AAPS News – Nov 2002


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of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto

Volume 58, No. 11 November 2002


Oregonians have the opportunity to offer themselves, by
ballot initiative this November, as guinea pigs for the first
state-wide “single-payer health plan.” It’s called Measure 23,
the Oregon Comprehensive Health Care Finance Act of 2002.

“But they might as well call it the revolution,” writes
Shelley Herochik (The Business Journal, Portland

“If the Oregon measure passes, it’s just the beginning,”
stated Dr. Ida Hellender, executive director of Physicians for a
National Health Program (PNHP). And if it loses, “we’ll keep at
it,” promised co-chief petitioner Phil Dreyer.

The Cleveland-based Universal Health Care Action Network
sees the Oregon effort as taking up where Hillary Clinton left
off a decade ago. Her plan was “dead in the water from the
beginning”-purportedly because of opposition from the “health
care industry”-thus, “this is going to have to happen at the
state level first,” declared spokeswoman Rachel DeGolia (www.salon.com 10/8/02).

While Oregon is the only state voting on a single-payer
initiative this November, its supporters are working constantly
to find openings in any possibly receptive State. California
defeated the first such initiative in 1994. Maine has a Health
Security Board created by legislation in 2001 to develop a
Universal Single Payer Health Care System for that State. Vermont
is also a “leading contender to be number one,” according to PNHP
cofounder Dr. Quentin Young. Washington is planning an initiative
drive for 2004.

In Illinois, large majorities in three counties and 27
municipalities and townships-83% in Cook County-have passed the
Bernardin Amendment, a nonbinding referendum named for the late
Chicago archbishop: “Health care is an essential safeguard of
human life and dignity, and there is an obligation for the State
of Illinois to ensure that every resident is able to realize this
fundamental right. On or before May 31, 2002, the General
Assembly by law shall enact a plan for the universal health care
coverage that permits everyone in Illinois to obtain decent
health care on a regular basis.”

This measure faces a tough fight in the General Assembly, as
constitutional amendments require a three-fifths majority before
being submitted to the voters. The strategy is to keep building
momentum until it eventually passes.

The project has by no means been abandoned on the national
level. Former Presidents Gerald Ford and Jimmy Carter have been
enlisted by the Robert Wood Johnson Foundation to launch a
national effort to focus attention on the uninsured. “Congress
must face health-care crisis” and “stand up for those who can’t
insure themselves,” writes the Peoria Journal Star

“Single payer” needs only one victory to institute a system
that will wreck private medicine for decades if not forever.
Private medicine has to win every single battle.

The “ambitious and audacious” Oregon plan would provide “the
richest benefit package known to man” to every resident of the
State, including seriously ill new arrivals who express an
intention to remain. There would be no copayments or deductibles,
and coverage would include every “medically necessary” item, such
as long-term care, mental health services, preventive services,
hearing aids, acupuncture, massage therapy, medically related
transportation, and language interpretation.

Residents would not be required to drop their private
insurance, but most would probably do so because they would be
paying for the system anyway, according to Mark Lindgren,
spokesman for the Health Care for All Oregon campaign.

Financing would be through a progressive payroll tax up to
11.5%, plus an increase in personal income taxes, with the top
rate rising from 9% to 17%. Persons with incomes less than 150%
of the federal poverty would be exempt from the additional income
tax, but not the payroll tax. The maximum State tax bite for this
program would be $25,000 for any individual (assuming any
eligible individuals remain in Oregon).

More than one-third of the cost is supposed to be defrayed
by shifting funds from all other federal and State health
programs, including Medicare and Medicaid-assuming that the U.S.
Dept. of HHS grants the necessary waivers.

Unlimited borrowing through revenue bonds-at the discretion
of the Finance Board-would cover shortfalls.

Proponents admit to a cost of $19 billion per year, more
than the current total State budget of $16 billion-while
asserting that people should be asking “what will we do with the
money we save?” Administrative costs are supposed to plummet from
25% to 5%, despite new tasks of monitoring utilization and
quality, implementing price controls, establishing rules and
“guidelines,” and guarding against “discrimination” (some
patients getting better care than others).

