Health Care Prices, Government Instituted Single Payer Plans and Political Answers to Economic Problems

ACA/Obamacare: So You Think ACA is Too Expensive to Maintain…Try Medicare on for Size

"The Trump Administration has promised to deliver to the American people a healthcare plan that is, in President Trump’s own words, “much less expensive and far better” than Obamacare. But While Obamacare is expected to spend over $900 billion from 2018 to 2027, focusing solely on the Obama administration’s signature achievement ignores bigger fiscal challenges; Namely, the Medicare program.

Our insurance program for the elderly and disabled – Medicare – is expected to cost $900 billion in 2024 alone. From 2018 to 2027, this comes to a whopping $8.5 trillion—an order of magnitude larger than the cost of the ACA. Beyond the topline price tag are a number of endangered programs.

Medicare’s hospital insurance trust fund, commonly known as Part A, is expected to run out of money in the next 10 years. This would mean an immediate reduction in benefits when the money runs out—2028, according to the program’s actuaries. Meanwhile, the funds that Medicare uses to pay for physician services (Part B) and prescription drug benefits (Part D) are consistently growing as a share of revenue". - Repeal & Replace: Missing the Medicare Forest for the Obamacare Trees, realclearhealth.com, 02/24/2017

Link to the entire article appears below:

http://www.realclearhealth.com/articles/2017/02/24/repeal__replace_missing_the_medicare_forest_for_the_obamacare_trees_110464.html?utm_source=RCP+Morning+Note&utm_campaign=8da8cfe47f-EMAIL_CAMPAIGN_2016_11_11&utm_medium=email&utm_term=0_a4db5f2336-8da8cfe47f-84790497

　


　

The Barking Cat Visits the Medicare Price Fixing Scheme

“The word “bipartisan” is considered by many inside the Beltway to be one of the highest honors that can be bestowed on a piece of legislation. That’s unfortunate, because too often bipartisanship means Republicans and Democrats supporting a bill that is all but certain to produce bad outcomes.

The latest example of such bipartisanship is the “Medicare Access and CHIP Reauthorization Act” (MACR). Passed Thursday by the House of Representatives, the bill would, among other things, remove the unworkable Sustainable Growth Rate (SGR) from Medicare’s payment system.

It would replace it with a payment system that is even worse.

The SGR is a formula that is supposed to help control Medicare’s costs by limiting payments to physicians. Each year the SGR sets an expenditure target for the amount Medicare spends on physicians’ fees. If the amount that Medicare actually spends exceeds the expenditure target, then physicians’ fees are supposed to be cut the following year by an amount that brings Medicare spending back into line with expenditure targets.

Physician groups have rebelled at the prospect of such cuts, telling Congress they would have a harder time treating seniors on Medicare under such a payment regime. Wary of lots of angry seniors showing up at the ballot box, Congress has suspended the SGR 17 times since 2003. But the prospect of the SGR cuts has still caused many physicians to limit the number of Medicare patients they see.” - Retooling Medicare’s Price Fixing Scheme Will Hurt Sick People, The Federalist, 03/27/2015

Link to the entire article appears below:

http://thefederalist.com/2015/03/27/retooling-medicares-price-fixing-scheme-will-hurt-sick-people/



　



　

Possible Government Employee Insider Trading Regarding Grandma’s Health Insurance? No way! Way!

“Hundreds of federal employees were given advance word of a Medicare decision worth billions of dollars to private insurers in the weeks before the official announcement, a period when trading in the shares of those firms spiked.

　

The surge of trading in Humana’s and other private health insurers’ stock before the April 1 announcement already has prompted the Justice Department and the Securities and Exchange Commission to investigate whether Wall Street investors had advance access to inside information about the then-confidential Medicare funding plan.



Sen. Charles E. Grassley (R-Iowa) told The Washington Post late last week that his office reviewed the e-mail records of employees at the Department of Health and Human Services and found that 436 of them had early access to the Medicare decision as much as two weeks before it was made public.

　

The number of federal employees with advance knowledge is surely higher; the figures Grassley’s staff compiled did not include people at the White House’s Office of Management and Budget who also saw the information. The e-mail records of those employees have not been made available to Grassley.

　

The discovery that sensitive information was so widely disseminated could complicate the forensic task for investigators trying to determine who may have leaked confidential information, and it brings further attention to the government’s handling of policy details valued by Wall Street traders.” - Hundreds in government had advance word of Medicare action at heart of trading-spike probe, Washington Post, 06/09/2013

　

Link to the entire article appears below:


http://www.washingtonpost.com/politics/hundreds-in-government-had-advance-word-of-medicare-action-at-heart-of-trading-spike-probe/2013/06/09/044944d0-cec7-11e2-8845-d970ccb04497_story.html


　

ACA: a price rocket -or- Wernher Von Braun warned of such launch pad explosions.

 

An item of ACA that escapes discussion is "fully reserved". That is, private insurance must reserve for future losses. However, social insurance, in the main, the "reserve" thereof, is implicitly and explicitly assumed to be the political authorities ability to coercively tax. Historical experience tells one, in no uncertain terms, that social security type plans with a quasi-reserve such as a trust fund do not reserve for future loses rather they raise taxes in that the tax functions/substitutes as the reserve.

