Volume 61, No. 10 October 2005
PAYING FOR MEDICAL CARE
There are two ways to obtain medical care: (1) use your own
resources to buy it or (2) get someone else to buy it for you.
There is prepayment through insurance or postpayment through
credit. There is direct payment or “assigned” payment through an
insurer. One can request charity, or use force, the latter most
often through government, the largest third party.
Though it may be dismissed as irrelevant, the method
of payment is critical. It affects almost everything
else in some way: the patient-physician relationship, the type
and quality of service, the availability and promptness of
service, the conditions for delivery of service, the
documentation, the morale of medical professionals and the cost.
Almost all the complexities that have ensnarled medical
offices during the past 50 years and distracted physicians from
attending patients and expanding their medical knowledge are the
consequence of third-party payment. Without the third party there
is no need for coding, claims forms,
authorizations, eligibility checks, documentation of medical
necessity, postpayment audits, payment delays for “re-pricing,”
compliance plans, consultants, or “smart cards.”
Actuary Gerry Smedinghoff notes that Home Depot does not
need a smart card to track your home repair purchases, including
those from Ace Hardware. Home Depot and Ace Hardware have
different SKU numbers for the same set of socket wrenches: no
problem. Jiffy Lube can keep track of all the information needed
about the customer and the car, whether payment is by cash,
credit, or check. No one expects smart cards to revolutionize the
hardware or car service industry. How could they transform
medicine?
“We need `dumb cards,’ not `smart cards,'” writes Mr.
Smedinghoff. “Luckily, MasterCard, Visa, and American Express
have already perfected them.”
Patients have simple tools available for tracking their
purchases: their check register, credit card statements, or a
shoebox for storing receipts.
Dr. Robert Berry of Tennessee estimates that he saves
$200,000 annually as a result of opting out of Medicare and
forgoing all third-party payments. “If all primary care
physicians went insurance free, the country would save
approximately $60 billion in physician overhead alone.”
In the days of direct payment, a bill for a 4-day maternity
and 4-day nursery stay, including $10 for the delivery room, was
$52.20 in 1950 at Memorial General Hospital in Las Cruces, NM.
The statement was handwritten on a half-sheet of paper. The
hospital bill for an uncomplicated appendectomy at St. Mary’s
Hospital in Tucson, AZ, was $150 in 1960, about 10 days’ wages
for a common construction laborer.
Last year, Virginia Mason Medical Center billed a patient
$1,133 for a 30-second office procedure on her toenail. This and
other similar charges are now the subject of a class-action
lawsuit that may involve tens of thousands of patients
(Seattle Times 9/9/05). Self-paying patients are
increasingly irate about the inflated prices they are billed,
compared with what hospitals collect from Medicare and insurers.
Hospitals are fighting back. Sutter Health, one of the
nation’s wealthiest not-for-profit hospitals, has filed a
counterclaim against uninsured patients, claiming breach of
contract and seeking the difference between what patients had
paid and the inflated list prices.
As third-party payment has become predominant, costs have
not only soared but are routinely obfuscated. Aetna has become
the first major insurer to publicly disclose the fees it
negotiates with physicians (Wall St J 8/18/05). Private
physicians, who set their own prices, can simply post them on an
office bulletin board, doctor’s web site, or
cashdoctor.com.
Strife is, of course, to be expected in a system that is
based on looting or on everybody having to pay for everybody
else’s medical care. As collectivized prepayment leads to
overconsumption, expenditures mount. In response to price
controls in government programs and mandates such as EMTALA,
costs are shifted wherever possible. It is difficult to calculate
the precise underpayment to hospitals because of offsets from
disproportionate share payments and graduate medical education
allowances. Patients have no idea of the amount of the hidden
sickness tax.
Inflated retail prices help to scare people into paying too
much for insurance. They could paradoxically reduce hospital
collections; K.B. Forbes suggests that patients who are furious
about being gouged are likely to pay nothing.
Routine thievery, with government setting the example as in
the Medicare Ponzi scheme, corrupts public morality. This
generation of Americans apparently deems it moral to enslave
their innocent offspring to pay Medicare unfunded liabilities of
some $70 trillion or to simply steal from their doctors.
Indoctrination in the concept of a “right to health care”
tends to make people unwilling even to consider postpayment, say
by incurring a debt of $10,000 to $20,000 to cover a
deductible even though the interest on the debt might well be
less than the excess premiums for lower-deductible insurance.
