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Hotline: (800) 419-4777
of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto
Volume 57, No. 5 May 2001
“Imagine a world where we didn’t have to call
bureaucrats to have a single reasonable treatment
approved…. Imagine a world where none of us would ever again
have to use a single CPT code or face the threat of prison for
putting down the wrong number…. Imagine a world where you were
rewarded for your efforts instead of penalized for working
hard…. Imagine a world where physicians could hold their heads
up in the community and encourage their offspring to enter the
medical profession,” writes Thomas Mueller, M.D., an
otolaryngologist in Everett, WA, former President of the
Washington Chapter of AAPS.
Dr. Mueller is tired of gloom-and-doom messages and thinks
it is time for physicians to take the lead. While problems in
medicine are legion, the solution is simple, Dr. Mueller states,
if not exactly easy.
“As rapidly as possible, as many physicians as possible
need to end all third-party relationships,” Dr.
Mueller writes. This means that patients pay physicians at each
visit for services rendered. Patients receive a receipt for
payment, which they may submit to their insurance
company for reimbursement, under the terms of their
contract with the insurer.
“Every other proposal falls short of accomplishing the goal
[of restoring a free market in medicine] and does little to
control the reign of bureaucrats,” Dr. Mueller
concludes. “Said another way, all other proposals are simply like
rearranging the deck chairs on the Titanic.”
This proposal is basically the AAPS Non-Participation
Policy, adopted in July, 1965, which is based on the fourth
Principle of Medical Ethics: “The physician should not dispose of
his services under terms or conditions which tend to interfere
with or impair the free and complete exercise of his medical
judgment and skill or tend to cause a deterioration of the
quality of medical care.”
One beautiful thing about Dr. Mueller’s proposal: It
requires NO new legislation. It only requires a critical mass of
physicians to take the lead. That might not be very many.
Congressional attempts at insurance reform have uniformly
increased the number of uninsured, largely because they have
increased costs-which are already too high.
Third-party payment is a major cause of excessive cost. It
adds administrative overhead: Texas physicians will generally
lower their price by 15 to 20% for “prompt payment,” according to
Donna Kinney, CPA, of the Texas Medical Association. Moreover,
the low perceived cost to the consumer spurs excessive
demand for services worth no more than the copayment to a
customer spending his own money. Attempts to constrain
demand lead to new methods of gaming the system, which lead to
ever more intrusive regulation.
When premiums are too high, low-risk subscribers drop out
first, and premiums skyrocket, leading to a vicious cycle or
“death spiral.” This is a key symptom of a serious malady: A
“health plan” is not insurance, but rather a nominally private
form of socialized medicine.
“Every big company is essentially a socialized health
republic, in which the young subsidize the old and the healthy
subsidize the sick,” writes Matthew Miller of the Annenberg
Public Policy Center of the University of Pennsylvania
(Atlantic Monthly, Oct. 2000).
A bipartisan plan to “insure” all Americans agreed upon by
Jim McDermott (D-WA) and Jim McCrery (R-LA) (ibid.)
accepts the basic premises of socialized medicine. Stated
McCrery: “I’m willing to accept a lot more government
intervention in the market than I normally would to create a
system that will have some vestige of the market left in it.”
[And we had to destroy the village in order to save it.]
In a free market, of course, customers refuse to buy if they
feel the vendor is taking advantage of them. But as Miller
understands, “what cannot be done is to let young, healthy
workers opt out.” Socialism requires coercion. Everybody has to
pay for “what we’re gonna give everybody”-which has to be
decided, McDermott says, “at a come-to-Jesus meeting someplace
where that package is defined.”
Dimly recognizing that current tax subsidies contribute to
the problem, McDermott and McCrery would “reallocate” them. But
instead of putting more dollars in the hands of patients through
tax-advantaged medical savings accounts, their plan would
increase socialized “coverage.” The result, in the name of
“equity,” would be less competition, less freedom, higher costs,
and more government.
