Today marks the second anniversary of The Apothecary’s arrival at Forbes from avikroy.org. The old Chinese curse—may you live in interesting times—was certainly true of the last twelve months, in which we had a Republican presidential nominating contest, the titanic Supreme Court battle over the individual mandate, and then the 2012 election, one that determined the legislative fate of Medicare reform and of Obamacare itself. In this post, I review the year that was.
Spurred on by all of the big news, 2012 was a banner year for The Apothecary. In the last quarter of 2011, the blog averaged 38,093 unique monthly visitors. In the last quarter of 2012, the blog averaged nearly five times that: 167,807 unique monthly visitors, clearing 200,000 in both October and November. In our first year at Forbes, we published eight articles that were viewed more than 10,000 times. In year two, we published 46.
No small amount of credit for The Apothecary’s growth goes to the team at Forbes, which invests an enormous amount in technology and social-media savvy in order to ensure that what we write here finds an audience. I’ve written for numerous online outlets, and Forbes is by far the most sophisticated on these counts. I want to also thank the Manhattan Institute, the think tank where I’m a Senior Fellow, which has done much to support my health policy research over the past year.
But no blog is anything without its readers. I continue to be amazed that so many people are interested in the very dry, and often technical, subject of how our health care system works. But your participation and readership is why the blog has accumulated such a large and influential following. I especially appreciate those of you who have become important sources of information and analysis, whether you’re an overworked Congressional staffer, an insurance broker in Montana, or just an individual sharing her struggles with her local hospital. (You can e-mail me here if you have things to say.)
Finally, as you may have noticed, we’ve added a number of people to the Apothecary roster. Josh Archambault, Nicole Fisher, and Jeet Guram have joined Robert Book, John R. Graham, and myself on the blog. I’ll introduce the team more fully in a separate post.
Top ten most-read articles of the past year
1. How Obamacare Dramatically Increases The Cost of Insurance for Young Workers (99,600 views)
2. Scalia And Ginsburg Drop Hints About Obamacare’s Fate At The Supreme Court (84,942 views)
3. Yes, Obamacare Cuts Medicare More Than President Romney Would (71,254 views)
4. How Obamacare’s $716 Billion in Cuts Will Drive Doctors Out of Medicare (70,908 views)
5. Fact-Checking the Obama Campaign’s Defense of its $716 Billion Cut to Medicare (61,485 views)
6. Yes, Paul Ryan Spoke the Truth About Obama’s Fiscal Record at the Republican Convention (60,737 views)
7. Putting the ’Insurance’ Back in Health Insurance (50,522 views)
8. In Ohio, Obamacare to Increase Individual Insurance Premiums by 55-85% (47,726 views)
9. CBO: Obamacare Will Spend More, Tax More, and Reduce the Deficit Less Than We Previously Thought (35,918 views)
10. In Wisconsin, Obamacare to Increase Individual Insurance Premiums by 30%, Says Obama Adviser (32,982 views)
Dept. of Terrible Predictions, Part One: The GOP primary
In August of 2011, I confidently stated that the GOP nomination contest was a "two-man race…between [Texas Gov. Rick] Perry and former Gov. Mitt Romney of Massachusetts." Needless to say, Perry didn’t do as well as I thought he would. But his short-lived campaign was a useful opportunity to talk about Perry’s intriguing idea for bi-national health insurance.
It was Rick Santorum who emerged as the most effective critic of Mitt Romney’s health care legacy of Massachusetts. Santorum, it needed to be noted, had first gained election to the U.S. Senate by defeating a key proponent of Hillarycare, Harris Wofford, and had proposed a number of important market-oriented health reforms. Indeed, Santorum played a significant role in the inclusion of Health Savings Accounts into the 2003 Medicare Modernization Act.
