AAPS News – Apr 2001


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of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto

Volume 57, No. 4 April 2001


The AAPS alert on Clinton’s medical “privacy” regulations
jammed the e-mail system at the Department of Health and Human
Services, which closed down after 10,000 messages. The next day,
HHS Secretary Tommy Thompson announced a new 30-day public
comment period, stating that the Clinton White House had failed
to post the “final” regulations to Congress as is required by the
Congressional Review Act of 1996. Major regulations must be
submitted to both houses of Congress 60 days before becoming

It is vital that these radical regulations be stopped.
Compliance would not just be burdensome and onerous, but
virtually impossible, while placing physicians in an ethical
dilemma: they can protect patient confidentiality or they can
abide by federal law, but often not both.

The new Administration and Congress need to understand how
profoundly the rules alter the patient-physician relationship.
They would force a “major cultural as well as operational
change,” states attorney John Christiansen of Seattle. The shift
from “confidentiality”-the obligation of a professional to
protect information from disclosure-to “privacy”-certain rights
of an individual to control disclosure-“represents a fundamental
transfer of power over information from professionals to their
customers and to…government agencies….

The regulations are “proscriptive, burdensome, and represent
the biggest change in the health care system that has occurred in
my lifetime,” stated David Korn, senior vice president for
biomedical research at the American Association of Medical
Colleges (BNA’s Health Care Policy Report 1/15/01).

Physicians’ notes were once terse reminders serving solely
to communicate with those responsible for the patient’s care.
HCFA now requires them to be legible to barely literate clerks
for the purpose of justifying the billing codes. The “privacy”
regulations continue the process of transforming the medical
record of a named patient into a computer-readable dossier on a
numbered government dependent/subject/”human resource.”

Private medical information could be integrated into the
government data bases already being expanded and networked, for
example, the New Hires Directory and state vaccine registries,
which the CDC is trying to combine and federalize. In addition,
nothing in the rule prohibits private parties from compiling
large data bases, notes Sue Blevins of the Institute for Health
Freedom (Health Freedom Watch Jan/Feb 2001). Data
obtained without consent prior to Feb. 26, 2003, when compliance
with the rule becomes mandatory, would not have to be removed,
and records lose protection once disclosed to a third party that
is not a “business associate” of a covered entity.

House Majority Leader Dick Armey (R-TX) writes in a letter
to Secretary Thompson that the Clinton rules clear the way for
the federal government to obtain certain private medical
information “at any time and without notice.”

As ACLU associate director Barry Steinhardt pointed out, “we
need to be much more concerned with the authorized uses of data
than their unauthorized uses. Right now, the law allows a lot of
data usage by the government.”

The change from confidentiality to privacy also involves a
change from an absolute right to a balancing act. In the AMA’s
view, privacy “must yield to certain defined `public goods'”
(AM News 2/26/01). The values that trump privacy, in the
assessment of HHS, include “oversight of the health care system,
including quality assurance activities,” judicial and
administrative proceedings, “limited” law enforcement activities,
and public health research.

An Institutional Review Board (IRB) would assess whether
“research is of sufficient importance so as to outweigh the
intrusion on privacy.” As Mr. Korn noted (BNA, op.
), such a determination is highly subjective. Moreover,
the process of making the determination is itself an intrusion on
privacy, stated attorney John Hoff, a policy editor for the
Association of Academic Health Centers (AHC).

If patients expect the rules to protect them from marketing
efforts, they are misinformed. Video rental records still have
greater protections from disclosure than medical records, states
consultant Robert Gellman. (AAPS staff observes that Mr. Gellman
is the strongest voice for privacy protection on the National
Committee on Vital and Health Statistics.) “The Clinton-Shalala
marketing rule is the most anti-privacy proposal that I have seen
in more than 20 years of work on health privacy policy.” This
rule, which was not in the draft published for comment, even
permits marketing to minors or the use of protected health
information about minors.

