Many progressive and moderate Democrats alike have supported Medicare for All, touting superior access and lower health care costs of single-payer, socialized systems. But health care coverage alone does not mean better health outcomes, and a brief review of Medicare’s real-world results reveals a chief problem of socialized health care — its destruction of innovation.

When President Lyndon B. Johnson first introduced Medicare and Medicaid in 1965, health coverage was much less common. Fifty percent of American seniors did not have health insurnce, and those who did faced rates three times those of younger people. Johnson’s Medicare initiative sought to end this inequality, giving all American seniors the coverage reflective of a “Great Society.” And consequently, nothing in American senior care resembles what existed before Johnson’s initiative.

Nothing except life expectancy.

In 1965, American life expectancy was 70 years — it is now just 78 years, a modest improvement at best. The fact that the last 54 years of unprecedented American innovation has been accompanied by only eight years of increased life expectancy is quite concerning. During that period, rotary phones transformed into pocket-sized supercomputers, but most Americans still live fewer years than many of the Founding Fathers. Public health enthusiasts often challenge this correlation, noting that medical care has also greatly improved. They are partially correct.

This innovation has been unequally distributed. Ailments mostly reserved to the elderly in many cases persist, even as those that plague the young are cured en masse. Diseases like Alzheimer’s, Parkinson’s, and dementia are all just as prevalent among seniors and untreatable today as they were in 1965. The lack of innovation is staggering, but is enabled by an equal lack of competition among health care providers for seniors, most of whom are on Medicare rather than private plans.

Payroll taxes allow Medicare to survive regardless of outcomes and make superior alternatives unaffordable for seniors. Heart disease and cancer treatment have seen improvements, but that progress was mostly targeted at other age groups that largely participate in market-based private health insurance.

Of the 10 types of cancer most common among young adults, almost all now have survival rates near or better than 90 percent. Leukemia is an outlier in this group, as it has a survival rate of only 60 percent. But about 85 percent of young children diagnosed with the most common form of leukemia will survive — it’s the elderly that keep the survival rate low.

A National Institutes of Health study published in 1993 concluded that “The lack of significant improvement in median survival in the last 40 years for those older than 60 years of age stands in stark contrast to the remarkable improvement for younger patients. Acute leukemia in older patients demands new and probably different therapeutic strategies.” Medicare has yet to address this disparity, which is typical for conditions that affect older people.

In contrast, outcomes related to treatments for seniors that overlap age groups have seen major improvements. For example, breast cancer survival increased from 64.9 percent in 1975 to 82.8 percent by 2002, but half of women who are diagnosed are under the age of 62, when most patients still privately fund their health and incentivize innovation. Testicular cancer also saw a 95 percent death rate in 1975 become a 95 percent cure rate by 2010, but testicular cancer is also the most common cancer for males between the ages of 15 and 35.

Public health care has little incentive to introduce new technologies and prolong life. Rich countries like the United Kingdom and Canada provide universal health care but have lower cancer survival rates than America. That’s why many more American seniors today have health insurance than in 1965, yet their health outcomes are still often terrible. And more funding isn’t enough — Medicare already indiscriminately funds treatments, but lacks the mechanisms and competition to decide which are effective. This might be why up to 20 percent of Medicare claims are fraud and waste.

If socialist health care is as great as Democrats claim, why do Saudi Kings and half a million other medical tourists fly far away from their socialized systems to America to receive adequate treatment? Even the few socialized health care systems with higher life expectancy, due primarily to healthier lifestyles, count on American innovation to improve their health systems. But American socialists emboldened by good intentions seek to sabotage the vestiges of our free market system. America should resist the regressive movement to end inequality by giving everyone equally terrible health care.

A version of this column first appeared in RealClear Policy.

The post Medicare for All Means Innovation for None appeared first on Reason Foundation.

The Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (the “ACA” or “the Act”), as amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029, is a nearly 2,500-page bill that set in motion a sweeping and comprehensive overhaul of the heretofore State-based health insurance industry.

Although a sharply divided Congress passed the ACA by an exceedingly narrow margin, the ACA will impact virtually every man, woman, and child in the United States. With procedural irregularities and partisan maneuvering replacing compromise and circumspection, the ACA was enacted in a strikingly different manner than other major pieces of progressive social legislation in our nation’s history.

The heart of the ACA is its minimum coverage provision-an unprecedented and oppressive mandate that, with limited exceptions, compels all Americans to enter into and maintain expensive health insurance contracts throughout their lives to obtain “minimum essential coverage,” regardless of the individual’s health, desires, or economic interests. 26 U.S.C. § 5000A. This mandate is enforced through a monthly monetary penalty. See id. at § 5000A(b).

As noted by each of the courts below, the mandate “represents a wholly novel and potentially unbounded assertion of congressional authority.” Pet. App. 187a; see also United States v. Lopez, 514 U.S. 549, 583 (1995) (Kennedy, J., concurring) (“The statute now before us forecloses the States from experimenting and exercising their own judgment in an area to which States lay claim by right of history and expertise, and it does so by regulating an activity beyond the realm of commerce in the ordinary and usual sense of that term.”).

In its zeal to pass the ACA and the unprecedented mandate that lies at its core, a slim but unyielding congressional majority failed meaningfully to address the constitutional questions about the individual mandate that had been raised by the Congressional Research Service (the “CRS”) and Congressional Budget Office (“CBO”), among others, or to otherwise consider the limitations of its enumerated powers.

Congress’ failure to consider such limitations resulted in a bill that exceeds the powers granted to Congress under the Constitution and severely infringes upon the individual liberty that the Constitution was designed to protect and promote. See Bond v. United States, 131 S.Ct. 2355, 2364 (2011). In such circumstances, this Court should not accord to the individual mandate the same “presumption of constitutionality” that it typically grants to congressional enactments in the first instance.

Attachments

• Full Amicus Brief: Department of Health and Human Services, et al., v. Florida, et al.

The post Amicus Brief Filed With Supreme Court: Department of Health and Human Services, et al., v. Florida, et al. appeared first on Reason Foundation.

The Nation’s George Vornick wrote a piece titled “Yes, Virginia, There Is Income Inequality,” billing the CBO’s finding as “dramatic.” And he wondered whether the study, released as the Occupy Wall Street protests gather steam, would finally force the Republicans on the deficit reduction super committee to face some “uncomfortable truths.” New York magazine’s Jonathan Chait wasted no time in accusing those not in a tizzy over the study of being “blinkered ideologues” and “income inequality deniers.”

But if not everyone is alarmed by dubious claims about rising Gini co-efficients, a metric that measures income inequality, is it because they are “blinkered ideologues” and “deniers.” No. Income inequality tells us zilch about the only thing that really matters: Are the lives of Americans, rich, poor, and in between, getting better or worse?

The finding that generated the most headlines was that the after-tax household income of the top 1 percent of Americans grew by 275 percent between 1979 and 2007. But this figure was based on outdated pre-recession data that omitted 2008 and 2009, when the “1 percenters” saw a decade’s worth of gains wiped out. This is nothing to weep over. They took the risk and they lost.

But is the fate of those lower on the totem pole cause for panic? Not really. The study reports that in the same period, households in the top quintile saw a 65 percent income gain; the vast middle in the 21st to 80th percentiles saw about a 40 percent gain; and the bottom quintile saw an 18 percent gain.

In other words, no group lost ground or even stagnated. So why all this breast-beating?

Few, besides vulgar Marxists, believe in the “immiseration of the masses” theory of capitalism anymore-the idea that the wealth of the top few is extracted by exploiting the labor of the bottom many. Burying this notion is one of the enduring intellectual victories of market theorists.

The post-liberalization successes of India and China have convinced even ardent liberals that markets play a crucial role in raising productivity and relieving scarcity, vastly expanding the proverbial social pie so that everyone has more to go around.

Of course, some gain more than others. But so what? Isn’t an unequal distribution of wealth preferable to an equal distribution of poverty? Is there any amount of inequality that liberal worrywarts would accept? Suppose the CBO had found that every group’s income increased by exactly 65 percent. Would they celebrate everyone’s good fortune or mourn the unwavering income gap? The question answers itself.

If liberals accept the market’s productive capacity but reject its distributive verdict, it’s because they think of the market as an abstraction that spews out wealth like a spigot, with who gets what being completely up for grabs. Rich people get more, they believe, because they are more skilled at clawing their way to the head of the line.

But in functioning markets, there is a connection between creating and gaining wealth. Those on the front lines of wealth creation get more than those at the back, regardless of whether they began as rich people or poor. Steve Jobs, whose net worth upon his death was $8.3 billion, got rich because he created a $360 billion company, not because he cut ahead of others. It bespeaks a profound conceptual misunderstanding to talk, as the CBO study does, about the growing concentration of income in the hands of the rich, as if the “rich” existed apart from the wealth-the value-they create.

Another thing liberals are worked up about is that the study attributes rising inequality to fewer “federal transfers” to the poor. But that’s not because poor people are getting less money from Uncle Sam in absolute dollars. In fact, they get more every year. It is just that they are getting a smaller portion of total transfers. This is not something that “income inequality deniers” have made up. It is what the study itself says.

It found that in 1979, households in the bottom quintile received more than 50 percent of all transfer payments. In 2007, similar households received about 35 percent of transfers. “The shift reflects the growth in spending for programs focused on the elderly population (such as Social Security and Medicare), in which benefits are not limited to low-income households,” the study explains. “As a result, government transfers reduced the dispersion of household income by less in 2007 than in 1979.”

In other words, poor people are getting relatively fewer handouts thanks to the Great Society programs that liberals themselves put in place for the elderly. This demonstrates the core problem with unfettered redistributionism: Eventually, you run out of other people’s money. And when you do, you have to make hard choices about whose needs to prioritize-not demonize opponents.

Reason Foundation Senior Analyst Shikha Dalmia is a columnist at The Daily, where this column originally appeared.

Update: Since many readers have asked, the CBO figures are adjusted for inflation. Check “Notes and Definitions” on Page 4.

The post Liberal Programs Deserve Blame for Income Inequality appeared first on Reason Foundation.

There is no better evidence of this than the “millionaire surcharge” that Democratic Senate leader Harry Reid of Nevada proposed to pay for President Obama’s jobs bill. His version of the bill was defeated last week on a cloture vote, but that in no way suggests Democrats will abandon this rhetoric as the presidential campaign ramps up.

Obama’s original funding plan was bad enough. It sought to specifically eliminate tax breaks for disfavored businesses like oil companies and hike taxes on families making over $250,000 a year. But Democratic senators from oil-rich states (such as Louisiana) and from those with lots of sub-millionaires (such as New York) nixed that idea. (Sen. Chuck Schumer hilariously complained that households in New York hauling in $300,000 annually are not rich because they can’t afford nice vacations.)

So Reid changed Obama’s soak-the-rich scheme into a soak-the-super-rich scheme. His plan would have left everyone else’s taxes essentially untouched. But super-rich people faced an additional 5.6 percent tax on every dollar of their unadjusted gross income beyond a million, pumping $450 billion into Uncle Sam’s pocket over 10 years.

If Reid had gotten his way, the top marginal tax rates in this country would have hit 50 percent, noted Howard Gleckman of the liberal Tax Policy Center. That’s because the new surcharge would have come on top of the 0.9 percent ObamaCare surtax on the rich and the possible rollback of the Bush tax cuts for higher income brackets.

To think the super-rich would passively accept such fleecing is absurd. Millionaires have a mysterious way of vanishing from states that institute such taxes. Maryland imposed a millionaire tax in 2008; a year later, a third of its millionaires disappeared from its tax rolls. After Oregon raised income taxes on the richest 2 percent of its residents in 2009, about one-quarter of rich filers went missing. Ironically, even as Washington considered this tax, states around the country were abolishing similar ones, including New York, New Jersey and Maryland.

It is, of course, much easier for wealthy folks to escape state taxes than national taxes, especially since the United States in 2008 started imposing exit taxes worthy of totalitarian governments on rich Americans trying to leave the country. But if the rich can’t flee, they can hire high-priced lawyers to find tax loopholes. They can also stop working and investing before they hit the million-dollar mark-hardly a formula to grow the economy or jobs.

Obama at least felt the need to soft-pedal the soak-the-rich aspects of his plan by trying to spread the tax burden as widely as politically possible. Reid experienced no such compunctions. “In fact, by replacing the potpourri of tax increases, Obama would have used to pay for his stimulus bill with a simple, easy-to-understand millionaire tax, the Senate Democratic leader has done a wonderful job of clarifying his party’s message,” Gleckman noted sarcastically.

Separating the rich from the poor always involves some arbitrariness. But the Reid tax schema completely dispensed with ordinary understanding, classifying folks earning $999,999 among the middle class subject to ordinary tax treatment while labeling super-rich those earning $1 more.

Why Reid & Co. drew such a bizarre line is obvious. Class warfare has little resonance in a country with rapid income mobility. Indeed, a 2011 Gallup poll found that only 1 percent of Americans mentioned income inequality as the most important problem facing the country.* That’s because most Americans expect to move several quintiles up the economic ladder during their lifetimes. Only the rarefied top seems out of reach. Placing people who occupy that spot into a separate political class is the only class-warfare strategy that won’t generate widespread opposition.

A soak-the-super-rich agenda needs suitable rhetoric-to which end supporters excavated long-discredited Marxist tropes. A blogger on the Daily Kos recently illustrated this perfectly when he declared the millionaire surcharge a “small down payment to return the wealth to the people” whose wages and benefits CEOs have been “bludgeoning” for a generation.

An unholy nexus between Wall Street and Washington certainly allowed some financial companies to get rich at the expense of taxpayers. However, that hardly describes the vast swath of America’s private enterprise. Steve Jobs and Mark Zuckerberg did not rob taxpayers to create multibillion-dollar companies from scratch. But a persecutory mentality, in its zeal to ascribe collective guilt and mete out collective punishment, can’t admit such distinctions.

Democrats want to make millionaires the minority that everyone loves to hate. The failure of Reid’s bill suggests that their campaign may have stalled. But that doesn’t mean we won’t be seeing this kind of class-war tactic crop up again in the future.

Reason Foundation Senior Analyst Shikha Dalmia is a columnist at The Daily, where this column originally appeared.

*Editor’s Note: This column originally attributed this statistic to the Pew Economic Mobility Project.

The post Soak the Rich or Soak the Super Rich? appeared first on Reason Foundation.

That said, if both were implemented as written, RyanCare would be far less injurious to seniors than ObamaCare or, for that matter, doing nothing.

That hasn’t stopped Democrats from portraying RyanCare as the evil brainchild of Jeffery Dahmer. One ad by the Agenda Project, an allegedly progressive outfit, shows a look-alike of Rep. Paul Ryan, the Wisconsin Republican who authored RyanCare, pushing a wheelchair-bound old lady off a cliff. Not to be outdone, Secretary of Health and Human Services Kathleen Sebelius has opined that seniors would “die sooner” under RyanCare.

And the president himself has said that RyanCare will “end Medicare as we know it.” By that he presumably means that it won’t give seniors limitless benefits forever at taxpayers’ expense, no questions asked. But the truth is that there is no scenario that could give seniors that.

Medicare recipients have historically received benefits worth several times what they have paid in payroll taxes. That was possible because there was a large worker-base supporting retirees. In 1965 there were 4.6 workers per beneficiary. With baby boomers retiring, by 2050 this number will be only 2.2. We can impose confiscatory taxes on these working stiffs or mortgage their entire incomes and still be unable to pay for all the benefits that seniors currently get.

Given these fiscal realities, if we do nothing, there will come a point when Uncle Sam will have to slash Medicare coverage so severely that, for all but the rich, “dying sooner” will actually seem like the best coverage option. But ObamaCare will make matters worse. Much worse.

Official calculations show that Medicare has $34 trillion less than it needs to keep all its promises to seniors. Yet ObamaCare will take $500 billion out of Medicare over 10 years to cover 30 million uninsured Americans.