The Act reads that “each health care practitioner will
decide what diagnostic and therapeutic procedures are necessary
for participants under his/her care according to his/her legally
defined scope of practice.” However, a 15-member board- which
shall have at least one “health service provider” and one
“alternative health care provider”-shall establish a “global
budget” for a hospital, group practice, or physician.

Up to $380 million is to be set aside to retrain health
services workers displaced by implementing the Plan.

In press conferences
announcing an AAPS media campaign about Measure 23, AAPS members
Thomas Saddoris, M.D., an internist/allergist in Portland, and
Robert DuPriest, Jr., M.D., a vascular surgeon in Eugene, warned
of damage to the patient-physician relationship, compromised
privacy due to bureaucratic monitoring, and a worsening shortage
of physicians, particularly specialists. Both called on their
colleagues to shake off their apathy and become politically

Outcomes Data: the Single-Payer Experiment

Canada on the Edge. According to an Angus-Reid poll, 8
out of 10 Canadians consider their system to be “in crisis.” The
percentage of Canadians giving the system a “very good” or
“excellent” rating fell from more than 50% in 1991 to less than
25% in 2001. Quality is declining in the view of 67% of physician
specialists. Neither the “spendthrifts,” who call for more tax
money, nor the “magicians,” who call for better government
management, have been able to end “hallway medicine” (Gratzer D,
Human Events 3/19/01).

Involuntary Servitude in Quebec. In response to severe
physician shortages in remote ERs, health boards may dispatch a
bailiff to awaken a doctor in the middle of the night and serve
him with an order to relocate as far as 500 km away on 15 hours
notice. Any physician who has worked in an ER in the past 4 years
may be subject to this conscription. Refusal to obey can result
in a fine of $5,000 per day. When Bill 114 expires in a year, the
provincial government plans to replace it with a requirement that
physicians sign contracts allowing bureaucrats to dictate where
they may practice. Bill 114 also forbids anyone to “encourage” or
“advise” any physician to disobey the law-medical federations
could be fined up to $125,000. Nevertheless, economist and author
Pierre Lemieux is doing just that: “Civil disobedience may be the
only language that the state understands” (

mieux.org 9/14/02).

Four years ago, the government encouraged the early
retirement of 1,000 physicians and reduced admissions to medical
schools (National Post 7/26/02).

NHS Errors. The British Medical Journal
estimated that if the error rate in the UK was equivalent to that
attributed to New York hospitals by the Institute of Medicine,
some 300,000 patients (4% of admissions) experienced an error
each year, and some 45,000 died partly because of it. An actual
study found an “adverse event” in 11.7% of patients admitted.
Such errors contributed to some 70,000 deaths per year. “Mistakes
were inevitable because there were too few medical staff, who
were forced to work too quickly to cope with intense demand,”
writes Prof. Sir G. Alberti (BMJ 2001;322:501-502,517-

Orwell Lives. Embarrassing reports about care in the
British National Health Service were followed by Clause 59 of the
Health and Social Care bill, which imposes fines of up to œ5,000
for breaking the rules on reporting. The government will control
the statistics; patient and consumer groups will not be able to
check on doctors’ workloads, hospital conditions, or waiting
times. Community Health Councils are being replaced with weaker
Patients’ Advocates, and the Patients’ Charter with “Your Guide
to the NHS.” Instead of “rights,” the latter concerns
expectations and responsibilities, such as keeping appointments,
treating staff with respect, and prompt payment of any charges
(Guardian Unlimited 1/28/01, 2/25/01).

Administrative Cost Hikes. In the U.S. single-payer
system for the poor (Medicaid), expenditures for “administrative
activities” increased fivefold between 1995 to 1998 in the 10
states for which the Government Accounting Office (GAO) could
obtain data. “These are, not surprisingly, states which have a
history of Robert Wood Johnson Foundation grant activity-school-
based health care is a long-time RWJF project,” writes Linda
Gorman of the Denver-based Independence Institute.

