Will Employers Drop Insurance Coverage?

A controversial McKinsey report came out in 2011 predicting that 30% of those with employer sponsored insurance would lose coverage because of the provisions in the Affordable Care Act.  This study along with one by Towers Watson (predicting that 10% would lose private coverage) has been used by opponents of the legislation in their criticism of various aspects of the new law.   Even proponents recognize that there will be some crowding out of private coverage with the CBO estimating that 11 million employees will lose their coverage, or about 7%. 

There is no doubt that ObamaCare will change the balance between group insurance (through employer-based plans) and individual insurance (obtained via the exchanges).  The incentive to drop a plan is obvious for even the casual observer.  The cost of employing the median worker (earning $50,000 annually) is shown below.  It will cost the employer who sponsors a group plan and pays the average of 75% of a family premium is $41,500.  The cost of employing that same worker, if the employer chooses not to play the insurance game and pay the penalty, is only $36,985, a savings of over $4,500. 

With Insurance


Without Insurance


Salary Paid



Family Premium (75%)



Salary + Insurance



FICA (7.65% Medicare Salary)



BT Personnel Expense



Tax Deduction (35%)



AT Personnel Expense






Personnel Expense AT & Penalty


What will the employer do with the savings?  I believe there is reason to believe that the employer (who was previously paying over $10,000 to insure the worker’s family) will give the savings to the employee to purchase insurance in an exchange.  This employee can purchase a family plan in the exchange for only $3,385, receiving a generous subsidy to pay the rest of the premium.  So the employee has insurance and an additional $1,000.  Everybody benefits.  In fact, it might benefit the employee to simply pay the penalty tax and forego insurance until it’s needed.  Then, because ObamaCare ignores all sound actuarial principles of insurance and requires insurance companies to issue coverage to all who apply, sick or healthy, the uninsured can opt into coverage anytime it’s convenient.  This sort of gaming will lead to insurance pools populated with higher than average risk, leading to higher premiums.  And down that slippery slope we go.    

The opinions expressed in this blog post are mine alone, and do not reflect the opinions of Baylor University.   Baylor is not responsible for the accuracy of any of the information provided in this post.

Should States Participate in the Medicaid Expansion?

Medicaid expansion, a critical element of ObamaCare, is expected to increase the number of low-income Americans enrolled in the program by 11 million by the end of the decade.  That number is down significantly from earlier CBO estimates because of last summer’s Supreme Court ruling that states are not required to adopt the new eligibility requirements.  To date only 18 states have decided to expand the program to meet the federal standards.  So the question for the rest looms forebodingly: Should we participate in the expansion?  Is expansion the only rational choice for states?  Or was your mother right in warning you that when something sounds too good to be true, it probably is? 

Proponents argue that in the long run state treasuries are only responsible for $1 of every $10 in new spending.  Furthermore, providing coverage to low-income patients will eliminate the need for hospitals to shift costs from those who don’t pay for their care to those with insurance (more on that later).  And to top it off, the stimulus provided by the federal spending will increase economic activity in the state enough to increase state tax revenue by more than the state’s required contribution for the expansion itself.   This may be something that will actually pay for itself. 

There are at least 2 important considerations that are largely ignored by proponents of the proposed Medicaid expansion.  The first is the formula for calculating the federal medical assistance percentage (FMAP) for a state.  Under the current formula the federal share of Medicaid spending ranges from 50-75% with states picking up the remainder.  The income threshold for eligibility is a state decision and varies from 25-200% of the federal poverty level (FPL). The Medicaid expansion is designed to cover all families with incomes less than 138% of the FPL and for the years 2014-16 the federal government will cover the total cost of the expansion.  Beyond 2016 the federal share will settle at 90% of the expansion cost with the state paying the other 10%.   Will the federal money be available at this rate forever?  The concern is whether the federal government will continue to spend money that it doesn’t have.  The time will come and is coming soon when Congress must address the problem of excess spending.  With entitlements responsible for a large share of the deficit, reform of the FMAP formula is likely.  Maintaining programs will require the states to absorb a larger share of the financing. 

The second consideration is the expansion’s effect on the existing Medicaid program.  The adult take-up rate in the current program is 65-70%, indicating that a large fraction of the eligible population does not participate at all.   Policy makers expect that the take-up rate will rise to 85% with the expansion.  Currently in Texas only 800,000 of the 1.23 million eligible adults are enrolled.  If the state expands Medicaid eligibility, not only will we see an additional 1.5 million newly eligible enrollees, but an estimated 365,000 of those currently eligible will emerge out of the “woodwork” and enroll.  The state will be responsible for 40% of the cost of their health care, effectively doubling the state’s share of the overall expansion costs. 

