Volume 62, No. 3 March 2006
SAYING NO TO MEDICAL CARE
In the clamor for “universal health care,” most people
assume that the goal is to provide better care to all. They
should read the new book Can We Say NO? The Challenge of
Rationing Health Care from the Brookings Institution, funded
by the Robert Wood Johnson Foundation (RWJF). Authors Henry Aaron
and William Schwartz conclude:
The choices are clear. We can simply pay
the enormous bill for all beneficial medical
care whatever the cost. Or we can ration. If
we follow the second course, we must
begin by extending health care to essentially
all Americans [emphasis added].
Obviously, the bills are unpayable. We need a sustained
slowdown in the growth of expenditures. Eliminating waste and
profits won’t accomplish that. These authors can visualize only
one method: “rationing the denial of some beneficial care to
some people who have the financial means to pay for it.”
They distinguish this from what some call “rationing by
price.” In a market economy, some persons are unable to afford
certain things. With rationing, people who can afford to buy
something cannot get it because of scarcity imposed by a
“nonmarket allocation system,” such as queues.
The authors look at Britain, where “physicians enjoy a
residue of authority.” The private system is an escape valve,
which may “abet tighter controls than would otherwise be
acceptable.” A central question is “whether and under what
conditions to allow care outside the controls.”
Charitable contributions may be strongly discouraged because
they help “providers…escape budget limits.” Or they may be
permitted, in order to mute opposition to tight formal budget
limits by allowing augmentation of certain spending outside the
system. Indeed, “health planners might strategically shortchange
precisely those services or facilities that potential donors
could be expected to support.”
The authors recognize that shielding people from cost leads
to burgeoning demand. But demand-side limits are rejected out of
hand as defeating the whole purpose of insurance.
With patience, advocates of socialized medicine might be
able to reach their goal incrementally. As a Wall Street
Journal editorial points out, “the U.S. is approaching a
tipping point where the reforms needed to preserve an innovative,
market-based system may become politically impossible.” Almost
half the medical dollar is already spent by government. As baby
boomers age, the growth of Medicare alone will lead us far down
the path to government-rationed care (WSJ 2/1/06).
“America is, in effect, heading towards a version of
socialised medicine by default” (Economist 1/26/06).
Then there’s the retirement time bomb ticking in state and
local governments, as well as private industry. The city of
Duluth, for example, when it finally decided to calculate the
cost of the promises it had been making, found that free lifetime
medical care to all its retirees would cost $178 million, twice
the city’s operating budget. Similar shocking discoveries are
being made nationwide (NY Times 12/11/05).
But “single-payer” advocates are not resting. “This will be
a critical year in the struggle for real health care reform,”
writes Quentin Young, M.D., in a Call for Action by Physicians
for a National Health Program (PNHP).
Former Oregon Governor John Kitzhaber, M.D., is itching to
“pass something illegal” in his state to “cover everyone.” Is
that rationing? “You bet,” he proudly replies. He wants a
“grenade with the pin pulled out” to “roll…into the Beltway in
2007” (Fortune 10/3/05).
Everywhere, there seems to be a “coalition” with a name like
Campaign for Better Health Care, generally with links to the
RWJF, George Soros and the Open Society Institute, and other
“�bernanniests,” writes Linda Gorman. “It’s like playing a game
of whack-a-mole that is impossible to win. And with every battle
they increase the fraction of the population dependent on the
government for care.”
Dependents need to be compliant. The first concern of
disabled persons on Colorado Medicaid, Gorman writes, is
retaliation by withdrawal of services if they complain about
fraud or mistreatment. A California mother writes that her public
assistance was cut because she refused further immunizations
since the first set made her daughter so ill. The universal trap
needs to be sprung before Americans wake up.
More than 3 million Americans have already embarked on an
escape route from the road to dependency by purchasing a
relatively high-deductible insurance policy combined with a
Health Savings Account. The cost of “consumer-driven” plans rose
2.8% between 2004 and 2005, compared to 7.4% for HMOs and 6.4%
for indemnity plans, states Deloitte Services.
Unfortunately, many HSA products still involve expensive red
tape, with continued involvement of third parties in “re-pricing”
and other managed-care procedures, giving PNHP something that
deserves criticism. Real savings would come with direct cash
payment. By eliminating all bureaucracy from the $720 billion in
expenditures less than $5,000, Sean Parnell of Heartland
Institute estimates savings of $144 billion before accounting
for changes in utilization as people decide for themselves what
care isn’t worth the cost.