On the other hand, the rules may prohibit release of
information about minors to their parents, as Blue Cross Blue
Shield of Michigan indicated-if the minor may lawfully obtain a
service (such as abortion) without parental consent.

Penalties are quite severe: up to $250,000 in fines and 10
years imprisonment for each violation. Yet requirements
are so vague that it is “impossible for employers to know what
they are supposed to do,” according to the ERISA Industry
Committee (BNA, op. cit.) A new monthly publication,
HIPAA Compliance Alert, offers advice for $289/year,
such as: “Hire a privacy officer who can effectively become an
agent of change.” He must be able to “digest massive regulations
quickly.” The American Hospital Association (AHA) estimates a
$22.5 billion compliance cost over 5 years (HHS estimates $17.6
billion over 10 years). And it is simply unrealistic, AHA states,
to expect hospitals to monitor the internal business practices of
50 to 750 business partners.

The draft rule drew 52,000 comments. This deserves many more
(see p. 2 for directions). The rule is so flawed in concept and
execution that a total new beginning is needed.

Opted Out and Happy

In September, 1997, I retired and moved to Florida. Since
then, I have not received a single insurance or Medicare payment.
After attending the 1998 AAPS meeting in North Carolina, I
officially opted out of Medicare. My practice is very limited at
present, as my main endeavor is running a small flight school.
Nevertheless, my patients have accepted the program extremely
well and agree with me entirely that we must get rid of third-
party payers. I advocate cash only, checks limited, and no credit
cards. I can do this because I trust God, and I trust the
patients. If 85% of the patients can be trusted, why worry about
the 15% who either can’t pay or want to rip you off? I do not
insist on payment at the time of service. I simply present them
with a bill and tell them they can pay now or whenever they get
the money. Patients will grow to love you if you put money
second: “Seek ye first the kingdom of God, and all these things
shall be added unto you.”

I have not been sued in 37 years except once in small claims
court, for turning a patient in to the Department of Motor
Vehicles for loss of consciousness.

R. Douglas Collins, M.D., C.F.H., Bonifay, FL

What to Sacrifice?

From a message posted by George Fisher, M.D. (
): In a third-party system, privacy
cannot be preserved at a cost that is even minimally acceptable.
“As HCFA explores all the corners of this labyrinth, [it finds
itself] on an impossible mission. The third parties would have us
believe that … privacy just has to be sacrificed. What begins
to dawn on me is that it is the third-party system that must be

Dr. Fisher suggests a compromise in which we use very high
deductibles and limit the very high compliance cost to expensive,
institutionalized cases in which the cost can be justified. For
the expenses under the deductible, “privacy remains in the cocoon
of patient/doctor privilege.”

The Re-Invention of Privacy

An alternative to the federal re-engineering of medicine and
society-as in the Clinton-Shalala regulations on privacy -is
offered by a burgeoning new industry described by Toby Lester in
the March, 2001, issue of The Atlantic Monthly.

“Foundation-level” changes are challenging the command-and-
control assumptions of the worldview prevailing in military,
industrial, and government contexts, where “surveillance and
control were taken for granted as good things.”

The key to true consumer control is that “nothing
resides in a central data base
,” explains Fred Davis,
CEO of Lumeria.

This, of course, is the tendency opposite to the one
fostered by the modern state, which attempts to create a
population “with precisely those standardized characteristics
that will be easiest to monitor, count, assess, and manage,” as
described by Yale political scientist James C. Scott.

Many take a “decidedly dark view” of such intrusive
government, especially as manifested in the FBI’s sophisticated
global computer eavesdropping system called Carnivore, or in the
“Know Your Customer” banking regulations, which might be launched
globally though dropped 2 years ago in the U.S. because of public
outcry (WorldNetDaily 3/7/01).