Taking a more practical approach to the argument, proponents claim that if the state refuses the federal funding to expand Medicaid that our tax dollars will simply flow to some other state.  That logic is flawed.  Medicaid spending is determined by the number of eligible enrollees in a state.  The only way that California gets more of the Medicaid expansion money is for otherwise eligible residents in Texas to move to California to receive benefits.

Estimates showing the economic benefits of these kinds of policy changes are often based on simulations using a category of economic models called regional input-output models.  The accuracy of these models depends critically on the basic assumptions buried in its estimating equations.  These models are notoriously sensitive to the assumptions made and when used improperly can easily be manipulated to provide just about any answer you want.  Input-output models are demand-side oriented and ignore supply-side constraints and the opportunity cost of resource investments.   These limitations result in overall estimates for job growth that do not consider whether the economy can attract the workforce to support the market expansion.   The Texas estimate of an additional 988,000 jobs in the health care sector begs the question: How will the state be able to attract an additional 988,000 workers?  Remember, every other state that is expanding with these federal dollars is trying to attract the same workers. 

The argument for accepting the federal money and expanding the Medicaid program is grounded in assumption that private insurance spending pays for the free care provided to the indigent population via the mechanism called “cost shifting.”  Cost shifting assumes that medical providers are able to offer free care to some patients knowing that they can pass the excess costs on to privately-insured patients.   The cost-shift theory is used in policy arguments because of its intuitive appeal, but like much of the conventional wisdom in health care, it is unfounded. 

The fact that Medicare and Medicaid pay only 90% of cost while private insurance pays almost 135% does not prove cost shifting.  It simply shows price discrimination across categories of payers.  And price discrimination does not prove cost shifting.  It merely reflects differences in relative bargaining power in local markets between payers and providers.  Research indicates that there may have been a time in the late 1980s when providers had the power to increase prices to private payers when Medicare and Medicaid lowered payments.  The reason that hospitals could do that was they had not fully exploited their market power and were able to practice cost shifting. 

By the 1990s the expanded use of managed care principles and the increase in the number of for-profit hospitals brought an end to that era.  With the elimination of indemnity insurance plans, the expansion of PPOs, and introduction of consumer directed health plans, coupled with expanded provider networks, payers are better able to resist price increases.  The only response left for hospitals when government payers cut payments is to reduce costs.    

Furthermore, Obamacare provides incentives to consolidate systems (evidenced by the recent agreement between Baylor Health Care System and Scott & White).  Consolidations will increase market power and enhance the ability to price discriminate among payers based on the number of covered lives they bring to the bargaining table.  Thinking that expanding Medicaid coverage will reduce or eliminate the price differences between private and public payers is not warranted by the evidence.    Some will blame the price increases on cost shifting, but they will be wrong. 

Where does that leave us?  If the state does not expand Medicaid what do we do?  If we do nothing, an additional 420,000 of the 1.75 million adults with incomes between 100 and 133% of FPL will be eligible for subsidies through the new exchange (set up by the federal government) at a premium cost of 2% of income, or about $40 per month. 

So what about the other 1.33 million who remain uninsured because the state did not expand Medicaid?  Why not expand the Texas Federally Qualified Health Center (FQHC) program with the money the state would spend expanding Medicaid?  The program is currently funded for $5 million per year.  Five new clinics began operation in 2012 bringing the state total to 69.  The state’s share of an expanded Medicaid program would cost at least $2 billion per year.  How many new FQHCs could be started with that kind of money?  I believe it was Albert Einstein who said “the definition of insanity is doing the same thing over and over again and expecting different results.”  Pumping more money into a flawed Medicaid program is not the way to make the program better; it may even be insane.

It’s not over, ‘til it’s over

While that Yogism applies uniquely to baseball, it has it’s applications in health policy as I’ll explain.  Unless you‘ve been stranded on a desert island for the past 6 months, you know that the Supreme Court has spoken on the constitutionality of ObamaCare.  In a creative rewriting of the act, Justice Roberts cast the deciding vote in a 5-4 decision that the Affordable Care Act is constitutional.  It’s not because the forced purchase of health insurance is justifiable under the Commerce Clause.  It’s because the penalty for not complying with the regulation is a tax and Congress has the constitutional authority to levy taxes. 

