Michael Bond
Michael Bond, Ph.D., is a Senior Fellow at the National Center for Policy Analysis. He is also the Senior Fellow in Health Care Policy at the James Madison Institute in Florida, and director of the Center for Health Care Policy at the Buckeye Institute, an Ohio-based organization. Dr. Bond is a Professor of Finance at Cleveland State University. He has taught health care finance along with numerous other finance courses.
His work on Medical Savings Accounts (MSAs) and health-care policy reform has received national attention and appeared in a wide range of professional and popular publications, including Health Care Financial Management, Public Personnel Management, Compensation and Benefits Review, and Benefits Quarterly.
Along with over 70 articles and presentations, he is the author of the nation's first practical guide to establishing MSAs. Many of his reforms for Medicaid reform have been adopted by the states of Ohio and Florida.
He has also authored reports on Medicaid Reform in Texas, Kansas and Florida. He has assisted the Flint Hills Center, the Texas Public Policy Foundation and several other organizations on Medicaid reform.
Bond earned his Ph.D., M.A. and B.A. in economics from Case Western Reserve University and has advised South Carolina Governor Mark Sanford on Medicaid. He founded and serves of Treasurer of the National Business & Economics Society.
Sunday, March 2, 2008Health Reform 101: Get Rid of Price ControlsBy Michael BondEconomists do not like price controls. Whether they are liberal Democrats, conservative Republicans or anything in between they recognize the counterproductive nature of attempting to set prices bureaucratically or legally. Unfortunately, price controls are rampant in the U.S. health system. Medicare has price control schemes for paying hospitals and doctors. Medicaid does the same thing all the particular method varies from state to state. Unfortunately, many private insurers copy Medicare’s payment schemes or at least use them as a starting point in determining appropriate medical fees. This system represents an enormous impediment to the efficient, low cost delivery of health care in America. How much do price controls sandbag us? Suppose supply and demand schedules have slopes of one and negative one and the market price and quantity was $100 and 100 units. The net benefit of the market is $10,000 split evenly between consumers and providers. Now presume the government imposes a price control of $80. The deadweight loss of the price control, assuming the above slopes and intercepts, is $400. So there is a 4% deadweight loss from the control. If the price was controlled at $60 then the deadweight loss becomes $1,600. Any reform to make health care more affordable must start by eliminating price controls in the U.S.
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Friday, February 22, 2008More Government Run Health Care FairnessBy Michael BondIn my other life I am a finance professor in a business school. Most of my colleagues are socialists. No surprise, after all: Where are these people to go now that their collective utopias around the world have pretty much collapsed? I put these folks in two groups. The first are economic illiterates who actually think they can dramatically redistribute income and regulate the economy without any deadweight loss. The second group understands that dramatic income redistribution will significantly shrink the size of the economy but think that is OK. All that matters is that we are equal and if we have to be equally poor to accomplish it is worth the price. Maybe the UK Health Service is run by people who think in that way. See below:Debbie Hirst’s...breast cancer had metastasized, and the health service would not provide her with Avastin, a drug that is widely used in the United States and Europe to keep such cancers at bay. So, with her oncologist’s support, she decided last year to try to pay the $120,000 cost herself, while continuing with the rest of her publicly financed treatment. By December, she had raised $20,000 and was preparing to sell her house to raise more. But then the government, which had tacitly allowed such arrangements before, put its foot down. Mrs. Hirst heard the news from her doctor. "He looked at me and said: 'I'm so sorry, Debbie. I’ve had my wrists slapped from the people upstairs, and I can no longer offer you that service,'"Mrs. Hirst said in an interview. "I said, 'Where does that leave me?' He said, 'If you pay for Avastin, you’ll have to pay for everything'" — in other words, for all her cancer treatment, far more than she could afford. Officials said that allowing Mrs. Hirst and others like her to pay for extra drugs to supplement government care would violate the philosophy of the health service by giving richer patients an unfair advantage over poorer ones.
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Monday, February 18, 2008Canadian Medicine: It Is Great If You Are Healthy!By Michael BondThe political model for government run health care is quite simple. Solve the “cost problem” by establishing a global budget that the state will pay for in a given time period. Front load the plan so the vast majority of covered lives who are healthy get at least some access with their “I’m Covered” card. Then ration the remaining amount of services to the small number of very sick in any year. Most people are happy with the plan since they are fairly healthy and vote maximizing politicians only need 51% to be satisfied. Even a chunk of the sick that have trouble getting treated don’t complain because it’s “free”. A great deal for politicians and a really bad deal for the sick. See http://www.freemarketcure.com/brainsurgery.php for more details.
