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of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto
Volume 60, No. 4 April 2004
"Best practices" and "payment for quality" are being sold to
physicians as protection against malpractice liability and a
potential source of bonus payments.
And if they are unimpressed with the proverbial carrot,
always just out of reach, and object to the principle or the
added burden of gathering and reporting quality data, "They
simply need to get over it, because it's going to happen," stated
National Quality Forum President and CEO Kenneth Kizer, M.D.
(AM News 3/1/04). Federal and state governments can
exert enormous leverage because they now pay nearly 50% of all
Minnesota may soon enact legislation directing the
commissioner of health to "identify five best practice
guidelines" and to "monitor and track the extent to which
Minnesota health care providers follow the guidelines" (see www.cchconline.org).
Adherence to accepted guidelines would constitute an "absolute
defense" against an allegation that a practitioner did not meet
the standard of care.
The law would not change the burden of proof in an action
alleging inappropriate application of a guideline, and as Twila
Brase, R.N., points out, "it could be inferred that any practice
not approved by the Board is malpractice, and therefore ripe for
litigation" (Health Care News 2/04).
The new Medicare law has a provision that "will offer
0.4% higher payments in 2005 to hospitals that report
performance data on 10 quality measures for all patients, not
just Medicare beneficiaries" (AM News, op. cit.). As of
Feb. 20, 1,407 hospitals had shared data on at least one of the
clinical quality categories. "While CMS calls participation
`voluntary,' hospitals are probably participating to avoid
0.4% pay cuts mandated in the Medicare Modernization
Act" (Medicare Compliance Alert 3/1/04, emphasis added
in both quotations).
UnitedHealthcare has retained KJD Company to abstract
information from medical records of private physicians for the
Health Plan Employer Data and Information Set (HEDIS). "The
assessment process also provides you, as a participating
physician, with feedback from your patients that enables you to
make the most appropriate diagnosis, recommend a course of
action, and (with the patient's input) implement that course of
action for health improvement or health care maintenance," states
a "Dear Doctor" letter from Robert Jacqmin, M.D., National
Medical Director for Quality.
Not surprisingly, Senator Hillary Rodham Clinton favors a
government-created infrastructure for quality. Quality
Measurement was Working Group 9 of Cluster Group III in the
Clinton Healthcare Task Force Interdepartmental Working Group,
headed by Arnold Epstein, a Robert Wood Johnson fellow working in
the office of Sen. Kennedy. Both the Robert Wood Johnson
Foundation and UnitedHealthcare were key players in formulating
the Clinton Health Security Act, which the Republican Congress
continues to enact piecemeal. And both organizations are
especially strong in Minnesota. A leader in four Working Groups
was UnitedHealthcare Vice President Lois Quam, who was also
former Chairman of the Minnesota Health Care Access Commission.
Misgivings about the process were noted in a partial
transcript of the Quality Working Group: "I have concerns about a
theory of quality control that will tend to become bureaucratic,
a system of checkers checking other checkers rather than
something that really helps people on the front lines. Why do you
need to collect so much information?...I worry about that because
those are process measures, those are measures that can be
gamed.... I'm uncomfortable with stating that we can't really
measure what we want to measure so we'll measure something
else.... We could move to having as many computer systems as
there are doctors."
Indeed, the data being sought are process or performance
measures, or at best surrogate endpoints. The CMS hospital
reporting initiative looks at whether patients with heart
problems received aspirin, beta blockers, and ACE inhibitors, and
whether pneumonia patients received a Pneumococcal vaccination
(eight of the ten items concern the use of pharmaceutical
products, without regard to individual circumstances).
Is it purely coincidental that the National Committee for
Quality Assurance (NCQA) is funded by the pharmaceutical
industry? (See Hall of
Shame at www.aapsonline.org.)
The out-patient data, as in the Arizona Diabetes Initiative,
concern the percentage of patients who had a measurement of
hemoglobin A1c, LDL, or blood pressure in the past year, and the
percentage with levels < 7%, 100, or 130/80, respectively.
