Archive for the 'healthcare' Category

MEDICARE-Underestimating the cost

Kurt Brouwer October 12th, 2009

As we have noted before, Congress has a tendency to underestimate the costs of a program it is considering.  In yet another example of this, this chart demonstrates that Medicare costs have been significantly underestimated by Congress at the time of enactment:

Source: Carpe Diem

Medicare: What will it really cost?

The ironic part about the current discussions of healthcare reform costs is that proponents of the plan initially said — and some are continuing to say — that healthcare reform would save money.  Unfortunately for them, the Congressional Budget Office (CBO) pointed out that the legislation before the House of Representatives (H.R. 3200) would actually add significantly to the deficit by as much as $1 trillion over the next 10 years.

That news caused many in Congress to gulp hard, yet the CBO estimate is almost certainly low if history is a guide.  I thought it would be useful to look at how far off previous estimates from Congress on Medicare costs have been  in the past.

When Medicare was passed, various future estimates of costs were made by Congress.  Those estimates were wildly off base, so much so that it is doubtful that Medicare would have passed, had there been an accurate cost estimate.  The chart above shows that the actual costs for Medicare programs run from a minimum of 200% over budget up to 1700% over budget.

Lyndon Johnson & Medicare cost estimates

There is an interesting interview on National Public Radio [emphasis added] which presents evidence that President Johnson deliberately underestimated the cost of Medicare to get it passed.  The interview is with James Morone, co-author of the Heart of Power: Health and Politics in the White House.   In it, the show’s host, Renee Montagne, asks the author about comments President Johnson made about the original cost estimates for Medicare.

Democrats Could Learn From LBJ’s Medicare Push (National Public Radio/Morning Edition, August 26, 2020, Renee Montagne)

[NPR-Montagne]: There are tapes of Johnson showing a different side of how he worked [Medicare's passage].

[James Morone, co-author of The Heart of Power: Health and Politics in the Oval Office]: Johnson maneuvered every step of the way getting this bill through Congress, and one of the things he did — and this is a little dicey in today’s climate — was suppress the costs. So this young kid gets elected from Massachusetts, Ted Kennedy, in 1962, and Johnson is explaining to him [over the phone] how you get a health bill through. And what he tells him is don’t let them get the costs projected too far out because it will scare other people:

“A health program yesterday runs $300 million, but the fools had to go to projecting it down the road five or six years, and when you project it the first year, it runs $900 million. Now I don’t know whether I would approve $900 million second year or not. I might approve 450 or 500. But the first thing Dick Russell comes running in saying, ‘My God, you’ve got a billion-dollar program for next year on health, therefore I’m against any of it now.’ Do you follow me?”

[JM]: We believe, after looking at the evidence, my co-author [David Blumenthal] and I, that if the true cost of Medicare had been known — if Johnson hadn’t basically hidden them — the program would never have passed. America’s second-most beloved program would never have happened, if we had had genuine cost estimates…

That is an amazing piece of history and it seems authentic as it is based on tapes LBJ made of his various conversations.  Most people don’t realize this, but the various pieces of healthcare reform legislation now before Congress use an interesting technique of which LBJ might approve.  Taxes and fines and Medicare cuts would start right away, but spending on the program would be delayed until 2013 or so.  So, the 10-year estimate only has 6 or 7 years of actual expenditures built in.  Nice.

Can we trust Congress?

For a variety of reasons, estimating costs of government-run health insurance reform seems to be quite difficult, even assuming our leaders are trying to do so fairly and honestly.  So, I would not take current estimates of the cost of health insurance reform as being cast in stone.  In fact, I would assume they are very low as Congressional estimates for Medicare have always been in the past.

Healthcare: Underestimating the cost

Kurt Brouwer August 28th, 2009

Source: Senate Joint Economic Comm.

Government-run healthcare: What will it cost?

The ironic part about the current discussions of healthcare reform costs is that proponents of the plan initially said — and some are continuing to say — that healthcare reform would save money.  Unfortunately for them, the Congressional Budget Office (CBO) pointed out that the legislation before the House of Representatives (H.R. 3200) would actually add significantly to the deficit by as much as $1 trillion over the next 10 years.

That news caused many in Congress to gulp hard, yet the CBO estimate is almost certainly low if history is a guide.  I thought it would be useful to look at how far off previous estimates from Congress on Medicare costs have been  in the past.

When Medicare was passed, various future estimates of costs were made by Congress.  Those estimates were wildly off base, so much so that it is doubtful that Medicare would have passed, had there been an accurate cost estimate.  The chart above shows the estimate for the year 1990 of $12 billion versus actual spending of $110 billion.  The $12 bill estimate was adjusted for inflation.  So, the actual costs were nine times higher than estimated.

