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No.

638 May 21, 2009

Obamacare to Come
Seven Bad Ideas for Health Care Reform
by Michael Tanner

Executive Summary

President Obama has made it clear that courage Americans to shift to the government
reforming the American health care system will be plan.
one of his top priorities. In response, congression- • The government would undertake compara-
al leaders have promised to introduce legislation tive-effectiveness research and cost-effective-
by this summer, and they hope for an initial vote ness research, and use the results of that
in the Senate before the Labor Day recess. research to impose practice guidelines on
While the Obama administration has not, and providers—initially, in government programs
does not seem likely to, put forward a specific re- such as Medicare and Medicaid, but possibly
form plan, it is possible to discern the key compo- eventually extending such rationing to pri-
nents of any plan likely to emerge from Congress: vate insurance plans.
• Private insurance would face a host of new
• At a time of rising unemployment, the gov- regulations, including a requirement to in-
ernment would raise the cost of hiring work- sure all applicants and a prohibition on pric-
ers by requiring employers to provide health ing premiums on the basis of risk.
insurance to their workers or pay a fee (tax) • Subsidies would be available to help middle-
to subsidize government coverage. income people purchase insurance, while
• Every American would be required to buy an government programs such as Medicare and
insurance policy that meets certain govern- Medicaid would be expanded.
ment requirements. Even individuals who • Finally, the government would subsidize
are currently insured—and happy with their and manage the development of a national
insurance—will have to switch to insurance system of electronic medical records.
that meets the government’s definition of
“acceptable insurance.” Taken individually, each of these proposals
• A government-run plan similar to Medicare would be a bad idea. Taken collectively, they would
would be set up in competition with private dramatically transform the American health care
insurance, with people able to choose either pri- system in a way that would harm taxpayers, health
vate insurance or the taxpayer-subsidized pub- care providers, and—most importantly—the quali-
lic plan. Subsidies and cost-shifting would en- ty and range of care given to patients.

_____________________________________________________________________________________________________
Michael Tanner is a senior fellow with the Cato Institute and coauthor of Healthy Competition: What’s
Holding Back Health Care and How to Free It (2007).
It is possible Still it is possible to discern the outlines of
to discern the Introduction what a health care reform proposal acceptable
to the White House will look like. President
outlines of a President Obama has made it clear that Obama outlined his ideas in considerable
health care reforming the American health care system will detail during the campaign. His first choice for
be one of his top priorities. Administration secretary of health and human services, former
reform proposal officials have repeatedly referred to health care South Dakota senator Tom Daschle, wrote a
that would be reform as Obama’s “top fiscal priority” and book on health care reform last year.8 While
acceptable to the called the need to restrain the growth in health Daschle’s nomination had to be withdrawn
care costs “the single most important thing we due to his failure to pay income taxes, his coau-
White House. can do to improve the long-term fiscal health thor, Jeanne Lambrew, remains as deputy
of our nation.”1 In his first address to Con- director of the White House Office of Health
gress, President Obama said, “Health care re- Reform, ensuring that Daschle’s views remain
form cannot wait, it must not wait, and it will prominent. And Obama’s second choice for
not wait another year.”2 And at a February secretary of Health and Human Services,
2009 White House Summit on health care re- Kathleen Sebelius, pushed several health initia-
form that included many of the congressional tives during her time as governor of Kansas.9
and industry stakeholders, President Obama In Congress, Sen. Max Baucus (D-MT),
insisted that health care reform must be passed chairman of the Senate Finance Committee,
“this year.”3 Obama’s proposed 2009 budget has released the outlines of a proposal.10 Since
included $634 billion as a “down payment” to any health care legislation will have to pass
pay for health care reform, although it con- through his committee, Baucus will help shape
tains no details about how that money would any final bill. Baucus has been working closely
be spent.4 with Sen. Edward Kennedy (D-MA), who sees
In response, congressional leaders have health care reform as his final legacy.11 Senator
promised to introduce legislation by this Kennedy has been meeting with industry
summer, and they hope for an initial vote in stakeholders and is preparing to draft legisla-
the Senate before the Labor Day recess.5 tion. While the meetings have been held in
President Obama apparently does not plan secret, some conceptual outlines have leaked
to put forward a specific plan for reform. out.12 In addition, a bipartisan bill, sponsored
Rather, the Obama administration is offering by Sens. Ron Wyden (D-OR) and Robert
general guidance and direction, while leaving Bennett (R-UT), has drawn White House atten-
the details up to Congress. As Obama’s budget tion.13
director, Peter Orszag, told a congressional And finally, the $1.3 trillion stimulus bill,
committee, “On exactly what the administra- officially known as the American Recovery and
tion does and does not favor on the benefits Reinvestment Act, contained a number of pro-
and coverage side, you should not expect and visions laying the groundwork for President
you will not be receiving definitive answers Obama’s vision of health care reform.14
from me.”6 If one looks at these various proposals,
This strategy stems from the belief of many outlines, and statements, the broad parame-
administration analysts that one reason for ters of the final proposal begin to emerge. It
the failure of President Clinton’s attempt at would not initially create a government-run,
health care reform was that the Clinton single-payer system such as in Canada or
administration developed a specific plan in Britain. Private insurance would still exist, at
secret, without congressional input, then least for a time, but it would be reduced to lit-
attempted to force Congress to accept it. As tle more than a public utility, operating
President Obama told ABC News, “They went much like, for example, the electric company,
behind closed doors and tried to come up with with the government regulating and control-
a plan all by themselves.”7 ling every aspect of its operation.

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Coverage would be mandated, both for approach, using a sliding scale for the required
employers and individuals. A government-run contribution with small and mid-sized compa-
plan, similar to Medicare, would be set up in nies paying less than large firms.16 And Senator
competition with private insurers. People Kennedy has long supported an employer man-
could choose either private insurance or the date. In the House, the chairmen of the three
public plan. The government would under- most relevant committees—Charles Rangel (D-
take comparative-effectiveness and cost-effec- NY) of the Ways and Means Committee, Henry
tiveness research, and use the results of that Waxman (D-CA) of the Energy and Commerce
research to impose practice guidelines on Committee, and George Miller (D-CA) of the
providers—initially in government programs Education and Labor Committee—are all back-
such as Medicare and Medicaid, but possibly ers of an employer mandate.17
eventually extending such rationing to private It is easy to understand why reformers
insurance plans. Private insurance would face would consider an employer mandate. Health
a host of new regulations, including a require- insurance through their employers is already
ment to insure all applicants and a prohibi- the way that roughly 70 percent of Americans
tion on pricing premiums on the basis of risk. under the age of 65 get their health insurance,
Subsidies would be available to help low- and which makes it an obvious platform on which
(most likely) middle-income people purchase to build.18 In addition, large group purchasers,
Although
insurance. And the government would subsi- such as employers, enjoy economies of scale it might be
dize and manage the development of a nation- that may reduce average administrative costs. politically
al system of electronic medical records. However, there are several problems with
The net result would be an unprecedented an employer mandate. First, such a mandate is appealing to
level of government control over one-sixth of simply a disguised tax on employment. As claim that
the U.S. economy and some of the most impor- Princeton University professor Uwe Reinhardt
tant, personal, and private decisions that (the “dean of health care economists”) points
business will
Americans make. This approach sets the stage out, “[Just because] the fiscal flows triggered bear the new tax
for the eventual evolution into a single-payer by mandate would not flow directly through burden, nearly all
system. The result would be disastrous for the public budgets does not detract from the
American taxpayers, the health care industry, measure’s status of a bona fide tax.”19 economists see it
and most importantly, health care consumers. And although it might be politically appeal- quite differently.
Let us look at some of the likely provi- ing to claim that business will bear the new tax
sions of a health care reform plan in more burden, nearly all economists see it quite dif-
detail. ferently. The amount of compensation that a
worker receives is a function of his or her pro-
ductivity. The employer is generally indifferent
An Employer Mandate to the composition of that compensation: it
can be in the form of wages, benefits, or taxes.
As a candidate, Barack Obama said he What really matters is the total cost of hiring
would require all employers to provide their that worker. Mandating an increase in the cost
workers with insurance through a “play or of hiring a worker by adding a new payroll tax
pay” mandate. Employers who do not provide does nothing to increase that worker’s produc-
“meaningful coverage” for their workers tivity. Employers will therefore seek ways to off-
would be required to pay a penalty equal to set the added costs by: raising prices (the most
some percentage of their payroll into a nation- unlikely solution in a competitive market);
al fund that would provide insurance to those lowering wages; reducing future wage increas-
uncovered workers.15 es; reducing other benefits (such as pensions);
This is an idea that will almost certainly find cutting back on hiring; laying off current work-
favor with congressional Democrats. Senator ers; shifting workers from full-time to part-
Baucus, for example, has endorsed such an time; or outsourcing.

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Economists are divided about the most on firms that were providing insurance, but
likely way that the cost of an employer man- whose employer contribution fell below the
date would be passed along to employees. minimum required amount, or who provid-
Some suggest that most of the mandate’s cost ed benefits that differed from the minimum
would be offset through lower wages. A study benefit package specified by the government.
by Jonathan Gruber, for example, which looks For instance, high-deductible policies or
at the impact of a requirement that health health savings accounts might be prohibited.
insurance cover comprehensive childbirth And it is not just the direct cost of insurance
benefits found strong evidence that employers that would be imposed on employers: busi-
reduced wages to pay for the benefits.20 And ness would also incur significant administra-
Alan Krueger and Uwe Reinhardt suggest that tive costs.25
in the long run, the cost of the employer man- Low-skilled and low-wage workers would be
date would be shifted to the employee not particularly at risk. Roughly 43 percent of unin-
through immediate wage cuts but through sured workers are working within three dollars
smaller future wage increases than would oth- of the minimum wage. The mandated insur-
erwise occur.21 ance costs will represent a proportionately sig-
On the other hand, a large group of econo- nificant increase in the cost of employing those
mists believe that most of the offset costs would workers. At the same time, since their wages are
come in the form of job loss. They argue that already low, and those workers receive few oth-
workers are likely to resist current wage reduc- er employment benefits, employers’ ability to
tions, particularly if they value wage compensa- shift costs will be constrained. The most likely
tion over heath insurance, which seems likely outcome will be greater unemployment for
for many of the currently uninsured.22 In addi- workers whose lack of skills does not justify the
tion, minimum wage laws provide a floor for increased cost. Economists Katherine Baicker
how far employers could reduce wages. As Larry of Harvard and Helen Levy of the University of
Summers, now head of the White House’s Michigan estimate that a nationwide employer
National Economic Council, once wrote, the health insurance mandate would result in the
minimum wage means that “wages cannot fall loss of approximately 315,000 low-skill jobs.26
to offset employers’ cost of providing a man- Others put the number of potential job
dated benefit, so it is likely to create unemploy- losses much higher. In a study for the National
ment.”23 Federation of Independent Business, Michael
Mark Pauly of the Wharton School sug- Chow and Bruce Phillips estimate that as
gests that mandated employer health bene- many as 1.6 million jobs could be lost in the
fits are particularly pernicious because the first five years after an employer mandate was
cost of paying premiums is likely to rise over imposed, of which two-thirds would be from
time, building in a de facto cost of living esca- small businesses with fewer than 500 employ-
lator, and the cost of benefits is also likely to ees. Of those small businesses, 55 percent are
rise as employees age and have families with companies with fewer than 100 employees,
higher health care expenses. Thus the elastic- and 28.9 percent are companies with just 20
ity of employment, or increase in unemploy- employees or fewer.27 An analysis of a pro-
As many as ment, would likely be higher with regard to posed employer mandate for California busi-
1.6 million jobs mandated health insurance than with some nesses suggested a potential job loss in that
could be lost in other mandated benefits, such as an increase state alone of more than 70,000.28 Projecting
in minimum wage.24 that estimate nationwide would mean a loss of
the first five years Moreover, not all of those who would be 630,000 jobs.
after an employer covered under an employer mandate were Limiting the mandate to large firms would
previously uninsured. To cite just one exam- undoubtedly reduce the harm but would also
mandate was ple, they might currently be covered under a reduce the mandate’s effectiveness. Congres-
imposed. spouse’s policy. The mandate would also fall sional Budget Office estimates that a mandate

