AAPS News – March 1999


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of American Physicians and Surgeons, Inc.
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Omnia pro aegroto

Volume 55, No. 3 March 1999


Physicians are frequently exhorted to have “the courage to
change.” Or they are told that “change” is inevitable and they
will be forced to accept it. But what does “change” mean?

Change in this context is not a force of nature but rather
is that which “change agents” are trained to bring about.

In an AAPS brief supporting a motion for summary judgment in
the case against the illegal secret activities of the Clinton
Health Care Task Force (AAPS v. Clinton), it was stated
that: “large, well-heeled non-profit foundations invented this
bureaucratic yet secretive means of achieving `change’ in
[American medicine] by directly influencing the government
decision-making processes from the inside to achieve their goal
of promoting their own well-planned agendas, a goal which they
unsuccessfully attempted to achieve from the outside.”

While state legislatures as well as a Republican-controlled
Congress continue to implement pieces of the Clinton Health
Security Act of 1993, and hospitals and managed-care
organizations continue to infringe on the practice of private
medicine, it may be useful to examine the “process” as well as
the “outcome” (to borrow some terms) of “change.”

If you have attended meetings of a Robert Wood Johnson
Foundation Turning Point project, or public or staff meetings at
which you are invited to give “your input” (perhaps concerning a
“proposed” Physician-Hospital Organization), you will probably
recognize the elements of the process.

The methodology resembles that worked out under contract
with the United States Office of Education in the 1960s and 1970s
and described in a book entitled The Change Agent’s Guide to
Innovation in Education
. The second edition, with the
broader title The Change Agent’s Guide by Ronald G.
Havelock with Steve Zlotolow, published by Educational Technology
Publications, Englewood Cliffs, NJ, 1995, is available from
amazon.com for about $40.

Note that many of the innovations in health care involve
school-based clinics and expanding cooperation between public
school and public health officials.

The foreword to the Guide states: “[N]ot until the
late 1940’s, when American behavioral scientists began exploring
and developing the ideas of the emigre psychologist Kurt Lewin,
did we really have anything like a systematic science and
practical craft of planned change in the kinds of social systems
that matter most-families, small groups, organizations,
communities.” For the first edition, Havelock reviewed 3,931
studies on how planned change proceeds most effectively.

One of the “marvelous extra bonuses” touted in the foreword
is a small paragraph on p. 20, headlined: “If you are a defender
(intending to block a change, slow it, blunt it, or transform it
into something more benign).” The Guide helps you “know
better what the promoters of the change are up to and … how you
can challenge them effectively.”

Although the Guide is concerned with the “how” of
change, it will not surprise the reader to see that the authors
propose that systems are changing for the better as they
grow larger, more integrated, and more differentiated

One of the prototype examples, a model of successful change,
was “Mike’s” story of introducing sex education into a community
in which “involvement with SIECUS is like holding a lighted
firecracker.” He started with a pilot project in his own
secondary science course, described as an effort to “aid the
students in developing their ability to use logical reasoning to
make responsible value judgments about social issues which affect
them personally.”

The outcome, shown by before-and-after attitude testing:
“students had become more permissive in their thinking on the
issues of sex and drugs and … their value judgments had a more
humanistic foundation.” The next step: expansion of the program
into all levels K-12. Vocal community opposition, sparked by the
“puzzling finding” that students had a more favorable attitude
toward marijuana, was muted by a newly organized citizens’ group.
These collaborators paved the way to acceptance with newspaper
ads and public meetings, “quell[ing] the irrational doubts and
fears which the extremist groups had been able to exploit.”

The basic modus operandi of the change agent is to (1)
unfreeze the system by catalyzing recognition of
a need for change; (2) move toward change, by
tolerable, incremental steps; (3) refreeze the
system after change becomes integral.