More invasive government arose because of the need for a
“lie enforcer,” as society shifted from bearer transactions (such
as cash) to book-entry settlement. A reliable digital-cash
protocol would eliminate the need to know or track the customer
and greatly reduce transaction costs. A fraud-resistant form of
“micropayments” under development by the Internet Bearer
Underwriting Corporation (IBUC) could also resolve the conflict
between Napster and the music industry. Customers could download
music for a tiny charge, while industry could possibly reap even
higher profits.

The crucial question about privacy, Lester writes, has
always been “Whom should you trust?”

The old-fashioned chart written in code (the doctor’s
handwriting) might be as good as it gets for many medical
services. Beyond that, patients might be better advised to trust
technology rather than government or third-party payers.

Privacy Comments

The Final Rule is published in the Federal Register for
12/28/2000, pp. 82829-82462. It can be downloaded here
. Send your comments by priority mail and/or certified mail;
FAXed comments will be destroyed. Comments must be received by
March 30
at: U.S. Department of Health and Human Services,
Attention: Privacy I, Room 801, Hubert H. Humphrey Building, 200
Independence Ave SW, Washington, DC 20201. If you do not cite
specific sections of the rule, your comments might not be
considered. Sample comments can be downloaded from www.aapsonline.org or www.forhealthfreedom.org
and will be sent to our First Alert Team (see Action
item above).

State Issues

Last month, AAPS sent mailings to current and former members
in three states: California doctors were alerted to the
CMA’s attack on a directory of physicians willing to see
uninsured patients at an affordable price. Minnesota
doctors were sent information about the provider tax. We let
Oregon physicians know about a Senate bill to allow for a
philosophical exemption to vaccines. See the new “State Issues” section at
for details. If there are items you would
like to bring to the attention of other members in your State,
contact us, preferably by e-mail to [email protected].

AAPS Calendar

June 1. Board of Directors meeting, Chicago

June 2. Spring Private Doctors’ program, Chicago.

Oct. 24-27. 58th annual meeting, Cincinnati, OH.

Another Notch on HCFA’s Gun

In 1999, United HealthCare, a Medicare contract agent in
Virginia, ordered a physician to submit copies of 525 hospital
records. He was told that failure to refund immediately the full
amount demanded would trigger offsets from current claims plus
13.65% interest per month, so he took out a bank loan at
a lower rate. At a carrier hearing in Manhattan, the hearing
officer said she had a problem with only two of the claims, which
the only expert witness (the doctor’s) promptly clarified for
her. A fully favorable decision was expected, but the original
negative decision was affirmed in 90% of the cases. An appeal for
a hearing before an Administrative Law Judge was filed. Five
months later, the case had not been scheduled, much less
transferred from Virginia back to Manhattan, the site most
convenient for the appearing party, as the doctor requested.
Medicare continued to withhold payment for valid claims, and the
doctor’s debt continued to mount. He told a colleague that he
would fight the government’s lawyers to the death. In January, he
committed suicide, leaving a wife and three children. The League
of Physicians and Surgeons stated: “While we will continue to
fight fiercely on his behalf, it will be too little and too late
when we prevail” (Now Hear This, Feb 2001).

Lawsuit Filed on Pediatric Rule

A Citizens’ Petition having been denied, AAPS has filed suit
[Civil Action No 1:00CV02898(HHK)] together with the Competitive
Enterprise Institute (CEI) and Consumers Alert, asking for
declaratory judgment pursuant to the Administrative Procedure Act
to set aside “Regulations Requiring Manufacturers to Assess the
Safety and Effectiveness of New Drugs and Biological Products in
Pediatric Patients” (see AAPS News, Jan 2000). Plaintiffs assert that the Rule
is contrary to law, exceeds the FDA’s statutory authority, and is
arbitrary and capricious.

It is recognized that drugs frequently act differently in
children than in adults. However, manufacturers who bring drugs
to market for use in adults frequently do not seek approval for
use in children. Testing in children has many ethical and
practical difficulties. Parents may be reluctant to consent; it
is difficult to obtain blood samples; children experience much
more anxiety than adults during the testing; and liability
concerns are magnified.