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limited to large companies would increase the now indicating that, while President Obama An individual
number of insured Americans by only about will not propose such a mandate, he will mandate is
300,000 people.29 Therefore, any mandate is accept one if Congress includes it.35
likely to include “all but the smallest business- And it is extremely likely that the final bill simply a
es,” as President Obama said during the cam- will include an individual mandate. Senator disguised tax.
paign.30 Baucus calls for one, saying that as a matter of
A second problem with an employer man- “individual responsibility . . . it will be each
date is that it would further lock us into our individual’s responsibility to have coverage.”36
current employer-based health care system. In the House, Rangel, Waxman, and Miller
Employer-based health insurance is a histori- support it, although they prefer to phrase it as
cal accident, stemming from a combination “everyone will participate, and everyone will
of labor shortages and wage-price controls benefit.”37 Not surprisingly, the idea of an
initiated during World War II.31 It limits con- individual mandate has been endorsed by sev-
sumer choice by giving decisions over insur- eral key industry groups and stakeholders,
ance coverage to employers rather than work- particularly those who stand to benefit most
ers. It means that workers who lose their jobs by such a mandate—health insurers and physi-
lose their insurance. cians.38
And it means that individuals who do not An individual mandate also has at least
receive employer-provided insurance face an some Republican support. Former Republi-
increased financial burden when they try to can presidential candidate Mitt Romney
purchase insurance on their own. Indeed, the signed into law the nation’s first—and so far,
New York Times recently pointed out in a story only—individual mandate for health insur-
titled, “When a Job Disappears, So Does the ance when he was governor of Massachu-
Health Care,” that the poor economy and ris- setts.39 Former House Speaker Newt Gingrich
ing unemployment are leading to an increase also supports an individual mandate.40 An
in the number of people without insurance:32 individual mandate is included in the biparti-
According to a study by Georgetown Universi- san Wyden-Bennett bill.41 And analysts from
ty’s Center for Children and Families, 4.1 mil- some conservative groups, such as the Heri-
lion people lost their employer-sponsored tage Foundation, have endorsed an individual
health insurance in 2008.33 mandate.42
We should be moving away from an em- As is the case with an employer mandate,
ployment-based system toward one where an individual mandate is simply a disguised
workers have personal and portable insurance tax. After all, if the government takes money
that is not linked to their employer’s prefer- directly from person A and gives the money
ence or their employment status. Therefore, to person B, everyone would agree that it is a
an employer mandate would actually repre- tax. It is no different if the government man-
sent a step backwards in terms of a more effec- dates that person A simply pay the money
tive and compassionate health policy. directly to person B. At the end of the day,
Person A has less money to spend as he
chooses.
An Individual Mandate Advocates of an individual mandate gener-
ally give two reasons for supporting such a
During the presidential campaign, Barack proposal. Neither is without merit, but ulti-
Obama opposed a requirement that every mately both are unpersuasive. The first is to
American buy health insurance. Indeed, prevent cost-shifting from the uninsured. As
Obama’s opposition to an individual mandate Senator Baucus points out, when an individ-
was a principal area of disagreement with ual without health insurance becomes sick or
Hillary Clinton during the Democratic pri- injured, he or she still receives medical treat-
maries.34 However, administration sources are ment.43 In fact, hospitals have a legal require-

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ment to provide emergency care regardless of mandate would be an excessive response to
the patient’s ability to pay. Physicians do not what is, in essence, an artificial problem.
face the same legal requirement, but few are The most obvious question about an indi-
willing to deny treatment because a patient vidual mandate is how it would be enforced.
lacks insurance. However, such treatment is The government would need some way to
not free. The cost is simply shifted to others— determine whether Americans are insured or
those with insurance, or more often—taxpay- not and to penalize those who have not com-
ers.44 In fact, although Baucus does not put a plied with the mandate.
dollar amount on such uncompensated care, It seems likely that the mandate suggested
others estimate the cost to be as much as $40.7 by Senator Baucus “would be enforced possi-
billion per year, with 85 percent of that cost bly through the tax system or some other
borne by federal, state, and local govern- point of contact between individuals and the
ments.45 U.S. government.”50 But about 18 million
But it is important to keep this cost in per- Americans are not required to file income tax-
spective. The United States currently spends es, mostly because their incomes are too low.51
roughly $2.4 trillion annually on health care.46 Another 9 million Americans who are required
By Baucus’s own estimates, uncompensated to file tax returns nonetheless fail to do so.52
The most obvious care, then, amounts to about 1.7 percent of the That is potentially 27 million Americans who
question about total U.S. health care spending. Other esti- would not be providing proof of insurance.
an individual mates put it slightly higher, at 3–5 percent.47 Moreover, only about 30 percent of uninsured
While that cost should not be casually dis- Americans have been uninsured for a full year.
mandate is missed, neither is it so grave a problem as to In fact, nearly 45 percent will regain insurance
how it would justify the distortions and regulations that within four months.53 Therefore, many people
will inevitably flow from an individual man- who lack health insurance at some point
be enforced. date. throughout the year, will in fact be insured at
Second, advocates argue that bringing all the time they file their taxes. Presumably, the
Americans into the insurance pool would “proof of insurance” could include of the
“ensure that insurance markets function effec- length of time that the person was insured,
tively.”48 Those most likely to go without but that would raise the complexity of compli-
health insurance are the young and relatively ance procedures considerably. It would also
healthy. For example, although 18-to 24-year- increase the incentive to lie.
olds are only 10 percent of the U.S. popula- If the government were able to determine
tion, they are 21 percent of the long-term that someone has not purchased health insur-
uninsured.49 For these young, healthy individ- ance, what penalty would apply? Presumably,
uals, going without health insurance is often a some sort of tax penalty is the most likely
logical decision. However, this becomes a form approach. But that is much easier said than
of adverse selection. Removing the young and done. Eugene Steuerle, currently with the Peter-
healthy from the insurance pool means that son Foundation, has noted that the adminis-
those remaining in the pool will be older and trative and enforcement costs of collecting the
sicker. This results in higher insurance premi- penalty would be enormous. The IRS relies
ums for those who are insured. largely on voluntary compliance backed up by a
However, this argument is true only if slow and cumbersome legal process to collect
there are cross-subsidies in existing pools. If taxes. And it does not require those with very
everyone’s rates are actuarially fair, then small amounts of income to file. Even so, as
young people’s explicit or implicit premiums noted above, millions of Americans cheat or fail
do not result in lower or higher premiums for to file. Collecting a penalty for failure to insure
anyone else. There are legitimate arguments would be much more difficult. “The [IRS] is
about how to best subsidize the needy within simply incapable of going to millions of house-
the health care system, but an individual holds, many of modest means, and collecting

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significant penalties at the end of the year,” proposed a minimum benefits package as part
Steuerle warns.54 of its 1993 health care reform plan, provider
Many of those who fail to comply with the lobbying groups spent millions of dollars in
mandate will indeed be low-income Americans. advertising calling for the inclusion of specific
Of those without health insurance today, nearly provider groups or coverage of specific condi-
one-quarter have household incomes of less tions.
than $25,000 per year.55 These individuals will Public choice dynamics are such that
almost certainly lack the resources to pay any providers (who would make money from the
penalty, particularly a lump-sum penalty as- increased demand for their services) and dis-
sessed at year’s end. ease constituencies (whose members naturally
While implementation of an individual have an urgent desire for coverage of their ill-
mandate creates a number of practical diffi- ness or condition) will always have a strong
culties, an even more significant issue is that incentive to lobby lawmakers for inclusion
it represents the first in a series of dominoes under any minimum benefits package. The
that will inevitably lead to greater govern- public at large will likely see resisting the small
ment control of the health care system. premium increase caused by any particular
To implement an insurance mandate, the additional benefit as unworthy of a similar
government will have to define what sort of effort. It is a simple case of concentrated bene-
insurance fulfills that mandate. As the CBO fits and diffuse costs.
puts it, “An individual mandate . . . would Massachusetts’s experience provides a cau-
require people to purchase a specific service tionary tale on both counts. In 2005, Massa-
that would have to be heavily regulated by the chusetts became the first—and so far only—
federal government.”56 At the very least, state to mandate that nearly all residents
deductible levels and lifetime caps will have to purchase health insurance as part of a com-
be specified, and some form of specific mini- prehensive health care reform plan. Since
mum benefit package will likely be spelled out. then, Massachusetts has significantly reduced
That means that the often repeated promise the number of people in the state who lack
that “if you are happy with your current insur- health insurance. However, it has not achieved,
ance, you can keep it” is simply untrue. nor does it expect to reach, universal coverage.
Millions of Americans who are currently satis- (The best estimates suggest that more than
fied with their coverage will have to give up 200,000 state residents remain uninsured).58
that coverage and purchase the insurance that Significantly, roughly 60 percent of newly
the government wants them to have, even if insured state residents are receiving subsidized
the new insurance is more expensive or covers coverage, suggesting that the increase in insur-
benefits that the buyer does not want. ance coverage has more to do with increased
Whatever the initial minimum benefits subsidies than with the mandate.59
package consists of, special interests represent- The cost of those subsidies in the face of
ing various health care providers and disease predictably rising health care costs has led to
constituencies can certainly be expected to program costs that are far higher than origi- The often
lobby for inclusion under any mandated ben- nally predicted (see below). And the mandate repeated promise
efits package. To see this in action, one simply has indeed led to an increase in regulation
has to look to state mandates for health insur- and mandated benefits. The state is phasing that “if you are
ance benefits. The number of laws requiring in a requirement that all insurance plans cov- happy with
that all insurance policies sold in a state pro- er prescription drugs and has limited both
vide coverage for specified diseases, condi- deductibles and lifetime payout limits. With
your current
tions, and providers has been skyrocketing. In the cost of the program rising, the state has insurance, you
the 1960s there were only a handful of such been forced to raise taxes, and it is now con- can keep it” is
mandates, but today there are more than sidering imposing caps on insurance premi-
1,800.57 And when the Clinton administration ums.60 simply untrue.