AAPS High-Tech Media

To coincide with the ER television episode portray-

ing a possible smallpox outbreak, and a smallpox vaccine policy
announcement from the Bush Administration, AAPS public relations
counsel Kathryn Serkes did our first satellite feed, reaching
more than 200 television stations.

Radio spots on Measure 23 will be airing in a number of
towns in Oregon. They are available to download from www.aapsonline.org, along
with additional analysis of the proposal, and the statement on

If you are not receiving periodic alerts, we do not have
your e-mail address. Don’t miss our government affairs reports in
the waning days of the 107th Congress: send your address to [email protected].

Another AAPS Member Runs for Congress

An ophthalmologist and AAPS member since the mid 1990s,
Marilyn F. O’Grady, M.D., of Garden City, NY, is the Republican
and Conservative candidate for the 4th congres-sional district,
facing incumbent liberal Democrat Carolyn McCarthy. Her campaign
web site is ogrady2002.com.

Dr. O’Grady supports decreasing Medicare’s bureaucracy,
allowing physicians to opt out of Medicare without patients
losing coverage, altering the tax code to allow individuals to
deduct insurance premiums, and reducing mandates on insurance to
make a greater variety of products available.

Dr. Faria Appointed to CDC Committee

Miguel A. Faria, Jr., M.D., editor-in-chief of The
Medical Sentinel
, has been appointed to the Injury Research
Grant Review Committee of the Centers for Disease Control and
Prevention. In 1996, Dr. Faria was one of three physicians to
testify before the House Appropriations Subcommittee for Labor,
Health, and Human Services against the agency’s use of biased
data to support a gun-control agenda.

A retired neurosurgeon, Dr. Faria is the author of
Vandals at the Gate of Medicine, Medical
, and Cuba in Revolution: Escape from a Lost
, and more than 90 articles.

90% Non-Compliance to Date

By late September, fewer than 10% of the 2 million entities
that CMS thinks are subject to HIPAA had filed for an extension
for compliance with the electronic transmission standards. The
deadline is Oct. 15. CMS help-line staff finds that many
physicians who call can’t figure out how to fill in the form on-
line-simplicity itself compared with the standards. Those who
can’t afford $100,000 for a consultant need to see the “country
doctor escape” at aapsonline.org.

AAPS Supports Dr. Sell’s Petition for Cert

On Oct. 7, AAPS filed an amicus curiae brief before the U.S.
Supreme Court in support of Dr. Charles Sell’s Petition for Writ
of Certiorari, appealing the Eighth Circuit’s decision that he
could be forcibly drugged with antipsychotics (see AAPS
Nov 2001, April and May 2002).

AAPS argues: “By fiat, the Eighth Circuit has granted the
federal government an extraordinary means to punish without
satisfying the burden of proof. Never before has an American
court authorized a prison doctor to administer, in his sole
discretion, any quantity and type of antipsychotic medication
over the objections of a peaceful, pretrial prisoner…. Govern-

ment must not have the power to drug defendants simply by
claiming it beneficial to do so, which Justice Brandeis expressly
warned against: `experience should teach us to be most on our
guard to protect liberty when the government’s purposes are
beneficent’ (Olmstead v. United States….)”

Charles Thomas Sell, D.D.S., is accused of a regulatory
violation in billing Medicaid and has already been incarcerated
for longer than the maximum sentence if convicted.

Drugs are purportedly justified “to dispel Dr. Sell’s
allegedly delusional views of government. But this court-ordered
drugging is self-defeating with respect to that stated purpose,”
concludes the brief. (See www.aapsonline.org; click on “Prosecutions.”)

Privacy Rule Appeals Filed

On September 10, AAPS, Congressman Ron Paul, et al., filed
an appeal of the district court’s dismissal of their
constitutional challenge to the HIPAA Privacy Rule.