The Health Subcommittee of the House Committee on Ways and
Means, with members like McDermott and McCrery, is not likely to
produce top-down reform that does less harm than good. The only
hope for private medicine is grassroots reform, from the bottom
We need physicians who see uninsured patients-“self-paying”
or “responsible” patients-as an opportunity (see p. 2). Even
without tax subsidies, such patients are also an opportunity for
companies willing to offer fairly priced catastrophic insurance
(that is, with premiums proportional to the subscriber’s
risks) in those states that haven’t outlawed it.
Although hospitals are a much more difficult problem, with a
long history of convoluted, often secret pricing strategies,
physicians can establish an honest marketplace in their
own offices. They can show that “insurance” is not the
same thing as medical care, and is not the only, or even the best
way of paying for medical care. They can insist on the
sanctity of the patient-physician relationship. They can
offer excellent value for money and cut useless administration.
Beginnings may be small, like a mustard seed. Some soil may
be too rocky. But imagine what freedom can do….
I wrote this piece for the National Center for Policy
Analysis (NCPA) forum (
someone (perhaps in despair) asked whether there was any way to
change medical care without Congressional Intervention. I see
only one workable strategy. It is sensible, but it would
have to be physician driven. And too many medical
professionals profit from and promote the stupidity of what we
The key is to conceive of the 43,000,000 uninsured people as
an opportunity, not a problem. They require the least overhead.
They pay cash at the time of service. There is no reason that
they should not receive the lowest price.
Each hospital and each office should create two systems of
charging. One system is for insured patients and builds in the
costs of coding and printing claims, payment delays, time spent
in dealing with managed care bureaucracy, and liability.
(Liability alone adds at least $17 to the cost of submitting a
claim in view of the fraud charges being levied today.) The other
system strips the charge of all this overhead that we so dislike
and that cash-paying patients do not generate. In essence, this
offers the most care possible for the dollar. It is actually the
only decent thing to do.
Sound familiar? See www.simplecare.com.
We could go one step further and offer an organization like
AARP that, for a very small sum, defines its members’ ability to
access cash-based charges. I’d like nothing better than to be
able to walk into Congress and say that I represent an
organization comprising millions of happy uninsured people. Such
an organization could also broker high, perhaps very high-
deductible insurance for its members.
If we made certain that those who pay cash at the time of
service only pay for what they receive, employers would soon see
that the way to lower their own costs is to set up a cash-paying
system for their employees: medical savings accounts.
Freedom of choice would be reestablished. Prudent shopping
would become common. Bureaucracies in our offices and insurance
carriers would shrivel. Claims would drop by 90%. Managed care
concepts would be history because there would be no claims to
analyze. No loss, in my opinion. We would once again be
professionals using internal processes and research to improve
The reason managed care succeeds in selling itself to
employers is the perception-often not a reality-that networks
deliver discounted prices. If employers knew with clarity that
all of the paperwork and hassle created by complex systems costs
more money, they would move toward a system that
eliminated paperwork and hassle: medical savings accounts.
So…after all the whining and tearing of hair is over, I
believe that the root problem is to be found in our profession.
We charge less for a system that costs more, and more for cash
payment. We’ve simply reaped the result of an irrational system
of charging. The problem is us.
Robert A. Reid, M.D., Seattle, WA
Commonwealth Fund, not a single author even tried to
imagine how a free market would work. In every case, the
authors put themselves in the shoes of the Dictator and tell how
the world would change if they were in charge. Why not
consider what would happen if customers were purchasing the
coverage they preferred on an open market? (Greg Scandlen,
Health Policy Week #154, 2/9/01).
every medical expense traps us all in a prisoner’s dilemma: game
the system or [be the sucker] (George Fisher, M.D.).
that on the insured. Getting them insured would cause them to
access more care but probably would not improve their health
(Robert Samuelson, Newsweek 11/8/99).
should be the patient, not an insurer. A patient should be a
purchaser (one who obtains something in exchange for money), not
a consumer (one who uses up all) (Dr. Thomas Schmidt, President,
Prime Health Care MSA Administration,
debts from direct patient billing (George Fisher, M.D.).