Someone will decide that: if not patients saving
their own money, then bureaucrats or physicians spending other
people’s money under a budget. Some die who might have lived: in
the Netherlands, newborns under 25 weeks’ gestation aren’t
treated (Timesonline 1/6/06). Other languish with pain
or disability.
As AAPS Director Robert Berry, M.D., notes, universal care
might as well be called “Alice in Wonderland Part 2.”
As Aaron and Schwartz reveal, it’s not about care. It’s
about control of our wealth, our health, and our lives.
Socialized Medicine Reports
U.S. Charity Curbed. GlaxoSmithKline announced that
Medicare-eligible patients will no longer be allowed to receive
products under Bridges to Access. “We…believe that our patient
assistance program has been very helpful in providing medicines
to people in need. Therefore we are disappointed by the guidance
from the Office of Inspector General which indicates that a
pharmaceutical company’s continuation of…assistance to
financially needy Medicare beneficiaries… presents heightened
risks under the federal anti-kickback statute” (letter to
physicians, 12/10/05).
“Laboratories of Democracy.” Kentucky Kare: usual RWJF-
inspired plan destroyed state’s private insurance market; used
state pension system to “cover” the uninsured, bankrupting it.
TennCare: practically destroyed medical infrastructure before
government gave up. Washington State: came to its senses and
bailed out after a couple of years. There have been 12 to 13
RWJF-funded state experiments since 1991. Reputable experiments
on all U.S. citizens over 65 and lower-income people in the
states show that “single payer increases costs, retards
innovation, and ends up denying care to millions of people who
formerly had access,” writes Linda Gorman.
Quality Down Under. Russell Faria, D.O., of Newport,
OR, writes of a physician sanctioned for botched surgeries in the
U.S. who was hired by a government hospital in Queensland,
Australia, to help reduce the number of patients on the waiting
list. He did that: they called him “Dr. Death.” Concerned nurses,
who tried to hide patients from him, were threatened with prison
if they spoke out to the press. Non-Australian doctors, who can
only get a license restricted to one hospital, feared loss of
their license and visa if they spoke out. The Nurses Union told
ABC radio of a “culture of bullying” in Queensland Health. The
doctor was said to be “very budgetly attractive to the hospital”
(www.abc.net.au,
6/12/05).
Two-Tiered System in Germany. Facing multibillion-Euro
deficits, the German health system, described as “poor in quality
and expensive,” is “heading for collapse.” German politicians say
the social welfare state is at risk, as some call for a
“reactionary revolution.” Others say that privately insured
persons need to be moved into the public system and that no plans
should be allowed to select good risks. Cost containment measures
are failing; every third xray is said to be unnecessary; and the
truly sick are neglected. Nearly 90% of Germans favor more
competition and more choices; 71% think private patients get
superior care. Search Google on “Zwei Klassen Medizin.”
John J. Dwyer, M.D., R.I.P.
Our beloved past president John J. Dwyer, M.D., of Chicago,
IL, an orthopedic surgeon, died on Feb 2, 2006. Dr. Dwyer joined
AAPS in 1976, and was a tireless fighter for freedom and
integrity. He served several terms on the Board of Directors and
founded the Illini chapter. As a combat surgeon in the Vietnam
War, he was awarded the Bronze Star and attained the rank of
major. He is survived by his wife Maureen, five children, and six
grandchildren. Memorials may be made to Pro-Life Action League,
6160 N. Cicero Ave. Suite 600, Chicago, IL 60646.
Canada Shorts Acute and Chronically Ill.
“Can-
adians have been betrayed,” writes Bert Brown (Calgary
Herald 11/20/05). Patients with nonemergent conditions face
long, painful, sometimes fatal waits. They are beginning to ask,
“Why can’t I pay for my health care when I need it?” The
assertion that emergency patients get prompt care is also being
challenged. “Hallway medicine [is] the reality in emergency
care,” writes David Lowry (Vital Signs 11/05).
Paramedics are placed in halls to monitor patients so that
ambulance crews can unload and return to the streets. “Our
biggest fear is that someone will drop dead [in the waiting
room].”
Pharmacist Says No to Part D
Jim Porter’s Pharmacy Compounding Specialties of Dallas
doesn’t accept Medicare drug plans, or any other insurance. Mr.