Mortality rates, amputations, blindness, strokes, or renal
failure are not among the measurements. A study with a 6-year
follow-up showed that while an intervention group had
significantly better target measures, the mortality and rates of
diabetic complications did not differ (JAMA
It is acknowledged that physicians are too busy responding
to acute problems to focus on the chronic disease protocols or
ways to collect quality points (as in "Snakes, ladders, and
spin:...a comprehensive review of strategies to optimise data for
corrupt managers and incompetent clinicians," BMJ
2003;327: 1436-1439, bmj.com). Implementation within a system is
envisioned, with computerized reminders and nag nurses. Small or
solo practices usually don't see enough patients to do a
meaningful assessment, so they can't be rewarded for high
quality. "Those who choose to organize their practices as solo
practitioners will just be out of that income stream," said
Robert Reischauer of the Urban Institute (AM News, op.
The "best practices" advocated by Clintonite reformers are
clearly large institutional practices amenable to top-down
command and control by government and other third parties.
Past "Best Practices"
Charles Phillips, M.D., of Fresno, CA, lists some examples:
irradiation of the thymus gland; diuretics to treat edema of
pregnancy; hormone replacement therapy to prevent osteoporosis.
It was bizarre and obviously wrong to treat peptic ulcer with
antibiotics. "The Annals of Emergency Medicine," writes
Dr. Phillips, "demonstrated that any `evidence' used to create
`best practices' involves 12 layers of potentially biased
choices; therefore such material should not be viewed as pure and
universally accepted" (www.cchconline.org).
Government Suppresses Data
A $500 million demonstration project called Healthy Start, a
RWJF-supported program, aimed to reduce infant mortality by 50%.
In 1997, the federal government barred a presentation by
researchers from Mathematica Policy Research, Inc., of
preliminary data showing little effect (Seattle Times
11/13/97). In 2004, the program is ongoing (www.healthystartassoc.org
), but significant positive outcomes data have yet to be
Under the pretext of an "increased risk of a breach of
confidentiality," Mark and David Geier's long-awaited access to
the CDC's Vaccine Safety Datalink data was terminated. The
approved analysis was to determine whether acellular DTaP
increased the risk for acute or chronic adverse events (from a
list of 15) within 30 days or 1 year following vaccination.
Instead, the Geiers attempted to compare autism rates in those
receiving 100 mcg of thimerosal from DTaP to those receiving no
thimerosal from DTaP. (See J Am Phys
Surg, spring 2003).
Are recommendations to remove thimerosal from pediatric
vaccines merely precautionary? Or is there serious toxicity? At a
Feb. 9 meeting at the Institute of Medicine (IOM), the
controversy was discussed (
The California Environmental Protection Agency rejected a
petition from Bayer Corporation to remove thimerosal from the
list of mercury and mercury-containing compounds, or alternately
to reconsider its determination that thimerosal caused
reproductive (including developmental) toxicity.
Thimerosal contains ethyl mercury, as Paul Offit pointed out
(Wall St J 2/9/04), whereas EPA standards were
recommended for methylmercury. The California EPA report, posted
under "vaccine information"
at aapsonline.org, states that ethylmercury has also
been shown to accumulate in the brain and cause neurotoxicity.
Moreover, it is converted into inorganic mercury, which is
clearly a developmental toxin.
WHO guidelines on thimerosal adopted in February, 2003,
state that thimerosal is used in the inactivation of vaccine
antigens, not simply as a preservative. A "preservative-free"
vaccine may still contain thimerosal. The elimination of this
component could affect vaccine safety and efficacy; the resulting
products could require further clinical trials.
Charles Pavey, M.D., R.I.P.
Charles Pavey, M.D., born 1906, died on Feb. 17. He served
as President of AAPS in 1957. In 57 years of practice, he
delivered about 25,000 babies. Many of his innovations became
standard practice in obstetrics.
Did You Miss a Meeting?
Tapes of the winter meeting in Orlando are now available:
Andrew Schlafly on Medicare, Peer Review, Licensure, and Other
Legal Issues; William Sutton and Mike Lowe on Defending Your
Practice Against Prosecutions, Audits, and HIPAA Violations; and
H. Todd Coulter, M.D., on Eliminating Third-Party Payments. Call
(800) 635-1196 for an order form, or print
an order form; other meeting tapes also available.