 
 

Another item to consider is, in the aggregate, experience tells one that social insurance schemes are generally way too rich in benefit design based upon an extremely under estimated price.

 
 

Regarding ACA, the schemers have created a design that has the attributes of a social insurance plan yet the insurance mechanism is privately insured. Unlike U.S. Social Security and Medicare which have paper tiger trust funds [or worse in that the dupery of being one's own debtor and creditor is at work] and escalating historical tax rates, ACA is underpinned with a real tiger reserve [private insurers] and hence escalating premium rates. Stated alternatively, the premium rates will mirror the escalating tax rates of general social insurance schemes yet escalate even more as the future losses must be reserved and those reserves based upon ever escalating price. No hiding behind unfunded future liabilities.

Consider for a moment that Medicare had been originally designed based on the ACA design. For example, circa 1965 to today there would be no such item as unfunded liabilities. All future losses would have to be reserved [private insurance mechanism]. Exactly what kind of insurance premium would one currently face and would have faced between 1965 and today?


Would it be the current zero price per month for part A and $100 per month for part B? The only way part A could remain at a zero price would be to have an extreme escalation in the payroll tax and part B's price would need to increase substantially as well.


Moreover, if such program had been fully reserved all along, then there would be no need to massively escalate price today as that mass escalation would have occurred over time [1965 - 2013]. The price, if fully reserved, would have been a bone of contention, politically speaking, during the vast majority of Medicare's life span.

 

In essence, there is no bending the cost curve in ACA. The curve is now fully priced for escalating price based upon too rich of a benefit design AND fully reserved for the price today and escalating price of tomorrow. No hiding behind paper tiger trust funds and unfunded future liabilities. Moreover, ObamaCare taxes will need to rise as well to subsidize the escalating price of certain groups selected for subsidization.
 

As with all social insurance schemes price containment will end in cutting benefits and/or price control schemes that will merely exastrobate the situation.

 

 

 

 

**note** how many times and in how many ways does one see/hear the basis regarding  the future viability of collective action as "the political authorities ability to coercively tax."


How many programs, when challenged on viability, are defended by "the political authorities ability to coercively tax." The nitwitery of the argument is that if all programs had to call in their marker regarding  "the political authorities ability to coercively tax" then the tax rate would be 101% which means there would be no economy as no tax at 101% can exist.

Steve Forbes on the Fiscal Cliff and the Wobbly Economy

ObamaCare Guts Medicare Advantage: A Video from Oversight.house.gov

Nitwitery Warning: Math Quest and ObamaCare. Ops! We Spent the Savings Twice.

“Under Obamacare, Medicare cut's [$500 billion] is transferred into Medicaid to pay for the expansion of uninsured coverage outlined above--but, it is also simultaneously credited as savings to the [Medicare] trust fund.

 The CBO and Medicare's own economic estimators already said the government can't spend the same money twice.”

“…the [independent] public trustee overseeing Medicare and Social Security finances, analyzed Obamacare, and found that it will add at least $340 billion to the national deficit--citing federal accounting practices that have obscured the true fiscal impact of ObamaCare. (1) (2) (3) (4)

Hold on, the CBO said last month ObamaCare would cost 1.76 trillion rather than $940 billion:

“President Obama's national health care law will cost $1.76 trillion over a decade, according to a new projection released today by the Congressional Budget Office, rather than the $940 billion forecast when it was signed into law.” (5)

Then $940 billion becomes $1.76 trillion last month which now becomes $2.1 trillion this month.

Notes:

(1)    Public Trustee Report: Obamacare deficit reduction mostly accounting fraud, Examiner.com, 04/10/2012 http://www.examiner.com/political-buzz-in-national/public-trustee-report-obamacare-deficit-reduction-mostly-accounting-fraud

(2)    New study shows ObamaCare increases deficit, knocking down president's vow, Foxnews.com, 04/10/2012 http://www.foxnews.com/politics/2012/04/09/study-claims-obamas-health-care-law-would-raise-deficit/#ixzz1res8ro73

(3)    HHS Secretary Sebelius admits to double-counting in Obamacare budget, Daily Caller, 03/04/2011 http://dailycaller.com/2011/03/04/hhs-secretary-sebelius-admits-to-double-counting-in-obamacare-budget/

(4)    America Crack Open Your Piggy Banks – Obamacare Costs Revealed, 60plus.org, 04/10/2012, http://60plus.org/america-crack-open-your-piggy-banks-obamacare-costs-revealed/

(5)    CBO: Obamacare to cost $1.76 trillion over 10 yrs, The Washington Examiner, 03/13/2012, http://campaign2012.washingtonexaminer.com/blogs/beltway-confidential/cbo-obamacare-cost-176-trillion-over-10-yrs/425831

Hippocratic Ethic Becomes the Veterinary Ethic? And about that Federal Commission for the Coordination of Comparative Effectiveness Research (FCCCER)….

