AAPS News – Dec 2004

Volume 60, No. 12 December 2004

ELECTRONIC MEDICAL RECORDS

What Hillary Clinton desired, President Bush has begun to
implement with Executive Order 13335, which calls for widespread
adoption of interoperable electronic health records (EHRs, or
EMRs) within 10 years. Additionally, the Medicare Modernization
Act requires the establishment of a Commission on System
Interoperability and the development of standards for electronic
prescribing.

Health Information Technology (HIT) is an essential part of
what Sen. Edward Kennedy calls a “peaceful revolution” that will
bridge the “quality chasm” while controlling costs. Our system
“lavishes funds on sickness care and neglects…health promotion
and disease prevention” (Congress Record 6/23/04).

Recognizing that “no socialistic approach to medicine has
worked well anywhere in the world,” reformers such as Bill
Bysinger of Mercer Health Systems echo the call for the
“public/private collaborative model” (HealthLeaders.com
10/22/04). So do the Markle Foundation and the Robert Wood
Johnson Foundation in their Connecting for Health project (see www.markle.org for a list
of stakeholders and a roadmap.)

With “electronic connectivity,” overseers can “connect the
dots of our conditions and our care over the years,” Sen. Clinton
explains (CCHC Insider Report, summer 2004). Computers
will help doctors make treatment decisions, as by reminding them
of “the conditions that must be fulfilled before surgery is
considered appropriate.” We need a “new social con-

tract…premised on joint responsibility to prevent disease” and
“individual responsibility reinforced by national policy.”

While HHS Secretary Tommy Thompson says “we can’t wait any
longer,” as of 2003 only 13% of hospitals and 14 to 28% of
doctor’s offices had implemented EHRs and made the touted
“quantum leap in patient power, doctor power, and effective
health care” (Murcko A, AzMed Sept/Oct 2004). And 27% of
physicians using EHRs in Maricopa County, AZ, say they want to go
back to paper (Round-Up Oct 2004).

There are profits to be made on hardware, software,
consultation, and standards development both for data and
disease management. Nearly 90% of authors of clinical practice
guidelines have a financial relationship with the pharmaceutical
industry (JAMA 2002;287:612-617).

For physicians, however, there are mainly costs, in dollars
and practice disruption. An EHR system can cost $200,000, or can
be obtained from open sources for $20,000 plus the cost of
customizing the system (IM News 8/15/04). The American
Academy of Family Physicians offers an on-line spreadsheet for
help in purchasing a system; the bottom line is a 5-year cost of
$126,239 (FPM April 2002). The hypothetical cost savings
accrue primarily to public and private payers and will not be
achieved just by using less paper.

Government subsidies are proposed. Bysinger suggests
allocating from 1 to 5% of a wide variety of government budgets,
as for highway projects, or tax revenues, as on alcohol or state
lotteries, to build the new infrastructure.

Then there are incentives, such as “pay for performance.”

Of course, the EHR also facilitates the next obvious step:
refusing to pay for whatever is defined as an error. HealthPart-

ners of Minnesota has announced that it intends to withhold
payment when a certain type of error has occurred possibly for
the entire episode of care (CCHC, 10/6/04).

The CMS pilot program called DOQ-IT (Doctor’s Office Quality
Information Technology Project), launched Sept 2, uses EHRs to
track “key quality indicators.” While a spokeswoman for the
American Health Quality Association states that quality
improvement organizations will not use the data against
physicians in audits or in court, the same cannot be said for CMS
(Medicare Compliance Alert 9/13/04).

Wonderful though HIT may be, the national IT infrastructure
cannot happen without government involvement, stated Newt
Gingrich (AM News 8/9/04). He thinks use of EHRs by
physicians will be mandatory within 10 years.

“In the long run, it will be malpractice to have paper
records because you kill people [with them],” Gingrich said.

And in the meantime, states can delicense physicians for
having “inadequate” records.

Will the EHR, linking patient-entered information with the
latest research, “translate finally into an important opportunity
for resolving the access problem”? (AM News 7/12/04).
Does that mean making doctors obsolete?

A key feature in connectivity, national unique billing
numbers for physicians, will be available from CMS on May 23,
2005, and will be required for all HIPAA-covered entities by May
27, 2007. Physicians who participate in Medicare will receive
their NPI automatically; all others must apply.

