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Remember How Einstein Defined Insanity

March 7, 2010

The French Cowboy just listened to an interview with Mitt Romney on NPR in which he said that the three main differences between the health care plan he enacted in Massachusetts when he was the governor and the plan currently discussed on the Hill are 1. Romney’s plan didn’t raise taxes, 2. Romney’s plan didn’t cut Medicare, and 3. Romney’s plan didn’t allow government to run the health insurance show. (The former governor also mentions these three points in an interview with Neil Cavuto.) You can argue about the veracity of these claims, though. The big problem with RomneyCare has turned out to be its runaway costs. This qualifies the claim of it not having raised any taxes, and even, in the longer run, the claim of it leaving Medicare services unchanged.

While the 2006 health care law itself (it’s known by the name Chapter 58) may not have explicitly included tax hikes, it had the effect to raise taxes or at least to create the need of increasing state revenues due to the strain it puts on the state’s budget. In the above linked text the Cato institute is said to find a direct link between RomneyCare and a 1$ increase in taxes on a pack of cigarettes. Now, the French Cowboy has never been someone to sympathise much with smokers (no offence), but here is the problem with cigarette taxes used to cover medical expenses: The government that raises those taxes will depend on them as soon as the money starts to flow in.

So while, in theory, higher taxes on cigarettes will cause fewer smokers will cause healthier people will cause lower health care costs, health care costs will never decrease because the tax-funded agency will rely on those cigarette taxes to be available every year, even if fewer cigarettes are sold and will plan its budgets accordingly. When was the last time you heard a government say: “Oh, gee, we have to admit that next year people will have adjusted their behaviour to our tax system and therefore our tax base will be smaller and thus our tax revenue will be decreased, so we better cut our expenses in anticipation!”? It doesn’t happen. So the cigarette-taxing government will find itself in the perverse situation to rely on people to engage in behaviour the selfsame government is paternalistically taxing in order to punish such behaviour.

Secondly, concerning Romney’s no-tax claim, that there hasn’t been an increase in taxes doesn’t mean that there hasn’t been an increase in costs for the people of Massachusetts. And an increase in overall costs has taken place, all right:

Since 2006, the cost of the state’s insurance program has increased by 42 percent, or almost $600 million. According to an analysis by the Rand Corporation, “in the absence of policy change, health care spending in Massachusetts is projected to nearly double to $123 billion in 2020, increasing 8 percent faster than the state’s gross domestic product (GDP).”

Now, somebody will have to pay for that. Alternatively, of course, expenses could be cut, which brings me to the 2nd claim made by Romney: Medicare may have been unchanged for the last three years since RomneyCare is up and running (out of money), but it is unlikely to stay that way for simple lack of funds.

The approach Paul Ryan is taking with his health care reform proposal is straightforward in that regard: His programme would leave Medicare benefits alone, and even let people as young as 55 benefit from the current system once they turn 65. (For this to work the system would have to be set in place soon, though). Everybody below the age of 55 will see substantial changes in their coverage and Ryan is clear about that. Compared to RomneyCare, Ryan’s proposal doesn’t have the catch that the overall plan is not accounting for the total costs, so he avoids the system-inherent danger of Medicare cuts RomneyCare has. (Of course, even Ryan’s bill isn’t immune against underestimation of future costs. But it’s less vulnerable in that respect because more realistic from the get-go than the more-insured-less-cost unicorn that are RomneyCare and ObamaCare.)

Then there is the 3rd claim Romney made: that government interference in the health care market is minimal in RomneyCare. After the inaction of Chapter 58, though, private coverage among children and among adults living below 150% of the federal poverty level has dropped in comparison to other New England states (see page 9 and table 2 of this Cato report). This means that, to some extent, private insurance has been crowded-out by public insurance, even though, overall, both the private and public insurance sectors have grown. Furthermore, it is clear that part of the growth in private insurance is paid for with government subsidies. Obviously, when there is an expansion of government health care programmes, government has a bigger say in the health care market. But even when private insurance is paid for with government subsidies, it strengthens the government’s position because some of the insurance companies’ revenues then comes from public money, even if indirectly via private households.

Having said all that, let it be mentioned that Romney is saying that he believes that the best solution to the health care problem on a national level would be not to make it a national problem at all, but to keep it at a state level, ie to let each state chose its own insurance system. I leave it to you to decide whether that is an indirect acknowledgement by Romney that his own health care experiment didn’t work out the way it was supposed to. Either way, the French Cowboy would recommend that, in that case, the other states take Massachusetts as a warning and come to grips with the fact that, without an actual reduction of medical costs, insuring the currently uninsured will always mean higher costs for the currently insured.

At least two things will help reduce medical costs: 1. tort reform that minimises cya-medicine (aka defensive medicine) and 2. competition of health insurance companies beyond state borders because it indirectly puts cost-reduction pressure on health care providers.

While trying to reduce medical costs, what should be avoided is a standardisation of medical practice which could hamper medical innovation. With all the talk about costs we shouldn’t forget that not all expenses equal waste, even if benefits aren’t always immediately evident.

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