It’s also clear that the Republican effort to “repeal and replace” the legislation is all but dead in the water since Mitt Romney failed miserably to provide the electorate with a good reason to unseat President Obama and give him the job.  So we just need to accept the fact that ObamaCare is the “law of the land” and get about the business of successfully implementing its provisions. 

Oh, but wait.  What did Yogi say?  It turns out that the Supreme Court did more than pass on the constitutionality of the law, they, in effect, took a flawed piece of legislation and made it functionally unworkable.  And in so doing, have opened the way for new constitutional challenges. 

An important element of the law expected to expand coverage to millions of low-income Americans is the expansion of Medicaid to cover families with incomes below 138% of the federal poverty level (or about $31,800 for a family of four).  The way the law was written states that failed to comply would lose all federal Medicaid funding (amounting to 25% of average state budget).  But the Court didn’t interpret the law that way.  The ruling stated that Congress could not force states to comply with the Medicaid expansion by threatening to defund the existing program.  With the new flexibility 7 states have already announced that they will not expand eligibility.  An equal number will likely follow, creating a serious constitutional problem. 

The Constitution requires that taxes be “uniform throughout the United States” (Article I, Section 8).  This provision keeps states from forming alliances to shift the tax burden to other states.  The result of the Court’s rewriting of the new law is citizens with incomes above the federal poverty level, but eligible for expanded Medicaid are taxed differently depending on where they live.  In expansion states they simply comply with the individual coverage mandate by signing up for Medicaid.  The identical citizen living in a non-expansion state cannot. 

By rewriting the law turning the mandate into a tax, the Court has opened up a challenge to the law on based on the fact that the tax is not uniformly applied across states.  The challenge will not come until someone is actually required to pay the tax.  So for now we wait, until April 16, 2014, that is.

ObamaCare was poorly written from the beginning.  A patchwork quilt constructed from a wish list of liberal policies waiting for a Democrat super-majority in the Congress.  That super-majority only lasted about 5 months from the seating of Al Franken (D, MN) in the summer of 2009 to the to the special election of Scott Brown (R, MA) in January of 2010.  But that was enough time for Democrats to pass this sweeping domestic legislation (without a single Republican voting with the majority).  And we will live with the consequences of that moment in history for quite some time. 

The opinions expressed in this blog post are mine alone, and do not reflect the opinions of Baylor University.   Baylor is not responsible for the accuracy of any of the information provided in this post.

Senate Democrats Seek Delay in ObamaCare Tax

In early December 16 Senate Democrats signed a letter to the President asking for a delay in one of the tax provisions of the Affordable Care Act.  The tax, a 2.3% levy on medical devices, is scheduled to go into effect on January 1, 2013.  The signees include Franken, Durbin, Schumer, and Kerry are now concerned about the “job-killing” nature of the tax and will eventually seek its outright repeal. 

It comes as no surprise to most economists that a revenue tax that amounts to over 50% of the typical device firm’s annual profits will have profound consequences on the way a firm operates.  Some estimates expect a loss of over 40,000 high paying jobs because of the tax.  Additionally, the expectation is for price increases in such devices as hearing aids, wheelchairs, prosthetics, and implantables used in hip, knee, and spine surgery.   The political establishment expected controversy all along.  One key senate staffer responsible for writing the bill called ObamaCare a “coverage bill, not a cost reduction bill.”  Phase 1 was the passage of the act to get more people covered.  Phase 2 will be a battle to control costs. 

This is exactly the pattern that is being followed in Massachusetts where a similar reform has been in place since 2006.  The legislation in that state, labeled RomneyCare, has resulted in a broad expansion of coverage.  But 4 out of 5 of the newly insured are covered in a public program.  As a consequence healthcare spending consumes 54% of the state’s budget (up from 21% in 2001); Massachusetts has the highest per capita healthcare spending in the world; and healthcare costs are 27% higher than the US average. 

The conventional wisdom in Massachusetts holds to the philosophy that the only way to control healthcare spending is through government control.  So Phase 2 started with caps on premiums and is now moving to secure government’s role as the final authority over health care.  The most recent piece of legislation limits the growth in healthcare spending to the growth in state GDP until 2017.  After that date until 2022, the limit is state GDP minus 0.5%.  Thereafter, providers will be placed on a global budget, virtually eliminating fee-for-service and subjecting providers to a capitated payment system.  As a requirement for the privilege of practicing medicine in the state, all providers will have to register with a new state bureaucracy, the Health Policy Commission.  This state agency, similar to the Independent Payment Advisory Board set up under ObamaCare, will have sweeping powers to enforce the new rules on spending, rewrite contracts, establish fees, and punish providers that spend too much money on patient care. 