If one considers F.A. Hayek and his writings, one important proposition discussed at length by Hayek was the mundane, real time, applicable-on-the-spot, grand attempt to create maximum utility knowledge of the many and the plans thereof.


Hayek explained the plans of the few which are based on non-real-time, average knowledge of the "expert", regarding an impossible to calculate number of situations, calculating with the expert's average knowledge of most situations, that ends by yielding average or below average results. -Or- the plans of the many vs. the plans of the few.

Hayek's overriding point being: as an economy enlarges and becomes more and more complex, no one single mind or handful of minds, the plans of the few, can possibly comprehend let alone plan the dynamic and ever changing number of situations occurring. Conversely, as an economy enlarges and becomes more and more complex, that the spontaneous/emergent order resulting from the plans of the many, that is, the mundane, real time, applicable-on-the-spot, grand attempt to create maximum utility is the very best and very decentralized way to deal with an ever enlarging and increasingly complex economy.


Yet the "one big brain" idea persists in that some central brain can out think, out smart, out plan and basically trump the mundane, real time knowledge of the many, and the plans thereof. Further, the "one big brain" error, the classic example thereof, is the price fixing schemes of the former Soviet Union and the price planners that somehow had the knowledge to set price of every last item in every last situation. The results were beyond abysmal.

Let us also add in that not one price fixing scheme, never-ever, in all of recorded economic history, has been successful.

However, "the few" remain undeterred! Enter Federal Commission for the Coordination of Comparative Effectiveness Research (FCCER):


“For centuries, my predecessors and I have been inculcated with what has come to be called the “Hippocratic Ethic.” This tradition holds that I am ethically required to use the best of my knowledge to recommend to my patient what I consider to be in my patient’s best interests—without regard to the interests of the third-party payer, or the government, or anyone else.

But gradually the medical profession has been forced to give up this approach for what I like to call a “veterinary ethic,” one that places the interests of the payer (or owner) ahead of the patient. For example, when a pet owner is told by a veterinarian that the pet has a very serious medical condition requiring extremely costly surgery or other therapy, the veterinarian presents the pet’s owner with one or more options—from attempt at cure, to palliation, to euthanasia—with the associated costs, and then follows the wishes of the owner.

Several factors in combination are bringing this ethical approach to my profession.

Since the mid-1980s, Medicare has imposed price controls on health care providers. Over the years, in order to accommodate increasing Medicare utilization, physician payments have steadily dropped.

Meanwhile, the regulatory burden on physicians has increased. In the last few years, CMS required all providers to adopt electronic health records or face economic sanctions from Medicare. It is the ultimate goal that every health care provider, including pharmacies, will have electronic databases that will be accessible to the U.S. Department of Health and Human Services (HHS).

In 2009, as part of the so-called stimulus bill, the Federal Commission for the Coordination of Comparative Effectiveness Research (FCCCER) was created. Its mission is to collect the data culled from all electronic health records and make recommendations regarding the comparative effectiveness of drugs, procedures, and therapies. In rendering advice, the FCCCER will essentially answer the following question: What is the most cost-effective way of allocating a fixed amount of resources among a population of roughly 310 million people?

With this same question in mind, the U.S. Preventive Services Task Force, a committee that reports to HHS, concluded in 2009 that mammogram screenings should not be recommended to women under age 50. This caused an uproar among both private health care providers and breast cancer advocacy groups, and the task force soon backed down. Similarly, in the fall of 2011, the task force recommended the abandonment of certain routine prostate cancer screenings. Once again, health care providers and cancer advocacy groups protested, and the task force rescinded its recommendation.

In 2010 the Patient Protection and Affordable Care Act established an Independent Payment Advisory Board (IPAB). Beginning in 2014, the 15 presidential appointees on this board will determine what therapies, procedures, tests, and medications will be covered by Medicare, using advice provided by the FCCCER. Such determinations will then be used to design the coverage packages for the non-Medicare insurance offered through the government–run exchanges. The decisions of the IPAB are not subject to Congressional oversight or judicial review.

Meanwhile, in an effort to control costs now, CMS has developed practice guidelines and protocols for physicians to follow. Committees of health care academics and statisticians developed these guidelines, using data from large population samples.

These protocols govern the therapeutic decisions made by the health care practitioner—right down to the pre-operative antibiotics a surgeon may order. Despite the fact that several recent peer-reviewed studies concluded that the protocols have had no positive effect—in fact, one study showed post-op skin infections increased since the protocols were instituted—CMS imposes financial penalties on hospitals that fail to get protocol compliance from their medical staff.

Medical students and residents are now being trained to follow federally-derived protocols and guidelines as a normal part of medical practice. As a result, this new generation of doctors will be less inclined to challenge the recommendations of federal task forces and agencies. Some academics also worry that “teaching to the protocol” might discourage independent thinking and the use of intuitive knowledge, two traits essential to the practice of good medicine.” - The Coming Medical Ethics Crisis , Reason.com, Jeffery Singer, 03/15/2012












　

The Camel’s Nose: Cell Phone Bans, Medicare, and the 16th Amendment

‘But back to the proposed cellphone ban. NTSB Chairwoman Hersman said: "It's going to be very unpopular with some people. We're not here to win a popularity contest. We're here to do the right thing." C.S. Lewis warned us about people like Hersman, saying: "Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience." ‘ - Walter E. Williams, from the essay Gullible Americans, 12/28/2011.

