Volume 62, No. 6 June 2006
THE ARCHIMEDES MOVEMENT
The Romney plan in Massachusetts is not the Revolution. But
it may help prepare the way for the Revolution, which may be
starting on the other coast in Oregon.
John Kitzhaber, M.D., an architect of the Oregon Health Plan
(OHP), has decided not to run for another term as governor,
instead seeking a lever and a place to stand so that he can move
the earth. He calls his Vision the “Archimedes Movement.” The
short-term goal is a ballot measure for the 2008 election. The
loftier goal is to “reboot democracy.”
The Massachusetts plan is a “bold step,” he said, but it
“treats only a symptom” and goes only half way. Achieving
universal access is not enough; we must examine “what is covered
and how services are delivered.”
Perhaps inadvertently echoing Lenin, who called medicine the
keystone of socialism, Kitzhaber calls health the “cornerstone”
of a “democratic society.” He emphasizes health not
“health care,” and not medicine, which cares for the sick.
It’s not that health is any more important than “education,
sustainable economic development, and long-term environmental
stewardship” to our future. But the “crisis in our health care
system may prove to be the issue around which we can health
[sic] the divisions within our sociey…. It is the
great leveler,” Kitzhaber writes (www.archimedesmovement.org
).
Health is the product not just of health care but of
education, housing, stable employment, and a clean environment,
Kitzhaber writes. And the cost of health care is devouring too
much of “our public resources.” Thus, spending on care needs to
be constrained to benefit our health.
The Vision Statement reads: “To maximize the health of
the population by creating a sustainable system which
reallocates the public resources spent on health care in a way
that ensures universal access to a defined set of effective
health services” [emphasis added]. That is “care that is
effective in producing health,” Kitzhaber clarifies. Not
care that merely “relieves pain, reduces disability, or
postpones death” the purpose of medicine,
according to Donald Seldin, M.D., of Texas Southwestern.
On a Rogue River raft trip, a friend asked Kitzhaber what
was wrong with a large salmon that was struggling upstream
despite obvious injuries and impairments: “There is nothing wrong
with him. He is just dying,” Kitzhaber replied.
We “expend an ever growing portion of our budget attempting
to cheat death,” Kitzhaber explains. Moreover, we allocate public
resources for procedures that benefit individuals. Instead, the
public-funded system should be like public schools. Everybody
gets the same basics; shortfalls are distributed equitably; and
the allocation benefits the health of all.
Our private system in fact seems to be “seriously bad for
our health,” asserts pundit Paul Krugman (NY Times
5/5/06). Possibly because American insurance pays for “extreme
measures,” but not for heading off disease, while the British
National Health Service (NHS) “takes a broader, longer term
view,” the British are healthier, as claimed recently in
JAMA.
Despite more smoking and drinking, the British have lower
self-reported levels of diabetes, hypertension, heart
disease, and cancer than American non-Hispanic whites of
comparable socioeconomic status. They also have more favorable
levels of Hbg A1c, fibrinogen (mean 303 mg/dL v. 355),
HDL-C (mean 52 mg/dL v. 59), and C-reactive protein (mean 0.32
mg/L v. 0.40) than Americans, based on blood samples from 4,644
British and 2,097 Americans (JAMA 2006;295:2037-2045).
As Russ Faria, D.O., and Linda Gorman point out (and the
authors admit), U.S. cancer screening is more intense, and cancer
survival is better (Cancer 2000;89:4). Also, Americans
are more obese not a problem caused by private insurance.
Like the NHS, Kitzhaber would permit people to purchase
extra medical care, using only “discretionary income” which he
defines as that which is left after paying taxes. No one can
provide for his own or his family’s special needs, even to save
lives, without first satisfying the obligation to societal
health.
The enactment of the OHP, Kitzhaber says, “offers a real
life illustration of the power of this approach” of creating a
tension between the Vision and the status quo. However, he notes
that, like the Romney plan, it treated only symptoms.
