AAPS News – Mar 2004

Volume 60, No. 3 March 2004

INSURANCE, HEALTH, AND CONTROL

Having failed to engineer a federal takeover of American
medicine early in the Clinton years, the same players are still
pursuing the agenda by a different approach.

They are emphasizing the dragons to be slain two that play
well in the press are “uninsurance” and “medical errors” rather
than the remedy, the latest flavor of socialized medicine.

Their powerful ally is the Institute of Medicine (IOM) of
the National Academy of Sciences, a private, nonprofit, self-
perpetuating society with a congressional charter to advise the
federal government on scientific and technical matters.

Like many other private organizations including the AMA, the
IOM is now being leveraged by a grant from the Robert Wood
Johnson Foundation (RWJF). The IOM Committee on the Consequences
of Uninsurance includes many prominent former members of the
Clinton Task Force on Health Care Reform, such as James Mongan of
the Massachusetts General Hospital, Shoshanna Sofaer of Baruch
College, and Diane Rowland of the Kaiser Family Foundation.

About 18,000 deaths per year, guesstimates the IOM, result
from uninsurance. And since “we all pay” for the care of the
uninsured, why not insist that everyone prepay?

The purchase of insurance is voluntary, the IOM notes,
although many are “involuntarily uninsured” because somebody
else didn’t buy the insurance for them or because insurers can’t
or won’t sell it at an affordable price.

Involuntary “universal” coverage is the first and
fundamental principle of the IOM Committee.

And since voluntary efforts by physicians and medical
institutions haven’t eliminated errors, more centralized and
extensive data collection is needed, with the enforcement of
“quality” by withholding payment or excluding “providers.” This
ties in with Principle #5, “promoting access to high-quality care
that is effective, efficient, timely, patient-centered, and
equitable.” Variations in patient cost-sharing could be used as
an incentive for “appropriate service use.”

The goal is universal coverage by 2010. Prototype options
include major expansions of the bankrupt Medicare, Medicaid, and
SCHIP programs, plus refundable tax credits for persons of
moderate income; employer and individual mandates; individual
mandate (penalty for noncompliance not specified) with refundable
tax credits; and of course “single payer” Medicare for all with
a “global budget” and the option to purchase supplemental
policies for noncovered services.

Since it promotes centralized management of vast quantities
of data, what example does the IOM set for scientific analysis?
The widely repeated assertion that medical injuries account for
48,000 to 98,000 deaths per year (AAPS News Jan and Apr 2000) is
“now looking about as respectable as a Chinese government press
release on human rights,” states Linda Gorman of the Independent
Institute.

The estimate was based on an extrapolation from 173 deaths
in the Harvard Medical Practice study to the entire population.
Deaths from “medication error” included deaths from drug abuse.
Classification of deaths as resulting from error were based
solely on the judgment of physicians who reviewed the medical
record. As Troyan Brennan, a coauthor of one of the studies on
which the IOM report was based, wrote: “There is no evidence that
such judgments can be made reliably.”

In claiming that uninsurance causes poor health outcomes,
even death, the IOM ignores the most important confounding
variable: income. A strong correlation between income and health
status is seen not only in the U.S. but in countries with
“universal” health insurance. Moreover, U.S. Medicaid recipients
appear to do about as badly or worse than the uninsured in
receiving medical services or maintaining good health (Scandlen
G. NCPA Brief Analysis #416, 8/21/02).

One specific example of scaremongering is the assertion that
breast cancer death rates are 30 to 50% higher in the uninsured.
While the IOM does not make its original numbers available, Sean
Parnell of the Heartland Institute calculates, based on
reasonable assumptions, that the 5-year breast cancer survival
rate ranges from 88% in privately insured women to 82% in
uninsured women in the U.S. The 5-year survival rate in
universally “insured” Canadian women: about 82%.

The IOM methods of correlation, extrapolation, unfounded
assumptions, and biased selection are best characterized as “junk
science.” It serves the agenda of promoting the recycled, spin-
cycled Clintonite “managed competition” or “pay or play” ideas,
and sets the stage for the triumph of the special backroom group
on single payer, Hillary Clinton’s favorite.

An inescapable fact is that everybody pays for medical care.
The only question concerns the mechanism. As Thomas Sowell
explains, there is no “solution” to the problem of economic
scarcity only tradeoffs. To a woman who said that “the people
demand solutions,” he replied: “The people can demand
square circles if they want. But that doesn’t mean that they will
get them. What they are more likely to get is the illusion of a
solution by someone seeking their vote.”