What was most disappointing about the seemingly endless GOP primaries were that the politicians who shouted the loudest about big government were the ones with nothing to say about the biggest driver of big government: health care spending. Michele Bachmann voted against the debt-limit deal, supposedly because it didn’t cut spending enough. But she was also terrified of the Paul Ryan Medicare reform plan. Ron Paul’s fiscal plan made no mention of Medicare.
Dept. of Terrible Predictions, Part Two: The Supremes back Obamacare
In March, the Supreme Court heard oral argument in the titanic Obamacare constitutional challenge, NFIB v. Sebelius. After three days of hearings, it became clear that the court’s conservative majority was quite skeptical—rightly so—of the idea that Congress’ power to regulate interstate commerce gave it the right to force people to buy health insurance.
The left responded with a collective freak-out and all-out lobbying effort, in which President Obama himself declared it would be illegimate for the Court to overturn a law that had been passed by a "strong majority" of Congress. It seemed clear that the Court would overturn the mandate. The question became, what else would the Court nullify alongside it?
In mid-June, I wrote, "My sources (which I freely admit to be third-hand) suggest that Kennedy will side with the conservatives and strike down the…requirement that nearly every American must buy health insurance…[but] this question of severability is the subject of intense debate among the justices, even now."
Not so much. It turned out that Chief Justice Roberts initially voted with the conservatives to overturn Obamacare in its entirety, but eventually became uncomfortable with that outcome, and decided at the last minute to write a convoluted decision in which he upheld the mandate using Congress’ taxing power. Ramesh Ponnuru, to his credit, had called this correctly.
As Robert Book pointed out, the policy utility of the individual mandate remains an open question. And Obamacare’s darkest secret may be that the mandate is in fact too weak. 11 million uninsured Americans will be subject to the mandate’s "penalty tax," but it’s unclear how many will pay up. Insurance companies are lobbying to strengthen the mandate.
Either way, fairness dictates that we acknowledge the degree to which many prominent Republicans have endorsed the individual mandate in the past. Then again, prominent Democrats—including the President—opposed the mandate in the past.
The big surprise in the SCOTUS ruling was that the court gave states the ability to opt out of Obamacare’s mandated expansion of Medicaid—a fairly significant development in the history of state-federal relations. While the court’s decision could lead Obamacare to cost more than the Congressional Budget Office had projected, the CBO remained sanguine about the impact of the Court’s ruling on the law’s spending trajectory. But if one compares the CBO’s current projections about Obamacare to its original 2010 ones, it’s clear that Obamacare will spend more, tax more, and reduce the deficit less than originally thought.
Obamacare still a flawed law
Obamacare may have gotten the Supreme Court’s seal of approval, but there remain serious flaws in the law’s design and implementation. The CLASS Act, perhaps the law’s most obvious policy failure, was finally put out of its misery with the year-end fiscal cliff deal. Same for the law’s CO-OP boondoggle, in which the federal government blew $3 billion on faulty loans to state-sponsored insurance plans intended to substitute for a "public option."
The CBO’s most interesting report of the year related to fears that employers would drop health coverage for their workers, saving Fortune 100 companies $422 billion, but resulting in substantially higher spending in Obamacare’s subsidized exchanges. The CBO projected that employer dumping would not, in fact, result in higher deficits, because the increased subsidies would be offset by reduced expenditure through the employer tax exclusion for employer-sponsored insurance. What is certain to happen, either way, is that companies will scale up their part-time jobs at the expense of full-time ones.
A key drafting error in the law means that Obamacare’s federally-sponsored insurance exchanges may not be able to take advantage of the law’s subsidies. A challenge to the law, brought by the State of Oklahoma, is winding its way through the courts. A victory by the challengers would have significant impact on the health-care system, because a majority of states have opted out of building their own, state-based exchanges. Robert Book notes that this error implicates the employer mandate as well.
One of Kathleen Sebelius’ talking points regarding the law is that it requires insurers to allow adults under the age of 26 to join their parents’ plans. But private insurers stated that they’d be happy to institute such requirements without federal intervention, because it’s good business.