Useful methods: a partnership of insiders and outsiders;
starting with a small, doable if seemingly unimportant change
that will have a “multiplier effect”; knowing the “influentials”;
cultivating the “gatekeepers” such as the boss’s secretary;
building relationships with ethnic communities, church groups,
etc., as by helping to meet their needs; “managing initial
encounters” with “friendliness, familiarity, rewardingness, and
responsiveness”; developing “`trust,’ in the literal sense of
knowing where the other person stands”; finding and neutralizing
“resistors”; and eroding existing bonds.

There are probably change agents at your hospital, who have
recruited respected insiders to help promote their agenda. The
ultimate goal may be seen only in foggiest outline, and the
immediate goal may be quite limited and difficult to oppose. The
process moves from “item change” to “system change”:
redoing the organizational chart and changing the

Change agents believe that there is a “crying need for
change everywhere in our society.” The changes are radical:
We are interfering with ongoing linkages and arrangements
that may have been in place for centuries
….[How] do we
know we are not tearing down a bearing wall that will threaten
the collapse of the structure?”

They don’t, and they make no promise to “do no

New AAPS Forum

To read or post a message on our new Internet forum, go to

or click on “forums”
at the AAPS home page, www.aapsonline.org. Special
features include a search engine and a spelling checker.

New threads this month: tax credit proposals, socialism as a
universal acid, and physician unity.

Rules of civil discourse are posted on the forum. All
messages must be accompanied by a valid e-mail address.

The Changing Role of Physicians

Physicians do still have a critical role in accountable
health care organizations, according to the AMA. To contribute to
the AMA’s effort to “clarify and support the appropriate role of
physicians in health care delivery,” the AMA sought the
“outstanding contribution” of Alice Gosfield, JD, Chairman of the
Board of the National Committee for Quality Assurance (NCQA). The
25-page white paper can be downloaded from

Forces to be accounted for include : (1) changed financial
incentives; (2) changing platforms from which services are
provided; (3) anti-managed care laws that “confront perceived
inequities and dangers”; and (4) increasing demands for data
about performance. There is also a changing concept of quality,
with the added connotation of “overall outcomes for
populations assigned to a care system or paid for by a specific
.” Especially in federal programs, “fraud
and abuse laws are increasingly used to punish quality

In describing how physicians differ from “other actors,”
Gosfield quotes James Reinertsen, MD: “[Physicians] transform
information into meaningful explanations of the present,
predictions of the future, and changed futures, mainly for
individual patients and sometimes for whole populations.”

Gosfield attributes the unspoken bond among physicians to
their awesome power “to prolong life or to end

She identifies the “core physician values” to be “account-

ability and liability” and “evidence-based” teachings.

Physicians come in two types: those who are leaders (who
must be the “right physicians,” who have demonstrated their
dedication to the greater good) and those who are led. Physicians
who seek to “sit at the table” must be willing to be held
accountable for their roles: this means “taking the heat when
difficult decisions are made” and colleagues are “threatened by
the organizations’ chosen strategic goals.”

There is a continuum of “potential physician involvement [in
the evolving health care system].” It is “imperative” for
physicians to participate in the “on-going monitoring and
evaluation of actual performance of the selected pool of
over time.” Physician values must be brought to
bear on the “selection and development of both clinical practice
guidelines [to standardize care and move away from unexplained
variation in clinical treatment] and the medical review criteria
to be drawn from them.” For one thing, the “visibility of
physician engagement … enhances the credibility of the

Axiomatic in Ms. Gosfield’s view is that there will be
radical change: “integration and transformation of the health
care delivery system.” Physicians are to form institutionalized
relationships of “mutual interdependence” with systems. They
will lose their autonomy, and those who “cannot meet the
ever changing performance standard” or who deviate from
established guidelines will be terminated from involvement in the
system. “The physician value on due process and equitable
procedures requires a formal mechanism….” However, Gosfield
notes that “due process, even in constitutional terms,
requires only that process which is due, given the nature of the
determination to be made
.” In other words, no specifics
are to be demanded, such as a right to be notified of charges, to
have discovery, to be protected against jury tampering by
hospital counsel, to have witnesses heard, etc.

