How Bad Is Care under Medicaid?

By  •  Wednesday December 19, 2012 10:17 AM PDT  •  4 Comments

In my previous post I argued that the Affordable Care Act will make it harder for Medicaid enrollees to access care, largely due to an increase in the demand for medical services from the previously uninsured. In this post I review studies which suggest that there is a severe quality problem in Medicaid. (More information can be found in chapter 15 of my Independent Institute book, Priceless: Curing the Healthcare Crisis.)

Here are some studies identified by American Enterprise Institute scholar Scott Gottlieb[1]:

  • A study published in the medical journal Cancer found that Medicaid patients and people lacking any health insurance were both 50 percent more likely to die when compared with privately insured patients.[2]
  • A study published in the Annals of­ Surgery ­found that being on Medicaid was associated with the longest length of hospital stay, the highest total hospital costs and the highest risk of death.[3]
  • A study published in the American­ Journal­ of­ Cardiology found that Medicaid patients were more than twice as likely to have a major subsequent heart attack after angioplasty, compared with patients who had no health insurance at all.[4]
  • A study of patients undergoing lung transplants for pulmonary diseases, published in the Journal­ of Heart­ and­ Lung ­Transplantation, found that Medicaid patients were 8.1 percent less likely to survive ten years after the surgery than their privately insured and uninsured counterparts.[5]In each of these studies, researchers controlled for the factors that can increase poor health outcomes in Medicaid patients. Almost everyone agrees that Medicaid is not as good as private insurance. A more contentious issue is whether Medicaid is better than no insurance at all.

Here are some additional studies identified by Forbes health blogger, Avik Roy[6]:

  • A University of Virginia study found that individuals enrolled in Medicaid are almost twice as likely to die after surgery as privately insured patients, and about one-eighth more likely to die than the uninsured.[7]
  • A study published in the Journal­ of ­the National­ Cancer­ Institute found that Florida Medicaid patients were 6 percent more likely to be diagnosed with prostate cancer at less treatable, later stages than the uninsured. Medicaid enrollees were nearly one-third (31 percent) more likely to be diagnosed with late-stage breast cancer and 81 percent more likely to be diagnosed with melanoma at a late stage. (Medicaid patients did outperform the uninsured on late-stage colon cancer.)[8]
  • A study in the journal Cancer found that the mortality rate for Medicaid patients undergoing surgery for colon cancer was more than three times as high as for the privately insured and more than one-fourth higher than for the uninsured.[9]
  • A study in the Journal­ of­ Vascular­ Surgery found that Medicaid patients treated for vascular problems, including plaque in their carotid (neck) arteries that pump blood to the brain and obstructions in the blood vessels in their legs, fared worse than did the uninsured (however, the uninsured with abdominal aneurysms fared worse than Medicaid patients).[10]

With respect to cancer care, it is unclear that Medicaid matters very much.[11] After reviewing the literature, Roy concludes that Medicaid patients do no better and sometimes worse than the uninsured.[12]

Health economist Austin Frakt takes issue with these studies, claiming that Medicaid and non-Medicaid populations are fundamentally different, even after adjusting for race, income, and other socioeconomic factors.[13] That claim seems improbable—at least at the margin—however, in light of the heavy ping-pong migration of people in and out of Medicaid eligibility.[14] Put another way, people who stay enrolled in Medicaid continuously probably are different from people who never enroll. But the most interesting group is the group that migrates back and forth.

Frakt points to some studies finding that Medicaid makes a positive difference over being uninsured.[15] But the results would probably have been just as good or better if we spent the money giving free care to vulnerable populations. Moreover, even with their Medicaid cards, enrollees turn to emergency rooms for their care twice as often as the privately insured and the uninsured.[16]

A RAND report on expanding Medicaid coverage in Oregon turned up some positive effects.[17] The Oregon Health Insurance Experiment found that those with Medicaid were one-third more likely to see a doctor, 15 percent more likely to fill a prescription, and 30 percent more likely to experience a hospital stay. Very poor and sick individuals enrolled in the program also reported that having Medicaid insurance made them feel healthier. However, economist Robin Hanson points out that about two-thirds of these effects occurred after being accepted into the program, before any care was actually received.[18]

Next we will look at waste in Medicaid.