Incidentally, Gov. Kitzhaber vetoed a bill that would have
prohibited OHP payments for assisted suicide. About 208
Oregonians have embraced death as of January 2006 under the Death
with Dignity Act, instead of trying to cheat it.
With the OHP, Oregon “launched the most vigorous attack on
inequality in American health care,” writes Albert Jonsen
appreciatively (Bioethics Beyond the Headlines, 2005).
With explicit rationing “bioethics in practice” Oregon decreased
the percentage of uninsured from 18 to 11%.
The OHP would be seen “either as a grand experiment or a
crazy aberration,” some predicted (Science 1990;249:468-
471). Former HCFA Director Bruce Vladeck wrote: “They’ve chosen
to let treatable poor women and kids die if Medicaid runs dry”
(Med World News, October 1990). But it got its HHS
waiver.
The results? Touted as a measure to expand access without
increasing cost, the OHP was four times as costly in 2001-2003 as
at its inception, according to state budget figures. Comparing
the OHP’s ranking of services with the state’s own cost-
effectiveness estimates, Harvard medical researchers concluded
that priorities were set almost entirely without regard to cost-
effectiveness (Cascade Policy Institute 3/4/06).
How will the implementation phase of the Archimedes Movement
differ? Details are lacking. But tension there will be. The
abstract Vision of health and equity will confront traditional
individual rights to life, liberty, and property.
As Joseph Lee Pugh reminds us, “helping the uninsured is a
strategy, not a goal.” The goal is One Plan, one utopia.
More on Massachusetts Health Reform
Historical Background. Massachusetts passed a
“universal health care” law in 1988, featuring a “pay or play”
employer mandate. It was repealed before it was fully
implemented. Lessons learned: the need for “symmetry and
synchronicity of pain and gain,” the creation of a substantial
constituency of people with something to lose from its repeal,
and guarantees of cost control. A ceiling on total health
spending was recommended, with the conflicting requirements of
separating money from decisions about care and forcing caregivers
to “accept responsibilities to marshal inevitably
limited resources to take care of everyone” [emphasis in
original]. (Sager A, et al. Access and Affordability Project,
Boston Univ., 10/26/93).
Failure Predicted. Supporters acknowledge that the
program will run short of money in its third year. Without
effective cost control, the plan will collapse like other
celebrated state initiatives. Few believe that the mandated
insurance will be affordable; middle-class families will be
forced to spend up to 20% of their income on coverage
(Lancet 2006;367:1291).
Six of Eight Vetoes Overridden. Almost all of Gov.
Romney’s vetoes were overridden, and consideration of the other
two has been postponed. Dental and vision benefits were restored,
as was the $295 fee on businesses with more than 10 employees
that don’t provide insurance (www.hcfama.org).
The Fine Print. Betsy McCaughey points out that most of
the uninsured earn too much ($29,000 or more) to qualify for
subsidies, and individual coverage costs about $3,600. All who
purchase individual coverage must buy an HMO (PPOs are
not allowed). Union shops are exempt from the “free rider”
provision that makes the state the bill collector if uninsured
employees are hospitalized (Wall St J 5/5/06) and
without any of the due process that applies in collecting any
other debt (Healthcare News, May 2006).
Aetnacare. The real beneficiary of Romneycare is
insurers, writes Michael Rozeff for www.lewrockwell.com.
It creates a captive clientele of millions of Americans who do
not want to buy full-scale insurance “to line the pockets of
insurers and to relieve the financial strains upon other
regulated players.” Rozeff estimates that the premium for
insuring against the contingency of a life-long debilitating
disease may be as low as $100 a year for children and adults
under the age of 40.
“Insurance schemes, really the fake appearance of real
insurance, are one of the state’s main devices to bait the
population,” Rozeff writes. “But the state insures nothing it
anti-insures.” It undermines the true safety net of family,
church, friends, a broad education, savings, and so on.
