Eleutherian

The U.S. Equal Employment Opportunity Commission (EEOC) has ignored the religious freedom of the Catholic Church in ruling that Belmont Abbey College must include health care coverage for artificial contraceptives for employees of the college.

Patrick J. Reilly, President of The Cardinal Newman Society sent a letter to the EEOC, stating:

It is ironic that the federal agency responsible for protecting against discrimination has so blatantly engaged in an inexcusable violation of religious liberty in its Belmont Abbey ruling.

No Catholic college or other institution should be required by government to violate the Catholic Church’s clear moral teachings.

Belmont Abbey President William Thierfelder adds:

As a Roman Catholic institution, Belmont Abbey College is not able to and will not offer nor subsidize medical services that contradict the clear teaching of the Catholic Church.

Reilly and Thierfelder make good points, but I'm not entirely convinced. A Catholic college hires non-Catholic employees. Offering contraceptives in the employee health care plan is not the same thing as endorsing their use.

However, there is a legitimate issue regarding government mandates increasing the cost of health care. When the government requires a health care plan to include additional coverage, it increases the cost of the coverage.

President Obama is toeing legally defined lines in his support of a public option in health care. As many people already know, the White House has requested:

Since we can’t keep track of all of them here at the White House, we’re asking for your help. If you get an email or see something on the web about health insurance reform that seems fishy, send it to flag@whitehouse.gov.

Setting aside references to 1984 or Fahrenheit 451, let's look purely at the consequences. At a recent town hall meeting in Georgia, Democratic Rep. David Scott verbally lashed one of his constituents who asked him a valid question on health care during an open question and answer period at the end of the meeting. Rep. Scott yelled:

I'm listening to my constituents, OK? These are people who live in the 13th Congressional district, who vote in this district. That’s who I’ve got to respond to…So what you’ve got to understand, those of you who are here, who have taken and came and hijacked this event we dealing with here, this is not a health care event.

You chose to come and to do it on your own. Not a single one of you had the decency to call my office and set up for a meeting. You want a meeting with me on health care, I'll give it to you!

The Obama administration has labeled U.S. citizens who attend town hall meetings and ask questions on health care "astroturf," meaning fake grassroots. The constituent in question is Dr. Brian Hill, a resident of the 13th district. Furthermore, he previously contacted the representative's office to schedule a meeting to discuss health care, but his request was never granted. Dr. Scott was all but denied his right to petition his elected official.

President Obama was elected to unify a divided country. Instead, his actions are turning the divided sides against each other. There is a parallel to this worsening situation. Ironically, it is the abolitionist movement of the early 1800's.

Abolitionists became too vocal on a controversial issue. As a result, no petition regarding the abolition of slavery was allowed to be read before Congress. Luckily, at the time, one congressman had the courage to stand up against this blatantly unconstitutional action: Congressman John Quincy Adams.

John Quincy Adams (post-presidency) stated before Congress:

The voice of Freedom has not yet been heard, and I am earnestly urged to speak in name. She will be trampled under foot if I do not, and I shall be trampled under foot if I do...What can I do?

The right of petition...is essential to the very existence of government; it is the right of the people over the Government; it is their right, and they may not be deprived of it.

John Quincy Adams has long been my hero. These quotes are excerpts from Joseph Wheelan's Mr. Adams's Last Crusade.

Before you respond angrily for comparing health care to the abolitionist movement, bear in mind that I am only comparing the consequences of government actions to suppress controversial speech. While the right to petition has not yet been repealed in this instance, it is most certainly being discouraged. Abolitionists did not have their rights repealed at once either.

The government is trying to fund health care reform. They are desperately reaching, ignoring the hypocrisy of their actions, and it will hurt America.

Taxing food and soda has been touted for months as a means to fund a government-controlled health care plan that is supposed to save taxpayers money. The hypocrisy does not end there.

The LA Times reported on the Urban Institutes's proposal to tax "fattening" foods to handle the "uncontrolled obesity epidemic." Take note of the word "uncontrolled." It is not the government's responsibility to control the eating habits of American citizens.

If you happen to be the 1-in-3 Americans who is neither obese nor overweight (and, thus, considered at risk of becoming obese), you might well conclude that the habits of the remaining two-thirds of Americans are costing you, big time.

If eating habits of other people are costing you, imagine how much taxing the food you eat will cost you. Most states exempt food for home consumption from sales tax. The federal government will take the opposite approach. This may cause states to follow suit, exacerbating the problem.

The Center for Disease Control (CDC) supports taxing both food and soda. CDC chief Dr. Thomas Freiden testified that taxing fattening foods "would be effective" at reducing obesity. Freiden and others compare the proposed 3-cent soda tax to the excise tax on cigarettes. Let's talk cigarettes.