Notes:

  1. Scott Gottlieb, “Medicaid Is Worse Than No Coverage at All,” Wall Street­ Journal, March 10, 2011, http://online.wsj.com/article/SB10001424052748704758904576188280858303612.html.
  2. Joseph Kwok et al., “The Impact of Health Insurance Status on the Survival of Patients with Head and Neck Cancer,” Cancer 116, No. 2, (2010): 476–485.
  3. Damien J. LaPar et al., “Primary Payer Status Affects Mortality for Major Surgical Operations,” Annals ­of­ Surgery­ 252 (2010): 544–555. doi: 10.1097/SLA.0b013e3181e8fd75.
  4. Michael A. Gaglia et al., “Effect of Insurance Type on Adverse Cardiac Events After Percutaneous Coronary Intervention,” American­ Journal ­of ­Cardiology­ 107 (2011): 675–680, http://www.ajconline.org/article/S0002-9149(10)02234-4/abstract.
  5. Jeremiah C. Allen et al., “Insurance status is an independent predictor of long-term survival after lung transplantation in the United States,” Journal ­of­ Heart­ and­ Lung­ Transplantation­ 30 (2011): 45–53, http://www.jhltonline.org/article/S1053-2498%2810%2900442-0/fulltext.
  6. Avik Roy, “Re: The UVa Surgical Outcomes Study,” The ­Agenda­ (blog) July 18, 2010, http://www.nationalreview.com/agenda/231148/re-uva-surgical-outcomes-study/avik-roy.
  7. Damien J. LaPar, “Primary Payer Status Affects Mortality for Major Surgical Operations,” Annals­ of Surgery ­252 (2010): 544–551, doi: 10.1097.
  8. Richard G. Roetzheim, “Effects of Health Insurance and Race on Early Detection of Cancer,” Journal­ of­ the­ National ­Cancer ­Institute 91 (1999): 1409–1415, doi: 10.1093.
  9. Rachel R. Kelz, “Morbidity and Mortality of Colorectal Carcinoma Surgery Differs by Insurance Status,” Cancer 101 (2004): 2187–2194.
  10. Jeannine K. Giacovelli et al., “Insurance Status Predicts Access to Care and Outcomes of Vascular Disease,” Journal ­of ­Vascular­ Surgery 48 (2008): 905–911, doi: 10.1016.
  11. Michael T. Halpern et al., “Association of insurance status and ethnicity with cancer stage at diagnosis for 12 cancer sites: a retrospective analysis,” Lancet­ Oncology 9 (2008): 222–231. doi:10.1016/S1470-2045(08)70032-9.
  12. Avik Roy, “Re: The UVa Surgical Outcome Study,” National­ Review (Online), July 18, 2010, http://www.nationalreview.com/agenda/231148/re-uva-surgical-outcomes-study/avik-roy.
  13. Austin Frakt, “Medicaid-IV Summary,” The­ Incidental ­Economist (blog), October 14, 2010, http://theincidentaleconomist.com/wordpress/medicaid-iv-summary/.
  14. Benjamin D.Sommers and Sara Rosenbaum, “Issues In Health Reform: How Changes In Eligibility May Move Millions Back And Forth Between Medicaid And Insurance Exchanges,” Health­ Affairs 30 (2010): 228–236. doi: 10.1377/hlthaff.2010.1000.
  15. Austin Frakt, “Medicaid and Health Outcomes Again,” The Incidental­ Economist (blog), March 2, 2011, http://theincidentaleconomist.com/wordpress/medicaid-and-health-outcomes-again/.
  16. Devon Herrick, “Report: Uninsured Emergency Room Use Greatly Exaggerated,” Healthcare News, July 2010, http://news.heartland.org/newspaper-article/report-uninsured-emergency-room-use-greatly-exaggerated.
  17. Amy Finkelstein et al., “The Oregon Health Insurance Experiment: Evidence from the First Year,” NBER Working Paper No. 17190 (2011), http://www.nber.org/papers/w17190.
  18. Robin Hanson, “The Oregon Health Insurance Experiment,” Overcoming Bias ­ ­(blog), June 19, 2011, http://www.overcomingbias.com/2011/07/the-oregon-health-insurance-experiment.html.

[Cross-posted at Psychology Today]

Tags: Healthcare, Medicaid

How Will Medicaid Enrollees Fare under Obamacare?

By  •  Monday December 17, 2012 10:03 AM PDT  •  1 Comment

In 2014, the nation is expected to start insuring about 32 million uninsured people. About half will enroll in Medicaid directly; and if the Massachusetts precedent is followed, most of the remainder will be in heavily subsidized private plans that pay little more than Medicaid rates.[1]

That raises an important question: How good is Medicaid? Will the people who enroll in it and in private plans that function like Medicaid get more care, or better care, than they would have gotten without health reform? I will begin this series by evaluating the evidence to answer that question. Then, I will propose three alternatives: (1) abolish Medicaid altogether and integrate the beneficiaries into the private health insurance system; (2) allow Medicaid to be a competing health plan, rather than a plan that sequesters poor people; or (3) replace much of Medicaid outpatient spending on the nonelderly, nondisabled with a health stamp program. (For more details, please see my book Priceless: Curing the Healthcare Crisis.)