Some AMA delegates are convinced that “the AMA has changed.”
And is the AMA also an agent of change? In helping to facilitate
change, does it utilize techniques such as responsiveness and
incrementalism? To what extent are the AMA and other
organizations affected by outside change agents, including
foundations that fund some of their programs?

Outreach to AMA Delegates

According to a 1996 survey, about 40% of AAPS members also
belong to the AMA. (The AMA claims that 40% of all U.S.
physicians are AMA members.) Yet, few AMA delegates are also
members of AAPS. Thus, your delegates may not be well-informed
about some issues important to us. For example, some AMA
delegates believe that a court order is keeping them from
reviewing the depositions of AMA officials taken in the case of
Sunbeam v. AMA, when in fact that protective order has
been lifted as a result of the AAPS intervention.

In order that your delegates and alternate delegates can
represent you better, we will extend to each of them a one-year
gift membership. A special gift card is enclosed; photocopies are
also accepted. Your state association or specialty society should
be able to tell you who your representatives are; or call AAPS,
(800) 635-1196.

2001: Welcome, Hal!

AAPS continues to attend discussions at the National
Committee on Vital and Health Statistics (
), which is charged with implementing
“administrative simplification” portions of the Kennedy-Kassebaum
Act. (See our testimony posted on the AAPS Internet site.) A
model presented for consideration is the National Health
Information Knowledgebase developed in Australia (see http://www.aihw.gov.au).
Data to be collected on a “party” (which is often a person)
include : group role; accommodation characteristic (type of
housing); demographic characteristic; cultural characteristic;
lifestyle characteristic; and state of health and well-being,
encompassing cultural, economic, mental, physical, social, and
spiritual well-being. Events are also tracked; for example,
“request for service event,” “surveillance / monitoring event,”
or “community event.” The last includes “actions or
decisions by a community to undertake or not undertake a course
of action on such subjects as curfews, right to life, use of
alcohol and sex education. Extreme examples include protests,
demonstrations, and riots.

Members of the NCVHS are very concerned about privacy, as
long as it does not interfere with the availability of
information to “meet the needs of society.”

AAPS Calendar

Feb. 20, 1999. Board of Directors meeting, Dallas.

Oct. 12-16, 1999. 56th annual meeting, Coeur D’Alene, ID

On Heavy-Handed Enforcement

At a Feb 1 meeting of the American Hospital Association
(AHA), Deputy Attorney General Eric Holder commented:

“I am proud of the Department’s accomplishment in the health
care fraud area. Over the past two years, our civil and criminal
caseload has increased, and we have achieved a record number of
criminal convictions and civil settlements. In 1997, we returned
almost $1 billion to the Medicare Trust Fund from criminal fines
and civil settlements and judgments….

“Money does not tell the whole story….Fraudulent conduct
involves denial of medically necessary services….[or providing] medically unnecessary services, including surgery, that threaten
the health and safety of people….

“While I am proud of our efforts, I recognize that at times
our approach has been perceived to be heavy-handed. While the
Attorney General and I expect our prosecutors to be aggressive,
we must at all times be fair and even-handed. This is a
bedrock principle for us, and where we fall short, we will take
appropriate corrective action

“Let me make this very, very, very clear. The False Claims
Act does not address, and we should never use it to pursue,
honest billing mistakes.”

Physicians are asked to bring documentation of unjust,
heavy-handed enforcement actions, in which DoJ corrective action
might be warranted, to the attention of AAPS so that we may
present it to Mr. Holder.

The “Provider Squeeze”

Also at the AHA meeting, Rep. Bill Thomas (R-CA) commented
that of the groups involved in Medicare, “the group with the
least leverage, frankly, is providers.”