This report from the Senate’s Joint Economic Committee gives some historical detail for Medicare and other programs:

Are Health Care Reform Cost Estimates Reliable (Joint Economic Committee, July 31, 2020, Senator Sam Brownback (R-KS)

Since the end of World War II, major health care reform proposals have generally always cost more-sometimes significantly more-than the highest cost estimates published while the legislation was pending…

Medicare (entire program). In 1967, the House Ways and Means Committee predicted that the new Medicare program, launched the previous year, would cost about $12 billion in 1990. viii Actual Medicare spending in 1990 was $110 billion-off by nearly a factor of 10.ix

A certain level of error in cost projections is to be expected, especially regarding sectors as complicated as health care. But as Table 1 shows, the foregoing examples represent extreme under-estimates, with error ratios ranging from 1.2:1 to 17:1. What explains this phenomenon? For reasons that may never be entirely understood, health care appears to be an area with great room for overly optimistic assumptions regarding changes in the behavior of patients and providers, technological innovation, the practice of medicine, program take-up rates, future health cost inflation, and the likely success of proposed cost-control mechanisms.

…Whatever the causes, it seems there is a kind of Murphy’s Law of health care legislation: “If it can cost more than the highest available official estimate, it probably will.” The House and Senate are currently considering health care reform bills that would cost in the vicinity of $1 trillionxviii over the first 10 years and $2.4 trillionxix over the first 10 years of full implementation…

Here is the table referenced above:

Source: Senate Joint Economic Comm.

As you can see from the table, this is not just a problem for Medicare nor is it a problem limited to the U.S.  For a variety of reasons, estimating costs of government-run healthcare seems to be quite difficult.  So, I would not take current estimates as being cast in stone.  In fact, I would assume they are very low as Congressional estimates have been in the past.

Big Pharma Cuts Deal With White House

Kurt Brouwer August 26th, 2009

Though the country may seem divided politically, there are some issues on which both liberals and conservatives can agree.  One of those areas of agreement is that Big is Bad.  Liberals tend to focus their ire on Big Business or Big Oil or Big Pharma.  On the other hand, conservatives focus their attention on Big Government.  Both sides have a point.  Yet both only see part of the problem.

Liberals have fought Big Business for decades, yet they cannot muster the same outrage for the mischief and mayhem inherent in centralizing more and more power in the government.  Conservatives have fought a battle against the encroachments of Big Gov for decades, but they too have not focused much attention on the damage caused by Big Business.

Liberals and Conservatives United?

Now, we have an issue that could unite — I know I’m dreaming a bit, but what the heck — the two sides.  In fact, warning bells are sounding on both sides about a scary alliance between Big Drug or Big Pharma and the White House. In opposition to this deal, we have a reliable liberal such as Sen. Bernie Sanders (I-VT), who is an independent only because the Democrats are too conservative in his view.  We also have the Los Angeles Times and the liberal-leaning Huffington Post web site digging into the details of this deal.

Yet, there is opposition from the right side of the aisle too.  For example, Sen. John McCain (R-AZ) and other Republicans such as Rep. John Shadegg (R-AZ) have warned about this deal.  However, most of the outrage seems to come from the liberal side of the political spectrum.

In my view, any issue that can unite left and right in condemnation is worthy of serious examination [emphasis added to all quotations below]:

Obama gives  powerful drug lobby a seat at healthcare table (Los Angeles Times, August 4, 2020, Tom Hamburger)

The pharmaceutical industry, once condemned by the president as a source of healthcare problems, has become a White House partner.

As a candidate for president, Barack Obama lambasted drug companies and the influence they wielded in Washington. He even ran a television ad targeting the industry’s chief lobbyist, former Louisiana congressman Billy Tauzin, and the role Tauzin played in preventing Medicare from negotiating for lower drug prices.

Since the election, Tauzin has morphed into the president’s partner. He has been invited to the White House half a dozen times in recent months. There, he says, he eventually secured an agreement that the administration wouldn’t try to overturn the very Medicare drug policy that Obama had criticized on the campaign trail.

“The White House blessed it,” Tauzin said.

At the same time, Tauzin said the industry he represents was offering political and financial support for the president’s healthcare initiative, a remarkable shift considering that drug companies vigorously opposed a national overhaul the last time it was proposed, when Bill Clinton was president.

…Tauzin said he had not only received the White House pledge to forswear Medicare drug price bargaining, but also a separate promise not to pursue another proposal Obama supported during the campaign: importing cheaper drugs from Canada or Europe. Both proposals could cost the industry billions, undermine its ability to develop new cures and, in the case of imports, possibly compromise safety, industry officials contend.