Basic arithmetic suggests that this would hasten the demise of the program. Not so, according to President Obama. He says he’ll squeeze out savings by cutting reimbursement to providers. ObamaCare will create something called the Independent Payment Advisory Board, composed of 15 experts. Their job will be to hold down spending by identifying reimbursement cuts, and their recommendations will be binding on Congress. If this board recommends what many fear it will, Medicare’s reimbursement rates will drop below Medicaid’s, which will mean that doctors will turn away seniors like they do the poor. In effect, in addition to an early death option, ObamaCare offers seniors diminished access to quality care. If this is compassion, give me cruelty.

RyanCare is not perfect, but at least it won’t rob Grandma Millie to buy Cousin Joe coverage. It will allow all those who are 55 or older right now to stay in the current Medicare program. But come 2022, everyone presently younger would get an average of $15,000-the amount Medicare would spend per beneficiary-in “premium support” to use toward a health plan of his or her choice. Low-income and sick seniors could get up to another $8,000 or so.

This is hardly ungenerous. But liberals are still crying bloody murder. Why? Because RyanCare would raise the “voucher” amount annually based on general, not medical, inflation. And since medical inflation outpaces general inflation, with every passing year the voucher would buy less, and seniors would be on the hook for more.

But this misses the point even worse than Dwyane Wade missed the tying free throw for the Miami Heat Tuesday night. RyanCare wants to give seniors control over their Medicare dollars precisely to unleash their market power to curb medical inflation. It might not fully succeed, because it won’t let seniors buy coverage from wherever they like. Rather, it will limit their options to expensive plans, with all kinds of unnecessary bells and whistles, on a federal exchange. Still, it will cut inflation somewhat. And the savings that result would go directly into seniors’ pockets, not skimmed off to pay for someone else’s coverage.

There is one thing, however, that Rep. Ryan could-and should-do that would prevent Democrats from strangling RyanCare. He modeled his idea of giving seniors a fixed sum to use toward a private plan around the Federal Employee Health Benefits Plan that members of Congress use. But the formula to adjust Congress’ annual allowance is based on the average premiums charged by private plans, not general inflation. He should give Congress the same treatment that he is proposing for seniors to demonstrate his confidence-and build everyone else’s-that RyanCare would cut costs, not shirk its responsibility to seniors.

ObamaCare is the worst thing that could happen to seniors in their old age; inaction is the next and RyanCare is the least bad. As a senior in the making, if those were my only options, I would ignore Democratic demagoguery and take RyanCare in a heartbeat.

ObamaCare, however, I’d avoid like the plague.

Shikha Dalmia is a senior analyst at Reason Foundation and a columnist at The Daily, America’s first iPad newspaper, where this column originally appeared.

The post Medicare’s Least Bad Fix appeared first on Reason Foundation.

As a physician, I can tell you that we doctors do routinely have end-of-life discussions with our patients. This is a necessary part of our job. But we do it when it is appropriate and indicated by the clinical situation. And we have never expected payment for this. It is part and parcel of the practice of medicine.

Medicare, however, will now incentivize health care providers to have this discussion annually, as part of an annual physical exam. Providers will get paid extra if they have this conversation. But consider the implications: When discussing such matters with an otherwise healthy and possibly youngish senior, the “directives” that health care providers will elicit may be significantly different from what they would have been if the patient was actually confronting a life and death situation. One’s directives are often quite different when talking about a theoretical future versus a real situation occurring in the present. After all, the future might offer technological advances that are not available at the time of the theoretical discussion, thus making a patient reach a very different decision when that future reality arrives.

Furthermore, as typical of all Medicare regulations, there are certain requirements that must be fulfilled in terms of both the discussion and the patient directives in order for the end-of-life counseling to qualify for physician payment. And therein lies the rub. The whole idea is to get younger, healthier Medicare patients to give advanced directives that will be used at a later time to deny them care. Remember that ObamaCare cuts Medicare by $500 billion-and that doesn’t even take into account the coming demographic cataclysm that awaits the program when the baby-boomers become Medicare beneficiaries.

That’s why the new policy has been dubbed a “death panel” by its opponents. One can easily see the ulterior motive behind the decision to incentivize health care providers to have annual, Medicare-designed end-of-life discussions with their patients. It’s to allow for denial of care at a time when Medicare money is scarce.

Indeed, this is precisely why Congress removed the end-of-life counseling provision from the final health care bill. When the public learned of this provision, there was an outcry against it.

But now the executive branch has circumvented Congress, ignoring both the legislative text and the intent of the legislature, by enacting the very provision that Congress decided to remove. And it has done so using the regulation-writing process.

This last point should disturb anyone concerned about the integrity of our democratic republic, regardless of where one stands on the matter of health care reform or end-of-life discussions. The executive branch is enacting by regulatory fiat what the legislative branch explicitly opted not to enact. This can only lead to the tyranny of an unelected bureaucracy.

Dr. Jeffrey A. Singer is a general surgeon in private practice in the metro-Phoenix area since 1981, and is Treasurer of the U.S. Health Freedom Coalition. This column first appeared at Reason.com.

Editor’s Note: In an unexpected reversal, the Obama administration has announced that it will not implement the end-of-life planning regulations discussed in this article.

The post A Physician’s Take on the “Death Panel” Revelation appeared first on Reason Foundation.

The ritual consists of waiting to the very last minute and then delaying automatic cuts in Medicare payments to health-care providers. The supposedly automatic cuts that never happen were scheduled by legislation in the 1990s as a means of stanching the hemorrhage of Medicare expenditures. The cuts are based on a formula known as the Sustainable Growth Rate (SGR), which tied payments to doctors and other health-care providers to growth rates in the larger economy.

Each time the day of reckoning approaches, the American Medical Assocation (AMA) and others implore Congress to prevent the cuts. They argue, correctly, that cuts to physicians’ reimbursements will decrease the number of doctors participating in Medicare (participating doctors are not allowed to charge more for a procedure than Medicare pays). The lowered payments make it economically unsustainable for doctors-especially those in primary care-to continue caring for patients within the Medicare system. As more doctors leave, the argument goes, seniors will get less access to health care.

Inevitably, in the eleventh hour, Congress “fixes” the problem, hence the term “doc fix,” by passing temporary legislation upping the reimbursement rates. It kicks the day of reckoning down the road a few months. Every time the problem resurfaces, the calculated pay cut grows larger to make up for the fixes. When the ritual first began, doctors were facing pay cuts in the range of 5 percent per procedure. By June 2010, it had grown to 21 percent. By December 1, 2010 (the day of reckoning just averted) it had grown to 23 percent. When January 1, 2011 comes around, the scheduled cut will be yet higher.

This “doc fix” ritual cannot be practiced in perpetuity. No amount of temporary patches can obscure the fact that Medicare’s liability continues to mushroom as the population ages and medical technology advances. The latest estimate of that unfunded liability is $37 trillion, or more than twice the current size of the U.S. economy.

Because the money doesn’t exist to fund Medicare’s promises, Medicare has no recourse but to reduce payments to health care providers. Yet the AMA and its allies routinely call for a permanent fix to the legislation calling for cuts in the reimbursement rates. They figure that by improving the formula by which the cuts and their timing are derived, the exodus of physicians from the Medicare system-and the resulting loss of access to health care for seniors-can be avoided.

The AMA and its friends in Washington are in denial. No matter how many pieces of gum they hope to stick in the cracks developing in the dam, they cannot prevent the dam from bursting.

Yet there is a simple short-term solution to the dilemma faced by Medicare, its beneficiaries, and its providers. It’s no substitute for the sort of comprehensive entitlement reform that is badly needed, but it’s a good first step.

Let Medicare providers set their own fees, and end the ban on what’s known as “balance billing.” Prior to the institution of government price controls in the 1980s, Medicare would pay a provider based upon a predetermined fee schedule. Providers were free to bill the patients for the unpaid balance of their fees. Assume, for example, that Medicare would pay $80 for an office visit. A doctor could accept that in full or charge $100 or $120 or whatever to his patients.

Most doctors individualized their balance billing policy. Elderly patients of modest means on fixed incomes would commonly see their balance waived or significantly reduced. Those more financially secure would not. Medicare more closely resembled traditional health insurance. Doctors had more incentive to stay in the Medicare system. Seniors took on a greater degree of responsibility for the cost of their health care. As a result, they also demanded more accountability and were more cost-effective in their utilization of health care dollars. As it stands now, doctors must accept Medicare reimbursements as full payment. To the extent that Medicare is offering below-market rates, doctors leave the system.

If doctors were set free from Medicare price controls by ending the ban on balance billing, then the Medicare administrators would be better able to reduce Medicare’s contribution to provider reimbursement without fear of a physician exodus from the system. The entire SGR debate would become moot. The “doc fix” ritual would end, because the scheduled cuts could take effect rather than being perpetually postponed.

As Medicare beneficiaries pay a greater proportion of the providers’ bills, market forces will ensue. More doctors will go into primary care if they can charge a fair price. And price competition will lead to better choices for senior patients.

Let the scheduled cuts begin. And unshackle the nation’s health care providers. Let them set their own fees and, at their own discretion, bill for the balance after Medicare pays its part.

Medicare price controls are one policy turkey that should not be pardoned.

Jeffrey A. Singer is a surgeon in Phoenix, Arizona. He is treasurer of the US Health Freedom Coalition and was treasurer of Arizonans for Health Care Freedom, sponsors of the Arizona Health Care Freedom Act that passed in this year’s elections. This column first appeared at Reason.com.

The post A Simple Way to Improve Medicare appeared first on Reason Foundation.

Since 2001, the Federal Trade Commission (FTC) and the Department of Justice Antitrust Division have prosecuted 36 IPA groups, representing more than 18,000 physicians, for the crime of “price fixing”-that is, for jointly negotiating with insurance companies. By setting some of their prices on a group level, the theory goes, doctors are illegally colluding in a way that thwarts competition at the expense of insurance companies, other third-party payers, and ultimately patients.

This crackdown goes far beyond the level of business practice and into the realm of free speech. When the feds turned their attention in 2008 to the Boulder Valley Independent Practice Association, a 365-member organization in Colorado, its executive director, Mary Catherine Higgins, took the rare step of protesting in the press that the charges were “false” and “affirmatively disproved.” Higgins was promptly hit with a “consent order” that banned her from individually dealing with any insurance company for two years.

Even Federal Trade Commissioner J. Thomas Rosch, one of the agency’s staunchest advocates of antitrust intervention, found this order disturbing. “I am gravely concerned,” he wrote in February, “that the Commission’s abrupt decision…can be viewed as retaliation for Ms. Higgins’ decision to exercise her First Amendment rights.” This was, the commissioner said, “a sad conclusion to an unnecessarily sordid tale.”

Rosch’s concern for free speech is admirable. But the FTC is systematically depriving physicians of their First Amendment and other constitutional rights, producing “unnecessarily sordid” tales from coast to coast. When antitrust lawyers butt into the private health care industry, rights and common sense go out the window.

Speech Codes for Doctors

Beginning in the 1990s, under President George H.W. Bush and with bipartisan support thereafter, the FTC and DOJ issued a series of “statements” on how they planned to expand health-care industry enforcement of antitrust laws, which until then had been only sporadically applied.

These statements were never debated or adopted by Congress. They never even rose to the level of a “rulemaking,” the usual process of hearings and debate and public comment by which the FTC and other federal government agencies promulgate new regulations. Instead, the statements merely represented the prevailing views of the government’s antitrust lawyers, who decided that IPAs could not negotiate physician reimbursement rates with insurance companies unless the doctors in question were clinically and financially “integrated”-that is, if they coordinated actual patient care and assumed the majority of the financial risk of providing that care. The FTC and DOJ wanted to minimize-to subsidize-the financial risk to insurers. Absent “integration,” the associations were allowed to adopt a “messenger model,” in which they’d relay offers from the payers to the physicians, so long as that conversation only went one direction: Doctors were forbidden from using the IPA “messenger” to deliver a joint price negotiation to insurers.

You may wonder what the FTC was so exercised about. After all, labor unions collectively bargain on behalf of thousands of individuals, and federal law even mandates exclusive union bargaining if a simple majority of employees demands it. In contrast, IPAs are fully voluntary, nonexclusive entities. Physicians can and do belong to multiple IPAs and are free to negotiate with any payer without going through their associations.

Congress created this contradiction by exempting “the labor of a human being” from antitrust laws, thus permitting collective bargaining while excluding similar cooperation among self-employed professionals, such as physicians. The FTC therefore considers individual physicians “competitors,” legally required to act independently unless the commission permits otherwise. Obtaining these permissions is a tricky, unpredictable process.

The three dozen IPAs prosecuted to date have mostly fallen into the same trap: They tried to apply the messenger model, only to have the commission reply, “That’s not what we meant!” Many were acting upon the advice of well-paid attorneys, frequently former FTC and DOJ staffers, who were offering supposed insider expertise on what the 1990s statements did and did not allow. But the meaning of these regulations has depended on the whims of mid-level government lawyers, so conformance has not been easy.

In a February order, the commission complained that the members of another Colorado group, the Roaring Fork Valley IPA, “agreed to refuse and refused to enter into individual contracts with payers,” including major insurers such as Anthem and CIGNA. Specifically, the IPA refused to “messenger” proposed payer contracts offering the same rates of reimbursement as Medicare. Instead, Roaring Fork Valley established its own set of rates, at the behest of its members, and “messengered” those back to the payers. The IPA believed that it should not be forced to tie its private contracts to Medicare, which frequently cuts reimbursements to providers without accounting for their increased costs. The FTC said this “boycott” of Medicare-based pricing constituted price fixing.

Think about this for a moment. The FTC said antitrust law prohibiting price fixing required the association to messenger contracts based on the fee schedule of Medicare, which itself is an instrument of government price fixing. Physicians have ample reason to not want their private-payer reimbursements tied to Medicare rates, since those are set by congressional fiat instead of the market. But in all of its IPA cases, the commission has insisted that Medicare rates are a reliable indicator of “competitive” prices.

More generally-and alarmingly-the FTC is asserting itself as the best arbiter of what business models are appropriate for physicians. IPA prosecutions and settlements are thick with lengthy discussions of how physicians must negotiate their future contracts, and in many cases the chastened associations must pre-clear their subsequent pricing agreements with FTC staff. Although the agency claims to be promoting competition among independent physicians, this “competition” is only permitted through FTC-designed models.

In this heavily circumscribed universe, it doesn’t even matter what the payers want. In the Boulder Valley case, the IPA did engage in some joint contracting, but it did so at the request of the payer, which found that collective negotiations reduced contracting expenses. The FTC still condemned the arrangement as illegal.

FTC orders don’t merely restrict business models. They also ban speech deemed likely to improve physicians’ bargaining position. A standard clause bans the IPA, which is the freely chosen representative of the physicians, from “exchanging or facilitating in any manner the exchange or transfer of information among physicians concerning any physician’s willingness to deal with a payer, or the terms or conditions, including price terms, on which the physician is willing to deal with a payer.” Some orders are even more explicit, stating that the IPA cannot “suggest,” “encourage,” or “advise” a physician to take any action with regard to a proposed contract.

In other words, the FTC/DOJ statements and subsequent orders impose a speech code on doctors. Physicians are prohibited from seeking advice from their colleagues and outside consultants on the best way to deal with payers, because the unrestricted flow of information might improve the doctors’ bargaining position. In 2005 then-FTC Commissioner Thomas Leary complained that IPAs “have the cart before the horse. Their prime focus is on using negotiations and contracts for the purpose of enhancing their bargaining power.” Instead, Leary declared, they should focus on “clinical integration” along federally approved lines.

Government by Consent Order

Cathy Higgins got into trouble after she publicly criticized the FTC order against Boulder Valley Individual Practice Association (BVIPA). In December 2008, the FTC had said her group “actively discouraged” members from signing individual contracts with payers, thus “forcing” insurers to pay higher prices. Higgins and the BVIPA released a statement denying the FTC’s charges. They said payers were offered a number of contracting options, and that in any case, “It is difficult to see how a group of doctors in Boulder County could ‘force’ billion-dollar insurance companies to do anything.” The charges, Higgins concluded, were “not only false, they are affirmatively disproved by unmitigated facts.”

