StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Health Care "Entitlement" is the New "Entitlement"

03 Sep 2009
Posted by Andrew Samwick

I disagree with the analogy Stan drew in his last post.  (And mind you, this is coming from someone who does not refer to the estate tax as a death tax.)  In Section 223 of HR 3200, the Secretary of HHS is authorized to construct a public health insurance option with payment rates based "on the payment rates for similar services and providers under parts A and B of Medicare."  In Section 222, the Secretary is tasked with setting the premiums for the public health insurance option "at a level sufficient to fully finance the costs of" its health benefits and administrative costs.  Why would anyone be out of line to describe that as the option to buy into Medicare?  And Medicare is an authentic entitlement program -- regardless of what else people might be including in the set of entitlement programs in political discussions, Medicare is never excluded.

So why does a public health insurance option defined in this way have someone like me seeing red?  I have two reasons.  First, I think Section 223 is here to stay and Section 222 will go away.  The government is much better at making promises than funding its promises.  The scenario I envision is that the public option does nothing to control costs.  Its payment system is set up to resemble Medicare, and it is the growth in real, age-adjusted Medicare expenditures per capita that has most people concerned about long-term deficits.  But with a public option, there will now be recourse for every citizen to petition the government to get a better deal on its health insurance premiums.  The pressure will be enormous to subsidize the public option, just as there has been enormous pressure to offer services in Medicare that increase its cost at (future) taxpayer expense.

Second, there is no way to keep politics out of the operation of an entitlement program as complicated as Medicare.  Legislators simply cannot help themselves.  Staying with the follies of former Senator Stevens to whom Stan referred in his post, recall what he did for Medicare payments in Alaska on his way out the door.  I have argued that the government does have an important role to play in the regulation of health insurance markets (Community rating, Guaranteed issue, Ex post risk adjustment, and an individual mandate, with Medicaid for a fee as the backup option).  To the extent possible, it should stay out of the business of delivering health care.  Markets should determine the allocation of goods and services, not legislators and bureaucrats.

Andrew, Good points, and


Good points, and let's not forget that even if public option premiums were to fully cover expenses and thus avoid a subsidy to the program, the proposed "reform" would spend a bundle providing an entitlement to an individual subsidy (in one form or another) toward premiums to individuals who qualify based on individual income level, like an expansion of Medicaid (which, last I checked, was an entitlement).

And of course, everyone knows that cutting back on entitlement eligibility or benefit levels can be politically tougher than cutting back on current or projected discretionary spending, something that is particularly problematic for a healthcare entitlement, given the excess cost growth of healthcare and given our need, sooner or later (hopefully sooner, but with more pain later), to substantially reduce projected spending (and increase taxes) to address our long-term fiscal imbalance.

But that argument doesn't even work for the federal highways

The notion that the government should regulate the health insurance market but not provide goods and services is, for all practical purposes, a religious claim--nothing more.

The example cited in the previous post is so apt precisely because the federal highway system itself is a service provided directly by the government. So we're not here to debate whether government should provide goods and services. That debate is over. It already does. The debate we're here to have is about which services government should provide, and under what circumstances.

Certainly, politicians are no more prone to excess than are corporate executives. I think the lessons of contemporary history are pretty clear in that regard. We have a hyper-expensive health care system that is far less efficiently run than many government-run systems.

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