“The Privacy Rule injects the federal government into the
very local and personal domain of medical records, past and
future. It impacts everything from patient employability to
insurability, and its casualty is true patient privacy,” argue
the plaintiffs in AAPS, et
al., v. U.S. Dept. of HHS, et al.

Controlling precedent for standing and ripeness is
Whalen v. Roe, which concerned whether the State of New
York could build a database of patients receiving specific drugs
that are often illegally used. The statute challenged there made
the government privy only to records created in the future;
patients at least had notice and retained the option of avoiding
disclosure by not seeing a New York physician. Relying on facts
brought out in discovery, which showed numerous safeguards for
the data, the court upheld the statute.

The Privacy Rule, on the other hand, has no such safeguards.
“Particularly objectionable is the laundry list of permitted
disclosures without patient consent…. One of the enumerated
items allows virtually any disclosure to any public official:
`activities necessary for appropriate oversight of … [t]he
health care system’…. Once disclosed to a noncovered entity,
repeated disclosures are then unlimited.”

The lower court “misread the plaintiffs’ action, which is
not based on enforcement of the Privacy Rule”-that
hasn’t begun yet. “Rather, plaintiffs complain about
compliance with the Rule”-which deprives patients of the
right to speak confidentially to their physician [emphasis

The South Carolina Medical Association and others are also
appealing the dismissal of their lawsuit against HIPAA. R. Duren
Johnson, Jr., M.D., SCMA President, called HIPAA “another big
bureaucratic morass,… another unfunded mandate” (AM

Tip of the Month: Are peer review proceedings still
privileged? Increasingly, the answer is no. On August 21st, a
federal district court in Michigan admitted as trial evidence
privileged peer review records sought by federal prosecutors.
United States v. United Mem. Hosp., 2002 U.S. Dist.
LEXIS 15657 (W.D. Mich. 2002). “The evidence tends to prove that
Dr. Askanazi, through influence with the Hospital, manipulated
the peer review process for his own benefit and that persons in
charge of the process had an untoward relationship with Dr.
Askanazi.” That allowed admission of peer review records about
doctors possibly victimized by the process. Id. at *20.
Claims based on the Americans with Disabilities Act (ADA) and
racial discrimination also pierce the peer review privilege.
“Nearly all of the cases that have weighed the state-law medical
peer review privilege against the interests advanced by the
federal anti-discrimination laws have concluded that the
privilege does not preclude discovery of peer review materials.”
Mattice v. Mem’l Hosp. of S. Bend, 203 F.R.D. 381, 385
(2001) (ADA claim) (citing Virmani v. Novant Health
, 259 F.3d 284, 293 (4th Cir. 2001) (race
discrimination); Marshall v Spectrum Med. Group, 198
F.R.D. 1, 5 (D. Me 2000) (ADA); Johnson v. Nyack Hosp.,
169 F.R.D. 550, 561 (S.D.N.Y. 1996) (race discrimination);
Robertson v. Neuromedical Ctr., 169 F.R.D. 80, 83-84
(M.D. La. 1996) (ADA)).

Notes on Opting Out of Medicare

  • Do Not “Fail to Maintain Opt-Out.” Remember to re-
    file your affidavit every two years. Otherwise, the opt-out will
    be nullified and all of the private contracts during that period
    deemed null and void. The physician may then have to file
    Medicare claims for services provided under voided contracts (63
    FR 58814, 11/2/98; 42 C.F.R. §405.435).
  • Opted-Out Physicians Can Engage in Certain Self
    “[A] physician who opts out of the Medicare
    program and is not receiving any payments from the Medicare
    program is not bound by the limitations in section 1877 of the
    Act and, therefore, can refer to entities with which he or she
    has a financial relationship” (66 FR 856, 1/4/01). But check your
    plans with an attorney before engaging in such referrals.
  • Physicians in Group Practice May Opt Out Individ-

    ually. “[W]hen a group physician has opted out, it does not
    affect the ability of the rest of the group members to furnish
    and bill for services they furnish to Medicare beneficiaries….
    [H]owever, … when a group physician has opted out, the group
    may not bill in its own name for services provided by the opt-out
    physician under a private contract….” (66 FR 856, 1/4/01).