Some patients act as if they believe that medical goods can
only be purchased with an insurance card, not with cash. Only one
insured person in six sometimes uses doctors who don’t “accept
insurance” (Wall St J 8/30/05). And only one of 15
primary care physicians contacted in a survey by Dr. Berry was
willing to accept his nurse posing as an uninsured patient.
Honesty is an essential part of good medicine. And honest
pricing is indispensable for restoring both trust and accurate
economic calculations in the medical marketplace. Medical bills
must be paid. Direct payment will come back because it is the
most economical and most ethical method.
Definitions
Community health center. Nebulously defined group
of providers who rely on government grants to give people with no
other choice the care that elites think they should have.
Requires patients to miss work; sit around in clinic all day;
endure lectures on weight control, smoking habits, and proper
child care.
Dismal science. Term for economics coined by an
opponent of the abolition of slavery, in response to the writings
of classical economist John Stuart Mills. The most fundamental
right of private property is the right to own yourself and your
labor.
Market. Willing buyers and willing sellers engaged in
voluntary transactions to their mutual advantage.
Non-profit. Tax-exempt; no external monitor on
performance such as stock prices.
Shared responsibility. Giving up control.
Unaffordable health care. Diverts my personal
resources from something I’d rather have.
[Thanks to Linda Gorman; Milt Kamsler, M.D.; and Sean
Parnell.]
Admissions on “Universal Coverage”
“The government must become more involved in influencing how
the money is spent” (Kronick R. N Engl J Med
2005;352:1252-11254).
“Americans must understand that they are going to make real
sacrifices for other Americans. Currently, the anguish caused by
annual increases in health care costs is offset by the knowledge
that because of each year’s medical progress, we are `buying a
better product,’ potentially for ourselves, should we become ill.
A one-time increase of 50 percent in the rate of rising health
care costs that benefits someone else is a harder sell” (Mongan
JJ, Lee TH. N Engl J Med 2005;352:1260-1263).
Americans Most Insulated from Costs
In the United States, more than 85% of medical expenses are
paid by insurers or governments. This is one of the highest rates
of insulation in the world, according to OECD data. Even in
Canada, the percentage of out-of-pocket expenses is slightly
higher (Kling A, Tech
Central Station 8/26/05).
CMS Has Massive Data Base
According to a recent Request for Information, CMS has one
of the largest stores of health data in the country, with robust
claims histories for all Medicare beneficiaries. It will be
collecting 100% of claims paid for drugs under Medicare Part D.
Citizens who want to maintain privacy need to consider taking
responsibility for paying their own medical bills. Perhaps
citizens should “receive cash directly from insurers…and pay
their own bills (rather than having payments sent to providers)”
(Health Freedom Watch, Aug 2005).
EMRs and Katrina
What did doctors need in New Orleans? “A portable electronic
health record for all citizens would help” (wsj.com 9/13/05). No power, no
computers, no water, no police protection, no telephone…. Which
would be more useful: EMRs or battery-powered, line-of-sight ham
radios?
Medical Tourism
The UK-based Medical Tourist Company arranges trips to
India, Thailand, Germany, and other countries to obtain “world-
class medical treatment at affordable prices.” Services include
hip/knee replacement, heart care, eye care, dental treatment,
executive health checkup, cosmetic surgery, and second opinions
( themedicaltouristcompany.com). On-line price quotations
are available. Travel, accommodations, and visas can be arranged.
Private Neurology Comes to Western New York
Lawrence Huntoon, M.D., Ph.D., F.A.A.N., AAPS Past President
and Editor-in-Chief, has recently opened an office in Derby, NY,
“to practice the innovative concept of private neurology”
(The Sun 9/8/05). “The concept allows patients to make
an appointment with the doctor and be reviewed minus the
interference of a third party.”
No “permission slips” are needed.
Dr. Huntoon has opted out of Medicare and does not contract
with Medicaid or any third parties. Confidentiality is assured,
as Dr. Huntoon is a noncovered entity under HIPAA. Initial visits
cost $100; follow-ups $40.
The Role of Government
Government, for British political philosopher Michael
Oakeshott, should be an umpire, not a player. If an umpire makes
rulings that will ensure the outcome he thinks preferable, the
game itself will be corrupted.
“The conjunction of ruling and dreaming generates tyranny.”