And the most cost-effective vote getter is benefits for the
worried well at the expense of the critically ill.

The choice, which is likely to be made irreversibly before
2010, is between expanded freedom and centralized control. The
debate, again, is about governance, not just money.

Shall we force everybody to pay up front for all “necessary”
medical care for everyone living in the U.S., while turning over
decisionmaking to a self-interested medical oligarchy, freed from
the challenge of innovators or competitors? The economic term for
this system, as Greg Scandlen of the Galen Institute reminds us,
is fascism, the primary feature of which is private ownership by
a state-sponsored oligarchy.

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What If There Had Been No Medicare?

Milton Friedman suggests that without Medicare, Medicaid, or
the tax exemption that provides a hidden $100 billion subsidy to
medical care, medical expenditures would be at about half their
current level. The typical form of medical insurance would be
catastrophic, with a very high deductible.

Longevity would probably have been unaffected. The dramatic
increase in lifespan between 1900 and 1950 showed no systematic
relationship to medical spending. The major increase in spending
that accompanied the much slower but steady increase after 1950
was probably not causally related (Public Interest
winter 2001).

Regina Herzlinger of the Harvard Business School writes that
misallocation of capital dictated by Medicare rules has “produced
vast temples to cardiology, a service Medicare has overpriced;
and shreds of service for emergency care, a service that Medicare
has underpriced.” Innovators are penalized by delays and
mispricing; Medicare waited a full year to cover implantable
defibrillators that can prolong life for up to 7 years. Medicare
expenditures are wasteful, yet cruel in that they restrict care
(Wall St J 11/26/03).

CMS Administrator Tom Scully likens his job to the carnival
game whack-a-mole. When spending shoots up, you whack it down, as
by rules that kill investment in biotechnology. Although he now
calls Medicare a “wonderful system,” he once styled it “an
unbelievable disaster” (Wall St J 7/16/03).

If not for Medicare rules, writes Gina Kolata, seniors might
have had much greater access to lung reduction surgery for
emphysema, implantable left ventricular assist devices (NY
Times 8/17/03) and who knows what else?

Expanding Freedom, Reducing Costs

Removing the shackles on the free market, and allowing it to
diminish uninsurance and costs is essential for preventing the
demise of private medicine by 2010. Some methods are:

Slash Administrative Costs. The key is to do away
completely with insurance overhead for expenses under the [high]
deductible. Linda Gorman advocates the “shoebox method.” Keep
receipts until the end of the relevant time period, then discard
them if you haven’t accumulated enough to file a claim.

David Stern, M.D., of Belvidere, IL, states that if he
switched to a pay-at-the-door system, he could manage without a
computer network and three of his 4.75 employees, see two to
three patients per hour instead of four to six, and spend as much
time with patients as needed. Patients’ out-of-pocket costs would
increase by about $20 per visit, but they would need fewer
visits, so the net would be a wash. The impediment: most patients
would rather give up control and be “taken care of” by their
insurer than accept medical bills as a cost of living.

Permit and Encourage Competition. Alieta Eck, M.D., of
Somerset, NJ, is investigating the possibility of patients taking
a surgeon, an assistant, and an anesthesiologist to a hospital in
the Dutch Antilles to have surgery, at 20% of the cost to an
uninsured patient in New Jersey.

In many states, mandates have driven insurers from the
market and made individual plans prohibitively expensive. One
proposal is regulatory competition: Allow consumers to choose the
State that regulates their medical insurance. Consumers could see
on average a 25% reduction in premiums.

End Price Controls, Deregulate. The only places in the
U.S. with scarce housing and rising rents are places like L.A.,
San Francisco, and N.Y.C. that have rent control, writes Herbert
Rubin, M.D., of Los Angeles. Thomas Sowell observes that in 1909,
people spent less than 18% of their income for housing before
the federal government first got into providing housing, in 1937,
and before the rash of “green tape.” Now, 28 million Americans
spend more than 30% of their income for housing.

Experience with deregulating natural gas delivery, airlines,
trucking, and financial services shows that volume and innovation
increased, and costs fell 30 to 40%, writes Linda Gorman. “There
is every reason to expect the same benefits from deregulating
medicine.” The net burden of regulation probably exceeds the
annual cost of insuring 44 million people, according to
Christopher Conover of Duke University.