One onerous provision of the Rule requires manufacturers to
seek approval for their product in each of four separate
pediatric subpopulations-even when they wish to market the drug
only for adults. If this stands, there is nothing to prevent the
FDA from creating further patient subgroups based on age, race,
or gender, and withholding approval until all foreseeable uses
are tested in these groups, causing further delays in the
availability of new drugs and multiplying their cost.

Congress has chosen, in the 1997 FDA Modernization Act
(FDAMA), to increase the availability of information concerning
pediatric uses through a voluntary scheme that grants six months
of market exclusivity in certain circumstances, showing its
preference for incentives over coercion.

This provision has been severely criticized: “Profit margins
have drug companies salivating for pediatric `crash-test
dummies'” (NY Post 22/18/01). Critics also complain that
companies prefer to test their big sellers rather than drugs most
commonly used in children (Wall St J 5/5/01). Yet the
same objections to unnecessary experimentation on children would
apply if these tests are required by the FDA.

The government filed its “customary Motion to Dismiss
seeking to avoid judicial scrutiny of their unauthorized …
regulations that are currently impeding access by physicians and
patients to health-enhancing new drugs,” wrote CEI attorney Sam
Kazman in the Plaintiffs’ response filed Feb. 23.

Supremes Uphold Delegation of Power

In the most closely watched administrative law case of the
decade, Whitman [formerly Browner] v. American Trucking
(see AAPS News, Nov
), the unanimous Supreme Court handed a major victory to
the administrative state. The Court seems quite comfortable with
allowing Congress to evade tough political choices by delegating
them to an executive agency. It also upheld the precedent that
the agency need do no cost-benefit analysis in arriving at its
standards. On the other hand, the Court did reinforce a trend to
be less deferential to a “reasonable interpretation by the
administrator of any agency,” by holding that the EPA could not
expand its discretion so far as to read a clause out of the law.
It sent one portion of the rules (the ozone standard) back to the
EPA. In the view of Richard Epstein, interim dean of the
University of Chicago Law School, the critics of regulation
gained “another large chip to play in their never-ending battle
with the forces of government” (Wall St J 3/1/01).

The OIG Is Watching

While Internet discussion groups (listservs) are useful ways
to exchange information, the owner of one such list warns that
“the requests for compliance advice you post are also likely
being read by government officials who could use the information
against you down the line.” One suggestion: “Be vague in your

Also, be wary about using the advice. If you rely on the
advice without checking with an attorney, and you make an error,
the OIG is less likely to acknowledge that it was an honest
mistake (Medicare Compliance Alert 2/12/01).

HIPAA: Expect More Convictions

Prosecutors tend to shy away from new statutes, which may
have a high rate of successful appeals. Each precedent gives them
more courage. “In some ways, this [1996] law is like a new
airplane,” said U.S. attorney Sheehan. “After we’ve flown it a
few times we see, yes, you can get this 20-ton beast off the
ground, and people are getting used to it” (NY Times

* * *

“You may find lawyers defining the range of treatments
that you are allowed to use in specified circumstances. Lawyers
may prescribe the criteria by which you are to choose among the
allowable treatments. Lawyers may specify the priorities you must
assign to different patients. Lawyers may require you to keep
detailed records to establish at all times that you are in full
compliance. Lawyers may punish you unless you can refute beyond a
reasonable doubt their presumption that your failures result from
not following all of their regulations and requirements. The
lawyers have you outnumbered, but on the average they are no
match for you in intelligence or dedication. Just don’t let them
ambush you while you are absorbed in caring for the sick.”