Disparities
Some statistics offered by Craig Cantoni: Families headed by
a never-married parent have an average annual income of $9,000
and a net worth of $350, versus $54,000 and $120,250,
respectively, for those headed by married spouses who have never
been divorced. Single-parent families account for 73.6% of
families in the lowest quintile of income; two-parent families
for 95.1% of those in the highest quintile. A child living with a
mother who cohabits with a man is 33 times more likely to suffer
serious abuse than a child living with married parents.
From the Archives: Socialist Inefficiency
Both Britain and Canada set up health systems that were
supposed to allocate resources based on need, rather than price.
Both have provided examples of disastrous bureaucratic
inefficiency from the outset.
The NHS was based on a fundamental fallacy that once the
“backlog” of untreated cases was eliminated, the workload would
decrease as the nation got healthier. But the “`new’ enemies of
health multiplied.”
In both systems, the government decides what “needs” should
be addressed, and which should remain unmet. A government-run
system is “a political tool, first and foremost.”
For a discussion of the turmoil and complexity in these
systems and attempts to reform them, see Moran JJ, Dickinson
J Int Law 1989;8(1):101-123. Moran concludes: “The control
of health care should never be placed into the hands of a
political operation which cares more about reducing costs and
winning votes; life is entirely too precious.”
Privatizing Medicine in China
In the early 1980s, China virtually dismantled its public
medical system, which had been so much admired by Western
intellectuals, and re-legalized private practice. Between 1978
and 1999, the central government’s share of health spending
dropped from 32 to 15%. In an attempt to curb overuse by the
insured, the government focuses on cost-sharing by patients
through medical savings accounts. If it doesn’t listen to Western
“experts,” China may show the world how to create a system that
works (Wall St J 5/1/06).
While lamenting the passing of the “barefoot doctors,” David
Blumenthal and William Hsiao recognize the damage done by Chinese
Communist policies, including price controls and an ethical
framework that replaced professionalism with loyalty to the state
and Communist ideology (N Engl J Med 2005;353:1165-
1170).
NICE Is NASTY
Like in Orwell’s 1984, the name of a public agency
frequently means the opposite of what it promises. The NHS’s
National Institute for Clinical Excellence (NICE) really means
Not Available, So Treat Yourself. Rather than widening treatment
options, it narrows them, and “in the most misleading manner
possible on the pretext of rationality.” Its only plausible
purpose is “to provide a supposedly objective alibi behind which
intensely unpopular political decisions rationing health
care can be hidden,” writes Stephen Pollard (Fraser
Forum, March 2006).
AAPS Calendar
Jul 15. Roundtable, Pier 66 Hyatt, Ft. Lauderdale, FL.
Sep 13-16. 63rd annual meeting, Embassy Suites,
Scottsdale, AZ.
Patients’ Rights Revolution in Canada
The Canadian Supreme Court’s decision in Chaoulli v.
Quebec has sparked a seismic shift in Canadian medicine. And
it has sent a message round the world that “health care
regulations that result in the suffering and death of patients
violate those patients’ fundamental rights to life, liberty, and
security of person,” writes Jacques Chaoulli, the physician who
argued the case despite lack of formal legal training.
The Court overruled Quebec’s ban on private insurance
coverage of services that Medicare is supposed to provide,
opening the door to private payment (AAPS News, July
2005).
Early efforts to restrict freedom to contract were
rationalized as necessary to prevent the suffering of ordinary
citizens. Now the restrictions themselves are causing suffering,
even loss of life, yet social engineers oppose the freedom to opt
out, turning the rationale on its head, Chaoulli observes.
Lower court judges wrote that prohibitions were needed to
avoid an “unequal” situation in which one individual could get
better access to care than another.
“This shows how far the Left has gone in its hostility to
the freedom to contract and the lengths to which it will go to
protect a state-run Medicare program, rather than the
people the program was created to serve,” Chaoulli
writes.