The 32 million newly insured citizens may not get more healthcare. They may even get less care. Even if they do get more, odds are that low-income families as a group will get less care than if there had never been a health reform bill in the first place. The reason: As we have seen, the same bill that insures 32 million new people also will force middle- and upper-middle-income families to have more generous coverage than they now have. As these more generously insured people attempt to acquire more medical services they will almost certainly out-bid people paying Medicaid rates for doctor services and hospital beds. To make matters worse, the health reform bill did nothing to increase the supply side of the market to meet the increased demand.

The Effects of Underpaying Physicians

On paper Medicaid is attractive. It promises coverage for most medical services with no premium and usually no out-of-pocket payments. But Medicaid pays physicians only about 60 percent as much as private insurers pay, and many Medicaid patients have difficulty finding doctors who will see them. Increasingly, physicians are dropping out of the Medicaid program, declining to see new Medicaid patients or limiting Medicaid patients to a small percentage of their practice.[2] As a result, the patients turn to much costlier settings, such as hospital clinics and emergency rooms.

One study found that children were denied appointments 60 percent of the time when a caller reported Medicaid-CHIP as their coverage. By contrast, only 11 percent were denied an appointment when the caller reported private insurance. Of those who were able to obtain an appointment as Medicaid patients, the average wait was twenty-two days longer than those with private insurance.[3] Another study found that even the uninsured have an easier time making doctors’ appointments than Medicaid enrollees.[4]

Although Medicaid rates for physicians are typically lower than what physicians receive from the private sector in every state,[5] the payment gap varies from one state to the next. New York state pays only about $30 for a comprehensive eye exam for a new patient, while Mississippi reimburses a physician $106 for the same service. Texas and Florida pay $63.55 and $66.90, respectively.

Access to Primary Care

About 30 percent of doctors do not accept any Medicaid patients, and among those who do, many limit the number they will treat. One survey found two-thirds of Medicaid patients were unable to obtain an appointment for urgent outpatient care.6 In three-fourths of the cases, the reason was the provider did not accept Medicaid. Among general practitioners who will accept Medicaid, the lowest figures are 30 percent (Los Angeles), 40 percent (Miami) and 50 percent (Dallas and Houston).[7]

Access to Specialists

People enrolled in Medicaid and CHIP also experience difficulty finding specialists who will treat them for the low fees Medicaid pays.[8] A Government Accountability Office (GAO) report discovered that children enrolled in Medicaid or CHIP were one-third more likely to report problems accessing specialty care than children enrolled private health plans.[9] One survey[10] finds that:

  • In Dallas and Philadelphia, only 8 percent of cardiologists accept Medicaid patients; in Los Angeles, it’s only 11 percent.
  • In both Dallas and New York City, only 14 percent of OB/GYN specialists will see Medicaid patients; the figure is 28 percent in Miami and 33 percent in Denver.

Use of the Emergency Room

According to a recent report, between 1997 and 2007 the total number of annual hospital emergency room (ER) visits doubled, mostly due to the increased frequency of use by adults with Medicaid coverage.[11] Medicaid enrollees account for more than one-fourth of all ER visits in the United States.[12]

Poor access to care is part of the problem. In our next installment, we will look at another aspect: quality of care under Medicaid. Problems with access to care and with quality of care support the case for reforming Medicaid.

Notes:

  1. Robert Steinbrook, “Healthcare Reform in Massachusetts—Expanding Coverage, Escalating Costs,” New­ England­ Journal­ of­ Medicine­ 358 (2008): 2757–2760, http:// www.nejm.org/doi/full/10.1056/NEJMp0804277. Ben Storrow, “State’s Health-Care Coverage Gets Mixed Grades, Daily Hampshire Gazette, February 8, 2010.
  2. Kevin Sack, “As Medicaid Payments Shrink, Patients Are Abandoned,” New­ York ­Times, March 15, 2010, http://www.nytimes.com/2010/03/16/health/ policy/16medicaid.html.
  3. Joanna Bisgaier and Karen V. Rhodes, “Auditing Access to Specialty Care for Children with Public Insurance,” New­ England­ Journal­ of­ Medicine 364 (2011): 2324–2333.
  4. Brent R. Asplin et al., “Insurance Status and Access to Urgent Ambulatory Care Follow-up Appointments,” Journal ­of ­the­ American­ Medical­ Association 294 (2005): 1248–1254, doi: 10.1001.
  5. John C. Goodman et al., “Medicaid Empire: Why New York Spends So Much on Healthcare for the Poor and Near Poor and How the System Can Be Reformed,” National Center for Policy Analysis, Policy Report No. 284 (2006): 27, http://www .ncpa.org/pdfs/st284.pdf#page=27.
  6. Brent R. Asplin et al., “Insurance Status and Access to Urgent Ambulatory Care Follow-up Appointments,” Journal­ of ­the­ American ­Medical­ Association 294 (2005): 1248–1254. doi: 10.1001/jama.294.10.1248.
  7. Merritt Hawkins & Associates, “2009 Survey of Physician Appointment Wait Times.”
  8. Ron Shinkman, “Kids in Medicaid, CHIP Have Trouble Accessing Specialty Care,” Fierce ­Healthcare, April 6, 2011, http://www.fiercehealthcare.com/story/gao-medicaid-chip-shortchanging-children/2011-04-07.
  9. “Medicaid and CHIP Information on Children’s Access to Care,” Government Accountability Office, GAO-10-293R, April 5, 2011, http://www.gao.gov/new.items/d11293r.pdf.
  10. Merritt Hawkins & Associates, “2009 Survey of Physician Appointment Wait Times.”
  11. Ning Tang, John Stein, Renee Y. Hsia, Judith H Maselli and Ralph Gonzales, “Trends and Characteristics of US Emergency Department Visits, 1997‒2007,” Journal­ of­ the­ American­ Medical Association 304 (2010): 664‒670. doi: 10.1001/jama.2010.1112.
  12. Linda Gorman, “Medicaid Block Grants and Consumer-Directed Healthcare,” National Center for Policy Analysis, Issue Brief No. 102, September 15, 2011.