Commencement address by Chancellor W. Allen Wallis
University of Rochester School of Medicine and Dentistry
quoted by Schwartz, NY Times, Feb 25, 1975

Members’ Page

The Answer Is Still NO. [From the latest annual letter
refusing to participate in Medicare]: Dear “Increase Provider”
Team: Your records are correct. I am indeed a non-participating
physician in the Medicare program…. I believe that it is
immoral, unethical, and wrong to “participate” in fraudulent
schemes. As you know, the Medicare program is based on a Ponzi
scheme whereby older “investors” are paid with current
“investor’s” money: an involuntary and unconstitutional wealth
transfer scheme. Pyramid schemes like this inevitably end in
collapse and harm many people. As the demographics change in the
next couple of decades, there simply won’t be enough working
people to overtax. Rationing of medical care, already rampant via
below-cost payments and bureaucratic hassles, will become
transparently severe as the retired population increases. The tax
burden on workers, including those who earn only minimum wage,
will become confiscatory, at which point the work ethic will be
destroyed. Why work, only to have your earnings “transferred” to
a failing government Ponzi scheme?

A physician could make more money selling illegal drugs, but
that doesn’t mean he should do it. Likewise, a participating
physician can obtain a 5% higher Medicare allowance and not have
to abide by the Limiting Charge laws.

Assigned benefits are an open invitation to fraud-which is
deterred when the individual patient is directly responsible for
payment. Assigned benefits also promote cost inflation as their
is no incentive for patients to avoid overutilization.

Publicity in the Medicare Participating Physician/Supplier
Directory (MEDPARD) is the equivalent of posting the names and
pictures of criminals on the post office wall. I do not want my
name in either place for participating in a fraud.

I will not ever voluntarily participate in the fraudulent
and unconstitutional Medicare program, nor in any program that
routinely harms patients via rationing and denial of care that
competent physicians (as opposed to incompetent bureaucrats) deem
to be medically necessary. My stand is consistent with the
Non-Participation Policy of AAPS.

Lawrence R. Huntoon, M.D., Jamestown, NY

School-Based Outreach. Every public school child’s
enrollment package contained the enclosed form to be returned the
next day. [The form asks for SS#, physician’s name/clinic, and
health insurance plan. There is a box to check: “I would like to
learn more about health insurance for my child; you may release
my name, address, and telephone number to an authorized insurance
enrollment worker.” Parents are also to sign consent: “To help
school/medical providers in the coordination of my child’s health
and academic success, I give permission for San Diego schools, my
child’s doctor, and health insurance plan to exchange health
information as needed.” Examples include “medications and medical
procedures at school.”] Because the state is not having good
success signing children up in their free program of
health insurance- which I have seen advertised on Sunday prime-
time television -this might help their campaign.

Linda Rutgard, La Jolla, CA

“It’s Here to Stay.” Back in the early 1990s in dear
old Washington State, groups of physicians formed under the
rubric of: “Join our IPA (or whatever) or become road kill!” So,
of course lots of physicians avoided such violence-in the short
run. Today, all the IPAs in Washington State are-what was that
rallying cry?-road kill.

Steve Barchet, M.D., Issaquah, WA

It Just Gets Better. While a “fully insured” plan has
maximum out-of-pocket of $2,000, the potential out-of-pocket for
covered expenses with my Medical Savings Account is $0 this year
because my $4,500 deductible is fully covered by the $9,000 in my
account. I would have $12,000 in it by now, but I spent $3,000,
mostly for expenses that our medical and dental plans considered
noncovered, such as surgical removal of wisdom teeth. Even if my
family spends the full deductible this year, there will still be
$4,500 for noncovered medical expenses.

Art Jetter, Omaha, NE

Patient Satisfaction Rates. I was told by the Human
Resources people at the Marriott Corporation that it has finally
dawned on them that the 5-10% of people who were dissatisfied
with their medical plans were the 5-10% who really used them
because they were ill. Results of satisfaction surveys don’t mean
much unless the survey is done in the sicker part of the
population. If one is healthy, just any old plan should be fine.