A typographical error in the law spent an extra $4 billion to pay off Mary Landrieu’s "Louisiana Purchase." HHS created its own $8 billion slush fund with which to temporarily paper over Obamacare’s significant cuts to Medicare. The law will make health savings accounts more costly. For all the fuss around the administration’s contraception mandate, what people missed is that the rule was a windfall for drug companies. Washington State offers a preview of how Obamacare might blow up the individual indurance market.
How Obamacare will increase premiums
The most underappreciated aspect of Obamacare—thought that is starting to change—is what the law will do to make health insurance less affordable.
Most importantly, the law’s community rating provision will dramatically increase the cost of insurance for young people. Given that the majority of the uninsured are young, it’s likely that repealing community rating would significantly reduce the fiscal cost of Obamacare, while increasing the number of people who gain health coverage. Some college health plans reported increased costs as high as 1,112%. A pair of actuaries reported that most of those eligible for Obamacare’s subsidies would still see higher out-of-pocket costs.
The law’s excise tax on insurance premiums will make health insurance less affordable by driving up the cost of insurance. But because the government is subsidizing the cost of that insurance, and also paying for Medicaid and Medicare managed care plans, the tax will cost state and federal governments between $36 and $42 billion over ten years. Same for the law’s medical device tax, as Robert Book and John R. Graham discussed in tandem posts.
I wrote a series of posts examining the impact of Obamacare on individual states, such as Ohio, where an independent analyst projects that premiums will increase in the non-group market by 55 to 85 percent on average. The other states I surveyed were Wisconsin, Virginia, Florida, Colorado, New Hampshire, Nevada, Minnesota, Iowa, Pennsylvania, and Michigan.
Insurers are starting to become increasingly vocal about this problem. Aetna CEO Mark Bertolini told investors in December that "premium rate shock" with increases "as high as 100 percent" are coming, and that they’ve shared all of their data "with all the people in Washington that need to see it."
If we go by the example of Massachusetts, expanding coverage doesn’t magically reduce health spending. In 2012, the state’s Democratic legislature and governor instituted a complex web of price controls in order to address this problem. Is America next? In the ensuing months, Josh Archambault will explore this question in greater detail.
FDA Reform
We spent some time last year thinking about how to improve the Food and Drug Administration. I complained that big pharmaceutical companies stifled a proposal from Sen. Kay Hagan (D., N.C.) to streamline the drug-approval process, because it might have helped smaller, earlier-stage biotech companies.
FDA regulatory expansion has made clinical trials more expensive, especially in late-stage phase III trials, where 90 percent of clinical development costs are incurred. Allowing more drugs to reach the market after mid-stage phase II trials, on a provisional basis, would dramatically reduce the cost of medical innovation. My Forbes editor, Matt Herper, disagreed with me.
Richard Burr and Tom Coburn introduced their own plan for FDA reform, parts of which were incorporated into the quintennial PDUFA reauthorization bill. As John R. Graham noted, one important element of the FDA reauthorization was that it, for the first time, included user fees for medical devices and generic drugs, something that may speed up the approval process in these sectors.
I also wrote about a serious and undercovered crisis: the shortage for many generic injectable drugs that has been caused by clumsy Medicare reimbursement policies and aggressive FDA regulation of generic manufacturers.
Medicare Reform
Medicare reform was a dominant issue in the 2012 campaign, as Democrats sought, unsuccessfully, to tar Mitt Romney and Paul Ryan for their promising and thoughtful plan to transition future retirees into a competitive bidding system in which seniors could choose among a range of public and private insurance plans. Notably, Democratic Sen. Ron Wyden (Ore.) was a co-author of Ryan’s proposal.
Democrats engaged in a number of hysterical criticisms of the Romney-Ryan plan. Jim Capretta rebutted progressives’ most substantive critiques. Some Democrats quietly backed Ryan’s reforms, but didn’t want to come out publicly until after the election. Indeed, the liberal goalposts for Medicare reform keep moving, every time Republicans come out in favor of a Democratic proposal.