Link to the complete essay appears below:

http://townhall.com/columnists/walterewilliams/2011/12/28/gullible_americans

Richard Foster, the chief actuary of the Centers for Medicare and Medicaid Services

Let's Talk About ObamaCare - Kim Strassel, Wall Street Journal, Political Diary, 01/28/2011

"Their health-care repeal vote behind them, Republicans this week got down to exercising the power of hearings that House control now affords them. And the Obama administration, for its part, got a glimpse of how painful those hearings will prove to its policy causes.

Fresh off of his State of the Union response, House Budget Chairman Paul Ryan plowed into a hearing Wednesday morning on the true costs of ObamaCare -- a public-education service that Mr. Ryan has been performing for much of this past year. Now finally wielding the spotlight, Mr. Ryan called as a witness Richard Foster, the chief actuary of the Centers for Medicare and Medicaid Services. Mr. Foster, whose job is to provide independent economic analysis, confirmed the central charges that Republicans have leveled at the health-care law.

Mr. Foster was asked by California Rep. Tom McClintock to provide true or false responses to two key questions. The first: Will ObamaCare bring down medical costs? Mr. Foster's answer: "I would say false, more so than true." Behind his argument was the obvious -- that because the law now requires coverage for people who weren't covered before, costs will by necessity rise.

The second: Will the law allow people to keep their current health insurance? Mr. Foster: "Not true in all cases." Mr. Foster's office has projected that some seven million members of Medicare Advantage -- which was hurt by the law -- will have to find other coverage. Mr. Foster also took a whack at the slippery accounting that was used to calculate the cost of the legislation.

This isn't Mr. Foster's first time as the health-care party pooper. He's developed a reputation for skepticism about political promises made by members of both parties. His non-rosy projections tweaked the Obama administration during the ObamaCare debate, just as his financial warnings annoyed the Bush administration during the run-up to the creation of its prescription-drug plan. And if Republicans have their way, Mr. Foster will no doubt continue to be in front of the cameras over the coming months."

ObamaCare: the ultimate third party decision

The YouTube video above is a Fox Business Network interview with William Poole. (1) Poole is an economist and past chief executive of the Federal Reserve Bank of St. Louis and currently is with the Cato Institute. (2) Your focus should be from 2:35 of the interview until the end of the interview.

Poole is merely stating the empirical evidence of Medicare funding in particular, and entitlement funding in general, being completely unsustainable at any possible tax rate within a market economy. In other words, the current unfunded future entitlements of +100 trillion dollars is not possible to finance. Note that Poole is discussing current unfunded entitlements before the addition of the ObamaCare entitlement.

Poole mentions "the federal government promises" when referring to entitlements. Federal government promises likely can be stated more concisely as: past and present politicos making promises, through the mechanism of government. In other words, government is merely the mechanism to deliver promises of politicos.

Promises made by politicos through the mechanism of government are related to discussions long made by Thomas Sowell regarding the concepts of political time horizons and third party decisions. (3) (4) (5) (6) (7) Sowell points out that politicos have a short term political time horizon. Politicos match their short term political time horizon to economic policy that yields short term economic consequences. That leaves the rest of us to live with the long term cascading unintended economic consequences of such policy. Or alternatively, politico promises are based on short term economic effects that match the short term political time horizon (the next election) with the long term cascading unintended economic effects of the promise accumulating into a series of politico promises that can not possibly be financed (we have arrived at the zenith of accumulated cascading unintended economic consequences related to politico promises).

Politicos are making third party decisions for first party promise participants and first party promise tax payers. Current and future participants as well as current and future tax payers are left to pick up the pieces of the promise with the third party (politicos) paying no direct cost for purposely matching short term economic effects with their short term political time horizon (reelection). That is, the first party suffers from the third party decision, with the third party (politicos) walking away and suffering no direct cost for their third party decisions.

ObamaCare is arguably the ultimate third party decision. With current potential participants and current potential tax payers standing as the majority in opposition, the third party purposely made a minority decision and imposed that decision upon first party (you).

With entitlements in general, and medicare specifically, being unsustainable at any possible tax rate in a market economy, certain politicos went to their playbook and exercised the game plan of matching short term economic effects to a short term political time horizon. However, passing additional entitlement legislation in a known unsustainable finance environment and against the majority of the electorate, will likely turn out to be a promise too far.

Notes

(1) http://www.youtube.com/watch?v=hFQspst477Y&feature=youtube_gdata

(2) http://en.wikipedia.org/wiki/William_Poole_(economist)

(3) Economic Facts and Fallacies, Thomas Sowell

(4) Applied Economics, Thomas Sowell

(5) A Conflict of Visions, Thomas Sowell

(6) Intellectuals and Society, Thomas Sowell

(7) Basic Economics, Thomas Sowell

The Socialized Medicine Scheme: Medicare is a popular government-run program?