  • Opted-Out Physicians May Order Medicare-Covered
    Services for Beneficiaries.
    “The physician or practitioner
    who has not been excluded under sections 1128, 1156, or 1892 of
    the Social Security Act may order, certify the need for, or refer
    a beneficiary for Medicare-covered items and services, provided
    the physician…is not paid, directly or indirectly, for such
    services (except as provided in §405.440 [regarding emergency and
    urgent care services])” (63 FR 58903-04, 11/2/98).

Detailed instructions for opting out are found on the AAPS
web site, and legal consultation is available to members.

A Definition: William Braithwaite (“Dr. HIPAA”),
director of the national HIPAA practice at
PriceWaterhouseCoopers, told the audience at the Health Care
Compliance Association’s HIPAA Forum in Boston, June 13-15, that
“reasonableness” is a term that will be sorted out in
. Juries will have the last say.


A Patient’s Worth. My wife took our dog Porscha to the
vet today. Porscha is a senior citizen among dogs and has
elevated liver enzymes for an unknown reason-probably
untreatable. The vet performed an ultrasound, which took about 30
minutes of his time. The cost was $240, which I gladly paid.

When I perform a carotid ultrasound on a human being, which
takes about 30 minutes of my time, Medicare “allows” me to charge
$30.23. On the RDVS (Relative Dog Value Scale), a Medicare
patient is worth one-eighth as much as a dog.

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

CMS Re-confirms “Country Doctor” Exemption. I called
CMS, which correctly stated that physicians can be exempt from
HIPAA and sent a confirming FAX taken from the Q&A at http://cms.hhs.gov/hipaa.
Q: “If I am a provider who doesn’t not [sic.] submit
electronic transactions, do I need to file for an ASCA compliance
extension?” A: …“If you do not transmit [health
information] in electronic form, you are not a covered entity and
HIPAA does not apply to you….”

Please note that in Medicare language, physicians are
“suppliers,” not “providers,” so the definition of “small” for
the purpose of exemption from the Administrative Simplification
Compliance Act (ASCA) requirement to transmit Medicare claims
electronically is fewer than 10 FTEs.

Laurence Marsteller, M.D., Tucson, AZ

Boycott HIPAA. HIPAA regulations are an outrageous
deprivation of free speech in that physicians are not allowed to
use electronic transmission technology without being subject to
3,000 pages of legal control and consequences. It will be cheaper
to shift from electronic technology to paper than to hire all the
lawyers and staff needed to solve the maze of 200,000 government-
imposed codes. Physicians must rebel against HIPAA. Passive
acceptance means our status is nil.

Samuel Nigro, M.D., Cleveland Heights, OH

To an Opted-Out Physician. In response to your letter
of resignation from the Medicare program, I would appreciate your
keeping me on your list of patients, as in private practice.

Soon after I entered practice, Medicare was embraced by many
physicians, largely because of the promise of payment for the
care of indigent and other fee-resisting patients. I was one of
the very few who opposed it on the grounds that universal third-
party involvement had serious defects, moral as well as economic.
I never participated and continued in private practice sans
third-party involvement. Nevertheless, I remained a member of the
local medical society, the OMA, and the AMA, but only to have a
weak voice in protest to the direction medicine would be taking.
When a protesting splinter (AAPS) broke away from the AMA, I
joined it and have supported it since. I strongly suggest that
you also join AAPS.

From the first, there was no doubt in my mind that Medicare
was seriously flawed, that it was uneconomic because of its
cumbersome administrative burden, and that it contributed
seriously to corruption of both patients and physicians. It also
brought the physician into an extremely vulnerable state of
dependency on a third party, an intrusion by an ill-identified
administrator dictating the practice of medicine.

S. Berthelsdorf, M.D., Portland, OR

Real Costs in Canada. Although my mother recently did
obtain adequate emergency care in Canada, my brother-in-law went
to Buffalo, NY, for care of his cancer, as did my sister for her
possible cancer, and my niece for a potentially serious brain
ailment. Is a 75% failure rate acceptable?