Dr. George V. Frankhouser of Santa Maria, CA, suggests
presenting a clinical scenario (in layman’s terms) to 100 people
and asking them to write down the fee for the service rendered.
He described a venous cutdown for which the surgeon was called to
the hospital at 2:00 a.m. Total time: about 1.5 hours. Of 300
responses, the expected fee ranged from $50 (by a truck driver)
to $10,000 (by a patient’s relative). A jeweler in San Diego
guessed $7,000, and six respondents said $5,000. Five attorneys
suggested $2,500 to $3,000. There were 20 responses of greater
than $1,000 and only two were less than $100. The mean was $325
and the mode $150.

The Medicare allowed payment was $15 in 1989. This was
upheld on appeal, as 75% of Santa Barbara surgeons were said to
be happy with that amount.

Ruling on The Christian Brotherhood Newsletter

The State of New Jersey Department of Banking and Insurance,
Enforcement/Consumer Protection, wrote as follows in August,

“Based on our review of the materials you and your client
have provided to us, along with your client’s representations
that it would recommend to its participating ministries the use
in promotional and descriptive materials of the language
discussed …, the Department has determined that no
administrative action is warranted at this time in connection
with the dissemination and operation of the Christian Brotherhood
Newsletter (“CBN”) by the ministries listed in your letter.

“We note particularly that the CBN’s publications and
subscription forms do not contain any express guarantees of
payment of health benefits, and further, that they state clearly
that the CBN neither assumes any risk nor promises to indemnify
any of its subscribers.

“Please be advised, however, that our determination not to
take action at this time should not be interpreted as a final
decision…, nor as an opinion on any civil liability CBN may
have for expenses incurred by one of its subscribers….”

CBN is a cooperative way of helping subscribers pay medical
bills without the involvement of an insurance company. It
emphasizes individual responsibility, thrift, and a commitment to
help others. (For further information, see AAPS News Oct
1997 or write Dr. Alieta Eck at 2062 Amwell Rd., Somerset, NJ
08873, [email protected])

Update on Medicare Opting-Out

Physicians who are opted out of Medicare and contracting
privately with Medicare-eligible patients should use new forms
that meet recently issued HCFA instructions. These can be
downloaded from www.aapsonline.org.

What Surplus?

At the Feb 1 AHA meeting, Leon Panetta stated that the
budget surplus is “the most dangerous temptation in the
.” Congress, in his view, should not look to the
surplus to fund spending, but should use it to reduce debt. Most
of the surplus is, in fact, from Social Security dollars that
formerly were kept in a separate fund.

Former Congressman Warren Rudman stated: “You can call it a
surplus if you want, but if the head of Hilton hotels called it a
surplus, he’d be in jail.”

Fiat Money

According to Economic Education Bulletin 38 (12),
1998, published by the American Institute for Economic Research,
Great Barrington, MA 01230, the American dollar has lost 91% of
its value since 1940, based on consumer price indexes. Nor is
this a relic of times past. Between 1990 and 1998, the dollar
lost 20% of its value. Moreover, this depreciation does not take
into consideration the diminished quality of some goods and
services, or the fact that taxation has essentially confiscated
the productivity gains due to science and technology (see
Access to Energy, Feb 1998, PO Box 1250, Cave Junction,
OR 97523).

Since the eighth century in China, hundreds of fiat monetary
systems have been attempted, and 100% of them have failed, stated
Lawrence Parks of the Foundation for the Advancement of Monetary
Education (FAME) (Vital Speeches of the Day LXV (1):12-
16, 10/15/98). Mr. Parks reports that fiat money is melting down
in many places, so that workers and their families, after a
lifetime of hard work, are eating bark from trees and boiling
grass soup. (See www.fame.org).

Immunization Registries

A survey of state immunization registry legislation,
including mandated reporting, sharing of healthcare information,
the type of consent (required versus implied), is posted at
. Nine
states have implied consent with no provisions to opt out or
limit access. Immunization registries may provide the
infrastructure for comprehensive medical records data bases.