The pieces continue to come together for the radical
transformation of American medicine (AAPS News Feb 2001, Sept
2003). Various features are clear:

• Even if there is no central database, at least not by
  2010, a “network of networks” will make vast amounts of patient
  data available to all “authorized” persons.
• Health data are seen by the government (and by the Markle
  Foundation) as highly relevant to national security.
• Unprecedented profiling of physician compliance with
  government-defined “best practices” will be possible. Outliers
  can and probably will be destroyed.
• “Population health” has priority, implying discrimination
  against the sick and the old, especially as retiring baby boomers
  push the system into bankruptcy.

The construction of the tower of the Panopticon, reaching to
Utopia, is underway. It requires connecting all with a universal
artificial language in the EHR. Such grand projects have
reportedly failed before, as in the Tower of Babel.

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Core Functions of the EMR

The Institute of Medicine (IOM) has defined eight core
functions for the standard electronic medical record:

1. Key data (diagnoses, allergies, lab results)
2. Access to all new or past tests done by all clinicians
3. Order management (medications, tests, services)
4. Decision support (reminders to improve compliance)
5. Electronic connectivity with patients and clinicians
6. Patient support (access to records, interactive education)
7. Administrative tools (such as scheduling systems)
8. Reporting (compliance with gov’t and private requirements)

Language of the EMR

Most doctors keep their records in English and expect to
have free text entry in their EMR. But while a person can
translate “pharyngitis” into “sore throat,” a computer cannot. To
get clinicians into the system, the Markle Foundation advocates
an incremental rather than a “big bang” approach:

“[T]here is an important trade-off between
specifying a requirement that the data be minutely
structured and coded…or allowing it to be represented
as simple text, suitable for interpretation by a
person. The former approach is required for computer
decision support, abstracting for public health
surveillance, or aggregation for research and quality
determination. The latter approach is important in
the short term because it minimizes the burden on
users [emphasis added] (Achieving Electronic
Connectivity in HealthCare: a Preliminary Roadmap from
the Nation’s Public and Private-Sector Healthcare
Leaders, see www.markle.org)
.

Which coding language will be adopted for a national system
of EMRs? In 2003, HHS signed a $32.5 million, 5-year contract
with the College of American Pathologist to license its SNOMED CT
system (Systematized Nomenclature of Medicine Clinical Terms),
which is said to be the most comprehensive multilingual system of
hundreds on the market, and a “positive first step in developing
a common language.” It has already been mapped to the ICD-9
system. But some say SNOMED is too “granular” (complex and
precise), and that a classification system such as ICD-10 or the
AMA’s CPT is still needed. The National Committee on Vital and
Health Statistics voted in November 2003 to ask HHS to replace
ICD-9 with ICD-10 (which would also replace CPT codes). ICD-10
has 60 codes for decubitus ulcers rather than just one, making it
easier “to monitor the problem more specifically,” in the view of
a CMS spokeswoman (IM News 2/15/04).

“Unless you move from paper-based to EMR, you can’t take
advantage of any language,” stated Dick Gibson, M.D., chief
medical information officer for Providence Health System of
Portland, Ore. (HealthLeaders 12/3/03).

Central Planning vs. Free Markets

In his novel Prey, Michael Crichton writes: “In the
old days, programmers tried to write rules that covered every
situation…. Eventually, the programs began to fail out of sheer
complexity…. Then programmers developed `distributed
processing,’ in which thousands of independent agents working as
part of a network would produce optimal results.” This was
“bottom up,” rather than “top down” programming. “[T]he behavior
of the system emerged, the result of hundreds of small
interactions occurring at a lower level….[I]t could produce
surprising results…never anticipated by the programmers.”

Officers Elected

At the 61st annual meeting in Portland, the following
officers were elected: Kenneth Christman, M.D.; President-Elect;
Charles McDowell, Jr. M.D., Secretary; and R. Lowell Campbell,
M.D., Treasurer. The following were elected to a three-year term
on the Board of Directors: Arthur Astorino, M.D., an
ophthalmologist from Newport Beach, CA; H. Todd Coulter, M.D., an
internist from Ocean Springs, MS; Chester Danehower, M.D., a
dermatologist from Peoria, IL; and Timothy Kriss, M.D., a
neurosurgeon from Versailles, KY.

Resolutions

Resolutions are posted at www.aapsonline.org.

61-1: AAPS condemns the practice of sham peer
review; declares that those who conduct or participate in
sham peer review are engaging in unethical and/or unprofessional
conduct; and urges existing physicians’ “Whistleblower” and
“Patient Advocate” laws…be extended to all physicians….