In touting the supposed low cost of the Canadian system, the
Minister of Health fails to include the cost (to the patient) of
queuing; the cost of lawyers and lobbyists striving to obtain
additional funding, or ways to circumvent the taxes needed to pay
for “free” care; the cost of the huge government bureaucracies
that regulate medicine and determine how much care to provide;
and the devaluation of the Canadian currency.

The Minister states that Canadians are pleased with their
system, but how can she know what system they would choose when
in fact they have no choice?

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

To ACP/ASIM: As I retire after 40 years of practicing
internal medicine, I feel compelled to comment on the ACP’s 7-
year plan for achieving universal coverage:… It is like
attempting to douse a fire with kerosene…. The astronomical –

cost is driven by the engine of perceived immunity to price by
patient, doctor, and hospital alike…. Measures to return the
husbandry of the [medical] dollar to the person who earned it
hold…the only real hope. And do you now wish Congress to “enact
legislation to make affordable coverage available to all people
with incomes up to 200% of the Federal poverty level…”? That is
$32,000, almost the norm for the average head of household (and
pretty much what several prominent and busy Atlanta internists
are now netting). Where is the premium, which they now can’t seem
to afford, coming from? Does laundering the funds through the
federal government and/or the insurance industry somehow magnify
the money? Or does it cause the currency to evaporate? And you
wish to “discourage individuals from voluntarily opting out of
insurance coverage”? As in the strictures of the German Sickness
Fund or the Canadian formula, which vigorously funnel doctors to
other countries?

William C. Waters III, M.D., Atlanta, GA

Legislative Alert

House Passes Medical Liability

The House of Representatives, with the backing of the
Bush Administration, passed the Health Act of 2002 (H.R. 4600), a
major medical liability reform bill. The bill would limit non-
economic damages, pain and suffering, to $250,000, and would
impose limits on attorneys fees’ and punitive damages. On
September 26, the bill passed by a margin of 217 to 203, with
most Republicans voting for the bill and most Democrats voting
against it. Most observers think that the measure is unlikely to
survive in the Senate.

Doctors’ Medicare Pay is Stalled in the Senate

When the House passed its Medicare prescription drug
bill last June, it included roughly $30 billion in Medicare
increases for doctors, hospitals, and other medical professionals
over the next ten years. Senate Finance Committee leaders Max
Baucus (D-MT) and Charles Grassley (R-IA) have agreed to a
package totaling $41 billion (over ten years) that would also
reverse the cuts in fees for doctors, hospitals, and nursing
homes. However, this measure may become another vehicle for the
bitterly debated drug plans that are taking new shape. No Senate
floor action on the measure has been scheduled.

The FEHBP Breakthrough on Health Care Accounts

Give the Hon. Kay Cole James a big hand. Never heard of
her? Well, if you are a doctor, she should be a household name.
She is the bright and aggressive new Director of the U.S. Office
of Personnel Management (OPM). OPM, you may recall, is the
federal agency that runs the Federal Employee Health Benefits
Program (FEHBP), the largest group health insurance program in
the world. Hundreds of plans compete for the dollars of Members
of Congress and federal workers and retirees. While OPM announced
that premiums are likely to increase an average of 11% next year,
other insurance premiums are expected to jump between 15 and 20%.

James has just struck a huge blow in favor of patient
freedom. FEHBP enrollees can now choose a plan with a special
health reimbursement account. This year OPM has accepted a
proposal from the American Postal Workers Union (APWU), one of
the largest of the postal workers’ unions, to offer a new
standard option through Definity Health, a prominent company that
markets consumer-driven medical care. This includes a health care
spending account worth $1,000 per person or $2,000 per family,
which can be used to pay for doctor’s office visits, dental and
vision care, lab tests, and prescription drugs. If the entire
allotment is used in a given year, out-of-pocket payment of a
portion of expenses up to $600 per person and $1,200 per family
is required, and thereafter the plan will cover all medical
expenses. Funds left at the end of the year can be rolled over
tax free.