[Cross-posted at Psychology Today]

Tags: Healthcare, Medicaid

More Monetary Peculiarities of the Past Five Years

By  •  Saturday December 15, 2012 6:01 PM PDT  •  7 Comments

Two months ago, I wrote about the extraordinary increase in the demand for money during the past five years, noting in particular the substantial decline in the velocity of the M2 money stock. I also noted that M2 has increased about 38 percent since late 2007. In the present post, I call attention to some peculiarities in how M2 has increased during this period.

M1 consists of “(1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) traveler’s checks of nonbank issuers; (3) demand deposits; and (4) other checkable deposits (OCDs), which consist primarily of negotiable order of withdrawal (NOW) accounts at depository institutions and credit union share draft accounts.” M2 consists of M1 plus the following items: “(1) savings deposits (which include money market deposit accounts, or MMDAs); (2) small-denomination time deposits (time deposits in amounts of less than $100,000); and (3) balances in retail money market mutual funds (MMMFs).” Thus, M2 is a fairly broad measure of the funds immediately or quickly available to the holders for making expenditures. For this reason, economists commonly use this measure in their empirical work in macroeconomics and monetary economics in lieu of a variety of available alternative measures of the money stock.

During the past five years (to be precise, during the 59 months from December 2007 to November 2012; likewise hereafter in this post), M2 increased 38.1 percent. The non-M1 part of M2 increased 29.9 percent, which means that the M1 part must have increased much more rapidly than M2 as a whole. Indeed, M1 increased 74.2 percent, or roughly twice as fast as M2.

Moreover, the components of M1 itself grew at very different rates: the currency component grew by $318 billion, or 41.6 percent, whereas total checkable deposits grew by about $700 billion, or 115.2 percent, which is almost three times faster.

When I began my inquiry into the data for this post, I had a hunch that I would find that the currency component of M1 had grown most rapidly. I was wrong by a huge margin. In fact, during the past five years, people have continued to pile up money most rapidly not in currency, but in checking accounts. During this period, individuals and businesses have added more money to their checking accounts than they had added in all preceding history.

So, the question naturally arises: why? My first thought was that during the recession, many unemployed people had actually shifted to employment in the underground economy and that this shift would be reflected in a big increase in currency holdings. Perhaps such a shift has occurred; after all, currency holdings have increased by almost 42 percent in the past five years. But the gigantic increase in checking account balances, which are completely transparent to various law-enforcement and other government officials, must have a different explanation.

As the figure shows, people and firms immediately augmented their checkable balances when the financial debacle occurred in the fall of 2008. Very well, such a flight to liquidity was to be expected in the circumstances. However, after the dust from that crisis settled, especially after mid-2010, the public persisted in rapidly increasing its checkable account balances as if it had acquired an obsession with this form of wealth holding. Why?

We may conjecture that in view of the extraordinary uncertainty associated with asset markets and government actions during these years, people wanted the ability to move quickly without having their funds tied up in riskier and less liquid forms. However, most of them did not need large amounts of currency; indeed, great amounts of currency would have been less secure and convenient than checkable balances in commercial banks and other financial institutions. Thus, the unprecedented augmentation of a very liquid yet secure form of assets may be still another reflection of the abnormal uncertainties that have clouded the economic horizon since mid-2008.

 

(Source: All monetary data cited or used as the basis for calculations in this post may be found here.)

Tags: Uncategorized

Obama to Charities: Bite the Hand that Feeds You, or Else!

By  •  Wednesday December 12, 2012 5:30 PM PDT  •  6 Comments

Does President Obama hate private charity, or does he think only the government should take care of people? Does he just hate the idea of anyone directing their own money as they choose, or what?

For whatever reason, for now the fifth time in his administration, he’s proposing eliminating or limiting the tax deductibility of charitable contributions.