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A government- An individual mandate would be an un- Regardless of how it was structured or ad-
run plan would precedented expansion of government power ministered, such a government-run plan would
and intrusion into the lives of every Ameri- have an inherent advantage in the marketplace
have an inherent can. While it is unlikely to achieve the desired because it would ultimately be subsidized by
advantage in the goal of universal coverage, it sets the stage for American taxpayers. The government plan
increased regulation of the health care sys- could, for instance, keep its premiums artificial-
marketplace tem in a way that will ultimately harm health ly low or offer extra benefits since it can turn to
because it would care consumers. the U.S. Treasury to cover any shortfalls. Con-
ultimately be sumers would naturally be attracted to the low-
er-cost, higher-benefit government program,
subsidized by The “Public Option” which would undercut the private market.
American A government program would also have an
taxpayers. Perhaps one of the most contentious issues advantage since its enormous market presence
in health care reform is whether the govern- would allow it to impose much lower reim-
ment should establish a government-run bursement rates on doctors and hospitals.65
health care plan, similar to Medicare, which Government plans such as Medicare and
would compete with private insurance. The Medicaid traditionally reimburse providers at
inclusion of such a government-run plan has rates considerably below those of private
become a line in the sand for many liberal insurance. Providers recoup the lost income by
health care reformers, especially those who shifting costs onto those with private insur-
would actually prefer a single-payer system. ance. Indeed, it is estimated that privately
When, at the White House Summit on insured patients pay $89 billion annually in
Health Care Reform, Sen. Charles Grassley (R- additional insurance costs because of cost-
IA) asked President Obama whether he still shifting from government programs.66 If one
supported such a proposal, the president said assumes that the new public option would
that he was “not going to respond definitively.” have similar reimbursement policies, it would
But he then went on to note that “the thinking result in additional cost-shifting as much as
on the public option is that it gives consumers $36.4 billion annually. Such cost-shifting
more choices and it helps . . . keep the private would force insurers to raise their premiums,
sector honest, because there’s competition out making them even less competitive with the
there.”61 House speaker Nancy Pelosi insists taxpayer-subsidized public plan. The result
that a government-run plan be part of any final would be a death spiral for private insurance.
reform package.62 Senator Baucus is also on Medicaid provides a useful example of how
the record supporting such a “public option.”63 public programs “crowd out” private coverage.
And at her nomination hearing, HHS Sec- As income eligibility levels for Medicaid are
retary Kathleen Sebelius called for “a public raised, many of the newly eligible are already cov-
option, side-by-side with private insurers.”64 ered by employer-provided or individually pur-
What exactly such a “public option” would chased insurance. Many of these individuals
be remains unsettled. Some proponents envi- shift from the private to the public systems. In
sion an expansion of the current Medicare pro- fact, a Robert Wood Johnson Foundation sur-
gram to those younger than 65. Others argue vey of 22 studies of the relationship between
that an entirely new government program government insurance programs and private
should be created, while still others would coverage concluded that substitution of govern-
allow a buy-in to the Federal Employee Health ment for private coverage “seems inevitable.”67
Benefit Program. The program might be And the CBO estimates that between one-third
administered directly by the government, or and one-half of children who were be added to
claims management and other functions the State Children’s Health Insurance Program
might be bid out to private insurers on a con- under its recent expansion were already covered
tractual basis. by private health insurance.68

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Companies, in particular, would have an demand or impose reduced reimbursement
incentive to try to shift workers into the pub- rates. “A public plan is capable of using its con-
lic market. Even with an employer-mandate in centrated purchasing power to reduce costs,”
place, companies could do so by maximizing states a new study by Jacob Hacker for the
employee contributions or moving to plans Institute for America’s Future.76
that restrict employee options. And if, as the Moreover, how long could a Congress that
Obama administration has discussed, limits is busy bailing out banks and automobile
are placed on the deductibility of employer- companies because they are “too big to fail”
provided health insurance,69 there will be an resist subsidizing the government’s insur-
even greater incentive for companies to dump ance plan if it began to lose money? Could a
workers into the public plan.70 That means Congress that has been unable to control the
tens of millions of workers who would rather unsustainable cost of Medicare set and keep
stay with their current job-based plan would premiums at market levels? It seems unlikely.
no longer have that as a choice. They would Whatever rules the public plan started
effectively be forced into the government plan. with, they would soon be changed to ensure its
The actuarial firm Lewin Associates esti- advantage over private insurance. Indeed, to
mates that, depending on how premiums, gauge the attitude that public option support-
benefits, reimbursement rates, and subsidies ers have toward private sector competition, we
Whatever rules
were structured, as many as 118.5 million peo- need look no farther than Medicare Advan- the public plan
ple would shift from private to public cover- tage.77 Democrats have raged against competi- started with,
age.71 That would mean a nearly 60 percent tion from those private plans, and President
reduction in the number of Americans with Obama has even suggested eliminating Medi- they would soon
private insurance.72 care Advantage outright.78 Most congression- be changed to
Some advocates of the public option com- al Democrats also strongly opposed the inclu-
pare it to states where the state government sion of private insurance plans under the
ensure its
self-insures its state employee health plan, or Medicare prescription drug benefit. advantage.
an option under that plan.73 However, in those Given that many of the most outspoken
cases, the state is simply assuming the financial advocates of the “public option” have, in the
risk of insurance in the same way that most past, supported a government-run single-pay-
large employers do. Roughly 89 percent of er system, it is reasonable to assume that they
companies with more than 5,000 employees support a public option precisely because it
self-insure.74 The self-insured state plans are would squeeze out private insurance and even-
administered by private insurers and, unlike tually lead to a government-run single-payer
existing federal government health plans, oper- system. President Obama himself has said that
ate under the same rules as private insurance. if he were designing a health care system from
As Paul Ginsberg, president of the Center for scratch, his preference would be for a single-
Studying Health System Change explains, “Al- payer system “managed like Canada’s.”79 And
though they specify the benefit structure and he has suggested that, while he has proposed a
whether there should be disease management less radical approach, “it may be that we end
or wellness programs, they are basically buying up transitioning to such a system.”80
into provider networks that the insurer has In this context, it is notable that congres-
developed for all of its enrollees.”75 sional Democrats are also proposing to
It is virtually inconceivable that the new expand existing government programs. For
federal public option would operate under example, leading Democratic proposals
identical rules as private insurance. If that were would increase eligibility levels for Medicaid
the case, there would be no point to having and would eliminate the two-year waiting
such an option. Indeed, the biggest reason period for people with disabilities to become
that advocates support such a plan is that it eligible for Medicare.81 Senator Baucus has
can use its monopsony purchasing power to also suggested that individuals between ages

9
55 and 65 should be able to “buy in” to are a number of problems with having the
Medicare.82 Thus, private insurance would government undertake this research.89
find itself squeezed by competition from the First, “quality” and “value” are not unidi-
bottom (Medicaid), top (Medicare), and sides mensional terms. In fact, such concepts are
(the government option) at the same time highly idiosyncratic with every individual
that it is being subjected to heavy new regu- having different ideas of what quality and
lation and costs are being increasingly shift- value mean to them, based on such things as
ed from public to private programs. It is a person’s pain tolerance, lifestyle, feelings
unlikely that any significant private insur- about hospitalization, desire to return to
ance market could continue to exist under work, and so forth. For example, a surgeon
such circumstances. America would be firm- may tell you that the only way to ensure a
ly on the road to a single-payer health care cure for prostate cancer is a radical prostec-
system with all the dangers that presents. tomy. But that procedure’s side effects can
severely impact quality of life—so some peo-
ple prefer a procedure with a lower survival
Government Playing Doctor rate but fewer side effects.90 Who is better
suited to determine which of those proce-
Buried in the giant $1.3 trillion stimulus dures represents quality and value, a govern-
bill was a provision authorizing $1.1 billion ment board or the person directly affected?
for the federal Agency for Healthcare Research Second, comparative-effectiveness research
and Quality to conduct a “comparative-effec- too often has a tendency to gear its results
tiveness research program.”83 The bill also cre- toward the “average” patient. But many pa-
ated a Federal Coordinating Council for tients are outliers, whose response to any par-
Comparative Effectiveness Research, to coor- ticular treatment, for either good or ill, can
dinate comparative-effectiveness research vary significantly from the average. This mat-
throughout various federal departments and ters little when the research is simply informa-
agencies.84 These provisions, seemingly incon- tive. However, if the research becomes the basis
sequential in themselves, represent the first for more prescriptive requirements, for exam-
building blocks in what is almost certain to be ple prohibiting reimbursements for some
a key component of any comprehensive health types of treatment, the impact on patient out-
care reform proposal. liers could be severe.
Many health care reform advocates believe Third, comparative-effectiveness research
that much of U.S. health care spending is can create a time lag for the introduction of
wasteful or unnecessary. Certainly it is impos- new technologies, drugs, and procedures.
sible to draw any sort of direct correlation The FDA, for example, has already caused
between the amount of health care spending delays in introducing drugs, which has
and outcomes.85 In fact, by some estimates as resulted in unnecessary deaths.91 Depending
much as 30 percent of all U.S. health spending on how the final program is structured, com-
produces no discernable value.86 Medicare parative-effectiveness research could create
spending, for instance, varies wildly from another layer of bureaucracy and testing
region to region, without any evidence that between the development of a new drug and
the variation is reflected in the health of its introduction into the health care system.
patients or procedural outcomes.87 The CBO One only has to look at the difficulty in
suggests that we could save as much as $700 expanding Medicaid drug formularies to see
“Quality” and billion annually if we could avoid treatments how this could become a problem.
“value” are not that do not result in the best outcomes.88 Finally, and perhaps most importantly,
It makes sense, therefore, to test and there is also the question of whether quality
unidimensional develop information on the effectiveness of or value includes consideration of the relative
terms. various treatments and technology. But there cost of a treatment. Supporters of govern-