Insurance for Beginners
Catherine England explains in a Competitive Enterprise
Institute Update: With insurance, we exchange the chance of a
large, unexpected payment for a series of smaller known payments.
Insurance allows us to protect our wealth. True insurance does
not “spread” risk; it transfers part of the risk from the
policyholder to the insurer. Premiums paid by the individual
policyholder reflect the risk that he will make a claim,
not the risk that somebody, somewhere will make a claim.
In the insurance industry, consumers’ interests are best
protected by competition. Governments generally best foster a
competitive environment by staying out of the way; regulations
are far more likely to inhibit competition than to promote it.
Rules that restrict profits remove the incentive to develop new
products, and keep consumers from rewarding companies that serve
Private insurance cannot survive as an after-the-fact
compensation scheme. It is generally not available for events
that are extremely unlikely to occur (there being no demand) or
for events that are extremely likely (as the premiums would be so
high that self-insurance is preferable).
Read the article at www.cei.org
. Your congressman needs to read it also.
June 1. Board of Directors meeting, Chicago
June 2. Spring Private Doctors’ program, Chicago.
Oct. 24-27. 58th annual meeting, Cincinnati, OH.
Sept. 18-21, 2002. 59th annual meeting, Tucson, AZ.
Prescribe Pain Relief, Go to Prison
Early in 1996, investigators arrived at the Salt Lake
Headache Clinic during office hours, guns on hips, demanding
patient charts and a witnessed urine specimen for drug testing.
When Robert Weitzel, M.D., asked the reason, he was told it was
because he was a “psychiatrist prescribing opiates.”
The urine sample, along with more than 80 others, was clean.
Investigators were not satisfied, and proceeded to search the
doctor’s trash and interrogate staff, acquaintances, and
patients. Dr. Weitzel lost many patients as a result.
Next, Dr. Weitzel’s Medicare billing practices were probed.
These evidently passed muster, but while DEA investigators were
at the hospital, a nurse told them that five “questionable”
deaths had occurred at the hospital in the winter of 1995-96. A
physician was found to render the opinion that the care rendered
to those patients was not standard comfort, end-of-life care but
constituted “active euthanasia.”
In June 1999, Davis County Attorney Melvin Wilson announced
his intention to pursue first-degree murder charges. Two of the
bodies exhumed had no detectable levels of morphine, and the
third had levels commensurate with the amount prescribed.
Nonetheless, in September 1999, Dr. Weitzel was arrested on five
counts of murder and had to post a $100,000 surety bond and a
$25,000 cash bond to be released.
Simultaneously, the DEA sent a letter to Dr. Weitzel’s
primary hospital, stating that he was no longer “registered,”
although no hearing had been held. The hospital placed him on
leave, and he has been unemployed ever since.
Dr. Weitzel sold his home, liquidated all his assets, and
went into debt to pay his legal bills.
Up to two days before the trial, prosecutors “leaked”
defamatory stories to the press, admitting later-after the damage
was done-that the stories had no foundation. Because of the
publicity, it was difficult to recruit defense witnesses in Utah.
Out-of-state witnesses were threatened and harassed.
Prosecutors procured highly biased witnesses, who were paid
as much as $40,000 for their testimony. One asserted that a q3h
rather than q4h dosing interval for morphine would cause blood
levels to rise inexorably.
Courtroom observers felt that all the prosecution’s
assertions were effectively demolished on cross-examination.
