AAPS News – Feb 2003

Volume 59, No. 2 February 2003

INSURANCE MELTDOWN

As we are told daily, many doctors and patients are finding
it impossible to afford insurance, or even to obtain it at any
price. Patients are having to go without optimum medical care
whether they have “coverage” or not.

The usual prescriptions include a generous dose of coercion
by government and its private partners. Doctors are forced to buy
professional liability (“malpractice”) insurance and in some
states to pay into an additional fund as a condition of having
hospital privileges or even a license, as in Pennsylvania. And
pressure rises to force everyone to pay for “universal coverage”
through a tax (sometimes called a “premium”).

The prescribed remedy for high costs is not just a failure.
KJ Arrow, winner of the Nobel Prize in economics in 1972,
announced that the main cause of cost increases is
insurance.

Insurance, Arrow observed, is not an exchange of money for
goods and services. Rather, “an insurance is a more subtle kind
of contract; it is an exchange of money now for money payable
contingent on the occurrence of certain events.”

Limits to insurance which is basically risk-shifting are
inherent in human nature. Arrow cited moral hazard,
adverse selection, and transaction costs.

Reliance on third-party payment spawns an entitlement
mentality: a “right” to compensation for adversity, and a
corresponding obligation to pay, enforced by lawsuits.

Being sued is “like being indicted for a crime, except that
the penalty is money,” writes Philip K. Howard (Wall St
J 7/31/02). The penalty, which can also include the
destruction of a medical career, could actually be more painful
than that inflicted on a criminal who intentionally harmed
someone. And there are no sentencing guidelines.

Insurance against rank injustice sustained by legal fees
up to $30,000 per hour, which are partly used to buy political
influence to perpetuate the system is as impossible as
insurance against acts of terrorism or war.

The risk shifting for both medical costs and liability is
reaching Arrow’s limit: the promises are exceeding the potential
revenue. Pennsylvania is one of the first states to break down.

When physicians in Scranton planned to cease practice after
the first of the year because of exploding liability premiums and
tighter controls on fees, the government reacted as to a
threatened crime. C. Michael Weaver, Secretary of the
Commonwealth, notified Pennsylvania-licensed physicians that a
work stoppage would constitute “abandonment,” with consequences
for their license.

Physicians are on the horns of a dilemma: lack of $1 million
in coverage means delicensure in Pennsylvania (which mandates
“universal coverage” for liability). For nonabandonment
of patients practicing without a license due to noncoverage
physicians could face felony charges.

Scranton physicians backed down, and northeast
Pennsylvania’s only trauma center remained open, after Governor-
Elect Rendell promised to fight for $220 million in relief for
physicians this year. The funds would come from a one-time
surcharge on the reserves held by health insurers, primarily Blue
Cross. With this infusion, high-risk specialists (general
surgeons, obstetricians, orthopedists, and neurosurgeons) would
be forgiven this year’s payment to the MCARE fund, the state
catastrophic fund that absorbs 40% of the liability cost, and
others would have their payments halved.

Reserves can only be raided once, and one must wonder about
the effect on patients’ medical coverage.

Unlike true insurance such as life, collision, or
homeowner’s insurance, “health” and liability insurance make
open-ended promises. Rejecting indemnity coverage leads
inexorably to rationing of medical services. Rejecting limits on
runaway jury awards (trial lawyers assert that any limits are
unconstitutional in Pennsylvania) means unavailability of
services.

Many doctors have already fled Pennsylvania. Though complete
statistics are not available, the Politically Active Physicians
Association (P.A.P.A.) has posted a list of “Disappearing
Doctors,” 12 pages long in small print, and “Closing Hospitals,”
5 pages long (
www.fightingdocs.com).