In related matters, James has ordered OPM staff to review
OPM regulations and put them into plain English, opened a new
dialogue with private insurance carriers asking them to expand
their coverage, and undertaken an independent review and analysis
of the large number of mandates that the Clinton Administration
and its allies in Congress imposed on the program over the past
several years. Meanwhile, she has provided patients with access
to new information technology that gives individuals and families
greater capacity to compare plans on the basis of quality,
benefit, and service. What a difference. This is not Clinton’s


The number of Americans without medical insurance coverage
has climbed to 41.2 million, an increase of 1.4 million,
according to Census Bureau figures. The reporting has tightened
from previous years, so the figure is arguably more accurate. The
caveats are well known: about 25% of the uninsured have access to
employer-based coverage, but don’t take it-some because they
think they are immortal; others because they would rather spend
limited disposable income on something else; and others because
they cannot afford it.

With the rise in medical costs and the impact of the
recession, it is remarkable that the figure is not higher; but
next year it probably will be. The greatest increase in the
uninsured was among minorities and employees of small businesses.

In small businesses, the problems of employer-based medical
insurance are always the most severe. If there is coverage,
workers often have no choice in the matter at all. According to
an April 2002 survey by the Kaiser Family Foundation, 71% of
small businesses who offer medical insurance to their employees
offer only one plan. And 28% of all firms say they have switched
coverage in the past two years. This business decision may not be
good for the continuity of care of patients. For many, switching
plans may also mean switching doctors. But, as a matter of
government policy, the patient is not the key decision-maker.

With the increase in the number of Americans without
coverage, Bush Administration officials are pressing for action.
The problem is greatest for low-wage workers, particularly those
in small business. According to a separate Labor Department
analysis, only 24% of small businesses with low-wage workers
offer health insurance, compared to 88% of large businesses with
a similar workforce. Labor Secretary Elaine Chao is pressing
Congress to adopt legislation providing for association health
plans. The proposed legislation would give small businesses the
same purchasing power and federal regulatory regime that governs
large corporate plans and large union plans, called Taft-Hartley
plans. By allowing small businesses to pool their resources under
the same legal playing field, the Labor Department estimates that
the savings of such an arrangement could be as much as 13%.

Treasury Secretary Paul O’Neill has issued a renewed call
for the Congress to adopt the president’s program of tax credits
for the uninsured, which would provide $1,000 per person and up
to $3,000 per family. O’Neill also observed that the Trade
Adjustment Act (TAA) provided for a tax credit for displaced
workers of 65% of the cost of a premium; the TAA credit, however,
is limited to workers who have lost coverage as a result of
adverse trade impacts on their jobs, and workers between the ages
of 55 and 64 who have pension plans administered by the Pension
Benefit Guaranty Corporation. For his part, Secretary O’Neil
noted that the Treasury Department and the IRS made a favorable
ruling last June on the Health Reimbursement Accounts, which
enable employers to set up these health accounts tax free and
allows the funds in those accounts to be rolled over from year to
year. This is, as noted, what OPM has promoted in the federal
employees system.

Punishing Progress

Meanwhile, in the Senate, no good deed goes unpunished.

HHS has a waiver process through which states can get relief
from federal rules and regulations. During the 1990s, one of the
most energetic governors in using this process was none other
than Tommy Thompson of Wisconsin, who used it to impose work
requirements on welfare recipients. The waiver process also
applies to Medicaid. The Bush Administration has developed an
initiative to expand coverage under the Health Insurance
Flexibility and Accountability (HIFA) demonstration project, a
new and expedited waiver process. This was created to give states
the flexibility to use unexpended funds from the State Children’s
Health Insurance Program (SCHIP) and Medicaid to cover adults
through private insurance. New Mexico, as noted last month, has
won approval to cover 40,000 persons.