Defense witnesses testified that the terminally ill patients
received appropriate care in accordance with advance directives,
that patients were indeed suffering pain, and that the time of
administration of opiates bore no rational relationship to the
time of death. Everyone was stunned-including the prosecution-
when the jury returned a verdict of guilty to two counts of
manslaughter and three counts of (misdemeanor) negligent
homicide, lesser counts thrown in at the last minute.
Sentence was one to 15 years in prison; the judge assessed
him to be eligible for parole in six years. One juror told the
press later, “I didn’t know he’d go to prison.”
Dr. Weitzel served six months and one day before a motion
for a new trial was granted. In granting the motion, the trial
judge called the state’s action in failing to disclose
exculpatory evidence “manifestly unethical.”
The prosecution wants to retry Dr. Weitzel for first-degree
murder even though he was acquitted on that charge. A hearing on
the double-jeopardy issue is scheduled for May 18. If he loses,
the prosecutor has vowed to appeal.
Now bankrupt, and his medical license suspended, Dr. Weitzel
faces legal bills of up to $150,000 to continue the fight.
The “questionable” charts and a summary of the legal events
are posted on the Internet at www.weitzelcharts.com
. Trial testimony is also to be posted. (Having been told by the
prosecutor that Dr. Weitzel had “murdered” their loved one,
families previously happy with his care have sued him for
malpractice. This enabled him to obtain a $25,000 trial
transcript at the expense of his malpractice insurer.)
Members are invited to go to the web site and come to their
own conclusions. There are several ways to help Dr. Weitzel if
you wish to do so: (1) Attend the hearing on May 18 (call AAPS
for details); (2) Provide your questions or opinions to AAPS to
be forwarded at an appropriate time to officials such as those on
the Board of Professional Licensure (be sure to let us know
whether or not you wish to have your name used); (3) contribute
to Robert Weitzel, MD, Legal Defense Fund, c/o Peter Waldo, Esq.-
Trustee, 9 Exchange Place, Suite 1000, Salt Lake City UT 84111
Dr. Weitzel may be contacted at [email protected] He would
be happy to answer questions, send more information, or speak to
interested physician groups.
False Claims Act “Punitive”
Justice Scalia’s statement that “the current version of the
FCA [False Claims Act] imposes damages that are essentially
punitive in nature” has been called “revolutionary.” See Ver-
mont Agency of Natural Resources v. United States ex rel.
Stevens, 529 U.S. 765, 120 S. Ct. 1858, 1868 (2000). The
Ninth Circuit Court cited this statement to support its ruling
that FCA penalties must be analyzed to determine whether they
violate the Excessive Fines clause of the Eighth Amendment
(USA v. Mackby, No. 99-15605). The District Court
decided that the defendant had knowingly caused false claims for
physical therapy services to be submitted by using his physician
father’s PIN in boxes 24k and 33, when Dr. Mackby had not been
involved in the patients’ care. For Medicare overpayments of
$58,151.64, the defendant was assessed treble damages plus a
civil penalty of $555,000 (111 claims x $5,000), for a total of
$729,454.92. The case was remanded to the District Court for a
“fact-intensive inquiry” to determine whether the fine and treble
damages were “grossly disproportionate” to the offense.
This decision is highly pertinent to the case of George
Krizek, M.D. (see AAPS News, Sept
“Religious Sincerity” Hearings Struck Down
The State Health Department’s scheme to “regulate” religious
exemptions to childhood vaccines was overturned by the Wyoming
Supreme Court in LePage v. State of Wyoming, Department of
Health (2001 WY 26).
Mrs. Susan LePage had submitted a request for a religious
exemption to the hepatitis B vaccine, although her children had
received other vaccines in the past. After further inquiry, the
State denied her request on the grounds that, in their view, it
was based on personal, moral, or philosophical beliefs rather
than a principle of religion or a truly held conviction.
The Supreme Court held that the issuance of an exemption is
a ministerial duty, not a discretionary function of the
Department of Health. The statute does not provide for any
inquiry into the sincerity of belief, and if it did, would call
into question the Constitutional prohibition against government
interference in the free exercise of religion. The exemption is
“self-executing upon submission of a written objection.”