An argument put forth by proponents of Socialized Medicine is that Medicare is a popular government run medical program. (1) That the Medicare program is popular among participants.

Is Medicare popular or is it popular as no alternative medical plan is available to participants? Is Medicare popular with suppliers of medical services? Is Medicare popular with participants as the price paid by participants (tax levied) is too low in regards to benefits derived? What part does Medicare's monopolistic price controls forced upon suppliers of medical services and the consequential subsidization of price through private insurance have to do with popularity or satisfaction of Medicare?



Medicare is a popular government-run medical program?


The argument supporting the popularity of Medicare among participants and hence a popular government run health-care program points to a 2007 CAHPS survey (2). In the survey 51% were satisfied or very satisfied when asked how they rated their health plan (Medicare).


The survey question that yielded the above results is as follows: "Using 0 to 10, where 0 is the worst possible and 10 is the best possible, how would you rate your health plan?" A glaring problem exists in regards to the survey question mentioned above: how can a survey respondent rationally judge satisfaction regarding Medicare when the survey respondent has no other alternative regarding their health-care? How can any survey respondent, in any survey, regarding any product or service, rationally rate satisfaction when no other choice(s) are presented to the survey respondent?


The survey question was posed to another group that in fact have alternate choices and can rationally judge satisfaction. Reviewing the results of the above mentioned survey regarding private insurance yields a result of 40% satisfied or very satisfied. However, in this case the survey respondent has many alternative private health plans available to base their response upon. Health plans in the private sector cover the entire spectrum from basic scheduled medical indemnity plans, to traditional major medical plans, to health savings accounts, to plans with expansive coverage with low out of pocket costs. Hence if the survey respondent has a health plan but perceives an alternate health plan as more desirable, would the survey respondent score his/her current plan with less satisfaction merely because they desire another alternative plan?


Therefore, since Medicare represents a monopoly on health-care for survey respondents, would the existence of alternate plans for the survey respondent to choose from have caused the survey results to vary? If the survey respondent was not faced with a monopolistic provider (Medicare), would alternatives, if available to the survey respondent, seem more or less satisfactory to the survey respondent than the zero choice alternative provided by the monopoly known as Medicare?



What about Medicare's popularity among suppliers of health-care?


The survey question and survey results mentioned above are purely a demand side examination. That is, the survey is only examining those that receive health-care or in other words, the demanders of health-care supply.


What about the popularity of Medicare on the supply side of the equation. How satisfied are suppliers of health-care regarding the health insurance plan known as Medicare?


Suppliers are completely dissatisfied by Medicare. More and more doctors are no longer accepting Medicare recipients. (3) Medicare services providers as well as medical care device makers are forced into accepting an artificial below market price from Medicare. This artificial price is being rejected by some while other consequences of the artificial below market price are doctors not investing in the latest technology as well as medical device supplier not investing as quickly in advancements in devices.(4)


Hence in this particular demand and supply segment of health-care you have the demanders 51% satisfied and the suppliers so dissatisfied they are more and more opting out of providing health-care through the Medicare mechanism of monopolistic price controls.


A scenario of satisfied demand and completely dissatisfied suppliers can not last long as the suppliers will find a better use for their resources. In other words, resources will be employed in a more productive manner, likely in other indusrties with no price controls, by those making up the current health-care supply.



Medicare's artificial price affects satisfaction for both Demand and Supply


Medicare is going bankrupt. Imminent bankruptcy is around the corner. On the demand side of the equation Medicare recipients are being charged an artificially low premium. The artificially low premium (tax levied) for Medicare is unsustainable as medical-care expenditures are greater than receipts. When expenditures are greater than receipts over an extended period of time, such as the Medicare case, then insolvency is the eventual result.


Receipts or premiums in this case is the tax revenue for Medicare. The imminent bankruptcy of Medicare is in large part due to underfunding (tax receipts). Had current Medicare recipients been charged a higher tax rate and/or been taxed on larger amounts of income, would the Medicare survey mentioned above yielded a different satisfaction percentage? Did an artificially low tax rate during the working years of current Medicare recipients affect the satisfaction level of the survey mentioned above?


On the Supply side of the equation, artificially low payment rates forced upon Medicare suppliers creates dissatisfaction. Any supplier forced to take a payment below market rates will always be dissatisfied. Price controls always create supplier dissatisfaction.



Artificial Medicare prices and the Private Insurance Subsidy


Given the Medicare program is facing bankruptcy, and with Medicare artificial pricing affecting satisfaction in regards to Demand and Supply, what is holding the plan together on a current basis? Medicare is on life support through subsidies from private insurance.

One way to get around Medicare price controls forced upon suppliers is for suppliers to make up the below market payments by over charging another group. Medical-care suppliers have raised prices they charge for goods and services to Private Insurers hence subsidizing Medicare. (5) (6)


The current Socialized Medicine proponents want to eliminate or strongly reduce private health care. If you eliminate private health insurance where will suppliers of medical-care find the revenue lost from over charging the segment known as private health care?