The vicious cycle of more adverse outcomes and more payouts
is set in motion. Inability to recruit radiologists means a 3-
month delay in screening mammograms. A 100% increase in liability
premiums forced the Guthrie Clinic in Sayre to forgo computerized
prescription writing and modernizations in the surgery
department. Brandywine Hospital closed its Level II trauma
center, and injured patients must be transported 30 miles
farther. Chester County had only 770 physicians paying
catastrophic fund premiums in 2000 compared with 1,147 in 1997.
Delaware County Memorial Hospital has lost one-third of its
operating staff. Patients with back or neck pain may wait up to 6
months to see a neurosurgeon. Not a single hospital in South
Philadelphia will deliver babies. That’s just a sample.

The incoming Governor is setting up a task force. But what
can it do if it rejects out of hand the only mechanism that has
been shown effective in reducing premiums: caps on noneconomic
awards? The “right to sue,” like the “right to medical care,”
must be challenged (see p. 3). Neither is a “unilateral right of
freedom, like free speech or a property right” (ibid.).
Permitting one citizen and his lawyer to bring the full force of
government upon another, with no standard of justice, is the
opposite of a rule of law.

The control rods of a free market voluntary transactions
at a mutually agreed price, with the option of saying “no sale”
have been outlawed in Pennsylvania. Medical and insurance costs
are therefore exploding in an uncontrolled chain reaction. A
containment structure of mandates, price controls, and threats
only increases the pressure and worsens the end result.

---

Is It a Crime to Be Uninsured?

If the government is responsible for medical care, then
unhealthful behavior is a crime and so is being uninsured, even
if one uses no medical services. The uninsured rely on the
existence of a social safety net, to which they, it is argued, do
not “contribute.” Such people are “anti-community” the worst of
all possible crimes. As Greg Scandlen notes, some believe that
services should be withheld or the people forced to purchase
insurance.

The “free-loaders” are already punished by being
overcharged. Tenet Healthcare Corp. routinely bills uninsured
patients three to ten times more than insured patients. If they
are unable to pay, Tenet reports the inflated bill as uncompensated care to obtain disproportionate share funding from
government, or to meet regulatory requirements for purchasing
public hospitals and converting them to private facilities,
according to lawsuits filed in California (Ayala v. Tenet
Healthcare Corp., Cal. Super. Ct. No. BC267676, and others).

Tenet stated that such charging differentials are common
among hospitals. Plaintiffs’ attorneys responded that most other
hospitals charge self-paying patients “only two to three times”
as much, an average that includes Tenet (BNA HCFR
2/20/02).

AAPS member Richard Swint, M.D., of Paris, TX, wrote to
President Bush that it should be illegal for hospitals to
discriminate against uninsured people. He cited an example of a
patient receiving a bill for $1,879.60. An uninsured patient
would have to pay the full amount. But hospital had a deal with
the insurance company so that its subscribers paid only $750,
while the insurer paid nothing!

“Medical insurance has become a protection scheme rather
than insurance,” Dr. Swint writes. “People are frightened into
paying insurance premiums; [it’s like the Mafia selling] protection services to people so that their windows would not be
broken. [Hospital charges] are preying on the sick.”

Adverse Effects of Insurance

Too much insurance destroys the market. As George Fisher,
M.D., of Philadelphia wrote on the HealthBenefits Reform forum:
“Up to 60% of health costs can be carried as health insurance
funny money if you regulate stringently. But greater penetration
will destroy the market mechanism for establishing prices, and
the companies that try to maintain it will spiral out of
existence.”

The result: massive concentration of both hospitals and
insurers, and the destruction of indemnity insurance.

“Hospitals generally have recognized the loophole of
artificially inflated (1500%) list prices for 19 years and have
stonewalled any attempt to fix it,” Dr. Fisher writes.

Adverse selection is rampant. The most egregious forms,
according to actuary Mark Litow, are those created by the tax
code (premium tax exclusion), Medicare and Medicaid (price
controls and inefficiencies shifting costs to the private
sector), and various other mandates. Models suggest that medical
care could cost 40 to 50% less in the absence of these policies.

Insurance is a moral hazard to doctors as well as patients.
Doctors learned to game the system by charging outrageous fees
that eventually raised the “customary” level. This only works
when most patients are inside the system, as surgical patients
generally are, Dr. Fisher observed.