I argued that Democrats’ "Mediscare" attack wouldn’t work—perhaps the one prediction I got right in 2012. For one thing, Obamacare cut Medicare more than Romney’s plan would have, something that Democrats and their "fact-checking" allies tried mightily to obfuscate by talking about things like closing Medicare’s donut hole. But closing the donut hole is a terrible idea that will drive spending upward, and only 6 percent of seniors were affected by it anyway. And the ratio of Obamacare’s net Medicare cuts to new "benefits" such as the donut-hole closure was 15 to 1.
Medicare cuts aren’t inherently bad, of course—but the form of Obamacare’s cuts to the program will have the consequence of driving more and more doctors out of the program. (Some, including NPR, were "baffled" by the notion that fewer doctors will participate in Medicare as a result of the ACA’s cuts.) What was especially remarkable is how the AARP backed Obamacare’s Medicare cuts, because AARP made $2.8 billion from a loophole carved out just for them.
The greatest irony of all in the Great Medicare Debate of 2012 was that Obamacare’s exchanges are structured in nearly identical fashion to the Romney-Ryan plan. I wondered why, if premium support is ’fatal’ for Medicare, why is it good enough for Obamacare? Indeed, top Obama advisers, such as Jonathan Gruber and David Cutler, have endorsed premium support for the Medicare program.
A number of interesting Medicare proposals came out of the Senate. Richard Burr and Tom Coburn compiled a number of them into their own bill, which I called the best Medicare reform proposal yet. The American Medical Association adopted premium support as its official policy for Medicare reform. Even the Obama administration got into the act, privatizing Medicare for low-income seniors who are also eligible for Medicaid.
Chuck Blahous, a Medicare trustee, pointed out in an extensive report that Obamacare’s claims of deficit neutrality are fraudulent, because they require a double-counting of the law’s Medicare cuts. If the Medicare cuts are counted toward deficit reduction, then the Medicare trust fund will go bankrupt in 2016.
The Swiss and Singaporean models
As a follow-up to my piece on the Swiss health-care system—which continues to generate considerable traffic despite its publication in 2011—I published an excerpt from Regina Herzlinger’s book, Who Killed Health Care, which took a closer look at the market-oriented features of the Swiss system.
While the Swiss system may be the model that is most adaptable to the U.S., even Switzerland is far outdistanced by the market-oriented system in Singapore, which spends far less and achieves better results than any other system in the developed world. It’s a myth that the U.S. system is a "free-market" one, compared to the rest of the world. According to Pascal-Emmanuel Gobry, even the French system could be described as more market-oriented than the American one.
CNN’s Fareed Zakaria hosted an episode of his show, GPS, to discuss international health models that the U.S. might learn from, including those of Britain, Taiwan, and Switzerland. Unfortunately, he botched a great deal of it, especially in his description of Obamacare as being identical to the Swiss system. It’s an important point: if Obamacare had applied its exchange-based model to Medicare and Medicaid, then the law would have had a real basis for claiming a Swiss heritage. And that kind of bill would almost certainly have garnered Republican support.
Indeed, now that Obamacare is here to stay, I’ve proposed doing just that: expanding Obamacare’s exchanges into the Medicare and Medicaid populations, so as to create a more uniform and less expensive health-care system. Obamacare allows us to raise Medicare’s retirement age as a way to shift taxpayer resources away from wealthy retirees and toward the younger uninsured population.
In order to use the exchanges as a vehicle for broader entitlement reform, however, the exchanges first need to be restructured so as to emulate Utah’s clearinghouse model, in which insurers have more freedom to experiment with cost-efficient plan designs. That requires Congressional action.
What should conservatives do now?
I’m in the minority. Most conservatives believe that the focus of Republicans’ efforts should remain on repealing and replacing Obamacare, even though Obama won re-election. Here are some of the "replace" plans that are premised on Obamacare first being repealed.
