Bad Ideas

Among the bad ideas floating around Washington to stimulate the lagging economy is a proposal that would boost the federal government's matching payments to the states for Medicaid.

Our colleague Bob Helms of the American Enterprise Institute has done excellent original research on the flaws with "the FMAP" — Federal Medical Assistance Percentage.

The Federal government provides money to the states to "match" their Medicaid expenditures. But it has become mostly a way for rich states to game the system at the expense of poor states. How this is supposed to help the economy is beyond me.

Richer states, like New York, get a lower federal match — 50% — and poorer states, like Mississippi, get a much higher federal matching payment — 76%. Sounds fair. But when all is said and done, the great majority of federal money actually goes to the richer states.

Nine states, led by New York and California, got half of all federal Medicaid money in 2005, Helms finds. The reason: They can afford to boost their Medicaid spending to "buy" the federal matching dollars. Poorer states can't.

Further, raising the FMAP is just a back-door way of boosting entitlement spending, doing little to contribute to real economic growth or create new private-sector jobs. This is a bad idea that should be scratched off the list of options for the economic stimulus package.

To put my tax hat on for the moment, there is a lot of evidence that the economy is suffering from poor monetary policy and from crushing regulation of the financial services sector, especially Sarbanes-Oxley. Most importantly, anticipation that the Bush tax cuts will expire in 2010 would result in one of the biggest tax hikes in American history and already is cooling economic activity.

Instead of fixing these problems, Congress is contemplating throwing money at artificial plans, including a $500 one-time rebate check to consumers. As The Wall Street Journal says, "We are supposed to believe it is 'stimulating' to take money from one pocket and hand it to another."

The impact of marginal tax rates that change incentives for people to work, save, and invest is the driving force in our economy and should be the focus of Congress. Members should cut marginal income tax rates, reduce corporate tax rates, eliminate the alternative minimum tax, and make the Bush tax cuts permanent.

The economy would soar in anticipation of this real economic growth package.

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This is an excerpt from the January 18, 2008 edition of our Health Policy Matters newsletter.

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Among the bad ideas floating around Washington to stimulate the lagging economy is a proposal that would boost the federal government's matching payments to the states for Medicaid.

Our colleague Bob Helms of the American Enterprise Institute has done excellent original research on the flaws with "the FMAP" — Federal Medical Assistance Percentage.

The Federal government provides money to the states to "match" their Medicaid expenditures. But it has become mostly a way for rich states to game the system at the expense of poor states. How this is supposed to help the economy is beyond me.

Richer states, like New York, get a lower federal match — 50% — and poorer states, like Mississippi, get a much higher federal matching payment — 76%. Sounds fair. But when all is said and done, the great majority of federal money actually goes to the richer states.

Nine states, led by New York and California, got half of all federal Medicaid money in 2005, Helms finds. The reason: They can afford to boost their Medicaid spending to "buy" the federal matching dollars. Poorer states can't.

Further, raising the FMAP is just a back-door way of boosting entitlement spending, doing little to contribute to real economic growth or create new private-sector jobs. This is a bad idea that should be scratched off the list of options for the economic stimulus package.

To put my tax hat on for the moment, there is a lot of evidence that the economy is suffering from poor monetary policy and from crushing regulation of the financial services sector, especially Sarbanes-Oxley. Most importantly, anticipation that the Bush tax cuts will expire in 2010 would result in one of the biggest tax hikes in American history and already is cooling economic activity.

Instead of fixing these problems, Congress is contemplating throwing money at artificial plans, including a $500 one-time rebate check to consumers. As The Wall Street Journal says, "We are supposed to believe it is 'stimulating' to take money from one pocket and hand it to another."

The impact of marginal tax rates that change incentives for people to work, save, and invest is the driving force in our economy and should be the focus of Congress. Members should cut marginal income tax rates, reduce corporate tax rates, eliminate the alternative minimum tax, and make the Bush tax cuts permanent.

The economy would soar in anticipation of this real economic growth package.

***********

The latest Commonwealth study purports to show that the great majority of Americans are in lockstep with the health reform proposals of the Democratic presidential candidates.

The survey finds that 4 out of 5 Americans think that employers should be responsible for health coverage. Oddly, though, it showed that only 8% thought that employers should bear most of the cost for health insurance.

Two-thirds support an individual mandate for purchasing health coverage. But only 6% think individuals should pay most of the costs. Only 15% said government should be the primary payor.

There was strong support for shared responsibility by individuals, employers, and the government — which is closer to the system we have today.

And the Commonwealth press release reveals an unfortunate bias, saying "Only Democratic candidates support universal coverage as a goal." Oh really? Republican presidential candidates certainly support the goal of universal coverage, but not a government-run, mandatory system that fails to first address costs and fundamental distortions in both private- and public-sector subsidies.