Dire Economic Warnings

“The GAO [General Accounting Office] was unable to express
an opinion as to whether the U.S. Government’s consolidated
financial statements were fairly stated for the sixth consecutive
year,” writes U.S. Comptroller General David M. Walker. “In the
case of the Social Security and Medicare Trust Funds, the federal
government took in taxpayer money, spent it on other items and
replaced it with an IOU…. These additional amounts [of debt]
total tens of trillions of dollars…. [T]hey are likely to
exceed $100,000 in additional burden for every man, woman, and
child in America today, and these amounts are growing every day.”

The International Monetary Fund warns that “there is little
time to address these programs’ underlying insolvency before
government deficits and debts begin to increase unsustainably….
The possible global risks of a disorderly [dollar decline]
especially to financial markets cannot be ignored.”

Robert England, R.I.P.

Robert England, M.D., who served as AAPS President in 1969,
died on Christmas Day, 2003. He was a general practitioner and
orthopedic surgeon in Illinois. His wife Helen preceded him in
death by a few months.

AAPS Calendar

April 19. “America’s in Pain” March on Washington. See
www.painreliefnetwork.org
for details.

May 15. Board of Directors meeting, Chicago.

Oct. 13-16. 61st annual meeting, Portland, Oregon.

A cartoon depicted a elderly person at a counter
labeled “Medicare,” who was being asked how he planned to pay for
his coverage. The man was handing his grandchild across the
counter.
–Rep. Tom Tancredo (R-CO)

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Court Upholds Conviction Based on Lies

In a shocking ruling, the federal Court of Appeals for the
Seventh Circuit held that the government can lie to put a doctor
in jail. Dr. Robert Mitrione and his wife proved that a
government employee testified falsely in convicting them (AAPS
News May 2003). After the trial, the
judge found that the government testimony was “false to a
dramatic degree.” On appeal, the Seventh Circuit agreed that the
trial judge had found “perjury” by the key witness. It also
agreed that under its rule for the past 75 years, the conviction
must be reversed if the jury might have reached a different
verdict. But on Feb. 9, the court shifted the burden to the
doctor to prove that the jury probably would have reached a
different verdict without the lie, abandoning its own 75-year-old
rule.

FAQs on Opting Out of Medicare

Q: What if an opt out is unsuccessful?

A: The government has ruled as follows: “A physician
or practitioner who fails to properly opt-out continues to be
bound by the Medicare claims filing and charge limit rules
identified in 405.430(b). However, he or she may make an
unlimited number of attempts to properly opt-out at any time.” 63
FR at 58857.

Q: What is the most common mistake concerning opting
out?

A: Failure to renew the opt out two years later.
Unless the doctor repeats this process every two years, he
automatically reverts back to the Medicare program and will have
a huge administrative burden of reimbursing patients and billing
Medicare for those services.

Q: Can a physician facing possible exclusion from
Medicare opt out instead?

A: Apparently yes, because nothing in the affidavit
requires any statement about the possibility of being excluded
from Medicare. The government, in fact, studied this obscure
issue and expressed concern that one doctor out of the 1,107 who
opted out in 1998 and 1999 was subsequently excluded from
Medicare. The government was upset that this one doctor did not
have to tell his existing patients that he was subsequently
excluded from Medicare. Such disclosure would have been
meaningless, of course, because the patients privately pay
anyway. But government wants the full power to stigmatize.

oig.hhs.gov/oei/reports/oei-04-99-00590.pdf.

[The opt-out statute is codified at 42 USCS 1395a.]

Medicare Law Squelches Competition

Slipped into the massive Medicare expansion law is an 18-
month moratorium on the whole-hospital exception in the Stark
physician self-referral law, which bans doctors who have a
financial interest in new specialty hospitals from being paid for
Medicare services rendered at the facilities they own.

After the moratorium is up, the American Surgical Hospital
Association will try to persuade the federal government to “leave
us alone,” while the “other side will try to put us out of
business” (BNA’s HCFR 1/7/04).

Entrepreneurial innovations that have allowed other areas of
the U.S. economy, such as retailing, to boom, are “chopped off at
the knees” in the medical sector by such rules, as Regina
Herzlinger (see p. S2) has observed.