Summary


Proponents of Socialized Medicine, pointing to Medicare as a popular Government run plan, are using a highly flawed argument.How can any survey respondent, in any survey, regarding any product or service, rationally rate satisfaction when no other choice(s) are presented to the survey respondent?


Basing an argument on the the demand side of health-care without regard to the dissatisfaction of the supply side is an incomplete argument. That price controls by the monopoly known as Medicare is creating artificial satisfaction on the demand side of health-care and price controls are directly creating dissatisfaction on the supply side of health-care.

That the looming bankruptcy of Medicare due to underfunding is a direct result of insufficient tax revenue. With Medicare recipients paying an insufficient tax for benefits provided, would a sufficient tax in the past (higher tax and/or higher tax applied to more income) have impacted the current Medicare recipients satisfaction regarding the survey result?


Finally, the survey results are an attempt to argue for Socialized Medicine and the abatement of private health-care. The argument does not account for Medicare's monopolistic price controls causing suppliers to make up the deficient price mandated by Medicare through higher prices charged to private health-care. The elimination of private health-care would then cause suppliers to seek alternative uses for their resources as the price controls of the monopolistic provider Medicare could no longer be subsidized by private health-care.



(1) http://news.aol.com/article/government-run-health-care-is-already/809178


(2) http://yglesias.thinkprogress.org/archives/2009/07/the-popularity-of-government-run-health-insurance.php


(3) http://shrinkwrapped.blogs.com/blog/2008/06/government-run.html


(4) http://www.heritage.org/research/healthcare/wm2381.cfm


(5) http://online.wsj.com/article/SB10001424052970204884404574362543878647858.html

(6) http://www.lesjones.com/2009/06/23/are-medicare-cuts-being-subsidized-by-private-health-care/

The Administrative Cost Argument of the Socialized Medicine Scheme

Proponents of the socialized medicine scheme (aka single payer, public option) make an argument that "administrative costs" would be lower under a socialized medicine scheme vs. private insurance. Is this a valid argument or are terms and conditions skewed? Are the mathematics/statistics of the argument presented incorrectly? Are monopolistic pricing powers being confused/included within the term "administrative costs"? What about the item dislocated labor markets?


Administrative Costs Defined

First of all what are "administrative costs" within the field of insurance? One needs to know the terminology.

The "load" is the term that refers to administration cost in the field of insurance. "Loading" is the addition of the administration cost to the pure cost of insurance. Here are two widely used definitions:

(a) addition to the pure cost of insurance that reflects premium taxes, administrative costs associated with putting business on the books, and contingencies,

(b) the amount included in the premium to meet liabilities beyond anticipated claims payments to provide administrative costs and contributions to reserve funds and to cover contingencies such as unexpected losses or adverse fluctuations. (1)

Socialized Medicine Administrative Cost Argument

One of the arguments put forth by proponents of socialized medicine is: the "administrative costs" will be lower with socialized medicine vs. private insurance. The problem is that proponents of a socialized medicine scheme have shaped their arguments around differing definitions of "administrative costs" none of which match insurance theory or practice.


Administrative costs arguments put forth by socialists:

(1) in argument number one Administrative Cost are the traditional costs of the broad concept of general paper work administration,

(2) in argument number two administrative costs are more comprehensive including advertisement and claim administrative costs, screening of applicants, general paperwork, billing,

(3) in argument number three, which appears to be their most common argument, they define administrative costs the same way as in one and two above, then leave the realm of administrative costs, and include within the argument, the monopolistic pricing power of a socialized medicine scheme. In other words, they add in an exogenous variable monopolistic pricing power related to the pure product which has nothing to do with administrative costs,

(4) none of the arguments add in contingency costs,

(5) all arguments rely on a statistic from medicare pointing to the low cost administration of Medicare,

(6) all arguments exclude service level/service value and the consumer's ultimate satisfaction with "administration".




Reverse of the Original AT&T Break Up?


Looking at the subject of administrative costs from a historical perspective, and given history is always a good teacher as well as a good story, let us discuss monopolist powers.

Atlantic Telephone and Telegraph was the only "provider" of telephone services 30 years ago. For those of you under 45 years of age, imagine a time when there was only one Internet Service Provider (ISP).

The consumer received one and only one menu of choices and the one and only one customer service from exactly one provider known as Atlantic Telephone and Telegraph.

Bonus: you received one and only one price.

Say for instance you thought there should be more choices or better customer service. Sorry. one choice and this is how it is.

The consumer got fed up with one choice and authoritarian customer service. In the 1970's everyone complained about "the phone company". If you are under 45 years old, everyone hated the one and only ISP.

Along the way, the one and only provider, Atlantic Telephone and Telegraph, became administrative fat. Oh yes! Pork and Union diet only. Why not! There was no competition!

When the AT&T break up occurred, the new competitors ate AT&T's lunch. The biggest lunch plate item? Oh yes, AT&T's administrative costs.

Welcome to the telephone competition of today. You have an endless menu of options from multiple providers. Providers that offer good customer service (or you have the choice to change providers). Providers who run very lean operations and administrative costs in comparison to AT&T before the break up.