AAPS Peer Review Committee Needs You
The new AAPS Peer Review Committee is exploring the
possibility of offering independent reviews to members who feel
they have been the victim of a sham peer review. We need
volunteers in all specialties to serve as expert reviewers and to
generate a report of their findings. Any costs would be paid by
the physician requesting the review. Please contact the chairman,
Dr. Larry Huntoon, at
How "Best Practices" Are Determined
There are influential people who want to tie compliance with
"evidence-based medicine" (EBM) to payment, malpractice, and even
licensure, writes Greg Scandlen. But the studies cited as
evidence "assume that people behave like molecules," observes
Linda Gorman. One study, stating that Colorado Medicaid mental
health performs better now that the state has set up a treatment
network, "uses heavy statistics to massage the data set." But
half the sample appears to have dropped out and is missing from
the analysis! "The prospect of using such studies to derive
treatment protocols and settle torts ought to scare the socks off
The "research mafia" is policy-driven, Gorman says. "What
the forces of darkness want to change is the way the evidence is
interpreted. Rather than skilled experts making up their own
minds, they want to use the Soviet method: a small group of
academics will interpret existing data for all of us."
A treatment may be so superior that a study is terminated
prematurely on ethical grounds. Thus, no study meeting the
standards of EBM may exist. The final choice is based on cost,
regardless of clinicians' experience that one drug clearly works
better, writes Gerald Yorioka, M.D., who served on a Washington
State Drug Use committee. "We must not be deceived by the
magician's cloak. It is even worse when it becomes the
politician's cloak, with dagger."
April 19. "America's in Pain" March on Washington. See
May 15. Board of Directors meeting, Chicago.
Oct. 13-16. 61st annual meeting, Portland, Oregon.
AMA Stands for Absolute Immunity
The AMA finds it "generally unlikely" that physicians would
abuse peer review to affect competition or to knowingly pass
along false or misleading information. Such an act would be
contrary to professional and ethical standards, and its discovery
would "seriously jeopardize their standing among colleagues and
in the institutions where they practice."
The AMA speculates that "what seems far more likely is that
the subject of an investigation will be angry enough at those who
participated in the investigation to file a retaliatory lawsuit."
The risk of exposure to the "unquantifiable impact of litigation
where his professional judgment and integrity is being
challenged" is so intimidating that anything short of absolute
immunity for physicians participating in peer review "virtually
guarantees professional silence" (AM News 3/15/04).
Thus, the AMA and the Connecticut State Medical Society are
urging the Connecticut Supreme Court to overturn the ruling in
Chada v. Hungerford Hospital et al., which allows a
psychiatrist to proceed with a defamation lawsuit. This is the
second case to put a chink in the peer reviewer's armor of
immunity. In a California case, Allen Hassan v. Mercy
American River Hospital (see AAPS News Dec. 2003), the Court found no grounds for a
doctor's claim to proceed but left open the possibility for
future litigants. This decision is posted under "Peer Review Injustice" at
Patient safety is cited as the justification for shielding
peer reviewers, even those who maliciously bear false witness.
Yet the AMA does recognize that physicians who speak up on
quality-of-care issues may be labeled "disruptive" and have their
hospital privileges terminated (AMAVoice Jan/Feb 2004).
And how does this happen? The hospital launches a sham peer
review, with physician complicity.
Exposure of abuses, AAPS believes, is the first step toward
restoring physicians' rights to hold accusers accountable.
No Due Process in New York
"In its zeal to maximize the number of physician license
suspensions and revocations, the Office of Professional Medical
Conduct (`OPMC') has, sub silento, stripped away many of a
physician's basic liberties as the cost for the privilege to
practice medicine in this State," write attorneys Michael
Schoppmann and Rudolph Gabriel (The Medical Society
Bulletin, Winter 2004, Erie and Chautauqua Counties).
The right to counsel, the right to a speedy trial, the right
to review evidence before a hearing, and the right to a local
hearing, are all disregarded. There is currently no statute of
limitations on OPMC investigations.
Testimony by AAPS General Counsel Andrew Schlafly before the
NY State Assembly on the need for OPMC reform is posted under "Licensure" at
AAPS Files Amicus in Limbaugh Case
Under a sweeping application of the Florida "doctor shopping
statute," the State of Florida obtained an ex parte
search warrant to seize all of the medical records of
radio talk show host Rush Limbaugh.
