Says John Goodman:

“As for portability, I don’t know anyone inside the Beltway who advocates repealing the prohibition that keeps employers from buying individually-owned insurance for their employees.”

John should get out more, or review some of his older files. These are not “new” issues and remarkably enough, other people have thought about them, too.

For example, on July 26, 2001, then-representative Jim DeMint introduced the Health Care Account Act of 2001 (H.R. 2658, with 22 co-sponsors including Paul Ryan, Richard Burr, Mike Pence, and Dick Armey), which addressed the conflict in regulatory treatment between HIPAA and ERISA for potential defined contribution employer plans by selectively excluding “health care expenditure accounts” from the definitions of group health plans to which HIPAA group health plan requirements would otherwise apply. It also treated eligible defined contributions to those accounts as excluded from gross income for federal tax purposes.

I didn’t discover the HIPAA vs. ERISA issue on my own (I was tipped off by one of the best health law attorneys in Washington – Bill Schiffbauer – back in 2001), but wrote about it, too, in a chapter in volume II of “Covering America” published by the Economic and Social Research Institute in 2002 (pp. 8-9 online version):

“Despite the potential benefits of two-tiered DC [defined contribution] plans, as well as the recent tax guidance issued by the Internal Revenue Service clarifying how accumulated balances in an individual employee’s health reimbursement accounts may be treated when rolled over at the end of a year,several regulatory barriers to the future growth of DC plans still need to be removed.

First, “pure” DC plans for fully insured employer groups, in which an employer distributes defined health benefits contributions to each eligible employee and allows them to purchase their own individual or non-employer-group insurance coverage, run the risk of being regulated nconsistently. They might be treated both as employee welfare benefit “group” plans and as “individual” health plans under state law.18

To clarify the regulatory treatment of this kind of DC plan, any plan or fund under which medical care is offered to employees by an employer solely through provision of a monetary payment or contribution to a participant or beneficiary and that is used exclusively to purchase individual health insurance coverage should not be considered an “employee welfare benefit plan” for regulatory purposes under the Employee Retirement Income Security Act (ERISA). However, such plans or funds would retain their “group” tax exclusion benefits under the Internal Revenue Code. Such hybrid treatment (group for tax purposes, individual for regulatory purposes) would be premised on the conditions that only the employer, rather than individual employees, may decide to provide health benefits through defined contribution payments, and such defined contributions must be provided to all employees or all members of a class of employees based on work-related distinctions.19

Second, the defined contributions employers make to individual employees in pure DC plans, to be used to purchase individual health insurance coverage, should be allowed to vary on the basis of health status in the event the employer uses an approved risk-adjustment mechanism. That is, employers would be allowed to make larger contributions to workers with poorer health status to offset the higher premiums they would face when they seek to purchase individual coverage.However, state insurance regulators would need to approve this exemption from HIPAA non-discrimination rules.”

18 See Department of Health and Human Services, Health Care Financing Administration. “Insurance Standards Bulletin Series—INFORMATION.” Program Memorandum Transmittal No. 00-06, November 2000 (conveying position of HCFA that coverage characterized as an individual policy under state law may nonetheless be subject to group market requirements of the Public Health Service Act, as added by HIPAA, if coverage is provided in connection with a group health plan).

19 The proposed Health Care Account Act of 2001 (H.R. 2658), introduced on July 26, 2001, takes a similar approach. It selectively excludes “health care expenditure accounts” from the definitions of group health plans to which HIPAA group health plan requirements would otherwise apply, but it also treats eligible defined contributions to those accounts as excluded from gross income for federal tax purposes.

Hmmmm.... Ideas are not new? Well, maybe. I don’t know anyone else who has explicitly endorsed a supply-side approach to cost control. (For more details, see my testimony.) In The New York Times yesterday there were five Republican essays on health reform. Of the three who get into the issue, all of them endorse a demand-side approach to payment reform — just like the Democrats in Congress.

As for allowing the chronically ill to manage their own budgets and allowing health plans to specialize in their care and charge market-clearing prices for doing so — the only people I know who have seriously proposed this are all linked to the National Center for Policy Analysis.