10
ment-sponsored comparative-effectiveness For example, should there be a presump- Such questions
research strongly deny that it would ever be tion that saving the life of a person in danger are by definition
used to ration care simply on the basis of of dying automatically takes precedence over
cost. As Elliott Fisher of Dartmouth Medical improving the quality of life for someone values-based
School says, “It’s an absurd mischaracteriza- whose life is not in immediate danger? What and cannot be
tion of effectiveness research to equate it with about immediately saving a real life versus
cost-benefit analysis.”92 saving some number of hypothetical future
answered
Yet, there is reason to believe that that sort lives? Or to put it more practically—and through the
of cost-benefit analysis is exactly what some bluntly—what is the value of performing an scientific process.
advocates of comparative-effectiveness re- expensive procedure such as, say, hip-replace-
search and practice guidelines support. For ment surgery on an elderly patient who
instance, House Appropriations Committee might only survive for a few more years any-
chairman David Obey (D-WI) inserted lan- way? Should we use extraordinary means to
guage in the report accompanying the origi- extend the life of a cancer patient by a few
nal House version of the economic stimulus months?
bill in which he said: Such questions are by definition values-
based and cannot be answered through the sci-
By knowing what works best and pre- entific process. As John Kraemer and Lawrence
senting this information more broadly to Gostin of Georgetown University wrote in a
patients and health care professionals, recent issue of the Journal of the American Medical
those items, procedures, and interven- Association, when people say that the cost of
tions that are most effective to prevent, treating a condition is too expensive and there-
control, and treat health conditions will fore should not be used, they are actually mak-
be utilized, while those that are found to ing three separate assertions based on a mix of
be less effective and in some cases more scientific and values-based claims: 1) the cost
expensive, will no longer be prescribed.93 of treatment equals a certain amount (a posi-
tive or scientific claim), 2) treatments costing
Acting National Institutes of Health more than a certain amount are not cost-effec-
director Raynard Kington told Congress that tive (both a positive claim and a normative or
the NIH may include comparisons of the cost values-based claim), and 3) cost-effectiveness
of medical treatments in its research.94 Since should be the basis for allocating health care
the NIH will be conducting much of this resources (a normative claim).96
research, that has raised a number of red If such questions cannot be answered scien-
flags. And, the Senate voted 44–54 against an tifically, we should then ask whether they
amendment to the budget offered by Sen. should be made by individuals or by the larger
Jon Kyl (R-AZ) that would have prohibited society through the political process. Advocates
cost from being considered in comparative- of government rationing explicitly favor the lat-
effectiveness research.95 ter. For example, Knut Erik Tranoy, professor
Even this would not be a major cause for emeritus at the Centre for Medical Ethics of the
concern if the government’s goal were simply University of Oslo, who is an original member
to provide information. After all, if a less expen- of Norway’s Health Care Priorities Commis-
sive treatment provided the same results as a sion and a prominent philosophical advocate
more expensive one, shouldn’t doctors—and of rationing, decries “a health care system where
consumers—know about it? However, a much patients buy services in a market, and where jus-
more serious question arises when the ques- tice means equality of opportunity to buy what
tion of cost-effectiveness bumps up against you need. Decisions about alternative use are
moral or values-based questions, when the pos- then (largely) patients’ decisions.”97 According
itive nature of science and the normative to Tranoy “it is neither medically nor morally
nature of value and political systems are mixed. defensible to put scarce resources to uses which

11
will foreseeably yield less favorable outcomes It seems unlikely that most Americans are
than other uses—save fewer lives, cure fewer willing to accept the idea that government
patients.”98 should make decisions about what types of
This inevitably leads to the question of treatments their doctor can provide. Moreover,
whether comparative-effectiveness research even if such rationing were desirable, there is
will simply be used to provide information, no evidence that the government would be able
or whether it will be used to impose a gov- to make those decisions on a scientific basis. A
ernment-dictated way to practice medicine. government body deciding on the compara-
For those seeking to use comparative-effec- tive-effectiveness or cost-effectiveness of med-
tiveness research as a means to reduce overall ical treatments will inevitably base its decisions
health care spending, there is a good reason for as much on politics as on science. As Uwe
making the use of such information the basis Reinhardt warns, government comparative-
for mandatory practice guidelines. As the CBO effectiveness research would be “vulnerable to
notes, “[T]o affect medical treatment and lobbying by interest groups, because one or a
reduce health care spending in a meaningful few members of Congress could easily imperil
way, the results of comparative-effectiveness [the research agency’s] existence through the
analyses would not only have to be persuasive appropriations process.”105
National health but also would have to be used in ways that Consider Oregon’s attempt to prioritize
care systems in changed the behavior of doctors, other health Medicaid services. In 1992, Oregon guaranteed
other countries professionals, and patients.”99 America’s Health all state residents under the poverty line a basic
Insurance Plans estimates that, if implemented level of health care. At the same time, because
use comparative- on a purely voluntary basis, comparative-effec- funding was limited, the Oregon Health
effectiveness tiveness research would produce a savings of Services Commission drafted a priority-ranked
only 0.3 percent in national health expendi- list of medical services available to Oregonians.
research as the tures over 10 years.100 The CBO estimates that The state would fund services deemed priority
basis for the voluntary implementation of comparative- on the basis of such factors as cost, duration of
rationing. effectiveness research would reduce federal a treatment’s benefit, improvement in the
health spending by a mere “one one-hundredth patient’s quality of life, and community values.
of one percent” over the next 10 years.101 Services that did not qualify under these crite-
Therefore, if there is to be any significant ria would not be funded.106 However, political
cost savings, the results of the research would calculations quickly became part of the rank-
have to be imposed on a mandatory basis in a ing process, with the program becoming a bat-
way that proscribes treatments deemed not tleground for special interests associated with
cost-effective. Logically, the restrictions would various disease constituencies and health care
start with government programs such as specialties. Groups battled with each other to
Medicare and Medicaid.102 However, it is note- make sure that their needs or services were
worthy that Sen. Daschle has suggested that included in the list of covered services. The list
Congress should “link the tax exclusion for was repeatedly revised to reflect not the best
health insurance to insurance that complies medical judgment but outside pressure. The
with [comparative-effectiveness] recommen- legislature repeatedly intervened. The U.S.
dations.”103 Office of Technology Assessment concluded
There is no doubt that national health that the Oregon’s prioritization plan “has not
care systems in other countries use compara- operated as the scientific vessel of rationing
tive-effectiveness research as the basis for that it was advertised to be. Although initial
rationing. For example, in Great Britain, the rankings were based in large part on mathe-
National Institute on Clinical Effectiveness matical values, controversies around the list
makes such decisions, including a controver- forced administrators to make political conces-
sial determination that certain cancer drugs sions and move medical services ‘by hand’ to
are “too expensive.”104 satisfy constituency pressures.”107

12
At the federal level, agencies like the that make recommendations about which
Council on Health Technology, Agency for prescription drugs should be covered on the
Health Care Policy and Research, and the basis of comparative effectiveness. In addition,
Agency for Health Care Research and Quality Blue Cross Blue Shield’s Technology Evalu-
have had their funding cut when their ation Center; Hayes, Inc.; the ECRI Institute;
research conflicted with the desires of power- the Tufts–New England Medical Center; the
ful interest groups.108 HMO Research Network; and InfoPOEMs
The government even interferes with pri- perform or collect comparative research, and
vate sector attempts to make comparative- some even offer the information for sale.113
effectiveness decisions when those decisions Universities and medical schools also perform
impact powerful interest groups or voting such research and publish their results.
blocks. For example, the Connecticut attorney Therefore, rather than produce new informa-
general has attacked the Infectious Disease tion on comparative-effectiveness, a govern-
Society of America for recommending against ment program is likely to simply crowd out
the use of long-term antibiotics to treat chron- private research that is already occurring.
ic Lyme disease. Although the IDSA based its To argue against government involvement in
non-binding recommendation on the over- comparative-effectiveness research is not to
whelming scientific evidence, the Internation- argue against comparative-effectiveness research.
al Lyme and Associated Diseases Society, a Private sector research is occurring and should
well-connected and media-savvy advocacy continue. Providers should make greater use of
group for those with Lyme disease, protested the information provided by such research. But
by taking its case to the Connecticut political government-directed research is unlikely to be
establishment. As a result, Connecticut attor- effective, and it poses a distinct threat that it will
ney general Richard Blumenthal sued the evolve into government-imposed rationing of
IDSA under the state’s anti-trust laws.109 care. In fact, it is liable to yield the worst of all pos-
Already, special-interest groups are maneu- sible worlds—not only rationing, but rationing
vering to influence the outcome of compara- that is based on special-interest lobbying rather
tive-effectiveness research. To cite just one ex- than science.
ample, the Partnership to Improve Patient In short, the government should not be
Care is funded by groups such as Easter Seals, substituting its judgment for that of doctors
Friends of Cancer Research, the Alliance for and patients.
Aging Research, the Advanced Medical Tech-
nology Association, and the pharmaceutical
and biotech industry lobbies. It seeks to “refo- Community Rating/
cus” the comparative-research debate to en- Guaranteed Issue
sure that its members’ interests are protect-
ed.110 It seems almost a certainty that any health To argue against
There is no need for the government to get insurance reform plan to emerge from Con- government
involved in comparative-effectiveness research: gress will contain a host of new insurance reg-
the private sector is already heavily involved in ulations. Among the likeliest is a requirement involvement
such research. As the CBO has pointed out, that insurers accept all applicants regardless of in comparative-
“private health plans—most commonly the their health (guaranteed issue), and a stipula- effectiveness
larger or more integrated ones—conduct their tion that forbids insurers from basing premi-
own reviews of evidence and sometimes ums on risk factors such as health or age research is not
undertake new analysis of comparative effec- (community rating). to argue against
tiveness.”111 These companies use the research The regulations would be an attempt to
to “shape their policies regarding coverage and deal with the problem of preexisting condi-
comparative-
payment.”112 Most health plans, for example, tions. That is, people today who are unin- effectiveness
have pharmacy and therapeutic committees sured, and who are suffering from expensive research.