Oakeshott drew a basic distinction between an enterprise
association and a civil association. The former occurs when
people unite in pursuit of certain shared objectives making
profits, curing disease, saving souls. The latter is the sharing
of certain rules among people pursuing different, even clashing
purposes. People who sell rival products may agree on the laws of
the market, at least the negative ones against stealing and
cheating. Government is a neutral party, maintaining the rules,
aloof from the purposes of all the competitors.
Oakeshott distinguished between rules and commands. A rule
is impersonal, general, usually negative: “Thou shalt not.” A
command expresses someone’s personal will and usually requires a
positive action. Good laws are rules, not commands.
Oakeshott warned against the modern tendency to view
government as a “vast reservoir of power” that could be turned
into an instrument of the passions it should properly check
(Sobran J, The Reactionary Utopian 9/6/05).
AAPS Calendar
Oct 22, 2005. SEPP meeting in Pittsburgh, www.sepp.net.
Sept 13-16, 2006. 63rd annual meeting, Phoenix, AZ.
Enforcement Efforts Intensify
PERM. According to a proposed rule released Aug 27, a
new Payment Error Rate Measurement program (PERM) will give
government one more reason to audit Medicaid providers. It is
comparable to the Medicare CERT program (AAPS News, June 2005). CMS will also expand the
Medicare-Medicaid Match Program, which checks to see that
providers are not billing both for the same service (MCA
9/5/05).
Part D. HHS prosecutors expect the new program will be
the focus of bad actors because of its size alone. The OIG will
be watching for unlawful activities aimed at influencing which
manufacturers’ drugs are included in formularies. It will be
monitoring for compliance with state pharmacy fee-splitting and
referral rules. Novel prosecutorial theories based on the Travel
Act and the Public Contract Anti-Kickback Act (PCAKA) will be
applied (BNA’s HCFR 7/20/05).
False Claims Act to Police Clinical Decision-Making.
The FCA’s draconian provisions for treble damages and exclusions
cause most providers to settle rather than risk their provider
status, as Central Montgomery Medical Center in Lansdale, PA,
did despite the tenuous legal underpinnings of the U.S.
Attorney’s theory. His “creative” approach ties the FCA to the
Medicare Conditions of Participation and corrective action plans,
and thus to quality-of-care issues and medical necessity. CMMC is
paying $200,000 because of alleged inappropriate use of physical
restraints (MCA 8/8/05).
Vicarious Liability. If a HIPAA-covered entity lacks
written policies or training programs, the government will assume
that employees’ actions are the policy, and the company
can be held accountable for them (HIPAA Compliance Alert
6/13/03).
Medical Necessity. After prosecutors failed to prove
that cardiologist Krishnaswami Sriram intended to commit Medicare
fraud in billing for medically unnecessary catheterizations, the
government may introduce a new tactic. If an insured patient
receives a test that an uninsured one with the same diagnosis did
not, the prosecutor may argue that the test was “not medically
necessary but was done because the physician knew he or she would
be paid for it” (MCA 5/16/05).
AAPS Files Amicus in Hurwitz Appeal
The government initially denied requests by both AAPS and
the National Association of Criminal Defense Lawyers (NACDL) to
file amicus briefs in Dr. William Hurwitz’s appeal of his
conviction for prescribing pain medications. After AAPS filed a
motion with the court for leave to file an amicus, the government
filed a response stating there had been a misunderstanding and it
consented to the AAPS brief after all.
In the brief, posted in full at
www.aapsonline.org, AAPS argued that the court
committed at least three reversible errors. First, its jury
instructions encouraged the jurors to define the contours of
medical practice without assessing “good faith.” Second, it
excluded evidence of Dr. Hurwitz’s compliance with state
authorities, and evidence of conflicting federal positions on key
issues. Finally, it allowed government expert testimony that was
highly prejudicial and erroneous.
Key prosecution witness Michael Ashburn, M.D., at times gave
the jury the impression that he was actively practicing in the
field of pain management, which is not the truth. He has been
profitably employed by a drug company that recently obtained FDA
approval for a patch that delivers pain medication. The company’s
own press release states that Dr. Ashburn founded the company in
1997.
Past presidents of the American Pain Society wrote a letter
expressing their dismay at “serious misrepresentations” in Dr.
Ashburn’s testimony.