Tip of the Month: Watch out for this technicality
that impeded relief in a privileges case: When a 75-year-old
patient died despite efforts by the physician to save her, the
hospital blamed the doctor and partly revoked his privileges. Dr.
Bhanukumar C. Shah then sued for violation of federal
discrimination laws. However, Dr. Shah admitted in his deposition
that he was not an employee of the hospital, and the record
lacked evidence of how hurtful a revocation is on his
employability elsewhere. The federal Court of Appeals for the
Sixth Circuit said non-employees, who do not cite injury to
employability elsewhere, cannot sue a hospital for discrimination
over privileges. Shah v. Deaconess Hosp. (6th CIr. Jan.
14, 2004).

Government Aims to Track Every Pain Pill

Proposed legislation such as H.R. 3015, the National All
Schedules Prescription Electronic Reporting Act of 2003, would
create a national databank of all prescriptions for Schedule II,
III, and IV controlled substances that “health care practitioners
and pharmacists…can access to determine whether a particular
prescription is medically unnecessary.” Any dispenser failing to
transmit the required information to the Secretary of HHS “shall
be subject to a civil monetary penalty of $100 for each such
failure, and a maximum civil monetary penalty of $25,000 for such
failures concerning any particular patient.”

Many States are also considering such legislation. In
Florida, Purdue Pharma agreed to pay $2 million to help fund the
program, in return for the State ending its investigation of its
marketing practices (Bloodworth D, Orlando Sentinel
1/17/04). AAPS joined the Pain Relief Network, the American Pain
Institute, and the National Pain Patients Coalition in opposing
this measure on the grounds that it will further chill legitimate
prescribing to chronic pain patients.

“In an effort to appear tough on drug abuse and diversion,
Florida’s elective representatives are attacking patients in
pain,”stated Siobhan Reynolds of the Pain Relief Network.
“Doctors already turn them away in droves.”

Prescription monitoring programs have already proven to be
inaccurate and ineffective in curbing abuse, she said, especially
as illicit prescription drugs are readily available through the
internet and other channels.

Liability Insurance for Pain Doctor Cancelled

Rev. Ronald Myers, Sr., M.D., a family practitioner, Baptist
Medical Missionary, and founder of the American Pain Institute,
reports that the Medical Assurance Company of Mississippi will
not review his professional liability coverage after April, 2004,
because he treats the former pain patients of another physician
whose license had been suspended.

Michael Houpt, CEO, stated that Dr. Myers was not
“practicing pain medicine,” citing lack of board certification in
pain medicine or special training in that field.

Dr. Myers responded that specialists in family medicine were
trained in the treatment of chronic pain as well as many other
conditions. He is the only physician in Tupelo, MS, willing to
treat Medicaid recipients who have chronic pain. He stated that
the carrier’s decision represented “medical malpractice red-
lining,” “medical malpractice social engineering,” and “medical
malpractice racism.”

Dr. Myers is a leader in the movement to demand congres-

sional hearings on the “DEA war on doctors, pharmacists, and pain
patients” (
www.americanpainin
stitute.org).

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Correspondence

Is SimpleCare Illegal in New York? Item 43 of things
that can be cited under “unprofessional conduct” according to New
York Education Law Sec. 6530 is: “failing to complete forms or
reports required for the reimbursement of a patient by a third
party. Reasonable fees may be charged for such forms or reports,
but prior payment for the professional services to which such
forms or reports relate may not be required as a condition for
making such forms or reports available.”

If a patient agreed to SimpleCare (payment in full at time
of service without coding or filling in insurance forms) but
wanted to try to get reimbursement from the insurer, it appears
that the physician could be liable to delicensure and a $10,000
fine if he refused to fill out the forms.

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

Shredding Insurance Company Requests. My intake sheet
says that we do not accept insurance as payment. It also says
that if patients want to try to get reimbursement we can
subcontract that work out to a professional biller for a $10
surcharge. So if I get a request from a patient’s insurance
company to transcribe the information on the receipt onto a form,
I put it in the paper grinder. Sometimes I even get calls from
third-party payers over a $35 claim. I just tell them we don’t
take third-party payment, and the claim is between them and their
client. If they don’t want to get left behind in the revolution
in consumer-driven medical care, they had better learn to adapt
right fast because this inefficient process is about to be
reduced to sawdust.

Robert S. Berry, M.D., Greeneville, TN

Why Are Prices High? Years ago, Sen. Ernest Hollings
(not exactly an icon of intellect but sometimes witty), when
asked why the CPI was rising so fast, explained the phenomenon by
saying “there’s too much consumin’ going on!”

I think we can justifiably say that in medical care and
insurance “there’s too much guvernin’ going on!” And it’s been
going on for much too long!