Still, BVIPA did not legally contest the FTC’s charges, signing a “consent order” restricting the speech and contracting rights of the IPA and its members. Higgins was then separately prosecuted and forced to sign an order containing terms under which she “cannot possibly do her job to the fullest extent,” according to Commissioner Rosch, since she could not represent any BVIPA member in negotiations with an insurer for two years.

So why did the association and its chief sign orders based on what they believed to be false charges? “Regrettably,” the group explained in a press release, “the cost of a fight with the FTC in this case is more than the IPA can afford.” That shouldn’t surprise anyone. The FTC is going after small groups with limited financial resources (one targeted IPA had just six members), and the entire process, from investigation through trial and appeal, is controlled by the commission. In theory, an IPA can appeal the regulators’ final decision in federal court, but it can take several years just to reach that stage, and federal law presumes that the FTC’s factual findings are correct. Of the three dozen IPAs prosecuted since 2001, only one has contested the charges.

That lone holdout was North Texas Specialty Physicians (NTSP), a Fort Worth association that spent more than five years fighting the feds. First there was an investigation conducted by FTC staff prosecutors, followed by a trial before an FTC administrative law judge and an appeal to the five FTC commissioners who initially approved the prosecutors, judge, and complaint. After navigating that minefield, NTSP finally was allowed to seek independent review before the U.S. Court of Appeals for the 5th Circuit, which announced in a 2008 decision that it was compelled by precedent to respect the FTC’s experience and judgment.

The association’s offense? It polled its members annually on the minimum rates each would accept for certain contracts. The group then used the poll results to decide which contracts its members were likely to approve and, thus, which it would “messenger.” The FTC deemed this arrangement “horizontal price fixing.”

The courts generally consider price fixing a per se antitrust violation, which means that once the act has been established the commission need not prove it actually harmed consumers or competition. The Texas group wanted to apply the more flexible “rule of reason” standard, under which the group could present evidence in its defense. The FTC and the 5th Circuit opted for an “abbreviated” rule of reason, which amounts to dressing up the per se rule with a flimsy negligee of due process.

The 5th Circuit acknowledged that the commission “did not rely on empirical evidence” in condemning NTSP. Instead it “relied on the theoretical basis for the anticompetitive and procompetitive effects of NTSP’s challenged practices.” The court said the FTC did not even have to show that insurers paid higher prices as a result of NTSP’s member survey; it only had to argue that NTSP gathered and disseminated information that improved its members’ “bargaining power.”

The net effect of the 5th Circuit’s decision was that no IPA is likely to challenge the FTC’s authority any time in the near future. But even signing pre-trial consent orders, as every other targeted IPA now does, carries a substantial cost.

Consider the FTC’s 2002 orders against two Colorado associations and their outside consultant, a woman named Marcia Brauchler. In June 2001 Brauchler, a self-employed sole proprietor working out of her home, was informed she was under investigation for price fixing. First came a demand for documents about her business relationship with the two IPAs: nearly 14,000 pages, reproduced with a rented copier she installed in her living room. (The FTC asked Brauchler to provide these documents “voluntarily,” but refusing would have invited a subpoena, which could only be challenged before the FTC itself.) Next the FTC demanded that Brauchler sign a consent order before she could even see a complaint specifying charges against her. While Brauchler could have suggested narrow, technical changes to the order, the “negotiations” would not allow any deviation from the boilerplate FTC language used against every other IPA. Refusal to sign could have resulted in penalties beyond mere restriction of her business practices: She and her clients could face “disgorgement” of unjust profits to provide “restitution” to their victims.

The “victims” in question were Colorado’s largest insurance companies. During roughly the same time period that Anthem reported a nearly $7 million profit in the state, Brauchler billed a bit more than $33,000 in fees to her two IPAs. (Anthem, incidentally, is the same payer that forcefully lobbied the FTC to crack down even harder on the Boulder Valley IPA.) Despite all the FTC’s hand wringing over physicians’ bargaining power, one of Brauchler’s IPAs noted that its provider contracts covered just 15 percent of the patients in Aurora, Colorado, and no more than 2 percent of the patients in metropolitan Denver. Hardly the stuff of Standard Oil or Microsoft.

Scapegoating and Scaremongering

Insurers realize that the FTC’s enforcement practices give them a huge advantage over physicians in contract negotiations. If the government deems an IPA’s practices anticompetitive, the resulting consent orders allow payers to terminate their existing contracts without penalty and negotiate new ones under more favorable terms. This means insurers can refuse to honor contracts by lobbying antitrust regulators, claiming evil doctors made them agree to unreasonably high rates.

That’s what happened to James Laurenza, a Kentucky-based health care consultant who was managing a New Mexico IPA when he ran headlong into the system in 2004. When Laurenza met with an executive from Cimarron to insist that the HMO honor its existing contract before entering into new agreements with the association’s members, “counsel and myself were shocked that the managed care executive threatened twice to bring the wrath of the FTC upon our small network management company,” he later wrote on his personal website. Cimarron followed through on its threat, and the FTC forced Laurenza and the IPA to repent for their “refusal to deal” with the HMO on its terms.

So far congressional efforts to stop FTC bullying have been unsuccessful. In June 2000 the House passed a bipartisan bill, introduced by then-Rep. Tom Campbell (R-Calif.), that would have afforded IPAs the same antitrust exemption as labor unions when they negotiate joint contracts with payers. The measure died in the Senate.

The bill has been reintroduced in the House in every succeeding Congress by Rep. Ron Paul (R-Texas), himself a physician. In a 2003 letter to then-FTC Chairman Timothy Muris, Paul criticized the agency’s prosecution of Southwest Physicians Associates, a Texas IPA, based on its refusal to continue following a commission-approved contracting model that resulted in substantial losses. “Am I to conclude the FTC expects doctors to adhere to money-losing business models rather than exercise their protected right to free association,” Paul wrote, “and that this is somehow in the public’s interest?”

As Paul noted, the problem isn’t price-fixing doctors but “government policies [that] have enforced over-reliance on third party payers.…To suggest that when groups of physicians combine to negotiate contracts with HMOs, they distort an otherwise free market, betrays a misunderstanding about the current health care industry.”

The FTC has opposed any congressional effort to end its physician prosecution racket. At a 1998 hearing on the exemption bill before the House Judiciary Committee, Campbell, himself a former FTC official, said it was ridiculous that “three eye doctors in Elgin, Illinois,” could have lunch together to discuss an HMO contract and get a letter from the FTC claiming they violated the Sherman Act, while every steelworker in Gary, Indiana, could go on strike without penalty. Then-FTC Chairman Robert Pitofsky responded with his own horror scenario: “All of the doctors in Elgin, Illinois, get together over lunch and say, ‘We are not making enough money, our kids are going to expensive colleges, and we are not driving the luxury car we prefer. Let’s go to this one HMO that is committed to cost containment, and we’ll say we are going on strike. Unless you pay us twice as much money, we are going on strike. We are not going to take care of people in your organization.’ ”

Such scaremongering is especially comic given that the FTC’s own intervention in health care markets raises costs-by forcing physicians to retain antitrust counsel-without any evidence of consumer benefits. The commission can’t point to any data or independent studies that show its IPA prosecutions reduce prices or improve the quality of patient care. Nor does the agency ever consider the costs of complying with its investigations and orders. Ultimately, there’s no demonstrable link between prosecuting IPAs and controlling health care costs. If anything, by making it more difficult for physicians to contract with insurers, the FTC may actually be driving physicians out of the marketplace altogether, which is certainly bad for consumers.

The Feds Reach Further

The FTC’s health care appetite isn’t restricted to a diet of IPAs. In 2008, after a two-year investigation, the agency challenged a proposed partnership between Prince William Hospital in Manassas, Virginia, and the larger Inova Health System. Although these were nonprofit hospital groups, the FTC had no qualms about subjecting them to one of the longest merger reviews in commission history, ultimately costing Prince William Hospital nearly $250 million in proposed capital investment from Inova, forcing both hospital groups to rack up legal bills of more than $15 million, and damaging Prince William Hospital’s credit rating.

In this case, Commissioner Rosch proved to be the villain, not the civil liberties champion he played in the Cathy Higgins case. Rosch personally oversaw the staff investigation of the hospital merger. The commission’s administrative law judges had recently exhibited a streak of independent thought in rejecting some key antitrust complaints, so he arranged to have himself appointed to sit as trial judge. Rosch insisted that he was the most qualified arbiter (in fact, he had never been a judge of any type) while laughably maintaining that he would be impartial. In fact, Rosch himself had personally supervised the staff’s investigation of the merger, which led to the decision to issue a complaint in the first place. The hospitals saw right through this, decided the process was rigged, and dropped their two-year-old merger plans. (Prince William Hospital later found another merger partner that met with the FTC’s approval.)

The worst is probably yet to come. While efforts to protect physicians have languished in Congress, the House recently passed legislation that would revoke the insurance industry’s limited antitrust exemption, in effect rewarding the FTC with expanded jurisdiction. This will add an additional layer of antitrust review-state antitrust laws already apply to insurers-that, according to the Congressional Budget Office, could lead to an increase in insurance premiums.

And the new Patient Protection and Affordable Care Act only puts more pressure on physicians to accept across-the-board price controls. If they refuse, they won’t just have to worry about the FTC. In May, the Justice Department’s Antitrust Division entered the physician-prosecution racket, joining the Idaho attorney general against a group of Boise orthopedists. The physicians were charged not just with illegally rejecting an insurance company’s contract offer but also refusing to accept patients under Idaho’s worker’s compensation system. That system, however, requires all participating doctors to accept a uniform fee schedule adopted by the state’s commissioners-in other words, government price controls. Still, the DOJ insists it was the physicians, not the state, who suppressed competition.

Although the Idaho case resulted in a civil settlement, physician groups must now be on alert for possible criminal liability. There’s no statutory distinction between civil and criminal price fixing, and the DOJ can easily convert a civil settlement into a criminal plea bargain-complete with multimillion-dollar fines and jail time for individual physicians and cartel “ringleaders” like Cathy Higgins and Marcia Brauchler.

Criminalizing physician-insurer contract negotiations would be unjust, ineffective, and disastrous for patient care. The Justice Department now also has the authority to seek wiretaps in antitrust cases, meaning the FBI could listen in even on privileged doctor-patient calls. Cracking down on the collective bargaining of self-employed doctors will do nothing to reduce rising health care prices, while serving to dampen the competition the government claims to defend. Such are the perils of letting routine contract negotiations become subject to the whims of federal lawyers.

S.M. Oliva (smoliva@inbox.com) is a writer and paralegal living in Charlottesville, Virginia. This column first appeared at Reason.com.

The post Doctors appeared first on Reason Foundation.

Yet loud critics of big government-especially but not only Republican politicians-are often reduced to an awkward stammer when put on the spot by the all-important question, “So what would you cut?” Well, stammer no more.

Consider the following a Halloween-themed cheat sheet for explaining who, what, where, when, and why whole swaths of government need to be cut or euthanized outright, so that taxpayer money is spent more productively, the remaining government services perform better, and the United States can finally begin its long slow climb toward solvency.

We’ve asked analysts from the nation’s capital and around the world to offer tips and tricks for fighting off the cold, cold monster that is the state. The suggestions below are intended not as a last word but as a starting point: As in any good slasher movie, the savvy viewer will soon see potential victims everywhere.

Overhaul Medicaid

Imagine a government-run health care program that limits medical access for millions of patients, is racked by uncontrollably rising costs, and in many instances produces health outcomes demonstrably worse than having no insurance at all. The program exists, and it’s called Medicaid.

Created to provide aid to the country’s poorest and sickest individuals, the joint federal-state program was initially intended as a low-cost bulwark against further government intervention in the health care system. In 1965, its first year in operation, the program cost about $9 billion in inflation-adjusted dollars. But instead of heading off further government intervention, it became the vehicle for much of the government’s expansion into the health care sector. Between 1970 and 2000, the program grew from $29 billion to $250 billion in 2010 dollars.

This year the Department of Health and Human Services expects the total cost of Medicaid to top half a trillion dollars. And according to the National Association of State Budget Officers, it will account for more than 20 percent of total state spending. Medicaid outspends all other welfare programs combined, and, if not for the Medicare prescription drug benefit, it would already be more expensive than any other entitlement.

What do we get for all that money? Not much. Recent studies at the University of Virginia, the University of Pennsylvania, and Columbia University and Cornell indicate that in cases involving colon cancer, vascular disease, and several other maladies, Medicaid’s health outcomes are frequently worse or no better than the outcomes for individuals who lack health insurance entirely. Yet 46 million Americans are enrolled in the program-a figure that is projected to increase by 16 million over the next decade, thanks to ObamaCare.

Shuttering the program remains politically infeasible, and ObamaCare’s reliance on Medicaid to expand health coverage has dimmed the prospects for reform. But states could opt out of the technically voluntary program, and the rapidly deteriorating fiscal outlook of both Medicaid and the country means an overhaul may become necessary long before politicians build up the courage to tackle it.

The first step is to stop the matching grant funding process, in which states receive federal money for each Medicaid dollar they spend-creating an incentive for ever greater spending. Instead, the program should be funded by federal block grants indexed to the rising cost of health care. Better yet, scrap the program entirely in favor of a temporary assistance program that doesn’t create long-term dependency. That may sound radical, but the alternative is to perpetuate the ugly and unsustainable status quo, in which we devote ever more resources to a program that fails both taxpayers and patients.-Peter Suderman

Bring the Troops Home

You can’t make a serious dent in government spending without tackling the military budget. And the quickest way to reduce Pentagon spending is to end, as fast as physically possible, our ongoing occupations of Iraq and Afghanistan.

So far those two wars have cost well over $1 trillion-on par with this year’s federal budget deficit-almost all of it spent through off-budget, fiscally reckless “emergency” supplemental bills that smuggled in all sorts of nonemergency weapons pork and social programs. And if the wars had never been fought we could have saved something more precious than taxpayer money-tens of thousands of human lives.

We don’t know how long the wars will last if we don’t withdraw now, so we can’t say for sure how much a swift and total deoccupation would save. President Barack Obama has promised a wind-down in Iraq that would reduce troop levels to 50,000 by 2011 and zero by 2012, but there are already signs the timetable will be pushed back. If Obama lived up to his plans, Brookings Institution analyst Michael O’Hanlon reckons, they probably would save “$50 billion to $70 billion in fiscal 2011 and perhaps $80 billion to $100 billion a year in 2012 and beyond.”

According to the government’s back-of-the-envelope numbers, deploying one warrior for one year costs about $1 million. Congressional Budget Office projections for the 2012-2020 costs of both wars range from $274 billion to $588 billion-and both estimates assume we will be winding down troop numbers significantly, which may or may not happen.

Even if we stop the wars now, the expense won’t stop. As National Bureau of Economic Research economist Ryan Edwards noted in a July study, “Historically, the peaks in total benefits [paid to war veterans] have lagged the end of hostilities by 30 years or more, meaning the maximum effect on annual budgets…might not be felt until 2040.” It’s too late to do anything about that for our thousands of already wounded vets and their families. Given the dubious benefits and indisputable costs of these continuing occupations, we should immediately stop adding to their ranks. –Brian Doherty

Erase Federal Education Spending

In August the Obama administration gave the states a $10 billion bailout to save teachers’ jobs -even though the Bureau of Labor Statistics indicates that teachers aren’t losing them. After 30 months of recession, local education employment has suffered less than a 1 percent decline. In fact, education hires rose in 21 states between 2009 and 2010. By contrast, the private sector saw a 6.8 percent decline in employment.

In addition, the president has proposed a $78 billion education budget for 2011, a whopping $18.6 billion more than in 2010. Federal education spending has increased by close to 80 percent in real terms since 2001, but test scores in reading and math among 17-year-olds have been flat since 1971, according to the National Assessment of Education Progress.

Politicians have talked for a long time about eliminating the Department of Education. While this remains an excellent idea, there is plenty of low-hanging fruit that can be plucked immediately.