Universal coverage would make it impossible to know what any
medical service is actually worth.

State Coordinators Needed

As the saying goes, all politics is local, and so is
grassroots organizing. We need at least one volunteer in every
state who is willing to maintain regular contact with AAPS
members. A computer is needed, but we’ll provide materials. Call
Anne at (800) 635-1196, or send e-mail to [email protected].

Insurance Inhibits Access

Those following the single-payer movement might be
interested in this admission from Oregon:

“In our community meetings and stakeholder sessions, the
Commission heard repeatedly about the difficulties some OHP
[Oregon Health Plan] members have in accessing services.
Having coverage does not always guarantee access
[emphasis added]. This can be due to a multitude of factors.
Although we are hoping to improve access by expanding OHP to more
of the uninsured, we realize enrollees may encounter barriers
when attempting to use publicly funded insurance programs”
(Oregon Health Services Commission Report: Prioritized List of
Benefit Packages for OHP Standard, Oct 2001, p. 28).

“Primary Care Providers” in the Golden State Physicians
Medical Group, who admit patients to Out Of Network Facilities
and fail to transfer them to a contracted facility, will receive
a warning for the “1st offense.” The “2nd offense” results in a
$500 deduction from the next capitation payment or a $500 fee to
a fee-for-service PCP. The “3rd offense” is punished by a $1,000
fine. The Chairman of the Board writes: “We thank you for your
understanding and cooperation….” (Wong GA, letter, 8/29/2002).

Since requiring doctors to write “brand medically necessary”
was not sufficiently discouraging, New York Medicaid now simply
prohibits coverage of brand name drugs when A-rated generics are
available, unless prior authorization is obtained. The cost of
obtaining such authorization exceeds the fee for an office visit,
writes Lawrence Huntoon, M.D.

Non-Insurance in Paradise

Alieta Eck, M.D., writes: A New Yorker who slipped on wet
steps in St. Maarten and broke her ankle tried to sue but found
it impossible under Dutch law, as the hotel did nothing wrong.
She was advised to be more careful.

Gall bladder surgery in the hospital in St. Maarten costs
$750 (cf. $30,000 at the Robert Wood Johnson Hospital in New
Brunswick, NJ).

AAPS Calendar

Jan. 31, 2003. Board of Directors, San Antonio, TX.

Feb. 1, 2003. San Antonio mtg with Bexar County Med
Soc.

Sept. 17-20, 2003. 60th annual mtg, Point Clear, AL.

Oct. 13-16, 2004. 61st annual mtg, Portland, OR.

---

Genesis of Pennsylvania Crisis

In 1975, licensure was linked to liability insurance, and
the CAT Fund (now MCARE) was created by Act 111, with the support
of leaders in the Pennsylvania Medical Society (PMS). A
constitutional challenge brought by a PMS board member, McCoy
v. Commonwealth Board of Medical Education and Licensure,
391 A.2d 723 Pa. Cmwlth. (1978), failed, with a dissent by Judge
Crumlish:

The cure afforded by the Act is so overwhelming
that it has injured many of those it has intended to
help. Its regulations are unduly prohibitive to both
small…and new practitioners who have neither the
financial wherewithal to meet its requirements nor the
clientele able to sustain higher medical costs. Once it
is certified that a person is qualified to practice a
profession, his right to do so should remain unfettered
and unhampered until it is established that … he is
not fit to perform his duties.

Financial security has never been a condition
precedent to the practice of medicine…. [T]o impose
such a condition constitutes an … unconstitutional
deprivation of property.

Although a 1985 report by experts recommended abolition of
the CAT Fund, the PMS did not disseminate the report. A letter
from PMS General Counsel Ken Jones stated in a letter dated July
1, 1986, that “the Society has consistently concluded that
mandatory insurance should be retained.” A federal court
challenge by the Physicians’ Cincinnatus Society, based on
unequal treatment under the law (chiropractors only need to buy
insurance as long as it is available and affordable) was
dismissed for lack of ripeness.