61-2: AAPS supports efforts to insist or require that
agencies of the United States and United Nations permit,
encourage, and fund the use of DDT in tropical countries
where malaria is prevalent and health ministries wish to use it
to save lives.

61-3: AAPS supports the continued and increasing
availability of vitamins and nutrients for the public at
large….

61-4: AAPS believes it is not in the best interests of
patients, physicians, or taxpayers for government to arbitrarily
limit the growth of physician-owned single-specialty
hospitals and that Congress should end the moratorium on
physician-owned specialty hospitals in the Medicare Modernization
Act.

61-5: AAPS considers the standard of care for
prescribing controlled substances for the relief of pain
to be that the physician is acting upon his best judgment for the
benefit of his patient, and that the federal government does not
have the lawful authority to interfere with the practice of
medicine by second-guessing physicians’ judgment in the
prescribing of controlled substances for the relief of pain, and
should cease and desist from criminal prosecutions based on
differences of medical opinion on medical necessity or the
appropriate use of certain drugs.

61-6: AAPS calls for Congressional investigations into
whether the Department of Health and Human Services is in
compliance with Sections 1801 and 1802 of the Social Security Act
of 1965, and that until such an investigation is completed, calls
for a moratorium on any further laws, regulations, or policies
that extend the powers of HHS over the practice of
medicine.

61-7: AAPS urges medical facilities to adopt
transparent pricing policies, providing for public
disclosure of what it charges self-pay patients for specific
service compared to Medicare and the average insurance plan, and
for the right of patients to negotiate…charges without
retaliation.

61-8 establishes a scholarship fund in honor of Dr.
Nino Camardese and encourages contributions to this fund in
the AAPS Educational Foundation.

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Victory for Tort Reform in W.Va.

Trial lawyers run West Virginia. Lester Brickman, a
professor critical of runaway asbestos litigation, said that
suing trial lawyers in W.Va. is like the Christians facing off
against the lions. Predictably, the W.Va. courts rebuffed the
lawsuit brought by obstetrician Julie McCammon, M.D., against the
West Virginia Trial Lawyers Association (AAPS News June 2004). (It is awaiting appeal to the
U.S. Supreme Court.)

One of the most powerful justices on the West Virginia
Supreme Court has been Democrat Warren McGraw, who was president
of the West Virginia Senate before being elected to the High
Court. His brother has been state attorney general since 1992,
giving the name added recognition.

Brent Benjamin, referred to by the press as an “unknown
Charleston lawyer,” ran a campaign against Justice McGraw,
emphasizing the need for tort reform and integrity in the
judiciary. The trial attorneys and labor unions poured $1 million
into McGraw’s campaign.

Benjamin ousted the powerful incumbent by a 53-47% margin.
Beating the trial lawyers in their own state sends a powerful
message to the nation.

Pharmacies Sue FDA

A coalition of pharmacies from Texas, Arizona, Alabama,
Wisconsin, California, and Colorado filed suit on Sept 27 against
the U.S. Food and Drug Administration in the U.S. District Court
for the Western District of Texas, claiming that the agency is
illegally enforcing an arbitrary regulation that it had no
authority to issue. Last year, the FDA issued a compliance policy
guideline (CPG 7125.40 608.400), which made the use of bulk
ingredients illegal in compounding prescriptions for pets and
companion animals. The agency is waging an aggressive inspection
campaign to enforce the CPG.

The pharmacies argue that (1) the FDA acts as though the CPG
has the force of law while acknowledging that it does not; (2)
federal law protects pharmacies that comply with state law from
FDA jurisdiction; and (3) the FDA action contradicts its argument
before the U.S. Supreme Court in Thompson v. Western
States that compounded drugs like those in question cannot
be treated as “new drugs.”

“The FDA’s unlawful actions are meant to intimidate law-
abiding pharmacists to quit compounding medications,” stated
Steven Hotze, M.D., President of Premier Pharmacy in Katy, TX.
“Many safe, legal medications which are not produced by
drug companies would cease to exist without the…work of
compounding pharmacies. Without being able to use bulk
ingredients to prepare the medications prescribed by practition-

ers, compounding pharmacies would not be able to meet the medical
needs of millions of patients.”

The AAPS Board of Directors voted to file an amicus brief in
this action. Read the Complaint file in US District Court.

One Branch More Equal Than Others?