“Disputes within the medical profession are not new, but it
is unprecedented and unauthorized by Congress to imprison a
physician based on it,” writes AAPS General Counsel Andrew
Schlafly. Under the standard adopted by the lower court, a young
physician who proposed a novel procedure a tracheostomy to
relieve General George Washington’s airway obstruction could have
been imprisoned had he been allowed to do the procedure and
failed. Instead, the customary treatment of bloodletting was
employed, and Washington died, probably of epiglottitis.
AAPS Amicus Supports Parental Notification
In a brief before the U.S. Supreme Court supporting the New
Hampshire law requiring notification of parents before performing
an abortion on a minor, AAPS joined with John M. Thorp, Jr.,
M.D., Distinguished Professor of Obstetrics and Gynecology at the
University of North Carolina, Chapel Hill School of Medicine
(Kelly Ayotte, Attorney General of New Hampshire v. Planned
Parenthood of Northern New England, et al. No. 04-1144).
The brief brings to the court’s attention the conclusions of
a review article by Dr. Thorp that induced abortion is associated
with an increased long-term risk of suicide and self-harm,
placenta previa, preterm birth, and breast cancer owing to the
loss of the protective effect of the first full-term pregnancy.
Because of the importance of an accurate medical history before
an abortion as well as preventive measures following abortion,
AAPS argues that “upholding parental notice statutes serves to
protect minors’ health at least as much as striking down such
statutes for alleged defects related to minors’ health.” The
brief is posted at
www.aapsonline.org.
A Crack in Hospital’s HCQIA Immunity
In order for hospitals to be immune under the Health Care
Quality Improvement Act, three standards for “reasonableness” in
peer review must be met. But all the hospital has to do is to
claim that the reviewers “believed” their actions to be
“reasonable.” Moreover, HCQIA “presumes” that a hospital has met
all the procedural requirements for immunity, and failure to do
so does not itself constitute a violation of HCQIA. Thus,
hospital immunity is virtually absolute, and 80 cases that
physicians have brought against HCQIA have failed.
The exception is the landmark case Clark v Columbia/
HCA 25P.3d 215 (Nev. 2001). Kenneth M. Clark, a child
psychiatrist, had his staff privileges revoked because of alleged
activities that were “disruptive” to hospital operations. The
court found that Clark’s dismissal was “unique”: hospital records
reflected that the reason was his “apparently good faith
reporting of perceived hospital misconduct to the appropriate
outside agencies, or whistleblowing.”
The hospital bar is developing methods to circumvent this
“whistleblower” defense, writes Lawrence Huntoon, M.D., Chairman
of the AAPS committee on sham peer review.
Correspondence
New Weapon. “A faceless, nameless investigator, armed
with weapons never used here before, is coming to Erie and
Chautauqua counties to root out Medicaid fraud and abuse”
(Buffalo News 9/8/05). As predicted, as funds in
government programs fall woefully short of the generous promised
benefits, government will increasingly look to physicians to make
up the shortfall. Erie County has announced a probable 50%
increase in property taxes, along with increased sales taxes, and
county executives are salivating at the prospect of shaking
physicians down for $100 million or so. Their pockets are “an
area that is ripe for the picking.”
A data-mining tool called VERIFY-NY is supposed to uncover
the fraud, waste, and abuse that, according to one study, devour
up to 40% of New York’s Medicaid spending.
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY
Medicaid Costs. The Colorado Tobacco Tax initiative
approved in 2004 preferentially funds Community Health Centers. A
1990 federal law requires that Medicaid must pay 100% of
costs now $130 for an office visit to Community Health Centers.
Colorado Medicaid pays physicians $27 for a basic office visit.
Urgent care clinics charge $100. We need a new slogan: “Save
Medicaid money, go private!”
Linda Gorman, Independence Institute, Englewood, CO
Get the Government Out of Medicine. We can’t force the
market to do what it is not designed to do. Allowing politics to
usurp our unalienable rights created our current problems. So how
can we remedy the situation? We can supply medical care just as
we did in America a century or so ago, before Europe exported
socialism to America. No government programs. No entitlements. No
forced wealth transfer. No majority opinion robbing productive
citizens. No privileged class established by fiat. Just good ol’
American compassion rising from the ashes of more than 100 years
of government plunder, abuse, deception, and failure.
Joseph Lee Pugh, Diamondhead, MS
Hillary and HAL. Senator Clinton is not a movie buff.
