CEI Planet: September – October 2009


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To view this issue of the CEI Planet, please click here to download the PDF file. Below are selected articles from the September-October 2009 issue: 


Cost-Cutting Under Obamacare

Democrats’ Cure Worse than the Disease 


Members of Congress have returned from their August recess to an agenda which one observer calls “all health care all the time.” Trillion-plus-dollar price tags  on the House Democrat and Senate Health Committee proposals have sent reformers back to the drawing board to find ways to trim costs and raise revenue. It still seems very likely that Congress will pass and President Obama will sign sweeping new health care legislation by the end of this year. But, while the acknowledged costs of current health care reform proposals are significant, the unacknowledged costs are even greater. 

The president has tried to deflect charges of restricted choice and increased bureaucracy by insisting that Americans “must be free” to choose their own doctors and health insurance coverage. But, since he admits that the administration’s number-one priority is “getting health care costs under control,” his approach seems more bait and switch than free to choose.

As the Democrat-controlled Congressional Budget Office’s estimate makes painfully clear, bringing an additional 45 million currently uninsured Americans into public or private health plans won’t be cheap. Either the reformed programs will experience the same kind of runaway costs that now affect other federal health programs, such as Medicare and Medicaid, or new systems will have to be implemented to give patients fewer choices and lower quality care. Reform opponents seem split on which of these scenarios is more likely. The sad truth is that Obamacare could result in both fewer choices and higher costs. 

Consider the Senate Health Committee’s plan. It would require insurers to enroll anyone willing to pay the premiums and to continue to offer coverage to enrollees every year. But, insurers would be forbidden from increasing premiums or limiting covered benefits to reflect the health status of individual enrollees. Furthermore, insurers would set a minimum benefit package for enrollees in the individual market which most observers expect will be much greater than the current typical individual plan. All of these new rules would drive up insurance premiums and incentivize overuse of medical resources.  

So how do Congress and the president propose to cut rising health care costs? In part, they’re relying on amorphous proposals to refocus health plans toward disease prevention and wellness programs and “incentivizing quality.” An estimated 80 percent of the costs of treating heart disease, stroke, and type-2 diabetes could be trimmed by forcing Americans to quit smoking, become more physically fit, and improve their diets. But, while treatments for these three conditions make up a sizeable portion of federal health spending in Medicare and Medicaid, numerous studies show that preventive care tends to raise, not decrease, overall health costs for most Americans.

Additional savings are expected to come from equally vague and unenforceable promises from the pharmaceutical industry and hospital executives to voluntarily reduce the prices they charge for enrollees in Medicare and Medicaid by nearly $250 billion during the next decade. But, as National Public Radio reported recently, if the legislation that’s ultimately enacted includes a public health insurance plan, congressional Democrats have agreed to “reimburse hospitals at above the rates Medicare and Medicaid pay, which hospitals have long complained are insufficient.” Thus, we get a promise the lower costs for short-term budgeting purposes along with a promise to raise costs in the long run. 

These deals with the health services and products industries mask the true price of Obamacare and let the administration pretend that its trillion-plus-dollar reform plan will be “paid for.” By the time the true cost of the plan becomes clear, we’re likely to be comfortably into President Obama’s second term, when it will be too late to reverse course. 

Indeed, there are really only two items in the various health reform proposals that could meaningfully cut costs: a shift in the medical profession from expensive specialty care toward more general practitioners, and the adoption of so-called comparative clinical effectiveness methods intended to examine the expense of various medical treatments and decide which ones are cost-effective enough for government and private health care plans to pay for. In order to cut costs, government bean counters would only pay for treatments that, in the words of former Senator Tom Daschle, provide sufficient “bang for the buck.” 

Much has been made of the fact that Americans spend far more for health care than do citizens of other industrialized countries. But the cost difference stems largely from the fact that American patients have much freer access to new and innovative treatment options for chronic and life-threatening illnesses. 

In “model” countries like Canada and Britain, the quality of low-cost primary care is about the same as in the U.S., and often rates better in areas like the ease of making same-day doctor appointments and seeing a doctor on weekends. But, these same countries have far inferior quality of treatment for serious conditions like cancer and kidney failure because they limit access to medical specialists and refuse to pay for many of the pricey medicines, diagnostic tools, and complicated surgeries that are standard medical practice in America. 