Chaoulli contrasts equality before the law, the “cornerstone
of a stable, liberal society,” to the Marxist ideal of absolute
equality. As Pope Leo XIII wrote in the encyclical Rerum
Novarum, the latter in reality results in “the levelling
down of all to a like condition of misery and degradation.”
As political philosopher Michael Quinn pointed out,
“rendering all persons equally dead” was possibly the only way to
eradicate all differences.
Today’s tendency to suppress the freedom to contract and the
right of economic initiative harms the people it is meant to
help, argued Pope John Paul II, putting “everyone in a position
of almost absolute dependence.”
Chaoulli argues that “requiring individuals to purchase
health insurance has never made much sense.” After all, the state
may not coerce a person to undergo treatment.
“Every individual has the right to opt out of a state-run
health insurance scheme, either on a treatment-by-treatment basis
or entirely,” Chaoulli states. The freedom to opt out entirely is
needed to protect those who are not wealthy enough to pay twice,
first through taxation.
“If all individuals had the freedom to stop financing
deficient state-run programs, we would see private markets
flourish, and many more individuals could then afford to better
protect their health,” he believes (Cato Policy Analysis No. 568,
May 8, 2006, www.cato.org). He hopes
that other affronts to patients’ rights (as from the FDA) might
also be stricken.
Calling Chaoulli a “bombshell,” the lead Wall
Street Journal editorial on June 13, 2005, said that the
high court had held that “Canada’s vaunted public health-care
system produces intolerable inequality.” The editorialist hoped
that the case might help to save American medicine also.
Private clinics are opening around Canada at the rate of
about one per week (NY Times 2/26/06).
“There’s a lot of money to be made breaking Medicare,”
opined Michael McBane, national coordinator of the Canadian
Health Coalition, which opposes privatization. “The end game is
that people with money no longer want to pay the taxes required
to provide quality health care for everybody” (N Engl J
Med 2006;354:1661-1663).
States Define “Legitimate Medical Purpose”
Gonzales v. Oregon was a challenge to the Oregon
Right to Die Act, but the legal principles are much broader than
physician-assisted suicide. Had the Supreme Court ruled for the
the U.S. Dept. of Justice (DOJ) and its Drug Enforcement
Administration (DEA), this agency would have received the high
court’s sanction to override state legislatures and professional
licensing boards on all questions concerning the legality of
prescriptions for controlled substances. The DEA could, for
example, have declared that prescribing opioids for longer than
60 days was not a “legitimate medical purpose.”
Courts defer to administrative agencies when they are
interpreting their own rules, or exercising interpretative
authority delegated to them by Congress. In this case, however,
the DEA was simply parroting the language of the Controlled
Substances Act. The CSA bars doctors from engaging in illicit
drug trafficking, but manifests no intention to regulate the
practice of medicine generally.
This decision could give medical professionals the ability
to “reclaim authority over their standards of practice through
their power of self-regulation,” especially in the area of pain
management, writes David Brushwood (Am J Health-Syst
Pharm 2006;63(5):e1-e4). It is being cited in the appeals of
a number of physicians sentenced to prison for using opioids to
treat chronic pain because the DEA asserted their prescriptions
were “outside of the legitimate scope of medical practice.”
IPA Tries to Impose Rates on Non-Participants
Two emergency physicians groups, Northridge Medical Group
and St. John’s Emergency Medicine Specialists, sued Prospect
Medical Group, an IPA, over its attempt to impose its controlled
fees on them. The physicians, who are nonparticipating, balance
billed the patients after Prospect paid the managed-care rate for
their services. The plan argued that physicians had an “implied
contract”: physicians are required by federal law (EMTALA) to
care for all patients regardless of payment source, and health
plans are required to pay for emergency care as regulated by the
California Health and Safety Code. That Code forbids physicians
who contract with managed-care plans to charge more than the
amount they agreed to. Prospect asserted that the Medicare rate
was “fair.”