She is championing the idea of artificial computer intelligence
in medicine by referring to HAL, the computer aboard the
spaceship discovery in Arthur Clarke’s 2001: A Space
Odyssey. HAL caused havoc and death when he went berserk.
Frank Timmins, HealthBenefitsReform Group
Productive Use of Money. I estimate it would take about
$50,000 to $75,000 to get started in a third-party-free clinic
like mine which would be made up within a couple of years.
Imagine that all the money that has been invested in
studying the problem had been given as low or no-interest loans
to help start clinics. With $10 to $15 million, we could have had
200 direct-payment clinics actually caring for the uninsured, as
opposed to talking about covering them. And the money would be
coming back to be reinvested in more clinics.
It’s about power, not caring. Agitate, agitate for ordinary
Americans not people with powerful desk jobs to control the
money. Expose the true motives of the “reformers.” There is no
policy panacea or great macrosolution that will usher in a
medical utopia only a bunch of microsolutions, of which every
direct-payment clinic is an example.
Robert S. Berry, M.D., Greeneville, TN
Responsibility. In an article entitled “What Gulag?”
about how the Soviet regime has never been declared criminal,
David Satter writes: “Russians…frequently lack the conviction,
intrinsic to free men, that an individual answers for his actions
no matter what the external conditions” (Wall St J
5/6/05). That is also true of most physicians. When one points
out the immorality of managed care, for example, they may agree,
but they usually say, “That’s how it is; we have to adjust.”
Robert P. Gervais, M.D., Mesa, AZ
Complexity. The enormous load of paperwork imposed on
physicians in the name of controlling fraud collects thousands of
bits of obligatory information that hide the real medical issues.
The scheme is designed by third-party payers to avoid paying for
anything other than a superficial evaluation.
In a third-party-payer (socialist) system, free-market
forces do not control expenditures. The only method of control is
to make services unavailable. The system is analogous to asking
an airline pilot whether he can fly without a radio or radar. He
is proud that he can fly “by the seat of his pants.” So the
manager tells him that to turn on the radar he has to fill out 18
forms and obtain a special permit.
James Durand, M.D., Arlington, TX
Health Systems Research. Advocates of socialized
medicine gin up one “study” after another to “prove” that
government medicine is the answer to all. One can expend energy
reviewing the data and debunking the study, but they’ll just come
up with another one. It’s like throwing mud at the wall to see
what sticks. Nobody believed the study in To Err Is
Human, but it is constantly cited anyway. It stuck.
To me, it’s simple. When Americans go to Canada or the UK or
continental Europe for their medical care, just as Canadians and
Europeans come here, I’ll believe that their system is better.
Russell W. Faria, D.O., Newport, OR
Legislative Alert
Katrina Blows Away the
Congressional Agenda
Returning from the Labor Day recess, Congress will
quickly re-set its priorities to deal with the fallout from
Katrina, which is emerging as America’s worst national disaster,
surpassing the 1906 San Francisco earthquake and the Galveston
hurricane disaster. With the displacement of millions, and the
death toll reaching up into the thousands in the Gulf States of
the Deep South, the effort to rebuild is well underway. Within
just a few days, American private charitable donations exceeded
$400 million, and Congress enacted a $10.5 billion emergency
supplemental spending bill.
While the nomination of John Roberts to be the next Chief
Justice of the U.S. Supreme Court is locked solid on the Senate
calendar, expect other major items to be thrown off track. It
appears that the appropriations process, and possibly Social
Security and Medicaid reform, will be sidelined. The President’s
tax commission is supposed to report out a series of crucial
recommendations at the end of September. Already, a major tax
reform item appears stalled. The Death Tax relief that passed the
House and was poised for a Senate vote has been withdrawn from
immediate consideration.
With the damage to the Gulf refineries and the soaring price
of gasoline, Congress is now focused on continued disaster relief
efforts. The action will center on further funding for assistance
to the displaced and the dispossessed, new energy initiatives,
and new types of assistance for damaged industries such as
shipping. New Orleans, the hub of such an enormous circle of
economic activity, is likely to be the site of the most massive
reconstruction effort since the Marshall Plan. The danger is that
members of Congress will resort to the same old pork-barrel
spending, using the Katrina disaster as a cover just as so many
shamelessly did using the 911 attack.