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And finally, what on earth does the Employee Benefit Research Institute have against consumer-directed health care? EBRI just issued the latest in a series of studies critical of CDHC, with a news release that says "New consumer-driven health plans may contain fatal flaw."

The fatal flaw is that people need to be educated about these plans and how they work. Good grief. There are actually a number of helpful directives for employers in the study itself, including the need to educate consumers about their options and responsibilities with new financing arrangements. But you would never know that from the press release.

The release equates CDHC with managed care which failed because "it violated the personal and social values of American consumers — for autonomy and control of their health care." But giving people more control over health care and spending decisions is exactly what CDHC does!

EBRI concludes: "Should health education initiatives prove ineffective, the 'consumer-driven health movement' could well be doomed, especially if it relies upon fully educated health consumers taking self-initiated actions."

New companies and consultancies are working feverishly to provide new information resources to consumers, and companies have learned that if they actively engage their employees by educating them about new health care financing arrangements, they are much more likely to be successful.

EBRI's gloom and doom prediction is off the mark and is unnecessarily scaring employers away from new health care financing arrangements that could actually help their bottom line and allow them to continue to offer health coverage to their workers.

Grace-Marie Turner

RECENT NEWS ARTICLES AND STUDIES:

 

A Medicare Reform Proposal Everyone Can Love: Finding Common Ground among Medicare Reformers
Andrew J. Rettenmaier and Thomas R. Saving
National Center for Policy Analysis, 12/07

Medicare Trustee Tom Saving and colleague Andrew Rettenmaier offer a comprehensive proposal to reform Medicare's funding and spending to avert the otherwise certain crisis in unfunded future obligations. They would create Health Insurance Retirement Accounts (HIRAs) to allow workers to partially prepay their future medical costs and thereby reduce the projected tax burden on future workers. Under this plan, workers age 64 and younger in 2007 would contribute 4% of their total earnings into the accounts, in addition
to the taxes needed to pay benefits for current retirees. After age 65, beneficiaries would use their HIRA balances to purchase an annuity. Under reasonable assumptions, average-income workers entering the labor market today will have annuities that would pay an amount equal to 29% to 59% of their projected spending on Medicare covered services at the midpoint of their retirement years. This reform proposal should appeal to reformers across the political spectrum because it reduces the tax burden on future workers, puts Medicare on a sounder footing, retains the progressivity of the current program's funding, and produces cost sharing incentives that rise with lifetime income.

An Examination of State Non-Group and Small-Group Health Insurance Regulations
Anthony T. Lo Sasso, Ph.D., University of Illinois at Chicago
American Enterprise Institute Working Paper, 01/03/08

This study provides a compelling portrait of the predictable distortions that can result from regulations aimed at ameliorating perceived deficiencies in the non-group and small group health insurance markets. Lo Sasso reviews the existing health policy literature regarding guaranteed issue requirements and health insurance rating restrictions and provides some empirical observations using data from multiple sources. The predictions from economic theory are unambiguous: the bulk of the scholarly literature consistently points to decreases in coverage for the young and healthy individuals and with less regularity, increases in coverage for older and unhealthier individuals. A common sense look at the premiums for non-group health insurance policies in regulated markets suggests that regulating markets offers only limited options for the healthy and still quite expensive options for the unhealthy.

Health Care Costs and Malpractice Reform
David Kendall, Progressive Policy Institute
The American Interest, 01/01/08

A significant source of rising health care costs can be identified and tamed: the dysfunctional way we deal with medical malpractice, writes David Kendall. He recommends replacing the current malpractice legal system with specialized health courts. These specialized courts would be administrative in design, similar to other long-standing, effective alternatives to traditional courts, such as the procedures used in workers' compensation cases. Health court rulings would establish new standards of practice to cover medical circumstances for which common standards have not previously been settled. The health court system would thus yield an essential benefit that our current system of medical justice fails to provide: consistent, rational rulings that send clear signals to health care providers about what constitutes good medical practice. In so doing, it would help eliminate the legal uncertainty that encourages doctors to practice defensive medicine and the silence among practitioners and patients that very likely contributes to medical errors.

State of the Living Dead
The Wall Street Journal, 01/12/07

Governor Arnold Schwarzenegger is moving ahead with his "universal" $14.4 billion a year health-care plan, despite a $14 billion budget deficit in the state, writes the Journal. He insists the health reform proposal requires no new spending after the start-up costs. But the numbers are flimsy, the Journal says, with legislators practically working off the back of an envelope. Like Massachusetts, California's program is built around the "individual mandate," which requires that everyone acquire insurance or pay penalties. In addition to providing new subsidies for the uninsured, California would impose severe insurance regulations, institute price controls and compel companies to offer policies to all participants without regard to age or health condition. Such mandates have all but devastated the insurance markets in every other state where they've been tried. None of this is what California's cooling economy needs — to say nothing of the damage that such a plan would do to the insurance markets, or the national precedent it would set.