Member’s Page

The Evil of Socialism. I am unfortunately quite trapped
in my role as a non-participating physician. If I were to opt out
of Medicare altogether, I would save tons of money, time, and
stress but would have no income. I already take care of a large
number of patients without pay because they simply refuse to pay.
Many tell me: “accept assignment, or you’ll get nothing.”

This entitlement quicksand is a very evil thing indeed.
Unfortunately, many physicians today either don’t see it or are
content with being fed well as they sink further into it.
Frederic Bastiat got it absolutely right when he said that “the
state is the great fiction by which everyone tries to live at the
expense of everybody else.” In the present world of government
entitlements, everyone attempts to plunder everyone, everyone is
competing with and against everyone else, and animus and envy
rule the day. Mutual respect for one another and respect for an
honest day’s pay for an honest day’s work are destroyed. Even
those of us who refuse to participate in Medicare are trapped in
the swirling current of the massive number of “beneficiaries and
providers” around us. Inescapably, legalized plunder
degenerates into something worse when it reaches the point when
resources are exhausted and there is no one left to plunder. What
better way to destroy an entire society than to manipulate its
members into destroying one another?

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

“Informed Consent.” From a letter to Transamerica
Occidental: You state that “box 12” on the HCFA claim form says
that the patient consents to record release. Yes, every doctor
knows about that box. But since Medicare does not allow patients
to send in the bills themselves, they never see that box, much
less understand it. So though you are technically correct, in
practicality that box is meaningless. Patients do not think their
records should be sent to Transamerica to become part of a
permanent medical record, and now I have to tell them that the
record is to be kept even after they die!

Linda W. Wilson, M.D., Culver City, CA

Nondiscrimination. At a symposium there were lectures
on “How I treat a patient with acne” and “How I treat a
referred patient with acne.” It is no longer sufficient
to know how to treat a disease; one apparently must provide
differential treatment according to the patient’s route to your

Joseph M. Scherzer, M.D., Scottsdale, AZ

Private Medicine Lives. When I left a physician-
hospital organization in July, 1997, I felt a big ethical burden
lifted from my shoulders. By not pushing paper, hiring extra
staff, and wasting valuable time, I am able to lower my fees by
20 to 50%. My patients reap the benefit, not the insurers….

If physicians in this country do not take the lead in the
fight to restore patients’ rights, they had better not complain
when Uncle Sam steps in with his version of “Health Care America
2001-A Government Odyssey.”

Pasquale D. Baratta, M.D., South Charlotte,

Selfish Compassion. From listening to the empty heads
on the Sunday morning news shows, it is clear that selfish
compassion (satisfying one’s need to be compassionate by taking
other people’s money) has won. Both parties are debating only the
degree, not the morality. Orwell and Ayn Rand were right.

Craig Cantoni, Scottsdale, AZ

The Role of Organized Medicine. Doctors and patients
might be better off if organized medicine ceased to exist. Then
doctors locally could defend themselves without organized
medicine constantly supporting the enemy….

With today’s technology, the Medical Titanic has a safety
feature called the word processor, e-mail, or FAX. If organized
medicine used it, the ship might not sink. Congress needs to
hear: “NO,” “We won’t do it,” “We will not comply,”….

Gary K. Keats, M.D., Clearwater, FL

“Your Papers, Please.” On December 23, a police
officer, who was driving by my home while I was shoveling snow,
demanded to see my ID and arrested me without showing a warrant
[which did exist]. I was taken to the Ingham County Jail and kept
there incommunicado after I was disconnected in my conversation
with my attorney. Filing a writ of habeas corpus is apparently
almost impossible in Michigan when the AG is the prosecutor, but
my wife and a friend went to Lansing, after consulting a few
judges for advice, with little hope of getting me out of
jail….Judge Brown said that my arrest was a “terrible mistake.”
The bench warrant mentioned failure to attend a hearing that had
been cancelled. At the habeas corpus hearing, charges were
dropped conditional to payment of $3,339 and my signing a
handwritten statement: “I agree to withdraw my claim of appeal in
People v. Edgardo L. Perez DeLeon currently in the
Michigan Court of Appeals, docket # 205102.”