The large numbers of displaced workers provide Congress an
opportunity to do the right thing in health policy. Beyond the
immediate needs, there is the fact that one can’t depend on
employer-based medical insurance when the employer’s business has
literally been swept away. Federal tax and regulatory policy
should be changed immediately. The now meaningless legal
relationship between employment and access to medical
insurance brought about by the ball and chain of federal tax
policy must be broken.
This could be done in two steps: (1) Direct subsidies or
refundable tax credits for displaced workers, administered
through state unemployment or disaster relief offices and (2)
changes in federal law to permit purchase of coverage across
state boundary lines and through various institutions. Catholic
Charities and the Southern Baptist Convention, for example, are
undertaking enormous relief efforts in the Gulf States. There is
no reason why they should not be able to sponsor medical
insurance plans.
Expect the Left to call for a major expansion of public
programs, particularly Medicaid. Congress instead could do
something different, and do it right away.
Unlike 911, the Katrina disaster is being accompanied by
bitter partisanship. While one would expect that the political
objective would be national unity, partisan divisions are
surfacing and a “blame game” is well underway. An inflammatory
process of investigation is probably unavoidable. While President
Bush’s approval rating has plummeted to 40%, Congress is faring
even worse. According to a Gallup Poll, Congressional approval
stands at 36%, with 58% registering disapproval.
The Status Quo Equals More Government
The Census Bureau’s annual figures on uninsurance are not
surprising. The Bureau estimated that 45.8 million Americans were
uninsured in 2004, or 15.7% of the population. Because of
population growth, the 800,000 increase in the raw number of the
uninsured compared with 2003 was largely offset by an increase in
coverage for 2 million more persons. The percentage of workers
covered by job-based medical insurance continued to drop, from
60.4 to 59.8%.
The indisputable truths about the uninsured are unchanged.
They are not a permanent class; most are uninsured for brief
spells. While the uninsured are most heavily concentrated among
low-income working people in small firms, significant numbers
have a mid-level or even a high income. About one-fourth of
those offered job-based coverage simply refuse to
participate. Some are young and think they are immortal. Some
of those who are perfectly capable of buying an affordable
insurance plan refuse to do so, knowing that if they get really
sick, the taxpayers will pay for their care anyway. And finally,
we know that millions of families who have employer-based
coverage are afraid of losing it because they fear being unable
to afford an individual policy. Most indeed probably could not,
depending upon their income, their tax status, and their state’s
insurance rules.
The continuing decline in private, employment-based coverage
is a significant development. Historically, there has been a
direct correlation between economic growth and employment-based
medical insurance. In recent years, however, the economy has
seriously improved, growing at 4% in 2004. Moreover, productivity
growth since Bush took office has been the fastest since World
War II. Europe and Japan, in sharp contrast, are not growing, and
the retirement savings of a growing cohort of Europeans seniors
are being invested in the United States. Despite oil prices
exceeding $60 per barrel in July, U.S. unemployment was only
5% tantamount to full employment, reflecting the fact that a
large number of folks are between jobs.
So what’s going on here? The third-party payment structure
is itself the culprit. The strain on employers is only apparent;
the costs are always passed on to employees. They see that their
wages are flat or increase minimally, even if their compensation
has increased significantly mostly in the form of medical
benefits.
The most significant news of the Census Report is that
Medicaid grew by another 1.9 million in 2004. Government
dependency is expanding, and private coverage is contracting, and
neither the federal nor state policymakers seem ready to do
anything to reverse the trend.
The Leftists in Congress and elsewhere can privately
celebrate the “failure” of the private sector, and loudly applaud
the expansion of the public sector, although they don’t dare do
so in public. They are winning all around. The rough 50/50
division of the medical dollar between private and public
spending is coming to an end. Unless Congress and the
Administration get serious about changing the current dynamics,
we will see an acceleration of the current trend toward
government domination of the financing and delivery of medical
services for an ever larger number of Americans.
Health Savings Accounts (HSAs) and Insurance
Premiums for employment-based group medical insurance have
been rising since 1996. In 2004, the average increase was 11.2%,
slightly less than the 13.9% increase in 2003, but still
significantly outpacing the growth in wages, productivity, and
the general economy. And if workers try to escape and purchase
insurance in the individual market, they will be penalized
directly by the current tax code.