The feds’ largest education program, Title I, which costs $16 billion a year, has failed to come anywhere close to its goal of helping disadvantaged kids in high-poverty schools close the achievement gap. Head Start, at $8 billion annually, duplicates many other federal, state, and local early education programs without adding to their effectiveness; a January 2010 gold-standard study by the Department of Health and Human Services found that by first grade not one of more than 114 academic and behavioral tests indicated a reliable, statistically significant effect from participating in Head Start. The $1.2 billion in funding for 21st Century Community Learning Centers that provide after-school care should be eliminated too. There are many duplicative after-school programs, and these are not a high priority to improve educational achievement.

The $2 billion for various “adult education” programs should also be cut. Community colleges can serve adult education needs and are already funded through Pell grants and federal student loans.

These are just a few examples; the federal education budget is full of cuttable programs. If eliminating the entire Department of Education is politically impossible, then the programs with the most tenuous relationships to raising student achievement need to be the first to go.-Lisa Snell

Slash State Budgets

As usual, governments have been slower to adjust to harsh economic realities than the rest of us. The private sector shed nearly 8.5 million jobs during the recession, while governments at all levels actually added more than 100,000 employees, as of December 2009. This growth ensures that state governments will be struggling to balance budgets long after any private-sector recovery is under way. And it means that they will continue to come begging to the federal government-and their own taxpayers-to cover the shortfall.

In a July report, the National Conference of State Legislators determined that the states face a collective budget gap of $84 billion for fiscal year 2011, with 24 states reporting deficits of at least 10 percent of their general fund budgets. In a June report, the National Governors Association and the National Association of State Budget Officers estimated that the cumulative state budget deficits for fiscal years 2009 through 2012 would be $297 billion. Only $169 billion of that sum has been processed to date, leaving at least $128 billion in deficits that must be tackled over the next couple of years. Yet despite a decline in federal stimulus funds and continued lagging revenues, governors’ recommended budgets for fiscal year 2011 forecast a 3.6 percent increase in general fund expenditures.

States blame the recession for their fiscal problems, and the economy certainly did not help matters, either in tax revenues or in demand for services. But the correction merely revealed that lawmakers have been living way beyond their means for far too long.

One useful metric of good fiscal stewardship is the comparison of spending growth to the increase in population plus the increase in the cost of living, as measured by the Consumer Price Index. During the comparative good times of 2000 to 2008 (the most recent date for which the necessary numbers are available), the national population increased 8 percent and CPI inflation rose 25 percent, for a baseline spending-growth number of 33 percent. Yet actual combined state spending skyrocketed 60 percent. Bringing annual spending increases down to the rate of inflation plus population growth is a minimal first step, although that probably will be impossible without defusing the public pension bomb.-Adam B. Summers

End Defined-Benefit Pensions

The funding shortfall of public employee pensions at the state and local level exceeds $500 billion. Annual pension contribution costs have grown exponentially in the last decade from coast to coast. There is a simple way out of this government-manufactured mess: bankruptcy. As the city of Vallejo, California, discovered in 2009, bankruptcy protection can provide an avenue for governments to renege on their crushing pension commitments.

Unfortunately, the bankruptcy option is available only to cities and counties, not states or the federal government. And public employee unions in California and elsewhere are working time-and-a-half to change bankruptcy laws to stop future Vallejos from declaring insolvency, or at least to rig the settlement terms to labor’s benefit.

So what are the realistic solutions? California gubernatorial candidate Meg Whitman has a good idea: end defined-benefit contributions-in which taxpayers, rather than the employees, fund retirement plans-for all new government hires. Instead, public servants of the future should be put into 401(k) plans like the rest of us, with responsibility to contribute to and manage their own retirement nest eggs.

What about existing employees? The payouts contractually promised to employees at the time of hiring are devilishly hard to roll back. But there is wiggle room at the front end, with the option of requiring public workers to fund more of their own accounts. This doesn’t get governments to parity with the private sector, where defined-benefit plans are all but extinct. But it takes some of the immediate pressure off taxpayers. As the American people grow increasingly angry at gilded public-sector compensation, California Gov. Arnold Schwarzenegger succeeded in getting a handful of unions to accept increases in the percentage that employees contribute to their own plans, and similar proposals are gaining a foothold around the country.

Neither of these solutions will solve the looming shortfall, which ultimately will be filled in with taxpayer bucks. But they are steps toward bringing the era of defined-benefit pensions to an end.-Tim Cavanaugh

Declare Defeat in the Drug War

As Sting recently observed, channeling John Stuart Mill, the war on drugs by its very nature tramples on “the right to sovereignty over one’s own mind and body.” It also squanders taxpayer money while causing far more harm than it prevents.

To enforce drug prohibition, state and federal agencies spend more than $40 billion and make 1.7 million arrests every year. This effort wastes resources that could be used to fight predatory crime. But the direct taxpayer costs are only part of the story. While imprisoned (as half a million of them currently are), drug offenders cannot earn money or care for their families, which boosts child welfare costs. After they are released, they earn less than they otherwise could have-roughly $100,000 less over the course of their working lives, according to Harvard sociologist Bruce Western. These losses add billions more to the annual drug war tab.

The Office of National Drug Control Policy estimated that Americans spent $65 billion on illegal drugs in 2000, the equivalent of more than $80 billion today. Comparisons between legal and illegal drugs suggest that as much as 90 percent of that spending is attributable to prohibition’s impact on drug prices, meaning that legalization would make tens of billions of dollars available for other purposes each year. Some of those savings probably would be sucked up by drug taxes, which Harvard economist Jeffrey Miron estimates could generate nearly $50 billion a year in government revenue.

Lower prices also would dramatically reduce the incentive for heavy users to finance their habits through theft. In a 1991 survey, 10 percent of federal prisoners and 17 percent of state prisoners reported committing such crimes. Since stolen goods are sold at a steep discount, the value of the property taken to pay for drugs is several times higher than the artificially inflated cost of drugs.

Other problems associated with prohibition are harder to quantify in dollars, including official corruption, the erosion of Fourth Amendment rights and other civil liberties, interference with religious rituals and medical practice, terrorism subsidized by drug profits, deaths and injuries from tainted or unexpectedly strong drugs, and the prohibition-related violence that has claimed 28,000 lives in Mexico since 2006. The pervasive demands of the futile crusade against an arbitrarily selected set of intoxicants have made all of us, whatever our taste in psychoactive substances, less free, less wealthy, and less safe.-Jacob Sullum

Cancel the Federal Communications Commission

The Federal Communications Commission (FCC) oversees everything from TV and radio to wireless phones and Internet connections. But none of these tasks is a core government function. From regulating speech to subsidizing broadband, just about everything the FCC does is either onerous, constitutionally dubious, ineffective, or all three.

Take its role as broadcast censor: Under a policy that was recently overturned by a federal appeals court, the agency has spent decades enforcing an arbitrary, inscrutable code governing what speech and images are acceptable on the public airwaves. Are four-letter words forbidden or not? Which ones? And when? What about breasts or bottoms, or lower backs? Does it matter if the context is medical, accidental, or unattractive?

The FCC’s answer to all of those questions is yes, no, maybe, or all three, depending on whether the words and pictures in question meet its definition of “indecency.” But that test is performed using guidelines that are clear as mud: “An average person, applying contemporary community standards, must find that the material as a whole appeals to the prurient interest.” Naturally, judgments about who counts as an average person and what constitutes a “contemporary community standard” are left entirely to the commission’s whim.

Yet the FCC is bent on expanding its reach whenever and wherever possible. The agency’s recent actions include investigating the approval process Apple uses for its iPhone App Store, mulling whether and how phone companies might upgrade their networks, and passing regulatory judgment on various consumer devices of minimal importance. Many of its recent efforts have been focused on finding ways to regulate Internet traffic.

When the FCC was launched in 1934, backers argued that its existence was justified by airwave scarcity. In an age of information overload, with a wide array of media choices available to anyone with a mobile phone or broadband connection, no such argument can credibly be made. Yet rather than shrinking, the agency has ballooned, growing its budget by more than 60 percent between 1999 and 2009 in nominal terms. To what end? And at what cost to the private sector?

In addition to the agency’s $338 million budget, a 2005 study by economist Jerry Ellig estimated FCC regulations hit consumers with up to $105 billion a year in additional costs and missed services. Rather than facilitate communications technology, the agency has made America’s consumer electronics offerings substantially more expensive.

The best alternative is a world in which spectrum is freely tradable private property rather than a government-managed resource, interference is treated as a tort, and no one worries about whether their next on-air word will result in a seven-figure fine-in other words, a world with no FCC at all.-Peter Suderman

Uproot Agriculture Subsidies

Farm subsidies and price supports offer something for people of all political stripes to hate. They distort markets and spark trade wars. They make food staples artificially expensive, while making high-fructose corn syrup-the bogeyman of crunchy parents, foodies, and obesity activists everywhere-artificially cheap. They give farmers incentives to tamper with land that would otherwise be forest or grassland. They encourage inefficient alternative energy programs by artificially lowering the price of corn ethanol compared to solar, wind, and other biomass options. School lunches are jammed full of agricultural surplus goods, interfering with efforts to improve the nutritional value (and simple appeal) of the meals devoured by the nation’s chubby public schoolers.

Enacted in the 1930s as temporary emergency measures in a time of scarcity, subsidies of such staple crops as corn, wheat, and soy have managed to survive into the current era of abundance. Congress hands about $20 billion a year in direct farm support payments to a small group of powerful agricultural companies, while American consumers and firms double that amount in inflated prices at the supermarket, restaurant table, and even at the gas pump.

Challenge agricultural subsidies on Capitol Hill, and you’ll get a song and dance about America’s endangered family farmers. But farm welfare goes overwhelmingly to large corporations. (Those cuddly fruit and vegetable growers at the farmer’s market are virtually all ineligible for federal aid.) Congress reauthorizes the farm bill every five or six years, so in 2013 there will be another chance to set this wrong right. The only people harmed by phasing out farm subsidies would be a few big agribusiness firms and a bunch of congressmen who rely on their campaign donations. The beneficiaries would be farmers in less developed countries-and pretty much everyone else who eats.-Katherine Mangu-Ward

Unplug the Department of Energy

On April 18, 1977, four months into his new administration, President Jimmy Carter delivered a somber speech in which he declared the “moral equivalent of war” on the “energy crisis.” The centerpiece of Carter’s energy policy was
the creation of a new Department of Energy (DOE), which would implement sweeping proposals to transform the way Americans produced and used energy. Just four months later, the new department, centralizing some 50 scattered federal energy agencies, was approved by Congress.

One of the chief functions of the department was to administer price controls on oil and natural gas. The DOE would also dispense billions of dollars in research and development subsidies aimed at jump-starting alternative energy technologies such as coal gasification and solar power.

So what about the DOE today? In 2010 more than half of the department’s $26 billion budget ($16 billion) was devoted to managing the federal nuclear estate, which consists mostly of facilities that make and dispose of materials used for nuclear weapons. The next biggest chunk of DOE funding, $5 billion, is targeted at that old standby, energy R&D. But payoffs on government-supported research have not been impressive. Three previous programs costing a couple of billion dollars failed to produce automobiles that ran on electricity (1992), hydrogen (2003), or gas at three times the efficiency (1993).
And despite a total of $16 billion in subsidies over the years, solar electricity still costs between three and four times more than fossil fuel electricity.

Federal energy price controls were mercifully lifted in the 1980s. But the DOE continues to perform tasks better left to other players. Cleaning up after nuclear weapons is costly and will
be necessary for a long time. Why not let the Pentagon handle that problem? Private-sector energy R&D is moribund because energy production and distribution is the most heavily regulated segment of our economy, but federal R&D subsidies have utterly failed as a substitute for competition and the lure of profits. If Congress and the White House must pursue the development of alternative energy via social engineering, a far more effective alternative to allowing DOE bureaucrats to pick technology “winners” would be a tax on conventional energy. The boost in energy prices would at least encourage inventors and entrepreneurs to get to work.

In 1982 President Ronald Reagan called for abolishing the DOE. The Republican congressional “revolutionaries” in 1994 promised to end it as well. As late as 1999, bills were introduced in the House and Senate to eliminate it. And yet the beast lives on. Thirty-three wasteful years after Carter’s speech, we’re still wasting energy (and money) on the Department of Energy. Enough is enough.-Ronald Bailey

Dismantle Davis-Bacon

For nearly 80 years, contractors working on federally funded construction projects have been forced to pay their workers artificially inflated wages that rip off American taxpayers while lining the pockets of organized labor. The culprit is the Davis-Bacon Act of 1931, which requires all workers on federal projects costing more than $2,000 to be paid the “prevailing wage,” which typically means the hourly rate set by local unions.

Davis-Bacon was born as a racist reaction to the presence of Southern black construction workers on a Long Island, New York, veterans hospital project. This “cheap” and “bootleg” labor was denounced by Rep. Robert L. Bacon (R-N.Y), who introduced the legislation. American Federation of Labor President William Green eagerly testified in support of the law before the U.S. Senate, claiming that “colored labor is being brought in to demoralize wage rates.” The result was that black workers, who were largely unskilled and therefore counted on being able to compete by working for lower wages, were essentially excluded from the upcoming New Deal construction spree.

The legislation hasn’t come cheap for taxpayers. According to 2008 research by economists at Suffolk University, Davis-Bacon has raised the construction wages on federal projects 22 percent above the market rate. James Sherk of the conservative Heritage Foundation estimates that repealing Davis-Bacon would save taxpayers $11.4 billion in 2010 alone. Simply suspending Davis-Bacon would allow contractors to hire 160,000 new workers at no additional cost, something that should appeal to a jobs-obsessed Congress and White House.

Yet the Obama administration extended Davis-Bacon via the American Recovery and Reinvestment of Act of 2009, also known as the stimulus. Asked to clarify how the old rules applied to the new money, the Department of Labor declared that Davis-Bacon now applies to all “projects funded directly by or assisted in whole or in part by and through the Federal Government.”

In other words, even projects that are only partially funded by the stimulus must obey these costly requirements. With the economy floundering, the last thing taxpayers need is a rule that makes construction projects cost even more.-Damon Root

Repeal the Stimulus

Government inefficiencies sometimes pop up in surprising places. For instance, in spending money quickly. You’d think Washington bureaucrats, of all people, could figure out how to inject $794 billion in stimulus money into the economy, but as of early September, 18 months after the stimulus was passed, an estimated $301 billion remained unspent.

That money should be banked, not wasted. While more than half of those funds are already promised to specific programs, they could be rescinded because the projects haven’t begun yet.

If you believe the administration’s stimulus tracking website, Recovery.gov, stimulus projects had created 749,142 jobs as of June 30. In related news, unemployment has increased 1.3 percentage points since the stimulus was signed into law, from 7.7 percent then to 9.5 percent in July 2010. If you include underemployed workers, the overall rate of unemployment a year and a half after the stimulus was 16.5 percent, compared to 14 percent before. And a year and a half after approval of a stimulus that was supposed to create or save 3 million jobs, the labor force had contracted by nearly 850,000 people-individuals who aren’t counted in the unemployment numbers because they have given up hope of finding work anytime soon.

The president attributes much of the nation’s GDP growth to the stimulus spending. But there is no objective evidence to back up his claims. The only way you can tweak the numbers to show a significant stimulus contribution would be to assume, not demonstrate, a very high multiplier-the amount of economic activity generated by each government dollar. That’s what the administration does, but more honest economists do not.

Less partisan analysis shows that deficit spending has crowded out private investment. Harvard economist Robert Barro recently estimated that the $794 billion stimulus will shrink private investment in the economy by $900 billion. Whatever local benefits stimulus spending has created have been negated by a contraction of private-sector growth elsewhere.

Not only has the government largely replaced what the private sector could have done, but investors are cutting back on expenditures as they prepare for increased taxes. Given Obama’s declared intention to end the tax cuts of 2001 and 2003, plus various increases woven into health care reform, investors are justified in their
fears.

But all is not lost. A quick, merciful end to the dysfunctional stimulus program could save as much as $300 billion, taking a sizable chunk out of the projected $1.5 trillion deficit.-Anthony Randazzo

Spend Highway Funds on Highways

Congestion causes gridlock on urban expressways, costing an estimated $76 billion per year in wasted time and fuel. The 50-year-old Interstate highways are starting to wear out and will need reconstruction costing hundreds of billions of dollars. The funding shortfall just to maintain the Interstate Highway System at a decent level is $10 billion to $20 billion per year.