For example, the United States has three times as many CT scanners per capita as Canada and four times as many as Britain, and more than five times as many MRI machines per capita as both countries. There are nearly 70 percent more heart bypass surgeries and coronary angioplasties performed in the U.S. each year as in Germany, the next highest country, and nearly four times as many as in Britain. And, because most other countries control the price and utilization of innovative pharmaceuticals, British patients use one third as many new drugs as Americans do, and Canadians only one-fourth as many. 

It’s easy to see why Canadians and the British would rate the quality of their health services so much higher. For relatively young and healthy patients, this lack of sufficient medical technology poses no problems. But, for the elderly and other patients who truly need expensive specialty care, life under a publicly financed health regime can be painful, difficult, and frankly, unhealthy. 

In 2005, so many participants of a government-run program in Canada were dying while on the waiting lists to receive medical treatment that the Canadian Supreme Court ruled that a provincial ban on private health insurance in Quebec violated patients’ “liberty, safety and security” and was, therefore, unconstitutional. Many Canadians want their system to be more like ours, but would-be health care reformers want to make the American system more like that of Canada and Britain by restricting access to innovative yet expensive treatment options. 

Despite the rationing of technology intensive medical treatments, health care costs in all these countries are rising much faster than rate of inflation. When the true cost of health care services is obscured by forced cross-subsidies and public financing, there is no incentive for individual patients to make rational, economizing decisions. The long-term ability to control health care costs by restricting access to expensive technologies is uncertain at best. Ultimately, the most vulnerable patients are best served, not by a one-size-fits-all government regulated health plan, but by a system that offers them greater choice and which puts more of the economizing decisions in their own hands.

Gregory Conko ([email protected]) is a Senior Fellow at CEI. He recently co-authored the CEI Issue Analysis,“Political Malpractice: Health Insurance Misdiagnosis and the Destruction of Medical Wealth,” on free-market health care reform.


EULOGY: The Man Who Fed the World 


He may have saved a billion people from starvation, but, if you asked most Americans who Norman Borlaug was, they’d probably answer, “Norman who?” 

His biographer, Leon Hesser, called him the Man Who Fed the World. Science reporter Gregg Easterbrook called him the Forgotten Benefactor of Humanity. And comedians Penn and Teller (well, mostly Penn) said that he was the greatest human being who ever lived. 

Norman Borlaug was an American agricultural scientist and plant breeder whose work sparked what is now known as the Green Revolution. He was recognized with countless scientific and humanitarian awards, including the Nobel Peace Prize in 1970. Quite tragically, he died of cancer on September 12, at the age of 95.

Borlaug was born on a small Iowa farm in 1914, and he developed an interest in applying science and technology to agriculture during the Depression-era dustbowl. After earning a Ph.D. in forestry and plant pathology in 1942 at the University of Minnesota, where he also competed as a star wrestler, Borlaug worked for two years at DuPont, contributing scientific research for the war effort.

In 1944, Borlaug got the opportunity that would come to define the rest of his life, joining a cooperative wheat research program co-funded by the Rockefeller Foundation and the Mexican government. At the time, corn still made up the vast majority of Mexico’s cereal production, even though wheat had been introduced 400 years earlier by Spanish settlers. The problem was that wheat varieties adapted to Mexican soil and climatic conditions were susceptible to numerous diseases. Borlaug ignored critics who said his innovative breeding ideas couldn’t work, and his program developed advanced new hybrids that were resistant to most of those diseases, generating substantially higher yields. In just four years, Mexico went from importing almost all the wheat its people consumed to being self-sufficient in wheat production.

As Borlaug’s reputation spread around the world, he was called on first to travel to India and Pakistan in the 1960s to help improve wheat production there. And after a stunning success, he went on to the Philippines and China, where his innovative breeding methods were used to raise yields in the rice varieties consumed by roughly half the world’s population. Everywhere he went, the combination of better plant varieties, along with synthetic fertilizers, herbicides, and insecticides, helped to double, and in some cases triple, grain yields in just a few years.

But, as he moved from Mexico to Asia, Borlaug and his colleagues met severe resistance from governments and environmentalists. Despite its obvious successes, much of the political left still sees the Green Revolution as a failure because it promoted technology over “natural” solutions, weakened socialist agrarian reform movements, and permitted the survival of hundreds of millions of lives who in turn exert an impact on the environment.

Borlaug initially saw himself as an environmentalist, as well as an advocate of global population control. But, due to this constant criticism by the environmental movement, he had a change of heart and came to see the environmental movement as little more than elitist obstructionists. On the 30th anniversary of his Nobel Prize, he said, “I now say that the world has the technology—either available or well advanced in the research pipeline—to feed on a sustainable basis a population of 10 billion people. The more pertinent question today is whether farmers and ranchers will be permitted to use this new technology? … Let’s not tie science’s hands through excessively restrictive regulations.”