The Urban Institute reports:

Facing the serious consequences of an uncontrolled obesity epidemic, America's state and federal policy makers may need to consider interventions every bit as forceful as those that succeeded in cutting adult tobacco use by more than 50%

The federal tax on cigarettes now stands at $1.01 per pack or about $10.10 per carton. On top of this incredibly high tax, individual states apply their own tax on cigarettes, ranging from $.07 in South Carolina to a high of $3.46 per 20-pack in Rhode Island. With such excessive taxation, it is very understandable that people were financially forced by the government to quit smoking.

However, a 3-cent tax on soda will not cause people to change their drinking habits. If anything, it will cause soda prices to go up by at least 5 cents at vending machines to compensate for the tax and exclude the need for pennies. The government will fail at reducing obesity (a task with which it should not be worried) and increase the profit of vending companies and perhaps even soda companies.

Additionally, the Urban Institute ignores the changing social attitude toward cigarettes that greatly contributed to their tobacco use reduction statistic. There is no need to financially force U.S. citizens who want to engage in a certain activity to cease doing so. The social attitude toward healthy eating and drinking is changing now much as it has changed toward cigarettes. The government has no role in legislating morality (or eating habits).

The proposed taxation does not end there. The Senate Finance Committee has touted the idea of a 10% tax on plastic surgery. The tax would apply to procedures such a liposuction, which not only improve a person's appearance but also improves the body's health through reduced stress on joints.

Bill Maher ranted over at the Huffington Post last week, proclaiming, "New Rule: Not Everything in America Has to Make a Profit." However, he failed to provide a single example of an enterprise that does not necessarily have to make a profit to justify its existence. If Bill Maher ran America, the following industries from his article would be controlled and operated by the government:

1. weapons manufacturers
2. military vehicle manufacturers
3. private security forces
4. prison operators
5. media
6. health insurance
7. health care (including hospitals)

Yes, Bill Maher, America does have a capitalism problem. The problem is I can no longer easily recognize the "free" in "free market." Government intervention in the marketplace continues to worsen, which will only cause the list above to grow.

Maher complains "our war zones are dominated by private contractors and mercenaries who work for corporations. There are more private contractors in Iraq than American troops." Maher is actually complaining that there are more private contractors than troops. What ratio would he find acceptable? Who will perform the jobs no longer available to private citizens - more troops? Failing to think through the consequences, this plan would put more troops in war zones and increase unemployment at home.

The privatization of prison operations has grown in popularity as many states have experienced growing budget deficits. If the private sector can operate a prison more cost effectively than the government, then the government should step aside. You cannot complain when a special interest lobbies government to serve their interests. Every special interest lobbies the government. Why doesn't Bill Maher complain when other special interests, like teacher unions, lobby the government? The two largest teacher unions spend more money lobbying the government than the top two defense contractors, the top four oil companies, or the top five lobbying firms.

Accoding to Maher, "Television news is another area that used to be roped off from the profit motive." Really? If television news didn't earn a profit, 24-hour news channels would not exist. The private sector does not create demand; it meets demand that already exists (or anticipates it).

In some countries, the media does not have to earn a profit. However, when the government controls your funding, it controls your actions. No state in the U.S. has had a legal drinking age under 21 since 1984 when Congress threatened to withhold highway funds to states that did not comply.

Maher tells the following story about health care:

It wasn't that long ago that when a kid broke his leg playing stickball, his parents took him to the local Catholic hospital, the nun put a thermometer in his mouth, the doctor slapped some plaster on his ankle and you were done. The bill was $1.50, plus you got to keep the thermometer.

But like everything else that's good and noble in life, some Wall Street wizard decided that hospitals could be big business, so now they're run by some bean counters in a corporate plaza in Charlotte.

This is not an argument against private health care. The Catholic church was not forced out of the heath care industry. It removed itself from a nonprofitable enterprise where it did not maintain a comparative advantage, moving its limited funds to enterprises where it believed would benefit the most people (or better serve its interests).

Having just read this report, I wanted to put out a quick post before the weekend. I will come back next week with more depth on various health care topics.

According to CQ Politics, Director Douglas Elmendorf of the Congressional Budget Office (CBO) has stated that the health care plans thus far proposed will not reduce the government's long-term health care costs. Members of Congress, particularly Democrats, are scrambling in committees to address these concerns.

Michael Kinsley with the Washington Post wrote last week, "...keep in mind that health-care reform is supposed to save money. Its premise is that the current path is unaffordable." Anything less is unacceptable, and the CBO, led by Elmendorf, agrees with this conclusion.

This post will focus largely on the effects of a so-called "public option" in health care. You can read my previous posts on health care here, and I plan to post comprehensive talking points on the health care debate in the future.