The Court of Appeal for the State of California Second
Appellate District did not buy Prospect’s argument. The IPA is
appealing to the California Supreme Court.
British Hospital Refuses Treatment to Activist
After 74-year-old Edward Atkinson, a pro-life activist,
mailed graphic abortion photographs to Queen Elizabeth Hospital
(QEH) and some of its staff, he was stricken from the waiting
list for a hip replacement and barred from receiving any medical
treatment there except for a life-threatening condition. He was
also sentenced to 28 days in jail and will have to report to an
Anti-Social Behavior Order for 5 years.
Testifying before the Court in the action that led to the
jail sentence, QEH chief executive Ruth May said that “because he
continued to send extremely graphic material to us we exercised
our right to decline treatment to him.”
Henry Bellingham, a member of Parliament, told EDP
News of Norfolk that refusing treatment was wrong despite
Atkinson’s behavior (
www.lifenews.com/nat2247.html).
Correspondence
What’s Next? Princeton economist Uwe Reinhardt predicts
that premiums for the Massachusetts universal plan will increase
by 10% per year and soon become unaffordable.
“Within a decade not only Massachusetts but the entire
nation must face the question politicians are avoiding: Will the
upper third of the population be willing to pay for the working
poor in the bottom third who by then will be unable to afford
health care?” Reinhardt continues: “My only hope is that the
taxpayers of Massachusetts will either voluntarily step up to the
cashier’s window, or these people will revolt.”
While Reinhardt is banking on people choosing to work harder
so as to give the government more money for the over-riding goal
of equality, people ask: “Why should I?”
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY
Poor Model. New Jersey legislators wonder how we can
follow Massachusetts in requiring universal health coverage.
Let’s hope New Jersey takes enough time considering this to watch
Massachusetts fail. We already suffer under insane laws and thus
have the country’s highest health insurance premiums. Perhaps the
goal is to extend our lead.
Massachusetts will have a new authority to meddle and create
“guidelines” to certify and decertify health plans. It will
collect money for four trust funds, remitting to insurers via a
still un-established “system.” Presumably, the state expects
insurers to trickle down funds to hospitals and doctors.
Bureaucrats on the new commissions will certainly be paid.
Hospitals will face price controls and taxes.
Alieta Eck, M.D., Somerset, NJ
Unaffordable. Americans neither need nor can afford
third-party payment for noncatastrophic medical care. The tax
break for health insurance amounts to a subsidy to everyone in
the medical industry at the expense of all others. This is not
only unjust, but inefficient. It creates the need for perhaps 2
to 3 million people to settle small claims. Every expense that is
not involved in direct patient care unnecessarily increases the
cost of all goods and services. Returning the human capital
involved in insuring routine medical costs to productive use
would be a tremendous boon to the economy.
Robert S. Berry, M.D., Greeneville, TN
Pariahs. In the Middle Ages, two groups of people could
not be buried in cemeteries with decent people: usurers and
middlemen. I can see how this could apply today to certain
insurers who take people’s money and then don’t cover their
sicknesses and injuries.
Robert B. Thorne, M.D., Bloomfield, NJ
Who’s the “Connector Authority”? And what are its
rules? I have a feeling that membership on the Connector will be
a sought-after political plum. Get your bribes ready!
Russell W. Faria, D.O., Newport, OR
What “Insurance” Means. To me, insurance means
financial protection against a particular event. The insurer must
collect enough in premiums plus investment income to equal the
expected value of payouts plus profit. But in the current policy
debate, the above terms are irrelevant. Being insured simply
means that somebody else will pick up the bills for your medical
care or for the care that you are allowed to have. It’s a
gigantic game in which the horrid pay-as-you-go system keeps
passing costs to somebody, anybody else. Gouge employers;
impoverish physicians; drive insurers out by banning catastrophic
policies,passing price controls, and instituting
ridiculous mandates; loot drug companies; force hospitals to
provide care and don’t pay them. Make everybody pay but the
consumer, because if a single consumer has to pay, he by
definition doesn’t have insurance.
