Monday, July 20, 2009

Debunking Some Obamacare Myths

The Obama administration is pushing a number of myths about his government takeover of health care. Let's debunk some of them.

Lower administrative costs many core beliefs of the left, the claim that government-run health care has lower administrative costs than private care is just plain false. New York Times columnist Paul Krugman, for example, likes to cite data showing that Medicare only spends 3% of its total outlays on administrative costs compared to 14-22% for private care. The numbers themselves are correct, but measuring administrative efficiency by a percentage of total costs is completely useless. Heritage fellow Robert Book explains:

Imagine, for a moment, that Fred and Jane each have a credit card from a different bank. Fred charges $5,000 a month, and Jane charges $1,000 a month. Suppose it costs each bank $5 to produce and send a plastic credit card when the account is opened. That $5 “administrative cost” is a much lower percentage of Fred’s monthly charges than it is of Jane’s, but that does not mean Fred’s bank is more efficient. It is purely a mathematical artifact of Fred’s charging pattern, and it would be silly to compare the efficiency of bank operations on that basis. Yet that is how many analysts compare Medicare with private insurance.

A much more accurate way of capturing each system’s true administrative costs is by a per-patient basis. When this is done, government-run health care’s administrative costs are routinely higher than private care. In the years from 2000 to 2005, Medicare’s administrative costs per beneficiary were consistently higher than that for private insurance, ranging from 5 to 48 percent higher, depending on the year. This is despite the fact that private-sector “administrative” costs include state health insurance premium taxes of up to 4 percent (averaging around 2 percent, depending on the state)–an expense from which Medicare is exempt–as well as the cost of non-claim health care expenses, such as disease management and on-call nurse consultation services.

It'll be a level playing field

"Why would it drive private insurers out of business?" President Obama asked last week, defending the idea of creating a new government plan. "If private insurers say that the marketplace provides the best quality health care, if they tell us that they're offering a good deal, then why is it that the government -- which they say can't run anything -- suddenly is going to drive them out of business? That's not logical."

It's a point that's gained popularity on the left, but one that is a complete red herring. The current debate isn't over whether private insurers could compete all else being equal, but whether government can actually run a fair game. Obama's argument is sort of like asking, "Why should a blackjack player fear losing to a casino?" In theory, unlike with a slot machine, there's no inherent reason why one blackjack player has to have an advantage over another. If a group of friends play blackjack at home against each other, chances are that the most skilled player will win. But things change when that skilled player enters a casino, because the casino sets the rules of the game to give it an edge, and it can outlast any player given the size of its bank account. A player can reduce the casino edge through card counting, but the casino can make it harder to count cards by using more decks and still eject any player it suspects of counting. Casinos, in other words, don't make a profit on blackjack because they hire dealers who are the most skilled blackjack players around, but because they rig the rules of the game in their favor.

This is why Obama's argument for a government plan is disingenuous. Private insurers would be going up against government on an exchange run by government and facing rules and regulations set by government. While the government plan would have effectively unlimited access to federal government tax revenues, the private plans would not.
Private insurers won't go out of business

But there are 47 million people who desperately need insurance!

Although the commercials and discussion focuses on younger to middle aged adults and on children, the fact is that about half of health care expenses are incurred by a mere 5% of the country, and 43% of that group are 65 and up. The public option single payer option proposes to more or less kill them off instead of wasting precious resources on Gram and Gramps. Medical technology exists today to extend lives further than previous generations dreamed possible. With this expensive new technology comes difficult decisions about when to employ it.

The “just die already” crowd ranges from Bill Clinton to the New York Times, pushing the idea that refraining from “heroic” medical treatment is the right solution to deal with the health care crisis. (Remember, in the case of Terri Schiavo, “heroic” included food and water.) Well, denying care would certainly save a lot of money otherwise spent on medical bills - and as an added bonus would make more money available to the government via the death tax.
Just so you know.

There's my two cents.

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