Stephen R. Katz, M.D., Fairfield, CT

Paying for Quality. Paying doctors and health plans in
Medicare [also see p. S2] according to their performance
essentially supports government-directed medicine. It means that
some official outside the examination room will determine what
constitutes a good performance and what does not.

Twila Brase, R.N., www.cchc-mn.org

Just think, we could apply the same oversight in other
services that are currently between private parties. Government
officials could determine whether my gardener did a good job on
my lawn and whether my auto mechanic fixed my brakes properly. No
more unemployment, as government workers will double from the
current 22 million to 44 million. And of course, they’ll all get
Cadillac health plans. Sen. Norm Coleman (R-MN), father of
“Medicare payment for quality,” should get an economics prize:
the Lenin Award.

Craig Cantoni, Scottsdale, AZ

Where to Start on Medicare Reform. Start with new
beneficiaries. Make an age-adjusted voucher (possibly risk-
adjusted also) available to them, say that covers about half the
premium, and allow them to contract with private carriers.
(Medicare pays only about half the cost of elderly care on
average.) Reform is a generation-long process.

Greg Scandlen, Frederick, MD

Seniors’ Preferences. I have been in the senior market
since 1980. When presenting education programs to seniors in the
1980s, I was surprised to learn that many would prefer a high-
deductible plan with a savings component. Supplemental premiums
are quite high in relation to the out-of-pocket expenses they are
meant to cover. Even without a tax-free savings plan, a high-
deductible plan is advantageous.

Joseph Lee Pugh, Diamondhead, MS

Absurd Laws. An absurd example of a nutty law: “We
state lawmakers say that everyone should have the right to visit
the moon. Accordingly, we have decided to repeal the law of
gravity.” Real examples are: community rating, guaranteed issue
of individual plans, model-plans-only laws, elective benefit
mandates, forced loss-ratio-refunds, etc., that drive prices up
and reduce the number of people insured.

Art Jetter, CLU, Omaha, NE

Socialism Never Decreases Costs. If costs are excessive
in the U.S., it is because it suffers under a variant of
socialism. More socialism is not the answer; socialism always
increases total costs, decreases output, and stifles innovation.
In Canada, costs are shifted from one form to another; waiting is
a genuine cost. Three out of four of my relatives had to travel
to Buffalo, NY, to obtain medical care. My brother-in-law
arguably died because of unconscionable delays in Canada.

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

Are Patients Too Dumb to Permit a Free Market? To
paraphrase my father, some of whose relatively poor math students
went on to make very good money in the grocery business, “If you
put dollar signs in front of numbers, many people show a 50 point
rise in their IQ.”

Robert F. Hamilton, M.D., Godfrey, IL

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Legislative Alert

State of the Union

In his State of the Union address, President Bush
outlined a series of recycled proposals for American medicine:

Health care tax credits for the uninsured. The
President’s proposal would provide tax credits worth up to $1,000
per person and $3,000 per family to those without health
insurance.

Association health plans. The idea is that if
small businesses can band together and negotiate for lower
medical insurance rates, they could cover more workers.

National medical malpractice reform. The
President is proposing the same tort relief for doctors that he
offered last year which passed the House of Representatives but
was blocked by Senate Democrats. The outlook for success in the
Senate is not much better this year.

The implementation of HSAs. The President
noted that, beginning this year, “…millions of Americans will
be able to save money tax-free for their medical expenses in a
health savings account.” He added one major policy change: “And
tonight I propose that individuals who buy health care coverage
as part of our new health savings accounts be allowed to deduct
100 percent of the premiums from their taxes.” Bush also asked
for $100 million to promote electronic information and data
systems in the financing and delivery of medical care.

The implementation of Medicare law. The
Administration is already implementing a universal Medicare drug
discount card program that will enable seniors to get discounts
of between 10 and 25%, with low income seniors getting a special
subsidy worth $600. The subsidized drug discount card was
promoted by conservative health policy analysts as a way to
target low-income seniors without coverage through a market-
friendly system of private accounts. The discount program sunsets
with the implementation of the Medicare drug entitlement
beginning in 2006. The new law also includes Medicare benefit
expansions for preventive care, including diabetes screening,
heart disease, and wellness examinations, which will go into
effect in 2005.