The history is summarized by the Physicians’ Cincinnatus
Society at

www.cincinnatussociety.org/pamalprac.html.

The AMA opposes the linkage of licensure and liability
insurance, said President-Elect Donald Palmisano, M.D., at a
January 7 meeting with Pennsylvania physicians.

Proposed H.B. 2417 would repeal linkage and mandatory
participation in MCARE. This fund is “red meat for malpractice
sharks,” states AAPS General Counsel Andrew Schlafly. There is
little accountability for massive payouts.

Linkage traps physicians in Pennsylvania. One physician
reported that relocation would cost $101,000 in tail coverage,
including MCARE. If he can’t pay, Pennsylvania will move to
revoke his license, triggering a domino effect in other states.
Thus, a practitioner with a spotless record is “held captive…by
a corrupt, mismanaged state agency,” writes Louis Meier, M.D.

Are Caps Unconstitutional in PA?

Legislation capping malpractice awards in Pennsylvania would
surely be subject to constitutional challenge, probably based on
Section 18, which reads:

The General Assembly may enact laws requiring the
payment by employers…of reasonable compensation for
injuries to employees arising in the course of their
employment, and for occupational diseases of
employees…, regardless of fault of employer or
employee, and fixing the basis of ascertainment of such
compensation and the maximum and minimum limits
thereof, and providing special or general remedies for
the collection thereof; but in no other cases shall
the General Assembly limit the amount to be recovered
for injuries resulting in death, or for injuries to
persons or property….

In 1871, around the time that this provision was inserted,
the Courts did recognize a right to reasonable pain and suffering
awards. A basis for defending limits would be that $250,000 is
more than adequate to allow the type of recovery contemplated at
the time. A Pennsylvania trial court, affirmed in Morristown
v. Moyer, 67 Pa. 355 (1871), held that:

Among the injuries sustained for which
pecuniary compensation can be given, you may
take into consideration the physical pain
suffered by the plaintiff; but you must
estimate this reasonably and moderately, and
not be led away by sympathy or speculative
ideas of suffering. Pain is but a
temporary evil, and you must avoid an
extravagant allowance for it. I regret that
it is an element of consideration that can
enter into your verdict for, being a
matter of feeling, there is no standard
estimate but it is my duty to say, you
have a right to consider it in assessing the
damages, Railroad Co v. Allen, 53 Pa
276, 278-79 (1867).

Physician Wins in NPDB Action

A California physician has won a dramatic victory in
fighting an adverse report to the National Practitioner Data Bank
(NPDB). This case started when Dr. John Ulrich protested the
laying off of fellow physicians by the San Francisco Department
of Health. Within weeks of his protest, Laguna Honda Hospital
initiated a peer review. He resigned to further protest the
layoffs, but then learned that that could trigger an adverse
report to the NPDB based on the pending review. So he attempted
to rescind his resignation, but the hospital refused and then
filed its adverse report, failing to tell the whole story. On
October 11th, the Ninth Circuit held that he has a valid cause of
action for the allegedly defamatory report to the NPDB, combined
with the refusal to restore his privileges. Ulrich v. City &
County of San Francisco, 2002 U.S. App. LEXIS 21245 (9th
Cir. Oct. 11, 2002).

Liability Beyond Malpractice

On Nov. 12, 2002, the Arizona Supreme Court greatly expanded
physician liability, applying the harsh remedies of the Adult
Protective Services Act (“elder abuse statute”) to ordinary
medical negligence. McGill v. Albrecht, 2002 Ariz. LEXIS
197. This statute allows punitive damages without clear and
convincing proof of evil, has a lengthy 7-year statute of
limitations, and bypasses requirements of qualified expert
testimony. The court ruled that a single omission by a doctor is
“actionable abuse” if the omission (1) arises from the
relationship between the caregiver and patient, (2) is closely
connected to that relationship, (3) is linked to the service the
caregiver undertook because of the patient’s incapacity, and (4)
is related to the problems that caused the incapacity. These
conditions can be easily met by most plaintiffs.

