Consumer Power Report: Farewell, Don Berwick

Published November 28, 2011

Welcome to the Consumer Power Report. And goodbye to Don Berwick.

As expected, Berwick will step down as head of the Centers for Medicare and Medicaid Services next week. Berwick’s controversial year on the job following a recess appointment achieved little compared to his initial ambitions.

The administrator, in a final interview with the Washington Post‘s Sarah Kliff, showed he had much more in mind:

SK: How well do you think this will work? It requires a pretty big paradigm shift by the health-care system, which right now, like you said, doesn’t focus much on coordination. DB: I am very optimistic. The more I travel, the more I see growing receptivity to this. People know health care has got to transform into something much more. I think times are really different, not absolutely everywhere, but in professional societies there’s a sense of readiness. I think we might be on the verge of better care. And the financial situation adds a new sense of urgency.

Berwick is headed back to the private sector of work thanks to simple math. Facing 42 solid votes against his renomination in the Senate, an oncoming Supreme Court decision, and the pressure of an election year that may well see the president’s signature health care law fall to pieces, it was clear there was little opportunity or political benefit for a nomination fight that would inevitably put rationing back on the front page across the country. Berwick will have to be content to support President Barack Obama’s unpopular law without drawing a taxpayer-funded salary.

Berwick’s tenure was shortened thanks overwhelmingly to an awareness of his past statements. These views were expressed over the course of decades in venue after venue, frequently with video of his controversial remarks that we at The Heartland Institute discovered, which made Berwick’s oft-repeated claims that he did not support rationing fall flat.

There is an important distinction here between the good and the bad of technocracy. Berwick’s career until roughly a decade ago was primarily focused on the need for better information about health and procedures – advancing information-sharing and creating more knowledge for doctors to utilize in pursuing the best outcomes. This is hardly a vile or morally problematic pursuit. The problem comes when such information is used as a sledgehammer against innovation and care. It presumes that bureaucrats can process the data better than doctors can, that top-down management is the best way to achieve the desired outcome. The danger comes not from the benign and even laudable pursuit of knowledge and measurement of success, but rather what comes when such immoral arithmetic becomes the top-down enforced mandates of unelected boards and faceless councils. The government overrules the doctor, and the patient is left with bad and worse choices – or a choice that comes too late to save his or her life.

This is what Britain’s NHS, which Berwick adores in romantic terms, has pursued. It is why the NHS’s system of state-controlled rationing time and again turns treatable diseases into death sentences. Cancer survival rates in the United Kingdom are near the bottom for all of Europe according to Lancet Oncology. Women who contract breast cancer there have a 46 percent mortality rate, compared with only 25 percent in the United States. Only 19 percent of American men who get prostate cancer die of it, but in Britain it kills 57 percent. And the U.K.’s overall cancer mortality rate is more than 38 percent higher than America’s.

Berwick, had he been confirmed, might have given us an example of what happens when technocrats are given too much power to transform their ideas into mandates. Instead, he is now an example of what happens when the things polite technocrats say to each other are made known to the people.

We will not miss him.

— Benjamin Domenech



From Minnesota Public Radio, some surprisingly good coverage:

A loophole in the federal health care overhaul would allow many employers to game the system by dumping their sicker employees onto public health insurance exchanges, according to two University of Minnesota law professors.

They say the loophole could have dire consequences for the financial health of the exchanges, which are a key part of President Barack Obama’s health care law. The online marketplaces are intended to make it easier to comparison shop for health plans and also to expand access to coverage for the uninsured.

One of the key questions in the health care overhaul is whether this new option for securing health coverage will convince employers to stop offering insurance altogether, knowing employees can resort to the exchanges.

“We didn’t think it would be as simple as that,” said Amy Monahan, a U of M expert on health law.

Monahan and her colleague Dan Schwarcz, an expert on insurance regulation, tried to anticipate how companies would respond to the law given the harsh economic environment and soaring health insurance costs.

They discovered the law gives many large employers an opportunity to squeeze the most expensive workers out of their health plans. The loophole applies to companies that self-insure; that is, design and cover the cost of their own plans. Those companies account for six in ten workers who get insurance through work.

Monahan doubts that many large companies would stop insuring their employees entirely because they’d face a penalty under the health care law. But self-insured employers “can exclude things and essentially structure their plans to be attractive to low-risk, healthy employees and not attractive to people who are going to have significant health needs,” Monahan said.

But was this a feature, or a bug?



Paul Howard writes on how the industry and providers got played:

If Obamacare has improved the prospects for true market-based health-care reforms, it is only because it has made it starkly clear that the status quo is unsustainable. Innovative companies and physicians know that if we go forward, they will find themselves squabbling over an ever shrinking pool of reimbursements, with no ability to appeal to the market (i.e., consumers) for the rewards commensurate with their investment in health-improving innovations.

Lobbying Congress to shift cuts to your competitors is no longer a viable option when IPAB will cap Medicare spending at GDP+1 (or, in the case of President Obama’s latest proposal, GDP+.5), and the cuts have to fall annually. Providers’ only solution is to stop seeing Medicare patients entirely, or to treat them as widgets and pump them into and out of the system as fast as you can – hardly a recipe for quality health care. The only real alternative is to embrace something like Chairman Ryan’s proposal for a defined-contribution structure for Medicare, and for the health-care sector as a whole (via tax reform).