As for portability, I don’t know anyone inside the Beltway who advocates repealing the prohibition that keeps employers from buying individually-owned insurance for their employees. (Our portability proposal is here.)

Now, about these ideas already being in the ObamaCare bills (which is a joke) or requiring more government intrusiveness, Mssrs. Cannon, Rosenbaum and Miller are very wide of the mark.

The idea is to repeal laws and get rid of distortions, not create new ones. The path to portability is to repeal the HIPAA/ERISA regulations that prevent employers from buying individually-owned insurance. A market for sick people means repealing tax law restrictions and insurance regulations that stand in the way. Supply-side cost control means allowing providers to do what every other free-market entrepreneur is able to do — have the freedom to reprice and repackage their services. As for tax law, the government’s already in this up to its neck. So what’s the best way out? A refundable tax credit with same dollars for everyone is the way to create the least distortion. As for early retirees, here again the goal is to remove distortions. Let retirees have the same tax advantage active employees have. Let them have access to employer-paid portable insurance, just like active workers should have access.

A final note on tone. Jason Rosenbaum must be in the same gene pool with Paul Krugman. Like Krugman, he cannot seem to engage in policy discussions without impugning the motives and sincerety of the people he disagrees with. Hey, but as the old saying goes: If the law is not on your side and the facts are not on your side, there is nothing left to do but pound your shoe on the table.

Newt Gingrich and John Goodman offer their ten best ideas for health reform. The ideas are neither particularly new nor detailed, but, to be fair, their original exposition undoubtedly was limited by the constraints of the op ed genre and the temptation to offer the most popular and least complex policy nostrums. Moreover, the competition in the health reform arena is not that keen, even beyond the confines of partisan posturing.

The greater problem lies in converting the equivalent of policy sound bites into effective and robust policy changes. Consider the challenges facing the Gingrich-Goodman proposals in the real world:

· Make insurance affordable. Changing the current tax treatment of health care spending could make tax subsidies more equitable and/or better targeted. But this approach doesn’t make health care any less expensive; it just shifts the bill to someone else. We might rearrange tax subsidies so that some categories of people get more of them and others get less, or we could try to borrow even more money to match additional reductions in tax revenue today (and pass the debt service and debt repayment costs on to future taxpayers tomorrow). But until the actual delivery of care becomes more efficient and effective, and the demand for health care services drops below projected levels, the aggregate cost of insurance that finances most of it will not really become any more “affordable.” We just will pay for its higher costs in other ways. In fact, some of the increase in subsidized health insurance spending will be diverted into higher prices, rather than greater quantities of health care services (see “deadweight loss”).

Perhaps Gingrich and Goodman would consider providing less tax relief to higher-income, lower-risk insurance purchasers and more to lower-income, higher-risk purchasers. Perhaps they believe that most Americans need to spend even more on health care and even less on other goods and services. Perhaps they believe that we should reduce other categories of public spending to balance out greater public sector spending on health care. But I did not see any hint of that in their proposal. Where “more affordable” ends and “greater cost consciousness” begins remains unclear. Then again, we just may be seeing another appearance of the Two Santa Claus Theory, in which promises of deeper tax cuts by Republicans compete with offers of greater spending by Democrats for the favor of myopic voters.

The Gingrich-Goodman transitional approach of “choose your best tax subsidy” (either the old tax exclusion or a new tax credit) is a Priceline-like device to keep more insurance purchasers happy, while maximizing the net tax expenditure/revenue loss amount. It was first advanced by then-Rep. John Cooksey of Louisiana in a proposed bill about ten years ago, before he ran into some language problems in a 2002 Senate race (see “turbans, diapers, and fan belts”).

