POLICY/PHARMA: Cato calls the Republicans on the Part D deceipt

I approve of government programs done well. Michael Cannon doesn’t approve of them done much at all. We both disapprove of them being done expensively and then having so-called Conservatives in power lie bold face about their costs and enrollment rates. Yup, I’m sending you over to the Cato Institute blog. That might be a first for TPM Cafe, but it’s a great explanation of what’s wrong with Part D.

(Also posted at TPMcafe)

CODA: I haven’t made it thorugh Kling’s book yet, and I had a real problem with Cannon’s — as it missed the point so badly that I didn’t think it was worth reviewing. But with Radley Balko keeping up on the drug war stuff, Cato remains the thinking man’s right wing think-tank.

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10 replies »

  1. Peter, I am not opposed to government intervention per se. Rather, I am opposed to one size fits all. That is why I like the good / better / best approach by the Century Foundation. I don’t think employer provided healthcare is a good model and have said numerous times that the only reason we have it is a 60 year old accident of history related to getting around World War II era wage controls. I also support doing away with the tax preference afforded employer provided health benefits even though doing so would cost my wife and me about $5,000 per year in higher taxes.
    Since you obviously know a lot more about the Canadian system than I do, I wonder if you could help me (and the rest of us perhaps) understand the difference between how Canada and the U.S. deal with the following three aspects of healthcare and the extent to which it may account for some of the cost differential:
    1. Malpractice. The U.S. is widely seen as a litigious society. Malpractice insurance itself is only about 1% of healthcare costs, but fear of lawsuits has spawned a defensive medicine / CYA mentality among doctors and hospitals that is probably marginally useful at best to the patient but helpful in defending against a mapractice suit should one arise.
    2. Provider fraud. In the U.S., this is an issue in both the Medicare and Medicaid programs. I am not referring to honest confusion over complex regulations, but rather billing for services that were never provided or billing for equipment that is more valuable or costly than was actually provided or billing more than once for the same service.
    3. End of life / futile care. This is a sensitive area and an expensive aspect of our system, I believe. The UK uses QALY metrics to deal with it. Only a minority of adults in the U.S. have executed living wills. In the absense of one or a healhcare proxy who can make decisions for a patient at the end of life who can no longer communicate, doctors and hospitals assume they have no choice but to provide as much care as possible to prolong life or postpone death depending on how you look at it.
    I know Canada (and probably other countries) deliberately limit access to care by limiting the number of expensive imaging machines and making patients wait fairly long periods for non-life threatening elective surgery, though they could be considerable pain while waiting. I also understand that healthcare professionals (notably doctors) earn considerably less money than they do here, though I don’t know how big a factor this might be in the cost differential. Any help you can provide in clarifying these issues would be appreciated.

  2. Well taking your figures then the comparison #’s would be 36% for U.S. and my figure of 46% for Canada? All that bad? The years would have to be the same though. I also found this assessment in economy.com:
    “The Canadian economy has delivered solid performance for nearly a decade with increased resilience to economic shocks, demonstrating the benefits of a well-designed macroeconomic framework and the pay off from a range of structural reforms implemented since the late 1980s”.
    As to tax rates the last time I did a personal analysis of Canada’s tax the income tax rate for my level came even with the Untided States, but the extra taxes, PST,GST, Gas, etc were higher. And I do think the ratio of civil servants to citizens is way too high. But I think people are more accepting of taxes when they see what they’re paying and what they’re getting back. If you asked Canadians if they would prefer lower taxes to a U.S. model of healthcare they’d laugh in your face. As well Canada ranks in the top each year as one one of the best countries to live in. I think Americans would accept a trade off of taxes for healthcare if they knew what they were getting. They sure know what they’re getting now – The Shaft. Studies show that the U.S. cost of healthcare is twice that of other industrialized countries. So who do you want to pay it to? Half the amount of total healthcare costs when done through government, or twice as much through private enterprize. Clearly the cost to benefit ratio shows the U.S. failing, so what’s the free market done for you lately. As to those that don’t want government intervention, well how do they expect any change to occur. Your good/better/best solution will require government intervention. And for sure docs unhappy with malpractise claims went to the government for a solution. How come government intervention is always for “me” but never for the other guy. Private enterprize guys think their lobbyists should have government intervention, usually in secret sweatheart deals with politicians. Here in NC auto insurance has oversight from the state gov. They have to show their books and justify their premium increases. This year the commissioner of insurance ordered a rollback of premiums. I wish we had at least that for the health insurance industry. Right now there is no transparency of this inductry. Is all this off topic?

  3. Peter,
    The U.S. debt figure that you cited of 65% of GDP (2004) includes the special issue securities that comprise the bulk of the “assets” of the social security, medicare and other government trust funds. The debt actually held by outside investors like you and me (publicly held debt), on which the federal government has to pay interest each year in actual cash to be raised by taxes or borrowing is approximately 37% of GDP. See http://www.concordcoalition.org.
    The other countries that you mentioned being able to provide health insurance for their populations are doing so at total tax burdens (federal, state and local) of 50% of income or more for people of middle class and above socioeconomic status. Most economists will tell you that tax burdens in that range come at a cost of lower growth and less economic opportunity. I recognize that some people are perfectly willing to trade less growth and less opportunity for more economic security and less income inequality across the society. However,I suspect that this socialistic tradeoff would not set well with the part of our population that actually pays the bills to finance the government.
    With respect to healthcare reform, as I have said before, I think the Century Foundation approach (premium support with choice) has a lot of potential with some modifications and enhancements. I do not think a rigid one size fits all approach would be appreciated or accepted in the U.S., in part, because it is not consistent with our national culture.