In other words, from an economics perspective, after the break up of Atlantic Telephone and Telegraph you received choice at a lower cost vs. monopolistic powers.



Monopolistic Administrative Costs Argument of Socialized Medicine

The argument for monopolistic administrative costs of socialized medicine is articulated by Erza Klien in his June 8th article in the Washington Post. (2) He summarizes as follows: "Moreover, public insurance is simply more efficient. Medicare holds costs down better than private insurance".

Senator Bernie Sanders argues for monopolistic administrative costs of socialized medicine by stating "...you have to deal with the enormous amount of waste that is currently within the private health insurance industry. The estimate is about $400 billion a year in administrative costs, billing, in profits, CEO compensation, in advertising--all of these things which have nothing to do with the provision of health care..." Senator Sanders goes on to say "In California, my understanding is that 1 out of every 3 dollars of premium goes to administration". (3)

What about the Medicare administrative cost argument? Is it true or false? False. Medicare administrative costs are higher, not lower, than for private insurance. (4) (5)

What about the 33% administrative costs as asserted by Senator Sanders? False. California Private Insurers average 12.7% administrative costs .(6)


Monopolistic Pricing Power of the Pure Product

One must note that the argument put forth that socialized medicine would have lower administrative costs purposely becomes entangled with monopolistic pricing. That is, the argument leaves the realm of administrative costs and attempts to include in the argument the exogenous concept of pricing the pure product.(7) The argument is invalid as administrative costs are items you add to the pure cost of the product.

In Klein's article he states "...act as a public insurer. To use market share to bargain down the prices of services much as Medicare does". Monopolies do not bargain. Monopolies set the price suppliers will be paid. Take it or leave it. In other words, Medicare is basically a monopoly and sets the price it will pay for services. Either accept medicare patients at price "X" or don't accept Medicare patients.

What in the world does the exercising of monopolistic pricing power to suppliers of the components of the pure product have to do with administrative expenses? Nothing. The argument is a separate argument unrelated to administrative costs.


Impact on the Labor Market of Monopolistic Administrative Costs

Exactly what is the labor demographics of the private sector health insurance administrative mechanism? (8) By and large the administrative labor force is female. Would this largely female work force be dislocated by a monopolistic administration within socialized medicine? Yes, large labor dislocations at an enormous cost. (9)

Hence we dislocate hundreds of thousands of predominantly female non-union workers at an enormous cost, and replace these workers with a unionized government labor force. Does that sound like administrative cost savings? What about the start up costs for the new government unionized administration? (10) What about the ensuing chaos of untrained administration workers, with a new procedural manual, in a newly formed bureaucracy, that now needs to provide service to millions and millions of people. Chaos is an understatement.

Also, many of the private sector female administrators are telecommuters. That’s right, they are mom's that work from home. Its a cost saving tool for private insurers and the workers like the idea. What about the indirect cost to the family of dislocating these workers? Do government workers telecommute? Largely no. Only 6% telecommute. (11) Why does the government not use this cost saving and labor satisfying technique?


Summary

The argument that a socialized medicine scheme would have lower cost is incorrect. That monopolistic pricing of the pure product is out of place in the administrative cost argument. That the socialized medicine scheme would create a monopoly in administration with unintended consequences for consumers. Finally, the socialized medicine scheme argument for monopolistic administration would dislocate hundreds of thousands of workers at an enormous cost and replace a largely female non-union work force with a high cost unionized government work force.

(1) http://www.answers.com/topic/loading

(2) http://voices.washingtonpost.com/ezra-klein/2009/06/health_care_reform_for_beginne_3.html

(3) http://www.thenation.com/blogs/edcut/440938/a_seat_at_the_table_for_single_payer">

(4)http://www.heritage.org/research/healthcare/wm2505.cfm

(5) http://www.wellsphere.com/healthcare-industry-policy-article/rhoads-what-administrative-savings/598029

(6) http://www.lao.ca.gov/2008/hlth/sb840/SB840_analysis.pdf

(7) see (1) above

(8) http://www.dllr.md.gov/lmi/industryclusters/financedemographics.pdf

(9) and (10). see (6) above

(11)http://www.wharton.universia.net/index.cfm?fa=viewArticle&id=918&language=english

Socialized Medicine: You've Been "Baucus-ed"

The Max Baucus (D-MT) Socialized Medicine proposal will be voted upon this week in the US Senate. The plan paves the way for the following wonderful attributes:

(a) price distortions, demand shock, and over utilization, leading to long waits for services

(b) two to one pricing scheme with the younger insureds subsiding older insureds,

(c) government making decisions on cost effective procedures,

(d) rationing and cascading rationing due to price distortions,

(e) low out of pocket costs leading to cascading over utilization,

(f) increased costs,

(g) higher taxes passed onto consumers,

(h) reduces benefits to the elderly,

(i) vast expansion of the welfare-state via Medicaid with State Governments picking up the tab,

(j) another un-read, not available to the public, rammed through Bill.


Feeling warm and Fuzzy? Feeling like you will pay more for less?