Linda Gorman, Independence Institute, Englewood, CO
True Competition. Insurers leveraging millions of
members to negotiate deals with providers does not result in
genuine price competition; in fact, it more often hinders it.
Millions of consumers independently in the market most
effectively brings pressure to bear on prices.
Steven Bassett, Oak Park, IL
The Terms of the Debate. Talk about who has and doesn’t
have health insurance diverts attention from the real issues. If
we’d talk about access to care, we might get somewhere.
Frank Timmins, HealthBenefitsReform Group
Data Mining Alert. I sent two of my billers from our
pulmonary/critical care practice to a coding course recently.
They learned that CMS now pays for “smoking and tobacco use
cessation counseling”: G0375 (3 min) and G0376 (10 min). However,
the speaker advised caution in using these codes because CMS
plans to use claims data to identify smokers so that their
premiums can be raised. (I can’t confirm this.)
Debi Carey, Lexington, KY
“Be Active or Perish.” This saying is as appropriate
for solo and small-group practitioners as “publish or perish” is
in academia. Lack of networking with like-minded people is far
more dangerous than one can imagine. In today’s world there is no
escape from politics. Being active in groups like AAPS is vital
for your future, and that of the medical profession.
Walter Borg, M.D., New Iberia, LA
Legislative Alert
The Senate’s Health Week
As this goes to press, the Senate will be taking up a series
of health policy items for “Health Week,” a time set aside by the
leadership to parade and enact their health policy changes.
The Health Insurance Marketplace Modernization and
Affordability Act (S. 1955), sponsored by Sen. Mike Enzi (R-
WY), would amend the Employees Retirement Income Security Act of
1974 (ERISA) to allow small businesses to realize some of the
economic and legal benefits now enjoyed by large businesses that
self insure. S. 1955 would permit small employers to band
together in association health plans, free of state mandates and
state health insurance premium taxes.
S. 1955 would also set up federal standards for health
insurance, including rating rules for health plans sold to small
business, plus a new federal option for health insurers to offer
plans that would preempt many state-mandated benefits. Finally,
the bill would create a federal Board that would review existing
state health insurance laws, and then make recommendations to the
Secretary of HHS to standardize rules for health insurance rate
filing, prompt-payment rules, internal review of disputed claims
and marketing. In other words, federal regulation would, in
effect, override state law in these areas.
Look for business groups, desperate to escape high health
costs and many conservatives to support the Enzi bill. This
support is understandable. American health insurance markets are
increasingly concentrated, distorted, and inefficient. Costs are
soaring and shifting, and quality is suffering; millions of
Americans are uninsured, and millions more fear losing coverage
that they don’t even own. State rules are, in many cases, an
unmitigated mess, and small businesses and their employees are
often the residents who suffer the most.
A principled case can be made to substitute federal
regulation for state regulation, particularly within the context
of a comprehensive overhaul of the federal tax code and the
creation of a national market powered by interstate commerce of
health insurance products. But that is not what is being
attempted here, and Congress shows no serious interest in dealing
with the one item directly under its jurisdiction: the tax code.
Under the Constitution, the states enjoy an equality of status in
legislating what is particular to them. One state is equal to any
other state in the exercise of its rightful authority over the
matters that directly concern its citizens. In this instance, the
Congress would in effect set up a different standard, deviating
from the letter and spirit of the Constitution, which would hold
that a number of states’ decisions on particular matters of
health insurance regulation should be overridden by the federal
government to achieve what is deemed to be a desirable end.
A far better approach is the bill offered by Rep. John
Shadegg (R-AZ) and Sen. Jim De Mint (R-SC): The Health Care
Choice Act (S. 1015). It would preserve the primacy of the
states in the regulation of health insurance, but allow people to
buy more affordable health plans across state lines. This
interstate competition would create a national market for health
insurance, and force a reconsideration of the state benefit
mandates in many of the big states that impose them.