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Friday, February 15, 2008More Good News In FloridaBy Michael BondCategories: FloridaOne aspect of making markets function better is free entry and exit of capital. Of course, we may expect that existing firms will work real hard to reduce competition. Naturally, the reason for this is to protect consumers from terrible things like WalMart’s low prices and low cost classes from the University of Phoenix. This is equally true in health care where physicians and doctors want free enterprise but don’t want to tell consumers what their fees are for various procedures. An old barrier of entry trick in health care is “certificate of need” which prevents new building of competing hospitals and other medical facilities. Good news on this in Florida:Gov. Charlie Crist wants to eliminate Certificates of Need (CON) for hospitals, and the Buzz is there's a mention of such a move buried in one of his budget recommendations. "One of the things I'd like to do is relax that process so that we get more health care providers to more Floridians in a more timely fashion," Crist said.
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Tuesday, February 12, 2008Good News From Florida!By Michael BondCategories: Florida, MedicaidGovernor Crist has appointed former Representative Holly Benson to head the agency that overseas Medicaid in Florida. Holly worked hard on shepherding Medicaid Reform through the legislature and is strong believer in free markets in health care.
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Sunday, February 10, 2008Competition In Drugs = Better Consumer DealBy Michael BondCategories: PharmaceuticalsWhile I opposed the creation of a Medicare drug benefit (I wanted Medicare to become a risk-adjusted premium support plan) at least we can take some solace in how it was designed. The plan is a premium support plan with private insurers vigorously competing to enroll beneficiaries. It looks like this competition is having the desired effect. From the CPI the rate of inflation in 2007 was just 1.4%. There are other factors in play as well but if we are going to create new entitlement plans the model of premium support, competition and consumer choice beats price controls and regulations any day of the week. Hopefully, this will be the stake in the heart for allowing Medicare to “negotiate” drug prices. This graph , by the way, shows the decline of inflation in prescription drugs and medical supplies.
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Monday, January 21, 2008Where Do DRGs Come From?By Michael BondWhen government gets involved in things there tends to be the development of lots of alphabet soup descriptors for various aspects of what is being taxed, subsidized or regulated. This is true especially in medicine. One of the more interesting abbreviations in medicine is DRG. This stand for Diagnosis Related Group. DRGs replaced a cost-plus reimbursement system for hospital procedures in 1983. Health spending in the U.S. exploded after the passage of Medicare in 1965. It occurred to those running the program that paying hospitals for their costs might actually give them an incentive to have lots of costs. So, to solve the problem, a “prospective payment” system using DRGs was developed. The idea was simple. If you pay people to have costs, you get lots of costs. If you pay a hospital a fixed amount of money per patient, in theory they will have an incentive to provide services in a more economical manner. DRGs are determined by the medical condition of the patient, the procedure(s) for treatment, and the patient's age and sex. In addition, the possibility of complications is addressed in DRGs. The system was developed by Robert Fetter and John Thompson of Yale University (proving, once again, that many of the world’s stupidest ideas come from American Universities). In theory, the DRG for a bypass or an artery clean is set equal to the marginal cost of the procedure. Thus, we achieve the economically efficient outcome of Price = Marginal Cost. Of course, it doesn’t work like that in the real world. The lack of real competition among hospitals means that many hospitals have no idea what the marginal cost of a procedure is at a point in time. Those that do have a huge incentive to provide procedures where Price > Marginal Cost and minimize those where Price < Marginal Cost. Of course, this won’t happen if Medicare sets the DRG rate exactly equal to that hospitals marginal cost. You can see where this is headed. The bureaucrats at CMS (the bureaucracy that oversees Medicare and Medicaid) cannot possible calculate correct DRG rates. So the vast majority of the time Price does not equal Marginal Cost, rendering the whole system vastly inefficient. In Northeast Ohio, everybody from the Cleveland Clinic (which pioneered bypass surgery) to numerous community hospitals are trying to do heart surgery and procedures. Want to bet Price > Marginal Cost? In Northwest Ohio, it is almost impossible to get treated for Thyroid conditions at hospitals. Want to bet Price < Marginal Cost? In addition, many private plans copy DRG rates rather than negotiating with hospitals. Any reform of health care needs to start with the elimination of this alphabet price control system and its replacement with a real marketplace.
