Hillestad and James H. Bigelow,“Can HIT Lower Costs and Improve Quality?”RAND Corporation, 2005.

139. Congressional Budget Office, “Key Issues inAnalyzing Major Health Insurance Proposals,”December 2008.

140. Sue Blevins, “How the Economic StimulusLaw Affects Your Health Privacy Rights,” Institutefor Health Freedom, March 2009.

141. See HIPAA Compliance Journal at http://www.hipaacompliancejournal.com/.

142. “Electronic Medical Records Used in Less ThanTwo Percent of U.S. Hospitals,” NBC Nightly News,March 25, 2009.

143. Ellen Nakashima and Rick Weiss, “Patients’ Dataon Stolen Laptop,” Washington Post, March 24, 2008.

144. Ricardo Alonso-Zaldivar, “Health Care Over-

haul May Cost about $1.5 Trillion,” AssociatedPress, March 17, 2009.

145. Stephen Dinan, “Entitlements Have aHistory of Cost Overruns,” Washington Times, June16, 2006.

146. Ibid.

147. Ibid.

148. Jackie Calmes and Robert Pear, “To Pay forHealth Care, Obama Looks to Taxes on Affluent,”New York Times, February 25, 2009.

149. Walter Alarkon, “Conrad Open to EnergyTaxes for Healthcare,” The Hill, March 29, 2009.

150. Budget deficits are already projected to totalmore than $9.3 trillion over the next 10 years, evenwithout considering the full cost of health carereform. Lori Montgomery, “U.S. Budget Deficit toSwell Beyond Earlier Estimates,” Washington Post,March 21, 2009.

151. P. J. O’Rourke, “The Liberty Manifesto” (remarksdelivered at a gala dinner celebrating the opening ofthe Cato Institute’s new headquarters in Washing-ton, May 6, 1993).

152. Pear, “Democrats Agree on a Health Plan.”

153. For an alternative approach to health carereform, see Michael Cannon and Michael Tanner,Healthy Competition: What’s Holding Back Health Careand How to Free It, 2nd ed. (Washington: Cato In-stitute, 2007).

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