Competition is the best response to excessive regulation.
There are other serious items for the Senate to consider:
individual tax relief for insurance, as through an individual tax
credit; defined-contribution options to health insurance in
public and private programs; and allowing flexible spending
accounts to roll over from year to year tax free for the direct
purchase of medical services. Also, Congress could start fixing
the left-over problems with health savings accounts (HSAs),
including the coordination of fund transfers between health
reimbursement accounts (HRAs) and HSAs.
HSAs, enacted as part of the massive Medicare Modernization
Act of 2003, are a good idea (I have one). They have grown
rapidly, and now there are more than three million enrollees in
these plans. But that’s still just 1% of the total number of
people covered by insurance. Whether HSAs will transform the
health insurance market remains to be seen.
HSAs need fixing. They were supposed to limit third-party
interference in medical care. There has been little progress in
this respect. High-deductible health plans still set “negotiated”
rates for doctors, combined with standard third-party intrusion
into the patient-doctor relationship, with excess administrative
cost and record-keeping requirements. The “negotiated” rates
often reflect administrative payment schemes like Medicare’s.
As currently structured, HSAs probably cannot result in
direct free-market transactions between patients and doctors. The
best way to achieve this is to sever the accounts from health
insurance altogether, reduce the role of third-party payment, and
allow a market for genuine catastrophic insurance coverage to
develop. Such a change in federal law would go along way to
reducing the unnecessary level of third-party payment that
characterizes the current market.
Medicare: It’s Worse
The Medicare Trustees have just released their annual
report, and the news is not good. The unfunded liability
of the Medicare program is now checked in at $32.4
trillion, and the Medicare Part A trust fund is expected to
become insolvent in 2018, not 2020 as reported last year.
Simply to maintain the balance in the Medicare hospital fund
would require an increase of the existing payroll tax from
today’s 2.9% to 4.3% by 2020, and 6% by 2030. Professor Tom
Saving of Texas A&M University, a Medicare trustee, says that,
unless something changes, the unfunded liabilities of the program
will start eating up federal taxpayers’ dollars at an alarming
rate. By 2020, the Medicare shortfall would consumer 23% of
all federal income tax revenue; that jumps to 38% by 2030 and 50%
by 2040.
Apologists for the Medicare drug benefit will note that the
projected unfunded liability for the Medicare drug benefit
actually declined from a $8.7 trillion to $8 trillion this year,
reflecting a lower-than-projected enrollment, and a slower-than-
expected growth in drug spending. The competition among private
plans has apparently had a chastening effect on Medicare drug
costs. But that’s quite beside the point. The total debt that
Medicare Part D is imposing on future generations is almost twice
that of the entire Social Security system, which has a long-
term unfunded liability of about $4.6 trillion. The next year
will see the effects of the increased pressure for price
controls, the filling up of the silly donut hole, and the
continuing displacement of other forms of drug coverage. As most
independent analysts have noted, the most important single
feature of the Medicare drug benefit is the displacement of
existing private spending by federal spending. That much is
indisputable.
Big numbers should kick off big action. This year, look for
excuses from Congress as to why nothing can or should be done.
The only realistic way to cope with the Medicare crisis is to
“grandfather in” the current generation of retirees, and to
change the program from a defined-benefit to a defined-
contribution for the Baby Boomer generation. The Boomers hit
retirement in 2011. Five years is not a long time. Time is
running out.
The Massachusetts Plan
Republican Governor Mitt Romney and the overwhelmingly
Democratic legislature in Massachusetts have compromised on a
major health bill that is complex and controversial. During the
course of the debate, the Governor invited Heritage Foundation
staff, including me, to Boston to discuss several specific
problems with the health insurance market, and explore what could
be done about them. These are just three of the problems Romney
was trying to solve:
Problem #1: How do you enable employees of small
business to get and keep a health insurance plan of their
personal choice? The worst problems with employer-
provided coverage are with small businesses that cannot afford a
plan, or that find the administrative burden too heavy. Small
firms that do offer coverage generally offer only one
plan.Workers who try to buy health insurance on their own are
punished by our federal government with a tax penalty, which
increases the cost by 40% or more.