Porter doesn’t put up with overloaded phone lines, angry
customers, endless waits for payment, or other snafus. He offers
a senior discount plan. Enrollees pay 6% above Mr. Porter’s cost
plus $5 for most manufactured drugs; a 10 to 12% mark-up is
common at pharmacies. Enrollment requires only a name, address,
phone number, and birth date. The discount does not apply to
compounded drugs. The 200 seniors who signed up don’t have to
worry about premiums, deductibles, or copayments. Medicare
officials warn seniors that “discount plans aren’t forever” and
that Medicare will penalize seniors who sign up for Part D after
May 15, by adding 1% to the premium for each month’s delay
(Dallas Morning News 2/8/06).
Hospitals Opt Out of JCAHO
Affiliates of Northern Arizona Healthcare (NAH), including
Flagstaff Medical Center, announced that they are terminating
their voluntary contract with JCAHO. Reasons cited: costs,
redundant or unnecessary survey processes, and concerns about the
motivation and accuracy of recent surveys (Arizona Medical
Association, Medicine This Week 11/18/05).
AAPS Calendar
Feb 22/23, 2006. Arizona AAPS dinner meetings in
Phoenix and Tucson: Dr. Lawrence Huntoon on sham peer review.
Sept 13-16, 2006. 63rd annual meeting, Phoenix, AZ.
Hermann Goering to a war correspondent: “Your America
is doing many things…which we found caused us so much trouble.
You are trying to control people’s wages and prices people’s
work. If you do that you must control people’s lives. And no
country can do it part way. I tried it and it failed. Nor can any
country do it all the way either. I tried that too and it
failed.”
Ludwig Erhard ended price controls in Germany in 1948, on a
Sunday, when the American occupation authorities were out of
their offices spawning the “German economic miracle.”
Thomas DiLorenzo, The Free Market, December
2005
Appeals Court Upholds Springer Verdict
In a precedential decision, which can now be cited by other
physicians who stand up to administrators, the U.S. Circuit Court
of Appeals for the Third Circuit upheld the jury verdict in favor
of David Springer, M.D., against the Delaware Psychiatric Center
(Case No. 04-4124). The decision is posted at
www.aapsonline.org/judicial/044124p.pdf.
The hospital objected to the AAPS amicus brief, but the
Court allowed it, citing our argument that “the issue transcends
the relationship between the parties and instead impacts upon
thousands of patients damaged as a result of hospital errors,
incompetence, wrongdoing, and cover-ups.”
The Court expressed concern that the government attorneys
may have had a conflict of interest in representing both the
State and the hospital administrator.
This is an important victory, in which the physician was
able to overcome sovereign immunity.
Parental Notification Law Upheld
In an unusual unanimous ruling, the U.S. Supreme Court held
that a federal appeals court wrongly overturned the whole of a
New Hampshire law requiring parental notification before
performing an abortion for a minor (Ayotte v. Planned
Parenthood, 04-1144). Only a few applications of the law
would present a Constitutional problem, wrote Justice Sandra Day
O’Connor. “The lower courts can issue a declaratory judgment and
an injunction prohibiting the statute’s unconstitutional
application.” She stated that the Court was not revisiting
abortion precedents.
The Minnesota law, on which the New Hampshire law is
patterned, has been in force for more than 20 years, with no
reported health emergencies suffered by Minnesota teens (Steven
Ertelt, LifeNews.com
1/18/06).
The AAPS amicus brief is posted at aapsonline.org
.
Roe v. Privacy
While the Senate debate over the confirmation of Justice
Samuel Alito used “privacy” as a code word for Roe v.
Wade, the Roe Court eschewed the Ninth Amendment approach to
privacy that was best explained in Justice Arthur Goldberg’s
concurring opinion in Griswold v. Connecticut. The same
Roe justices upheld the Bank Secrecy Act, finding that people had
“no expectation of privacy” for information shared with a third
party even if common law, state constitutions, and private
contracts required it and that consumers have no standing to
challenge the law. Nearly a century of precedent protecting our
personal papers was thrown out by Roe justices in important
privacy cases, writes J. Bradley Jansen (Wash Times
1/22/06).
In his dissent in California Bankers Association v.
Schultz (1974), Justice William Douglas wrote that “a
mandatory recording of all telephone conversations would be
better than the recording of checks under the Bank Secrecy Act,
if Big Brother is to have his way…. In a sense, a person is
defined by the checks he writes.”