It is as if we evaluated airline quality by surveying people
who drive by airports, but never get on a plane.

Robert Reid, M.D., Seattle, WA

Quality Data. As Greg Scandlen has said, “All the
outcomes data, HEDIS report cards, provider profiles, etc., don’t
carry as much valid information as the simple price of a service
in a free market.” One of the things I could barely stomach as a
consultant was the push to market HEDIS data for clients to use
somehow to select a health plan. In an effort to take my mind off
this absurdity, I devised a proprietary scheme to match PCPs and
specialists to employees’ astrological signs. A Taurus patient
could see a Virgo specialist, but only during certain phases of
the moon. Bad results were the fault of “greedy doctors” and
“penny-pinching HMOs.”

Gerry Smedinghoff, Wheaton, IL

Legislative Alert

The President’s Address to the

Riding high with a 61% approval rating, George Bush
delivered his first address to the joint session of Congress on
Feb. 27. Leading congressional Democrats seemed to be in a state
of shock over the reception to Bush’s speech, including friendly
responses by many in the media and among some Democrats. Left-
wing analysts have been saying all along that the general public
is with the Democrats on the issues: tax policy, Social Security,
and Medicare. Now the concern is that they may have
miscalculated, and they are faced with a shrewd politician who
not only communicates well-and simply and directly -but also
shows a genuine Reaganesque flair for reaching out and possibly
co-opting the “loyal opposition.”

The President outlined a broad agenda and specified how he
would allocate the federal funds over the next ten years. Every
major projection by the Congressional Budget Office (CBO) and
others indicates a budget surplus over this period. The Bush
Administration is estimating a surplus of $5.6 trillion over ten
years. Bush’s plan calls for dedicating an estimated $2.6
trillion of the projected Social Security surplus to the Social
Security system, and for establishing personal savings accounts
for younger workers.

By slowing the overall growth rate of government spending to
4%, Bush would generate a budget surplus for 2002 of $231
billion. In dollar terms, this would be a $26 billion increase
over 2001. Bush would also create a reserve fund of $1.4 trillion
over the ten-year period for unforeseen contingencies and debt
service. Finally, he would provide a tax-relief package of $1.6
trillion over a ten-year period, amounting to roughly one- fourth
of the projected surplus.

Changing the Language of The Debate

In perhaps the key line of the speech, Bush set the
terms of the national discussion on tax policy: “The choice is to
let the American people spend their own money to meet their own
needs. I hope you’ll join me in standing firmly on the side of
the people. You see, the growing surplus exists because taxes are
too high, and government is charging more than it needs. The
people of America have been overcharged, and, on their behalf,
I’m here asking for a refund.”

Bush is insisting that the vaunted surplus is, after all,
the people’s money. Odd thought. For years, leftists in Congress
would talk about tax cuts in terms of whether or not “we”-an
always vague use of the Royal Plural-could “afford” tax cuts. The
tacit premise is that the great and glorious We the Government
own the money, and the tax cut is akin to a government grant or
subsidy. Tax cuts, then, are a form of largesse. A gift from the
princes of the House and Senate.

That is the language of entrenched political power. Listen
to Molly Ivins, in her March 1st column for the Fort Worth
Star Telegram
, who criticizes the President’s tax cut as yet
another indication of The Shrub’s (her nickname for W) mental
inability to reach beyond the lower planes of blue-jeaned
vulgarity-shared by the natty and nippy conservative commentator
Tucker Carlson of CNN, who thinks class warfare is “vulgar”-to
the higher planes of superior understanding: “Quite, quite vulgar
to point out that in a society already deeply scarred by the
dramatically growing gap between the rich and everyone else, a
tax cut that transfers yet more wealth into the hands of the rich
while shifting more of the burden of taxation to everyone else is
a truly bad idea.” There you have it: a tax cut is an income
transfer-kind of like welfare-to the rich. The logic is clear:
The government is transferring it, because, after all, it is the
government’s money; or, in another version of the same notion,
upper-income folks cannot have any property right in their own