On Sept 24, 2004, the Supreme Court of Florida ruled
“Terri’s Law” unconstitutional, in the case of Jeb Bush v.
Michael Schiavo (No. SC04-925). This law permits the
Governor, under certain circumstances, to stay a court order that
requires a patient’s death from dehydration and starvation. Terri
Schindler Schiavo (AAPS News Dec
2003) remains alive because of this law. The Court finds,
however, that the law is an intolerable encroachment on the power
of the judicial branch, which followed the forms of the law. The
Court did not examine the substantive questions of alleged bias
in the lower courts and actual error in determining the patient’s
wishes and the correct diagnosis. The patient is irrelevant:
“this case is about maintaining the integrity of a constitutional
system of government with three independent and coequal branches,
none of which can encroach on the power of another branch or
improperly delegate its own responsibilities.”

The Court held that “If the Legislature with the assent of
the Governor can do what was attempted here, the judicial branch
would be subordinated to the final directive of the other
branches.”

Absolute Immunity

Judges have enormous power over life or death and can
inflict tremendous harm, as through knowing wrongful conviction
of the innocent. Yet they enjoy absolute immunity from being
sued. The U.S. Supreme Court ruled in Pierson v. Ray
[386 U.S. 547,554-55(1967)]: “This immunity applies even when a
judge is accused of acting maliciously and corruptly.”

State judges can be removed by the voters for outrageous
conduct, but even then can retire on a comfortable pension.
Federal judges can be removed only by conviction for a serious
crime or by impeachment.

Former U.S. Supreme Court Justice Harlan Fiske Stone wrote:
“While unconstitutional exercise of power by the executive or
legislative branches of government is subject to judicial
restraint, the only check upon our own exercise of power is our
own sense of restraint.”

Constitutional protections of the individual concern due
process or adherence to procedural formalities, not actual
fairness. “In federal court, innocence is irrelevant.” The
procedure is heavily weighted against the defendant. The
overwhelming majority of trial judges’ rulings favor the
prosecution. Opinions that might precedentially favor a defendant
are generally not citable, even if they can be found.

Some believe that the ongoing generation of wrongful
convictions is not an aberration, but a result of the system
functioning as intended. [PLN Aug 2004, prisonlegalnews.org, from N Ky Law Review 30(4).]

Tip of the Month: When the United States imposes
criminal restitution and fines, it has almost unlimited powers of
collection. But there are some useful statutory protections.
Most notably, disposable earnings are exempt up to thirty times
the federal minimum wage (30 times $5.15 per hour). Wages above
that amount are subject to garnishment only up to 25% of the
overall disposable earnings. “Disposable earnings” are the
portion of a salary remaining after the withholding. The
government cannot place a lien on one’s personal residence unless
a judge or magistrate expressly authorizes that in writing. And
for creditors having less power than the federal government, such
as mere malpractice attorneys, many more statutory protections
are available in every state to safeguard assets against
judgments.

AAPS Calendar

Jan. 21, 2005. Board of Directors meeting, Houston, TX.

May 21, 2005. Board of Directors meeting, TBA.

Sept. 21-24, 2005. 62nd annual meeting, Arlington, VA.

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Correspondence

What Exactly Are They Building? In the same vein as in
the movie Field of Dreams, incremental socialists
believe that “if you build it, they will come,” and if you build
it slowly, incrementally, they won’t recognize what it is until
too late.

Those nice buildings with shower heads were to further
public cleanliness. Little did people know that the Nazis
intended to pump poison gas through them, and that the intended
cleansing was ethnic rather than hygienic.

If people can be assigned unique numbers, and physicians can
be forced to enter all medical information in a standard format,
we can be more efficient and improve the safety and quality of
medical care. We can compare actual practices to the “best
practices” promulgated by the government.

Little by little, they string each wire to the chair, until
one day all they have to do is plug it in and voil…: it’s an
electric chair! Unique identifiers, standardized claims data, and
electronic records are the infrastructure to carry the current.

Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY

Government-Assured Quality. The “evidence-based
medicine” movement that is gripping medical academia is one of
the scarier ideas of recent times. It was concocted by the people
who spent hundreds of millions of dollars on “quality,” only to
discover that they couldn’t even define it, much less mandate it.
Medicine has always been evidence-based. That’s why we have
medical schools, journals, and grand rounds. The difference is
that this time a panel will decide on an appropriate treatment
and any physician who deviates will be punished. The hubris is
astounding; we are still in “educated-guess” mode.