The “expectation of privacy” is central to the debate over
warrantless monitoring of phone calls. Today, indeed, “America
Expects Surveillance”: the title of an op-ed piece by Attorney
General Alberto R. Gonzales (WSJ 2/6/06). The “special
needs” exception to the warrant requirement has been upheld by
the Supreme Court as consistent with the Fourth Amendment.
State Medical Liability Reform
In a Heritage Backgrounder issued Jan 16, Randolph W. Page
and Derek Hunter outline several options for tort reform.
The “early offer” rule limits the ability of claimants to
win huge noneconomic damages, while allowing quick recovery of
economic losses.
Patient indemnity insurance comparable to flight insurance,
previously proposed by AAPS, could reduce the role of litigation
in compensating patients for bad outcomes.
Other ideas include special health courts and limiting
liability for physicians caring for Medicaid, charity, or
emergency patients. The paper can be downloaded from:
www.heritage.org/Research/HealthCare/bg1908.cfm.
Does Tort Reform Save Lives?
Americans spend their medical dollars to support not just
one industry, but two, George Melloan points out (WSJ
1/31/06). Tort lawyers freeload on the system, he says.
The Association of Trial Lawyers of America argues that tort
law creates incentives to reduce harms. But by increasing costs,
torts could decrease the use of risk-reducing measures.
Between 1981 and 2000, states passed 141 tort reform laws. A
regression analysis on nonautomotive accidental death rates
showed that most tort reform measures were associated with
statistically significant reductions in death rates. These
reforms resulted in an estimated 14,000 fewer accidental
deaths possibly because of the availability of more emergency
physicians and better medical treatment (Paul Rubin, WSJ
10/8/05).
Nurses Win Fight Against Mandatory Flu Vaccine
The Washington State Nurses Association (WSNA) won a victory
in U.S. District Court, which upheld an arbitrator’s decision
that Virginia Mason Medical Center could not make influenza
vaccination a condition of employment. While WSNA strongly
encourages nurses to receive the vaccine, “it’s a basic right for
people to make decisions regarding their own health care
treatment,” stated Barbara Frye, R.N., Director of Labor
Relations at WSNA.
CMS Demands More Documentation for Consults
As of Jan 17, it is no longer enough for physicians who
accept Medicare to document that they did a consult. Theyare also
responsible for assuring that the referring physician properly
documented whether he was requesting a consultation, or
transferring care. Without a satisfactory record, a carrier can
deny the consulting specialist’s claims, order recoupment, or
file a false claims case for upcoding (MCA 2/6/06).
Lavish QIO Contractor Meetings Probed
The Senate Finance Committee is scrutinizing the
expenditures of private contractors known as Quality Improvement
Organizations, who receive $300 million annually to investigate
complaints of poor care and to improve quality of care rendered
by physicians, hospitals, and nursing homes. Last summer, The
Washington Post reported that the groups rarely looked into
patient complaints and that some executives receive lavish pay
and perks. Conferences are frequently held at posh resorts
(Wash Post 1/6/06).
Correspondence
P4P Already Morphing. American Medical News of
Jan. 30 published a feature article entitled “National spending
growth on doctor services rises,” showing a curve graphed to look
as if it’s taking off like a rocket. Perhaps by showing such
things over and over to doctors, the AMA can soften up the
doctors on Pay for Performance. The AMA is apparently positioning
itself to trade acceptance of P4P for fixing the sustained growth
rate (SGR) formula to avoid projected physician fee cuts of 25 to
30% over the next 6 years. And P4P is already set to become P4Q
or P4O. CMS economist Cynthia Smith is quoted as saying: “As
costs rise, the efficiency of health care spending is
increasingly scrutinized, which has led to greater interest in
paying for improved quality or outcomes.”
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY
Who Defines Quality? Insurer-determined quality for a
captive audience of insureds means that the people who profit
from reducing costs by reducing quality are controlling its
definition.
When someone from on high tries to dictate quality, one
usually ends up with a bunch of process measures. That’s what
happened in education. And the professional education blob had
different ideas of quality than most parents. The only education
quality improvement idea that has shown any prom-ise is to strap
the money to the kids and let the parents decide.
Please spare me from expert control. In a pediatric
practice, one may have to put up with invasive questionnaires and
some puffed-up doctor lecturing your preadolescent on sex, drugs,
and bicycle helmets. With this kind of meddling, one’s world view
now affects a child’s access to medical care. Some pediatric
practices refuse to care for a child who is not fully immunized
as it might downgrade their report card. There’s quality
improvement: doctors who won’t tend to a child’s medical needs
just because his parents don’t agree with the immunization
schedule. Next it will be smokers.
