The Independent Institute


The “Right to Shop” for Health Care

stage 3?

37885304 - doctor talking to his female patient at officeAnyone who has undergone a medical procedure knows it is very difficult to figure out how much an insured patient will pay out-of-pocket. It is often not clarified until months after the procedure, when a flurry of incomprehensible paperwork from insurers, doctors, labs, et cetera, has landed in the patient’s mailbox.

(Personal aside: A couple of years ago, my health insurer encouraged me to go paperless, and I signed up for electronic messages about claims. It was so confusing, I went back to paper after a few months. At least you can scrunch up a letter and throw it across the room with an anguished scream, which you don’t want to do with your computer.)

This problem has led to a bunch of state laws attempting to impose “price transparency” on medical providers. As I explained previously, they do not work, because relationships between insurers and providers inhibit transparency. Medical providers’ “customers” are insurers, which pay most of their claims, not patients. Further, the real problem with medical prices is not that they are opaque, but that they are not formed in a normal market process. Instead, they are negotiated by third-party bureaucracies.

So-called Police Misconduct

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54804214_ML“Police misconduct” is a term one hears from time to time. Some people complain about it. Most, however, refer to it as simply a mistaken idea advanced by disgruntled ne’er-do-wells who refuse to accept that only a few “bad apples” among the police ever do anything wrong—and when they do it’s for altogether understandable and forgivable reasons.

The term, however, is an oxymoron. The cops are not misconducting themselves. They are conducting themselves exactly as they intend to do so, exactly as the politicians who pay their salaries expect them to do so and, sad to say, exactly as a large part of the populace wants them to do so.

How can it be otherwise? If the police abuses and crimes that some of us perceive as rampant in the USA were something out of the ordinary, something that undermined the position of the police departments and related organizations that carry out the crimes, then the politicians, chiefs of police, and other authorities would put a quick stop to the bad actions and cast the bad actors into outer darkness. But they do nothing of the sort (the exceptions are too few to matter). The nearly universal acceptance, and indeed reward, of police “misconduct” tells us everything we need to know. It’s not an anomaly, a mistake, or a black swan. It’s exactly what our political masters intend to dish out to those of us on the receiving end of it.

Language is important. We can’t think straight if we can’t call things by their correct names and if we substitute euphemisms and propaganda terms for plain, precise language. What is called police misconduct is not misconduct; it is police conduct. Which is a great misfortune for the suffering multitude whose rights to life, liberty, and property are so grievously violated by this routine police action.

A Civil Society Agenda for Campus Sexual Assault

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Unsafe On Any Campus? College Sexual Assault and What We Can Do About It

As studies refine our understanding of college sexual assault, more and more observers recognize that sexual assault and rape are serious problems on many campuses even if the scope isn’t large enough to be called an epidemic. In an academic year, a recent analysis completed for the U.S. Bureau of Justice Statistics covering nine colleges and universities found completed rapes may vary from 2% to 8% and sexual assaults may range from 4% to as high as 20%. These percentages, however, mask a lot of potential harm: at a large campus such as Florida State University, the low end of the estimates suggest hundreds of students experience rape each year. Of course, the expectation among parents (and students) is zero. College campuses are scrambling for solutions, begging the question: Does a pro-liberty/libertarian framework for reducing sexual assault on campuses exist?

I believe the answer is “yes,” and libertarians and other freedom-oriented students and organizations should become more engaged as a result. In Unsafe On Any Campus? College Sexual Assault and What We Can Do About It, I scope out a three-level strategy for comprehensively addressing campus sexual assault. I actually narrow the scope of government and the criminal justice system while focusing solutions on voluntary individual action as the key to a broad-based solution that builds civil society and community.

Medicare Changes Have Reduced Hospital Readmissions, but More Reforms Are Needed

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28245360_MLIn 2012, Medicare began to penalize hospitals that readmitted too many patients. For a small number of targeted conditions, the program compares actual readmissions within 30 days to what an acceptable readmission rate should be. This measure is an important part of the drive to “pay for value, not volume.” The problem it was meant to address was one of perverse incentives. For example, if a patient who had a knee replacement is readmitted within 30 days because the implant was poorly implanted, the hospital used to profit from that readmission, because the extra costs would just be submitted to Medicare for reimbursement.

Evidence so far suggests that reducing readmissions was low-hanging fruit. In the program’s fourth year, Medicare will penalize over half the nation’s hospitals a total of $528 million, an increase of $108 million over last year. It is a significant increase, but not a money-maker for taxpayers, amounting to just 0.18 percent of Medicare’s expected hospital spending of $287.1 billion in 2016.

Economists Mustn’t Forget the Fallacy of Decomposition

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48791353_MLBecause of their field’s stress on logic, economics teachers commonly emphasize some fallacies for students to avoid in the early stages of principles courses. One widespread example is the fallacy of composition—the mistaken notion that what is true of an individual is necessarily true of a group. In reality, of course, what is true of an individual need not be true of a group.

