Consumer Power Report – Scarlet Letter Governance

Published September 6, 2011

The central conceit of the Obama administration’s approach to health care policy has been that a strongly worded chiding or a public shaming is all that is needed to keep insurance rates low.

As Janet Adamy reports at The Wall Street Journal, this approach is about to be tested in the marketplace of reality, as the U.S. Department of Health and Human Services is preparing to heavily scrutinize and rate increases of 10 percent or above.

A new federal and state program on health-insurance rates will determine whether bad publicity alone is enough to stop insurers from levying steep increases.

Starting [September 1st], the Obama administration and states will automatically scrutinize any proposed health-premium increase of 10% or more as part of the 2010 health-overhaul law. The change applies to an estimated 34.8 million insurance policies that Americans buy on their own or get through a small employer–two markets where consumers have faced particularly hefty increases in recent years …

But there’s a big catch. Even if regulators find the rate increase is unjustified, the law gives them no new powers to block the insurer from charging it. Instead, federal regulators say they are hoping that disclosure of large increases–which will be posted on the Department of Health and Human Services’ website–will be enough to discourage carriers.

Pair this story with another one, regarding the latest steps from the Centers for Medicare and Medicaid Services to push for more federal oversight over state Medicaid payment rate negotiations, and a coherent picture emerges of what we might term a shame-based approach to governance.

“The idea that Washington has to control everything because states can’t be trusted to act in the interest of their own citizens frankly is an insult to the states,” said Dennis Smith, secretary of the Wisconsin Department of Health Services …

Republican state officials say the proposal would cripple states’ ability to negotiate Medicaid payment rates.

“Ultimately these are (state officials’) decisions to make,” Wisconsin’s Smith said. “If providers know, well I’m going to get whatever I can out of you and then whatever I don’t get I’ll run to the feds to get the rest, it really ties your hands in trying to negotiate in good faith.”

Virginia Secretary of Health and Human Resources Bill Hazel agreed.

“Any regulations on our ability to set rates would essentially be inhibiting the General Assembly’s ability to set rates, which is what they do,” Hazel told The Hill. “What we are faced with now with the new potential regs is a situation where instead of flexibility, we’re being told that you have to do all these studies.”

“It’s the time as much as the process,” he added. “You’ve got a 60-day General Assembly period. Suppose the feds don’t like what you’re trying to do: How does it work?”

This shame-based approach is almost certainly doomed to fail. It hasn’t worked in the past, and transparency in this case is unlikely to result in public shaming, simply because the large increases tend to be justified by the calculations of the carriers. For health plans nationally, under Obama’s law, 80 percent of all premiums must be spent on health care itself – and the profit margin is simply not large enough for bureaucrats to squeeze. And the budgetary squeeze on the state level is only increasing as Medicaid enrollment estimates are outpaced by reality.

What this means, in practical terms, is that the vast responsibility for the increases in premiums will be due to government policies and the increasing cost of care, not some devious plot to disguise these factors in the form of rate hikes on increasingly strained consumers. And facing those hard stops, the Scarlet Letter approach seems like little more than administrative whining about the failing of their own governance.

The inevitable result of this circumstance: The administration will go back to the Congress seeking the actual power to stop rate hikes directly and forcibly, making the federal government takeover of the health insurance industry complete. The problem: The administration won’t be able to get that, at least not through this Congress. They likely missed their shot – so when this aspect of the enterprise fails, expect them to double down on the case for single payer as the only coherent solution to stop those evil insurers.

— Benjamin Domenech



On that point about underestimating Medicaid enrollment, one more state joins a long list.

Two years after lawmakers expanded Medicaid to cover poor adults without children, the state is vastly scaling back the program because the number of people eligible for coverage is nearly three times as high as first projected and the cost of insuring them is almost nine times original estimates.

The new coverage followed the 2009 passage of major health care legislation that allowed the state to impose a fee on hospitals while drawing down matching federal money to expand Medicaid coverage.

House Bill 1293 was estimated to generate about $1.2 billion for Medicaid programs when fully phased in, and the measure called for expanding eligibility levels. A new eligibility class was created for adults without dependent children and whose income was up to 100 percent of the federal poverty level, or $10,890 per year for an individual.

“Our original caseload numbers and costs were based on the information that existed two years ago,” said Joanne Zahora, a spokeswoman for the Department of Health Care Policy and Financing, the agency that manages Medicaid.

Colorado at that time looked to other states to formulate its estimates, but there were few examples, Zahora said. And states that had only recently started similar programs soon started seeing their estimates fall far short too, she said.

“After more in-depth research, we found that the number of eligible clients and the costs per client (in Colorado) were much higher than could be imagined,” Zahora said.

This problem is only going to spread.

SOURCE: Denver Post


Robert Goldberg has an insightful piece on drug shortages.