The individual market is a small portion of the general
market, for tax and regulatory reasons, but it is healthier than
generally imagined. The latest data on HSAs show that they are
much more affordable than most people realize. For example, data
released by ehealthinsurance.com, a large internet broker, show
that HSAs are cheaper than all other forms of medical
insurance and that their premiums are going down, while other
premiums are going up. Average premium costs for an
individual plan dropped 19% in the first 6 months of 2005
compared to all of 2004, from $137.94 to $111.57 per month. The
biggest price drop was found in the 45-64 age group, with average
monthly premiums going from $225.05 in 2004 to $187.07 in the
first six months of 2005, for an average annual savings of
$455.76.
Meanwhile, America’s Health Insurance Plans (AHIP), the
premiere medical insurers’ trade organization, has just released
a comprehensive study of the coverage of 3.2 million persons, the
biggest study of the individual insurance market ever undertaken.
According to the AHIP study, for the year 2004, the average
annual premiums amounted to $2,268 for individuals and $4,424 for
the family plan. Obviously, younger enrollees have less expensive
coverage. For those between the ages of 18 to 24, the premiums
averaged $1,170. For persons aged 60 to 64, the premiums averaged
$4,185. For families covering children under 18, the annual
premiums were $1,832, and for families headed by a person between
the ages of 60 and 64, the annual premium was $7,248.
Differences in premiums reflected the differences in state
and local markets, such as demographics and prevailing practice
patterns, and the presence or absence of certain insurance rules,
including community rating or guaranteed issue, which tend to
make health insurance coverage very expensive. Nationally,
single policies average $3,000 annually. About 98% of family
policies were sold in states where the average premium is $6,000
annually. But in New Mexico, a family can get a insurance
policy for an average annual premium of $2,985, while in
New Jersey, the average family premium was a stunning
$14,403. New Jersey, incidentally, like Maryland and New
York, is one of the most highly regulated states in the union.
Based on the AHIP data, 88% of persons applying for
individual insurance were offered coverage; 43% of single
policies were purchased by persons between the ages of 25 and 44;
32% were held by people 24 years of age and younger; 25% were
bought by people aged 45-64. Subscribers chose a variety of plans
and benefits, including indemnity plans, HMOs, PPOs, and HSAs.
More than 90% of plans had some form of coordinated care or case
management. Most people buying this type of coverage bought plans
with out-of-pocket expenses less than $4,000 annually. All plans
had catastrophic protection, or a lifetime maximum benefit. The
average was $5 million, with most consumers picking plans with $2
million or more.
Medicare and Medicaid Again
The White House is worried about how senior citizens will
perceive the new drug benefit, and wants to do everything
possible to get senior citizens to sign up for the benefit, which
will take effect on January 1, 2006. The fear is that seniors
will not like what they finally see, when they look at it up
close and personal. And there is good reason for that. Needless
to say, the Congressional Democrats are saying the drug benefit
is not fat enough: they want to spend more, and close the
“doughnut hole.”
The Bush Administration has found a bright spot, that the
drug premiums are going to be less than they projected,
suggesting that competition is cutting the projected costs. Also,
the level of competition and plan offering exceeds the
expectations of even the Administration’s friends in Congress and
elsewhere.
The problem remains, however: Congress, with the active
support of the Bush Administration, created a defined benefit as
an open-ended entitlement, which will stimulate endless
demand. That demand will never be curbed; only supply. And
that means price controls. And price controls mean poor
quality care. Not sometimes. Always.
The Medicaid Commission has come up with recommendations
totaling roughly $10 billion in cuts over the next 5 years. While
this is, in fact, a small set of reductions, they will be
bitterly opposed by the Congressional Left.
The Commission is looking into longer-term reforms. Here
is a suggestion: Focus on structural changes first and worry
about budget cuts later. Change the current federal state
match formula, and set up a defined contribution to the states.
The state applies for federal money, but the state only receives
the money on the basis of a negotiated agreement between state
and federal officials. The state expands choice and access for
beneficiaries, improves quality and efficiency in the delivery of
care, and mainstreams more of its citizens out of Medicaid into
the private medical system. If it meets these negotiated
standards, the state gets a Medicaid bonus, a kind of “pay for
performance” system.
That is precisely the kind of model that Congress created
in the 1996 welfare reform act. It worked.
Robert Moffit is Director, the Center for Health
Policy Studies at the Heritage Foundation, Washington,
D.C.