I believe this agreement should be void because I was
coerced by the circumstances under peril of losing my freedom.
Therefore, I refuse to comply with it.

My probation is over, and I complied with every condition,
including those illegally imposed by Judge Brown in September,

Edgardo Perez DeLeon, Detroit, MI

Legislative Alert

A Major Medicare Reform

On Jan 26, Senator John Breaux (D-LA), Co-Chairman of the
National Bipartisan Commission on The Future of Medicare,
unveiled his reform proposal to a standing-room-only crowd in the
old Cannon House Office Building. His basic idea is to transform
Medicare from the current single-payer system into a pluralistic,
consumer-driven system of competing private plans, resembling the
Federal Employees Health Benefits Program, which now covers
Members of Congress, their staff, and 9 million federal workers,
retirees, and dependents.

Senator Breaux explained that this proposal was his own and
was not co-authored by any other member of the Commission,
including his Co-Chairman Congressman Bill Thomas (R-CA), who
also chairs the House Ways and Means Subcommittee on Health. The
framework is as follows:

The Establishment of a Medicare Board to Negotiate With
Private Plans
. Under the FEHBP, the United States Office
of Personnel Management (OPM) today negotiates rates and benefits
with insurers and enforces the basic ground rules of competition.
The Medicare Board would do basically the same thing. It would
have the authority to define standards for quality and financial
solvency, negotiate premiums and benefit packages, protect
against adverse selection, and compute a government payment to
the plans, including a computation of risk and geographic
adjustment, and provide consumer information. HCFA would have no
role in the private plans.

The Requirement of a Core Benefits Package for Private
. To qualify, a plan would have to offer a core
benefits package. This, again, follows the practice long
established in the FEHBP, in which the law only identifies
categories of benefits to be included without standardizing the
level or duration of benefits in any detail. Details are left to
year-to-year negotiations between the government and insurers.
Under the Breaux plan, insurers would have flexibility in benefit
design, including the level of cost sharing or co-payment.
Moreover, insurers would be able to offer supplemental benefits.
But the Medicare Board would have final approval of the benefit
package. Under the Breaux proposal, private plans would be
required to offer core benefits at least equivalent to that
offered by the traditional Medicare package.

The Establishment of a Premium Support System for
. Under the Breaux proposal, the taxpayers’
“contribution” to the premiums to be paid to insurers would be
based on a national schedule, “similar to that used in the FEHBP
system.” The costs of the plans would be assessed by the board,
based directly on their bids and the outcome of negotiation
process. The taxpayers’ assessment would be based on a percentage
of the “national weighted average premium” up to a certain dollar
amount: “Based on the cost of the benefits package, the
government s contribution will be capped at some point so that
beneficiaries pay the incremental costs of choosing more
expensive plans.” As Breaux explains, the taxpayers’ burden
would be adjusted for beneficiary health risk
and other
factors. Moreover, the amount that beneficiaries would
actually pay in premiums would also be adjusted for income
Under the Breaux formula, low-income beneficiaries, those who
qualified for Medicaid support, would pay nothing; otherwise
actual premium payments by beneficiaries would range from 12 to
25% of the total cost of the premium. Under current law, Medicare
beneficiaries are required to pay 25% of the total cost of the
Medicare Part B premium, but normally have to supplement this
payment with an additional $2000 in payments for supplemental
insurance coverage or direct payment for medical expenses. Breaux
argues that in a competitive market, even with his proposed
adjustments for income, high-income beneficiaries would do better
under his premium support model than beneficiaries do under the
cumbersome Medicare/Medigap arrangements that currently exist. It
is perhaps worth noting that the Breaux approach to government
financing of health plans differs from that currently governing
the FEHBP, in which there is no variation in the taxpayers’ share
for either risk or income