The federal Highway Trust Fund was created in 1956 with a promise that all proceeds from a new federal gasoline tax would be spent on building and maintaining the interstate highways. But Congress reneged on the deal. First it extended federal aid to all sorts of other roadways. Next it allocated 20 percent of those “highway user taxes” to urban transit. Today a quarter of the total is used for such nonhighway purposes, including sidewalks, bikeways, recreational trails, and transportation museums.

So the Highway Trust Fund is effectively broke, spending more than what comes in from gas tax revenues. To some, the remedy is a big increase in those taxes. But why not revive the original deal?

Libertarians typically reject any role for the federal government in highways, urging a complete devolution to the states and the private sector. But even if you agree that a seamless national superhighway network should be federal, lesser highways should all be the states’ problem. And sidewalks, transit, and bikeways, needless to say, are local issues.

Simply reviving the original users pay/users benefit principle of the Highway Trust Fund could save the money spent on central planners’ pet projects while still allowing the authorities to maintain the system’s infrastructure. Indeed, the current federal fuel tax would permit an additional $10 billion a year in interstate highway investment. Combined with the selective use of tolling and other forms of road pricing, this change could slash urban traffic congestion as well, unlocking billions of dollars in economic productivity.-Robert Poole

Privatize Public Lands

The U.S. Forest Service owns more than 156 million acres west of the Mississippi River-an area nearly the size of Texas-making it one of the largest landowners in the West. Letting the states manage this land instead would take up to $5 billion a year off the federal books. It would also devolve decisions about how to use the land to officials who are more accountable to local citizens, be they environmentalists or businessmen.

Deficit-riddled states are certainly in no position to purchase this land outright today, but a payback period of 25 to 30 years (as with a standard home mortgage) could make these deals feasible. Once in state hands, some land could be sold off or put to better uses, though there would still be political pressure to keep large portions of it undeveloped. And states could choose to partner with the private sector.

Private companies currently operate the commercial activities-lodges, shops, restaurants, and the like-in such treasured national parks as the Grand Canyon, Yosemite, and Yellowstone. Similarly, the Forest Service makes extensive use of concessionaires to operate and maintain complete parks and campgrounds more effectively and efficiently than government.

States could use this model to take on new park lands without absorbing them into their budget. One Forest Service contractor in Arizona recently offered to take over six state parks targeted for closure amid budget cuts. The concessionaire would collect the same visitor fees the state charges today while taking the operations and maintenance costs off the state’s books entirely. Further, the company would pay the state an annual “rent” based on a percentage of the fees collected, turning parks into a revenue generator instead of a money eater.

Devolving federal land to states could begin with pilot programs in select states to test the model and refine best practices. Once perfected, the process could be extended throughout the Forest Service and then replicated in the Bureau of Land Management, which owns roughly the same amount of Western land and costs taxpayers another $1.1 billion a year.-Leonard Gilroy

End (or at Least Audit) the Fed

At the height of his 2009 P.R. offensive against the audit-the-Fed bill sponsored by Rep. Ron Paul (R-Texas), Federal Reserve Bank Chairman Ben Bernanke warned that opening the Fed’s books would diminish the central bank’s political independence and “could raise fears about future inflation, leading to higher long-term interest rates and reduced economic and financial stability.”

The audit-the-Fed and end-the-Fed movements have lost some steam since that time, and the Federal Reserve Transparency Act of 2009, which has 320 House co-sponsors, died a quick, quiet procedural death in the Senate. But the chairman’s words are worth remembering-because if there’s one thing that needs raising, it’s fear about future inflation.

The Fed more than doubled the monetary base in 2009. The depth of the deflationary spiral (primarily in real estate), a continuing “liquidity trap,” and a novel policy in which the central bank has begun paying private banks interest on their reserves have so far kept all that new money from causing significant price inflation. But the massive infusion of cash has also failed in its ostensible purpose of jump-starting economic activity. By keeping its foot on the gas, the Fed is already blazing a path toward a repeat of its disastrous behavior after 2001, when the central bank responded to the deflated tech bubble by creating an even more destructive housing bubble.

The Fed is the biggest bastion of central planning in the American economy, and eliminating it would both move us toward a freer market and remove history’s most powerful enabler of government waste. If that’s politically impossible, auditing the Fed would at least peel away the bank’s veneer of inscrutable wizardry to reveal the feckless dithering at the heart of U.S. monetary policy.-Tim Cavanaugh

Lisa Snell, Adam B. Summers, Anthony Randazzo, Robert Poole, and Leonard Gilroy work for the Reason Foundation, the nonprofit 501(c)3 that publishes this magazine. Versions of some of these pieces were originally published in The Washington Times. This column first appeared at Reason.com.

The post How to Slash the State appeared first on Reason Foundation.

In The Future and its Enemies (1998), Postrel tossed aside the traditional left-right paradigm and posited a new post-Cold War divide between “dynamists” and “stasists,” in which the former championed choice and creativity and the latter clung to fear and control. In The Substance of Style (2003), she unpacked the economics of design and offered an appreciation of the Age of Aesthetics. And when she donated her own kidney to a woman on the organ waiting list in 2006, Postrel introduced tens of thousands of people to the once radical idea of organ markets in a way no academic treatise ever could. In each of these cases, those who encounter Postrel’s work will never look at the subject the same way again.

In 2009 Postrel launched a new website called Deep Glamour to probe (as its motto says) the “intersection of imagination & desire.” In a typically eclectic selection from March, the site discussed female body image, the universal hatred for Oscar speeches, the power of nonverbal rhetoric, and whether cuteness and glamour can co-exist. By changing the way we think about glamour, Postrel is helping us better understand, among other things, the allure and frustration of the current American president.

Now 50, Postrel has spent her post-reason career writing for The New York Times, The Atlantic Monthly, and her popular personal blog (vpostrel.com/weblog). reason.tv producer Ted Balaker caught up with Postrel last February in Los Angeles, where she returned in 2007 after living for several years in Dallas. You can watch an edited video of this interview at reason.tv.

reason: Tell us about DeepGlamour.net.

Virginia Postrel: DeepGlamour.net explores glamour in its many manifestations. We write essays; it’s not a street fashion blog or something like that. My view of glamour is that it is not a style, it is not just about movie stars, and it is in fact a powerful form of visual rhetoric and persuasion, an imaginative process like humor that takes place between an audience and an object. It takes many different forms, depending on the audience and what they find glamorous-the cultural context.

reason: You’ve called glamour a beautiful illusion. A lot of people would say that describes President Obama.

Postrel: Yes, President Obama is a very glamorous figure. Glamour is a particular form of illusion. It’s an illusion that tells a truth about the audience’s desires, and it requires mystery and distance. During the campaign people projected onto Barack Obama whatever they wanted in a president or even in a country. Lying is usually a bad thing, but they would project onto him that he was lying about his positions because he secretly agreed with them: “Anyone that smart has got to be a free trader at heart. He’s just saying this to pander to those idiots. He can’t really mean it.”

You’ve seen, as he’s taken office and tried to govern, this back and forth where he is consciously or unconsciously trying to maintain his glamour-which requires a kind of distance from the political process so that people can continue to see him as representing them, regardless of their contradictory views-while actually trying to be president, which means you have to decide what to do about Guantanamo. You have to decide what health care bill you’re going to back. You have to decide all these things, and you’re going to make somebody disillusioned. This morning I saw that the former editor of Harper’s is about to write a book, The Mendacity of Hope, attacking Obama from the left. That’s the power and the downside of glamour.

reason: I’m going to read you something you wrote in an April 2008 column: “Obama’s glamour gives him a powerful political advantage, but it also poses special problems for the candidate and, if he succeeds, for the country.” Can you explain what you meant and how it has played out?

Postrel: The flip side of glamour is horror. People say, “Oh, there’s something he’s hiding. It must be something terrible.” They say “he’s secretly a radical Muslim” or “he’s secretly really born in Kenya.” As opposed to saying he has policies that are bad for the country. So that is one type of disadvantage.

The other is the one that I just talked about, which is that there is always this capacity for disillusionment. People have projected so much of what they think, including things that are sort of impossible, onto a glamorous figure, that when any flaw shows up the glamour is dispelled and suddenly he becomes terrible.

reason: Is glamour bad for a president seeking re-election, after people have realized he couldn’t possibly live up to all of our hopes?

Postrel: There were two glamorous presidents in my lifetime besides Obama. The first was JFK, and he dealt with this problem by getting killed. That was something I didn’t want to mention in an article about Obama. There were lots of problems in the Kennedy administration and lots of secrets that were being hidden that came out later. But because he was assassinated, the glamour stayed.

The other glamorous president of my lifetime, I would argue, was Ronald Reagan. And he managed to govern because he actually did stand for some specific ideas that brought a broad consensus of supporters together. He was still a figure of distance and mystery, to the extent that his authorized biographer, who followed him around for years, was unable to get at what the man was really like and wrote a semi-fictionalized biography with fake characters. But there was a core of identifiable beliefs that enabled him to govern and to maintain this sort of glamour, particularly to the Reagan coalition. Libertarians would say, “well, he’s really more libertarian,” and social conservatives would say, “well, he’s really more socially conservative.” But he did have specific beliefs that held those people together. They didn’t hold together so well after him.

reason: Is Sarah Palin glamorous?

Postrel: That’s a really interesting question. I think Palin does have some of that frontierswoman, multicompetent sort of glamour to her, but I think she’s not primarily a glamorous figure. She’s too familiar. In fact, for people who like her, it’s her familiarity, her ordinariness-she’s an extraordinary version of an ordinary person-that’s appealing. And that’s not glamorous; it’s a different kind of appeal. It’s like the appeal of Sandra Bullock vs. the appeal of Angelina Jolie or Grace Kelly. She’s more the girl next door.

reason: About a year ago you wrote an article called “My Drug Problem” in The Atlantic. It was very controversial. Can you talk about the main point you made in the article and why readers responded so strongly to it?

Postrel: In 2007 I was diagnosed with a particularly aggressive form of breast cancer called HER2 positive, for which there is what can only be called a miracle drug called Herceptin. Given the particulars of my case, the existence of Herceptin cut my chances of dying from this disease from 50-50 down to maybe 5 percent. And I’m now apparently cancer free. Herceptin is an expensive drug. My treatment, which was the standard treatment, cost about $60,000. It’s a one-time thing; it’s not $60,000 a year for the rest of your life.

Most developed countries cover Herceptin because it is so effective, but I discovered in the course of researching what I thought was going to be an article on something else that New Zealand-which is the exemplar of rational drug price controls, having one of these boards that really put the screws to the drug companies-had not covered Herceptin for people like me who were early-stage cancer patients. I wrote about this dilemma: when you have these very expensive biotechnology cancer drugs, what happens when you have essentially a single-payer system and somebody has to decide bureaucratically whether they get covered or not.

It becomes a politicized process. In New Zealand, Herceptin is now covered because it became an election issue. Cancer patients and their sympathizers and their doctors made it a political issue. In the U.K. it was a political issue for about five seconds. The government just said, “Forget what the National Health Service said. We’re not even going to let them evaluate it. We’re going to pay for it.” Because the truth is these things are political.

The idea that objective science can settle these issues is false. Objective science can tell you the chance this treatment is going to work in various types of patients. But is it worth $60,000? What if it were $70,000? What if it were $30,000? That sort of tradeoff is very difficult to make at a one-size-fits-all level.

Our system, for all its screwiness, has some advantages. There is competition for coverage. There is political pressure, which is how you get various kinds of mandates, and there is legal pressure through lawsuits over what should be covered, over what your insurance contract means. So there’s a general tendency to cover things. As a result, not only do people get their drugs, but this is the biggest market for new drugs in the world, and we subsidize the rest of the world in bringing promising drugs to market.

That’s what the piece was about. The system where everyone gets covered with the best kind of health care for free and tradeoffs are made in a perfectly rational and scientific way is a myth. When a drug promises to treat some dread disease, it becomes a very passionate issue.

reason: You mentioned tradeoffs. What about the tradeoff between innovation and equity? Maybe the drug that worked so well for you wouldn’t be as readily available in a universal system, but more people would be covered, so more lives would be saved.

Postrel: Well, poor people get breast cancer too. The problems of coverage, falling through the cracks of coverage, tend to be less severe with acute issues like cancer and more severe with chronic conditions and with diagnosis, catching things early. There are all sorts of ways, formal and informal, that people get covered for things like cancer, major events. Some of it is through things like Medicaid, but also the drug companies give drugs to, say, UCLA’s oncology department, which they can then use to treat patients who don’t have access.

People talk about coverage in a magical way. Going back to glamour, there is glamour to the idea of the universal coverage, I think. What does that mean? What should it cover? Are you concerned about equity in the sense of everybody should be the same, or are you concerned about a safety net? Those are two different things.

Our system is screwed up because it ties health insurance to employment. That’s an artifact of wage and price controls during World War II. And anybody who looks at it wants to get rid of that tie, except the average guy who’s afraid of losing his insurance, so that’s an issue. I think both the people who want to go to a more competitive, market-oriented system and people who want to go to some universal, government-run system agree on this one thing: that the tie to employment is not good, because when you really need insurance, if you lose your job you’re screwed.

I don’t have the magic bullet. But except for people who are born with obvious birth defects, we all start out insurable. Insurance is about taking care of unexpected events; it’s not about taking care of an H1N1 shot. It’s not about taking care of routine maintenance. That we can take care of the way we take care of haircuts and auto repair: put it on your MasterCard. And if we’re worried about a safety net, just give people money.

So the question is what happens when you become uninsurable, or when we know that you have diabetes, or we know that you have a heart condition, or we know that I had breast cancer. My oncologist says that I have no more chance of getting breast cancer again than a similarly situated person who didn’t have breast cancer, but I doubt that I’m going to convince an insurance company of that. So I’m a good example. This is the problem of pre-existing conditions. What do you do about that? There is a very good idea that Cato and others have worked on: health status insurance [which would allow you to insure against the risk that medical coverage will become unaffordable because of changes in your health].

reason: Talk about your personal experience with navigating the world of insurance after you got breast cancer.

Postrel: The most interesting thing had to do with getting a wig. The only reason my insurance covered a wig, I’m sure, is that the state of California requires it to. And the truth is, I could have bought my own damn wig. An expensive wig costs a few hundred dollars, and there are cheap ones. And I never even wore my wig except for three times, one of which was on reason.tv. I just wore scarves and hats. But because my insurance covered a wig, I went out and spent more money-I bought two-than I would have if the insurance hadn’t covered a wig. Then I spent months fighting with the insurance company to get them to put the right little code in there so they would pay the shop where I bought the wigs. It was a nightmare. When you’re having cancer treatments, you just don’t want to deal with insurance companies.

Most of the things that are screwy about the American system -most of the things that drive people crazy, like dealing with insurance companies-are also true of Medicare. Medicare has a million forms. Where do you think all these DRG [diagnosis-related group] numbers come from? They come from Medicare. It can be nightmarish.

The Obama administration early on was saying, “We can give you better care for less with better management.” Well, I believe management can make a difference. It makes a difference in the private sector; it could make a difference in health care. Let’s do a trial run with Medicare. Let’s try it out there first and see how it works. I called Peter Orszag at the Office of Management and Budget, and he basically said, “We can’t do that, because the AARP is only on board if we do the whole system.” Well, OK. We can’t take you very seriously with this “better care for less” if you can’t apply it to the one system you already control.

This interview first appeared at Reason.com.

The post Obama appeared first on Reason Foundation.

While growing the size of the federal government is a huge concern in its own right, a far greater threat to the economy and the American system of governance is the elevation of the federal government to a pre-eminent position over the states. In fact, the 10th Amendment to the U.S. Constitution, a core component of the Bill of Rights, explicitly protects the states from federal interferences where power is not explicitly delegated to the federal government.

Fortunately, a few governors and state legislatures have figured this out. The open question is whether their efforts are a last-ditch guerilla warfare tactic or a strategic move to preserve American federalism.