13
Community medical conditions, have great difficulty community rating, insurance premiums are
rating and finding affordable health insurance, if they based not on the expected cost of caring for a
can get coverage at all.114 Congress, therefore, specific individual, but on the average cost of
guaranteed issue seeks to prohibit the practice of excluding care for all patients. Because of the way health
make it more people with preexisting conditions or charg- care costs are distributed, most of the insured
ing them more. under that plan will have actual costs that are
likely that people Most big insurance companies, more con- lower than their premiums, while a few will
will choose to go cerned with other threats, seem willing to go have costs in excess of their premiums, and
without health along, especially if such a requirement were some far in excess (about 5 percent of the pop-
combined with an individual mandate.115 ulation accounts for nearly half of health care
insurance. Nonetheless, imposing community rating expenses).118
and guaranteed issue would create far more Therefore, for an insurance company to
problems than it would solve. maximize its profitability, it will seek to do
As the CBO has noted, community rating two things. First, it will want to reduce the cost
and guaranteed issue make it more likely that of caring for its high-cost sick people, or—bet-
people will choose to go without health insur- ter yet—induce them to switch to another
ance.116 For example, in the year after New plan. The easiest way to do that is not to have
York imposed community rating in 1993, an the doctors and facilities sick people want. As
estimated 500,000 people cancelled their Alain Enthoven has pointed out, “A good way
insurance.117 This happens because communi- to avoid enrolling diabetics is to have no
ty rating raises premiums for young and endocrinologists on staff. . . . A good way to
healthy individuals, whereas both community avoid cancer patients is to have a poor oncolo-
rating and guaranteed issue reduce or elimi- gy department.”119
nate the penalty for waiting to purchase insur- Second, an insurance company will seek
ance until a person is older or sicker. As a to retain its low-cost healthy customers, and
result, the young and healthy make the very in fact, it will try to attract more such indi-
logical choice to forgo health insurance, viduals. That means doing exactly the oppo-
assuming that they can always purchase insur- site of what the insurer does with sick people:
ance later when they need it. It is as if you it will offer services that will be attractive to
could buy retroactive auto insurance after healthy people, such as cancer screenings,
you’ve had an accident. As the healthy leave sports medicine facilities, or even health club
the insurance pool, the proportion of sick in memberships.
the pool grows ever greater—leading to higher Thus, while guaranteed issue and com-
premiums which in turn causes the healthiest munity rating may make health insurance
remaining individuals to leave in what more available and affordable for those with
amounts to an insurance death spiral. preexisting conditions, it may well have the
Of course, an individual mandate will the- perverse result of lowering the quality of care
oretically prevent the young and healthy that those individuals receive.
from dropping out of the insurance market. Yet there are far less intrusive ways to deal
On the other hand, combining community with the admittedly pressing problem of pro-
rating/guaranteed issue with a mandate will viding a way to cover individuals with preex-
force young healthy individuals to purchase isting conditions. Some have suggested great-
insurance with much higher premiums than er use of state-based high-risk pools. While
would otherwise be the case. imperfect, such proposals would represent a
In addition, by prohibiting insurers from far less damaging way to cover those with pre-
pricing care on the basis of risk, community existing conditions. A new and far more
rating/guaranteed issue creates an incentive to promising proposal is “health-status insur-
over-provide care for the healthy, while under- ance,” which provides a lump-sum payment
providing it to the sick. That is because under sufficient to pay the higher premiums that

14
insurers charge to those people with preexist- four). Spending for the Commonwealth Care
ing conditions. Health-status insurance covers subsidized program has doubled, from $630
the risk of premium reclassification, just as million in 2007 to an estimated $1.3 billion
medical insurance covers the risk of medical for 2009. Despite assessing insurers and hos-
expenses.120 pitals, raising the penalty on noncompliant
businesses, increasing premiums and copay-
ments for consumers, and raising the state
Middle-Class Subsidies tobacco tax, the program’s financing remains
on an unsustainable course.125
Almost any health care reform plan is In addition, such subsidies are poorly tar-
going to contain a certain amount of subsidy geted. Many of those eligible for coverage
to help low-income individuals obtain cover- already have health insurance. As discussed
age. After all, the number one reason that above, this crowding-out phenomenon has
people give for not purchasing insurance is been readily apparent with both the tradi-
that they cannot afford it.121 However, if such tional Medicaid and SCHIP programs.
subsidies go too far up the income ladder, Therefore, the subsidies should not be seen
they can easily create more problems than just as a method of increasing coverage, but as
they solve. a way of shifting a large portion of insurance
The expansion
Until the actual legislation is finally costs from individuals to the tax system. It of subsidies will
unveiled, it is impossible to know just how becomes simply another form of income redis- greatly increase
extensive the subsidies will be. Yet, recent con- tribution. While many taxpayers may accept
gressional actions provide cause for concern. such redistribution to the truly poor, how will the number of
Notably, Congress this year passed an exten- they feel about financing transfers to the mid- people dependent
sion of the State Children’s Health Insurance dle class?
Program that made it possible for states to
on government.
subsidize families with incomes as high as 400
percent of the poverty level ($83,000 for a fam- Government-Directed
ily of four).122 Indeed, if one considers “income Health Information
disregards” that deduct certain expenses such
as mortgage payments, some families with
Technology
annual incomes as high as $100,000 could One area of health care reform where there
receive subsidies.123 Democratic congressional is a broad-based consensus is the need for
leaders have indicated that they envision a fur- increased use of electronic medical records
ther expansion of Medicaid eligibility as part and other health information technologies.
of any comprehensive health care plan.124 Too many medical records are still main-
The expansion of subsidies will greatly tained on paper, making it slow and difficult
increase the number of people dependent on to pass needed information from physician to
government, extending government welfare physician. Just 17 percent of U.S. physicians
programs well into the middle class. As with are currently using electronic medical records
all means-tested government programs, we for their patients.126 For hospitals, the num-
can expect this new middle-class welfare bene- bers are even worse—just 9.1 percent have even
fit to discourage work, family formation, a basic system, and just 1.5 percent have a
wealth accumulation, and self-sufficiency, comprehensive system.127 Where electronic
while creating a voting constituency that records do exist, hospital and physician sys-
favors ever-expanding benefits. tems are often incompatible. The unavailabili-
And such subsidies are expensive. As part ty and incompatibility of electronic medical
of its reform plan, Massachusetts agreed to records contributes to the unnecessary deaths
subsidize families with incomes up to 300 per- of up to 8,000 people each year because of
cent of the poverty line ($63,500 for a family of medication errors.128

15
In response, the Obama administration ambitious effort to develop electronic medical
included $19 billion in the stimulus bill for records. Health care IT spending is expected to
health information technology. Most of those exceed $28.4 billion in 2009, an increase of 6.6
funds will be used to subsidize and provide percent over 2008.131 And while the recession
incentives for doctors and hospitals to move has forced a cutback in most types of IT
from paper to electronic recordkeeping. spending, health care IT spending is expected
Beginning in 2011, both the Medicare and to grow.132 In fact, health care IT spending in
Medicaid programs will provide subsidies to the future is expected to exceed IT spending in
physicians who adopt “meaningful use” of a all other industry sectors.133 Google Health
“certified” electronic medical record system. Records Online has led the way, while Micro-
Those payments could run as high as $18,000 soft has teamed up with Kaiser Permamente
in the first year for those complying in 2011, to offer its own electronic medical record soft-
with subsidies declining in future years. ware.134 Telemedicine companies, like Tela-
Hospitals will be eligible for a one-time $2 mil- Doc, and patient advocacy organizations, like
lion payment, plus an increase in their Medi- PinnacleCare, collect and digitize medical
care diagnosis-related group fees. However, in records for their customers.135
addition to the subsidy carrot, the stimulus bill On the other hand, the government’s track
also contained a stick. Those physicians who record on IT is not particularly inspiring. The
do not comply by 2015 will lose 1 percent of FBI spent four years and $170 million trying to
their Medicare fees, escalating to 3 percent by computerize its case system, only to abandon
2017. Noncompliant hospitals will have their the project in 2005. Before that, the Federal
DRG-based fees reduced. Aviation Administration wasted more than $1
More controversially, the stimulus bill also billion on a so-far unsuccessful attempt to
included funding to significantly expand and overhaul the air traffic control computer sys-
strengthen the office of the National Coordi- tem.136
nator of Health Information Technology, ini- The stimulus bill did not define “meaning-
tially created by the Bush administration, to ful use” or “certified electronic health re-
coordinate federal efforts to ensure that that cords.”137 A restrictive interpretation of these
every American has a “certified electronic terms could well stifle private sector innova-
health record” by 2014. tion. Moreover, imposing a single set of federal
Some conservatives expressed concern standards on health IT means the entire sys-
that this provision, combined with the pro- tem will be locked in to those standards for
posals for government-sponsored compara- very long time to come and future innovation
tive-effectiveness research, would use such will be limited. The federal government is not
electronic records to “monitor treatments to noted for its ability to respond rapidly to
make sure your doctor is doing what the fed- changing technology and circumstances.
eral government deems appropriate and cost- Even if successful, there are reasons to
effective,” as Betsy McCaughey, an adjunct question the administration’s estimates for
senior fellow at the Hudson Institute, wrote the effectiveness of health IT, most notably
for Bloomberg.com.129 projections for how much it can reduce
While such concerns should not be dis- health care spending. Proponents of govern-
missed out of hand, it seems more likely that ment spending for health IT generally cite a
the goal at this point is simply to make cer- RAND Corporation analysis from 2005 that
tain that government has “a seat at the table” predicted $77 billion in annual savings and
The government’s as the private sector develops standards for improved outcomes.138 But the study also
track record on IT electronic medical records, as a spokesman says that level of savings won’t be reached
for the Obama administration has said.130 until 2019.
is not particularly That alone is reason enough for concern. Moreover, numerous experts have disput-
inspiring. The private sector is already mounting an ed this estimate. For example, the CBO criti-