The half-baked Baucus Bill, scored by the Congressional Budget Office (CBO), based on "conceptional legislative language"is going to save money? The plan supposedly costs $829 Billion dollars over 10 years, yet reduces the deficit by $81 billion over 10 years? Hmmm. Unfortunately, the major increase in taxes are left out of the headline. Increased taxes are a cost savings? George Orwell would be proud: savings equals increased cost which increases taxes, consumers ultimately pay the increased tax, which means you saved money (1) (2) (10). Pure genius it is!

Why is the Baucus Bill half-baked? First of all the Bill will never see the light of day (1). Secondly, the CBO scoring was based on "conceptional legislative language". That means the CBO scored the bill on highly dynamic assumptions that can change at the drop of a hat. Its more like the CBO scored a moving target, the moving target changing in size and scope, with the moving target changing speed as it crosses the horizon. The only scoring approach you can use on a target like that is the old shotgun scoring approach. That is to say, the CBO numbers are basically real, real, real fuzzy math.

Regardless of the validity of the CBO scoring, lets talk new taxes and new fees. That's right, the half-baked Baucus Bill has plenty of new taxes and fees. (1) (2) (10) Like all Politicos, the headline numbers are lauded but the new taxes and fees are buried. Plus national polling shows the majority of Americans will only support health care/insurance reform if no new taxes are involved. (3) Polling also shows that the majority of Americans do not support monetary penalties (tax) for not buying health insurance. (4) (7)

Besides the new taxes and fees, what about those Medicare cuts? They are going to cut Medicare payments, cut corruption in Medicare, yet not reform Medicare? Huh? (5) Those reduced Medicare payments have no effect on the elderly? (6) That the reduced Medicare payments are not an indirect tax on the elderly?

The public has decided that ramming through un-read legislation is ridiculous. After the Spruce Goose of all stimulus plans was voted upon and passed without Legislators reading the bill and the consequential 16% real unemployment rate. Then Cap and Trade rammed through the House of Representatives with out being read by Legislators. The result was the eruption of a major public battle cry: for Legislators to make Bills public, read the Bill, and debate the Bill before voting.

When the House of Representatives made their Health-Care/Insurance Reform public, the blow back from the public was amazing. Matter-of-fact, some one million people marched on Washington D.C. in July with many carrying signs reading "Read the Bill".

Guess what? The Public and Legislators will not get to read the Baucus Bill! (8) Why? Because that would take time, public input, and of course that nasty idea of "debate". These are all considered "time wasters" by Progressives/Socialists who want the Health-Care/Insurance reform Bill passed by Thanksgiving. (9) In other words, more rammed through Legislation. Recognize the song just a different beat?

Saved the best for last. The Baucus Bill adds $37 Billion to State Budgets as it vastly expands Medicaid. That's really good news to State Governments that are already bankrupt. You may find you are a citizen of one of the 50 States. If so, fasten your seat belt. Also enjoy your ride as you will also be subsiding Nevada, Michigan, Oregon, and Rhode Island as they are exempt from participating in the the $37 Billion price tag for five years. Huh? Thank Mr. Harry Reid (D-NV)for that little amendment. (11)

Saved the best-of-the-best for the very last. One of the increased tax revenue items in the Baucus Bill is a tax on "Cadillac Health Plans". Who has these Cadillac Plans? Most Unions negotiate for Cadillac Plans for their members. Oh no! Unions are upset about this tax! Enter the Top Socialist of them all: Charles Schumer (D-NY). The arbitrary dollar figure assigned to Cadillac Plans ($21,000 per year) has been increased to a threshold of $25,000 in Massachusetts and other highly unionized states. (11)

One can only wonder why our Legislators have such a abysmal approval rating and the Public doesn't trust the Government. Go figure.


(1) http://www.foxnews.com/politics/2009/10/07/cbo-release-cost-report-sweeping-senate-health-care-reform/?loomia_ow=t0:s0:a16:g2:r5:c0.103757:b28154894:z0

(2) http://www.americanthinker.com/blog/2009/10/health_care_reform_some_states.html

(3)http://www.rasmussenreports.com/public_content/politics/current_events/healthcare/october_2009/55_oppose_penalty_for_not_buying_health_insurance
(4) http://www.rasmussenreports.com/public_content/politics/current_events/healthcare/october_2009/to_pay_for_health_care_plan_59_say_no_new_taxes_on_those_earning_under_250_000
(5) http://www.heritage.org/Research/HealthCare/wm2641.cfm

(6) http://www.newsmax.com/headlines/armey_healthcare_obama/2009/10/06/269197.html
(7) http://blog.heritage.org/2009/10/07/healthcare-at-what-price/#

(8) http://www.washingtonexaminer.com/opinion/No_-you-can_t-see-the-health-care-bill-8352156-63636167.html#

(9) http://online.wsj.com/article/SB10001424052748703298004574457171293975390.html

(10) http://www.foxnews.com/politics/2009/10/06/b-taxes-senate-health/

(11) http://www.americanthinker.com/2009/10/the_baucus_masterpiece.html#