Sentinels. A physician stopped me in the hall and told
me that as an avid bird watcher he particularly enjoyed In
Praise of Crows. He told me that crows are very intelligent
birds and are one of the few birds that actually watch out for
each other. In fact, there is a “Sentinel Crow” that usually sits
high in a tree and watches while other crows are eating. His job
is to watch out for predators and to warn the others. The crows
trade off, relieving the sentinel so he can eat too.
Today, I received a memorandum in the hospital mail that
demonstrates how the Robert Wood Johnson Foundation/ AMA
“Education for Physicians on End-of-Life Care” (EPEC) is starting
to filter down to our communities. Various programs with nice-
sounding names, designed to indoctrinate the public, are planned,
such as the “Theatre for Change Actors” (no, I didn’t make up
that name). At every one of the theatre presentations, they will
be handing out Advance Directive forms. The two pronged approach
is: enabling via the paperwork and implementing
by co-opting the language (“Choosing Your Healthcare on Your Own
Terms”), as if euthanasia or physician-assisted suicide could be
termed “health care.” It’s hard to argue against, just as it is
hard to argue against the federal “Children’s Health Insurance
Program” without sounding as if you’re against children.
Post those sentinels!
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY
Is Ignorance Best? Given the insurmountable hassles
that physicians must deal with, and since physicians apparently
can’t interact with Medicare or managed care on an intelligent
medical basis, they are better off (at least financially) by
adopting a stance of rational ignorance and doing whatever
they’re told by whoever has power over them. Patients know little
about the care they are receiving, and less about its cost. Why
should they? What difference would it make? Smedinghoff’s Law
applies: Efficient allocation of resources cannot be done by
rationally ignorant participants.
Gerry Smedinghoff, Actuary, Wheaton, IL
Actuarial Malpractice. Government experts are like the
explorers of old. Columbus didn’t know where he was going, and
when he returned, he didn’t know where he had been. He therefore
advocated a return trip-at government expense.
When Medicare was enacted in 1965, government actuaries
projected that costs would reach $9 to $12 billion by 1990. The
actual cost: $107 billion. Schoolchildren could have done better
with a dart board. On the effects of the Health Insurance
Portability and Accountability Act (HIPAA) of 1996, the Senate
Labor Committee projected a 2 to 4% increase in federal medical
insurance premiums in 1998. The OPM projected an 8.5% increase.
The actual increase: 15% (R Miniter, Wash Times
10/21/97). That’s 400% more than the Labor Committee’s
projection, and 200% more than OPM’s.
Ernest J. White, Alexandria, VA
Is It OK to Sell the Dog? During a World War, European
nations had a centrally determined price for everything,
including bread and eggs. Farmers found their costs exceeded what
they were allowed to charge. So, as the story goes, the farmer
would sell his dog along with the eggs. He would collect his 30
cents for the eggs, and $5.00 for the dog. When the buyer left
the farm, the dog would come trotting back. Everyone was
satisfied. The buyer had his eggs, which otherwise would have
been unavailable. The farmer had a reasonable return for his
labor-and his trusted dog, which got sold several times a day….
Alieta Eck, M.D., Somerset, NJ
What Is Retirement? Yesterday’s op-ed on prescription
drugs was a howler. Jim Driscoll of Arizona Citizen Action said
that seniors shouldn’t have to dip into their retirement savings
to spend $1,000 a year on prescriptions. Doesn’t “retirement”
mean that you are living on your savings and not working? Using
that same logic, retirees shouldn’t have to pay for food,
shelter, or clothing out of their retirement savings. They should
be able to charge young workers for those things. I’ll tell my
mom and dad to send their bills to my son, but their old-
fashioned sense of morality and self-reliance will keep them from
doing so. The Driscolls of the world have only one tool in their
kit: other people’s money.