  4. Well if 40-60 providers per State and a plan so complex most people who may need it can’t understand it is not some sort of fiasco I don’t know what would qualify. Matt has commented on whether the plan is really accomplishing much. Even CATO has commented. But maybe just the word “mess” would do. It’s certainly a plan for drug and insurance companies not consumers, like everything else in this healthcare system.
    From the research I did, here is what I found for GDP/Debt: U.S. – 65% (2004),Germany – 65.8%(04),
    France – 67.7%, Canada – 46% (2001/02). If my figures are close then these nations are also able to provide affordable healthcare and look after the economy too. I’ll look at your source if you like. I find it amusing that conservatives will throw deficits to the wind and re-define the limits when they need to hold power. Small government and balanced budgets? Here’s another take, http://zfacts.com/, you can decide if he has an agenda. How come the VA can negotiate drug prices and Medicare can’t?
    Well Tom if some sort of government control is not justified what is? The private sector has had a chance to fix the problems; where’s the fix; do I see it coming? Certainly the present Congressional Committee visiting communities around the country is hearing that overwhelmingly people want a single pay system. They’re fed up with what the private sector has given them so far, which is usually the shaft. Is it justified to bankrupt people when they need medical care? If you don’t want a government system then get the private sector to fix what we have now. But I think there’s still a lot of money to be mined yet, so no solution coming. But I do agree that with the present administration and it’s incompetence, a single pay government system would be another mess. But I don’t see Democrats doing any better right now. So as usual there will need to be a crisis for anyone to act, I don’t see us there yet.

  5. > Peter, I’m not sure I understand what about
    > Medicare Part D is a fiasco, and what might
    > be your cure?
    Oh, come now Barry — by now you know Peter’s cure: “Nationalize the entire medical industry from devices through delivery, dictating prices, access terms, everything.”
    At least if we did this, the government of Canada would have to negotiate the price of drugs with the government of the USA the way prices of military hardware are negotiated. Wouldn’t THAT be a hoot!

  6. Peter, I’m not sure I understand what about Medicare Part D is a fiasco, and what might be your cure?
    Prior to Part D’s enactment, the only people over 65 that had what I would consider comprehensive and secure prescription drug coverage were (1) Medicaid beneficiaries and (2) retirees who previously worked for federal, state or local government. Private sector workers have been losing coverage in droves as a result of (a) bankruptcy, (b) companies eliminating coverage for non-union workers or (c) companies requiring workers to contribute so much toward the cost of their coverage that they can no longer afford it. As I mentioned in a prior comment, those with Medigap coverage are limited to $3,000 of annual benefits per year at most. And then there were the 25% of the over 65 population that never had coverage of any kind in the first place.
    I know the system is complicated, and the donut hole is dumb benefit design, but this is a benefit structure born of politics, not sound economics.
    Retirees who miss the signup deadline will have to pay a penalty of 1% per month in higher premium for each month they are late in applying. Hardly a crisis or catastrophe.
    As for the federal government negotiating directly with the drug companies to save money, if people really mean negotiate, I don’t think the feds will do a much better job than Medicaid is doing or the insurers can do. If you really mean dictated prices / price controls like in Canada and Western Europe, the risk is a significant adverse effect on research and innovation. The other countries have been free riding on our willingness to finance risk taking and innovation for years, but I don’t think it would work if we try it too.
    Regarding the overall cost of the program and the federal deficit in general, believe it or not, total publicly owned debt in the U.S. is a considerably smaller percentage of GDP than virtually all of our developed country trading partners. Yes, I’m sure taxes will go up after the next presidential election cycle is behind us, and we need major league entitlement reform, but that is another discussion entirely.

  7. Trap has (exhuastively) reminded me that Cato is not “right-wing” but libertarian.

  8. “I think the peace of mind value that comes from significantly enhanced protection against very high drug costs is worth a lot”
    Barry, I don’t think anyone disputes the need for protection from high drug costs. But so far PartD is a fiasco, especially for the taxpayer. Apparently the Republicans think it is worth a lot, a tremendous, “a lot”. With Medicare getting closer to insolvancy is it the intent of Republicans to bankrupt every government program and get closer to Grover Norquist’s goal of finally, “drowning it” all together?

  9. Of the 75% of seniors who already had drug coverage before Part D, I wonder how many of these had purchased Medigap policies, the most comprehensive of which provides only up to $3,000 per year in coverage while a somewhat less comprehensive Medigap policy proivdes only up to $1,200.
    I think the peace of mind value that comes from significantly enhanced protection against very high drug costs is worth a lot and is, I believe, substantially underestimated by media critics (and even many seniors who currently have modest drug expenses).
    According to a recent article in the AARP Bulletin, 11% of the over 65 population currently take no medications whatsoever while 50% take 5 or more scrips and 39% take between 1 and 4. Given the extraordinary cost of some of the new cancer medicines coming to market, protection against catastrophic costs will be even more valuable in the future.