November 23, 2009

Three-Way Tie for Worst Legislation Ever: PelosiReidCare, Smoot-Hawley, Volstead Act

by Hal Gershowitz

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The Smoot-Hawley Act of 1930 and the Volstead Act of 1920 would make almost every historian’s list of really bad legislation. But should Nancy Pelosi’s H.R. 3962, the so called Affordable Health Care for America Act, or the separate Senate version introduced by Majority Leader Reid ever become law it may eclipse those legislative disasters as really, really bad law. As time passed, but only after terrible economic damage to the world economy, the country repealed most of the crushing Smoot-Hawley tariffs and we also repealed the ill-conceived Volstead Act, which prohibited the sale of alcoholic beverages in the United States. The trillions of dollars in entitlements, however, which the Pelosi and Reid so-called reform bills will create and the unprecedented power they will assign to vast new bureaucracies will not, as a practical matter, ever be repealed should they become law. That is simply the nature of entitlements.

Rolling dice with the deficit

Let us try to comprehend what we are talking about when we speak of a 1.2 trillion dollar (and that’s just for starters) entitlement program. A trillion of anything may not sound all that threatening in the abstract, but it is, in fact, a sum larger than the entire national economies of 168 of the 180 national economies measured by the World Bank. And, according to the non-partisan Congressional Budget Office, that is the real cost of the House Bill – costs which will add mightily to the nation’s deficit (think debt) with which we and future generations will be saddled should this absurd piece of misnamed and ill-conceived legislation (or anything like it) become law.

Now, we should acknowledge that the leadership in both the House and Senate claim that these massive expenditures will not add one dime to the deficit, and the Congressional Budget Office (CBO), relying on utterly fantastic assumptions provided by the leadership, has claimed that the Senate version of so-called, health-care reform would actually reduce the deficit by $130 billion over ten years or a fraction over $1 billion a month. Sounds impressive until one stops and recognizes that the federal deficit for last month alone was over $174 billion. So what are the chimerical assumptions provided by the House and Senate leadership on which the CBO analysis rests?

1. The Congress will not fix, the scheduled reduction (21% next year) in fees that doctors and hospitals are to be paid for Medicare and Medicaid patients. These mandated reductions are routinely cancelled every year, as they should be. In fact, on November 19, the House in a brazen act of deception, just as the Senate bill was relying on these reductions, voted to cancel them for 2010.

2. The actual costs will not exceed what the bills’ sponsors anticipate the costs will be. This would be a first for Congress. Even the CBO, in scoring the bill, acknowledges that costs will increase, not decrease.

3. Hundreds of billions will be saved through waste and fraud reduction in the delivery of Medicare and Medicaid services going forward. If that is so easy to accomplish, why hasn’t it been done up to now?

4. Perhaps the cruelest rub of all is that both the Senate and House bills start collecting taxes and fees next year but delay any “benefits” (read costs) until 2014. Thus, deficit reduction is computed based upon ten years of revenue and six years of costs.

New taxes, fees and penalties

Make no mistake about it, Congress is proposing to weave an assortment of new taxes into the fabric of life in America, from levies on high-quality private health-insurance policies, to increased Medicare premiums, to penalties for individuals or families who choose to pay their own medical bills and forego buying health insurance, to annual fees on pharmaceutical companies, health insurers, medical device-makers and clinical laboratories, all of which will pass these costs onto the consumer. Both bills dictate how much of company-provided health insurance premiums will be paid by the employer and how much by the employee. Moreover, for the first time since social security or Medicare was enacted, taxes for these entitlements will be increased for individuals and families earning above a certain income level (unindexed for inflation of course).

The public option: an assault on competition

We believe that anyone who needs health care and cannot afford to pay for insurance, or for the care they need, should have access to the necessary medical personnel, treatment and facilities they require. That, however, isn’t really what H.R. 3962 or its Senate counterpart is all about. It isn’t narrowly aimed at fixing the pre-existing condition or portability issues or the issues of the uninsured that need to be fixed. H.R. 3962 (or any other health-care measure with a so-called public option) is designed primarily to shift to the federal government responsibility for the provision of health care for all Americans. It won’t happen all at once because there is much too much resistance to government control of health care throughout the country. To paraphrase Abraham Lincoln’s wise observation 150 years ago, “you can’t fool all the people at one time.”