Retain the Traditional Medicare Plan as an
. The traditional Medicare program would be
retained as an option, but with some significant changes.
Deductibles for parts A and B would be combined into a single
Medicare deductible of $350, with a 20% coinsurance for every
benefit except hospital and preventive care. Under the Breaux
proposal, there would be a 10% coinsurance for home health care
services. The key change is that traditional Medicare would be
forced to compete with private plans and would no longer enjoy
monopoly status in providing health care services to retirees. In
forcing traditional Medicare to compete, Breaux proposes that
Congress give HCFA the authority to be flexible, and modify its
payment rates to doctors and hospitals. Among other things, HCFA
would be allowed to have a flexible purchasing policy, enter into
competitive bidding for services, and negotiate prices.

The thought of forcing HCFA into competition is simply
delicious. If HCFA s advocates in Congress, who ve done such a
great job over the years in protecting the agency from serious
Congressional oversight, think that the old Medicare program is a
superior system, as they have so often said in countless floor
speeches and debates with reformers, then they should have no
objection to allowing HCFA officials to mix it up with private
plans on a level playing field.

Unfinished Business. Senator Breaux himself is
the first to admit that there are a lot of details to be filled
in and a lot of questions to be resolved. Foremost among these
issues is the role of prescription drugs. In his State of the
Union message, President Clinton strongly advocated the inclusion
of a prescription drug benefit in Medicare.

There is ample room for caution here: the prescription drug
benefit is hugely expensive. Members of Congress should take a
look at past experience in the Medicare program with this issue.
Back in 1988, when Congress enacted the Medicare Catastrophic
Coverage Act and included a prescription drug benefit, two big
things happened. First, government experts had underestimated the
true cost of the additional benefit by a wide margin, and the
real cost turned out to be much larger than its Congressional
champions had predicted. Naturally, the official estimates of the
government actuaries were mostly wrong. Second, when confronted
with the cost of the prescription drug benefit, along with the
additional cost of the Catastrophic bill, seniors got sticker
shock and started a revolt against Washington, leading to the
repeal of the Medicare catastrophic bill one year later.

Deborah Steelman, a Commission member, notes that 65% of
seniors already have prescription drug coverage, largely through
supplemental insurance. The arrangements of the current Medigap
market may not be ideal. But it does not make too much sense to
displace the existing private market purchase for prescription
drug coverage with public purchasing at an expense to the
taxpayer. In the FEHBP, prescription drug coverage in competing
private plans has emerged as a natural result of consumer demand,
and the cost and the level of prescription drug coverage varies
from plan to plan.

Another issue is how to determine the annual cost and
taxpayers’ “contribution.” Breaux has proposed a national bidding
system conceptually similar, with important qualifications, to
the formula-based estimates now in use by the FEHBP. But,
recognizing the dramatic regional differences in medical spending
and cost, Breaux says that members of the Commission may wish to
look at the idea of regional bidding.

The adjustments to the benefits packages of private plans
envisioned in the Breaux proposal involve annual adjustments
based on annual negotiation and consumer demand. This feature of
the proposal can be expected to be a hot topic of debate. Expect
liberals on the Commission and Congress to fight for a mandatory,
comprehensive, detailed standardized benefit package, with the
government making all sorts of intricate adjustments, as Medicare
does today. Anything short of that, they will argue, takes away a
legal entitlement from senior citizens. Conservatives, on the
other hand, can be expected to fight any standardized government
benefits package written in legislative stone. Fights are already
breaking out over this issue, both on and off the Commission.