In this case, the 62-year-old patient, who was being treated
in a behavioral health facility, apparently died of cardiotoxi-

city from chemotherapy for metastatic breast cancer. She was
considered “incapacitated or vulnerable,” having a long history
of psychiatric illness. Dr. James L. Beach, her primary care
physician of 2.5 years, had not ordered an annual mammogram.

The Arizona chapter of AAPS filed an amicus brief on behalf
of Dr. Beach.

In Michigan, Frank Paul Bongiorno M.D., a wound specialist,
was charged criminally under the adult abuse law for treating
bedsores with surgical debridement (Med Econ 12/3/01).
He could face four years in prison for each count.

---

Correspondence

If a Doctor Is a Patient…. According to an attorney
who represents physicians, the Office of Professional Medical
Conduct in NY (OPMC) may seek to obtain the medical records of
physicians it is investigating, particularly if the physician has
consulted a psychiatrist. The physician-patient is not informed
that his records are being sought, and a treating physician was
warned that he would be charged with professional misconduct if
he didn’t turn over the records. OPMC has now agreed not to make
such threats, as a result of advocacy by the Medical Society of
the State of New York. However, OPMC does not remind licensees of
Public Health Law 230, which states: “No physician shall be
required to report any information to the board which such
physician has learned solely as a result of rendering treatment
to another physician” (MSSNY’s News of New York 5/02).

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

Why HIPAA? I recently asked a well-known healthcare
attorney what HIPAA is fixing, if in 30 years of my practice I
have never experienced or heard of any breach of privacy in the
sphere of the doctor’s office. I was told that when the Dr. Koop
website was sold, all the patients’ diagnoses were obtained by a
commercial group that called patients to promote items related to
their illnesses. Additionally, the insurance industry wants all
medical records to be available on-line, and also wants national
standards in order to cut insurers’ expenses for compliance with
many different state regulations.

The business world caused any problems and will reap any
benefits, while physicians pay the costs. Fair?

Ian Schorr, M.D., Dover, NJ

HIPAA Impedes Care. The only way that I can avoid
compliance with the so-called privacy regulations is to quit my
job as an academic anesthesiologist. As more hospitals implement
these rules, it is becoming increasingly difficult to obtain
information needed for preanesthetic evaluation. Comparison EKGs,
stress tests, and other hospital records are virtually impossible
to obtain unless the patient comes here to sign a
release for each specific piece of information.
Considering that all this is readily available to government and
insurers, HIPAA doesn’t seem to be doing anything to safeguard
the patients’s interests especially their interest in survival.

Terry Lynn Edwards, M.D., Pittsburgh, PA

Privacy Requires Private Medicine. The data collection
requirement in Minnesota (see

www.cchconline.org/pdf/data_rules.pdf ) is dreadful. It
is noteworthy that the “29.8% who receive health coverage through
self-insured companies employers who use their own reserves to
pay for employee health care expenses and the 9.1% who are
uninsured will not yet have their data collected or placed in a
state database.” Once again, private medicine is the solution!

Andrew Schlafly, AAPS General Counsel

Get Out of HIPAA! The complex rules governing physician
electronic communications restrict free speech and are
unconstitutional. Organized medicine must sue! Meanwhile, all
doctors should shift to paper billing.

Samuel Nigro, M.D., Cleveland Heights, OH

“Nonparticipation.” When the U.S. Chamber of Commerce
recommended that its members not do business (“participate”) in
Mississippi until tort reform passed, the miracle happened
(Wall St J 12/03/02). This leads me to conclude that the
AAPS policy of nonparticipation is correct. If all doctor
organizations refused to assist government in setting up coding,
HIPAA rules, etc., much abuse would cease. Government needs the
expertise supplied by its prostrate subjects. Doctors should know
there is no point in discussions with government change agents
bent on the total regimentation of society.