A new “Medicare Advantage” system will replace the flawed
“Medicare+Choice” system. The new program will enable seniors to
choose options with richer benefits than traditional Medicare.
The 10.6% increase already announced is a dramatic reversal of
previous policy, which had held funding to a 2% cap in spite of
costs jumping at much higher rates. A new survey conducted by
AAHP-HIAA shows that plans representing 93% of enrolled seniors
will use the new funds to reduce monthly premiums, while plans
representing 60% of these beneficiaries will increase benefits,
including prescription drug coverage.

The President celebrated the enactment of the new Medicare
law, and threatened to veto any Congressional proposal that would
“…attempt to limit the choices of our seniors, or to take away
their prescription drug coverage under Medicare…” The Democrats
are prepared to do just that: quickly gutting the HSA provisions,
rolling back funding for private health plans, and jacking up the
power of the federal government to become a monopsony purchaser
of prescription drugs.

The political response has been painfully predictable.
Capitol Hill Republicans are largely cheering, and Democrats are
either yawning or loudly condemning the White House for not being
serious about the problem.

Kennedy’s National Health Proposal

In what appears to be a direct response to the Bush
agenda, Senator Edward M. Kennedy (D-MA) unveiled a comprehensive
plan of his own at an annual projected cost of $100 billion in a
major January 22 speech before his ideological allies at the
national meeting of Families USA.

With regard to Medicare, Senator Kennedy said, “President
Bush has just signed legislation to destroy Medicare and turn the
elderly and the disabled over to the tender mercies of HMOs, the
insurance industry and the pharmaceutical industry.” Kennedy went
on to say that the major priority is to bring down the cost of
prescription drugs, and announced his support for a provision to
let the government “negotiate lower prices” on prescription
drugs, allow the reimportation of drugs from Canada and the
European Union, and impose limits on direct-to-consumer
advertising by drug companies. If these steps do not work to
control rising prescription drug prices, Kennedy said that the
federal government must be prepared to take further steps,
including the creation of a national purchasing pool that will
enable the federal government to “negotiate” with the
pharmaceutical industry, not only on behalf of Medicare and
Medicaid recipients, but on behalf of “all Americans.”

On the broader issue, Kennedy outlines a series of problems
with the “health care system” that are broadly acknowledged by
liberals and conservatives alike. And he charges that Bush has no
serious plan to reduce the number of the uninsured nor a serious
proposal to control costs. Kennedy states that Americans spend
$480 billion a year on administration, roughly 30 cents out of
every dollar spent on medical care, and that more than 25% of all
personnel are “performing administrative tasks, not providing
care.”

Kennedy’s bill, The Health Security and Affordability Act,
is largely a replication of the employer-based mandate that was
the foundation of the Clinton Health Plan. It contains the
following provisions:

An employer mandate. Businesses with 50 or
more employees would have to provide medical insurance to their
employees. Small businesses would have the option of making
contributions to a national health benefit program based on their
ability to pay. Very small businesses would be exempted from any
contribution. The employer contribution, in any case, would be
capped at 12% of payroll.

A benefit mandate. Employer coverage would
have to be actuarially equivalent to the Blue Cross/Blue Shield
Standard Option Plan now available in the Federal Employee Health
Benefits Program (FEHBP) and would have to include mental health
parity. Employers would be required to pay 75% of the premium of
such a plan. (Nota Bene: There is no standardized benefit plan in
the FEHBP; federal workers and retirees can choose from a variety
of benefit options.)

Government subsidies to employees. Workers
with incomes between 100 and 200% of poverty would pay their
share of premiums on a sliding scale, and would be responsible
for 50% of any cost sharing. Workers with incomes below 100% of
poverty would be responsible for only “nominal” premiums.
Taxpayers, present and future, would pay the difference between
the employer premium and the cost of the plan.

A National Health Benefit Program. This
program would also be at least equivalent in actuarial value to
the Blue Cross/Blue Shield standard plan in the FEHBP.

Cost reduction and quality promotion measures.
The Kennedy proposal would attempt to reduce costs by requiring
all insurance companies to use computerized systems for all
payment, claims, and information transactions. It would also
establish grants for doctors and hospitals to use information-
technology systems based on national standards for medical
records and prescriptions. It would establish a new system for
reimbursing medical services on the basis of value, based on
quality standards to be determined by the Secretary of HHS in
collaboration with other relevant government departments and the
private sector. Doctors, hospitals, and other medical
professionals would be required to collect quality data and make
it publicly available.