Much of the bargaining took place in July at a meeting in the Roosevelt Room, just off the Oval Office, a person familiar with the discussions said. In attendance were Tauzin, several industry chief executives — including those from Abbott Laboratories, Merck and Pfizer — White House Chief of Staff Rahm Emanuel and White House aides.

… The benefits to the White House go beyond budget savings. Tauzin’s trade association, the Pharmaceutical Research and Manufacturers of America, or PhRMA, is helping to underwrite a multimillion-dollar TV advertising campaign touting comprehensive healthcare legislation.

… Tauzin, a Democrat who helped found the conservative Blue Dog coalition in the House before switching to the Republican Party in 1995, was chairman of the House committee that helped shepherd Medicare drug legislation through Congress, including the provision that the government not interfere with price negotiations.

… This year, for the first time in two decades, Democrats have so far picked up more of the industry’s campaign cash — 54% — than Republicans, according to the Center for Responsive Politics.

And PhRMA, a reliable backer of conservative candidates and causes in the past, has shifted allegiance in other ways, including joining labor leaders in a high-priced ad campaign to build grass-roots support for Obama’s health plan.

…In just the last four months, the industry has spent $68 million on lobbying in Washington, assuring its continued standing atop the nation’s lobbyist spending list.

Sen. Bernie Sanders (I-Vt.), a champion of importing drugs from Canada and reducing the cost of pharmaceuticals, professes continued suspicion of the industry, including its deals with the White House.

“The drug companies form the most powerful lobby in Washington,” he said. “They never lose.”

Great line from Sen. Sanders.  The drug companies…They never lose…

The Huffington Post has been on this story as well.

Internal Memo Confirms Big Giveaways in White House Deal With Big Pharma (Huffington Post, August 13, 2020, Ryan Grim)

A memo obtained by the Huffington Post confirms that the White House and the pharmaceutical lobby secretly agreed to precisely the sort of wide-ranging deal that both parties have been denying over the past week.

The memo, which according to a knowledgeable health care lobbyist was prepared by a person directly involved in the negotiations, lists exactly what the White House gave up, and what it got in return.

It says the White House agreed to oppose any congressional efforts to use the government’s leverage to bargain for lower drug prices or import drugs from Canada — and also agreed not to pursue Medicare rebates or shift some drugs from Medicare Part B to Medicare Part D, which would cost Big Pharma billions in reduced reimbursements.

In exchange, the Pharmaceutical Researchers and Manufacturers Association (PhRMA) agreed to cut $80 billion in projected costs to taxpayers and senior citizens over ten years. Or, as the memo says: “Commitment of up to $80 billion, but not more than $80 billion.”

The Huffington Post is a reliably liberal media source, yet the outrage towards the White House and the secret negotiations in this post is unfeigned.  The aptly-named Ryan Grim at HuffPo continues:

Critics on Capitol Hill and online responded with outrage at the reports that Obama had gone behind their backs and sold the reform movement short. Furthermore, the deal seemed to be a betrayal of several promises made by then-Sen. Obama during the presidential campaign, among them that he would use the power of government to drive down the costs of drugs to Medicare and that negotiations would be conducted in the open…

Several years ago, many liberals expressed anger at the Bush White House for holding secret meetings at the White House with energy companies.  Now, it appears a Democrat in the White House is doing the same thing with drug companies. Of course, as always in Washington, it comes down to money.  HuffPo continues:

Obama is walking a tightrope here. He wants to keep PhRMA from opposing the bill, and benefits by having its support, which now includes a $150 million advertising campaign. That’s a fortune in politics — more than Republican presidential candidate John McCain spent on advertising during his entire campaign — but it’s loose change in the pharmaceutical business.

Opponents of the deal with PhRMA hope that Obama is playing a multilayered game, making a deal in order to keep the drug makers in his camp for now, but planning to double-cross them in the end if he needs to in order to pass his signature initiative.

Anyone who thinks along this line, that Obama is toying with Big Pharma, should consider Senator Sanders’ line above, ‘They [Big Pharma] never lose.’

Big Pharma, however, is still comfortable. “As far as the pharmaceutical industry, PhRMA and its member companies, yes, they say a deal is a deal. We’ll see what happens,” said the health care lobbyist.

Of course, Big Pharma is comfortable with the deal.  It’s a good deal for them.

Oddly enough, the White House seemed to be a bit nonplussed by all the outrage, particularly as much of it has come from liberals.  The LA Times adds to the story:

White House deal with drug firms draws flak (Los Angeles Times, August 14, 2020, Tom Hamburger)

An $80-billion deal with the drug industry that the White House thought would add momentum to its campaign for national healthcare reform has instead provoked a political tempest, frustrating and bewildering some of the president’s most important allies.