Not to be outdone is Thomas Mann of the left-wing Brookings
Institution, the haven of choice for the policy mavens of late
Clinton Administration. For many reasons, Mann insists, Bush is
flat out wrong about tax policy. In fact, we should be all happy
that we are paying those taxes. Says Mann, “What’s really needed
is a new interest group made up of the willing taxpayers of
America Most Americans of ordinary means willingly pay their
taxes-and derive some satisfaction from doing so.” If you are a
person of ordinary means, you might wish to invite other such
persons to join you in starting your own chapter of the “Willing
Taxpayers of America.” No doubt you will be flooded with millions
of applications. Your mass movement will surpass anything in
social history. Perhaps with a little help from George Soros and
like-minded members of “We Got Ours Caucus,” you can also do your
part and bravely stand up for the Death Tax.

Re-igniting Economic Growth

On the tax cut front, President Bush’s $1.6 trillion
proposal got a big boost from analysts at the Heritage Foundation
who found that it will “cost”-note the quotation marks-the
Treasury far less than either the Bush Administration or its
leftist critics contend. Because large federal tax cuts usually
spark economic growth, Heritage analysts estimate the cost of the
proposed tax package at $939 billion-more than $650 billion less
than the White House estimate and more than $1 trillion below the
$2.1 trillion figure claimed by the Center on Budget and Policy
Priorities, a prominent left-wing Washington think tank. Critics
use a “static” economic model, which assumes no change in
taxpayer behavior. The Heritage Foundation uses a “dynamic”
model, which accounts for predictable changes in consumer and
business spending, as well as interest rates, income, and

Under the Bush plan, the five current tax brackets would be
collapsed into four and lowered. The child tax credit would be
doubled to $1,000 per child, and the “marriage penalty” would be
reduced. Taxpayers who do not itemize would be able to deduct
charitable contributions. The plan would phase out the estate tax
over eight years, and make permanent the business “research and
experimentation” tax credit.

Heritage analysts also found that the plan would give the
average family of four nearly $5,000 (after inflation) in
additional income by 2011-and not only would save the entire
Social Security surplus but leave about $2 trillion in excess
revenue to be used for Social Security, Medicare, or other needs.
Also, it would eliminate the federal debt by 2010.

Another positive effect of the Bush plan, say Heritage
analysts, is that it would create more jobs-1.6 million more by
2011 than the CBO projects. This larger tax base also would
generate $846 billion more in tax revenue. Economic growth fueled
by the tax cuts would boost federal net interest payments by $226
billion and increase federal spending by $283 billion. Static
models predicted the tax cuts enacted in 1963 under President
Kennedy and in 1981 under President Reagan would reduce federal
revenues, but, of course, both tax cuts produced substantial
increases. (The Heritage paper, authored by William Beach and
Mark Wilson, can be found online at

Bush’s Big Health Policy Agenda

The big-ticket items-the tax cut, debt reduction, and
Social Security reform took up a large part of the 49-minute
speech. But the new President demonstrated a willingness to make
changes in federal health policy a central part of his governing
agenda, as laid out in the 2000 campaign.

The President stated: “My budget puts a priority on access
to health care without telling Americans what doctor they
have to see or what coverage they must choose.
Many working
Americans do not have health care coverage, so we will help them
buy their own insurance with refundable tax credits.” In
outlining a tax-credit strategy, the President has broken
dramatically with the pattern of incremental increases in
government control over the financing and delivery of medical
services that characterized the Clinton Administration, even with
Republican control of Congress.