2008 State Legislators' Guide to Health Insurance Solutions and Glossary
American Legislative Exchange Council and Council for Affordable Health Insurance, 01/08

This guide explains the multiple health reform issues facing state policymakers. ALEC and CAHI summarize each issue, highlight actions taken by the states and then offer possible solutions. The guide also includes a glossary that explains a number of industry terms.

Now, Wait a Minute! Menino Slams In-Store Health Clinic Plan
Christine McConville
Boston Herald, 01/11/08

Boston Mayor Thomas M. Menino has asked the city's public health commission to work with him to keep in-store health clinics out of the city, reports the Boston Herald. Menino's fighting words came one day after the state's Public Health Council approved a controversial plan to allow retailers such as CVS to run no-appointment-necessary, limited services medical clinics inside their stores. Menino wrote that limited-service clinics are "unsafe" and "ill-equipped to monitor community health needs." His anti-clinic stance baffled city residents. "It seems like a good way to get medical care, especially for little things," said hospital administrator Brooke Christian. At a meeting this week, Boston public health commissioners said they have no authority to change the state regulations, but that they could exercise their own authority to limit the clinics presence in the city. Because the commission decides which retailers may sell tobacco, it could prevent stores with clinics from selling tobacco, which could be a deal breaker for big pharmacy chains like CVS. Commissioners have opted to speak with public health officials in other cities with mini-clinics before making a final decision.

What's the Matter with Socialized Medicine?
Dr. Donald P. Condit
Acton Institute, 01/09/08

Despite ostensibly compassionate intentions, expanding government control of medical care would result in greater disservice to the uninsured and precariously insured, writes Dr. Condit. Those advocating socialized medicine seem blind to the dysfunctional nature of third-party health care. The common good would be better served by market-oriented reforms for elective and extraordinary health care coupled with compassionate subsidies for the needy. Tax law changes could help improve insurance portability and affordability. Interstate competition for insurance could decrease premium cost, remove thousands from the uninsured roles, and lead to stronger demands for quality. Patients paying for health care at the point of service would be more prudent consumers than those perceiving health-care benefits as an entitlement. With improved alignment of responsibility for personal health choices and medical-care consumption, scarce health care resources could be better allocated.

Health Care and the Presidential Race
The Health Care Solutions Group, 01/08

The Health Care Solutions Group, a non-partisan health policy institute affiliated with Vanderbilt University Medical Center, has launched a web site, PresidentialRX.com, to provide voters with information on the health care proposals of the 2008 presidential candidates, with a focus on how the health care proposals of the candidates will affect individuals, families, and employers across the country. The site summarizes the health care plans of the candidates, describes what they mean in user-friendly terminology, and includes additional resources and links to news items to allow voters to follow the candidates and their health care views throughout the campaign.

UPCOMING EVENTS:

Health Reform Lessons Learned: Veterans of 1993-94 Offer Advice to Today's Reformers
Alliance for Health Reform Briefing
Friday, January 18, 2008, 12:15 p.m. – 2:00 p.m. (Lunch included)
Washington, DC

Policies That Work for Working Families: Modern Families, Outdated Laws, and What is Needed to Fix the Problem
National Center for Policy Analysis Event
Tuesday, January 22, 2008, Noon – 1:00 p.m. (Lunch included)
Washington, DC
For more information, contact Charlie Sauer at 202-220-3082 or charlie.sauer@ncpa.org.

Hayek and the Economics of Capitalism
Hayek Institut Lecture
Tuesday, January 29, 2008, 6:00 p.m.
Vienna, Austria
For more information, contact the Hayek Institut at office@hayek-institut.at.

Examining HealthCare Vouchers
Oregon Health Forum Event
Wednesday, January 30, 2008, 11:30 a.m. – 1:30 p.m.
Portland, OR

National Medicare Education Program Coordinating Committee Meeting
Centers for Medicare and Medicaid Services Event
Thursday, January 31, 2008, 8:30 a.m. – 12:45 p.m.
Washington, DC

Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features research and writings by participants in the Health Policy Consensus Group, articles of interest from the health policy world, and announcements of coming events. Health Policy Matters is published by the Galen Institute, a not-for-profit public policy organization specializing in information and education on health policy. For more information about the newsletter and our organization, please visit our website at www.galen.org.

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The views expressed in this newsletter are the opinions of the authors and do not necessarily reflect the views of the Galen Institute or its directors.

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