Any plan that establishes the Government as “a competitor” for the delivery of health-care services will eventually spell doom for privately provided health insurance in the United States. When one “competitor” can write the rules and set the standards for its competition, and then set the prices for service which that competitor alone can subsidize by printing money with which to pay bills that exceed revenue, and which has unlimited capacity to incur debt (that its customers and all American taxpayers must ultimately pay) there won’t be competition very long. That would be the mother of all anti-trust cases if a private company was ever in a position to do that.

Health care in America and in Europe

Proponents of a government provided health-care system tell us that our privately provided health-care is more expensive than European-style, government-provided health care and that the outcomes with our system here in the United States are not as good as in Europe and elsewhere.

They also contend that the government’s administrative costs are much lower than the costs incurred by the private sector. That statistic, however, is entirely misleading, because the care the government provides for the elderly through Medicare is very expensive on a per- patient-served basis compared to the costs incurred by private health insurance providers that provide care to the general population, which includes a much younger and much healthier population. Accordingly, the administrative costs incurred by the government in providing care for the elderly, which are, essentially, the same as the administrative costs incurred in providing care for younger patients, will tend to be much lower as a percentage of total costs, than the administrative costs, as a percentage of total costs, incurred providing care to a younger population with lower costs per patient.

As for outcomes in America versus Europe, there is no case-to-case comparison to support the proposition that outcomes are better in Europe. It is true that we have a somewhat lower life expectancy on average in America than in Europe and a higher infant mortality rate as well. This is not, however, a reflection of the quality of medical skill or technology in the United States. Instead it reflects other factors including ethnic backgrounds and lifestyle. White Americans have the same average life expectancy (78 years for those born in 2005) as Europeans, while African Americans born in the same year have a life expectancy of 74 years. Thus, in the aggregate, we lag behind European countries. This is a serious problem for us involving socioeconomic circumstances (e.g., education, income, occupation) cultural and community environment, crime and social justice, and we need to continue to address all these problems, but a government take over of health care will not solve the problem.

That having been said, we Americans still do run up higher medical costs than our European counterparts. But is the proposed health care legislation aimed at lowering the nation’s health-care bill? Actually, neither the Pelosi or Reid plans do anything of the kind. As Robert Samuelson points out in his op ed article in the November 16 Washington Post:

“Three studies (two by the consulting firm the Lewin Group for the Peterson Foundation and one by the Centers for Medicare & Medicaid Services, a federal agency) conclude that various congressional plans would increase national health spending compared with the effect of no legislation. The studies variously estimate that the extra spending, over the next decade, would be $759 billion, $525 billion and $114 billion. The reasoning: Greater use of the health care system by the newly insured would overwhelm cost saving measures (bundled payments, comparative effectiveness research, tort reform), which are either weak or experimental.”

Also, much of the cost in America arises out of tests ordered by physicians in an excess of caution to guard against malpractice suits. Do either the House or Senate bills address that problem? Of course not. That would be detrimental to the trial lawyers who make a fortune on harassing litigation and who are among the largest contributors to the Democratic Party.

But even more objectionable than the attempt to obfuscate just what is being sold to the American public in the name of “health insurance reform,” is the blatantly dishonest way in which Congress and the Administration have tried to hide the cost of this legislative nightmare. Rather than candor about the real cost of this statist grab of health care in the United States, Speaker Pelosi, Majority Leader Reid and the Congressional leadership have resorted to the legislative tomfoolery and deceit described above to hide elsewhere in the federal budget the real costs of their health-care plan.

Currently, we Americans have a wide variety of insurance policies available to us, which provide for a much greater variety of health care choices than in Europe where “one size fits all” is the norm. Most Americans like it that way. For example, we may choose to utilize fairly expensive treatments or procedures to keep an elderly relative with us a few years longer or even a few months longer. That choice, despite what the reformers tell us, will most certainly be vastly curtailed if not eliminated under nationalized health care.

Rationing: the 800 lb. gorilla in the room

No, we won’t have so called death panels, before which we will have to appear and plead our case on behalf of loved ones who might be deemed to be too ill to warrant medical assistance. While the introduction of this allegorical reference to rationing caused a firestorm of controversy, it succeeded in focusing attention where the Administration and Congressional leaders are loath to have the spotlight turned. Whatever you call the obvious effects of limitations on care, you can bet the ranch that there will be rationing of health care under a government-run plan and, in fact, such rationing of health care is both fundamental and essential to making a public option work.