This time around he’s using some interesting tactics, and charities caught in the cross-fire might do well to learn from church leaders who helped push Obamacare to their congregations what happens to amateurs who play politics with the big boys. (Hint: they may find themselves badly burned in the process.)

In the current campaign to get more tax revenue from “the rich,” the White House called in the heads of various charities for a little gentle arm-twisting:

Senior Obama administration officials invited nonprofit leaders to the White House this week to enlist them to push for increased taxes on the wealthy...

“The president has been very clear on this: They are looking to increase rates on the wealthiest 2 percent,” said Stacey Stewart, president of United Way USA, who attended the White House meeting. “They were asking us to lend our voice to that.”

And how did the White House go about trying to persuade these non-profit leaders to “lend their voice”?

The White House officials said that the charitable deduction is more likely to be altered if the president does not succeed in raising tax rates on the wealthy, according to Ms. Stewart.

Charity leaders had been very busy on Capitol Hill, urging lawmakers to reject any limitation or elimination of the charitable deduction. The not-so-subtle ploy by the White House to have them add support for taxing the rich more puts them in a delicate position: if their wealthy donors find out they’re also lobbying to raise upper-income tax rates, will they respond by redirecting their giving to causes that didn’t get into bed with the White House? But if the private charities don’t help Obama pass higher tax rates, will he retaliate by yanking or limiting the deductibility of contributions?

A tricky calculus, indeed.

And a rare peek at some of the most distasteful gamesmanship imaginable.

For this is not a political game where all that matters is if the President “wins” or not. It is a game that involves people’s lives.

Anyone who is familiar with the non-profit sector knows that ever-increasing amounts of federal aid directed to the poor has not decreased poverty, but has, rather, vastly increased the need for more and more private charity.

Even as the number of American families receiving federal assistance ballooned over the past 4 years, demand for services by agencies such as The Salvation Army increased, for example, by up to 80% for programs serving families with children. My local Salvation Army is serving double the number of children as last Christmas.

And what’s the projected impact of the president’s proposed change in the charitable deduction?

Changes in the charitable deduction are conservatively projected to reduce contributions from individuals by 2.5 percent. With individuals contributing $217.79 billion in 2011, that’s a drop of $5,444,750,000, an amount that would run the federal government for 8 hours, but covers nearly two years of budget for the Salvation Army, serving 30 million people annually in need due to poverty, addiction, natural disasters, and just plain bad luck.

And for the Keynesians in the audience, here’s a real multiplier: for every person employed in the non-profit sector, another 5 people volunteer. You won’t get that when you divert those dollars to your friends in DC. (“Hello, IRS, I’d like to volunteer for a day!”)

But if numbers leave you cold, just think about who you’d like turning up on your doorstep in the aftermath of a hurricane: FEMA, or the Salvation Army?

Unfortunately, when only the feds are around to help, it turns out they’re often nowhere to be found.

Let’s not cut off the lifeline that actually serves those most in need. Surely Washington can learn to live with a little less pork.

Tags: Budget and Tax Policy, Charity, Children, Christianity, Civil Society, Family, Poverty, Taxation, Welfare

Liability-by-Contract: A Reform That Would Help Patients

By  •  Wednesday December 12, 2012 9:41 AM PDT  •  2 Comments

My past several posts have been devoted to improving patient safety by reforming the malpractice system. I have explained the enormity of the problem of adverse medical events, offered principles to guide malpractice reform, and outlined the benefits that a system of liability-by-contract would bring to doctors, the courts, and other stakeholder groups.

Here now are more advantages such a system would deliver to patients and to society at large. (For more details, please consult my Independent Institute book Priceless: Curing the Healthcare Crisis.)

Patients would receive cash compensation for unexpected outcomes without the stress or expense of a lawsuit

The loss of a loved one is a traumatic event. The prospect of filing a malpractice lawsuit is also inherently stressful and traumatic. The compensation system that I have proposed would put doctors and patients on the same side, with only one obligation—completing the paperwork needed to collect from an insurance company.

Patients and their families could self-insure for additional compensation

How much should a surviving spouse receive for the death of a loved one? The decision will, to a certain extent, be arbitrary—especially if made by a legislative body. However, if the amount is publicized in advance and broadly known, families can make adjustments to meet their expected needs. If the amount is too low, for example, families could buy additional life or disability insurance on their own—including insurance under the provider’s insurance contract.

The social cost of a liability-by-contract system is likely to be much lower than the cost of the current system

As many as 187,000 people die each year because of adverse medical events. If the surviving family members of these patients each received a check for $200,000, the total cost would be less than $37 billion. The total cost of the current malpractice system is estimated to be as much as $250 billion, or more than five times as much.