Over the past two years shortages have developed for over 180 drugs, including cancer treatments. The shortfall is the result of stricter FDA regulation, government price controls on already discounted but complex drugs, and policies that discourage the use of new medications. Companies, facing lower prices, tighter regulation and increasing government control over what drugs will be used and when, are exiting the U.S. market and investing in product development in China and India where, sadly, it is easier and cheaper to produce next-generation medicines.

Stockpiling will only add to people’s suffering by replacing market reforms with government micromanagement. Government planners require months, if not years, to produce regulations, bids and supply estimates that are usually overgenerous to compensate for paltry prices. Government bungling was behind the failure of the smallpox and H1N1 vaccine program and responsible for billions of dollars in flu vaccines and antibiotics being dumped. The same forces pushing stockpiling also believe commercializing medical discoveries is evil. It’s part of a larger effort to nationalize the development of medicines that under Obamacare is become institutionalized.

Indeed, the drug shortage is a product of a more troubling trend. At a time when medical research could yield breakthroughs in the treatment of obesity, Alzheimer’s, diabetes, and stroke, among others, innovation has all but dried up. Most of the medicines being used today were developed 30 years ago. Most of them have generic competition. They have contributed greatly to increased wellbeing but as the return on generic drugs fall, price controls and regulation have created shortages.

Significant FDA reform needs to happen, and now. At Heartland, we believe that takes the form of Free to Choose Medicine.

SOURCE: The American Spectator


It’s noteworthy that the political left increasingly sees the passage of health care exchanges as a key element of ensuring Obamacare remains law even in the wake of conservative pushback.

Legislation to establish exchanges has now been passed or enacted in California, Colorado, Connecticut, Hawaii, Maryland, Nevada, and Oregon. Bills to do so remain pending or tabled in Illinois, Maine, New Hampshire, New Jersey, and Washington DC. In addition, seven states passed or enacted bills to establish study panels or commissions or otherwise indicated their intent to create an exchange.

All in all, at least 31 states have now developed one or more task forces, commissions, or boards to study and/or give recommendations on the implementation of the ACA, according to tracking by the National Conference of State Legislatures (NCSL), including many who have done so through actions by the executive branch.

In addition, the vast majority of states have also received grants from the Department of Health and Human Services in 2010 and 2011 to support the planning and establishment of exchanges.

For the opposing view, be sure to read ALEC’s guide to repealing Obamacare, which highlights good advice on how legislators should consider exchanges.

SOURCE: Progressive States Network


Roger Bate’s latest paper is at the Journal of Health Economics.

Focusing on 8 drug types on the WHO-approved medicine list, we constructed an original dataset of 899 drug samples from 17 low- and median-income countries and tested them for visual appearance, disintegration, and analyzed their ingredients by chromatography and spectrometry. Fifteen percent of the samples fail at least one test and can be considered substandard. After controlling for local factors, we find that failing drugs are priced 13.6-18.7% lower than non-failing drugs but the signaling effect of price is far from complete, especially for non-innovator brands. The look of the pharmacy, as assessed by our covert shoppers, is weakly correlated with the results of quality tests. These findings suggest that consumers are likely to suspect low quality from market price, non-innovator brand and the look of the pharmacy, but none of these signals can perfectly identify substandard and counterfeit drugs.

SOURCE: American Enterprise Institute For Public Policy Research


Michael Cannon points out that according to the latest KFF survey, nearly two-thirds of Obamacare’s supposed beneficiaries don’t think it will help them.

ObamaCare’s actual beneficiaries are politicians, government bureaucrats, insurance companies, drug manufacturers, etc.–but that’s another blog post for another time.

The law’s supposed beneficiaries are the uninsured. Yet 61 percent of them think the law will either not help them or will hurt them (see pie chart below). The main takeaway: Congress can repeal ObamaCare and its supposed beneficiaries won’t even care …

One respondent said that under ObamaCare, you “can go to the doctor with no problems, unlike now you have to worry about insurance and bills.” Yeah. Good luck with that.

The popularity of the law continues to sink, with the margin favoring repeal now at 20 points.

SOURCE: Cato Institute


Howard Fineman and David Ignatius agree: Obama’s biggest mistake was his signature domestic policy. But what does that really mean?

Neither believes a government takeover of the healthcare sector was a bad policy. Rather, they believe it was a political mistake and that it is “bad process” to pass legislation without consensus. The establishment media took an entirely opposite position when it counted. When the debate was raging, the media never tired of writing about how everyone was going to love Obamacare after it was passed.

The comments from Fineman and Ignatius reflect two things. First, they are a belated recognition that Obamacare is truly unpopular. Second, they reflect a need to get themselves on the record against passing big, controversial legislation now, before the 2012 election. Should the GOP thump Obama and the Dems next year, they want to be able to point to comments like this when they oppose anything like the House GOP budget, entitlement reform and so on.

Fineman and Ignatius may be correct. But that hasn’t stopped top officials at HHS from comparing the law to the Civil Rights Act.

SOURCE: Hot Air Green Room