Bad Math

by Harold Pollack | October 13, 2009

Harold Pollack is a professor at the University of Chicago School of Social Service Administration and Special Correspondent for The Treatment.

I’m piling on the AHIP party. As three Jonathans have already pointed out today, PricewaterhouseCoopers’s analysis done for AHIP is depressingly one-sided.

That’s too bad for several reasons.

First, PricewaterhouseCoopers is right to note: “Insurance market reforms and consumer protections … would raise health insurance premiums for individuals and families if the reforms are not coupled with an effective coverage requirement.” This is a genuine concern. The Senate Finance Committee bill provides insufficient subsidies to make insurance affordable. It doesn’t fix things to let people out of the requirement.

The firm is also right to note that a large proportion of the taxes on “Cadillac” health plans will fall on the affected consumers. I personally prefer even stiffer taxes on health benefits, with one caveat: that the tax be levied only on benefits provided to high-income workers who can afford to pay. Blue-collar unionized workers who make less than six-figure incomes deserve greater protection.

Then we hit the dicey parts. PricewaterhouseCoopers assumes that 100% of these costs will be shifted onto consumers. This extreme assumption is dicey, given consumers’ obvious incentive to shift coverage to cheaper plans and insurers’ obvious incentives to trim their offerings to minimize the tax hit. The memo also presents extreme trend projections that imply Congress will sit idly by and allow these tax provisions to reach a huge proportion of the insurance market. This is, to be kind, counter-intuitive.

Two especially tendentious matters deserve mention. PricewaterhouseCoopers assumes that any reduction in Medicare or Medicaid payments to medical providers will result in “full cost shifting” onto private payers. During the 1980s, eons ago in health policy years, this was plausible. It isn’t remotely plausible now.

AHIP might want to coordinate its story with its conservative allies. This July, the Heritage Foundation trumpeted a Lewin Group analysis of these very issues. Lewin reports:

The available research shows that not all of uncompensated care and government payment shortfalls are passed on to private payers as higher charges…. Our own analysis of hospital data indicates that about 40 percent of the increase in hospital payment shortfalls (i.e., revenues minus costs) in public programs were passed-on to private payers in the form of the cost-shift during the years studied…”

There is a dog who didn’t bark aspect to all this. If PricewaterhouseCoopers’ analysis were true, one would have expected insurers should have been raising hell, long before health reform, every time Republicans proposed deep Medicare and Medicaid cuts. If such hell was raised, I didn’t hear about it.

There are other one-sided assumptions in the PricewaterhouseCoopers report. For example, at one point, they assume a virtual death spiral of declining enrollment, cost-shifting, and rising private insurance premiums due to the public option. Oddly enough, they never mention the corresponding reductions in health care expenditures for the millions of families they presume would move into to the public plan.

I was talking this morning with other policy wonks about PricewaterhouseCoopers’ report. Once we got the pdf, it took maybe five or ten minutes to find the incriminating footnotes and implausible caveats. As Jonathan Chait observed, the biases weren’t hard to suss out. The people who wrote the report aren’t stupid. They probably know a lot about projecting health care costs. So they knew they were producing a misleading polemic disguised as legitimate policy analysis.

The right has no monopoly on bogus analysis. Various liberal advocacy groups and constituencies prevaricate, too. That’s too bad. There is a craft to this stuff. We hope there is some public trust in the work we do. As the Congressional Budget Office will tell you, economic forecasting is hard enough when you are trying to do it right. When you are trying to do it wrong, the damage goes beyond the political impact of one biased report.

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