In an amicus brief filed before the District Court of Appeal
of Florida, Fourth District, (case no. 4D03-4973), AAPS General
Counsel Andrew Schlafly argues that the records seizure signals
"an attempt by the State ultimately to interrogate Limbaugh's
doctors about what he did or did not tell them. This tactic
thereby turns the doctor against his own patient, triggering
breach of the Oath of Hippocrates that has governed the medical
profession for 2400 years."
A patient's comments (or lack thereof) to a doctor while
seeking treatment for pain is presumptively protected speech
under the First Amendment to the U.S. Constitution. "Only a
compelling state interest and strong evidentiary showing, after
full notice to the patient, would justify this intrusion, and
even then disclosure should only be with the strict safeguards
required by Whalen v. Roe, 429 U.S. 589 (1977)."
Allowing these warrants to stand would have a chilling
effect on the practice of medicine in Florida. The only way
physicians could escape the Catch 22 of being ordered to testify
against their patients would be to avoid treating pain patients.
Florida Statute 893.13(7)(a)(8) reads as follows: "To
withhold information from a practitioner from whom the person
seeks to obtain a controlled substance or a prescription for a
controlled substance that the person making the request has
received a controlled substance or a prescription for a
controlled substance of like therapeutic use from another
practitioner within the previous 30 days."
The AAPS brief, posted under "Pain Management" at
www.aapsonline.org, was funded by the American Health
Overextending Criminal Law
Article 1, Section 8, of the U.S. Constitution authorizes
Congress to "provide for the Punishment of counterfeiting the
securities and current Coin of the United States" and to "define
and punish Piracies and Felonies committed on the high Seas, and
Offenses against the Law of Nations."
More than 3,000 offenses are now punishable as federal
crimes, and the number of crimes in most state penal codes has
doubled over the past century. Caseloads in federal courts have
doubled since 1980, and the number of prisoners in federal
custody has increased by nearly 180% since 1990 (U.S. DOJ).
The phenomenon is explained by the "one-way ratchet of law-
and-order politics." Being tough on crime wins elections. And
once on the books, criminal statutes (such as anti-dueling laws)
are virtually never rescinded.
The line between tort and crime is slowly disappearing, and
the definition of a crime may be at the sole discretion of a law-
enforcement agency. Criminal sanctions may be imposed without
showing a culpable mental state through the doctrine of strict
liability. The reach of the law can be arbitrarily expanded to
almost everyone as ordinary activities are defined as crimes.
(Cato Policy Report Nov/Dec 2003). A web site devoted to
"fighting against the current trend to criminalize everything" is
No Reassurance on Opioid Prescribing
At a press briefing on pain management sponsored by the
American Society of Law, Medicine, and Ethics, experts said that
"the fear of being prosecuted for overprescribing opiates is
exaggerated." However, about 12% of chief prosecuting attorneys
had brought criminal charges for prescribing during the preceding
year. In a survey of state medical boards, 37% said that
disciplinary actions for overprescribing opioids increased from
1997 to 2001, and 40% said they stayed the same (Internal
Medicine News, 9/15/03).
Insurers Adopt New Extortion Tactic. To implement a
cost-saving measure called "take backs" reminiscent of the
clawbacks used by the Canadian government insurance companies
have created "Administrative Disciple Committees." These very
intimidating committees generate demand letters for amounts
ranging from $20,000 to $300,000 per physician. If the physician
balks at the repayment demand, the matter goes to arbitration.
This process basically assumes physician guilt and acts only to
determine settlement amounts. This egregious tactic of
retroactive denials may be in violation of New York State's
Prompt Pay Law.
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY
How Big Is the Blob? The government bureaucracy that is
a major threat to the future of our nation is amorphous, so its
dimensions are difficult to determine. We know, however, that
U.S. manufacturing employment has plummeted to a record low of 12
million workers while government employment has rocketed to a
record high of almost twice as many. Public-sector unions have
become one of the largest special-interest groups in local and
national politics. Personnel departments are de facto agents of
government, feeding reports to the Blob to keep it from devouring
their companies. It is impossible to measure the effects of the
diktats of a cadre of bureaucrats on the morale and productivity
of their 280 million subjects.