Greg Scandlen, Hagerstown, MD

EMR in Action. A Robert Wood Johnson Foundation-funded
program in Bellingham and Whatcom County, WA, is supposed to be a
model for improving medical care and lowering costs (Gina Kolata,
NY Times 8/11/04). “Clinical care specialists” (nurses)
armed with electronic medical records follow patients with
diabetes or congestive heart failure. One large medical practice
that participated in the planning declined to continue, saying
“we were seduced by the concept, but it doesn’t work.” Our
correspondents comment:

Gina Kolata bought the fantasy that “if we just had a better
computer, health care would be so much better.” This has proven
to be false. Every HMO or group practice already has such a
computer. The doctors, all employees of the HMO or practice, do
as they are told, or quit. No patient gets better care because
nobody cares.

Herbert Rubin, M.D., UCLA

For those who think participation in this “shared care plan”
is voluntary, read this: “Participating in the program is costing
each doctor in the group $500 a month for four years for the
electronic medical record system. Other innovations, like group
office visits and e-mailing with patients, are poorly
compensated, if at all.” In short, it’s a form of slavery.
Doctors will conform to the new record-keeping protocol,
and pay for it. Doctors will participate in
group teaching sessions, phone calls, and e-mails, and will
NOT be paid for it. The liability risks of the nurse
pseudodoctors will be borne by the physicians who “supervise”
them (without pay).

Stephen Katz, M.D., Fairfield, CT

Expert Hubris. Newt Gingrich declares that “we will
save so much money in the next decade by having an intelligent
health system that we will … enable virtually everybody to be
insured.” Perhaps Mr. Gingrich has little contact with industries
that don’t have the economies of scale found in, say, automobile
manufacturing. Why isn’t he proposing economies of scale and a
national information technology system for lawyers? And how can
he be so ignorant of government behavior as to think we need a
national IT system? What a way to bog down innovation!
Especially since the government has done its best to hammer any
IT standard spontaneously created by consumers as an unacceptable
monopoly.

Linda Gorman, Independence Institute

Can Computers Prevent Medical Error? Ask yourself the
following: Would you have avoided your two biggest misdiagnoses
in the past few years if you’d had an EMR? In my case, my charts
were perfect, and the computer would have reassured me. But I had
missed a few findings or misinterpreted the findings. When my
computer becomes good enough to catch such errors, I’ll ask it to
guide my fingers so that I no longer play wrong notes on my
piano.

Robert P. Gervais, M.D., Mesa, AZ

“Paperwork” Will Continue. IT will require just as much
time to manage as real paper and cost more, not less.

Joseph Lee Pugh, Diamondhead, MS

Private Care for All. Between May 21 and Sept. 21, our
clinic obtained prospective data on all 262 new patients. Of
these, 157 (60%) were uninsured, 75 (29%) had conventional
insurance, 12 (5%) had TennCare, 9 (3%) had Medicare, 6 (2%) had
TriCare, 2 (1%) had an HSA, and 1 had a Christian Medical Cost
Sharing Plan. Our clinic accepts no insurance of any kind, but
only direct payment. It has existed for more than 42 months, and
income is up 25% compared with this time last year.

Robert Berry, M.D., Greeneville, TN

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Legislative Alert

The Meaning of the Bush
Victory

The President won reelection with 51% of the popular vote,
to Senator Kerry’s 49%. Below the surface, however, there is a
bigger story. Bush is the first President to win a clear majority
of the popular vote since 1988, when his father defeated Governor
Michael Dukakis of Massachusetts.

Additionally, Republicans picked up four Senate seats,
giving them a 55-seat majority, and four House seats, for a 231-
member majority. A Presidential victory coinciding with a such
congressional victory is uncommon. This is the first once since
Franklin D. Roosevelt won reelection in 1936. It is also the
first time for a Republican President since 1924, when Calvin
Coolidge won reelection amidst an election-year massacre of the
Democrats.

The most significant Congressional loss is, of course, that
of Senate Minority leader Thomas Daschle (D-SD), the first such
leadership loss since department store owner and Phoenix city
councilman Barry Goldwater defeated Arizona’s Senator Harry
McFarland in 1952.