Well, it took 6 years for Massachusetts to admit that a government-run healthcare system is unable to control spending without taking over all decision-making.  It’s just a matter of time before the rest of the country follows down the same path.  Maybe the Mayans were right and we won’t have to deal with the consequences of this emerging fiasco. 

The opinions expressed in this blog post are mine alone, and do not reflect the opinions of Baylor University.   Baylor is not responsible for the accuracy of any of the information provided in this post.


Remember when Nancy Pelosi said, “But we have to pass the [health care] bill so that you can find out what is in it.”  Well, they passed it.   We’re finding out what’s in it.  And there’s a lot not to like.  This sentiment is not based on my ideological stance against big government.  This legislation is flawed and Republican opposition or not, it needs to be fixed if there is any chance of a successful outcome.  It is understandable that there are problems.  The bill was cobbled together in the first place to ensure the required votes for passage (220-215 in the House without a single Republican vote).  The House had to accept the Senate version in its entirety because of the loss of the Massachusetts seat to the Republicans.  What we have is a document with 8 glaring problems that will be its undoing unless they are addressed. 

  1. Weak individual mandate.  The tax penalty is small relative to the premiums.  The mandate lacks a strong enforcement mechanism: no garnishing of wages, no attaching assets, no jail time.  The only hammer is a lien on over-withholding.  The lesson here is don’t expect refund if you don’t have insurance.  If you plan to forego insurance, make sure you withhold only what you will owe in taxes.   The result is an incentive to game the system.  In other words, don’t buy insurance until you absolutely need coverage and then drop it when you don’t.  This will create adverse selection in insurance pools with only sick people purchasing insurance and premiums will continue their upward march. 
  2. Disruptive employer mandate.   Firms with more than 50 full-time workers (defined as those who work more than 30 hours per week) are required to provide affordable insurance for their employees.  Those that don’t are subject to a $2,000 fine per worker.  The incentive exists to reduce current workers to part-time status, and only hire part-timers in the future.  Fully, one-third of the restaurant and hospitality industry (with unskilled, low wage employees) will make the shift to part-time labor.  Papa John’s, Carl’s Jr, Olive Garden, Red Lobster, Kroger, Hampton Inn, Sheraton, Holiday Inn, and even the College of Allegheny County have already announced their intentions to limit worker hours.  Welcome to the era of the 28-hour workweek. 
  3. Ambitious Medicaid expansion.  The legislation makes Medicaid eligibility uniform across the country at 138% of the federal poverty level (approximately $30,000 for a family of four).  Because establishing eligibility standards has historically been a state’s responsibility, they vary wildly from a low of 17% of FPL in Arkansas to as much as 285% in Minnesota.   The impact of the expansion would have relatively little impact in some states and result in significant increases in state spending in others.  Texas, for example, would see about a billion dollar per year increase in state obligations to the program.  The Supreme Court ruled that the expansion was voluntary, so as many as 17 states may choose to forego expansion.  Instead of covering an additional 18 million nationwide, the expansion will add only about 11 million. 
  4. Complex insurance exchange rules.  States were expected to set up and finance their own insurance exchanges to provide coverage for uninsured residents.  These exchanges require a massive amount of information to verify user identity, certify health plans, and provide a platform for individuals to shop and purchase plans.  The systems must be able to access employment information and IRS files to determine an individual’s eligibility for subsidies.  The complexity is enormous and states do not have to comply.  They can simply sit back and let the federal government do it for them.  Sixteen have already said that they will follow that route.  There is a potential problem if the states don’t act.  The subsidy is clearly available if insurance is purchased from a state-level exchange.  Any mention of subsidies in federal exchanges is glaringly omitted from the legislation.  Expect litigation. 
  5. Medicare spending cuts.  The Congressional Budget Office (CBO) reports that the law will cut Medicare spending by $741 billion over the next ten years.  This “savings” will be used to fund the Medicaid expansion and the state-level exchange subsidies.  CBO scoring of the law indicates that these same dollars will also be used to shore up the Medicare Trust Fund.  But as any first year economics student knows, every dollar has an opportunity cost.  If spent on Medicaid coverage, it can’t be spent to save the Medicare Trust Fund.  In other words there is no “savings.”  The result will be that by the end of the decade, 1 in 7 hospitals will drop Medicare and more physicians will refuse to take new Medicare patients (already 1 in 3 do not). 
  6. Spending continues to rise.  A bill that was promised to “bend the cost curve” falls woefully short.  Currently, health care spending at 17.6% of GDP will approach 20% by the end of the decade.  Premiums will continue to rise, especially for the young who will be pooled with their elders and pay substantially more for their insurance than is actuarially fair.  Many will opt out, choosing not to buy insurance, but rather pay the tax penalty (or not), and insurance premiums for everyone who does buy insurance will be higher. 
  7. Not universal coverage.  The CBO estimates that at least 30 million will not have insurance coverage, about 10% of the non-elderly population.  States opting out of Medicaid, the problems with subsidies in the federal exchanges, and widespread gaming are likely to drive that number up substantially. 
  8. Does not improve access.  Nothing in the legislation addresses the current and future physician shortage.  Basic economics tells us that when you increase demand and do nothing to supply, prices go up or if they don’t, availability lags.  The law has a backup plan for Medicare when this happens.  It’s the Independent Payment Advisory Board (IPAB).  With Medicare price controls as their only tool, seniors can expect at best bottlenecks in their access to care.  At worst, the low hanging fruit is end-of-life care.  (If you want to read more on this topic go to https://blogs.baylor.edu/jimhenderson/2012/10/15/will-obamacare-lead-to-death-panels/). 