Moreover, the current system involves a huge use of real resources—lawyers, judges, courtrooms, and so forth. By contrast, the check-writing solution involves very few real resources—other than monitoring and administration costs; it primarily involves moving money from some people to others, leaving real resources to be used in more productive ways.

Further, if hospitals were required to pay $200,000 per unexpected death, on the average, the healthcare system would not continue to sustain so many deaths from adverse medical events each year. Hospitals would quickly find ways of reducing their error rates.

Healthcare costs for patients would likely be reduced

Ultimately, the cost of any compensation system will primarily be paid by patients and potential patients. Just as the cost of malpractice premiums is embedded in the patients’ cost of care, the cost of a liability-by-contract system will also be passed on to patients (and their insurers) in the form of higher prices. However, if the proposed system is socially more efficient, patients will see an overall reduction in healthcare costs (as well as an increase in quality and better personal protection against untoward events).

Liability by contract is a socially better way of handling sympathetic cases

Some of the most heart-wrenching cases in malpractice law involve newborns facing the prospect of a lifetime of care. Even if the doctors and hospital personnel committed no error, the parentsare confronted with an enormous burden—in terms of both time and money. The tendency on the part of jurors, therefore, is to have great sympathy for the plaintiffs.

One reason malpractice premiums for obstetrician/gynecologists are so high is that the system is inching ever closer to a system of liability without fault. But if this is the case, why not move there directly and dispense with the lawyers, judges, and juries? The reformed system would take care of the sympathetic cases in an efficient, responsible way.

[Cross-posted at Psychology Today]

Tags: Healthcare, Insurance, Malpractice

The Fiscal Cliff: Worst-Case Scenarios

By  •  Tuesday December 11, 2012 3:41 PM PDT  •  1 Comment

The fiscal cliff is dominating the news these days, but mostly it is political theatre, and as I said before, I don’t think we will be going off. All parties want a resolution, so even if the fiscal cliff isn’t resolved prior to the new year, it will be soon after, with changes retroactive to January 1. But, what if I’m wrong?

If we actually go off the fiscal cliff and no new agreement is made, the tax structure would go back to what it was at the end of the Clinton era, and federal expenditures would be cut by less than 1%. How bad would that be, really?

Some details: Taxes would rise because everyone would be pushed to higher tax brackets, and because the temporary reduction in Social Security payroll taxes would expire. But, that was supposed to be temporary anyway. And, the capital gains rate would go from 15% to 20%. Both sides are against these increases, but part of the stalemate is that they want different resolutions. On the spending side, the aggregate reduction in expenditures would be almost too small to notice, but because many expenditure items (Social Security, Medicaid, salaries (including military pay), pensions) would not be cut, other areas would be cut more. Defense expenditures would be cut (but there is an argument to be made that this would be desirable). Many people would lose their unemployment compensation. Some people would see bigger impacts than others, but in the aggregate, the tax impact is more significant, and despite higher tax rates the economy did OK in the 1990s.

This appears to be more like a fiscal bump than a fiscal cliff, and look at the details; if we did go off, how bad would that be?

The main problem the fiscal cliff creates for the economy, as I said in my earlier post, and as Carl Close illustrated, is the uncertainty it creates about how it will be resolved. We know the government budget is in for some possibly-major changes in the next month or so; we just don’t know what they are. So, businesses and consumers are being justifiably cautious until the uncertainty is resolved. But, for a government running trillion dollar deficits, a small cut in expenditures coupled with an increase in taxes would not be a calamity.

The ongoing federal deficit does pose some serious fiscal challenges to the parties gaming over the fiscal cliff. One possible outcome is that they will come to a meaningful agreement that will put the government’s long-term fiscal problems behind us, but I’m willing to bet against that outcome. Another possibility is that they will come to an agreement that will further cement those fiscal imbalances into place, making it even harder in the future to address the federal government’s budgetary issues. Yet another possibility is that to resolve the current “crisis” they will put into place a temporary agreement that will just kick the problem further down the road. That type of temporary agreement is what produced the fiscal cliff to begin with, and would produce a continuation of the uncertainty that plagues the economy today.

Looking at the possibilities ahead with the fiscal cliff looming, it appears that actually going off the fiscal cliff would be more desirable than the way this stalemate is likely to be resolved. The worst-case scenario in the fiscal cliff drama is not going off the cliff, but what the political leadership is likely to do to prevent it.

Meanwhile, in keeping with the political theatre, when they do come to an agreement, you can be sure that the president and Congress will be praising themselves for what they will have done to us.

Tags: Budget and Tax Policy, Economics, Entertainment, Media, Politics, Taxation

Krugman Attacks Us

By  •  Monday December 10, 2012 9:14 PM PDT  •  4 Comments

When Paul Krugman starts attacking us, we know we’re doing something right. John Maynard Keynes’s presumptive heir, Krugman apparently doesn’t like the findings of our recent book edited by Research Fellow David Beckworth, Boom & Bust Banking: The Causes and Cures of the Great Recession, exposing the profound fallacies of Lord Keynes’s love affair with fiscal “stimulus.”

