One of the reasons Americans are understandably wary of the
current health care legislation moving through Congress is that the
specifics of legislation do not match the rhetoric of the
President. To defuse public suspicions, researchers at the Urban
Institute recently published a study trying to persuade ordinary
Americans that "[c]urrent national health reform proposals would
not cause 'a government takeover of health care.'"
However, what President Obama actually promised is that reform
"will keep government out of health care decisions." Like
the definition of what constitutes a tax, whether the President is
keeping his promise depends on how one defines the word
The Wrong Yardstick
The thrust of the Urban analysts' argument is that growing fears
of a federal takeover of American health care are unfounded because
the federal government will not own hospitals, nor will all the
physicians in America be federal employees. Thus, they write,
"Nothing in pending proposals would increase the proportion of care
provided by publicly owned hospitals or by publicly employed
physicians." They contrast the Veterans Administration,
which does own facilities and employs doctors, with Medicare, which
reimburses private providers.
Curiously, they do not mention the government-run health care
system that has operated under the Department of Health and Human
Services (HHS) for more than 50 years: the Indian Health Service
(IHS), which directly employs more than 15,000 individuals and
operates hospitals, health centers, and other clinics. Per capita
expenditures under the IHS are $2,349 per user, compared to the
total U.S. population of $6,538.
If per capita expenditures are the measure of efficiency, the
IHS model would be the winner hands down. But poor access to health
care is clearly an issue with the IHS, which may perhaps be the
reason the report does not reference it as a means of showing how
well government run health care can work.
It would also be wrong to conclude that the Veterans
Administration or IHS models are the only forms of
government-controlled health care.
The Urban analysts opine that the proposed government-run health
insurance option, like that which is proposed in the House bill
(H.R. 3200), will be just like any other private health plan. Of
course, inasmuch as the federal authorities have never run anything
remotely like a private insurance health plan, it is hard to
imagine how such a public health insurance option will actually
In the House bill, the "public option" is described in a mere
seven and one-half pages of text, leaving considerable discretion
and unprecedented power in the hands of the executive branch.
Section 221 specifies, "In designing the [public] option, the [HHS]
Secretary's primary responsibility is to create a low-cost plan
without comprimising [sic] quality or access to care." That
leaves a lot of room for the exercise of government power and thus
political--as opposed to private--decision making.
Under the House bill, for example, what are the limits of
political power? Where is the line inappropriately crossed, say,
when the congressionally created commissioner of the new Health
Choices Administration and the HHS Secretary define health benefit
coverage and the delivery system? At what point do these regulatory
interventions insert themselves into the practice of medicine? For
example, will there be:
- A drug formulary?
- Limitations on the number or types of drugs?
- Limitations on the amount, duration, and scope of
- Prior authorization?
- Physician profiling?
- Excluding physicians for ordering too many tests?
- Different types of managed care?
- Only one national HMO?
- Selective contracting for any types of providers?
- National coverage decisions on new technologies?
No one, including the Urban analysts, knows the answers to these
questions based on the House legislative text alone. If any of
these measures are adopted--all of which insert bureaucracy into
the practice of medicine to some degree--then the size of the
federal "takeover" is proportionate to the number of people in the
government plan. Authors of the legislation apparently believe the
number of people in the government plan will be large, because
Section 223 essentially drafts every provider currently in the
The Myth of "Negotiation"
Some proponents of the House bill insist that the government
health plan will not use its leverage in the marketplace to muscle
out private competition. This is perplexing. If the government plan
is not "big enough" in terms of the number of covered lives, then
it does not have sufficient market share to use leverage against
doctors and hospitals. Without such leverage, it cannot lower
For years, some Members of Congress have supported legislation
to allow the HHS Secretary to "negotiate" prices of prescription
drugs. Negotiation is a polite word for something very
different: price fixing. Coercion is more accurate.
How does it work? The same way states--led by California--have
done it for years in Medicaid: getting supplemental rebates from
drug manufacturers. California threatens to limit access to a
manufacturer's products unless the manufacturer lowers its price.
California then gets deeper discounts because the manufacturer
cannot afford to forfeit the state"s business.
While it is true that physicians participating in the government
health plan would not be direct employees of the federal
government, their income will be increasingly dependent upon what
federal officials decide to pay. The more people join the
government plan, the more their physicians will depend on the
federal government for their income. Federal funding will not just
affect the market; it will become the market--doctors and
hospitals will not be able to opt out or avoid it.
Just as California has used its leverage to force drug
manufacturers to accept lower payments, so too would the federal
government force doctors and hospitals to accept lower
reimbursement. If reimbursement falls "too low," as the experience
of state Medicaid programs show, beneficiary access to services is
threatened. It is ironic that congressional proponents argue that
the federal government is not a threat to access to care when
Section 1121 of the bill proposes to "fix" the sustainable growth
rate for physicians under Medicare at a cost of $228 billion.
Obviously, no one, including the Urban analysts, can say how
future events will unfold. Should the House bill become law, for
example, after four years doctors and hospitals would be paid
essentially what the federal government wants to pay: "The [HHS]
Secretary shall continue to use an administrative process to set
such rates in order to promote payment accuracy, to ensure adequate
beneficiary access to providers, and to promote affordability and
the efficient delivery of medical care."
The idea that doctors will somehow be free from government
coercion is naïve. Under Section 223 of the House bill, every
medical professional currently in the Medicare program would be, in
effect, "drafted" into the new government health plan.
How is requiring every current Medicare provider to join the
public plan--unless the HHS Secretary agrees to let that provider
out--not a government takeover?
CBO estimates that under current law, there will be 74 million
people by 2019 who are served by Medicaid for at least some part of
the year. Assuming the State Children"s Health
Insurance Program continues, another 7 million children will be
covered if current enrollment stays the same. Another 60 million
individuals will be served by Medicare. Approximately 8 million
will be served by both Medicare and Medicaid, leaving a net
Medicare and Medicaid population of about 126 million people. CBO
estimates another 11 million individuals will be added to Medicaid
under H.R. 3200, and 30 million individuals will receive new
government subsidies, bringing the total number of individuals
receiving some form of government assistance for health care to
about 174 million.
Again, the government market will be so large that doctors and
hospitals will be forced to increase their government business,
which will displace their private business. Yet the President has
also warned, "Medicare costs are consuming our federal budget. ...
Medicaid is overwhelming our state budgets." The history of
Medicare and Medicaid shows that government budgets control costs
by cutting eligibility, cutting benefits, or coercing
providers--which in turn limits access to health care.
Inevitable and Unprecedented
Under current law and assumptions, by 2019, the Medicare Trust
Fund will have been depleted for two years; it will then no longer
be able to pay its bills on time. Furthermore, the President has
also vowed not to raise taxes on the middle class--a shaky promise
in light of the transactions now occurring in the Senate Finance
Committee--and to not increase the deficit by one dime. With the
collision of all of these events, a government "takeover" in the
form of greater government control over health care financing and
the practice of medicine is inevitable.
Smith is Senior Fellow in the Center for Health Policy Studies
at The Heritage Foundation.