Since so much of a person’s economic intuition derives from his or her understanding of what they would do when facing particular circumstances, this focus makes a great deal sense.

Perhaps the best-known illustration is: standing up at a football game. If an individual fan stands up, other things equal, he or she will be better able to see the action on the gridiron. But if everyone stands up, that will no longer be true. The view may be just as obstructed as before.

An example using money shows how the fallacy of composition could apply to economics. If one person had more money, other things equal, they would have more wealth (at others’ expense), because they could then command a larger share of society’s resources. But if all people had proportionately more money, prices would also rise proportionately and society would not have more wealth.

The Dead-Weight Cost of Obamacare’s Loopy Tax Credit

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34580554 - obamacare aka affordable care act documentObamacare crushes jobs because of its loopy distribution of tax credits. As discussed previously, the (premium-reducing) tax credits for Obamacare coverage phase out in such a way that beneficiaries face very high marginal income tax rate hikes at household incomes up to 400 percent of the Federal Poverty Level.

However, even those who increase their incomes despite the higher tax burden face the hassle of figuring out how much they owe in tax and premium at the end of the year. This nuisance imposes a dead-weight loss on the economy, wasting people’s time and energy. Here is an example:

Last year, Santa Ana resident Kevin Foley successfully enrolled in an Obamacare insurance plan, thanks in part to a popular tax credit that helps low-income earners afford plans through the exchange.

But after a sudden increase in income and the arrival of tax season, Foley’s situation began to get messy. An $800-plus bill with errant charges from Kaiser Permanente, his insurance provider, unexpectedly propelled Foley into the inner workings of a young, government-sponsored program as he searched for a refund.

Foley’s tax dilemma centered on the repayment of the Advanced Premium Tax Credit, a government subsidy that helps reduce the premium costs of plans purchased through state-run insurance exchanges.

From the get-go, Foley was supposed to repay the tax credit directly to Uncle Sam, not to Kaiser. In other words, in his case, Kaiser essentially got paid twice and Foley was on the hook for another large tab.

This convergence of taxes and health care has been problematic for others, too. Roughly 1.4 million tax filers last year did not report their Obamacare tax credits properly or at all, according to IRS data released in January.

(Lily Leung, “Obamacare Tax Credit Turns Into Headache,” Orange County Register, July 27, 2016.)

For someone whose income at the end of the year is different from what he anticipated at the beginning of the year, the arithmetic would be difficult even if the tax credit were transparent. However, it is not transparent. Tax credits are paid to insurers for the benefit of subscribers, not subscribers directly. For political purposes, this is underemphasized when applying for coverage through the exchange. Beneficiaries are induced to believe Obamacare has reduced premiums versus the individual market that existed pre-Obamacare. The fact that actual premiums are significantly reduced by tax credits is not detailed during the process.

A solution to this confusion would be to replace the loopy Obamacare tax credit with a universal tax credit, perhaps adjusted for age but not for income. If (to limit costs to taxpayers), the existing credit must be phased out by income, it should phase out at a flat rate, and not impose a roller-coaster of marginal tax rate hikes on those who seek to increase their incomes.

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For the pivotal alternative to Obamacare, see the Independent Institute’s widely acclaimed book, Priceless: Curing the Healthcare Crisis, by John C. Goodman.

The Carbon Tax: Welfare Triangle, or Welfare Obelisk?

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The Welfare Triangle ... and Obelisk

Two recent position papers from the conservative Niskanen Center and the libertarian Cato Institute take diametrically opposite positions on the desirability of a Carbon Tax.

Jerry Taylor, president of the Niskanen Center, argues in his 2015 “The Conservative Case for a Carbon Tax” that, “conservatives should embrace a carbon tax ... in return for elimination of EPA regulatory authority over greenhouse gas emissions, abolition of green energy subsidies and regulatory mandates, and offsetting tax cuts to provide for revenue neutrality.”

On the other hand, Robert P. Murphy, Patrick J. Michaels, and Paul C. Knappenberger conclude in their 2015 Cato working paper, “The Case Against a Carbon Tax,” that “In both theory and practice, a US carbon tax remains a very dubious policy proposal.” (References are given below in order of appearance.)

In 2007, the Supreme Court ruled that the 1970 Clear Air Act gave the EPA authority to restrict carbon dioxide emissions if it found that they are harmful to the environment, so that the only way to undo this authority now is to amend that act. This will require a majority in both houses, including a filibuster-proof majority in Senate, plus the President’s signature. By their choice of a presidential nominee, Republicans have all but conceded control of the White House to the Democrats for another four years, and are increasingly likely to lose control of one or both houses of Congress in January. Time is therefore quickly running out for Republicans in Congress to offer to exchange a carbon tax for elimination of EPA command-and-control restrictions of carbon emissions, as proposed by Taylor. Hillary Clinton is already proposing a vast expansion of extra-legislative carbon restrictions under the assumption that Republicans will never go along with a carbon tax. (“Clinton’s Climate Change Plan Avoids Mention of Carbon Tax,” New York Times, July 3, 2016) Grover Norquist might disapprove of any tax increase, but these are desperate times.