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Tuesday, January 15, 2008(Lack Of) Free Enterprise In Health CareBy Michael BondProponents of expanding the government role in health care argue that the private sector has not effectively controlled medical inflation and provided access to medical treatments. But, in fact, there is very little free enterprise in medicine. First, a significant amount of health care is by Medicare, Medicaid and other public ventures. These groups accounted for 46% of all health spending in 2006 according to CMS. And only 12% of spending was out of pocket. Second, most people who have health insurance in the private sector get it through their employer because that part of their pay becomes tax free. But if you buy at the company store you often get what the company wants. And 88% of employers offer one health plan to their workers. So in even private health insurance there is very little effective competition at the ultimate customer level. Add to this the cost of various government regulations of health care which has been estimate to be over $300 billion annually. These include such things as mandated benefits, licensure, CON laws and many direct rules regarding the provision of care. Finally, the provision of health care by Medicare & Medicaid has a very costly direct and indirect effect. In fee for service care these government programs either use a “cost plus” methodology or, more often, a “prospective” payment system. Under the more common prospective system these programs establish a payment that is made for the provision of a particular medical service. The idea is that the payment functions as a price so that providers make more profit/income by providing the service in question in the most cost effective manner. Of course, since there is no real market here the payment is arrived at bureaucratically through a host of alphabet schemes like DRG, RBRVS and PFS. Students of economics know that it is impossible to for governments to set prices so all of these schemes are nothing more than price controls. They produce shortages (especially in Medicaid), surpluses and significant short and long run dead weight losses. Just as bad, because of the lack of competition mentioned above, many private pay fee for service plans simply copy the government price controls. So much of the entire health system operates under this inherently inefficient framework. Before we expand the role of government in health care further, a reasonable experiment to try is a healthy dose of free enterprise. The perfect starting point is to make employer paid health benefits taxable and provide a refundable tax credit to all Americans.
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Tuesday, December 18, 2007The Connector Now Moves To Price Controls!By Michael BondWell what do you know! The Massachusetts Connector, a guaranteed issue, community rating fiasco has now moved to new lows trying to deal with its unworkable design. The good aspects of health insurance exchanges (plan choice, real prices, combining spouse employer and dual employment contributions, and actuarially fair prices) have been destroyed by narrow risk bands (de facto community rating) and guaranteed issue. The solution to this self imposed problem? We simply will pay doctors below market Medicaid rates. After all, there are no quality and/or rationing issues when prices are set below equilibrium rates. That’s just some nonsense from every economist worth their salt on this planet. Indeed, that’s what Bill Clinton’s "health alliances" would have done had they not been defeated by a Democrat Congress. From CAHI: Here's how the Boston Globe put it last week: "Striving to hold down costs to taxpayers, a state panel [i.e., the Connector Authority] yesterday approved a range of changes for next year for the rapidly growing subsidized health insurance program. The changes will probably cut payments to doctors and hospitals, reduce choices for patients, and possibly increase how much patients have to pay." After leaning on the participating health insurers to keep initial rates low -- artificially low, so defenders could claim victory for controlling costs -- plans are facing as much as a 14 percent increase. So Commonwealth Care, the subsidized program for modest-income workers, will cut health care provider reimbursements by 3 to 5 percent, according to the Globe. Said Connector Authority CFO Patrick Holland, "There's no justification to be paying more than Medicaid rates."
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Monday, December 17, 2007Time To Fix Medicare & MedicaidBy Michael BondMedicare and Medicaid remain the nation’s largest fiscal challenge. If we needed any reminder of that the nonpartisan Congressional Budget Office has weighed in with long-term estimates of the unfounded liabilities of these programs. CBO estimates under reasonable assumptions that these programs will grow from the current 4% of GDP to 19% of GDP by the year 2082. This, along with maintaining existing Social Security benefits and financing will cause the size of the Federal government to double. http://cbo.gov/ftpdocs/88xx/doc8877/12-13-LTBO.pdf
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