ObamaCare is a flawed document.  The Democrats were in such a hurry to pass it that they forgot the fundamental tenant of medical care: First, do no harm.  Well, we’re stuck with it, so what do we do?  The current makeup of body of lawmakers does not bode well for compromise.  All too often with the leadership we have, it’s either “my way or the highway.”  They say that we deserve the leaders we elect.  If that’s true, I’m fearful for the Republic. 

The opinions expressed in this blog post are mine alone, and do not reflect the opinions of Baylor University.   Baylor is not responsible for the accuracy of any of the information provided in this post.

States May Still Have The Last Say In The Matter of Healthcare Reform

In an interview with ABC’s Diane Sawyer, House Speaker John Boehner seemed a bit confused on what his stance on the GOP’s promise to repeal ObamaCare in the new session.  The transcript of the interview shows his indecision. 

SAWYER: A couple of other questions about the agenda now. You have said next year that you would repeal the health care vote. That’s still your mission?

BOEHNER: Well, I think the election changes that. It’s pretty clear that the president was reelected, ObamaCare — is the law of the land. I think there are parts — of — the healthcare law that — are going to be very difficult to implement. And very expensive.  And as — the time when we’re trying to find a way to create a path — toward a balanced budget — everything has to be on the table.

SAWYER: But you won’t be spending the time next year trying to repeal ObamaCare?

BOEHNER: There certainly may be parts of it that we believe — need to be changed. We may do that. No decisions at this point.

A Boehner spokesperson quickly responded to the comments saying, “While ObamaCare is the law of the land, it is costing us jobs and threatening our health care.  Speaker Boehner and House Republicans remain committed to repealing the law.”

Should we be expecting a drawn out battle over ObamaCare, or should the GOP simply get over it? 

Let’s examine reality.  Regardless of what Congress does, the battle over ObamaCare is far from over.  The next step in the reform process is just beginning, implementation.  The two most important pieces of the new law are the creation of the insurance exchanges and the expansion of Medicaid, both state responsibilities. 

Beginning January 1, 2013, there are 30 states with Republican governors who are in no mood to cow tow to federal pressure to stand in line and play nice.  States are not obligated to either set up their own exchanges or expand Medicaid.  The law made it clear that if states refused to set up exchanges, the federal government would.  At this time these Republican governors do not seem to be in any hurry to spend their states’ tax dollars to set up their own exchanges.  It’s not just Republican governors either.  Only 17 states met the November 16 deadline to declare their intentions to establish their own exchanges; so few that the government has extended the deadline by 4 weeks to give them more time to reconsider. 

The federal government faces a multitude of problems in this situation.  The law does not provide appropriations for the federal government to establish exchanges and appropriations’ bills must originate in the Republican controlled House.  Additionally, there is some question whether the subsidies making insurance affordable for many American families is legal in the federal exchanges.  The law did not provide for subsidies in the section outlining how federal exchanges would work.  The IRS has ruled that subsidies are legal in federal exchanges.  Expect litigation. 