I came to know Norm—and he insisted that everyone call him Norm—about 10 years ago. I later had the honor of hosting him for a week in Washington. And, on the occasion of CEI’s 20th Anniversary, we presented him with our first ever Prometheus Award for Human Achievement. Despite his advanced age, he was still an energetic, inquisitive, and thoughtful man, and he always spoke with great passion about his and his colleagues’ ongoing efforts to improve agricultural productivity throughout the world. I was struck most by Norm’s humility. Although he could command audiences of presidents and kings, I thought it delightful that, for example, even at 90 years old, the former wrestler still insisted on carrying his own luggage.

Reflecting on Norm’s death, I am reminded of Winston Churchill’s words following the Battle of Britain: “Never was so much owed by so many to so few.” Indeed, never was so much owed by so many to a single man. Norman Borlaug will be sorely missed.



Does Intel Have Human Rights?

Corporate legal standing is at risk in Europe — and it threatens the global economy as we know it


Intel’s struggle with European Union (EU) antitrust regulators has a surprising new twist: Intel is claiming that its human rights were violated. 

Yes, you read that correctly. Human rights. Intel is claiming that very large fines—€1,000,000,000 in this case, or $1,450,000,000—can only be handed down by a criminal court, and Intel was never actually charged with any criminal wrongdoing. The allegation that Intel threatened to withhold rebates from customers who also purchased AMD chips has been treated as a civil matter, not a criminal one.

The EU’s antitrust investigations are an administrative process, not a legal one, like in the United States. Therefore, the argument goes, the European Commission violated the Intel Corporation’s human right to due process. This has led to some ridicule. Intel is a corporation, not a human being, so how can it have human rights? Even Forbes described Intel’s defense as “grasping for straws.” A commenter at Ars Technica worried that, “Any corporation that claims personhood for the purpose of asserting human rights opens a very scary Pandora’s Box.” 

That line of thought deserves a closer look. To say that corporations should not have human rights is to deny corporations individual standing under the law. Without this convenient legal fiction, the global economy as we know it would cease to exist. 

This may sound like hyperbole. It isn’t. Intel, for example, has 3 million shareholders who collectively own the company. And those 3 million faces are constantly changing. More than 50 million shares of Intel stock change hands in an average day. Now suppose your company wants to buy some computer chips from Intel. You could have each shareholder sign the sales contract—good luck finding them all—or you could treat Intel as a person with the right to sign a contract, and the obligation to honor it. To deal with one person or millions? That is why corporations have legal standing as individuals.

What if Intel violates the terms of that sales contract, bankrupting you and your family? If Intel doesn’t have human rights, you can’t sue it. Remember, you can only sue an entity with legal standing. Have fun tracking down all those shareholders again. 

And make sure they’re the ones who held shares during the life of that contract—if you wrongly sue some shareholders for violating something they didn’t sign, they can sue you back. Righting a wrong becomes impossible. Denying corporations human rights standing makes corporate abuse more likely, not less so.

Intel’s human rights defense may seem unusual, but it is only applying an uncontroversial, widely established principle in a way that people aren’t used to. Despite its novelty, the tactic has been tried before in Europe. It has worked, too, though not yet in an antitrust case. 

Article 34 of the European Convention on Human Rights says that, “any person, non-governmental organisation or group of individuals” may seek redress of their grievances [emphasis added]. Short of legal gymnastics, courts have to respect that.

In the United States, media corporations routinely use human rights in their defense. The New York Times Company won two Supreme Court cases by asserting its right to free speech. 

Intel’s appeal has one more point in its favor. It recently came out that antitrust regulators intentionally omitted “exculpatory evidence” from the case. At least one of Intel’s major customers denied any coercion on Intel’s part. If that had happened to a person, there would be no controversy. All defendants, whether human or corporate, have the right to due process.

Ryan Young ([email protected]) is the 2009-2010 Warren Brookes Journalism Fellow. Hans Bader ([email protected]) is Senior Attorney and Counsel for Special Projects at CEI. A version of this article originally appeared in RealClearMarkets.com.