We’ve seen amazing quality improvements over the past 200
years thanks to voluntary standards set by professional
societies, consumer information in the popular press, and well-
informed patient self-help groups. We’d be much better off
spending the energy devoted to “evidence-based” quality measures
to dismantling the medical regulatory state and the unsustainable
system of third-party funding.
Linda Gorman, Independence Institute, Golden CO
Tax Subsidies. If medical insurance were not tax
deductible, there would be no insurance for small claims. Why
should there be insurance for services that cost the same as an
oil change or a brake job? Third-party payers are not evil; they
just exploit the subsidies our politicians have given them. The
subsidy favors some people (employees of large companies) over
others (cleaning ladies, general contractors, small retailers,
etc.). It is a sophisticated form of theft, and if theft is evil,
the subsidy is evil. It creates encounters like one in our
parking lot: a Lexus pulled up, a teenage boy jumped out and
asked what our clinic charges for a sore throat. After hearing
the reply ($35), he told his mom, and the Lexus screeched off.
Robert S. Berry, M.D., Greeneville, TN
Dependency. As Ben Franklin wrote about England’s
health and welfare laws: “I fear that giving mankind a dependence
on anything for support in age or sickness, besides industry and
frugality during youth and health, tends to flatter our natural
indolence, to encourage idleness and prodigality, and thereby to
promote and increase poverty, the very evil it was intended to
cure.” The opportunity for the individual to live irresponsibly
at the expense of others is the unanticipated effect of employer
and government-based health and welfare, which amounts to
indirect thievery.
Steven Bassett, Oak Park, IL
Nothing Ever Changes. It was written in the 1970s that:
“The military-industrial complex came about as a result of
government’s power to use stick-and-carrot methods to rule
business (which was just one part of politicians’ efforts to rule
everyone).” Complex, contradictory, vague, complex, all-
encompassing regulations gave bureaucrats power to destroy any
business on a whim. Yet businessmen had to accept government
contracts because the government drastically curtailed private-
sector opportunities by “crippling the economy with regulations
and bleeding it by taxation.” Most businessmen came to accept the
situation as “normal and necessary.” Substitute “medical” for
“military” and “physicians” for “businessmen”: the situation is
the same.
Robert P. Gervais, M.D., Mesa, AZ
Government Administrative Efficiency? The state and
federal governments have few examples of hands-on administration
in actual health plans. Medicare, MediCal, and CalPERS, three
examples of oft-quoted efficiency, all use the private
sector to deliver their plans. The low-cost administration is
borne on the backs of existing claims and administrative
structures in the private sector, which are already in place to
serve the remainder of the public.
David Hogberg, Public Interest Institute, Mt. Pleasant,
IA
Military Medicine. U.S. soldiers are under the same
restrictions as all Canadians. They cannot pay for their own
medical care, even if unable to obtain it through the
government.
Kenneth Christman, M.D., Dayton, OH
Legislative Alert
President Bush’s January 31st address to the nation was
billed as major vehicle for an outline of an ambitious health
policy agenda. The New York Times, The Washington Post,
and other national media outlets were reporting that Bush would
break new ground in his widely anticipated speech. In reality,
the President only devoted one single paragraph to health issues
in a speech that focused mostly on international relations, Iraq
and the war against terrorism, as well as Presidential
initiatives on energy, taxes, and homeland security.
As the President ascended the rostrum in the House of
Representatives, the White House did issue a more detailed
description of the President’s health policy initiatives,
fleshing out details that were absent from the speech. Beyond
health savings account (HSA) and insurance provisions, President
Bush will be offering initiatives for price transparency and
quality information, medical information technology, chronic
conditions, and community health initiatives. The details will be
forthcoming with the submission of the President’s budget.
Getting Incentives Right. In his address, the President
cited a series of incremental initiatives, including a plea for
greater equity in government policy for all American who purchase
medical insurance, additional changes to the HSA law that would
juice up and expand the HSA option, a greater reliance on
electronic medical records (which he said would reduce costs and
medical errors), and medical malpractice reform.