It may not give Krugman solace that Beckworth and Research Fellow Scott Sumner, another contributor to the book, recently addressed Congressional staff members at a Capitol Hill seminar we co-sponsored with the NCPA on the role of the Federal Reserve in causing the Great Recession and provided solutions to prevent the next financial crisis. Sumner has just been named #15 of Foreign Policy’s Top 100 Global Thinkers (19 places ahead of Mr. Krugman), which writes that, “Sumner just might have permanently shifted U.S. monetary policy.”

The best hope for a better world is better ideas taking root, and our harvesting these vitally important insights is irreplaceable.

Throughout the current Great Recession, we’ve been a beacon of sense in the fog of calls to “do something” when much of what the government had already done created the mess in the first place. At the very beginning of the financial crisis, Research Fellow Stan Liebowitz prepared the study, “Anatomy of a Train Wreck: Causes of the Mortgage Meltdown,” which became the cover feature for the October 20, 2008 National Review, was widely picked up elsewhere, and included in our book, Housing America: Building Out of a Crisis, edited by Randall Holcombe and Benjamin Powell.

And the Independent Institute has continued at the forefront, calling out the official pronouncements leading Americans further up the garden path from crisis to crisis. Our recent book, Financing Failure: A Century of Bailouts, by Vern McKinley, similarly traces the genesis of financial crises to government policy. Most recently, McKinley reveals in “The Fannie Mae ‘Wind Down’ That Isn’t” (Wall Street Journal, November 26, 2012), that these disastrous policies will continue unabated, and we can only expect a continuing vicious cycle until we massively rein in the power of government regulators and restore markets and financial stability.

To harvest a real future for liberty, we need to accelerate the impact of this work. As we continue to hear misguided cries by Krugman and others to “stimulate” our way into another housing and inflationary bubble, we have to speak louder than ever with the countervailing truth.

If we do nothing, Washington will pursue ever greater tax and spending policies that will only exacerbate and deepen the next financial crisis. With your help we can build support for market-enhancing economic policies that drive prosperity, equitably, for all.

Tags: American History, Books, Budget and Tax Policy, Economics, Federal Reserve, Free Market, Government subsidies, Great Depression, Money and Banking, Nationalization, Politics, Presidential Power, Propaganda, Taxation, The State, Unemployment

Three Advantages of Malpractice Reform

By  •  Monday December 10, 2012 10:07 AM PDT  •  0 Comments

A liability-by-contract system along the lines I have discussed in recent blog posts and in my book, Priceless: Curing the Healthcare Crisis, would have a number of compelling advantages. Here are three:

Insurers rather than patients would become the primary monitors of healthcare quality

Under this proposal, a great deal of quality information—currently unavailable—would now be provided to patients. However, patients would not be the primary monitors of quality. That role would fall to insurers. If doctors could escape the costs and burdens of the liability system by compensating patients for unexpected outcomes, they would naturally want to insure against such payments.

So instead of buying malpractice insurance, they would be purchasing what amounts to episode-specific insurance on all patients, say, undergoing surgery.

In the current system, there are no life and disability insurance products specifically tied to episodes of medical care. However, if the contract system becomes widely used, such products are likely to emerge.

As noted previously, under the current system, there is very little relationship between actual malpractice and malpractice lawsuits. As a result, malpractice premiums do not reflect the likelihood that doctors will commit malpractice. Instead, premiums reflect the likelihood that doctors will be sued. Under the liability-by-contract system, however, compensation would be based on objective phenomenon, that is, death and disability. In pricing these policies, insurers would have a strong interest in monitoring how doctors practice medicine. The market, rather than bureaucratic bodies, would determine who is a good surgeon and who is a bad one, and those determinations would be reflected in insurance premiums.

Medical providers would face strong financial incentives to improve quality

In addition to the fact that malpractice premiums are not closely related to the actual incidence of malpractice, premiums charged to doctors rarely reflect the quality of medicine being practiced. In the reformed system, insurance premiums should be closely related to actual outcomes. Surgeons with high mortality rates will pay higher premiums to insure against unexpected outcomes, other things being equal. These higher premiums, in turn, will constitute a strong financial incentive to find safer ways to perform surgery.

Multiple parties on the medical side would have strong incentives to cooperate in improving quality

Under the current system, a patient undergoing surgery typically is not dealing with a single doctor who is responsible for the entire procedure. Instead, the patient is (implicitly) contracting with several doctors, each as an independent contractor. For example, there is the surgeon, the anesthesiologist, the radiologist, the pathologist, and the hospital itself. Because each of these entities is independent of the other, none bears the full cost of his or her bad behavior, and none reaps the full benefits of good behavior.