From the standpoint of health policy alone, the Daschle loss
is particularly significant. Daschle proved to be an inveterate
opponent of Bush’s health-care initiatives, particularly the tax-
credit proposals included in the post-September 11, 2001, general
economic stimulus package. The Senate blocked two such proposals
that had been passed by the House, with Senate Democrats favoring
instead a major expansion of Medicaid well into the middle class,
plus a more restrictive tax credit for insurance tied exclusively
to COBRA coverage. The Bush proposal would have provided a 60%
refundable tax credit for health insurance for individuals and
families who had lost their insurance coverage, and the credit
would have applied to the health option of their choice.

The 2001 and 2002 House passage of individual tax credits
was a major break with policy that ties favorable tax treatment
to insurance obtained through employment. Breaking this exclusive
link has been a central goal of conservatives and libertarians
alike. Daschle lined up against the proposals, and saw his public
approval rating fall like a stone.

In the election aftermath, Bush is being asked to help
“heal” the country, by reaching out to the defeated Democrats in
a spirit of bipartisanship. He should follow Ronald Reagan’s
advice: Trust the apparently sincere, but verify. (When you are
in an electoral minority, without sufficient votes, the siren
song of “bipartisanship” is pleasing to the ear and an excellent
cover for crass manipulation of the public debate and the pursuit
of raw self-interest.)

DNC chairman Terry McAuliffe quickly announced that Bush may
achieved a hard-won victory, but he does not have a “mandate” for
change. The President, however, apparently sees his victory as an
accumulation of political capital that he intends to “spend” to
secure major change. He says he is committed to a major overhaul
of the federal tax code and a reform of the Social Security
system to establish a system of personal retirement accounts for
younger, working Americans.

The Bush Health Agenda

The President has the opportunity over the next four
years to solidify his limited but significant gains, which are
indeed systemic changes, not merely quantitative expansions of
existing programs or policies. His overall goal is the promotion
of private ownership and control of insurance exactly the right
prescription.

Most important is the recent creation of tax-free Health
Savings Accounts (HSAs). If a parallel tax credit system can be
established to compete with the existing tax treatment of health
insurance, the marketplace could be dramatically transformed.

Bush has a big problem area, however: Medicare and Medicare
implementation. The drug benefit will become increasingly
unpopular, particularly as companies send letters to their
retirees saying that, because of the new Medicare law to be
effective on January 2006, they are going to lose or have their
private drug coverage cut back. The White House seems to be in
denial that it is going to be a problem. But the happy face on
the Medicare drug benefit will not last; that’s guaranteed.

Thus far, neither the President nor any Congressional leader
has told Americans how they are going to address the problem of
the $8 trillion that the drug benefit alone has added to the
unfunded promises that taxpayers will have to subsidize, somehow,
someway, someday.

The Unfinished Business

Meanwhile,Bush has outlined a series of new steps to
reform that will require a lot of work with Congress.

1. Refundable health-care tax credits to cover millions of
uninsured Americans.

There is broad agreement now in Congress, given Kerry’s
conversion to the tax-credit option, that this is the best way to
expand access to coverage and provide some equity in a profoundly
unfair system. Workers who don’t receive health insurance as an
employer-provided benefit effectively pay 35 to 40% more for the
same package in after-tax dollars.

Bush is proposing to end this tax regime with a refundable
and advanceable tax credit of $1,000 per person and $3,000 per
family, phased out at an family income of $60,000 or more.

There is some debate among economists about how much the
credit would expand coverage. Some argue that it should be
accompanied by insurance market reforms and a better device for
administering the credit more efficiently and for securing
serious take-up. Some favor targeting it not just to the
uninsured, but to the working uninsured, particularly those
employed by small business. The credit should also be designed in
such a way as to allow state government officials to supplement
the credit and make insurance more affordable in certain states
where the cost of coverage is already high for a variety of
reasons, many of them political.

Bush’s proposed expansion of private coverage would cap the
current growth in public coverage, which is often inferior and
which the uninsured do not want. It is the opposite of the policy
advanced by Senator John Kerry. The major focus of the Kerry
health-care proposal was to expand government programs,
especially Medicaid and the State Children’s Health Insurance
Program. Together, according to a recent analysis completed in
September 2004 by the Lewin Group, these two government programs
alone would have accounted for more than 21 million out of the
projected 25 million increase in health insurance coverage under
the proposed Kerry plan. While the Senator’s supporters kept
insisting that the Kerry proposal was not really a “government
take-over” of the health care system, it really depends, as
former President Clinton might say, upon what you mean by
“takeover.” The professional literature is clear: public program
expansions always crowd out existing private coverage to a
greater or a lesser degree. Given the incentives in the Kerry
proposals, the crowd-out would have been greater, not lesser.