16
cized the RAND study as an overly opti- the government should do it. The private sec- Just because
mistic, best-case scenario, and says that sim- tor is already making strides in developing something is
ply adopting electronic medical records “by effective electronic medical records. Increased
itself, is generally not sufficient”to reduce government involvement threatens to slow worth doing
costs.139 down this progress, creats new dangers for does not mean,
Privacy advocates raise additional con- patient privacy, and potentially threatens both
cerns about a nationwide network of elec- patient and physician choice.
therefore, that
tronic medical records, particularly one the government
developed and monitored by the govern- should do it.
ment. If fully implemented, the Obama blue- A Brief Word about Cost
print would produce nationwide databases
containing all of a patient’s medical informa- No one knows how much the final health
tion—including illnesses and genetic predis- care reform plan will cost. As mentioned
positions, alcohol and drug addiction, and above, the Obama administration’s proposed
medication—all attached to personal identi- 2009 budget sets aside $634 billion as a con-
fiers like Social Security numbers. The lan- tingency “down payment.” Other estimates
guage in the stimulus bill appears to have sig- put the total costs in the range of $1.5–1.7
nificantly eroded patient privacy protections, trillion over a 10-year period.144
allowing personal health data to be sold for However, cost estimates for government
public or private purposes.140 The govern- programs have been wildly optimistic over
ment has further always maintained that law the years, especially for health care programs.
enforcement must have access to otherwise For example, when Medicare was instituted
private medical data.141 in 1965, it was estimated that the cost of
Even without deliberate government Medicare Part A would be $9 billion by 1990.
action, there are threats to patient privacy and In actuality, it was seven times higher—$67
the security of electronic medical records. As billion.145 Similarly, in 1987, Medicaid’s spe-
Robert Bazell of NBC recently reported, “There cial hospitals subsidy was projected to cost
have been privacy breaches already: hackers $100 million annually by 1992 (just five years
getting into hospital systems, doctors losing later); however, it actually cost $11 billion—
laptops, and medical staff looking at records more than 100 times as much.146 And in
they don’t need to see.”142 The government, in 1988, when Medicare’s home care benefit was
particular, has had several notorious privacy established, the projected cost for 1993 was
breeches, such as the theft of a Veterans $4 billion, but the actual cost was $10 bil-
Administration laptop (which contained per- lion.147 If the current estimates for the cost of
sonal data, including Social Security numbers) Obamacare are off by similar orders of mag-
and the National Institute of Health’s loss of a nitude, we would be enacting a new entitle-
laptop (which contained sensitive medical ment that could bury future generations
information on 2,500 patients enrolled in NIH under mountains of debt and taxes.
studies).143 The administration has raised a number of
Such privacy breaches are probably un- ideas for how to pay for the program. Their
avoidable as health records naturally migrate budget would fund the $634 billion down
to online formats. But a single nationwide net- payment through a number of measures,
work under government supervision would including reducing payments to private insur-
magnify the danger. ers under the Medicare Advantage Program;
As with comparative-effectiveness research, reducing the rate at which taxpayers with over
health IT is desirable because it is something $250,000 in annual income can itemize tax
that could ultimately improve health care and deductions; and a number of smaller propos-
reduce costs. However, just because something als to increase efficiency and reduce waste.148
is worth doing does not mean, therefore, that However, these proposals were stripped out of

17
the budget resolution that was approved by hundreds of thousands of jobs. Health care
Congress. Reform supporters must now look providers could find their ability to practice
for other funding mechanisms. For example, medicine constrained and directed by far away
Sen. Kent Conrad (D-ND), chairman of the government bureaucracies. But for individual
Senate Budget Committee, has suggested that health care consumers the consequences
he is open to “energy taxes” as a way to pay for could be far worse: they would face far fewer
health care reform.149 However, such measures choices and the possibility of far poorer care.
will fall far short of what is necessary to pay for Health care clearly needs reform—but get-
the full costs of the reform plan. It will be nec- ting that reform right is more important
essary therefore to either run up more nation- than just doing something.153 Obamacare,
al debt—at a time when massive future budget unless it is drastically revised in the coming
deficits threaten to bankrupt the country—or months, gets that reform wrong.
to break President Obama’s pledge not to raise
taxes on the middle class.150
As humorist P. J. O’Rourke once said, “If Notes
you think health care is expensive now, wait 1. Lori Montgomery and Amy Goldstein, “Health
until you see what it costs when it's free.”151 Care Tops Fiscal Need List,” Washington Post, Feb-
The final ruary 24, 2009.
proposal would 2. Barack Obama (address to a Joint Session of
impose an Conclusion Congress, February 24, 2009), http://www.real
clearpolitics.com/articles/2009/02/obama_addre
unprecedented It is likely that Congress will vote on a ss_to_congress.html.
level of govern- health care reform bill before the end of the
3. Barack Obama (remarks to the White House
year.152 While the details of that bill have not
ment control over yet been revealed, its broad outlines are readily
Health Care Summit, March 5, 2009), http://www.
washingtonpost.com/wp-dyn/content/article/
one-sixth of the apparent from the campaign promises and 2009/03/05/AR2009030501850.html?sid=ST200
9030501895.
U.S. economy. more recent statements of President Obama,
the writings and statements of the Obama 4. Total costs are estimated to be in the range of
administration’s health care advisers, and pro- $1.5–1.7 trillion over 10 years. Ricardo Alonso-
posals by the congressional Democrats who Zaldivar, “Health Care Overhaul May Cost about
have been leading the administration’s efforts $1.5 Trillion,” Associated Press, March 17, 2009,
http://apnews.myway.com/article/20090317/D9
on Capitol Hill. 7023500.html .
Unfortunately, it appears that the final pro-
posal will be a cornucopia of bad policy ideas. It 5. Drew Armstrong, “Baucus Wants Health Over-
would impose an unprecedented level of gov- haul on Senate Floor by Summer,” CQ Daily On-
line, March 3, 2009, http://www.cqpolitics.com/
ernment control over one-sixth of the U.S. econ- wmspage.cfm?docID=news-000003064848#.
omy and over some of the most important, per-
sonal, and private decisions that Americans 6. Erica Warner, “White House Budget Director
make, while setting the stage for the eventual Grilled on Health Plan Details,” Associated Press,
March 10, 2009.
evolution into a single-payer system.
Given the problems facing our health care 7. ABC World News Tonight, March 5, 2009.
system—high costs, uneven quality, millions of
Americans without health insurance—it some- 8. Tom Daschle, Scott Greenberger, and Jeanne
Lambrew, Critical: What We Can Do about the Health-
times seems that things couldn’t possibly get Care Crisis (New York: Thomas Dunne Books,
any worse. But if the final health care reform 2008).
plan contains most or all of these bad ideas,
things could indeed get worse—much worse. 9. See http://wonkroom.thinkprogress.org/2009
/02/19/sebelius-hhs/.
For the economy, Obamacare could mean
trillions of dollars in new taxes and the loss of 10. Max Baucus, “Call to Action: Health Reform

18
2009,” Senate Finance Committee, November 12, Mandate,” National Federation of Independent
2008. Business, January 26, 2009.

11. David Drucker, “Legislating the Legacy of a 26. Katherine Baicker and Helen Levy, “Employer
Lion,” Roll Call, January 13, 2009. Health Insurance Mandates and the Risk of
Unemployment,” Employment Policies Institute,
12. Robert Pear, “Democrats Agree on a Health June 2005.
Plan; Now Comes the Hard Part,” New York Times,
April 1, 2009. 27. Chow and Phillips.

13. “The Healthy Americans Act,” S 334, 111th 28. Yelowitz.


Cong., 1st sess.
29. “Options for expanding Health Insurance Cov-
14. The $1.3 trillion price tag includes interest and erage and Controlling Costs” (statement of Douglas
represents the real cost to taxpayers. The actual Elmendorf, director, Congressional Budget Office,
appropriation was $787 billion. “The American before the U.S. Senate Committee on Finance,
Recovery and Reinvestment Act of 2009,” HR 1, February 25, 2009), p. 12.
111th Cong., 1st sess.
30. Barack Obama (speech delivered at the Uni-
15. “Barack Obama’s Plan for a Healthy America: versity of Iowa, May 29, 2007).
Lowering Health Care Costs and Ensuring Afford-
able, High-Quality Health care for All,” Obama ’08, 31. For a look at how we ended up with an employ-
www.BarackObama.com. ment-based health care system, see David Blumen-
thal, “Employer-Sponsored Health Insurance in the
16. Baucus. United States—Origins and Implications,” New
England Journal of Medicine 355, no. 1 (July 6, 2006):
17. Robert Pear, “Team Effort in House to Over- 82–88.
haul Health Care,” New York Times, March 18, 2009.
32. Robert Pear, “When a Job Disappears, So Does
18. Carmen DeNavas-Walt et al., “Income, Poverty, the Health Care,” New York Times, December 6, 2008.
and Health Insurance Coverage in the United States:
2006,” Current Population Reports, U.S. Census 33. Liz Arjun, Jocelyn Guyer, and Martha Heber-
Bureau, August 2007. lein, “Keeping the Promise to Children and Families
in Tough Economic Times,” Georgetown Universi-
19. Quoted in Lawrence H. Summers, “Some Simple ty Health Policy Institute Center for Children and
Economics of Mandated Benefits,” American Eco- Families, November 2008, http://ccf.georgetown.
nomic Review 79, no. 2 (May 1989): 177–83. edu/index/cms-filesystem-action?file=ccf%20publi
cations/uninsured/economy%20es.pdf.
20. Jonathan Gruber, “The Incidence of Mandated
Maternity Benefits,” American Economic Review 84, 34. Laura Meckler, “Clinton, Obama Split on In-
no. 3 (June 1994): 662–41. surance Mandate,” Wall Street Journal, February 23,
2008. Obama did, though, support a mandate that
21. Alan Krueger and Uwe Reinhardt, “The Eco- parents purchase insurance to cover their children
nomics of Employer Versus Individual Mandates,” (generously defined as up to age 25). “Barack
Health Affairs 13, no. 2 (Spring II, 1994): 34–53. Obama’s Plan for a Healthy America: Lowering
Health Care Costs and Ensuring Affordable, High-
22. Aaron Yelowitz, “Pay-or-Play Health Insurance Quality Health Care for All,” Obama ’08, www.
Mandates: Lessons from California,” Public Policy BarackObama.com.
Institute of California, http://www.ppic.org/con
tent/pubs/cep/EP_1006AYEP.pdf. 35. Ezra Klein, “Obama’s Health Care Plan expects
an Individual Mandate,” American Prospect Blog,
23. Lawrence Summers, “Some Simple Economics February 24, 2009, http://www.prospect.org/csnc/
of Mandated Benefits,” American Economic Review blogs/ezraklein_archive?month=02&year=2009&
79, no. 2 (May 1989): 177–83. base_name=obamas_health_care_plan_expect.
24. Mark Pauly, Health Benefits at Work: An Economic 36. Baucus.
and Political Analysis of Employment-Based Health
Insurance (Ann Arbor, MI: University of Michigan 37. Robert Pear, “Team Effort in House to Overhaul
Press, 1998), p 103. Healthy Care,” New York Times, March 18, 2009.
25. Michael Chow and Bruce Phillips, “Small Busi- 38. Donna Smith, “U.S. Health Insurers Seek In-
ness Effects of a National Employer Healthcare dividual Coverage Mandate,” Reuters, March 24,

19
2009; “AMA Seeks Mandatory Health Insurance 52. Nina Olsen, “National Taxpayer Advocate 2003
for All,” Bloomberg News, June 14, 2006. Annual Report to Congress,” Taxpayer Advocate
Service, December 31, 2003, http://www.irs.gov/
39. “Romney Plan Would Require All to Buy Health pub/irs-utl/nta_2003_annual_update_mcw_1-15-
Insurance . . . Or Else,” Associated Press, June 23, 042.pdf.
2005.
53. Lyle Nelson, “How Many People Lack Health
40. Anna Jo Bratton, “Gingrich Suggests Insurance Insurance and for How Long?” Congressional
Mandate for Some,” Associated Press, June 11, Budget Office, May 12, 2003.
2008.
54. C. Eugene Steuerle, “Implementing Employer
41. “Healthy Americans Act,” S 334, 111th Cong., and Individual Mandates,” Health Affairs 13, no. 2
1st sess. (Spring II, 1994): 62.