Needless to say, liberals don’t like it one teensy bit. Last
July, the General Accounting Office (GAO) issued a critical
report that said the Bush HIFA initiative raised “legal and
policy concerns” and that SCHIP funds were not intended for
adults. Senators Max Baucus (D-MT) and Charles Grassley (R-IA) of
the Senate Finance Committee, in the very same bill that they
have proposed to increase payments to doctors and hospitals, have
now included a provision that would prohibit the Bush
Administration from using SCHIP funds to cover childless adults.
The Baucus-Grassley provision would also set up a detailed
procedure to ensure “public participation” in the state waiver
process, require HHS to publish a report each month in the
Federal Register of all the proposed waivers and amendments to
waivers using Medicaid and SCHIP funds, and impose restrictions
on HHS ability to waive certain benefit requirements. In other
words, the Senate wants to slow the fast track on waivers for
private coverage expansion. The effect would be to send
unexpended funds back to the federal treasury.

Question for those who follow the big picture: Would there
be the same sort of angst about the HHS fast-track waiver process
if the Bush proposal were somehow to have the effect of expanding
Medicaid coverage rather than personally chosen private sector

The Left understands that the debate is about power. Too
many in the “health care industry”-a weird phrase-still don’t get
it. They still think it is about micromanaging their competitive
position, using federal and state legislatures to secure the
goals of their short-term business plan.

Policy folks know different. At the center of this debate is
a profound difference: should medical care in America be
transformed into a public utility, financed and managed by
government officials, or into a patient-centered, consumer-driven
system? That is why every single debate on Capitol Hill is
tantamount to a proxy battle over national health insurance.

This is evident in the debate over the uninsured, the stimulus
package, the patients’ bill of rights legislation, the trade
bill, Medicaid expansions, Medicare prescription drugs, and the
reform of Medicare itself. The resolution of each of these is
inevitably a triumph of government or patient control. And that
includes the current debate about the HHS waivers.

Can the States Tame Adverse Selection?

If the Bush Administration is successful in promoting tax
credits or premium subsidies for private insurance, or some
innovative states decide to promote consumer-based voluntary
purchasing arrangements for health insurance, using waivers, how
does one guard against adverse selection, or risk segmentation?
How does one prevent the bad risks from congregating in a few
plans, driving up the insurance rates, driving out low-risk
individuals, and causing an uncontrollable cost spiral? Fair

Critics of choice in medical care often say that the adverse
selection problem is insoluble; therefore, patient autonomy and
consumer choice of plans should be abolished. Not so fast, say
advocates of choice.

Ed Haislmaier, the President of Strategic Policy Management,
a Washington-based consulting firm, and a former policy analyst
at the Heritage Foundation and Pfizer Corporation, has developed
a reinsurance pooling arrangement for state officials. In short,
they would charter a non-profit corporation, administered and
financed by medical insurance carriers, to which all carriers
operating in the state would belong. The organization would set
rates, and member plans would pay a premium to a risk pool for
each risk ceded to the pool. Most importantly, there should be no
taxpayer subsidy to the reinsurance pool, to prevent “gaming” the
system and promoting adverse selection against the taxpayer.
Competing health plans would thus have a structure to encourage
efficient coverage over the broadest possible pool of individuals
and families, and could be made whole if they incurred any
substantial additional costs from the subscription of high-risk

Universal Coverage-British Style

While roughly 1.3 million British citizens are waiting
for hospitalization, the British National Health Service is once
again demonstrating that it is getting its priorities in order.
Her Majesty’s Government is pleased to announce that it will
subsidize “sex toys” for British women who suffer sexual
problems-as nearly half of them do, according to Dr. David
Goldmeier, a consultant at London’s St. Mary’s Hospital
(Sunday Observer 9/29/02). Meanwhile, up in Scotland,
elderly patients in Aberdeen Royal Infirmary are told that they
must get up, if they are able, carry their own bedpans to a
sluice area, and dump them. The stench was terrific, according to
the report, and made it difficult for patients who were trying to
eat (Evening Express 9/18/02). Well, that the price you
pay when health care is “free.”

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

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