Unlike the extension of federal authority over the national economy, a process that has been ongoing for at least 100 years, Obamacare puts the federal government front and center in the health-care industry while also controlling and subverting state interests and priorities.

Social Security, Medicare, and even the takeovers of global companies, such as GM and major banks, were more about growing the federal government’s influence over the economy than infringing on state governing authority. In theory, they carried few direct implications for state governance, or federalism, since they were national in scope and application. In some cases, such as Medicaid, state authority and sovereignty were respected. States were allowed to set their own Medicaid eligibility requirements and determine benefit levels. Even highway funds were largely allocated by state highway departments of transportation based on state-determined priorities and objectives.

This state discretion has been fundamentally altered with the current health care bill. States will largely become “pass through” entities for implementing federal health care objectives and programs. Under the current reform plan, states will be required to set up health care exchanges [.pdf] for the uninsured, expand Medicaid eligibility, and establish minimum benefit levels for business, individual, and state administered plans.

To some extent, states have been seduced by their own thirst for federal tax dollars to support state programs. The Interstate Highway System may have been the first major program to start states down this proverbial slippery slope. The idea was a bold one: build a national system of highways linking major urban areas. Fund it through a national gas tax-the closest thing Congress could get to a user fee-and let the states spend the money on building and maintaining the system.

This wasn’t an obvious threat to federalism since states could legally opt out of the program. In practice, they didn’t, and their decisions to take the money helped significantly weaken their prospects for long-term independence and inadvertently laid the groundwork for the current expansion of the government’s role in the health care system.

But, the federal government became more aggressive during the 1960s. The federal government began bypassing state governments altogether by creating specific programs to fund individual cities, regional governments, and local housing authorities. In transportation, regional planning organizations became direct beneficiaries of federal spending for road projects, transit programs, bike paths, and environmental mitigation programs, weakening the role of state governments.

Federal policymakers also discovered that federal funding didn’t have to be a large portion of total state spending to have huge impacts on a state’s priorities and goals. Federal revenues represent just 12 percent of state spending on K-12 education today, but no states seem prepared to walk away from that money. And as a result, the mandates in the No Child Left Behind Act enacted under President George W. Bush dramatically and permanently shifted education spending and teaching priorities in every school district in the nation.

ObamaCare blends two broad trends toward a more unified system of national and local governments: expanding size and scope of the federal government and subverting state authority. Unlike Medicare or Social Security, the current health care reform legislation mandates changes to state-level health care programs and coverage. Unlike No Child Left Behind, health care reform doesn’t even pretend to be voluntary.

Whether ObamaCare is the true political capstone event that extinguishes federalism has yet to be determined. Glimmers of hope flash in the Tea Party rallies at the grass roots level, the willingness of 11 states to challenge the constitutional legitimacy of the health-care reform, and the threats of more than two dozen other governors and state legislatures to legally challenge the plan in court. These efforts will determine whether the 10th Amendment to the U.S. Constitution, the last addition to a non-negotiable package of amendments called the Bill of Rights, has any teeth at all.

Unfortunately, these state efforts may be too few and too late in the fight. States have been feeding at the federal trough for 50 years, weakening their moral and constitutional claims to true sovereignty. The health care efforts by Virginia and hopefully a few other states might reinvigorate a serious debate about the viability of the 10th Amendement and federalism more generally. But the states will also have to accept the responsibility for their own actions and policies as well. They can’t have their cake and eat it too.

Only time will tell if these 10th Amendment challenges represent Custer’s Last Stand at the Battle of Little Big Horn, or the heroic last ditch effort of the 101st Airborne at Bostogne that brought the German army to a halt in the waning days of World War II.

Samuel Staley is Director of Urban Growth and Land Use Policy at Reason Foundation.

The post States’ Rights Versus Obamacare appeared first on Reason Foundation.

If Republicans play their cards right and avoid Democrats’ blunderbuss ways, they could seize the moment to begin nudging the country toward a more rational health care system.

Democrats are still looking for ways to pass their grand, senatorial version of ObamaCare, complete with a mandate forcing everyone to buy coverage on the threat of fines or jail. But this is a last-minute act of desperation that is unlikely to prevail. If we learned anything from the twin debacles of ObamaCare and HillaryCare, it’s that even under one-party rule, efforts to reconstitute one-sixth of the economy in a 2,000-plus-page swoop are doomed to fail. Despite President Obama’s pledge to build on what we’ve got, he backed into a top-down, (un)intelligent-design approach to reform-as opposed to an incremental, evolutionary one.

But drastic reforms, regardless of which side of the aisle they stem from, inevitably fail because they mobilize every constituency with a stake in the status quo against them. Indeed, radical free market makeovers are likely to fare no better than radical socialistic ones, given that powerful constituencies-AMA-style doctors’ cartels, AARP-type patient groups and insurance oligopolies-will do everything in their power to keep their existing privileges.

What Republicans need to do to move the cause of sensible, free market reforms forward is not engage in a head-on collision with these groups but implement reforms to either bypass them or enlist them overtime. Much like the school choice movement is doing through education vouchers and tax credits, they should build a political strategy around two simple ideas: One, don’t force patients out of the current system; limit yourself to fighting efforts to bring new patients in. And, two, look for ways to expand coverage options beyond what the current system offers.

A good starting point would be examining the compromises Republicans should not make. To do this, we need not look further than the Medicare Prescription Drug, Improvement and Modernization Act-a.k.a. the prescription drug bill-that they passed in 2003 under George “I-Chucked-Aside-My-Free-Market-Principles” Bush. Republicans thought they had struck a clever political compromise by adding a prescription drug benefit to Medicare-the government insurance scheme for the elderly that is on track to bankrupt the country-in exchange for lifting the cap on Health Care Savings Accounts.

These accounts allow employers to put up to $6,000 of tax-free money into an employee’s account every year. The employee uses part of the money to purchase high-deductible, catastrophic coverage for his family and the balance to cover co-pays, deductibles and other out-of-pocket medical expenses. All leftover funds roll over into the next year, allowing employees to build a nice nest egg over time.

But now seven years later ObamaCare is trying to expand prescription coverage even more to close the infamous “doughnut gap” that puts seniors on the hook for drug expenses between $2,500 to $3,800. This is an exceedingly popular idea with seniors, even though the 10-year price tag of the program has already increased from $400 billion to $1.2 trillion. And what about the Health Savings Accounts? They’re not part of the current health care discussions, and attempts to incorporate them have been met with shrill condemnation. Case in point: Angry progressives recently boycotted Whole Foods after CEO John Mackey opposed government entitlement programs noting that market-based solutions such as are these accounts helped him cut his employees’ health care costs without sacrificing employee satisfaction.

In other words, the prescription drug compromise allowed Democrats to further consolidate the senior constituency on the side of more generous government handouts. However, Health Savings Accounts didn’t add new voices on the market side. Why? Because these accounts were made available mostly to workers in companies who already had some form of coverage-not to uninsured individuals who most needed them.

If Republicans want to avoid repeating this mistake, they will have to first and foremost push back against Democratic plans to turn Medicaid-the joint federal-state health insurance for the poor-into a middle-class entitlement by expanding eligibility in the name of covering the uninsured. Instead, they should not only make Health Savings Accounts available to uninsured individuals but also amend the tax code to give individuals the same breaks that corporations have enjoyed since World War II.

What’s more, in order to enlist seniors on the side of markets, Republicans ought to fight President Obama’s attempts to scrap Medicare Advantage-the only private option that seniors currently have. In fact, they should insist on expanding it.

Under Medicare Advantage, seniors effectively get a fixed sum to buy coverage from HMOs or managed care companies instead of having Uncle Sam pay doctors and hospitals on an a la carte basis. The advantage is that these plans typically cover many benefits-dental, vision-that traditional Medicare doesn’t. Some of them even limit seniors’ out-of-pocket costs-co-pays, deductibles, premiums-that traditional Medicare won’t.

However, the program’s appeal is limited because it allows only managed care companies to participate, and these companies severely restrict patient choice of doctors and hospitals. Republicans should fight to lift these restrictions, letting seniors take their money anywhere they want-not just to government-approved, managed care companies.

ObamaCare opponents have been so busy fighting off terrible Democratic offerings-such as the individual mandate, public option and Medicare buy-in-that subsidies and other insidious measures to advance Big Government health care have commanded little attention. But with Democrats on the defensive following the Massachusetts massacre, Republicans are in a far better position to nix these travesties as well.

One last thing: Over the long run the only way to tame health care costs in the U.S. is to wrest control of medical dollars from third-party insurers such as employers and government-and hand it to individuals. Only when individuals become paying customers and shop around for their own coverage will they stop acting like Imelda Marcos in a shoe store: Buy all you want, price no object. However, the standard rap against doing so by extending health care tax breaks to everyone is that this would be too costly for Uncle Sam and put the budget in an even bigger hole. But to the extent that the massive price tag of ObamaCare has inured the public to big deficit numbers, such measures, which will be nearly not as expensive, will be a far easier sell now.

So, Dear Republicans, carpe diem-and do health care reform right this time. ObamaCare has aligned the stars for you.

Shikha Dalmia is a senior analyst at Reason Foundation and a biweekly Forbes columnist. This column originally appeared at Forbes.com.

The post Republicans: Take The Reins appeared first on Reason Foundation.

By this measure, if the provisions in the current Senate bill concerning undocumented aliens make it into the final bill, progressives, who put principle above politics, should bid adios to the whole effort. The bill would turn the undocumented into a permanent underclass of health care have-nots, making universal coverage unattainable.

Undocumented aliens, along with their children, constitute about 17% of the uninsured in America. But no one is arguing they should get taxpayer help to purchase coverage. The right has pretty much won the argument that people who break the law to enter this country don’t deserve the assistance of law-abiding Americans. Both the Senate and House bills explicitly bar all direct subsidies for anyone unable to furnish proof of citizenship or legal residency-although some dispute whether the verification procedures in the House bill are stringent enough.

But the key difference between the two is that whereas the House bill would allow these aliens to use their own money to buy coverage from the new health care exchange, the Senate bill won’t. The reason for the Senate ban is that this exchange-a sort-of clearinghouse where patients will be able to pool together to purchase discounted coverage from approved plans-will be established and run by the government. Letting immigrants participate would mean allowing them to get indirect taxpayer aid. People “who are here illegally cannot avail themselves of the infrastructure that we’re creating,” Rep. Gerald E. , D-Va., said in November.

By this logic should we, then, post sentries on federal highways to shoo off undocumented workers? Position guards outside pharmacies to bar them from buying FDA-approved drugs? Dispatch marshals to stop electricity generated by public utilities from flowing into undocumented households? What’s really driving the exchange ban is not concern for American taxpayers, since allowing people access on their own dime won’t necessarily add to the nation’s health care bill. Rather it is the cold “Know Nothing” calculation that making life miserable for undocumented aliens will drive them to the exit.

The bill may or may not succeed in chasing away these aliens, but it will certainly make them more miserable. Unless they get an exemption from the individual mandate, something the Senate is proposing but the House is not, it will be illegal for them to go without coverage. But with the exchange off-limits, their main option-outside of the emergency room-will be the nongroup or individual insurance market. Yet the Congressional Budget Office has calculated the premiums in these markets, already substantially higher than the one serving large employers, will rise another 13%-partly because the exchange will leave them with a smaller pool of customers. Many observers believe the exchange will eventually kill these markets altogether.

Undocumented aliens may therefore face the double bind of having to buy coverage but being priced out of the few legal avenues they have. This should trouble anyone not part of the Lou Dobbs fan club, but civil libertarians should find it particularly odious. At the same time the government tells Americans how they must spend their money, it will tell undocumented aliens where they can’t spend theirs. Government intrusiveness combined with government discrimination is not a formula for social justice.

The Obama administration is putting tremendous pressure on the House Hispanic Caucus, which is fighting the Senate ban, to back off. It is evidently arguing that once the battle for universal coverage is won, it will make immigration reform and amnesty a top priority, eventually bringing undocumented workers into the insurance fold. But having expended so much political ammunition on health care, the White House will be in no position to pick another bruising fight. With a volatile midterm election coming up next year, there is a real risk that if this cruel policy goes forward, it will become impossible to undo.

Universal coverage advocates (a group to which I do not belong) have accepted many unpalatable compromises-including abandoning their beloved public option-because they feel that at least they will be extending coverage to two-thirds of the uninsured population. But what they have to confront is that if they accept the exchange ban, a sizable portion of the remaining one-third won’t just remain unhelped, they’ll be seriously harmed by being permanently locked out of the health care market.

The government hasn’t claimed the authority to selectively withhold access to public facilities since the Jim Crow era. But at least then it wasn’t using it for any high-minded purpose. This ban will institutionalize inequality in the name of greater equality. Is this a deal that progressives really want to cut?

Shikha Dalmia is a senior analyst at Reason Foundation and a Forbes columnist. Harris Kenny, a student at Pepperdine University, provided valuable research assistance for this column. This column first appeared at Forbes.com.

The post The Lou Dobbs Option appeared first on Reason Foundation.

Far from settling the issue once and for all, the bill will usher even fiercer confrontations-not only on health care but on constitutional matters of governance as well-that will make the current battle look like the political equivalent of a spit-ball fight.

The Senate and the House begin reconciling their versions of health care “reform” this week. But everyone-barring die-hard Obama supporters-now believes that the outcome is going to be more botched than Michael Jackson’s nose. There is a growing consensus in both the right and the left that the individual mandate provision, which is almost certain to be part of the final bill, represents a kind of neo-feudalism. Liberty-lovers (like myself) hate it because it will mean that for the first time ever, Americans will be forced to buy a service as a condition of lawful residence in this country. Americans will lose control over their money without the government even having the decency to formally call for a tax increase.

Progressives are offended too-not because the mandate involves a new leap in state power, but because this power would be unevenly wielded. They would be fine with the mandate if it were accompanied with an outright ban on insurance company profits or at least a public option to drive these profits down. Absent that, all it will do, they argue not without plausibility, is deliver a captive audience to insurance companies.

Since the odds at this stage that the final bill will include their beloved public option are next to zero, the left’s next big battle will involve reinstating it while Obama is still in office. The biggest impediment to their ambition-as the current health care battle has made clear-isn’t going to be evil Republicans or the venal insurance industry, but America’s system of checks and balances. In particular, the Senate filibuster rules.

These rules are what gave blue dog Senate Democrats the power to stand up to their party bosses and derail the public option even though Democrats control the White House, the House and have a near supermajority in the Senate. And so long as these rules exist, enacting this option will only get harder when Democrats lose their overwhelming political advantage as is likely to happen this November. Hence it is no surprise that the liberal punditocracy is demanding the annulment of the filibuster-even though, ironically enough, it was a Democratic-controlled Senate that reinstated it in 1975 after a long hiatus.

Filibuster is not a beautiful thing, but it is a long established tool for checking overweening political ambition-and it can’t be abolished without a bruising political battle. To the extent that most laws involve an expansion of government power, scrapping it will inevitably empower the government against its citizens. What’s more, a president-a minority of one-will be able to override Congress with a stroke of his pen. But even 49 senators won’t be able to stop him from ramming his agenda through their chamber.

This will shift the balance-of-power away from Congress and toward the president, diminishing his incentive to court political opponents, further polarizing the country. If the Tea Party disgust with government expansion is approaching revolutionary fervor now, imagine what will happen if a serious attempt is made to mess with a basic internal check on government power to shove a public option down the country’s throat.

But with or without the public option, both the Senate and House bills involve a de facto nationalization of health care. The government already pays for half of the health care consumed in this country through Medicare, Medicaid and the veteran’s administration. Another trillion dollars-plus of health care subsidies will give the government a majority stake.

And there is no sign that it plans to be a hands-off stakeholder. The panoply of mandates and regulations that Democrats are proposing-guaranteed coverage of pre-existing conditions; money back to policy holders if insurance companies’ administrative costs exceed 10% of their revenues, etc.-will put the government squarely in the driver’s seat. No less than the Congressional Budget Office has concluded that “this further expansion of the federal government’s role in the health insurance market [that the Senate bill entails] would make such insurance an essentially governmental program.”