Another Obamacare Architect Recognizes Its Unintended Consequences

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Dr. Bob Kocher, an Obamacare architect turned venture capitalist, has admitted the law has had a significantly negative unintended consequence:

When I joined the Obama White House to advise the president on health-care policy as the only physician on the National Economic Council, I was deeply committed to developing the best health-care reform we could to expand coverage, improve quality and bring down costs.

What I got wrong about ObamaCare was how the change in the delivery of health care would, and should, happen. I believed then that the consolidation of doctors into larger physician groups was inevitable and desirable under the ACA.

Well, the consolidation we predicted has happened: Last year saw 112 hospital mergers (up 18% from 2014). Now I think we were wrong to favor it.

(Bob Kocher, “How I Was Wrong About Obamacare,” Wall Street Journal, July 31, 2016.)

Dr. Kocher joins Dr. Zeke Emanuel as another Obamacare architect who has realized giving the federal government this much power to shape the heath system is not having the outcome he anticipated. Back in 2009 and 2010, Dr. Kocher believed that the consolidation of physicians and hospitals into large health systems would lead to higher-quality care at lower cost. As Dr. Kocher notes, the systems are consolidating, but they are not hitting cost and quality targets.

Instead, smaller, physician-led practices do better at such improvements. Now that he is a professional investor in medical innovation, Dr. Kocher sees something that was not apparent when he worked in government. He recognizes that smaller practices are nimbler and more responsive to patients’ needs.

However, practices are consolidating because larger, bureaucratic health systems are better able to comply with the massive regulatory burden imposed by Obamacare. Dr. Kocher pleads with the federal government to rewrite the rules to allow smaller, nimbler practices to succeed.

Dr. Kocher, and other former Obama administration officials who are now pursuing entrepreneurial opportunities in the health system they wrought, are in the best position to advocate for such reform. Unfortunately, it is just not in the nature of big government to favor smaller, nimbler competitors over large, bureaucratic ones.

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For the pivotal alternative to Obamacare, see the Independent Institute’s widely acclaimed book, Priceless: Curing the Healthcare Crisis, by John C. Goodman.

Chemotherapy Payment Reform: Medicare Is Missing the Elephant in the Room

stage 3?

37468903 - iv dripLast May I wrote about the uproar over Medicare’s proposed changes to how it will pay doctors who inject drugs at their offices. This largely concerns chemotherapy. Currently, physicians buy the drugs and Medicare reimburses them the Average Sales Price (ASP) plus 6 percent. The proposed reform would cut the mark-up to 2.5 percent and add a flat fee of $16.80 per injection.

I did not think the reform would have a positive impact, but I also thought criticism was overblown. Well, Medicare has managed to irritate all the affected interest groups to such a degree that it is likely to toss the proposal and go back to the drawing board.

A new analysis published by Memorial Sloan Kettering Cancer Center explains where Medicare went wrong, politically. The agency irritated both drug makers and physicians because the reform would have cost both groups money. If Medicare had raised the flat fee to $24.66, then 55 of 100 most prescribed chemotherapy drugs would have been more profitable for doctors and 45 would have been less profitable. The higher the flat fee, the more likely oncologists would embrace the reform.

However, here is the kicker: The high cost of chemotherapy is not driven by the current reimbursement; rather, it is driven by an increasing share of injections taking place in hospital outpatient wards instead of doctors’ offices. Hospitals have a different Medicare reimbursement scheme.

First, Do No Harm

stage 3?

7111309_MLPrimum non nocere, or, in English, “first, do no harm,” is a venerable maxim often traced to the Hippocratic Oath. It has long served as an important admonition in the ethics of physicians and other healthcare providers. It seems an eminently sensible rule. In a way it resembles the provision in Catholic moral teaching that one must not do evil in the hope or even the expectation that good will come of it.

The idea merits much wider application. Indeed, it would be a godsend if governments applied it to all their actions.

However, if applied consistently across the board, it would shut down government as we know it completely. Such involuntary government cannot even exist without first doing great harm, namely, compelling tribute from one and all for supporting the government, notwithstanding that many of those forced to pay may want nothing to do with the government and others may want the government but not value its services as much as they value the funds they are forced to cough up. In short, all governments as we know them rest on a clear wrong, namely, extortion (euphemistically called taxation), often supplemented by outright robbery in the form of fines, fees, civil forfeitures, and other confiscations backed by threats of violence against those who refuse to comply with the government’s demands.