The nation got its first hint of what to expect with respect to rationing of health care when the President’s medical task force recommended, just last week, that women not have mammograms until age fifty or past age 75. The outcry from the nation’s finest and most respected medical institutions and service organizations such as the Mayo Clinic and the American Cancer Society was so severe that the Administration quickly disavowed the recommendations of its own task force. The statistics accompanying these recommendations proved that they were not about reducing the incidence of disease through better health care. Instead, they were about reducing costs to the government through rationing of health care.

Whatever one’s view is regarding rationing of health care, if we are about to embark on a program leading inexorably to that result, we can at least demand that our government officials be candid with the American public and acknowledge the obvious. Instead, the strategic game plan laid out by the Administration has been to instruct everyone involved in the health-care debate on behalf of either the Pelosi or Reid plans to avoid ever using the term “rationing.” They fear that the American public will dig in its collective heels in opposition to a health-care plan that is predicated on a system of ill-defined, ever-evolving rationing of health care.

QALY Scoring: coming to a hospital near you

The European model, which has been largely fashioned after Great Britain’s National Health Service, relies heavily on the “QALY” (quality adjusted life years) scoring system. And make no mistake about it; a U.S. public-health plan will also rely heavily on some type of QALY scoring system. Here is how it would work. QALY points are assigned to various attributes of good health. A young, non- smoker with no history of illness or disease would get a higher QALY score than someone of the same age who smokes, and who has been plagued by illness. Fair enough; insurance companies make those types of actuarial judgments all the time. Those individuals will either be able to get insurance or not, or they may have to pay a higher or “rated” premium that reflects the greater risk the insurance company is taking by insuring them.

The very real concern that thoughtful opponents of a government-run, health-care program have is that expensive treatments could be withheld or refused in the case of a patient with a poor QALY score. Do we really want to see men, women and children appraised as the Kelley Blue Book appraises automobiles? We don’t ever want to hear a public-health official tell us “Sorry, but you (or your loved one) isn’t really worth the cost of repair.” Although that isn’t a “death panel,” if it walks like a duck and quacks like a duck—-.

Even more to the point, here’s how QALY scores are used today in Europe to determine whether someone, especially an older someone, is approved for any given procedure. Suppose a person needs a kidney transplant (any expensive procedure would be analyzed the same way) the cost of which is estimated to be $300,000 which includes the cost of harvesting (and perhaps transporting) a healthy kidney and the transplanting of that healthy kidney into a waiting recipient who happens to be 68 years old. The QALY administrator would divide the cost of the procedure by the projected additional quality years the patient would enjoy following the procedure. In the example above, assuming a post-transplant life expectancy of 78 years for our patient, the $300,000 cost of the procedure would be divided by 10 (the number of quality years the 68-year-old patient in our example would be expected to have following the transplant) and a cost per quality-adjusted-life year would be determined to be $30,000.

If government policy (and there will be a government policy) states, for example, that no procedure will be approved with a QALY score greater than $25,000 (that is, a cost of $25,000 for each year of remaining life expectancy following a procedure), the patient in the example above would be denied the transplant. On the other hand, if that same patient were 48 years old and, therefore, had 30 years of remaining life expectancy following the transplant, the QALY score would only be $10,000 (30 years divided into the same $300,000) and that patient would be approved.

The use of QALY scoring is a well-established, integral part of public health programs in place in Great Britain and elsewhere in Europe. QALY scoring, or its equivalent, perhaps under another name, will also be an integral part of any cradle-to-grave American government-run, health-care plan. Key members of President Obama’s health-care advisory team are strong proponents of QALY scoring. One-size-fits-all government-run medical plans require that type of centralized bureaucratic cost control or they simply won’t work. Our point is not, at this time, to debate the efficacy or the morality of QALY scoring, but only to suggest that H.R. 3962 or its Senate counterpart would have been more appropriately named the “American Health Care Limitations Act” than the misleadingly named ”Affordable Health Care for America Act.”

In spite of all of this, Congress and the President are determined to rush headlong into this ill conceived, poorly written, largely unread and unaffordable new health-care entitlement program. It won’t improve health care, but it will further sicken our economy. It won’t reduce costs but it will be an irreversible step toward government control over another major piece of our lives. It will, however, as the Administration claims, be historic…at least as historic as Smoot-Hawley and the Volstead Act.

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