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

Physician Oppression in Canada. Canadian organized
medicine continues to push the preservation of the current
government monopoly in medicine while “organizing it better.” But
the enclosed full-page advertisement in The Medical Post
of Nov. 12 helps to show the deep problems in this country. The
ad speaks of “the deterioration of the conditions of medical
practice, the burdens…, the desire for a balanced lifestyle,
quotas that keep doctors from accepting new patients, … and the
government’s interference. Everything is over-regulated and over-
supervised, and there is no longer room for initiative.”

Bill 114 gave the Quebec provincial government the power to
order doctors to work in emergency departments. And it was used.
Bailiffs appeared at physicians’ homes ordering them to report to
work.

Patrick Hewlett, M.D., Toronto, Ontario

Prognosis. I’m an oncologist. I know a terminal
condition when I see it. Medicare is not going to make it. From
now on, the federal government will pass the costs down the line
to doctors and hospitals, hoping to stretch out the time to its
demise. We’re begging for scraps from the table. Physicians are
sinking along with the rest of the middle class. It’s no longer a
zero-sum game; it’s a negative sum…. The crooks are at the top
of the food chain. Opting out of Medicare makes sense to a lot of
conscientious physicians.

Rex Greene, M.D., San Mateo, CA

---

Legislative Alert

Preparing for Battle in 2003

Conservatives, libertarians, and the friends of personal
freedom in Congress and in state legislatures everywhere will
have an unprecedented opportunity to move forward an aggressive
agenda for patient choice and control of the financing and
delivery of medical services in 2003. The White House has a pro-
patient choice agenda for both private insurance and Medicare.
Both the White House staff and the team at HHS are solid
advocates of free-market decision-making in medical care. The
House of Representatives has been an engine of real change for
the last two years, pushing everything from expanded medical
savings accounts and tax credits to medical malpractice reform.
And the Senate, now headed by Senator Bill Frist (R-TN), a
cardiovascular surgeon, is likely to be a player, rather than an
obstacle to choice-based changes. The constellation is aligned.
But it will take serious preparation, both in terms of policy and
politics.

The Left is struggling with persistent problems of its own.
For example, its big initiative in 2001-2002 after the cost-
driving regulatory provisions of the patients’ bill of rights
started sinking it was Medicaid expansion. Senators Kennedy,
Daschle, and Rockefeller were strong champions of Medicaid
expansion for working families who had lost their jobs and their
medical insurance. Meanwhile, Senator Daschle (D-SD), as Senate
Majority Leader, blocked House-passed tax credits for the
expansion of private coverage twice. Medicaid with no choice for
most working people was the choice du jour. The exception: guys
enrolled in large corporate plans, often heavily unionized, who
would be given a federal subsidy to help them keep their already
generous, tax-favored COBRA coverage.

Cost control? Simple. Medicaid has formidable price
controls, and even more control is possible through reduced
access to drugs by establishing complicated drug formularies.
Ugly, but simple. (That’s why expanding prescription drug
coverage for seniors through Medicare is so simple, too. Right?)

Nevertheless, advocates of government program expansions are
faced with mounting budget problems, plus the fact that most
Americans with two ounces of gray matter between their ears have
little or no desire to enroll in Medicaid anyway. Here’s the
trick: how do you get millions of sane Americans to think that
Medicaid is better than private coverage? Recent surveys of the
uninsured, conducted by the Kaiser Family Foundation no less,
showed that among the uninsured, there was a clear preference for
private rather than government coverage. That’s the political
problem that the Medicaid expansion team in Congress and in the
liberal foundations have not effectively addressed.

Then, consider the state-based single-payer initiatives:
Socialized medicine, straight up. No disguises or clever
Clintonesque descriptions. The Oregon debacle was really the big
story of 2002. The ingredients seemed right. The right
electorate. The right initiative: big tax increases and a
generous comprehensive benefits package. Oregon is what the
cognoscenti call a “progressive” state “progressive” in ways
that, say, Utah, is not and probably, Robert Redford
notwithstanding, never will be. And that’s why the four-to-one
voter rejection of the Oregon initiative is stunning, and a
genuine political setback for the government-control crowd,
though one can depend on their redoubling their efforts. They’ll
be back. Probably someplace else, but it hard to imagine a more
fertile electorate than Oregon’s except in Maine or Maryland.