Some have proposed making the hospital fully responsible for all malpractice claims, but that doesn’t work very well when none of the other parties to the medical incident are hospital employees. Under the proposal envisioned here, all parties to a surgical event, for instance, would have strong incentives to contract with each other and cooperate with each other on error-reducing, quality-improving changes (including electronic medical records and hospital infection reduction procedures). The incentives would be to avoid the current tort system, to offer the patient a contract insured by a single insurer and to minimize the cost of that insurance.

[Cross-posted at Psychology Today]

Tags: Healthcare, Insurance, Malpractice

The Fiscal Cliff and Policy Uncertainty

By  •  Thursday December 6, 2012 11:47 AM PDT  •  0 Comments

In today’s issue of the Wall Street Journal, economics editor David Wessel has a useful column about policy uncertainty—worries about government spending, the expiration of provisions in the tax code, inflationary expectations, and the like—and its role in hampering economic growth by discouraging private investment. (The piece is available online to WSJ subscribers here.)

The topic is one of growing interest. Wessel reports that Ben Bernanke emphasized the connection between uncertainty and sluggish investment in his 1979 Ph.D. dissertation on the business cycle, in which the future Federal Reserve chairman wrote, “Increased uncertainty provides an incentive to defer investments in order to wait for new information.” (This, coming from the man who earlier this year popularized the scare term “fiscal cliff” and has initiated three rounds of “quantitative easing” that have ruffled the feathers of inflation hawks.)

But as Beacon readers know, the basic idea gathered momentum after Robert Higgs argued that regime uncertainty—investors’ anxieties about the possibility of major changes in fundamental policies, such as the government’s respect for private property—played a decisive role in prolonging the Great Depression (see, for example, here and here).

So, how can we measure policy uncertainty? And what do those measurements say about worries regarding the looming Fiscal Cliff?

Economists Steven Davis, Scott Baker, and Nicholas Bloom have created the U.S. Economic Policy Uncertainty Index, a composite that takes into account newspaper reports, expiring tax-code provisions, and economists’ disagreements about forecasts for inflation and government spending. Their website, which is updated frequently with data of these proxies of uncertainty, also contains several interesting graphs that track changes in the index.

The graph below (taken from their website) indicates that policy uncertainty peaked during the debt-ceiling showdown in August 2011 and is now on the rebound.

Whether or not the index will reach a new peak in response to the Fiscal Cliff remains to be seen, but one thing is certain: Fiscally speaking, we live in interesting times.

The U.S. Economic Policy Uncertainty Index is a key indicator to watch as the Fiscal Cliff nears. Source: www.PolicyUncertainty.com

Tags: Budget and Tax Policy, Business, Economics, Federal Reserve, Great Depression, Inflation, Property Rights

Reforming the Tort System, Part 3: Freeing the Experts and the Courts

By  •  Wednesday December 5, 2012 10:07 AM PDT  •  0 Comments

In earlier installments of this series I discussed some of the problems with the current malpractice system, proposed a contractual, no-fault alternative, presented ten principles to guide tort reform, and explained how my proposal would free the patient and the doctor. In this post I explain how it would free expert witnesses and the courts.

Free the Experts

All too often, expert witnesses in tort cases appear time and again for one side or the other. They are selected as witnesses precisely because their testimony can be counted on to be overly generous to one of the two sides. Further, these witnesses are often handsomely paid, which gives them an incentive to continue the practice and become “professional witnesses.”

These witnesses would have no role in a properly run system of arbitration. The arbitrators would be free to call on real experts who would be agents of the arbitrator rather than agents of one of the two parties.

A model for the arbitrators is the so-called “vaccine court,” a branch of the US Court of Federal Claims in Washington. The vaccine court was created in 1986 as Congress’s response to a liability crisis. In rare cases, vaccines were being blamed for catastrophic injuries and even death. Manufacturers were threatening to quit the business, which in turn threatened the vaccine supply. The National Vaccine Injury Compensation Act shielded the industry from civil litigation by instituting a system of no-fault compensation. Under the law, aggrieved families file petitions, which are heard by special masters in the vaccine court. Successful claims are paid from a trust fund fed by a 75-cent surcharge per vaccine dose. The US Department of Health and Human Services oversees the fund, with the Justice Department acting as its lawyer.

Free the Courts

The reformed system I have described should be available in all cases except gross negligence. Medical practitioners should be able to contract away responsibility for mistakes. They should also be able to insure against the consequences of their mistakes. There seems to be no socially defensible reason, however, to allow them to contract out of the consequences of gross negligence.

In the next installment of this series I will discuss eight advantages of replacing the current tort system with a liability-by-contract system. For more information, please see my book from the Independent Institute, Priceless: Curing the Healthcare Crisis.

[Cross-posted at Psychology Today]

Tags: Healthcare, Insurance, Law, Malpractice, Tort Reform

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