Craig Cantoni, Scottsdale, AZ
Rights Legitimate Force. Having declared medical care
to be a right or entitlement, government is obligated to use its
power against the innocent, such as the grandchildren, to pay for
it. Because government must supervise the use of tax money, it
must also impose costs of compliance with rules on doctors who
would never abuse the right of contract between patients and
physicians, now outlawed by Medicare.
Robert P. Gervais, M.D., Mesa, AZ
HSAs Better for the Sick. The worst-case scenario for a
couple with an HSA and a combined deductible of $5,000: $5,000 +
$3,936 (premium) = $8,936. With Blue Cross/Blue Shield and the
same two lightning-bolt events, the total expense would be:
$1,000 (deductible) + $8,460 (premium) = $9,460, about $500 more.
To anyone except the most desperate statist, the choice of what
is most economical is clear.
Sean Parnell, Heartland Institute, Chicago, IL
Firing Customers. Sometimes companies shed business
simply to survive. One small business I know fired a Fortune 500
customer that was a big slice of revenue. It was just a pain to
work with, and it required a whole employee just to make the big
company pay in 90 days. After firing the behemoth and surviving
the near-death experience caused by lack of cash flow, the little
company also figured out that it should avoid customers who
expect hours of training in exchange for an instrument costing a
few thousand bucks....
Linda Gorman, Independence Institute, Englewood, CO
The Best Hope for Medicine. Doctors don't need to fight
the world. They need to take the advice they give from time to
time to their patients. Dr. Berry took control; Dr. Cherewatenko
took control; Dr. Eck took control; Dr. Rubin took control. AAPS
preaches taking control. Physicians have tremendous power, but
they are underusing it. The greatest thing physicians can do to
make their world better is to say "no" to third-party contracts.
Your services will still be needed.
Joseph Lee Pugh, Diamondhead, MS
Simple Care Thrives. We have 2,000 physicians now with
the fortitude and self-confidence to make a living practicing
their profession for a reasonable fee. But many doctors are so
beaten down that they are scared to compete in the out-of-
network, free-market model. They are so used to people showing up
because they are "on the list" that they believe they will have
no patients in their reception room if they don't participate.
Vern S. Cherewatenko, M.D., Renton, WA
A Solo Survivor. I left a group of seven in 1986
because it had become a consumer outlet for HMO and PPO
subscribers. While I never made enough to fund a profit-sharing
plan, I always paid my staff of four and was able to practice
personal medicine for all who came through our door. Just 13
miles from downtown St. Paul, with no agreements with the
rampaging HMOs of MN, I collected 92% of my charges (10% off for
cash payment). The collection ratio went down to 73% when I was
ready to slow down and took on a 40-year-old partner who insisted
we couldn't survive without PPOs. After joining every plan in the
Twin Cities, he is struggling.
As I travel in my locum tenems, I pass out AAPS materials
and try to wake up more physicians.
Stanley Johnson, M.D., Larkspur, CO
It's About Control. The way we structure our medical
system will determine whether we keep our liberty or become wards
of the state. Otto von Bismarck started the first government-run
health system, with the conscious intent of making people
beholden to the government, thus solidifying imperial power. The
centralized record-keeping system was ultimately used by a
subsequent regime (Hitler's) for purposes such as euthanasia.
Lee Hieb, M.D., Yuma, AZ
Legislative AlertStill More Medicare Fallout
Remember when the enactment of the Medicare
Modernization Act was described as a political coup for the
Republicans? Remember the conventional political wisdom that the
Republicans had "stolen" the drug issue from the Democrats and
taken the issue off the table?
As predicted here, no such thing has happened. The Act is
causing headaches, fiscal and otherwise. It's a hard sell back
home with seniors and taxpayers.
There is still time to fix the big drug provisions, which
take effect in 2006. Instead of trying to make a flawed policy
work, a better idea would be to build on the drug discount card,
targeting taxpayer dollars to those with high drug costs or low
incomes, or both. At the very least, the Congress should delay
implementation of the massive entitlement, for several reasons:
The drug provisions to the extent that they are
understood are likely to be unpopular among the very
beneficiaries they are designed to serve. According to a
recent Kaiser Family Foundation survey, 55% of seniors have an
unfavorable view of the law, while only 17% have a favorable
view. Of the seniors who said that they knew the law had passed,
73% had an unfavorable opinion of it. According to Congress
Daily, the National Republican Congressional Committee
recently advised its members to "lower expectations" on the drug
The projected costs are already far in excess of the
original projections, as explained in last month's
issue. The ten-year estimates are only the tip of the proverbial
iceberg. Instead of reforming Medicare so as to absorb the
demographic shock of the Baby Boom generation, the new
entitlement makes the fiscal situation worse. Financed out of
general revenues, it doesn't even have the fig leaf of a trust
fund to give it a patina of fiscal responsibility. Tax cuts are
already in jeopardy.