The Supreme Court in its rewriting of the legislation provided states with an option in the case of Medicaid expansion.  Ignore it completely.  Many of the Republican governors have already said that they will not expand Medicaid. 

State-level action is just one roadblock to successful implementation of ObamaCare.   There are also several design flaws in the law that must be corrected for it to have any chance of success.  I’ll discuss the flaws in my next blog entry. 

The opinions expressed in this blog post are mine alone, and do not reflect the opinions of Baylor University.   Baylor is not responsible for the accuracy of any of the information provided in this post.

The 1st Presidential Debate

Wednesday night 58 million television viewers watched presidential hopeful Mitt Romney square off against President Barak Obama in the 2012 campaign’s first presidential debate.  By most accounts Romney won the contest hands down.  But in my opinion the real winner was the American voting electorate.  Romney was clear and decisive.  He did not look or sound like the caricature portrayed by the Democrats and the lapdog media.  At the risk of being redundant, I’ll add my insight to the growing commentary. 

Healthcare overall and Medicare specifically was appropriately emphasized in this domestic policy debate.  What I found interesting was Romney’s command over the topic and Obama’s lack of command.  Romney’s thoughts were organized and he showed a command of the facts.  Obama was disjointed and relied on overused sound bites describing his plan and Romney’s approach to Medicare reform. 

Obama actually made the first reference to health care; describing the “$716 billion we were able to save from the Medicare program by no longer overpaying insurance companies by making sure that we weren’t overpaying providers. And using that money, we were actually able to lower prescription drug costs for seniors by an average of $600, and we were also able to make a — make a significant dent in providing them the kind of preventive care that will ultimately save money throughout the system.” 

Romney was quick to reply that Obama had just described a savings of “$1 for every $15 you’ve cut. They’re [seniors] smart enough to know that’s not a good trade.  I want to take that $716 billion you’ve cut and put it back into Medicare. By the way, we can include a prescription program if we need to improve it.  But the idea of cutting $716 billion from Medicare to be able to balance the additional cost of Obamacare is, in my opinion, a mistake.” 

Romney referred to the $716 billion four more times, explaining that it’s not savings at all, if it’s spent to fund provisions in Obamacare.  Wisely, the President never mentioned the number again.  Obama talked about the popular insurance provisions in reform plan: no lifetime limits, dependents up to age 26 remaining on their parents’ insurance plans, elimination of pre-existing conditions exclusions, the 85% minimum for insurance plan spending relative to the premium, and that’s about it. 

Romney accepted these provisions as part of the replacement pledge (of course after the repeal).  These are provisions that are in the Massachusetts plan passed when he was governor of that state, emphasizing the bipartisan nature of that legislation and the strictly partisan process that led up to the passage of Obamacare.  After possibly his best public defense of Romneycare to date, he quickly moved on to a description of the Independent Payment Advisory Board, the 15-member unelected board of experts that will make important decisions on pricing and spending that will affect access to medical care in both the public and private sectors. 

President Obama’s response to IPAB was bringing up the cost-saving success of the Cleveland Clinic and its integrated approach to medical care delivery.   In his mind the success is somehow an example of what IPAB is all about.  “Now, so what this board does is basically identifies best practices and says, let’s use the purchasing power of Medicare and Medicaid to help to institutionalize all these good things that we do.”  Romney was quick to counter with a devastating retort “ In my opinion, the government is not effective in — in bringing down the cost of almost anything.  As a matter of fact, free people and free enterprises trying to find ways to do things better are able to be more effective in bringing down the cost than the government will ever be.  Your example of the Cleveland Clinic is my case in point, along with several others I could describe.  This is the private market. These are small — these are enterprises competing with each other, learning how to do better and better jobs. I used to consult to businesses — excuse me, to hospitals and to health care providers. I was astonished at the creativity and innovation that exists in the American people.” 

Romney concluded by saying that “in order to bring the cost of health care down, we don’t need to have a board of 15 people telling us what kinds of treatments we should have. We instead need to put insurance plans, providers, hospitals, doctors on target such that they have an incentive, as you say, performance pay, for doing an excellent job, for keeping costs down, and that’s happening.  Innermountain Healthcare does it superbly well, Mayo Clinic is doing it superbly well, Cleveland Clinic, others.”  OUCH!

All in all, it was a good night for Romney and a shot of adrenaline for his campaign.  The President will obviously rethink his strategy for the next two debates.  It will be interesting to see how many will view the next debate between Vice President Biden and Congressman Ryan.  This may turn out to be the best reality TV of the season.