Craig Cantoni, Capstone Consulting, Scottsdale, AZ
Quality Measure. I would argue that there are such
things as measurably high quality plans. My favorite is the “quit
rate” or the “disenrollment rate.” When employees have choices in
Open Season, as in the FEHBP, knowing that in the last Open
Season 20% left Plan X and only 2% left Plan Y tells you
something important about service. Raw quit rates can be adjusted
statistically to remove such non-quality causes as higher
premiums. Unfortunately, OPM stopped publishing quit rates
several years ago. They currently use employee survey results,
which aren’t too shabby if they focus on heavy users (as
opposed to healthy ones-see comments from Dr. Robert Reid,
AAPS News Apr 2001). OPM also uses
JCAHO and NCQA accreditation information, which is next to
[Members may want to join some lively discussions there.]
The Good and Bad News on
The Medicare Board of Trustees has good news, sort of, and
bad news, absolutely.
The good news is that the life of the Medicare Part A Trust
Fund, the Hospitalization (HI) Trust fund, financed by a 2.9%
percent federal payroll tax, has been extended from 2025 to 2029.
The reason: stronger than expected economic growth and lower than
expected program costs.
The bad news is that Medicare’s overall financial situation
has worsened. According to the Medicare Trustees, “Medicare still
faces financial difficulties that come sooner-and in many ways
are more severe-than those confronting Social security. While
both programs face similar demographic challenges, Medicare costs
per enrollee are projected to rise faster than wages and
eventually will place greater demands on the federal budget and
In making the comparison to Social Security, the Trustees
say, “Medicare spending is expected to exceed the costs of
Social Security. The financing gap for HI alone-which
constitutes just over half of total Medicare costs-is larger than
the gap for Social Security, and the HI Trust Fund will become
insolvent 9 years sooner than the combined Social Security trust
The Trustees say that rising costs are attributable to a
change in a major assumption: per capita Medicare costs will rise
faster because of advances in medical technology. This means that
while the Medicare hospitalization trust fund will not be
bankrupt until 2029, the spending from the HI Trust Fund will
start to be greater than the taxes supporting it-meaning the flow
of red ink starts-in 2016. Not far away.
What would it take to make the HI trust fund whole and
balance the account for the long term-defined by the Trustees as
the next 75 years? Congress doesn’t usually focus on long-term
financing. But the Trustees note that, if Congress were serious
about doing that-they are clearly not-it would mean an immediate
60% increase in HI Trust Fund income, raising the payroll tax
from the current 1.45 to 2.44% for employees and their employers.
If they were to cut HI spending, it would mean a 37% cut in
Medicare HI spending for “currently projected levels” or a
combination of the two measures. Big tax increases or savage
benefit cuts. Take your poison.
The Trustees note, however, that the real Medicare problems
cannot be understood simply in terms of the solvency of the HI
Trust Fund, but rather the impact of Medicare spending on the
program, the taxpayers, the beneficiaries, and the general
economy. The Medicare Part B Trust Fund will never be insolvent,
of course, because Medicare Part B is an open-ended entitlement
system, in which the beneficiaries pay only 25% of the costs, and
75% of the costs by law are covered by draws on the Treasury.
Part B is growing faster than the HI program. According to the
Congressional Budget Office (CBO), HI benefits have accounted for
68% of Medicare’s total costs; in 2001, it will decrease to an
estimated 58%; and by 2011, the first year the massive baby boom
generation starts to retire, it will amount to 53%.
As David M. Walker, Comptroller General of the United
States, recently told the Senate Finance Committee, “Clearly, it
is total program spending…relative to the entire federal budget
and national economy that matters. This total spending approach
is a much more realistic way of looking at the combined Medicare
program’s sustainability. In contrast, the historical measure of
trust fund solvency cannot tell us whether the program is
sustainable over the long haul. Worse, it can serve to distort
the timing, scope and magnitude of our Medicare challenge.”