The upshot of all this won’t be unlimited, top-notch health care for everyone, as the Democratic establishment is promising. To the contrary, with individual patients losing even nominal control of their medical dollars, the health care system will be powered less by patient needs, and more by collective social goals dictated by politicians driven by powerful lobbies adept at political marketing.

Nationalized health care systems always and everywhere face a contest between competing interests trying to capture scarce medical dollars. If, say, women with breast cancer shame political authorities into approving expensive cancer-fighting drugs, men launch their own campaign to shift medical dollars to prostate cancer treatment. Patients who lack political savvy or represent disfavored causes-obesity, smokers, homosexuality-inevitably get relegated to second class medical status. If money poses an unfair obstacle for patients in a market-based system as progressives allege, can they with a straight face claim that the political establishment doesn’t pose a far bigger obstacle in a government-run system?

But it is not just patients who are pitted against each other; providers are too. Unlike in a market where competition and innovation is always expanding the medical pie, in a nationalized system providers are engaged in a zero-sum game. Every dollar that goes for reduction of infant mortality to a pediatrician is one that doesn’t go to a neurologist for Parkinson’s treatment.

Since there is no equitable formula to deal with all these competing claims, politicians under nationalized health care are constantly tinkering and experimenting to fashion the system after their own pet causes. Even basic questions as to whether a health care system should be more cost-effective or more accessible become subject to political whim. For instance, England’s Labor government some years ago repealed the internal market reforms put in place by the previous Conservative government to bring some cost discipline to the country’s government-run National Health Service-only to reinstate these reforms after costs started exploding once again.

In short, if ObamaCare passes next month, America’s health care system won’t be revolutionized so much as thrown into a state of permanent revolution. Hence, its opponents can either redouble their efforts to strangle this monster in its crib now-or prepare for endless political warfare later.

Shikha Dalmia is a senior analyst at Reason Foundation and a bi-weekly Forbes columnist. This column first appeared at Forbes.com.

The post Beware Of The ObamaCare Revolution appeared first on Reason Foundation.

Yet that’s exactly what ReidCare would have done. Advocates of universal health coverage who hold their fellow humans dearer than their ideology should thank Sen. Joe Lieberman, the man most responsible for killing ReidCare, rather than hissing “mass murderer” at him.

It is no secret that the left wants a single-payer health care system in the U.S., a la Canada and Europe. If it had its druthers, it would abolish the private health insurance market today, impose a general health care tax and use it to finance universal health coverage. But since it can’t pull that off without triggering another civil war, it has to settle for incremental approaches to reach that end.

But ReidCare-the brainchild of the Democratic Senate majority leader Harry Reid-was the worst proposal yet on the table. Even though it’s not going anywhere anymore, it has exposed the zealotry and heartlessness of the left on this issue.

ReidCare abandoned the controversial public option that couldn’t obtain the 60-vote filibuster-proof majority, in lieu of a Medicare buy-in. One can agree or disagree (as I do) over whether the public option-a government-run health insurance plan that would compete with private plans-would really succeed in lowering health insurance costs. But at least it constituted a serious attempt to give Americans, who will be forced to buy coverage through an individual mandate, affordable options from day one. The Medicare buy-in didn’t even pretend to do that.

As its name suggests, it would allow 55- to 64-year-olds to buy into Medicare, a program that is currently reserved for seniors 65 and older. But Medicare already faces a projected deficit of $50 trillion to $100 trillion over the long term. It is on track to go bankrupt in eight years even without ReidCare. With ReidCare, its demise would have been greatly expedited.

No one, however, expects the left to be exercised over the fiscal lunacy of the buy-in idea. Indeed, as far as it is concerned, the faster people are crammed into Medicare, the better it is because the fiscal hole this will create will have to be plugged with higher taxes that could ultimately be applied toward universal health coverage. Nor should anyone be surprised if the left shed no tears for all the underpaid Medicare providers who would have been driven out of business if Medicare expanded its market share. This too is a necessary prerequisite for government-run health care.

But what the left should care about is what the Medicare buy-in would have done to the program’s target group: the 55- to 64-year-old uninsured. ReidCare will raise Medicaid eligibility to 150% of the poverty level-which means near-free health care would be given to all couples, young and old, who make up to $21,855. But what about couples in this age group making, say, $22,000? They won’t qualify for Medicaid. The Medicare buy-in, likely their best option, would have cost them around $15,200, according to an analysis by the Congressional Budget Office of a previous proposal. Individuals making over 150% of the poverty level, or $16,500, would have had to pay $7,600.

In other words, come 2011, when the individual mandate will kick in-if Democrats succeed-the uninsured working poor in the 55-to-64 age group would have had to fork over a whopping 50% to 70% of their income to buy into Medicare. Sen. Reid planned to help these folks with subsidies…by 2014. But what were they supposed to live on until then? His good intentions? How could he and his comrades in good conscience believe it is right to force people to buy coverage now-under threat of fines or jail, mind you-while leaving any relief to the vagaries of politics years from now?

If Americans are dying due to lack of insurance, as Ezra Klein, the writer who called Lieberman a mass murderer, believes they are, can Klein imagine how many more would be driven to starvation, ruin and possible death if ReidCare confiscated a big chunk of their wages every year in order to achieve universal coverage? An individual mandate is bad enough. But an individual mandate that doesn’t come with help attached-how can they possibly accept that?

If the left wants to take an incremental yet principled way forward, now that the Medicare buy-in is all but dead, it ought to take guidance from the school choice movement. Many free-market advocates (like me) believe the best way to improve education is to get the government completely out of the business of running schools. But they also understand that they can’t simply will away public schools overnight. Hence, they have accepted all kinds of half-way measures, including school vouchers, education credits and charter schools, that give at least some parents a way out of their dysfunctional public schools. Over time, the hope is that these market-based reforms will prove their efficacy over government-based solutions and lead to a fully privatized system.

But here’s the thing: If the entire school choice movement were suddenly stopped in its tracks so that not another voucher was handed out or a charter school opened, choice advocates could still live with themselves secure in the knowledge that the partial changes they did make helped many and left no one worse off.

Could ReidCare advocates honestly have said the same? No. What the Medicare buy-in idea reveals is that the left cares little about who it tramples in its health care battle so long as it can keep marching toward socialized medicine. Americans can sense this triumph of ideology over humanity, which is why they are abandoning Democratic reform efforts in droves. If Democrats want to win them back, instead of ramming something through the Senate as they are hoping to do, they ought to pause till they recover their moral compass. Otherwise, they will have a hard time finding their way back to Capitol Hill next November.

Shikha Dalmia is a senior analyst at Reason Foundation and a biweekly Forbes columnist. This column originally appeared at Forbes.com.

The post ReidCare appeared first on Reason Foundation.

The U.S. has the world’s most expensive health care, $8,000 per person per year, eating up 16 percent of our GDP. There are many ways of paying these costs, of course, ranging from private insurance such as Blue Cross to public insurance such as Medicare. Many people pay out of their pockets, and local and state taxpayers pick up the rest.

The problem is that health care costs have increased at an annual rate double, or more than double, the rate of inflation for the last two decades. Right now, our attempts at reform are doomed by a law of accounting physics: Insurance can’t cost less than the health care it insures. That means that subsidizing insurance likely makes the problem worse.

Consider: I have car insurance. But my insurance doesn’t pay for oil changes.

Instead, I go down to the Happy Lube, without an appointment, get a diagnosis of the needs of my car, and choose services based on a price list published online. Some of these services are complex, and require large expensive machines and equipment. But I don’t have to pay a separate bill, or go wait in another line, at another office or lab.

Now, if I fail to get my car’s oil changed, or to perform other needed services, the engine will be damaged. That’s expensive to fix, but my insurance does not cover the costs. I bear the costs, so I care for the engine.

Health care is a little different. Many of us have “engines,” or other parts, that may not work very well, especially as we grow older. Things happen that may not be our fault, and even if they are we’d like to be able to buy some insurance against the worst consequences, the catastrophic injuries or illnesses that are part of every human society. The problem is that how we pay affects how much we pay.

Again, compare it to car insurance, for two people. Imagine neither of us has to pay for our car repairs, from accidents or engine wear. We can go to the garage as often as we like, and get whatever service we want, for free. The car repair shop can charge our insurance whatever they want, because insurance pays everything. An oil change would bill out at $600; an alignment would bill our insurance $2,200, with another $800 tacked on to pay for micro-digital wheel axis imaging.

Of course, the services aren’t really free. At the end of every year, we sum the total repair costs for both people, and each of us pays half of that total.

The cost of that free car care would be enormous, because of all the unnecessary and overly expensive charges. Of course, the government could subsidize the final bill; would that help? The answer is no, for two clear reasons.

First, having the government (meaning taxpayers) subsidize the total would do nothing to reduce the runaway cost increases. Buyers won’t shop around if they don’t know or care about real costs. Subsidies mean I don’t pay if I spend, and I don’t save if I’m frugal.

Second, let’s expand the example from two people (each paying half) to 300 million people getting free care (but paying an equal share of total costs). We have met the public option, and it is us! Once we are all paying ourselves, there is no one else to hit up to help with the costs. We are simply taking each person’s money in taxes, then giving some of it back in subsidies. There is no saving, even to individuals.

The French economist, Frederic Bastiat, diagnosed the problem long ago when he said, “The public option is the conceit that each of us should have free health care at the expense of all of us.” Okay, he didn’t say that, exactly, but it was the same idea.

The solution is out there, but it will require a fundamental change in the way we think. Competition among insurers, without decreases in underlying medical costs, may actually harm people through bad service and arbitrary denial of claims. Instead, we need competition among medical providers, just like oil change services now. LASIK surgery, one of the few areas of medical services open to competition and listed prices, has fallen in cost by 70 percent or more in the last 15 years. And quality has gone up dramatically. Walk-in clinics and fee-for-service arrangements for check-ups, or simple diagnoses like strep throat or infected thumbs, are already widely available, cost relatively little, and require no appointment.

Subsidizing insurance is a terrible idea. But that is the main focus of the health care reform bills passed by the House, and now being considered in the Senate. Why pin all our hopes on an approach that can’t possibly succeed?

Michael Munger is a professor of economics, and the chair of the political science department, at Duke University. He has written on policy analysis and cost benefit analysis of government programs. This column first appeared at Reason.com.

The post The Problem is Cost of Care appeared first on Reason Foundation.

If there was anything bipartisan about the speech it was that he embraced every bad big-government idea from both sides. If he prevails, the American public won’t get “choice and competition” as he proclaimed, but a one-size-fits-all government-prescribed health care plan that it dare not refuse and dare not challenge.

Perhaps the most striking–and disturbing–thing about the speech was the unblinking confidence Obama exuded while breaking key campaign promises he made to voters. He had raked poor Hillary Clinton over the coals for admitting that her road to universal coverage was paved with an individual mandate. “Everyone would be forced to buy coverage, even if you can’t afford it,” warned Obama in an ad. “You pay a penalty if you don’t.”

Yet, there he was last night scolding “individuals who can afford coverage but game the system by avoiding responsibility.” Never mind that the prime gamers are not the uninsured (whose unpaid bills cost “the system” less than $40 billion every year) but the underinsured covered by Medicare and Medicaid (whom private insurers cross-subsidize to the tune of over $90 billion annually because the government refuses to pay the full cost of their care). Still, he hectored: “Improving our health care system works only if everybody does their part.”

Obama didn’t say exactly how he would make “everyone do their part”–a question he posed repeatedly to Hillary. But his buddy Sen. Max Baucus, D-Mont., has some rather well-developed ideas on that score. Baucus has proposed a bill that would force the uninsured to pay fines on a sliding scale of income, with those making 300% of the poverty level having to cough up as much as $3,800 a year. In short, Americans would have to pay Uncle Sam for the privilege of remaining uninsured. If there were truth-in-labeling laws for Congress, it would be required to call this bill TonySopranoCare.

Which brings us to the second promise Obama broke Wednesday night: That he would impose no new taxes on anyone making less than $250,000. The penalties that the uninsured–all of whom, I would wager my grandma’s life support, make under $250,000–would face are certainly a tax.

He also endorsed a business tax–err, fee–on employers who don’t provide adequate coverage that, under a House bill, would be about 8 % of payroll. They will pass this on to their employees in lower wages. And he signed up for an excise tax on high-end insurance plans–many of which are enjoyed by plain union folk, not those rich and famous making over $250,000. Under the Baucus bill, this tax would be as much as 35% of the cost of the plan. One would have thought that if the shame of breaking an explicit promise didn’t prevent Obama from imposing this last tax, then the logical absurdity of trying to reduce soaring insurance costs by taxing insurance plans would.

It gets worse. In exchange for these bitter tax pills, Obama promised Americans would get eternal health care “security and stability.” To deliver that, he would of course ban insurance companies from denying coverage to those with pre-existing conditions–tantamount to forcing fire insurance companies to write coverage on a burning building. He would also prohibit insurers from putting any limits on the coverage they offer and cap what they can require patients to pay out-of-pocket.

In other words, Obama would encourage unlimited health care consumption by patients while eliminating the last vestige of price consciousness. But the reason America is facing unsustainable health care cost increases is precisely because its third-party system of insurance doesn’t encourage prudent consumption by patients. Indeed, if Obama really can tame health care costs by making patients even less cost-conscious, I have an even better idea for him: Simply pass a law banning anyone from falling sick and mandate good health for all. If he can suspend the laws of economics, perhaps he can also transcend the laws of physiology.

The fact of the matter is that not too many health care underwriters will survive such crippling mandates. Many of them will fold, causing further consolidation in the insurance marketplace–not more competition and choice. Last night the president declared–in the spirit of grand compromise–that he would be willing to wait a few years to give private insurers a chance to make more affordable plans available to all Americans. Only if they fail would the so-called public option, the government-run insurance plan so beloved of the left, be triggered. But that’s a rigged deal: The same legislation that sets up the trigger is putting in place the conditions that will eventually pull it. Obama is not backing off on his goal of eliminating private insurance–only offering a brief deferment.

The one Republican idea that Obama did endorse–caps on medical malpractice awards or tort reform–will actually hurt rather than help patient choice. Big medicine has long blamed the unnecessary tests and procedures these awards encourage for rising health care costs. But several studies have shown that this so-called practice of defensive medicine is a smaller driver of costs than excess physician salaries. By capping these awards, Obama will leave patients even less recourse against physician negligence–hardly the American way.

Obama lambasted the critics who claim his reform plan amounts to a government takeover of the health care system. But the plan he laid out Wednesday night will control every aspect of the medical transaction. It will tell patients when, what and how much coverage they must buy; it will tell sellers when, what and how much coverage they must sell. This is not a government takeover of health care? Then Tony Soprano is just a decent, hard-working businessman.

Shikha Dalmia is a senior analyst at ReasonFoundation and a biweekly columnist at Forbes, where this column first appeared.

The post President Obama’s Plan Will Control Every Aspect of the Medical Transaction appeared first on Reason Foundation.

The answer is not that Democrats have a lock on Washington right now–although they do. Nor that Republicans are intellectually bereft–although they are. The answer is that both ObamaCare’s supporters and opponents believe that–unlike Europe–America has something called a free market health care system. So long as this myth holds sway, it will be exceedingly difficult to prescribe free market fixes to America’s health care woes–or, conversely, end the lure of big government remedies.

The fact of the matter is that America’s health care system is like a free market in the same way that Madonna is like a virgin–i.e. in fiction only. If anything, the U.S. system has many more similarities than differences with France and Germany. The only big outlier among European nations is England, which, even in a post-communist world, has managed the impressive feat of hanging on to a socialized, single-payer model. This means that the U.K. government doesn’t just pay for medical services but actually owns and operates the hospitals that provide them. English doctors are government employees!

But apart from England, most European countries have a public-private blend, not unlike what we have in the U.S.

The major difference between America and Europe of course is that America does not guarantee universal health insurance whereas Europe does. But this is not as big a deal as it might seem. Uncle Sam, along with state governments, still picks up nearly half of the country’s $2.5 trillion annual health care tab.