Recall that there was that now-forgotten (well, not quite
forgotten) single-payer initiative enacted in Maine. The Maine
state legislature voted for the plan, said they wanted it, were
serious about, and no kidding, were going to do it, but the Maine
plan got bogged down last year in the messy details of
implementation. The Maine commission that was supposed to report
its plan of implementation in March 2002 did not issue that
report, and they are still in the business of trying to figure
out exactly how they are going to do it. The simple single-player
system, of course, is not so simple after all as every serious
health policy analyst knows. But they’ll be back, too.

And Maryland? Recall that there was a Maryland single-payer
initiative in 2001, backed by the Maryland Health Care Initiative
with a $1.7 million war chest and the support of literally
thousands of organizations in Maryland, including liberal
advocacy, labor, and church groups. But that effort faltered too,
withered under the fire of tough-minded economic analysis,
largely conducted by the Maryland Businesses for Responsive
Government (MBRG), an aggressive and highly resourceful
organization of business leaders that stood virtually alone,
financially and politically, in opposing the government takeover
of medicine. The MBRG proposed market-based reforms and enlisted
support from prominent conservative and moderate Democrats,
including the former Speaker of the Maryland House of Delegates,
Casper Taylor. Taylor told his leftist colleagues that they could
have single payer in Maryland, except then they would have to
figure out how to keep employers from leaving the state.

The political fortunes of MHCI and MBRG changed dramatically
in 2002 with the defeat of Lieutenant Governor Kathleen Kennedy
Townsend (KKT) for Governor. (KKT was the second Dynasty member,
after Mark Shriver failed in his congressional bid, to go down in
defeat in Maryland). Former Congressman Robert Ehrlich is to be
the first Republican Governor in Maryland in 36 years. With
Maryland’s chief executive being among the most powerful in the
nation, it is unlikely that the single-payer initiative has much
chance of surviving. MHCI has since retreated from the single-
payer option and has fashioned a new government medical plan
financed by a pay-or-play mechanism for Maryland business. Yes,
that’s right. It looks eerily similar to the old Clinton plan.
Expect the single-payer folks to take a leaf from the Maryland
experience and try to refashion their initiative as a brand “new”
system that relies on all employers to pay their “fair share.”
Expect, in other words, key ingredients of the old Clinton Plan
to resurface at the state level. You’ve read it here first.

Opponents of patient choice and control are clearly on the
defensive: consider the record number of studies and reports
issued by liberal policy groups and foundations critical of tax
credits and other market-oriented changes. The champions of
personal freedom in health care can still blow it, however, by
failing to do their political and their policy homework.

Laying the Groundwork for Congressional Change

Conservatives in Congress and elsewhere can press an
aggressive agenda if they define clearly the terms of the debate.
Two key studies are in order.

A study on the uninsured. The question is not
whether we can afford to have equitable individual tax relief for
the purchase of private medical insurance, but rather can we
afford not to. How much higher are our premiums and
taxes because of the uninsured? One thing that could clarify the
issue is an analysis of the total cost of the uninsured to the
taxpayers, by the Congressional Budget Office (CBO), the General
Accounting Office (GAO), or an independent foundation or
actuarial firm. What do we pay in public programs, as well as in
the cost of uncompensated care for doctors and hospitals? How
much do we pay annually for the uninsured in these costs? The
Comptrollers Office of the State of Texas has already done this,
estimating that Texans pay about $1,000 per uninsured Texan, or
roughly the same amount that President Bush has proposed for his
national program of tax credits for the uninsured.

But that’s not all. Congress could require GAO or some other
relevant body to make an estimate of the reduction of these costs
that would be realized by enacting Bush’s $89 billion (over ten
years) tax-credit proposal.