The CBO recently reported that Medicare spending will
more than double over the next ten years, even before the baby
boom generation starts to retire, reaching $491 billion by
fiscal year 2011. Based on CBO projections, this means that over
the next ten years, Medicare spending as a share of total federal
spending will jump from 12 to 19% percent. This corresponds to a
growth from 2.3% of the Gross Domestic Product (GDP) today to
4.5% in 2030, and 8.5% in 2075.
The three big entitlements-Medicare, Social Security, and
Medicaid-will together eat up about 75% of the federal budget in
2030, according to CBO Director Crippen-assuming no changes
in priorities or spending patterns. Of course, that is not likely
to happen. It is hard to imagine a future world in which federal
spending is little more than a series of income transfers, mostly
from overtaxed young workers to millions of retirees, without
some sort of political upheaval.
Over the long term, what kind of taxpayer obligations are we
talking about? Senator Charles Grassley (R-IA), Chairman of the
Senate Finance Committee, in commenting on the Trustees’ report
to the House Ways and Means Committee on March 20, affirmed that
over the next 75 years, the promised benefits under Social
Security and Medicare “will exceed the scheduled payroll taxes
and premiums by $465 trillion.”
Unfortunately, too many senior citizens think that their
previous payroll taxes and their premiums somehow finance their
benefits; they are profoundly mistaken. Today, as the CBO has
noted, 87% of total Medicare revenues for both Part A and Part
B come from current taxpayers, and only 13% from Medicare
beneficiaries’ premium and tax payments. The gap between
program income and total Medicare spending is widening; it is
projected to be $64 billion in 2001 and $136 billion in 2011.
High on Drugs
The CBO also sprinkled a little sobriety on the Medicare
prescription drug debate. Leftists in Congress want to spend
twice as much as the Bush Administration, more than $300 billion
compared to $153 billion over a ten-year period, and chide the
Bush Administration for not being robust enough in its commitment
to add a new drug benefit to Medicare.
But the CBO is asking the policymakers in Washington to take
stock of what they are getting into on this issue. Their official
projection is that increases in spending by seniors on
prescription drugs over the next ten years will dwarf the growth
of the economy, the federal budget, and even the Medicare program
The CBO notes that less than one-third of the current
Medicare population is without coverage for prescription drugs.
Nearly 70% of those who have coverage get it through a plan that
supplements Medicare coverage. But the entire Medicare population
accounts for 40% of the purchases of prescription drugs, which
amounted to $75 billion in sales last year. Not surprisingly,
Medicare patients paid about 45% of their drug bills out of
pocket, compared to 39% for the non-Medicare patient population.
The CBO also reported that spending patterns are heavily
concentrated. Based on 1997 figures, about 13% Medicare patients
spent $2000 or more on prescription drugs, and this group
accounted for about 45% of total drug spending by Medicare
What is the hard core problem? The CBO estimates that about
10 million Medicare patients do not have access to prescription
drug coverage. They are very old, disproportionately 85 years and
older; they live in rural areas; and they fall between the
proverbial cracks-i.e. they are not poor enough for Medicaid, but
they are not fortunate enough to have access to employer-provided
retirement coverage for prescription drugs. About 26 states
provide prescription assistance programs for seniors, and most
low-income seniors currently get public assistance for drug
payments through these state programs. Middle- and upper-income
seniors get coverage mostly through the Medicare HMOs or
employment-based retiree health plans. Bush wants to earmark $48
billion over four years to channel funds, via block grants, to
the states to assist the low-income elderly who don’t have access
to prescription drug coverage, but this is running into
resistance from conservatives and moderate Democrats in Congress
who think it will undermine Medicare reform, and from leftists in
Congress, like Senator Kent Conrad (D-ND), who want to add
prescription drug coverage to the old Medicare program.
