The Mystery of Hospitals’ Medicaid Profitability: Evidence from Arizona


Advocates of consumer-driven health reform want to shrink the role of government. One of the things we want is for Medicaid dependents to have greater choice of coverage, perhaps even through vouchers or tax credits that would allow them to choose private coverage. We know that Medicaid patients face poor access to care and that increasing the number of people on Medicaid increases emergency-department use. And yet, it has also been argued that hospitals lose money on Medicaid patients. However, this cannot make sense because hospitals constantly lobby to expand Medicaid. They never join with proposals to move Medicaid patients to private coverage. This is especially baffling because scholars also believe that some proportion of people who take advantage of a Medicaid expansion drop private coverage to take up Medicaid.

Evidence from Arizona leads to an explanation. Arizona hospitals heavily lobbied Governor Brewer to expand Medicaid in line with Obamacare. This expansion resulted in a reduction in so-called “uncompensated costs” from about 8 percent of hospitals’ revenue in the summer of 2013 to under 5 percent in April 2014. As well, Arizona hospitals operating margin increased from $140 million for 2013 to date to $184 million for 2014 to date, an increase in operation margin from 4.0 percent to 5.2 percent.

73 Million Would Lose Employer-Based Benefits if Tax Exclusion were Eliminated


0Allison Percy of the Congressional Budget Office has published estimates of what would happen if employer-based health insurance was taxable to employees. Currently, employer-based health insurance is excluded from both income tax and payroll taxes for Medicare and Social Security. According to Percy, 73 million would lose employer-based benefits by 2017, of which 54 million would get their coverage from Obamacare exchanges. The number of uninsured would increase by 12 million. Percy also shows the distribution of this effect by household income. This is an important estimate for post-Obamacare reform, because Percy’s model simply taxes the value of employer-based insurance without returning any of those tax dollars to the people as a tax credit for the purchase of individual health insurance. (Of course, some of those 54 million getting health insurance from Obamacare exchanges will have lower premiums because their health insurers receive subsidies in their names.) Those of us who advocate reforming the tax code to give individuals tax credits for health insurance have always been beaten back by anxiety over losing employer-based benefits. Percy’s conclusions help us understand how much money we would have to allocate to tax credits to overcome the loss of employer-based benefits after including them as taxable income.

Why Does the FDA Only Act (or Overreact) After a Crisis? The 2012 Meningitis Outbreak


The FDA has just issued regulations and policy positions on compounding pharmacies that sell their products across state lines. A compounding pharmacy is a pharmacy that practices like most pharmacies did until well into the 20th century: Pharmacists actually compound chemicals into a medicine, rather than dispensing a pill or vial made by a manufacturer. That is why the mortar and pestle is the traditional symbol of pharmacy. Traditionally, the Food and Drug Administration did not scrutinize these pharmacies. In 2012, the New England Compounding Center was responsible for sending impure steroid injections to twenty states, which caused an outbreak of fungal meningitis that infected 751 people and killed 64. Congress reacted by passing amendments to the Drugs Quality and Security Act in November 2013, giving the FDA the power to regulate compounding pharmacies.

The question nobody asked was: Is this necessary? There was no general crisis of quality in compounding pharmacies. Authorities in Massachusetts shut down two pharmacies and investigated three more. The New England Compounding Center went bankrupt in December 2012.

Hits and Misses


Variety of Medicine in Pill BottlesAdherence to drug therapy varies by both the color and shape of the pill!

Don’t clean out the litter box: Cat poop may fight cancer.

You look good on paper! Company will Photoshop your graduation pics to make you look slimmer.

Why is divorce more common among families with girls? (It’s not what you think)

Pincushion therapy: Acupuncture reduces hormonal “hot flashes.”

Health Wonk Review is up: “ObamaCare is creating uncertainty and increased government control of society, which holds down economic growth” says NCPA senior Fellow John R. Graham.

Households Only Finance 70 Percent of Their Own Consumption, Down From 93 Percent in 1959


The leftish think tank Demos has published a very thorough criticism of how we measure Gross Domestic Product. Scholar Lew Daly argues that we give government too little credit for its spending, because government invests in goods and services that increase total GDP. For example, household incomes increased dramatically in the 20th century. This is due to an increase in “human capital,” much of which is due to education, which is government funded. So, government funding of education is good! Interestingly, Mr. Daly’s evidence relating education to human-capital development and rising incomes is mostly from the 1950s. Needless to say, this is before public-sector-unions or the federal government got involved, and a period in which most people would agree public schools did a better job than today.