The President noted that in nearly 1,500 counties in the
United States, there are no practicing obstetrician/gynecolog-
ists, and pleaded with Congress to pass medical tort reform this
year. In the past ten years, the House of Representatives has
enacted medical malpractice reform seven times, and each time
the proposal was killed or died languishing in the Senate, where
Senate Democratic opposition is stiff and unyielding.
The heart of the President’s health policy initiatives was
to be found in modifications of the existing federal tax
treatment of medical insurance. Today, Americans buying medical
insurance in the individual market, roughly about 8% of the total
of those who have coverage, are required by law to pay for that
coverage with after-tax dollars. This increases their costs, by
as much as 40% of the premium, compared to what they would get
through an employer group policy. Individual medical insurance
markets are burdened with other problems, including higher
administrative and marketing costs, as well as often excessive
state regulation of individual policies. For example, today there
are more than 1,800 state-mandated benefits and medical
procedures required by state legislatures. State legislators also
often impose guaranteed issue and community rating rules for
state regulated medical insurance, requiring insurers to cover
everybody and often at the same rate. These together help to
drive up costs.
Beyond individual purchase of medical insurance, all out-of-
pocket payment for medical services are made with after-tax
dollars, so that direct payment to physicians, for example,
suffers under a tax penalty that does not apply to payments made
through employer-based insurance. The tax code strongly favors
the existing third-party payment system, and economists have long
argued that there will never be a free market that is worthy of
the name without a change in the tax code.
But Getting the Tax Policy Wrong. In his address, the
President said: “We will strengthen Health Savings Accounts by
making sure that individuals and small business employees can buy
health insurance with the same advantages that people working for
big businesses now get.” This would apply to individuals, the
self-employed, the unemployed, and early retirees, as well as
workers who don’t or can’t get their medical insurance through
the place of work.
This, on the surface, sounds like a good idea. Many of us
like HSAs, and many of us are enrolled in them. Current law
enables individuals to contribute up to $2,700 tax free, and
families up to $5,450. There are now more than 3 million HSA
policyholders, and their numbers are growing rapidly. The
tiresome Leftist predictions that HSAs would only benefit the
young and healthy, and that they would only appeal to upper-
income folks, has not been borne out by the empirical evidence.
They make medical insurance affordable for millions of Americans,
including those previously uninsured, and they are generating
high rates of personal satisfaction.
The President’s proposal, however, creates a series of new
problems. Based on the more detailed White House description of
this initiative released at the time of the President’s address,
it is clear that tax liberalization is confined to the purchase
of high-deductible/HSA plans. It would provide an income tax
credit to offset payroll taxes paid on premiums for the HSA
policies, and retirees purchasing a non-group plan would be able
to make the premium payments tax free from their HSA.
The President also proposed to eliminate taxes on all out-
of-pocket expenses, not just the deductibles, through expanded
HSA options. The proposal would also provide a tax credit for
payroll taxes paid on HSA contributions made by individuals. The
White House projects that these changes would dramatically
increase the attractiveness and the number of HSA plans.
Finally, while not specified in his speech to the nation,
the President proposes to assist low-income individuals and
families with a refundable tax credit for medical insurance.
According to the White House briefing paper, a family making
$25,000 or less per annum would be eligible for a $3,000
refundable tax credit (i.e., a government subsidy) to help
buy a private HSA plan, and could put up to $1,000 of the credit
into their account for routine medical expenses. Any funds
remaining, of course, can be rolled over to the next year tax-
free.
So, the President’s proposal would not eliminate or
neutralize the enormous bias of the powerful federal tax code,
but would simply re-target it to favor HSAs and high-
deductible health plans. So the many distortions of the current
tax treatment of medical expenses would be complicated and
distorted even further.
A Better Policy. If one is serious about creating a
free market based on consumer choice, the government should not
rig the rules of the game to favor one option. Right now, the
government favors employer-based medical insurance, managed care,
and third-party as opposed to direct payment.
If expanded tax deductibility is to be the vehicle for
reform, the deductibility should be applied equally to
all insurance, whether purchased directly or through an
employer. This would introduce fairness and would allow for
innovations. Likewise, the President’s proposal to provide tax
relief for the direct payment of medical services could decrease
costs by eliminating the bureaucratic claims-filing
apparatus. There is nothing sacred about passing payment
through a bank account labeled an HSA. If a person wants to pay a
doctor directly with any funds from any account and under any
conditions that he sees fit, that should be the business of the
patient and the doctor, and should not be penalized in any way by
government policy. If Congress decides to build upon President
Bush’s proposals for expanded tax deductibility, it should do so
with a view toward establishing a real open market. That means
strict neutrality.