· Make health insurance portable. Most popular concepts of portability present it as a set of one-sided call and put options (unpriced, too), by which consumers who want to keep what they have can retain it even when they leave a job but those who want something different are under no continuing obligation to stay in their last risk pool or its particular book of business. A change in tax policy toward a more level playing field for all purchasers would help to some degree, but it remains unclear how many employers would want to turn over the keys to their health benefits plans to ex-employees (see “recruitment, retention, and COBRA selection costs”). Interestingly, arguments for greater insurance portability seem to have increased even as the average length of job tenure remained essentially unchanged over the last few decades. The idea of allowing and facilitating interstate sale and purchase of health insurance has finally graduated to bumper sticker status, but the magnitude of resulting insurance cost savings projected by its advocates tends to outrun the evidence base (see relative contributions to total costs of care from “geographic variation in medical practice” vs. “regulatory wedge” across states) and neglects the likely speed bumps of accompanying procedural safeguards. Reconciling demands for greater portability with those for increased choice of insurance products may have been solved in theory, but it requires much more heavy lifting in practice. It would involve much more risk adjustment, basic benefits standardization, future indexing complexity, and binding bilateral responsibilities than most shallow concepts of portability acknowledge, let alone prescribe.

· Meet the needs of the chronically ill. Medicaid cash and counseling worked wonderfully for a particular category of beneficiaries, and for a limited range of less complex services. How scalable its initial approach may be remains untested, though further efforts to expand its scope and scale remain worth pursuing. Gingrich and Goodman emphasize the role of health plans in more specialized management of chronic diseases, yet the real need is for more specialized and more effective management of those diseases by coordinated teams of physicians and other health care providers. Health plans need to be sufficiently deep and diversified to handle a wider range of unexpected future health needs, not just a narrower basket of chronic diseases. Whether Newt and John would support far more comprehensive (and intrusive) harvesting and analysis of privately insured Americans’ health risk status, more centralized risk adjustment of insurance reimbursement, and another round of complex cross-subsidies by an at least quasi-public body -- to make their objective work beyond Medicare and Medicaid -- remains unknown.

· Allow doctors and patients to control costs. Gingrich and Goodman do not propose to write blank checks with public funds for whatever doctors prescribe and patients demand. However, when they generically promise that total costs to the government will not rise and quality of care does not suffer, they fail to prescribe how costs will be capped (capitated reimbursement?) and quality will be measured (comparative effectiveness? pay for performance?).

· Don’t cut Medicare. The problem of Medicare’s own unfunded liabilities under current law also will not be solved if future Medicare spending is not reduced. In this case, Gingrich and Goodman deliver a subheading that their accompanying text cannot address seriously.

· Protect early retirees. Many employers and the tax code appear to be out in front of Gingrich and Goodman on this issue (see “access only” retiree insurance offered by employers with capped or grandfathered retiree health benefits plans, plus VEBAs, section 401(h) accounts, and section 420 excess assets transfers). The larger problem is less one of developing additional tax-advantaged vehicles and more one of either employers or their older employees finding sufficient funding to make use of them (see work longer, save more, restore economic growth, duh).

· Inform consumers. The terminology of Gingrich and Goodman confuses “data” with “information.” Medicare claims data and other government data by themselves will be useless to patients without further aggregation, refinement, measurement, analysis, interpretation, and translation into relevant, robust, and actionable information; followed by its effective dissemination. One of the missing links involves enabling competing private intermediaries to fill this gap, once the initial aggregation and refinement of government claims data has been completed.

· Eliminate junk lawsuits. Absolutely, along with junk medical practices. Still more effective and likely at the state, not national, level.

· Stop health-care fraud. The main difference between much lower levels of private insurance fraud and the bonanza of public health program fraud is that the former set of payers controls it prospectively while the latter set reacts to it retrospectively.

· Make medical breakthroughs accessible to patients. In many cases, more is learned about the full benefits and additional uses of new medical products after they enter the market than before – as long as they are allowed to get there and compete with olde- line therapies and treatments.

In summary, Gingrich and Goodman primarily offer the initial outlines of what might turn out to be at least several good ideas, but as Senator Scott Brown said during his winning campaign, “We can do better.” Both gentlemen have done so in the past, and should be challenged to flesh out the best of their many ideas more extensively and realistically in the future. Otherwise, they will remain a few bricks shy of a full load.