Romney’s solution was to set up a new market that would
avoid the problems caused by the federal tax code and operate
like a stock exchange. The idea is for workers to choose the
product that they want and keep it regardless of change in
employment. This “insurance market exchange” was named “the
Connector.” It does not purchase health plans on behalf of
individuals or businesses; it simply processes premium payment
and paperwork. It is to function through defined-contributions by
employers to the plan of the employees’ choice. Employers who did
not want to contribute anything to employees’ health insurance
would be required to offer a flexible spending account, so that
the employee would at least be able to make tax-free premium
payments. The idea is for individuals, not employers, to purchase
health insurance plans. The exchange is intended to ease access
to coverage for a lot of workers in nontraditional jobs,
including part-time and seasonal employees, contractors and sole
proprietors, and individuals with more than one job. HSAs would
be among the available options.
Because employers would be able to designate “the
connector” as their employer plan for the purpose of the tax
code, all of the premiums for health plans offered in the
exchange would be tax free, and the benefits for the
employees are also tax free, just as they would be under
conventional employer-based health insurance. The achievement,
then, is that it would provide for broad employee choice
of health plans without compromising the tax-free status of
health insurance coverage.Employees would be able to pick
health plans of their choice, have a property right in the
insurance policies, and take them from job to job without a
tax penalty. Personal ownership and control of health
insurance policies has long been a major goal of common-sense
insurance reform. This is a major structural change in health
insurance.
Problem #2: How do you provide assistance to low-
income people who cannot afford health insurance? For
years, economists have been debating the best way to integrate
low-income individuals into the private health insurance
market, as an alternative to rising uncompensated care costs
or Medicaid expansions. Conservatives in Congress, notably
former House Majority Leader Dick Armey (R-TX) and Senator
Rick Santorum (R-PA), along with the Bush Administration, have
proposed refundable tax credits basically vouchers to help
people buy private health insurance. Bush would phase out the
credits at $60,000 annual income. Nothing, of course, has
happened at the federal level.
Romney built upon a proposal by John Goodman and his
colleagues at the National Center for Policy Analysis (NCPA):
use existing government funding for the uninsured to
provide them with the means to secure private coverage. With
the support of HHS, Romney plans to redirect hundred of
millions of dollars of “disproportionate share” money and
other government subsidies that already go to hospitals and
medical institutions (not including doctors, who just don’t
get paid) to offset the costs of uncompensated care. These
subsidies will be transformed into direct financial assistance
to individuals, in the form of “premium assistance” for the
purchase of private health insurance. This is a basic
structural change.
Problem #3: How do you cope with the “free rider”
problem?Thanks to federal law, hospitals are
required to provide care to persons entering the emergency
room, regardless of ability to pay. Massachusetts taxpayers
spend $1.2 billion/yr to cover this cost. There are few if any
serious consequences for people who choose to be “free
riders,” who secure costly medical care, and then walk out and
leave taxpayers holding the bill.
Romney originally proposed that individuals who could
afford to buy health insurance but refused to do so be
required to post a $10,000 bond, which would be used to cover
the initial cost of any hospital care that was used or lose
the personal tax exemption. Call this a “soft” mandate, which
would permit one to self-insure but not skip out on the bills,
leaving them for taxpayers to pay. The legislature instead
enacted an individual mandate, along with an employer mandate
that the Governor vetoed.
The Massachusetts compromise reflects the political
coloration of Massachusetts. There is plenty of room for
criticism: not enough deregulation; too much Medicaid
expansion; an objectionable individual mandate. But there are
serious structural changes that are worth watching.
Robert Moffit is Director, the Center for Health Policy
Studies at the Heritage Foundation, Washington, D.C.