As complaints rolled in, the administration offered varying, sometimes contradictory explanations of the deal.

“I’ve heard a lot of confusion about what was agreed to,” said Rep. Henry A. Waxman (D-Beverly Hills), chairman of the House Energy and Commerce Committee, who wrote healthcare legislation that would impose more cost on the industry than that contained in the White House agreement.

…This week, Tauzin’s top aide at PhRMA, Ken Johnson, reiterated that view but said it was time to stop public discussions about whether it came up in the closed-door White House meetings.

Hmm.  Time to stop public discussions about what came up in closed-door White House meetings?  What happened to transparency?  Making a statement like that is not likely to reassure anyone who is concerned about secret negotiations, is it?  The LA Times continues:

From the time the industry was first asked to participate in crafting healthcare overhaul legislation, Johnson said that Tauzin told everyone: “We’ll do everything we can to help. But we will not support price controls, because they will hurt patients by drying up research and development needed to find new cures, and they will kill jobs in a very fragile economy.”

Tauzin thought the White House and others understood that meant there would be no change in the government prohibition on price negotiations for drugs. “We thought there was an underlying assumption on that key point,” Johnson said.

At this stage, he added, “it’s counterproductive to keep talking about it.”

There have been various announcements of changes to the deal and modifications of it, but those appear to be largely cosmetic.  After all, the deal has in it plenty of money for Big Pharma, plus $68 million in lobbying dollars for Congress and another $150 million from Big Pharma to pay for favorable ads for the White House’s healthcare reform.  That kind of financial appeal is almost certainly going to be irresistible.

The final comment on this comes from former Labor Secretary Robert Reich, who served during the Clinton administration.  On his blog, Reich posted this:

How the White House’s Deal With Big Pharma Undermines Democracy (Robert Reich’s Blog, August 9, 2020, Robert Reich)

…How soon until big industries and their Washington lobbyists have become so politically powerful that secret White House-industry deals like this are prerequisites to any important legislation? When will it become standard practice that such deals come with hundreds of millions of dollars of industry-sponsored TV advertising designed to persuade the public that the legislation is in the public’s interest? (Any Democrats and progressives who might be reading this should ask themselves how they’ll feel when a Republican White House cuts such deals to advance its own legislative priorities.)

We’re on a precarious road — and wherever it leads, it’s not toward democracy.

From what I can see, this issue has created a genuine bipartisan sense of outrage.  The melding of Big Business and Big Government is one that should scare us all, in my opinion.  The liberals are leading the charge on this.  Yet, it was a Republican president — Dwight D. Eisenhower — who first warned about the undemocratic principles inherent in an alliance between Big Gov and Big Business.  Ike warned us many years ago to fear the military (Big Gov) - industrial (Big Business) complex.

I hope we can all recognize — and reject — this unholy alliance between Big Business and Big Government.  It is not good for us, nor is it good for our democracy.

Clunking toward health reform

Kurt Brouwer August 25th, 2009

I thought this cartoon was funny.  Our government cannot properly manage a pretty simple $1 billion car rebate program, but our fearless folks in Congress are willing to give it a go with healthcare and health insurance, which together comprise about 15% of our economic activity:


Source: Economists Do It With Models

We’re in the best of hands

Kurt Brouwer August 25th, 2009

In this era of budgetary constraint and fiscal rectitude, we are pleased to report that our political leaders and bureaucratic chieftains have really gotten the message.  Otherwise, they would fund all kinds of crazy things.


U.S. Will Pay $2.6 Million to Train Chinese Prostitutes to Drink Responsibly on the Job (CNS News, May 12, 2020, Edwin Mora)

The National Institute of Alcohol Abuse and Alcoholism (NIAA), a part of the National Institutes of Health (NIH), will pay $2.6 million in U.S. tax dollars to train Chinese prostitutes to drink responsibly on the job.

Dr. Xiaoming Li, the researcher conducting the program, is director of the Prevention Research Center at Wayne State University School of Medicine in Detroit.

The grant, made last November, refers to prostitutes as ”female sex workers”-or FSW-and their handlers as “gatekeepers.”

“Previous studies in Asia and Africa and our own data from FSWs [female sex workers] in China suggest that the social norms and institutional policy within commercial sex venues as well as agents overseeing the FSWs (i.e., the ‘gatekeepers’, defined as persons who manage the establishments and/or sex workers) are potentially of great importance in influencing alcohol use and sexual behavior among establishment-based FSWs,” says the NIH grant abstract submitted by Dr. Li…

This study certainly seems essential doesn’t it?  After all, what could be more important to people in Detroit, home of Wayne State University, than that Chinese prostitutes drink responsibly?  And, since this ‘study’ is funded by the Federal government, it’s not as though we have any problems closer to home, right?

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