A study on the real administrative costs of
Medicare. The Medicare debate is not, as we have said
repeatedly, about money. It is about the quality of care that is
available and will be available for the next generation of senior
citizens, when the unfunded liabilities hit the program big time.
In about eight years, to be precise. The problem is that many
taxpayers and seniors are only dimly aware of these problems, and
don’t fully grasp either their costs or their consequences. For
example, HHS witnesses routinely testify before Congress that the
administrative costs of Medicare are very low, roughly 2% of the
benefits paid. As a technical matter, this is correct; it is also
utterly misleading. There are huge costs that are not counted,
most importantly the costs to doctors, hospitals, home health
agencies, nursing homes, and other medical professionals in
complying with Medicare rules. These transactional costs are
real, and they are shifted onto the private sector. And they find
their way into the strained budgets of private physicians and
medical facilities and show up nowhere on Medicare’s books. They
are yet another manifestation of the federal government’s vast
system of unfunded mandates on the private sector.

Congress could clarify these “off-budget” costs by ordering:
(1) a comprehensive analysis of the administrative and
compliance costs that Medicare’s regulatory system and paperwork
imposes on doctors, hospitals, home health agencies, nursing
homes, and others; (2) estimating how much this regulatory
imposition costs in reductions in time, effort, and money spent
on patient care. At the same time, Congress could authorize a
comparative analyses of the administrative and compliance costs
that the Office of Personnel Management (OPM) imposes on private
sector plans in the Federal Employees Health Benefits Program
(FEHBP), and the doctors, hospitals, and other providers
contracting with those plans. If FEHBP is to be the model for the
future of Medicare, then this kind of analysis would be
especially worthwhile. Solid empirical analysis would also help
in many other debates.

Laying the Groundwork for State-Based Change

State legislators can also embark on an aggressive
policy agenda to improve access to affordable medical insurance
and to improve the delivery of medical services. For example:

Allow any displaced worker eligible for federal
assistance under the recently enacted Trade Adjustment Act to
enroll in private plans offered to state employees.
Under the trade bill, workers displaced by changes in
international trade qualify for a 65% federal tax credit for the
purchase of their medical insurance. State officials could help
secure the success of this new federal tax credit by aggressively
signing up these workers.

Create a state-based information clearing house on
health plans available for residents in the state. Those
who do not get medical insurance at work often do not know where
to secure affordable coverage, even if it is available. State
officials could make that information available in an easy and
accessible way, perhaps through such agencies as the Department
of Motor Vehicles or the Revenue Department.

Secure an HHS waiver and establish Routine Care
Accounts for Medicaid beneficiaries. State officials
could set up a cash account for each Medicaid recipient with a
PIN number and a debit card. Payments for routine medical
services doctors’ visits, regular check-ups and preventive care
could be paid directly out of the routine care account. While
doctors would get quick and timely payment for their services,
Medicaid enrollees could avoid emergency rooms and roll the
unused funds over each year in their account. When they leave
welfare or get a job in the private sector, the unused funds
could be transferred to pay for private insurance or put into a
medical savings account.

Secure a Health Insurance Flexibility and
Accountability waiver from HHS. The Bush Administration
introduced its Health Insurance Flexibility and Accountability
(HIFA) demonstration initiative with an expedited approval
process “to encourage new comprehensive state approaches that
will increase the number of individuals with health insurance
coverage within current-level Medicaid and SCHIP resources.” With
a HIFA waiver, state officials could expand private coverage for
the uninsured.

Secure an independent econometric analysis of the cost
of state mandates and insurance rules. An analysis would
reveal their impact on the cost of insurance, and their impact on
individuals and families seeking insurance in the private market.

Allow state and municipal employees to take advantage
of the new Health Reimbursement Arrangements (HRAs). The
U.S. Treasury Department last year issued a major tax ruling that
employers could put aside funds in a tax-free health care account
for employees, and roll them over, tax free, year after year.
Employers could make the accumulated funds available to employees
when they retire, to offset their medical expenses. While not as
robust an option as a medical savings account, in which the
employee owns the money, city and state officials can offer them
to their employees.

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