Here are the three takeaway points from this post:

1. Taxpayer subsidies or the expectation of subsidies will give a government-sponsored public option an unfair advantage over private providers.
2. A public option will primarily reduce costs through monopsony power.
   
3. The government will not set appropriate reimbursement levels to cover the costs of research and development, discouraging future investment.
   

From his past public comments, it is clear that President Obama wants any new health care legislation to include a public option, reasoning that consumer choice and economic competition will benefit. According to Harvard economics professor N. Gregory Mankiw's piece in the New York Times, a public option will have quite the opposite effect. Consumer choice and competition are typically achieved without a public choice. For example, a government option was not needed to create choice and competition among grocery stores, gas stations, or auto insurance providers.

Robert Reich, on the other hand, argued in the Wall Street Journal that a public option will act like any other not-for-profit health care plan, so there is no need to "coddle" the for-profit plans. However, Reich is a former Secretary of Labor in the Clinton administration, and I find it difficult to trust anyone in that position who wasn't smart enough to call for an end to the federal Davis-Bacon prevailing wage law.

As such, there is no way that a government option will act as a private nonprofit health care plan. Mankiw stated, "The public plan would have to stand on its own financially, as private plans do, covering all expenses with premiums from those who signed up for it." In other words, it wouldn't have access to taxpayer dollars. Even if this was the case (which it likely will not), the plan will still have the 'Fannie Mae/Freddie Mac benefit'. Mankiw describes this issue:

Fannie Mae and Freddie Mac, the mortgage giants created by federal law, were once private companies. Yet many investors believed — correctly, as it turned out — that the federal government would stand behind Fannie’s and Freddie’s debts, and this perception gave these companies access to cheap credit.

The mere expectation of taxpayer support will give any public option an unfair advantage against private health care plans. These taxpayer subsidies will prevent the honest competition Obama and other supporting politicians claim they desire. In other words, because mandating a single-payer system is not politically possible in this country, "...a public option that uses taxpayer funds to tilt the playing field may be an attractive second best," stated Mankiw. Reich either overlooks or ignores this aspect.

Reich points to the success of Medicare and Medicaid at limiting administrative costs. However, in a Wall Street Journal rebuttal, AEI's John Calfee stated that Medicare actually outsources many of its administrative services to private sector providers (I was unable to confirm this statement. If anyone has a source, please forward it to me or comment on this post). Additionally, we shouldn't be looking to Medicare and Medicaid as examples. They are a large reason as to why our country's health care finances are in shambles.

As for economies of scale, Calfee notes:

Aetna currently serves about 18 million subscribers, UnitedHealth Care serves between 25 million and 30 million, and WellPoint more than 35 million. That is more than is served by the health-care monopoly of Canada (population 33.6 million), and more than the entire health-care systems of most European nations. Once a plan reaches a few million subscribers, there may not be a lot of economies of scale left that can enable public plans to provide lower prices [emphasis added].

A government-sponsored public health care option will primarily control costs through monopsony power. According to Mankiw:

A dominant government insurer, however, could potentially keep costs down by squeezing the suppliers of health care. This cost control works not by fostering honest competition but by thwarting it....a monopsony — a buyer without competitors — can reduce the price it pays below the competitive level by reducing the quantity it demands [emphasis added].

Calfee adds that other nations' governments achieve lower prices through "monopsony, not superior skill [emphasis added]." Reich responds to such criticism by asking if a monopsony in health care is such a bad thing. Besides, Reich asserts, "no one has to choose it." This is a complete lie. The Congressional Budget Office (CBO) has already stated that a public option would force approximately 10 million people from their current, private insurance providers to the public "option". They will not have a choice.

Of the most dangerous effects of a public option in health care, monopsony power will reduce the number of doctors, health care professionals, and perhaps most importantly, research and development (R&D).

The United States accounts for approximately one-half of the worldwide profits that make continued medical R&D economically feasible. According to Calfee:

When other nations construct their health-care systems, they ignore the impact of their pricing policies on R&D incentives. As the dominant R&D funding wellhead, [the United States does] not have that option [emphasis added].

Since Reich and others want to look to Medicare as an example, we shall. Medicare takes a "destructive approach" to cost reduction by squeezing health care providers until too many refuse to accept Medicare patients. The government doesn't even attempt to set appropriate reimbursement levels to cover R&D costs.

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Shifting gears, I would like to point you to an article by David Brooks in the New York Times. He covers the insufficiently covered, yet laudable, Wyden-Bennett bipartisan health care bill. Senator Bennett is by far my favorite current member of Congress, and this bill removes the tax exemption for employer-provided health care plans. Spread the word.

Health "insurance" isn't really insurance. That may sound confusing, so I intend to clarify the subject by comparing it to auto insurance, a rather easy-to-comprehend policy. Generally, insurance protects the covered individual(s) from unexpected costs. This post will focus on that point.