The Good, The Bad, and The Ugly


THE GOOD: North Carolina Enacts Coastal Insurance Reform

At the urging of CEI insurance experts, and Insurance Commissioner Wayne Goodwin, North Carolina’s state legislature passed a much needed coastal insurance reform bill, which Governor Beverly Perdue (D) signed into law. At issue was the state’s Beach Plan, a government mandated, industry-run mechanism originally set up to provide limited, high-cost coverage for coastal residents unable to get it elsewhere.

However, the Beach Plan was grossly underfunded and imposed severe restrictions on private insurers’ ability to effectively manage risk, causing several to pull out of the North Carolina homeowners insurance market altogether.

“Commissioner Goodwin’s leadership defused a ticking time bomb of a beach insurance plan,” said CEI Senior Fellow Eli Lehrer. “The legislature, governor, and commissioner worked together to free the market, lower insurance rates, improve choice for consumers, and protect the state’s finances. The Beach Plan still needs further reform, but it’s in much better shape than it was.”



In early September, the Food and Drug Administration (FDA) and the Department of Justice cracked down on the advertising of off label uses for prescription drugs. When the FDA approves new drugs, they are approved to treat specific conditions in particular populations, which are identified on the products’ labels. But, once they are on the market, doctors are free to prescribe drugs for any safe and effective use, including ones not indicated on the label. “Off-label prescribing is not only common in every field of medicine, but is frequently considered to be the recognized standard of care,” said CEI Senior Fellow Gregory Conko.” Physicians can even be subject to malpractice liability if they don’t use treatments for offlabel indications when doing so constitutes the medically recognized standard of care. So, it makes no sense for FDA to criminalize off-label promotion in all cases.” Essentially, the FDA is prohibiting truth in advertising.


On August 27, Rep. Earl Pomeroy (D-N.D.) proposed a bill that would use accounting gimmicks and tax dollars to make union pensions look much healthier than they are in reality. For multiemployer (i.e. union) plans, Pomeroy’s proposal would extend the rehabilitation and funding improvement periods for plans in endangered or critical status. It would also authorize the Pension Benefit Guaranty Corporation (PBGC) to financially assist in the merger of multi-employer pension funds when it determines that financial  assistance “is reasonably expected to reduce the PBGC’s likely long-term loss,” according to the bill summary. Like rearranging deck chairs on the Titanic, this essentially would allow underfunded union pension plans to “re-value” assets to make pensions that are in trouble look healthier than they really are.




…End Notes


On August 1, London filmmaker Mark Guard entered an abandoned building to conduct research for his new documentary on crime and the homeless. When he inadvertently triggered the building’s security system, Guard briefly switched on the electricity in order to find the alarm’s off switch. Police arrived shortly thereafter and arrested Guard. The charge? Stealing 0.003 pence—about 5/1000 of a U.S. cent—worth of electricity. Guard offered to repay the utility in full, but company representatives told him they were unable to process such a small payment. London law enforcement spent $8,200 on Guard’s case before the prosecutor decided to drop all charges.


Broward County, Florida, kindergarten teacher Alexandra Kralik has been suspended from classroom duties after allegedly grabbing one of her young students. Broward Teachers Union attorney Steve Rossi told Local 10 News that, “The school system, at this time, cannot fire her because she is entitled to due process and the school has to conduct their investigation as well. It would be premature at this point to fire her.” However, this is not Kralik’s first offense. In 1998, Kralik was put on paid leave for the remainder of the year after slamming a student’s head into a desk, given a written reprimand in 2002 for throwing a student to the ground, suspended for 20 days in 2003 for kicking a kindergartener, and received two more written reprimands in 2006 and 2007 for roughing up students. Unhappy school board officials cite union contracts that prevent them from firing teachers with histories of abuse.


After Tim Nicholson, an executive at a British property investment firm, was fired from his job, an employment tribunal ruled that Nicholson’s belief about climate change deserved the same protections from employment discrimination as those granted for religion. Nicholson claims he was dismissed after voicing numerous concerns that his company was not doing enough to limit its carbon emissions. He told the tribunal, “[My belief] affects how I live my life including my choice of home, how I travel, what I buy, what I eat and drink, what I do with my waste, and my hopes and fears. For example, I no longer travel by plane, I have eco-renovated my home, I compost my food waste, and encourage others to reduce their carbon emissions.” An employment discrimination law was recently modified to extend previous workplace protection of religious beliefs to “philosophical beliefs” which are “worthy of respect in a democratic society.” Employment law experts have criticized the new policy as opening the door for employees seeking legal workplace protection of nationalist, racist, or other offensive fringe views.