Mr. Daly notes with concern that household incomes have been shrinking as a share of GDP for some years now. However, he does not connect this with the fact that households control less of their own consumption than they did in earlier decades. When third parties control so much of what we consume, and we believe those third parties are financed by others, it is unsurprising that those third parties will seize control of a greater share of GDP. Mr. Daly’s Figure 6 shows us that in 1959, households financed 92.8 percent of their own consumption. By 2009, that had fallen to 70.3 percent, with government and employers supplying the balance.


Hits and Misses


iStock_000004347437XSmallSome children now eligible for adult organ transplants.

Number of induced labors for early-term deliveries dropped 12 percent, 2006-2012.

Medical privacy: Let patients opt out of HIPAA and manage their own data.

36 percent increase in global use of antibiotics “alarming“.

Medicare expanding telehealth coverage to include wellness, psychotherapy, psychoanalysis.

Commonwealth Fund: 57 Percent of People Potentially Eligible for Obamacare Coverage Have Still Not Visited Exchange


A few days ago, the pro-Obamacare Commonwealth Fund released a report, Gaining Ground, cheerleading the results of Obamacare so far. Even the New York Times was a little guarded in its reception of the report, opining:

Most of the newly insured people had no trouble finding a primary care doctor, and most waited less than two weeks for an appointment. Whether that will hold true when millions more patients flood into the market remains to be seen.

That’s for sure. What the Commonwealth Fund report really confirms is what this blog has maintained for a long while: Obamacare exchanges attracted people in immediate need of medical care. 60 percent of those who enrolled have seen a doctor, been to a hospital, or filled a prescription. On the other hand, 57 percent of people potentially eligible for Obamacare coverage have still not even visited a health-insurance online exchange (Exhibit 6). And that figure is for the period starting April 1, when the full-court press to enroll everybody was at its fiercest.

Yippee! Medicare Won’t Go Bust Until 2030!


The latest Congressional Budget Office’s latest Long-Term Budget Outlook now asserts that Medicare’s so-called “Trust fund”. Talk about kicking the can down the road!

As the chart below shows, the problem is not that the “trust fund” will go bust in any given year, but that the federal government is borrowing money to finance consumption. “Other non-interest spending” includes major infrastructure and defense, tasks which constitutionally and under a proper economic understanding fall to the federal government. These were the purposes for which the Founders gave Congress the power to borrow money in the people’s name. Borrowing to finance seniors’ healthcare consumption does nothing for future generations’ prosperity.


States Spent $7.7 Billion on Prisoners’ Heath Care in 2011


GOV065A new report from the Pew Charitable Trusts reports that 41 states experienced growth in their correctional health care spending from fiscal 2007-2011, with a median increase of 13%. Further:

…state spending on prisoner health care increased from fiscal 2007 to 2011, but began trending downward from its peak in 2009. Nationwide, prison health care spending totaled $7.7 billion in fiscal 2011, down from a peak of $8.2 billion in fiscal 2009. In a majority of states, correctional health care spending and per-inmate health care spending peaked before fiscal 2011. But a steadily aging prison population is a primary challenge that threatens to drive costs back up. The share of older inmates rose in all but two of the 42 states that submitted prisoner age data. States where older inmates represented a relatively large share of the total prisoner population tended to incur higher per-inmate health care spending.

Obamacare’s Risk Corridors Protect Profits, Not Patients


On June 18, I testified to the House Committee on Oversight and Government Reform on Obamacare’s risk corridors. I was honored to join a panel alongside Edmund Haislmaier of the Heritage Foundation, which has just published his testimony. Mr. Haislmaier defined Obamacare’s three risk-mitigation provisions — reinsurance, risk adjustment, and risk corridors with unique clarity:

The first is what can be termed “market selection risk.” This risk arises when customers have a choice between two or more markets with different characteristics. In the case of the PPACA, the most obvious examples are decisions by employers about offering coverage. The PPACA now makes it possible for employers to discontinue group plans (without penalty in the case of firms with 50 or fewer workers) and instead send their employees to the exchanges to obtain new, subsidized coverage as individuals.

Thus, the PPACA’s reinsurance program can be seen as principally designed to address market selection risks by taxing the much larger employer group coverage market to provide additional subsidies to the individual market.