Rep. Paul Broun (R., Ga.) introduced a plan that was endorsed by FreedomWorks, a large Tea Party-oriented organization. Broun’s plan, however, would likely have significantly increased the deficit through substantial tax cuts.
Not so of George W. Bush’s 2007 plan to replace the employer tax exclusion with a standard deduction. Bush’s thoughtful and fiscally rigorous plan would have revolutionized the private insurance market, and served as a model for one of Mitt Romney’s own proposals. It would have reduced the deficit and expanded coverage. What’s interesting is that Obamacare’s "Cadillac tax" represents a clumsier but similar approach; Obamacare made some interesting refinements to the concept that are worthy of review.
A big part of the next four years will be for Republican governors to figure out how much of Obamacare, if any, to implement. I interviewed Rick Perry on the subject in December, and he had plenty of interesting things to say. Nicole Fisher discussed the weird limbo zone of "state-federal partnership" exchanges.
The states will have to figure out what to do about Medicaid. I criticized Arizona’s Jan Brewer for proposing to expand Medicaid under Obamacare’s terms, when superior options are available to her. Studies continue to show that expanding Medicaid reduces access to health care. Blue states expand Medicare by paying doctors less, as state-by-state data illustrates.
A group of Harvard economists published a paper claiming to prove that Medicaid improves health outcomes. Except that it did nothing of the sort, despite being widely trumpeted in the press. Block-granting Medicaid back to the states remains the ideal solution for making the program more efficient and patient-friendly.
The free-market dream
"Politics is the art of the possible," said Bismarck. But that doesn’t stop free-market dreamers like David Goldhill from describing how we would design our health-care system if we could do it from scratch. The first thing that we need to appreciate is that health insurance is not the same thing as health care. The second thing we need to do is understand what insurance actually is designed to do: protect us from truly unexpected, catastrophic loss.
Employer-sponsored insurance is a big part of the problem, because it makes individuals insensitive to the cost of their care. Transparency with health-care prices would help consumers shop for their own care, but industry likes the current system just as it is. A national, interstate market for health insurance would help, but it’s no magic bullet.
A key thing to do is to prevent more consolidation among hospitals, who use their monopoly power to raise prices.
2013 is the 50th anniversary of Ken Arrow’s famous piece arguing that the free market can’t work in health care. I rebut Arrow here, at a piece I wrote when I was guest posting for Megan McArdle at The Atlantic.
Then again, Don Berwick thinks consumer-driven care is a "vicious idea."
The long view
The permanence of Obamacare means that the future of American fiscal debates will pit health-care spending on the old against health-care spending on everyone else. One consequence of the metastasis in health spending is that we will have to cut back on military spending to compensate, as Congress did with the Budget Control Act of 2011.
Finally, a word about Mitt Romney. If you had told me three years ago when I started blogging in earnest that I’d soon be advising a presidential candidate on health care reform, I’d have been pretty surprised. Not only that, but I’d been quite critical of Romney’s health-care reforms in Massachusetts, though I’d always had great respect for Romney the individual, and felt that many conservatives had unfairly painted him as a left-wing apostate.
The similarities between Romneycare and Obamacare made it difficult for Romney to attack Obamacare in ways that most conservatives would have preferred. But he did a near-perfect job debating health care policy with the President in the first televised debate.
And it’s also true that Romney’s plan for national health reform was a significant and impressive one, far better than anything that any previous Republican nominee has formulated. It’s a shame that he’ll never get to implement it. I walked away from the campaign with even greater admiration for Romney than I had before, and I hope he continues to contribute to public life in whatever way he sees fit.
I hope that you, my readers, felt I honestly discharged my twin roles as a health policy pundit and a Romney advisor. I worked with a first-rate group over there, with people who will continue to play a key role in market-oriented health reform, whatever the future holds.
Original Source: http://www.forbes.com/sites/aroy/2013/01/31/a-look-back-at-year-two-of-the-apothecary-at-forbes/