The President also made clear his direction in Medicare. He
will reform the program based on the recommendations developed by
Congressman Bill Thomas (R-CA) and Senators John Breaux (D-LA)
and Bill Frist( R-TN). All of these were members of the national
Bipartisan Commission on the Future of Medicare, whose majority
recommendations the Clinton Administration torpedoed in March
1999. All four of the Clinton appointees voted against the
majority recommendations, which needed only one additional vote
to make a formal proposal for change to Congress and the White

Bush has committed himself to spending every Medicare
dollar, whether from premium or payroll taxes, only on Medicare.
In effect, this is an accounting sequestration, like Gore’s
fabled Lock Box. The dollars, of course, are not supposed to go
anywhere else anyway.

Beyond that, Bush is proposing to allocate $153 billion in
additional spending over a period of ten years to reform the
financially troubled program. The Bush plan would include a
prescription drug program integrated into a system of private
health insurance, and changes in the way the Medicare system is
governed. A system of competing private plans would be created,
while the current Medicare program would be preserved for seniors
who wanted to stay in it. There would be subsidies for basic
coverage and drug coverage for low-income seniors, and
“streamlined access” to the latest medical technologies. Bush
insists that reform must include an accurate measurement of
Medicare solvency, lack of which currently contributes to a
widespread misunderstanding about the true character of the
program’s financial condition.

The Real State of Medicare’s Finances

Former Vice President Al Gore said repeatedly that he
would be responsible, and being responsible, he would put
Medicare and Social Security surpluses into a Lock Box – and hide
the key from irresponsible Republican tax cutters. Everybody’s
for a Lock Box, just like everybody’s for clean air and water,
decent food and clothing, and kindness and goodness and virtue
and Mother’s Day. The House of Representatives took a brave stand
and, on Feb. 14, enacted HR 2, the “Social Security and Medicare
Lock Box Act of 2001,” by a vote of 407 to 2. It is a safe bet
that President George W. Bush will surely sign The Lock Box into
law, and everything with Medicare will be just peachy keen.

Wrong. As the Senate Budget Committee staff recently noted,
the Lock Box for Medicare would be fine if there were indeed a
real Medicare surplus to protect. But the truth is that there
really isn’t a surplus in any normal meaning of the term.
Instead, we are looking at ever larger demands on taxpayers to
cover the rising costs of the program.

Likewise, the President’s budget also paints a more somber
picture. The problem is the way in which Medicare is understood
for accounting purposes. There are two trust funds, Part A and
Part B. Part A, the hospitalization trust fund (HI), is funded
primarily from payroll taxes.

Is there a surplus in the Medicare Part A trust fund?
Answer: yes, but. The But is the fact that the HI fund surplus is
largely due to a budget gimmick that was enacted in the notorious
Balanced Budget Act of 1997. Congress shifted the explosive costs
of Medicare home health care services out of Part A and put them
into Part B. As the President’s budget team notes, “This shift
had no economic consequence, nor did it change total Medicare
spending. But it did have the intended effect of making the HI
trust fund appear more solvent.”

The Medicare Part B trust fund is not a trust fund in the
same way as Part A; it contains Part B premiums, amounting to 25%
of the costs. The other 75% comes from the general revenue fund.
As the President’s budget makes clear, the general fund
transfer is estimated to total $86 billion in 2002, and $1.171
trillion over the period 2002-2011
. This is a huge drain on
the federal treasury.

Medicare spending is projected to soar, as everybody who is
dimly conscious knows, outpacing the growth of the economy,
general inflation, and the federal budget. The baby boomers start
to hit the trust funds in 2011. The gap between funds that are
dedicated to the program-the payroll taxes, the premiums paid by
seniors, and the projected spending in the program-widens each
year. That gap will have to be filled by large draw downs on the
Treasury-in other words, more general revenues from taxpayers.
The President’s budget team projects that this gap will widen
from roughly $51 billion in 2002 to $216 billion in 2020 to $368
billion in 2030.

There is time to reform Medicare. There is simply no more
time to waste.

Robert Moffit is a prominent Washington health policy
analyst and Director of Domestic Policy at the Heritage

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