Having fisked Newt Gingrich’s and John Goodman’s “best” health care reform ideas, I probably should do the same for Minnesota Gov. Tim Pawlenty’s similar oped in the Washington Post. Pawlenty makes five recommendations:

1. “Incentivize patients to be smart consumers.” Setting aside his use of the grating word incentivize (down with suffix creep!), Pawlenty is on the right track. But he’s so vague as to leave (himself?) room for mischief. “Make quality and costs more transparent”? “Incentivize smarter health-care decisions”? A pol could claim to be doing those things while falling far short of what he should be doing: letting Americans — rather than employers or government — control their health care dollars and choose their own health plan. If that’s what Pawlenty means, heck, say it.
2. “Congress should pass reforms that allow people to stop paying for procedures and start paying for results.” Pawlenty appears to think government should find the “right” payment system, rather than allow for competition between different ways of paying health care providers — between fee-for-service, capitation, and everything in between. Such competition promotes all dimensions of quality. Government isn’t equipped to define and pay for performance, and bad things happen when it tries.
3. “Liability reform.” To recap: federal limits on med mal liability unconstitutional; Republicans unprincipled.
4. “Interstate health-care insurance.” Pawlenty doesn’t seem to get that the point of letting individuals and employers purchase health insurance across state lines is to force regulators to compete. His “interstate purchasing pool with strict standards” idea makes it sound like he doesn’t get it.
5. “Modernize health insurance.” Again, with the vagueness. If Pawlenty means he wants to let individuals control their health care dollars and choose their own health insurance — see here for how — then terrific. But when he recommends that we should “make health insurance transferable so employees can keep their coverage if they switch jobs” and “prohibit insurance companies from discriminating against individuals whose preexisting conditions were covered under insurance they lost through no fault of their own,” it sounds like he thinks regulation is the solution.

(Cross-posted at Cato@Liberty.)

A response to Gingrich and Goodman's op-ed in the Wall Street Journal last week.

We're beginning to see a pattern. President Obama's overture to Republicans to come up with ideas has unfortunately led to the mainstream media's opinion pages filling up with those ideas, put forward by the forces trying to kill health care reform.

The ideas put forward are coming in one of two flavors - ideas that are already in the health care bill or stale ideas that don't do anything to expand coverage, lower cost, or hold insurance companies accountable. The Republican ideas are always coupled with the assertion that the writer has no interest in upholding the status quo, even though their ideas would not actually solve any of the big problems that Americans face. Given that contradiction, it's hard not to see how Republicans and their allies aren't arguing for the status quo.

The other day, I went through an op-ed in The Hill by R. Bruce Josten, executive vice president of government affairs for the U.S. Chamber of Commerce, the front group through which the insurance companies funneled $10-$20 million to kill health care reform. Yesterday, with many of the same arguments, we have Newt Gingrich and John Goodman in the right-wing Wall Street Journal.

Gingrich and Goodman - Republican party hacks for decades - come out by stating that they are here to answer the President's challenge and put forward "better ideas" for health care, ideas they insist aren't present in the current bills. So what are those ideas? Well, a good many of them are already in the bills.

First, they say:

The current taxation of health insurance is arbitrary and unfair, giving lavish subsidies to some, like those who get Cadillac coverage from their employers, and almost no relief to people who have to buy their own.

Well, the Senate bill includes an excise tax meant to help with this perceived inequity, even though all it would do in its current form is increase costs for workers. They go on to propose a tax credit so people can afford insurance, something that's at the heart of the current health care bills.

Next, Gingrich and Goodman propose making health insurance portable by allowing people to purchase insurance across state lines. Unfortunately, a version of this disastrous policy - albeit much curtailed to keep people from being taken advantage of by insurers - is already in the bill as a concession to Republicans.

Gingrich and Goodman next want changes in the health care delivery system by giving customers access to better treatments and giving doctors incentive to work for health, not just deliver more care. These delivery system changes are already in the bill. But curiously, Gingrich and Goodman's policy solutions to these problems - namely more Health Savings Accounts - wouldn't accomplish what they want them to accomplish. Health Savings Accounts are little more than an insurance industry scam - they are high deductible plans that are attractive to the wealthy and (temporarily) healthy.