42. The Heritage Foundation first spelled out the 55. Carmen DeNavas-Walt, Bernadette Proctor,
details of its proposal in 1994. Stuart Butler, “The and Jessica Smith, “Income, Poverty, and Health
Heritage Foundation Proposal” (presentation to a Insurance Coverage in the United States, 2007,”
Heritage Foundation conference on “Is Tax Reform U.S. Census Bureau, August 2008, Table 6, p. 22,
the Key to Health Care Reform?” Heritage Lectures http://www.census.gov/prod/2008pubs/p60-
no. 298, October 23, 1990). However, the founda- 235.pdf.
tion has reaffirmed its support for an individual
mandate as recently as 2003. Stuart Butler, “Laying 56. Hartman and Van de Water, “The Budgetary
the Groundwork for Universal Health Care Cov- Treatment of an Individual Mandate to Buy Health
erage” (testimony before the Special Committee on Insurance” (Congressional Budget Office memo-
Aging, United States Senate, March 10, 2003). randum, August 1994), p. 1 (emphasis added).

43. Baucus, p 15. 57. Victoria Craig Bunce and J. P. Wieske, “Health
Insurance Mandates in the States: 2007,” Council
44. Ibid. for Affordable Health Insurance, January 2007,
http://www.cahi.org/cahi_contents/resources/pd
45. Jack Hadley and John Holahan, “The Cost of f/MandatesInTheStates2007.pdf.
Care for the Uninsured: What Do We Spend, Who
Pays, and What Would Full Coverage Add to Med- 58. Rachel Nardin, “Massachusetts’ Plan: A Failed
ical Spending?” Kaiser Commission on Medicaid Model for Health Care Reform,” February 18, 2009,
and the Uninsured, May 10, 2004. http://www.pnhp.org/mass_report/mass_report
_Final.pdf.
46. Andrea Sisko, Christopher Truffer, Sheila Smith,
Sean Keehan, Jonathan Cylus, John A. Poisal, M. 59. Kevin Sack, “Massachusetts Faces Costs of Big
Kent Clemens, and Joseph Lizonitz, “Health Spend- Health Care Plan, New York Times, March 15, 2009.
ing Projections Through 2018: Recession Effects
Add Uncertainty to the Outlook,” Health Affairs 28, 60. Ibid.
no. 2 (2009): w346–w357.
61. Ricardo Alonso-Zaldivar, “Consensus Bid Could
47. See Greg Scandlen, “The Pitfalls of Mandating be Derailed by Health Overhaul,” Washington Post,
Health Insurance,” Council for Affordable Health March 9, 2009.
Insurance Issues and Answers no. 135, April 2006.
62. Laura Litvan, “ House Health Plan to Include
48. Baucus, , p iii. Government-Run Option,” Bloomberg, March
26, 2009.
49. Rob Stewart and Jeffrey Rhoades, “The Long-
Term Uninsured,” Research Note, U.S. Census Bu- 63. Baucus, p. 18.
reau, http://aspe.hhs.gov/health/long-term-unin
sured04/report.pdf. 64. Robert Pear, “Democrats Agree on a Health
Plan; Now Comes the Hard Part,” New York Times,
50. Baucus, p 15. April 1, 2009.

51. Peter Orszag and Matthew Hall, “Nonfilers and 65. Reed Abelson, “A Health Plan for All and the
Filers with Modest Tax Liabilities,” Tax Notes, Tax Concerns It Raises,” New York Times, March 25, 2009.
Policy Center, Urban Institute and Brookings In-
stitution, August 4, 2003, http://www.urban.org/ 66. Ronald Williams, CEO, Aetna Insurance Com-
UploadedPDF/1000548_TaxFacts_080403.pdf. pany (testimony before the Senate Committee on

20
Health, Education, Labor, and Pensions, March 24, with George Stephanopoulos,” January 19, 2009,
2009). http://media.bulletinnews.com/playclip.aspx?cli
pid=8cb4275f6a44ad3.
67. Getsur Davidson et al., “Public Program Crowd-
Out of Private Coverage: What Are the Issues?” Rob- 79. Larissa MacFarquhar, “The Conciliator,” New
ert Woods Johnson Foundation Research Synthesis Yorker, May 7, 2007.
Report no. 5, June 2004. Conversely, studies have
shown that when government programs are cut 80. “Seniors Town Hall in Ames,” Community
back, private coverage increases. George Borjas, Blogs, September 21, 2007, http://iowa.barack
“Welfare Reform, Labor Supply, and Health In- obama.com/page/community/tag/Ames.
surance in the Immigrant Population,” Journal of
Health Economics 22, no. 6 (2003): 956–57. 81. Robert Pear, “Democrats Agree on a Health
Plan; Now Comes the Hard Part,” New York Times,
68. Congressional Budget Office, “The State April 1, 2009.
Children’s Health Insurance Program,” May 2007.
82. Baucus.
69. Jackie Calmes and Robert Pear, “Administra-
tion is Open to Taxing Health Benefits,” New York 83. American Recovery and Reinvestment Act of
Times, March 14, 2009. 2009, HR 1, 111th Cong., 1st sess., Congressional
Record 155 (February 12, 2009): H 1423.
70. The employer mandate would not alleviate
this problem. The incentives would be such that it 84. Ibid., p. H 1326.
would be easier and less expensive for employers
to “pay” rather than “play.” Lewin Group (presen- 85. Gerard Anderson and Kalipso Chalkidou,
tation to Senate Finance committee Republican “Spending on Medical Care: More Is Better?” Journ-
Staff, December 5, 2008). al of American Medical Association 299, no. 20, May
28, 2008, pp. 2444–45.
71. Ibid.
86. Elliott Fisher, “Expert Voices: More Care Is
72. There are currently about 202 million Ameri- Not Better Care,” National Institute for Health
cans with private health insurance. U.S. Census Bu- Care Management,” January 2005.
reau Current Population Report, August 2008, http
://www.census.gov/prod/2008pubs/p60-235.pdf. 87. See, for example, “Elliott Fisher, Julie Bynum,
and Jonathan Skinner, “Slowing the Growth of
73. See, for example, Len Nichols, “A Modest Health Care Costs—Lessons from Regional Vari-
Proposal for a Competing Public Health Plan,” ation,” New England Journal of Medicine 360, no. 9
New America Foundation, March 11, 2009. (2009): 849–52.

74. “Health Plan Differences: Fully-Insured vs. Self- 88. Peter Orszag, “Opportunities to Increase
Insured,” Employee Benefits Research Institute Efficiency in Health Care” (statement to the Con-
Fast Facts no. 114, February 11, 2009. gressional Budget Office, at the Health Reform
Summit of the Committee on Finance, United
75. “The Public Plan Time Bomb?” National Journal States Senate, June 16, 2008).
Online, March 23, 2009, http://healthcare.national
journal.com/2009/03/the-public-plan-time- 89. Advocates of government-sponsored compara-
bomb.php. tive-effectiveness research argue that only govern-
ment can effectively provide this information since
76. Jacob Hacker, “The Case for Public Plan Choice comparative-effectiveness information has charac-
in National Health Reform: Key to Cost Control and teristics of a “public good,” meaning that markets
Quality Coverage,” Institute for America’s Future, will not generate the efficiency-maximizing quanti-
December 17, 2008. ty. However, as my colleague Michael Cannon has
shown, economic theory does not conclude that
77. Medicare Advantage, also known as Medicare government should provide comparative-effective-
Part C or Medicare+Choice, allows Medicare ben- ness research, nor that government provision
eficiaries to receive coverage through private would increase social welfare. Michael Cannon, “A
insurers who contract with the Medicare program Better Way to Generate and Use Comparative-
to provide basic Medicare services, plus a variety Effectiveness Research,” Cato Institute Policy Anal-
of additional services not normally covered by ysis no. 632, February 6, 2009.
Medicare.
90. National Cancer Institute, “Treatment Choices
78. Statement by Barack Obama on “This Week for Men with Early Stage Prostate Cancer,” Feb-

21
ruary 14, 2006, http://www.cancer.gov/cancertop less of cost-effectiveness. However, that does not
ics/prostate-cancer-treatment-choices. deal with the other problems surrounding gov-
ernment-sponsored comparative-effectiveness re-
91. See, for example, Daniel Klein, “Policy Medi- search that are discussed in this chapter. In the
cine versus Policy Quackery: Economists against end, the answer to Medicare and Medicaid’s open-
the FDA,” Journal of Knowledge, Technology & Policy ended subsidies is to change the structure of
13, no. 1 (March 2000): 92–101. those programs, shifting the subsidy (to the
degree that there is one) directly to the consumer
92. Quoted in Sharon Begley, “Why Doctors Hate through some form of capped premium support.
Science,” Newsweek, February 28, 2009. The consumer would then be required to make
comparative cost-value decisions.
93. House Committee on Appropriations, Ameri-
can Recovery and Reinvestment Act of 2009 Discussion 103. Tom Daschle, Scott Greenberger, and Jeanne
Draft, 111th Cong., 1st sess., 2009, p. 52 (emphasis Lambrew, Critical: What We Can Do about the Health-
added). Of course, such report language is not Care Crisis (New York: Thomas Dunne Books, 2008),
actually part of the law, but it is frequently used by p. 179.
the executive branch and, significantly, by the
courts as an authoritative method of determining 104. Jacob Goldstein, “U.K. Says Glaxo’s Breast
the meaning and purpose of legislation. Cancer Drug Isn’t Worth the Money,” Wall Street
Journal, July 7, 2008.
94. John Reichard, “NIH Chief Doesn’t Rule Out
Cost Component to Comparative Studies,” CQ 105. Uwe Reinhardt, “An Information Infrastructure
Healthbeat News, March 26, 2009. for the Pharmaceutical Market,” Health Affairs 23, no.
1 (January/February 2004): 107–12.
95. “Senate Rejects Amendment to Ban Cost in
Comparative-Effectiveness Studies,” InsideHealth 106. Prioritization of Health Services: A Report to
Policy.com, April 2, 2009, http://www.insidehealth the Governor and Legislature, Oregon Health
policy.com/. Services Commission, 1991.