Before I begin, I would like to draw a distinction to limit the number of comments that because auto insurance is mandatory, health insurance should be mandatory, too. This is a flawed argument. Driving is a "privilege," living is a right. A mandate to own auto insurance for everyone who drives is therefore different than a government mandate to own health "insurance" for everyone who lives.

According to Wikipedia, "Insurance, in law and economics, is a form of risk management...defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed small loss to prevent a large, possibly devastating loss [emphasis added]." The third principle of insurance is accidental loss. As such, health insurance started as an early form of disability insurance (or "accident insurance").

If auto insurance was like health "insurance," then your employer would decide from which plans and from which providers you may choose. You would no longer see advertisements on television for such companies as Geico, Progressive, and Nationwide, competing for your business through lower prices and innovations in services provided.

The government would also pass legislation (undoubtedly outside the scope of their federal powers) to mandate auto insurance plans carry certain minimum services, increasing the cost of premiums regardless if the customers want these services or not. Obviously, the government knows what's best for you.

However, we would also expect out auto insurance to cover certain non-accidental (expected) costs. Just as we expect our health "insurance" to subsidize our purchases of birth control pills and prescription allergy medicine, we would expect our auto insurance to help pay for our gasoline and oil changes. Who cares if this increases the cost of your insurance premiums (even if you drive less miles than the average driver and thus would face a disproportionately higher increase), you'll feel better every time you fill your gas tank, right?

This brings us to charging higher premiums for risky behavior. The Kennedy-Dodd health care bill would prohibit charging higher premiums to individuals who smoke, use drugs, and engage in other unhealthy behaviors. If that were the case, auto insurance providers could no longer charge higher premiums to males and young drivers (perhaps a positive development) but also that terrible driver who doesn't take care of his/her car, reguarly receives speeding tickers, and has totaled three cars in as many years (we all know at least one of these drivers). If auto insurance was like the Kennedy-Dodds health care bill, every driver would pay higher auto insurance premiums because of undoubtedly poor drivers.

Harvard's Greg Mankiw recently posted the results of a study and his thoughts on physicians' incomes and health care costs. Here are his takeaway questions:

On the issue of monopsony power: Explain how a large government healthcare plan (a "single payer" being the extreme case) could potentially reduce the wages of healthcare workers and thereby national healthcare costs. What are the similarities and differences between this solution to high healthcare costs and a targeted income tax surcharge levied only on healthcare providers (the revenue from which is rebated to all taxpayers)? Are the policies you considered above efficient, using the economist's standard definition of efficiency? Are they equitable, as judged by your own notion of fairness? In your opinion, does your analysis argues for or against a government-run healthcare plan?

On the issue of doctor training: Suppose that in country A physicians get free training through a taxpayer-financed educational system, while in country B physicians finance their own education and then, once trained, are paid higher fees. If country A classifies these training expenses as education rather than healthcare spending, which country would report higher healthcare costs? Is that difference in healthcare costs real or an artifact of labeling? In which country would doctors, once trained, have more incentive to work long hours? In which country would there be more doctors? Which country's system, in your judgment, is more efficient and equitable?

On the issue of inequality: Do you think that the provision of medical services uses more or less human capital than does the typical job in the economy? What does your answer imply about the relative price of healthcare looking across countries with varying degrees of economic inequality? In the United States, the wage gap between skilled and unskilled workers has increased substantially over the past several decades. Other things equal, what does this fact imply about the trend in the relative price of healthcare? If public policy were to try to prevent this change in the price of healthcare without addressing the underlying trend in wage inequality, what effects would the policy have?

Last Friday, Peter Robinson wrote in Forbes on Milton Friedman's view on health care reform. You can read Friedman's original article here. The best part of Friedman's article is the history lesson he provides:

During World War II, the government financed much wartime spending by printing money while, at the same time, imposing wage and price controls. The resulting repressed inflation produced shortages of many goods and services, including labor. Firms competing to acquire labor at government-controlled wages started to offer medical care as a fringe benefit. That benefit proved particularly attractive to workers and spread rapidly.

Initially, employers did not report the value of the fringe benefit to the Internal Revenue Service as part of their workers’ wages. It took some time before the IRS realized what was going on. When it did, it issued regulations requiring employers to include the value of medical care as part of reported employees’ wages. By this time, workers had become accustomed to the tax exemption of that particular fringe benefit and made a big fuss. Congress responded by legislating that medical care provided by employers should be tax-exempt.

It all began with the government's misguided wage controls. As always, the private sector responded to government intervention with new means of bypassing it. It's difficult to blame them for that.

Also, it's important to note that the government originally tried to prevent this tax exemption for employer-provided health "insurance" (I will cover why insurance is in quotations in a later post). Therefore, the argument that the exemption was intended to encourage the behavior of employer-provided medical care is false.