Money Matters

The Commission is charged with addressing the programs
growing financial instability and the threatened insolvency of
the Part A hospital trust fund. The 2.9% payroll tax is the major
source of this $121.1 billion fund. The Part B trust Fund is
financed by a combination of beneficiary premiums (25%) and
general revenues (75%). In 1997, according to Senator Breaux,
about 63% of Medicare spending could be accounted for by a
combination of premiums and payroll taxes. Under current
projections, the existing combination of premiums and payroll
taxes can be expected to fund only 31 to 35% of Medicare spending
by 2030. Under current projections, Medicare is expected to grow
from 12% to 28% of the federal budget in 2030-and that is the
optimistic projection. Medicare s Hospital Insurance trust fund,
funded primarily with payroll taxes, is expected to go broke in

The money matters are crucial. But they are not the entire
story. The more important issues, Sen. Breaux insisted, have to
do with how the next generation of senior citizens will be able
to get the care they need from the doctors they want. He argues
that the Medicare benefits package is frozen in political time,
and does not reflect the dynamism of the private market.
Moreover, says Breaux, Medicare s system of “administered prices
causes inefficiencies in the way health care services are
delivered to seniors and providers have little incentive to
provide the most cost effective care.” He further notes that the
program is plagued with inequities.

The Medicare money issues, which helped spur reform efforts,
could also kill them. Just before Breaux unveiled his Medicare
reform plan, President Clinton in his State of the Union address
proposed carving out 15% of the projected budget surplus.
Conservatives in Congress and elsewhere expressed the concern
that an infusion of cash would kill any serious reform of the
program, and allow Congress to punt on the tough questions and
just use taxpayers’ funds to pump up an overly bureaucratic
system without any serious change. In his prepared remarks,
Senator Breaux stated, “Using a portion of any budget surplus
that materializes to shore up Medicare can help, but it won t
solve the problem. Premium or tax increases should not be
considered until the Commission addresses the government s
ability to meet its commitment to fund Medicare s current benefit
package.” As he told Congress Daily, ” We can t just
keep putting more gas in an old car. It s still a 65 [1865?] model and its going to run like one.”

Initial Reactions

On the broad outlines of the Breaux proposal the battle
lines are starting to form.

Senator Phil Gramm (R-TX) congratulated Breaux on his
effort, and said that the “premium support” model must be a key
element in the overall reform of the Medicare system. A
cornerstone, affirmed Gramm, is the provision of health insurance
through private plans. Most Commission members, including Senator
Robert Kerrey (D-NE), echoed Gramm s sentiments. However, Gramm
also noted that Congress should recognize that the unfunded
liabilities of the Medicare system are still huge, and nothing
that either the President or Congress has yet proposed, including
a diversion of the budget surplus, will fill the gap between the
expectations and costs well into the next century. In a special
study of the problem conducted for the National Center for Policy
Analysis, Professor Thomas Saving of Texas A&M University
estimates that the unfunded liability of Medicare, projected
out over the next 75 years, is a stunning $8.9 trillion dollars,
an amount bigger than the country s current output of goods and
services and twice the size of the national debt.

Bruce Vladeck, former HCFA Administrator, sounded the most
prominent negative note. He warned that Breaux s idea could
undermine the entitlement status of Medicare. In separate
comments to reporters, Vladeck is warning of an impending round
of “HCFA Bashing” in Congress organized by senior Congressional
Republicans. In a similar vein, dozens of liberal interest groups
and organizations, from the California Federation of Teachers to
the Physicians for a National Health Plan, are already lining up
against Breaux s “premium support” idea. The most prominent, the
National Campaign to Protect, Improve and Expand Medicare, says
that Breaux and his conservative allies on the Commission are
“impeaching Medicare” without a “fair trial.” This could get

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

The final goal: for “society to inscribe on its banners:
from each according to his ability, to each according to his

Karl Marx, Critique of the Gotha Programme

Steps along the way: “despotic inroads on the rights of
property and on the conditions of bourgeois production,”
including a “heavy progressive or graduated income tax.”

Karl Marx and Friedrich Engels

The Communist Manifesto, 1848

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