2. An expansion of the recently enacted HSAs.

The HSA option is starting to take off, and state
legislators have been rewriting state laws to allow HSAs to
become part of the mix of insurance options. Trade associations
expect that the majority of large employers will start to offer
an HSA option within the next five years. Meanwhile, the U.S.
Office of Personnel Management will offer HSAs in the FEHBP, and
18 such plans will be participating in 2005, including a plan
sponsored by the Order of Saint Francis Health Plans, a Catholic
organization operating from Illinois. We can expect conservative
governors and local officials to allow HSAs to be offered to
state and local employees. Look also for the inclusion of a
variant of the HSA in Medicaid, particularly for preventive care
and routine doctor visits.

Bush is proposing to expand HSAs for low-income workers’
families by depositing $1,000 deposited directly into their HSAs
and providing a $2,000 refundable, advanceable tax credit for
purchasing a high-deductible insurance policy. Individuals would
receive a $300 federal contribution for a HSA and a $700
refundable, advanceable tax credit for purchasing a high-
deductible health plan.

Beyond the tax credits, Bush would provide a new tax
deduction for health insurance premiums connected with high-
deductible health plans. He is also proposing a special HSA tax
credit to help promote such accounts among small businesses: a
special tax credit on HSA contributions for the first $500
contribution to a family policy and for the first $200
contribution to an individual policy.

While these tax proposals would surely advance HSAs and
high-deductible health plans, some conservative analysts worry
that this extra tax relief is reintroducing the very favoritism
in the tax code that they have been long combating in the
exclusively favorable tax treatment for employer-based health
insurance.

3. Major changes to the health insurance markets
through the establishment of broader association health plans,
state-based health insurance pools, and interstate competition
among health insurance plans.

Bush is recycling his proposal to allow small businesses to
establish Association Health Plans (AHPs). This change would
enable small businesses to band together through trade
associations to purchase coverage for their employees. The big
difference this time is that Bush is making changes in his
proposal that go well beyond the business-based AHPs. The
previous incarnation was basically a continuation of the current
policy that favors employer-based health insurance.

Under the new Bush version of the AHPs, the plans would be
individually accessible, and they could be sponsored by a variety
of organizations, not just businesses. These could include plans
sponsored by civic and charitable groups, unions, trade
associations, fraternal and ethnic organizations, and even
churches and religious organizations.

This expansion of AHPs would enable a new set of players to
compete with traditional health insurance at the state level, and
could spur desperately needed competition, particularly in the
individual and the small-group market. In many states, this
competition is being reduced by a variety of factors, including
mergers and acquisitions, as larger insurance combines gobble up
other plans. In the state of Maryland, for example, a stunning
92% of the covered lives in the state’s small group market are
covered by just two large insurers.

But the truly transformative potential of Bush’s proposals
lies in his provision to create a national market for health
insurance: allowing residents of one state to purchase health
insurance from companies incorporated in other states. For
example, a family in a high-cost state like New Jersey, New York,
California, or Maryland could buy a policy offered by a licensed
insurer based in, say, Iowa. Indeed, as former House Speaker Newt
Gingrich has noted, because Iowa has some of the most affordable
insurance plans in the nation, the Iowa insurance companies could
become a powerful players in a national market. With the creation
of an interstate commerce in health insurance, state legislators
would come under tremendous competitive pressures to reduce
unnecessary regulation. With a national market, insurers would be
able to establish national pools, enrolling not merely hundreds,
or even thousands of people, but potentially millions of people.
National information on the benefits and services of health
plans, available through the internet, as well as the performance
of doctors and hospitals contracting with those plans, could
empower consumers further and intensify competition.

The combination of tax credits, HSAs, and the continued
expansion of consumer information, together with Bush’s major
health insurance market reforms, could transform the health care
system far beyond anything that we could imagine.

We are looking at big changes. But make no mistake: Bush’s
changes will only come after a long and hard battle with
ideological opponents who have a vested interest in preserving
the status quo. His most intense opposition will come from those
who were hoping all along that they could continue, crab-like, to
maneuver America, step by step, into a system of socialized
medicine. The single-payer folks could turn out to be among the
biggest losers in the 2004 election.

Robert Moffit is Director, the Center for Health Policy
Studies at the Heritage Foundation, Washington,
D.C.