Federal, state and local governments already spend roughly half of all health care dollars in this country, and they have a large say over how the other half is spent. As a result of the last election, it’s likely that government will have an even more significant influence—if not control—over how all health care dollars are spent.
So what can we expect? Nothing good, as far as I can see.
Sally Pipes has seen some of the future in her native Canada (she’s a naturalized U.S. citizen now) and she talks about Canada, and more, in her recent book “The Top Ten Myths of American Health Care.”
Pipes, president of the San Francisco-based Pacific Research Institute, was a member of GOP California Gov. Arnold Schwarzenegger’s transition team, and she advised Rudy Giulianai’s presidential campaign on health care policies. She has served as president of the Canadian Association for Business Economics, and her commentaries have appeared in New York Times, Washington Post, USA Today and other leading newspapers.
At 150 pages before notes, Pipes’ book is short; it’s also written in an easy-to-read style. These are what she calls the Top 10 myths about government-provided health care.
1. Government health care is more efficient than the private sector.
2. We’re spending too much on health care.
3. Forty-Six million Americans can’t get health care.
4. High drug prices drive up health care costs.
5. Importing drugs would reduce health care costs.
6. Universal coverage can be achieved by forcing everyone to buy insurance.
7. Government prevention programs reduce health care costs.
8. We need more government to insure poor Americans.
9. Health information technology is a silver bullet for reducing costs.
10. Government-run health care systems in other countries are better and cheaper than America’s.
Let’s start with efficiency. Does government spend less on health care, since it doesn’t have to run a profit? Pipes notes, that according to the Medicare Trustees Report, administrative costs for Medicare are 1.5 percent of expenditures, versus 25 percent for some private insurance plans.
Does that make “Medicare for all” a good idea?
No, according to Pipes. First of all, other estimates question the validity or applicability of those estimates. The Council for Affordable Health Insurance, an Alexandria, Va.-based trade group, pegs Medicare’s administrative expenses at 5.2 percent and those of the private sector at 8.9 percent. And if the self-interested nature of that group bothers you, consider PricewaterhouseCooppers, which pegs private-sector expenses at 6 percent. Further, some economists would factor in economic losses stemming from money being diverted from the private sector to government coffers.
There are other costs to government programs that a simple look at their budgets dollars won’t reveal. Medicare and Medicaid are notorious for their low reimbursement rates, meaning that Medicare and especially Medicaid patients can find it difficult to find doctors who will take new patients. Another hidden cost, by some estimates, is that people with insurance pay another 10 percent just to help make up the difference for lowball rates from government programs.
There is still yet another hidden cost to government health programs, and that’s the enormous sum of unfunded liabilities (projected expenses less project revenue) hanging over Medicare and Medicaid. You’ve heard that Social Security has problems? Those problems are nothing compared with those related to Medicare. As a result, the Medicare payroll tax may have to reach 6.4 percent, a dramatic climb from its current rate of less than 2 percent. The effects will reverberate throughout the economy.
So whether government health care is measured by current dollars, future payments or delayed care, it is much more expensive than advertised.
With that myth discussed, Pipes spends the rest of the book addressing specific proposals for government action. Such actions would allegedly reduce costs, introduce efficiencies and give everyone insurance—except, according to Pipes, they wouldn’t. What they would do instead is have unintended consequences, she argues, including making us more sick and costing more (in dollars and much more) than we could ever know.
Take the myth that we’re spending “too much” on health care. Too much? Says who? We all have one life, and if we are spending more on health care than we used to, that’s because we can.
Trying to save money on drugs by squeezing drug companies or denying patients certain expensive drugs can incur greater expenses later on through causing fewer new drugs to be discovered or requiring patients instead to seek surgery.
Health technology, meanwhile, is worthwhile, but it should develop organically, not be imposed from a central location, Pipes says. Top-down approaches will likely lead to costly errors.
Preventive health programs may be the fad of the day. They are, however, a good example of how something that is individually rational may not be socially rational—and why focusing on the short term can produce inaccurate conclusions.
If we all stop smoking, start exercising, and lose weight—all things that government offices and some private companies are now prodding us to do—we will enjoy a greater quality of life. But we certainly won’t save money on health care, contrary to the premise of these “good for you” programs.
Why? People will live longer. That’s in itself a good thing. But people living longer also means they’ll rack up more medical expenses. And since the public purse covers most medical expenses for everyone older than 65, increasing longevity increases the risk exposure of Medicare.
Pipes says that “true reform of the health care system requires less government interference—not more.” Her closing recommendations propose to make more use of retail competition (retail health clinics, cross-state sales of insurance) as well as some standbys such as tort reform.
Whether anyone in Washington, or St. Paul will listen, is another story.
(A different version of this appeared in the November 28 edition of the Saint Paul Legal Ledger)
Taxpayer Dollars are Yours Too
January 23rd, 2009 by Craig WestoverThe Star Tribune Tuesday reported this week that the Minneapolis Fire Department is hosing cold water on a long-sought-after federal grant of $1.3 million dollars. Minneapolis’s turning down the grant provides an insight in the actual cost of all that “free” federal money the state’s congressional leaders like to boast about. It also creates a teachable moment.
The $1.3 million Minneapolis has been seeking is a Homeland Security Department grant that would enable the city to add 12 firefighters to the ranks. The catch is the grant requires that the city gradually increase its share of the cost of the additional firefighters. Over five years that comes to a total of $3.8 million. If the city fails to keep the newly hired employees on the payroll for five years, it must repay the grant.
Across the nation, Federal aid to state governments increased from $286 billion in fiscal 2000 to an estimated $449 billion in 2007. It is the third largest item in the federal budget after Social Security and national defense. Funds are distributed through some 800-plus programs. But all that money isn’t free — to the feds or to states like Minnesota and cities like Minneapolis.
Cato Institute director of tax policy studies, Chris Edwards tells us the theory behind federal aid to states is that federal policymakers can design and operate programs in the national interest to efficiently solve local problems. In practice, politicians see federal grants as just another subsidy for their states – not a tool to pursue broad national goals. Federal grants stimulate overspending by states, require huge bureaucracies to administer and come with a web of complex regulations that limit state flexibility.
Consider the process: We taxpayers send tax dollars to Washington where they are divided among some 800 federal programs and administered by thousands of employees. We also send tax dollars to St. Paul where administrators write grant applications to the federal government. No small task. The “Weed and Seed” school anti-drug program, for example, has a 74-page application kit that references 1,300 pages of regulations for schools to follow. The Grant applications are sent to Washington, where more bureaucrats evaluate them. If Minnesota is lucky enough to receive a grant, to get back some of the money we taxpayers sent to Washington in the first place, it comes with strings and usually a requirement for matching funds. Hence the problem for Minneapolis.
The inefficiency of the federal grant program is obvious, but there are also other insidious aspects affecting the state. Federal grants disrupt priority planning at the state level, encourage states to overspend on programs, create inefficient distribution of funds to states, burden states with regulation that inhibits innovative ideas, dilute the attention of elected officials from serious issues to competing for funds, and enable the federal government to usurp legitimate state functions.
Our GOP senator-in-limbo states on his web site that one of his “most important duties as your Senator is to secure federal funding for worthy Minnesota projects and initiatives.” One doesn’t find that duty listed, however, in the U.S. Constitution. Perhaps, and I’m just saying perhaps, that mentality is why our purgatorial senator is on the verge of becoming a fallen angel.
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