And then there’s the “size” problem. In an age when the Internet, electronic health records, and personalized medicine should enable more individualized care, Obamacare ratchets up the costs for small physicians’ groups and insurers and then drowns them in red tape. The end result is a monopsonist federal government negotiating with handful of oligopolies.

SOURCE: National Review Online


An intriguing idea from Benjamin Barr and Stephen Klein:

Different types of freedom zones have sprung up worldwide in a number of contexts. In 2004, the United Arab Emirates created the Dubai International Financial Centre, which incorporates the legal protections of British common law for its financial markets. Dubai also implemented the Jebel Ali Free Zone that favors foreign investment and the Dubai Healthcare City, which serves as a free zone for medical services and innovation. Iceland recently set out to become a safe haven for whistleblowers around the globe, and it is accomplishing this by developing the world’s best laws regarding free speech and freedom of information.

By creating a safe haven for free speech, Iceland is encouraging market development in internet server and publishing house relocation to Iceland to take advantage of its attractive laws. With just such an approach, Iceland may very well reinvigorate its economy while providing a powerful protective effect for free speech worldwide. Though a free zone would be new to the United States, America is not unaccustomed to attractive law, as Delaware proves. At the end of 2009, Delaware was home to 63% of Fortune 500 companies, and realized $767 million in revenue to its general fund just from corporate taxes. This is the result of stable corporate law that has lasted over 100 years, and continues to attract a majority of new corporations. Wyoming ought to pay attention to the possibilities.

The first and most readily accessible market for a medical freedom zone is medical tourism. Currently a multi-billion dollar foreign market, deregulated healthcare markets are expected to grow in a speedy manner over the course of a few years. Given the geographic desirability of American states, close proximity works in the favor of jurisdictions wishing to become destinations for medical tourism. Beyond proximity, American states can borrow from some of the best law available to construct their own efficient and responsible legal systems for health care concerns, putting them at a distinct advantage over their foreign counterparts.

SOURCE: Wyoming Liberty Group


Diana Furchtgott-Roth asks troubling questions coming out of the “perverse incentive” identified in the now infamous NBER study of Obamacare’s family coverage glitch:

Workers with families will prefer to work for firms that do not offer health insurance. In that way, they can qualify to purchase family coverage through the exchange, and get a subsidy. For a family at 133 percent of the poverty line, premiums will be capped at 2 percent of income.

If the employer does offer health insurance, the worker with dependents might prefer that the coverage is unaffordable, that the employee’s share of the premium exceed the affordability test. That’s not a typo – if the coverage is unaffordable, then the employee will be able to buy subsidized insurance for his family on the exchange.

A firm that offers unaffordable coverage will have to pay a penalty of $3,000 per worker. But workers might prefer to have the employer pay the $3,000 penalty even if some of it reduces an employee’s income, and be able to buy subsidized coverage on the exchange.

This provision of the Act would cause disincentives to marriage. Say that Bill, who receives health insurance from his employer, wants to marry Betty, who is buying her subsidized health insurance from the state exchange. If they married, Betty would no longer qualify for subsidized coverage.

Or, take Susie and Sam, married with two children, earning below 400 percent of the poverty line (about $90,000 for a family of four). Susie is a stay-at-home mom.

Now, Sam’s employer provides family coverage. But, come 2014, the costs of health insurance will rise due to [the] Act’s requirement to offer a more generous plan. Then, Sam’s employer will just be required to provide affordable coverage for him alone. If Sam and Susie were to get divorced, Susie could buy subsidized family coverage through the exchange.

The Congressional Budget Office estimated that in 2019 another 3 million people will turn to the insurance exchanges due to employers dropping coverage. But with employer affordable health coverage applying only to singles, this number would be far greater, resulting in higher insurance costs to the government and bigger federal budget deficits.

Congress needs to address this problem.

Preferably by ditching the whole thing!

SOURCE: Real Clear Markets


My latest oped is at the Indianapolis Star.

Daniels’ plan is based on an assumption that’s controversial but principled: Empowering low-income Americans to make decisions for themselves in the health-care marketplace results in better outcomes, and less costly ones, than letting bureaucrats decide things for them.

Yet instead of endorsing this major step toward leveraging individual empowerment to achieve cost savings, the Obama administration has denied Indiana’s application for an extension of the program, forcing the state to reapply through a more difficult process with new requirements. According to Seema Verma, founder of SVC Inc. and a designer of the Healthy Indiana Plan, the U.S. Department of Health and Human Services is requiring Indiana to go through a state plan amendment process, meaning the state must modify its system to meet new regulatory demands and renew the plan every three to five years.

Indiana is running out of time to gain approval for a reworked proposal. If the Obama administration denies it again, the Healthy Indiana Plan will expire and the tens of thousands of Hoosiers who are so pleased with this innovative system will lose their coverage. This looks suspiciously like partisan politics or a stubborn resistance to innovation, not a desire for good outcomes.

By creating a system where low-income Americans have an incentive to make cost-conscious decisions, the Healthy Indiana Plan creates a consumer-based approach to health care. This is particularly important for Medicaid, which is the largest and fastest-growing budget item for many states, a fact that likely will be cemented when Obama’s health-care overhaul pushes 25 million more Americans onto the already overburdened program.

Instead of building on the success of Gov. Daniels and his team in demonstrating there is no class divide in consumer-powered health care – that yes, the poor can make decisions for themselves without need of a big bureaucracy – the White House doesn’t just refuse to expand the program, it declines even to allow such an approach to continue.