The Urgency of Medicare Reform
President Bush, of course, wants to move Medicare reform
this year. And he’s gotten help from the independent non-partisan
agencies that monitor the fiscal health and programmatic behavior
of the Medicare program. A broad range of experts from the CBO,
the General Accounting Office (GAO), and the Office of Management
and Budget (OMB) has stressed that Medicare needs to be reformed.
The summary of the 2001 Annual Report from the Medicare Trustees
concluded that Medicare needs to be reformed and strengthened at
the “earliest opportunity.”
One would think that with this level of professional
analysis and the gravity of the players issuing the early warning
signals, Medicare reform would have an easier road ahead. Think
again. Congressional opponents of Medicare reform are
simultaneously trying to block the Bush tax relief plan and
confuse the upcoming Medicare debate in a fashion similar to the
notorious “Mediscare” campaign of 1995. At that time, it will be
recalled, leftists in Congress and the Clinton Administration
were successful in arguing that the Congressional Budget proposal
would finance a $270 billion tax cut with cuts in Medicare
funding; the fact that the Congressional leadership neither
intended nor did any such thing, relying instead on the earliest
version of Vice President Al Gore’s famed “lockbox” to plow back
any savings in Medicare back into Medicare, made little or no
difference. President Clinton won the public relations campaign
hands-down, and it was the beginning of the end for former House
Speaker Newt Gingrich, who was clearly outmaneuvered by the White
House Spin Machine. Looks like the tactic is back, according to
the Washington Post, which recently noted that
“liberals” in Congress think they can beat the Bush Tax plan by
saying that it will cut into Medicare funding, and using the
“Byzantine financing” of Medicare to their advantage in the
Of course, if you have an open-ended entitlement like
Medicare-and thus an unlimited draw on general federal revenues,
then, logically, a tax cut or any other spending priority-
national defense, for that matter-necessarily “threatens”
Medicare. The only thing that doesn’t threaten Medicare is
the status quo’s unimpeded growth, in which Medicare and Social
Security will simply impose higher and higher taxes on working
families and take larger and larger chunks of federal spending
and the national economy.
While the Medicare Trustees report has been circulating in
Congress, and the CBO and the GAO have been offering their
commentaries to the Senate Finance Committee and the House Ways
and Means Committee, Senators John Breaux (D-LA) and Bill Frist
(R-TN) have been promoting their Medicare reform proposals. The
first bill, The Medicare Preservation and Improvement Act of 2001
(S.357), is an update of legislation that the Louisiana Democrat
had introduced in 1999. It provides for a comprehensive reform of
the Medicare program based on the exhaustive 1999 work of the
National Bipartisan Commission on The Future of Medicare. This
revised version of Breaux-Frist legislation would establish a new
“Medicare Competitive Premium System,” creating a Medicare system
that would look very much like the Federal Employees Health
Benefits Program (FEHBP). The system would go into effect on
January 1, 2004. As a back-up measure, Senators Breaux and Frist
have introduced The Medicare Prescription Drug and Modernization
Act of 2001 (S. 358), an update of a more incremental reform of
the Medicare program combined with a guaranteed senior access to
prescription drug coverage. It is a more modest piece of
legislation, and would also go into effect in 2004.
While differing in scope, both bills would establish a new
agency to administer plans and benefits, rather than relying on
the Health Care Financing Administration (HCFA), the agency that
today runs the traditional Medicare program; both would foster
market competition among providers and drug providers; both would
provide access to prescription drugs for seniors; both would
subsidize the drug costs of low-income seniors fully and provide
a sliding scale of subsidies or discounts for others; and both
would address the way in which Congress and the Administration
measure and monitor the solvency of the Medicare program, a
perennially troublesome issue. Given CBO’s most recent
projections, the whole issue becomes even more troublesome.
On Medicare reform, again, America has no time to waste.
Robert Moffit is a prominent Washington health policy
analyst and Director of Domestic Policy at the Heritage