More importantly, contrary to popular mythology, America does offer public care of sorts. It directly covers about a third of all Americans through Medicare (the public program for the elderly) and Medicaid (the public program for the poor). But it also indirectly covers the uninsured by–at least in part–paying for their emergency care. In effect, anyone in America who does not have private insurance is on the government dole in one way or another.

This is not radically different from France, where the government offers everyone basic public coverage, of course–but a whopping 90% of the French also buy supplemental private insurance to help pay for the 20% to 40% of their tab that the public plan doesn’t cover.

Meanwhile, in Germany, about 12.5% of Germans who are civil employees or above a certain income opt out of the public system altogether and rely solely on private coverage–even though they know it is well nigh impossible to return to the public system once they switch. And more Germans likely would go private if they were not legally banned from doing so.

The most striking similarity between America, France and Germany, however, is the model of “insurance” upon which their health care systems are based. In other insurance markets, the more coverage you want, the more you have to pay for it. Consider auto insurance, for instance. If you want everything–from oil changes to collision protection–you’d have to pay more than someone who wants just basic collision protection. That’s not how it works in health care.

For the same flat fee–regardless of whether it is paid for primarily through taxes as in France in Germany or through lost wages as in America–patients in all three countries effectively get an ATM card on which they can expense everything (barring co-pays) regardless of what the final tab adds up to. (Catastrophic coverage plans are available in America, but the market is extremely limited for a number of reasons, including the fact that most states have issued Patients Bill of Rights mandating all kinds of fancy benefits even in basic plans.)

Thus, in neither country do patients have much incentive to restrain consumption or shop for cheaper providers. In America and Germany, patients don’t even know how much most medical services cost. In France, patients know the prices because they have to pay up front and get reimbursed by their insurer later–a lame attempt to ensure some price consciousness. But since there is no cap on the reimbursed amount, the French sometimes shop for doctors based on such things as office decor rather than prices, according to a study by David Green and Benedict Irvine, researchers at Civitas, a London-based think tank. (Green and Irvine reported this as a good thing.)

So what are the consequences of this “insurance” model and how are the three countries coping with it?

America, as Obama continuously reminds us, spends 16% of its gross domestic product on health care–the highest percentage in the world. If current trends persist, in 75 years health care will consume about 50% of the GDP–and all of the federal budget. But France is not doing a whole lot better. Its health care system is the third most expensive in the world with over 11% of its GDP going toward health care–nearly three times more than the amount in 1960. The French fork over more than 20% of their income in taxes for public coverage (and another 2.5% to purchase supplemental private coverage)–yet their public program suffers from chronic deficits. Germany, similarly, spends about 11% of its GDP on health care with Germans contributing more than 15% of their income toward buying health care.

If France and Germany are not spending even more on health care, one big reason is rationing. Universal health care advocates pretend that there is no rationing in France and Germany because these countries don’t have long waiting lines for MRIs, surgical procedures and other medical services as in England and Canada. And patients have more or less unrestricted access to specialists.

But it is unclear how long this will last. Struggling with exploding costs, the French government has tried several times–only to back off in the face of a public outcry–to prod doctors into using only standardized treatments. In 1994, it started imposing fines of up to roughly $4,000 on doctors who deviated from “mandatory practice guidelines.” It switched from this “sticks” to a “carrots” approach four years later, and tried handing bonuses to doctors who adhered to the guidelines.

Meanwhile, in Germany, “sickness funds”–the equivalent of insurance companies–have imposed strict budgets on doctors for prescription drugs. Doctors who exceed their cap are simply denied reimbursement, something that forces them to prescribe less effective invasive procedures for problems that would have been better treated with drugs. But the most potent form of rationing in France and Germany–and indeed much of Europe-is not overt, but covert: delayed access to cutting-edge drugs and therapies that become available to American patients years in advance.

The point is that there is no health care model, whether privately or publicly financed, that can offer unlimited access to medical services while containing costs. Ultimately, such a model arrives at a crossroads where it has to either limit access in an arbitrary way, or face uncontrolled cost increases. France and Germany, which are mostly publicly funded, are increasingly marching down the first road. America, which is half-publicly and half-privately funded, has so far taken the second path. Should America offer even more people such unlimited access through universal coverage, it too will end up rationing care or facing national bankruptcy.

The only sustainable system that avoids this Hobson’s choice is one that is based on a genuine free market in which there is some connection between what patients pay for coverage and the services they receive. That is emphatically not what America or any Western country has today. Looking to these countries for solutions as Obama and other advocates of universal health coverage are doing will lead to false diagnoses and false cures.

Shikha Dalmia is a senior analyst at Reason Foundation and writes a biweekly column for Forbes, where this column first appeared.

The post The Myth Of Free Market Health Care In America appeared first on Reason Foundation.

But when it comes to health care reform, with every passing day, Obama seems less God and more demagogue, uttering not transcendental truths, but bald-faced lies. Here are the top five lies that His Awesomeness has told–the first two for no reason other than to get elected and the next three to sell socialized medicine to a wary nation.

Lie One: No one will be compelled to buy coverage.

During the campaign, Obama insisted that he would not resort to an individual mandate to achieve universal coverage. In fact, he repeatedly ripped Hillary Clinton’s plan for proposing one. “To force people to buy coverage,” he insisted, “you’ve got to have a very harsh penalty.” What will this penalty be, he demanded? “Are you going to garnish their wages?” he asked Hillary in one debate.

Yet now, Obama is behaving as if he said never a hostile word about the mandate. Earlier this month, in a letter to Sens. Max Baucus, D-Mont., and Ted Kennedy, D-Mass., he blithely declared that he was all for “making every American responsible for having health insurance coverage, and making employers share in the cost.”

But just like Hillary, he is refusing to say precisely what he will do to those who want to forgo insurance. There is a name for such a health care approach: It is called TonySopranoCare.

Lie Two: No new taxes on employer benefits.

Obama took his Republican rival, Sen. John McCain, to the mat for suggesting that it might be better to remove the existing health care tax break that individuals get on their employer-sponsored coverage, but return the vast bulk–if not all–of the resulting revenues in the form of health care tax credits. This would theoretically have made coverage both more affordable and portable for everyone. Obama, however, would have none of it, portraying this idea simply as the removal of a tax break. “For the first time in history, he wants to tax your health benefits,” he thundered. “Apparently, Sen. McCain doesn’t think it’s enough that your health premiums have doubled. He thinks you should have to pay taxes on them too.”

Yet now Obama is signaling his willingness to go along with a far worse scheme to tax employer-sponsored benefits to fund the $1.6 trillion or so it will cost to provide universal coverage. Contrary to Obama’s allegations, McCain’s plan did not ultimately entail a net tax increase because he intended to return to individuals whatever money was raised by scrapping the tax deduction. Not so with Obama. He apparently told Sen. Baucus that he would consider the senator’s plan for rolling back the tax exclusion that expensive, Cadillac-style employer-sponsored plans enjoy, in order to pay for universal coverage. But, unlike McCain, he has said nothing about putting offsetting deductions or credits in the hands of individuals.

In other words, Obama might well end up doing what McCain never set out to do: Impose a net tax increase on health benefits for the first time in history.

Lie Three: Government can control rising health care costs better than the private sector.

Ignoring the reality that Medicare–the government-funded program for the elderly–has put the country on the path to fiscal ruin, Obama wants to model a government insurance plan–the so-called “public option”–after Medicare in order to control the country’s rising health care costs. Why? Because, he repeatedly claims, Medicare has far lower administrative costs and overhead than private plans–to wit, 3% for Medicare compared to 10% to 20% for private plans. Hence, he says, subjecting private plans to competition against an entity delivering such superior efficiency will release health care dollars for universal coverage.

But lower administrative costs do not necessarily mean greater efficiency. Indeed, the Congressional Budget Office analysis last year chastised Medicare’s lax attitude on this front. “The traditional fee-for-service Medicare program does relatively little to manage benefits, which tends to reduce its administrative costs but may raise its overall spending relative to a more tightly managed approach,” it noted on page 93.

In short, extending the Medicare model will further ruin–not improve–even the functioning aspects of private plans.

Lie Four: A public plan won’t be a Trojan horse for a single-payer monopoly.

Obama has repeatedly claimed that forcing private plans to compete with a public plan will simply “keep them honest” and give patients more options–not lead to a full-blown, Canadian-style, single-payer monopoly. As I argued in my previous column, this is wishful thinking given that government programs such as Medicare have a history of controlling costs by underpaying providers, who make up the losses by charging private plans more. Any public plan modeled after Medicare will greatly increase this forced subsidy, eventually driving private plans out of business, even if that weren’t Obama’s intention.

But, as it turns out, it very much is his intention. Before he decided to run for office–and even during the initial days of his campaign–Obama repeatedly said that he was in favor of a single-payer system. What’s more, University of California, Berkeley Professor Jacob Hacker, who is a key influence on the Obama administration, is on tape explicitly boasting that a public plan is a means for creating a single-payer system. “It’s not a Trojan horse,” he quips, “it’s just right there.”

But even if Obama wanted to, it is simply impossible to design a public plan that could compete with private insurers on a level playing field and without “feeding off the public trough” as Obama claims.

At the very least, such a plan would always carry an implicit government guarantee that, should it go bust, no one in the plan would lose coverage. This guarantee would artificially lower the plan’s capital reserve requirements, giving it an unfair edge over private plans. What’s more, it is simply not plausible to expect that the plan wouldn’t receive any start-up subsidies or use the government’s muscle to negotiate lower rates with providers. If it eschewed all these things, there would be no reason for it to exist–because it would be just like any other private plan.

Lie Five: Patients don’t have to fear rationing.

Obama has been insisting, including during his ABC Town Hall event last week, that the rationing patients would face under a government-run system wouldn’t be any more draconian than what they currently confront under private plans. This is complete nonsense.

The left has been trying to address fears of rationing by trotting out an old and tired trope, namely, that rationing is an inescapable fact of life because every system rations whether by price or fiat. But there is a big difference between the two. If I can’t afford caviar and champagne every night, any rationing involved is metaphoric, not real. Genuine rationing occurs when someone else controls access–how much of a particular good I can consume.

By that token, Obama’s stimulus bill has set in motion rationing on a scale unimaginable in the land of the free. Indeed, the bill commits over $1 billion to conduct comparative effectiveness research that will evaluate the relative merits of various treatments. That in itself wouldn’t be so objectionable–if it weren’t for the fact that a board will then “direct financing” toward approved, standardized treatments. In short, doctors will find it much harder to prescribe newer or non-standard treatments not yet deemed effective by health care bureaucrats. This is exactly along the lines of the British system, where breast cancer patients were denied Herceptin, a new miracle drug, until enraged women fought back. Even the much-vilified managed care plans would appear to be a paragon of generosity in comparison with this.

Obama has repeatedly asked for honesty in the health care debate. It is high time he started showing some.

Shikha Dalmia is a senior analyst at Reason Foundation and writes a biweekly column for Forbes.

The post President Obama’s Top Five Health Care Lies appeared first on Reason Foundation.

But the president needs to take a chill pill before committing America to a huge new entitlement: One is hard pressed to find any evidence from abroad showing that universal coverage has grown the major industrialized economies more than ours in the past–or shielded them more than us from the global slump now.

At the president’s behest, Democrats are exploring ways to ramrod a health care reform bill through Congress this fall by using procedural shenanigans to avoid a Republican filibuster. In his budget, Obama has already proposed an additional $634 billion–nearly three-quarters of a trillion dollars–in health care spending over the next few years. If he gets his way, this money will be the first installment toward a government insurance plan that will compete with private plans to allegedly put affordable coverage within everyone’s grasp.

But whatever else universal coverage might bring, there is no evidence that it will bring economic nirvana. If anything, contrary to what the president suggests, the correlation runs the other way for countries with universal coverage such as Canada, England, France, Germany and Japan. On nearly every economic front, their performance has been worse than America’s–even, surprisingly, in controlling health care costs.

Contrary to popular perception, even though America is at the epicenter of the financial crisis, it has suffered less than its industrialized peers in terms of economic growth. According to the latest International Monetary Fund figures two weeks ago, the U.S. economy actually grew 1.1% last year even as Japan’s shrank by 0.6%. France and England’s both grew 0.7%, and Canada’s only 0.5%–or less than half of America’s. Only Germany did slightly better at 1.3%.

What’s more, despite all the gloom and doom about the American economy, IMF expects its gross domestic product to shrink 2.8% this year compared to anywhere between 3% (France) to 6.2% (Japan) for these other economies. (Figures from the U.S. since the IMF projections suggest that the U.S. economy contracted more than expected in the first quarter of this year but it is not yet clear how the other countries performed.)

Not only is America hurting relatively less now, its economic performance in the prior 18 years–from 1990 to 2007–has also been visibly better than everybody else’s. Calculations based on Department of Agriculture data show that America’s GDP grew at an average annual rate of 3% during this period. By contrast, Canada’s grew 2.88%; England’s 2.3%; France’s 1.92%; Japan’s 1.74% and Germany’s 1.59%.

Besides experiencing lower growth rates than America in the past, with the exception of Japan, these countries have also experienced chronically higher unemployment rates. Setting aside last year, between 1997-2007 America’s peak unemployment rate was below its peers by anywhere from 1% (Canada) to 5.7% (France). Japan has always had an unusually low unemployment rate, never hitting over 5.3% partly because of its policy of guaranteed employment in urban areas that forces workers to share jobs to keep more people employed.

All of this has made Americans much wealthier than all these countries, given that Americans’ per capita income in 2006, adjusted for purchasing parity, was about $6,000 more than the next country, England.

But are these countries fiscally stronger? Not by a mile. European countries started reining in their soaring deficits in the years prior to the downturn, thanks to the European Union’s requirement that these levels not rise above 3% of GDP. But that meant that they had to either dismantle their social spending programs–including universal health insurance–a politically difficult task, or maintain their sky-high taxes. For the most part, they have chosen the latter.

The upshot is that whereas America’s 2007 taxation rate was 28.3% of GDP, Canada’s was 33.3%; Germany’s 36.2%; England’s 36.6% and France’s 43.6%. Japan’s taxation level of about 28% is at par with the United States’–but only at the price of a government debt that totaled a jaw-dropping 170% of GDP last year, nearly three times that of America’s. Such taxation rates have left these countries limited room to respond to crises, which is why European countries roundly dismissed Obama’s calls to increase stimulus spending right now.

The trillions of dollars that this administration is spending to stimulate the economy might be a complete waste of money. But such wastage is a luxury that America can afford because of its relatively lower tax-and-spend burden.

The one remaining economic argument for universal health insurance in the United States is that it will help rein in medical costs. The rap against America is that it spends over 15% of its GDP on health care–more than any other industrialized country–and yet leaves upwards of 45 million people uninsured. If it had universal coverage, the theory goes, uninsured folks would get care sooner–not wait till they have a medical emergency–saving the system a ton of money.

It is a nice theory, but there is no evidence that it is true. Although America’s per capita health care spending soared in the 1980s, a 2007 study by Kaiser Family Foundation found that it slowed considerably in subsequent years. Indeed, between 1990 and 2003, the rate of growth of America’s per capita spending was 3.6%, only a little bit higher than France, Germany and Japan’s–but significantly lower than England’s 4.2%. That’s striking given that England engages in the most aggressive rationing known to the free world, routinely delaying care to patients unless they are critically ill.

However, Canada, which too indirectly rations care for many specialized treatments by putting patients in queues, has succeeded in limiting per capita spending to 2.4%. At best, then, universal coverage has a mixed record in controlling health care spending increases, even after resorting to rationing.

All in all, there is no major industrialized economy with universal coverage that has performed as well–let alone better–than the United States in the last decade. Universal coverage might not be the cause of their inferior performance. But the crucial point is that there is zero evidence that it has put them on a more solid footing. Before applying this exotic therapy to America, Obama needs to offer more than mere hunches that it will work. He needs to offer actual evidence.

Over to you, Mr. President.

Shikha Dalmia is a senior analyst at Reason Foundation. This column first appeared at Forbes.com.

The post The Economic Impact of President Obama’s Health Care Tactics appeared first on Reason Foundation.