Medicare Miscalculations

We are profoundly shocked to report that the projected
Medicare costs are wildly off base again.The initial big
explosion has occurred. Collateral damage all around,
particularly on that credibility thing. More explosions are
coming. Bet on it.

Last December 8, when President Bush signed the Medicare
bill, Congressional leaders and the Administration officials said
that it was a responsible bill. They also cited the Congressional
Budget Office (CBO) estimate of the cost of $395 billion over 10
years, even though the CBO conceded that the figure was not based
on a comprehensive reading of the legislation. Moreover, on the
very day that Bush signed the bill, Douglas Holtz Eakin, the CBO
Director, told a packed audience at the Heritage Foundation that
in the second decade of the life of the new Medicare law the cost
could reach $2 trillion.

Neither Heritage, nor the top policy analysts at the
American Enterprise Institute, Cato, nor the National Center for
Policy Analysis, nor, for that matter the moderate Democrats at
the Progressive Policy Institute, ever put much credence in the
official line about the cost of the Medicare bill, and thus all
of them were strongly critical of the final product. Likewise,
Harvard University’s Regina Herzlinger warned of the broader
systemic effects of the Medicare entitlement expansion: “With the
effective passage of the Medicare drug bill, we have just vastly
enlarged the health care sector. This is one seventh of our GDP
that is run Soviet-style; where the doctors who are uniquely
qualified to create and manage health service businesses are
prohibited from owning most of them; where entrepreneurs often
must pass a local government smell test before they are permitted
to build new facilities; and, worst of all, where government
dictates the prices and exact characteristics of insurance
benefits for which it will pay. Most private insurers follow its
lead” (Wall St J 11/26/03).

Most members of Congress simply ignored the best independent
policy advice available, put aside their sound misgivings, and
voted for the final product anyway. Before the final vote, House
and Senate leaders told the rank-and-file members that, even
though it was a massive expansion of entitlement spending, it was
going to be a responsible program no crazy spending; no gut-
wrenching surprises.

Well, well. The Administration’s own budget estimate is that
the bill will cost $534 billion over 10 years. As The
Washington Post editorialized, the cost of the law is
subject to a lot of uncertainties: the impact of the new tax
breaks (the HSAs), the general rise in medical costs, the future
costs of drugs and medical procedures that are not yet available
but will be in 5 years, and the behavioral changes in seniors and
physicians when the new incentives take effect. But the critical
point, stressed The Post, is that Congress and the
Administration are both “piling on obligations” with no knowledge
of their scope and impact and saddling the next generation with
enormous debt. Incidentally, the Bush Administration is already
forecasting a whopping $521 billion deficit in 2004, though it
thinks it can cut the deficit in half by 2007, promising fiscal
discipline and tighter spending. We’ll see.

The political fall-out continues. The National
Journal is reporting that the Office of the Actuary at the
Centers for Medicare and Medicaid Services (CMS) completed an
internal analysis of the Senate version of the Medicare bill on
June 11, 2003, and found, then, that the projected cost of the
Senate Medicare bill was $551.5 billion over the period from
2004-2013. That was in June, 2003. On Feb. 2, 2004, Reps. Henry
Waxman (D-CA), John Dingell (D-MI), and Charles Rangel (D-NY)
have sent HHS Secretary Tommy Thompson a stern letter asking for
all of the Administration’s cost estimates. In their letter, they
use the old Watergate style refrain: “Congress and the public
should know what the Administration knew about the costs of the
prescription drug benefit and when the Administration knew it.”
(Rangel, along with Rep. Pete Stark (D-CA), proposed a drug
provision during last year’s debate that would have cost anywhere
from an estimated $800 to $1 trillion over a 10-year period,
something that should not be overlooked). Meanwhile, look for
ramped-up calls for price controls on drugs, in one form or
another.

What Is To Be Done?

Leaving this open-ended entitlement program in place makes
the tacit assumption that there is no limit to what the taxpayers
can or should be forced to give. The Medicare expansion, as so
many conservative analysts warned last year, not only threatens
the Bush tax cuts, but also the establishment of personal
accounts in the Social Security System, as well as other
conservative priorities. The Medicare drug entitlement goes into
effect in 2006. Congress has a choice: do the right thing, admit
that they were wrong to enact a universal entitlement in the
first place, and instead target the assistance to low-income
seniors. Otherwise, the Republican-controlled Congress imagine
that will preside over a mountain of debt and a breathtaking
process of wild, record-breaking federal spending.

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