Next, Gingrich and Goodman recommend customers get more information about whether a treatments works well or is cost-effective, provisions for which have already been passed in the economic recovery package and were bitterly fought by Republicans.

And of course, Gingrich and Goodman have to trot out that old workhorse - tort reform. Once again, it would do nothing to rein in costs while it would deny people who are maimed by medical malpractice compensation for the destruction to their lives.

Finally, Gingrich and Goodman come to what they see as the biggest place to control costs - curbing Medicare and Medicaid fraud and abuse. Guess what - the savings in Medicare and Medicaid used to fund the health care bill are largely created by curbing fraud and abuse, including overpayments to private insurers through Medicare Advantage, and yet Gingrich and Goodman rail against these "cuts" in their op-ed.

All in all, like Josten before them, Gingrich and Goodman bring "new ideas" to the table that are either already in the health care bill or wouldn't do anything to cover Americans adequately, rein in costs, or hold the insurance companies accountable. And yet, even though there is so many of these ideas represented in the health care bill, they're still against it.

That fact - that a lot of these ideas are in the bill - coupled with their continued objections to the bill show you Gingrich and Goodman's true goal. They want nothing more to kill health care reform, and they're resorting to illogical arguments to achieve it.

Democrats in Congress, don't be fooled. Republicans have no intention of solving the health care crisis. They and their insurance company allies want the status quo. It's up to you to ignore their "ideas" and finish reform right.

I much prefer the ideas of Newt Gingrich and John Goodman to those of President Obama. But their recent oped in the Wall Street Journal shows why conservatives and Republicans still have a ways to go if they want to stop getting their clocks cleaned on health care. Here’s a fisk of the objectionable passages:

• “The current taxation of health insurance…giv[es] lavish subsidies…” There ain’t no such thing as a “tax subsidy.” Or a “tax expenditure.” If that’s what you call it when a tax break reduces federal revenue, don’t be surprised when politicians try to “reclaim” that “expenditure” (read: increase taxes) and spend it someplace else.
• “Many health economists conclude that tax relief for health insurance should be a fixed-dollar amount…” Many economists also conclude that Medicare’s administrative costs are low, but that doesn’t make it true, nor does it mean Medicare is a good idea. If conservatives actually believe in limited government and they want to improve health care, they should advocate policies that will help eliminate tax breaks for health care. Targeted tax “breaks” are merely another example of destructive government meddling.
• “Employers should be encouraged to provide employees…” Nyet, comrades. That’s not the government’s job. Government should stop encouraging anyone to do anything in health care, unless it’s encouraging people to keep their promises (read: enforcing contracts) or encouraging producers not to hurt consumers (read: tort liability).
• “A good model for self-management is the Cash and Counseling program for the homebound disabled under Medicaid.” Sure it is — if you want to increase dependence on government.
• “We should also encourage health plans to specialize…For example, special-needs plans in Medicare Advantage actively compete to enroll and cover the sickest Medicare beneficiaries.” Re encouragement, I refer my right honourable friends to the answer I gave some moments ago. And do we really want to hold up Medicare Advantage — which is even more government-heavy than the Democrats’ health insurance exchanges — as a model for reform?
• “Don’t cut Medicare.” Really? And you’d prefer dealing with Medicare’s $80 trillion unfunded liability…how?
• “A viable bridge to Medicare can be built by allowing employers to obtain individually owned insurance for their retirees at group rates.” A Bridge To Medicare. Please let that be the slogan for Gingrich’s presidential primary campaign. Of course, that bridge would require more regulation.
• “Eliminate junk lawsuits. Last year the president pledged to consider civil justice reform. We do not need to study or test medical malpractice any longer.” For all their talk about limited government and the rule of law, conservatives and Republicans just can’t seem to stop advocating unconstitutional federal limits on med mal liability. Maybe they’ve convinced themselves that all doctors are angels and all trial lawyers are demons.
• “We can help prevent [health care fraud] by using responsible approaches such as enhanced coordination of benefits, third-party liability verification, and electronic payment.” We will prevent health care fraud when we get the government out of health care — not before. For a good take on the silliness of government fraud-prevention efforts, see David Hyman’s Medicare Meets Mephistopheles.