96. John Kraemer and Lawrence Gostin, “Science, 107. United States Office of Technology Assess-
Politics, and Values: The Politicization of Practice ment, Evaluation of the Oregon Medicaid Proposal
Guidelines,” Journal of the American Medical Associ- (1992), quoted in Jonathan Oberlander, Theodore
ation 301, no. 6 (2009): 665–67. Marmor and Lawrence Jacobs, “Rationing Medical
Care: Rhetoric and Reality in the Oregon Health
97. Knut Erik Tranoy, “Ethical Principles in Public Plan,” Canadian Medical Association Journal 164, no.
Health Care in “Scandinavia: With a Remark about 11 (May 29, 2001): 1586.
Relativism and the Cultural Foundations of Health
Care Ethics,” in Darryl R. J. Macer, ed., Bioethics for the 108. See Cannon for more information about the
People by the People (Eubios Ethics Institute, 1994), sorry history of congressional interference with
p. 57. government health care research.

98. Ibid., p. 57. 109. Kraemer and Gostin.

99. Congressional Budget Office, “Research on the 110. Erica Werner, “New Debate on How to Decide
Comparative Effectiveness of Medical Treatments,” Best Health Treatments,” Associated Press, March
December 2007. 12, 2009.

100. America’s Health Insurance Plans, Center for 111. Congressional Budget Office, “Research on the
Policy and Research, “Technical Memo: Estimates Comparative Effectiveness of Medical Treatments,”
of the Potential Reduction in Health Care Costs December 2007.
from AHIP’s Affordability Proposals,” June 2008,
p. 3, Table 1. 112. Ibid.

101. Congressional Budget Office, “Research on 113. Cannon.


the Comparative Effectiveness of Medical Treat-
ments,” December 2007. 114. The actual number of people with preexist-
ing conditions is extremely hard to come by. The
102. A case could certainly be made that taxpayers Commonwealth Fund suggests that 21 percent of
should not have to subsidize health care that has working-age adults fall into this category, but
not proven to be effective, nor can Medicare and that includes not only those who are turned down
Medicaid pay for every possible treatment regard- for insurance, but those who are charged a higher

22
premium, or have had certain exclusions on the Ethics and Religious Liberty Commission, Feb. 3,
individual market due to a preexisting condition, 2009, http://erlc.com/article/giant-steps-toward-a-
http://www.commonwealthfund.org/~/media/Fi government-takeover-of-the-health-care-system/.
les/News/News%20Releases/2006/Sep/Nearly%2
0Nine%20of%20Ten%20Who%20Seek%20Individ 124. Robert Pear, “Democrats Agree on a Health
ual%20Market%20Health%20Insurance%20Neve Plan.”
r%20Buy%20a%20Plan/Squeezed_Release_Collin
s_9%2012%2006%20pdf. 125. Sack.

115. Ricardo Alonso-Zaldivar, “Insurers Offer to 126. Bill Crounse, “Electronic Medical Records:
Stop Charging Sick People More,” Associated Press, The Right Medicine for an Ailing Healthcare Sys-
March 24, 2009. The industry offer may not be tem,” Microsoft News for Healthcare Providers,
quite as clear-cut as has been reported, however. November 22, 2005, http://www.microsoft.com/in
While willing to forgo strict medical underwriting, dustry/healthcare/providers/businessvalue/house
the industry plans to continue varying premiums calls/emr.mspx.
according to factors such as age and geographic
location, which often serve as proxies for health sta- 127. Akish Jha et al., “Use of Electronic Health
tus. Records in U.S. Hospitals,” New England Journal of
Medicine 360, no. 16 (April 16, 2009): 1628–38.
116. Congressional Budget Office, “The Price Sensi-
tivity of Demand for Nongroup Health Insurance,” 128. Andrea Stone, “Former Foes Clinton, Gingrich
Background Paper, August 2005, http://www.cbo. Band Up on Health Care Plan,” USA Today, May 11,
gov/ftpdocs/66xx/doc6620/08-24-HealthInsur 2005. An additional 1.5 million patients are report-
ance.pdf . edly injured, and at least 400,000 of those injuries are
considered preventable. See “Medication Errors
117. Mark Liow and Drew Davidoff, “The Impact Injure 1.5 Million People and Cost Billions of Dollars
of Guaranteed Issue and Community Rating in Annually,” National Academy of Sciences (press
the State of New York,” Milliman & Robertson, release, July 20, 2006).
August 18, 1994.
129. Betsy McCaughey, “Ruin Your Health with
118. Mark W. Stanton, “High Concentration of the Obama Stimulus Plan,” Bloomberg.com. Feb-
U.S. Health Care Expenditures,” AHRQ Research ruary 9, 2009, http://www.bloomberg.com/apps/
in Action, Issue 19, June 2006. news?pid=20601039&refer=columnist_mccaugh
ey&sid=aLzfDxfbwhzs.
119. Alain Enthoven, “The History and Principles
of Managed Competition,” Health Affairs 12, sup- 130. Ed O’Keefe, “Stimulus Debate Shines Light
plemental (1993): 35. on Health IT Job,” WashingtonPost.com, February
11, 2009, http://voices.washingtonpost.com/feder
120. John Cochrane, “Health-Status Insurance: How al-eye/2009/02/in_a_likely_preview_of.html.
Markets Can Provide Health Security,” Cato Insti-
tute Policy Analysis no. 633, February 18, 2009. 131. Howard Anderson, “Gartner: I.T. Spending
to Grow 2.6%,” Health Data Management, February
121. “The Uninsured: A Primer, Key Facts About 24, 2009, http://www.healthdatamanagement.
Americans Without Health Insurance,” Kaiser com/news/I.T._spending27781-1.html.
Family Foundation, December 2003.
132. Anne Ziegler, “Healthcare IT Spending Grow-
122. Dawn Horner, Jocelyn Guyer, Cindy Mann, ing, Despite Broader IT Slowdown,” http://www.
and Joan Alker, “The Children’s Health Insurance fiercehealthit.com/story/study-healthcare-it-
Program Reauthorization Act of 2009: Overview spending-growing-despite-broader-it-slowdown
and Summary,” Georgetown University Health /2008-09-21?utm_medium=rss&utm_source=
Policy Institute Center for Children and Families, healthcare_Obama&cmp-id=OTC-RSS-FHI0.
March 2009, p. 2. By way of comparison, the medi-
an family income in the United States for 2007 was 133. Neil Versel, “Tech Spending Grows Fastest in
$50,233. U.S. Census Bureau, “Household Incomes Health Care,” Modern Physician, November 19, 2003.
Rise, Poverty Rate Unchanged, Number of Unin-
sured Down” (press release, August 26, 2008), http: 134. Steve Lohr, “Google Offers Personal Health
//www.census.gov/Press-Release/www/releases/ Records on the Web,” New York Times, May 20, 2008;
archives/income_wealth/012528.html. Amy Thompson, “Microsoft, Kaiser Plan Online
Health Records System,” Bloomberg, July 10, 2008.
123. Richard Land, “Giant Steps toward a Govern-
ment Takeover of the Health Care System?” The 135. See the TelaDoc website at http://www.tel

23
adoc.com/home.php and the PinnacleCare web- haul May Cost about $1.5 Trillion,” Associated
site at http://www.pinnaclecare.com. (Here I must Press, March 17, 2009.
make a full disclosure: my wife works for Pinna-
cleCare.) 145. Stephen Dinan, “Entitlements Have a
History of Cost Overruns,” Washington Times, June
136. Erica Werner, “Questions Surround Health 16, 2006.
IT Money,” Associated Press, March 23, 2009.
146. Ibid.
137. The federal government currently contracts
with a private organization, the Certification Com- 147. Ibid.
mission on Health Information Technology, to cer-
tify whether electronic record systems meet mini- 148. Jackie Calmes and Robert Pear, “To Pay for
mum government standards. Health Care, Obama Looks to Taxes on Affluent,”
New York Times, February 25, 2009.
138. Richard Hillestad and James H. Bigelow,
“Can HIT Lower Costs and Improve Quality?” 149. Walter Alarkon, “Conrad Open to Energy
RAND Corporation, 2005. Taxes for Healthcare,” The Hill, March 29, 2009.

139. Congressional Budget Office, “Key Issues in 150. Budget deficits are already projected to total
Analyzing Major Health Insurance Proposals,” more than $9.3 trillion over the next 10 years, even
December 2008. without considering the full cost of health care
reform. Lori Montgomery, “U.S. Budget Deficit to
140. Sue Blevins, “How the Economic Stimulus Swell Beyond Earlier Estimates,” Washington Post,
Law Affects Your Health Privacy Rights,” Institute March 21, 2009.
for Health Freedom, March 2009.
151. P. J. O’Rourke, “The Liberty Manifesto” (remarks
141. See HIPAA Compliance Journal at http:// delivered at a gala dinner celebrating the opening of
www.hipaacompliancejournal.com/. the Cato Institute’s new headquarters in Washing-
ton, May 6, 1993).
142. “Electronic Medical Records Used in Less Than
Two Percent of U.S. Hospitals,” NBC Nightly News, 152. Pear, “Democrats Agree on a Health Plan.”
March 25, 2009.
153. For an alternative approach to health care
143. Ellen Nakashima and Rick Weiss, “Patients’ Data reform, see Michael Cannon and Michael Tanner,
on Stolen Laptop,” Washington Post, March 24, 2008. Healthy Competition: What’s Holding Back Health Care
and How to Free It, 2nd ed. (Washington: Cato In-
144. Ricardo Alonso-Zaldivar, “Health Care Over- stitute, 2007).

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