One more thing: Expansion of tax deductibility would create
greater fairness in the tax code and stimulate economic
efficiency in the delivery of medical services. But it would not,
of itself, significantly reduce the numbers of the uninsured nor
reduce medical expenditures.
If the objective is to control rising costs, it is not clear
how this will be achieved. Perhaps the increased competition
envisioned by the proposal will prove to be sufficient in
restraining cost growth. But, as economists generally recognize,
new tax breaks encourage more, not less, consumption.
The uninsured problem is more straightforward. Most of the
uninsured are in low-income working families, often employed in
small businesses, and would not benefit directly from expanded
tax deductibility. Hence, Bush proposes to target tax credits to
HSAs to encourage the enrollment of low-income Americans. This
does, however, limit the choices.
Promoting Portability in Coverage. In speaking of
medical insurance coverage, the President said, “We will do more
to make this coverage portable, so workers can switch jobs
without having to worry about losing their health insurance.”
This is a key policy objective, around which there is a broad
consensus. Real portability is only possible, of course, if
you own and control your own medical insurance policy, just like
other insurance policies. It is not portable if it is owned
by your employer, or some other third-party payer. In the
accompanying White House briefing materials on the President’s
proposal, it is clear, however, that the portability of
medical insurance coverage is once again restricted to high-
deductible/HSA plans: “Employers would have the ability to
offer workers a portable HSA insurance policy that the employees
would own, control and be able to take wherever they went. Their
premiums would be tax free and would not be increased based on
their health status at the time that they changed jobs, left the
labor force, or moved.”
The language of the Bush “portability” proposal is curious,
because it specifies that employers would be the ones to offer
these portable plans. To which, one must ask: why
employers? In an open market, with equality of tax treatment,
(or, alternatively, a flat tax arrangement), there would be no
need for government bias for or against employer, or for or
against any particular type of plan. In a real market, medical
insurance, like other types of insurance, would be a product
tailored to a variety of wants and needs, which are infinitely
diverse.
Promoting Insurance Market Reform. Medical insurance
markets in the United States are a mess. They are distorted by
the federal tax code. They are further distorted by excessive and
costly state regulation. Millions of Americans are priced out of
existing coverage, or cannot get the affordable coverage that
they want or need.
While he did not mention it in the State of the Union
address, the White House staff has said that the President is
supporting the creation of Association Health Plans (AHPs). These
plans would enable small businesses to pool their resources in
associations in order to purchase medical insurance for their
workers. As embodied in House passed legislation in 2005, the AHP
concept is restricted to businesses. This is, in substance, also
the President’s proposal. According to the White House language,
“AHPs let small businesses join together to purchase health
coverage, giving them the same advantages, administrative
efficiencies, and negotiating clout enjoyed by big businesses and
labor unions. By purchasing coverage for thousands of employees
at a time, association members can pay lower premiums for better
coverage.”
Conservatives in Congress should recognize that AHPs do
not in themselves advance a new system based on individual
consumer choice and competition. If they think that this is a
problem, the good news is that the answer is simple: expand
consumer choice to include all kinds of association plans, not
just employment-based plans. Thus, individuals and families
should be able to join individual membership organizations as
well as business associations, as the President also suggests,
and employers could define contribution into these plans and
secure tax breaks for doing so. That way, the medical insurance
market would be opened up, and further diversified. Personal
freedom would be expanded.
Likewise, the President has also proposed that Americans
should be able to purchase medical insurance across state lines.
The proposal would, in effect, create an interstate commerce
in medical insurance. This is a good idea. It would allow the
creation of large national pools and long-term insurance
contracts, which could significantly reduce administrative costs,
and make coverage more affordable. It would also allow people to
purchase national health plans from organizations and
associations with which they have an affinity, including plans
offered by employees organizations, unions, and even faith-based
institutions. A resident in Orlando, Florida, could buy a health
plan domiciled in Seattle, Washington. National choice of
different health plans is, of course, routinely available to
federal employees and retirees in the Federal Employees Health
benefits Program (FEHBP). Rep. John Shadegg (R-AZ) has sponsored
the Health Care Choice Act (H.R. 2325) to accomplish this
objective for all Americans.
Robert Moffit is Director, the Center for Health Policy
Studies at the Heritage Foundation, Washington, D.C.