Whew, this list is longer than I thought it would be. Just two more:

• “Make medical breakthroughs accessible to patients…by cutting red tape before and during review by the Food and Drug Administration.” The FDA is constitutionally incapable of striking the right balance between speed and safety. It must be eliminated. Getting other reforms right first — reforming the tax code, reforming Medicare, allowing people to purchase insurance across state lines — will make eliminating the FDA easier.
• “The solutions presented here can be the foundation for a patient-centered system.” The authors must have in mind a different oped than the one I read.

To emphasize, there’s a lot that Gingrich & Goodman get right. But if conservatives and Republicans wonder why government already controls so much of America’s health care sector, and why the Left is so close to having government takeover the rest, they might consider some of their own misguided ideas about health care reform.

(Cross-posted at Cato@Liberty.)

In response to President Obama’s stated willingness to entertain new ideas on health reform, Newt Gingrich and I proposed ten of them in The Wall Street Journal the other day. The Journal editors referred to them as “GOP health ideas.” That’s not correct, but it does raise this question: Do Republicans have a fundamentally different approach than Democrats to health care?

Although it’s hazardous to generalize about political parties, I believe the answer is “yes” on two counts. And these differences are so large, they help explain the partisan divide that has derailed reform.

First, consider the health insurance benefit package and how it gets paid for. The Republican approach (as represented by Sens. McCain and Coburn and Rep. Ryan) is to equalize the tax subsidy — giving every family the same tax credit. But Republicans seem quite willing to allow people to buy very different benefit packages with their subsidy. By contrast, Democrats on Capitol Hill seem intent on equalizing benefits (virtually forcing everyone to have the same health insurance), but are willing to tolerate very substantial differences in tax subsidies — even for people at the same income level.

If you are prone to exaggeration, you could almost say that Republicans want everyone to have the same subsidy, but are indifferent about what people do with their subsidy; while the Democrats want everyone to have the same benefits, but are indifferent about how those benefits get paid for.

Consider that the Coburn/Ryan bill would effectively give every family $5,700 as a down payment on the health insurance plan of their choice. (To ease the transition, Newt Gingrich and I proposed to allow people to choose between the tax credit and the current tax system.) By contrast, ObamaCare would have radically different subsidies for a plan that everyone will be required to have. Take a family earning $100,000 in 2016. Under the Senate bill, this family’s only subsidy would come from the current income tax law. That would be a tax subsidy worth about $6,345 if they obtain health insurance through an employer, but only $1,980 if they buy their insurance in the newly-created health insurance exchange. A family earning $30,000 would get a subsidy of $13,536 in the exchange, but only $2,115 if the insurance were obtained at work.

It’s hard to imagine two more starkly different approaches to the issue of costs and benefits.

The second major difference relates to how the two parties envision that goals will be reached. Republicans tend to have far more faith in the power of economic incentives than in the effectiveness of regulation. A typical Republican view is: If you want to control costs, improve quality and create more access to care, patients, doctors and other entities must find the achievement of these goals in their self-interest. And if they are not in anyone’s self-interest, these goals are unlikely to be attained — no matter how much regulation there is.

Newt and I are proposing to go further than most Republican bills in Congress in this regard. We would like to give chronic patients more opportunities to manage their own care and let special needs health plans compete to meet their needs. We would also like to free doctors to repackage and reprice their services — offering e-mail and telephone consultations in place of some office visits, for example. Still, the principles are the same.

The approach of ObamaCare, by contrast, is very much command-and-control. It’s not an accident that there will be more than 100 new regulatory bodies under the House bill or that there is virtually nothing in either the House or Senate bills that would liberate doctors or patients and give them new opportunities to solve problems.

The White House really believes that people inside the Washington Beltway can determine best medical practices and force the entire country to abide by them by using Medicare’s power of the purse.

Again, it’s hard to imagine two more different approaches to public policy.