Trump Must Eliminate Double Standards in Health Regs
President-elect Trump recently tapped entrepreneurs Elon Musk and Vivek Ramaswamy to lead a new "Department of Government Efficiency" charged with slashing billions of dollars in wasteful federal regulations and spending.
One key to their success will be exposing and correcting the regulatory parlor games federal agencies use to justify their favored programs. Another will be to stop the never-ending spending on politically biased government "studies," like the so-called cost-effectiveness analyses conducted by some federal agencies. Finally, the pair needs to give policy-making decisions back to Congress and the president -- rather than unelected bureaucrats.
It's long past time we hold bureaucrats accountable for obscuring the costs and overselling the benefits of the regulations they like. A central figure in this effort will be my former White House colleague Russ Vought, who was recently nominated to again be the director of the Office of Management and Budget, the agency that oversees regulatory policy.
A prime example of misconduct is the Biden administration's wildly inconsistent standards for measuring health gains from its signature Inflation Reduction Act. The White House values health gains resulting from the government's climate regulations 10 times higher than identical improvements resulting from private sector medical innovation.
That's rather convenient, because there will be far less innovation in the future due to the Medicare drug price controls included in the Inflation Reduction Act. Put simply, the administration is using one standard to calculate big gains from its climate policies and a different standard to make the harms of the price controls seem small.
For the OMB to make any cost-benefit assessments of regulations affecting our health, it needs to "dollarize," or value, any health impacts in some manner. These valuations are supported by an extensive body of economic research which measures how people factor increased mortality into their economic decisions, such as the additional compensation required to engage in more dangerous occupations. We reviewed the amounts that federal departments use to dollarize health and found that an additional year of life is typically valued at $580,000.
Yet when it comes to dollarizing the medical innovation lost due to drug price controls, the administration seems to be using standards that value an additional year of life at just $38,000 to $50,000. It's a blatant double-standard.
Medicare officials say that they value medical advances based on a host of inputs, including so-called comparative, clinical, and cost-effectiveness analyses. Yet they decline to share the actual specifics. This black-box approach to health valuation gives officials full leeway to make politicized, arbitrary decisions under the guise of being "science based."
This secrecy is deliberate. Medicare is technically prohibited from adopting a pure cost-effectiveness approach to setting prices. But no one should be fooled. The clear role model here is the United Kingdom's price control body -- the National Institute for Health and Care Excellence, or NICE, which values a life year at $38,000. Remarkably, this nominal level has remained the same since 2004 despite inflation.
Another clear, if unstated, reference is the Institute for Clinical and Economic Review, which values an additional life year at as little as $50,000 -- less than 9% of the dollar value the government places on an additional year of life generated from its climate regulations. ICER, partly funded by private health insurance companies favoring price controls, cheered when the administration announced prices for the first 10 drugs this fall, crowing that the prices were in line with its recommendations.
The double-standard gets even worse. Motivated by the "new science" of economic discounting, the outgoing administration revised the OMB's procedures for cost-benefit analysis of regulations, known as Circular A-4. OMB lowered the annual discount rate applied to health benefits in future years. Doing so amped up the future value of gains attributable to government action to reduce global warming.
If the outgoing administration were serious about applying consistent standards, it would have also applied the lower discount rate to the harm of reduced medical innovation. But that calculus shows up nowhere in the administration's cost-benefit assessments of drug price controls.
If a lower discount rate is warranted, it should apply across the board. The source of the improved health outcomes in the future should not matter.
President Trump will take office with an ambitious regulatory reform agenda. But to successfully navigate the arcane legislative and rulemaking processes, his appointees will need to impose not only big changes, but also granular changes that ensure consistency in OMB regulatory cost-benefit analyses. In order to eliminate low-value regulations, we first need to recognize the bias inherent in the metrics used to measure the value of those regulations in the first place.
Tomas J. Philipson is an economist at the University of Chicago who served on the White House Council of Economic Advisers as a member and acting chairman from 2017–2020.
One key to their success will be exposing and correcting the regulatory parlor games federal agencies use to justify their favored programs. Another will be to stop the never-ending spending on politically biased government "studies," like the so-called cost-effectiveness analyses conducted by some federal agencies. Finally, the pair needs to give policy-making decisions back to Congress and the president -- rather than unelected bureaucrats.
It's long past time we hold bureaucrats accountable for obscuring the costs and overselling the benefits of the regulations they like. A central figure in this effort will be my former White House colleague Russ Vought, who was recently nominated to again be the director of the Office of Management and Budget, the agency that oversees regulatory policy.
A prime example of misconduct is the Biden administration's wildly inconsistent standards for measuring health gains from its signature Inflation Reduction Act. The White House values health gains resulting from the government's climate regulations 10 times higher than identical improvements resulting from private sector medical innovation.
That's rather convenient, because there will be far less innovation in the future due to the Medicare drug price controls included in the Inflation Reduction Act. Put simply, the administration is using one standard to calculate big gains from its climate policies and a different standard to make the harms of the price controls seem small.
For the OMB to make any cost-benefit assessments of regulations affecting our health, it needs to "dollarize," or value, any health impacts in some manner. These valuations are supported by an extensive body of economic research which measures how people factor increased mortality into their economic decisions, such as the additional compensation required to engage in more dangerous occupations. We reviewed the amounts that federal departments use to dollarize health and found that an additional year of life is typically valued at $580,000.
Yet when it comes to dollarizing the medical innovation lost due to drug price controls, the administration seems to be using standards that value an additional year of life at just $38,000 to $50,000. It's a blatant double-standard.
Medicare officials say that they value medical advances based on a host of inputs, including so-called comparative, clinical, and cost-effectiveness analyses. Yet they decline to share the actual specifics. This black-box approach to health valuation gives officials full leeway to make politicized, arbitrary decisions under the guise of being "science based."
This secrecy is deliberate. Medicare is technically prohibited from adopting a pure cost-effectiveness approach to setting prices. But no one should be fooled. The clear role model here is the United Kingdom's price control body -- the National Institute for Health and Care Excellence, or NICE, which values a life year at $38,000. Remarkably, this nominal level has remained the same since 2004 despite inflation.
Another clear, if unstated, reference is the Institute for Clinical and Economic Review, which values an additional life year at as little as $50,000 -- less than 9% of the dollar value the government places on an additional year of life generated from its climate regulations. ICER, partly funded by private health insurance companies favoring price controls, cheered when the administration announced prices for the first 10 drugs this fall, crowing that the prices were in line with its recommendations.
The double-standard gets even worse. Motivated by the "new science" of economic discounting, the outgoing administration revised the OMB's procedures for cost-benefit analysis of regulations, known as Circular A-4. OMB lowered the annual discount rate applied to health benefits in future years. Doing so amped up the future value of gains attributable to government action to reduce global warming.
If the outgoing administration were serious about applying consistent standards, it would have also applied the lower discount rate to the harm of reduced medical innovation. But that calculus shows up nowhere in the administration's cost-benefit assessments of drug price controls.
If a lower discount rate is warranted, it should apply across the board. The source of the improved health outcomes in the future should not matter.
President Trump will take office with an ambitious regulatory reform agenda. But to successfully navigate the arcane legislative and rulemaking processes, his appointees will need to impose not only big changes, but also granular changes that ensure consistency in OMB regulatory cost-benefit analyses. In order to eliminate low-value regulations, we first need to recognize the bias inherent in the metrics used to measure the value of those regulations in the first place.
Tomas J. Philipson is an economist at the University of Chicago who served on the White House Council of Economic Advisers as a member and acting chairman from 2017–2020.
Comment
Show comments
Hide Comments
