Why the public option will become mandatory

Michael Tanner at Cato has a critical piece about the outcome of health insurance under a so-called public option, Putting Private Insurance Out of Business.

Of note:

The lower cost means that businesses, in particular, would have every incentive to dump workers from their current health insurance plan into the government plan. And, if other provisions of the bill make insurance more expensive, as is likely, the incentive for employers to shift workers to the government plan would be even greater. Estimates suggest that nearly 90 million workers could eventually be forced into the government plan.

It is an economic misconception (or deliberate misrepresentation, depending on your level of skepticism) that introducing a “competing” public plan will somehow achieve lowered costs, but not drive out private providers.

Government-run programs are not subject to regular economic forces, and do not have the same operating constraints borne by private sector enterprises, allowing them to do exactly as Mr. Tanner suggests. To believe otherwise is to live in economic fantasyland.

How much does this thing cost, II

The CBO estimate For HR 3962 is out, and it says $1.055 trillion:

CBO Puts House Health Bill Total Cost At $1.055 Trillion

By Martin Vaughan, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- The Congressional Budget Office said Thursday a U.S. House health-care system re-write would extend health insurance to 96% of the nonelderly U.S. population by 2019, and spend $1.055 trillion to do so.

Penalties imposed on individuals who did not purchase insurance, and employers who did not offer coverage to their workers, would raise $161 billion over that time-frame. That brings the net cost of the bill to $894 billion through 2019, CBO said.

House Democrats have seized on that net cost figure to claim that their bill is below President Barack Obama's upper limit which he set for health-care legislation of $900 billion.

The $1.055 trillion estimate also does not include $245 billion needed to stop Medicare payments to doctors from decreasing, which the House plans to address through separate legislation introduced Thursday.

...

More here: CBO Puts House Health Bill Total Cost At $1.055 Trillion

How much does this thing cost?

The House version of the health care reform bill has gone well above President Obama’s target of $900 billion:

House health care bill exceeds $1 trillion

By DAVID ESPO (AP) –

WASHINGTON — Health care legislation taking shape in the House carries a price tag of at least $1 trillion over a decade, significantly higher than the target President Barack Obama has set, congressional officials said Friday as they struggled to finish work on the measure for a vote early next month.

Democrats have touted an unreleased Congressional Budget Office estimate of $871 billion in recent days, a total that numerous officials acknowledge understates its true cost by $150 billion or more. That figure excludes several items designed to improve benefits for Medicare and Medicaid recipients and providers, as well as public health programs and more, they added.
...

And let’s not forget the stellar track record of government cost predictions.

Ranking US Health Care II

Health Insurance Co. profitability, via Mark Perry at Carpe Diem,

Health Insurance Companies Rank #86 By Industry Profit Margin, Earning $98 on Average Per Policy

[h/t Coyote]

Update: From Calvin Woodward (AP) -

…
Health insurance profit margins typically run about 6 percent, give or take a point or two. That's anemic compared with other forms of insurance and a broad array of industries, even some beleaguered ones.

Profits barely exceeded 2 percent of revenues in the latest annual measure. This partly explains why the credit ratings of some of the largest insurers were downgraded to negative from stable heading into this year, as investors were warned of a stagnant if not shrinking market for private plans.
…

See: FACT CHECK: Health insurer profits not so fat

Ranking US Health Care

One of the “statistics” cited by critics of US health care is the number 37, assigned by the World Health Organization.

As Carl Biailk (WSJ) observed,

Among all the numbers bandied about in the health-care debate, this ranking stands out as particularly misleading. It is based on a report released nearly a decade ago by the World Health Organization and relies on statistics that are even older and incomplete.

No single ranking can capture the complexity of the US health care system, and this ranking appears to be particularly poor in evaluating actual performance.

See Ill-Conceived Ranking Makes for Unhealthy Debate

About to Get Very Ugly

On Wednesday, Democrats blocked S. 1776, designed to fix the Medicare physician payment formula. In doing so, they may have gained a mortal enemy in the AMA.

To this point, the AMA was cautiously optimistic about reform possibilities. This seems to have evaporated:

Congress created the Medicare physician payment system, and Congress needs to fix this problem once and for all to fulfill its obligation to seniors, baby boomers and military families. Permanent repeal of the Medicare physician payment formula is essential to comprehensive health system reform.

[AMA deeply disappointed Senate has failed seniors, baby boomers and military families by blocking S. 1776]

Coupled with last week’s health insurance industry shot across the bow, this can only mean a very noisy Senate-House ObamaCare legislation merger, and even more contentious full body approval.

If this legislation moves forward, Congressional Democrats are about to learn a very costly lesson: once the groups you invited to dinner discover they’re actually on the menu, nobody sticks around very long, including and especially your voting constituents, who are directly affected by this legislation. That's most of America.

Severe Economic Dishonesty

Now that we’re back in high season for health care reform debate, here’s another example of politicians blatantly ignoring the truth, and their own past statements. This example is exceptionally disturbing, given the size of the economic impact this reform will have, along with universal personal effects, not just protected groups or special interests.

The Baucus Bill, as it has become known, is being touted by the Obama Administration as "deficit neutral," and even more aggressively as reducing the overall deficit. This is a bald-faced lie.

Peter Orszag, current Office of Management & Budget (OMB) Director, has put his stamp of approval (unsurprisingly) on the Baucus Senate proposal, going as far as calling it "fiscally responsible," in response to a CBO finding last week that would supposedly reduce $81 billion from the deficit over 10 years.

It isn’t, and it won't, and he knows it. Mr. Orszag's previous job was head of CBO (Congressional Budget Office), where he stated in 2008 that "The federal budget is on an unsustainable path." This was before the financial meltdown, and largest post-WWII incremental deficit spending stimulus, much less a multi-trillion dollar additional entitlement.

Devilish detail: CBO is forced to score legislation given static projections, which are almost universally false, and refrain from ruling on the overall economic veracity of those projections. As Gene Epstein notes in last Monday's Barron's,

The problem, [Douglas] Holtz-Eakin [also ex-CBO director] explained, is that when it comes to "scoring" a specific piece of proposed legislation, the CBO's hands are tied. It cannot use its discretion to question the plausibility of a proposed bill. It must, therefore, "accurately assess the legislative fantasy presented to it."

Basically, the projections are a joke.

Further, in 2008 Mr. Orszag (see above) apparently thought that Medicare physician reimbursement would increase, but now mysteriously believes the opposite, which drives the "deficit reduction" numbers conclusion:

But a big component of the new bill was that physician payment rates under Medicare continue to be cut, one of the very things CBO director Orszag had specifically dismissed as unlikely. So OMB director Orszag might have explained, in the interests of fiscal responsibility, why he had changed his mind.

Taxes must and will go up as a result of Baucus, and there will still be major dislocations and deficits as a result of the "revised" proposal. The representation of this proposed legislation to date has been excessively economically dishonest.

It would be most helpful if the media would actually do their jobs and report this.


Kudos to Gene Epstein - CBO to OMB: A Tangled Tale (Barron's, subscription required)

See also: The Baucus Bill Is a Tax Bill (Douglas Holtz-Eakin, WSJ)