Forget the Congressional excuses, the endless explanations,
and solemn reaffirmations of their good intentions. The Good Book
says that by their fruits you will know them. There you
have it: more entitlement spending and higher
The drug entitlement is already accelerating the
loss of private employer-based drug coverage. It is
impossible, of course, to have a universal drug benefit without
crowding out existing drug coverage. The likely impact of the
drug entitlement will be to encourage large corporations drop or,
more likely, scale back their existing retiree coverage to the
level mandated by law, with its complicated benefit structure and
large gaps in drug coverage. That process is already underway.
It is going to be an administrative
nightmare. Like the Balanced Budget Act of 1997, the
Congress has made numerous changes in Medicare. The
implementation of these changes is to be carried out by the
Centers for Medicare and Medicaid Services (CMS), the agency
formerly known as the Health Care Financing Administration
(HCFA), arguably one of the most poorly performing agencies of
the federal government. CMS must implement changes in payments
for doctors, hospitals, medical devices, and cancer drugs.
Additionally, Congress has authorized a major overhaul of
the flawed Medicare+Choice program, replacing it with a new
Medicare Advantage program that will consume a great deal of
effort from a career staff already stretched beyond its
capacities, inasmuch as it must also cope with the huge and ever
larger Medicaid program, the State Children's Health Insurance
Program (SCHIP), and the enforcement of the Health Insurance
Portability and Accountability Act (HIPAA).
The drug entitlement will pose a special challenge.
Government entitlements are often sold as administratively simple
affairs. But 'tain't so. At the January 2004 Bipartisan
Congressional Health Policy Conference, Nancy-Ann DeParle,
Clinton's HCFA Administrator, noted that the Medicare bureaucracy
will have to develop a new delivery system for prescription drugs
for 42 million people, who will start to enroll in the new
program on November 1, 2005. The tacit premise is that few
existing drug coverage options will survive the onset of the new
entitlement. Over the next several months, the Secretary of HHS
must establish regions for the drug plans and determine
therapeutic categories to be included in the formularies; set
standards for the new Prescription Drug Plans (PDPs), the private
plans that provide drug-only coverage, which don't exist in
market-based fact, but only in non-market-based theory; determine
part D premiums for the drug coverage; provide employer subsidies
to firms that retain drug coverage and provide federal subsidies
for low-income beneficiaries; assure the provision of at least
two plans, either PDPs or MA plans, or a combination of them, in
every region of the country, and establish a fallback drug plan
if two such plans, either a PDP or MA plans, do not materialize.
The Uninsured and Distorted Insurance Markets
Medical costs are still soaring, more folks are being
priced out of coverage or are losing it, and the taxpayers are
picking up a higher and higher proportion of the costs of the
uninsured either directly through public program expansions or
indirectly through higher premiums to offset the cost of
uncompensated care, particularly in hospital emergency rooms.
To defend the status quo amounts to the defense of the
continued expansion of government. Medicaid, instead of
contracting as so many expected because of the big budget
problems of the several states, is actually expanding. As USA
Today recently reported, Medicaid covered 42.4 million
people, more people than Medicare, last year. CMS reported that
Medicaid grew by 3.9% last year 1.6 million people and it will
grow another 2.1% this year. The Left will look to expand
Medicaid even further, enrolling working families in the nation's
largest welfare program.
The Bush Administration is tackling the problems with a
focus on the implementation of the health savings accounts
(HSAs), coupled with the extension of tax deductibility to the
premiums for catastrophic coverage associated with those plans.
The first battleground over HSAs will be the Federal Employees
health benefit program (FEHBP). Bush's Director of the Office of
Personnel Management Kay James has announced her intention to
open up the program to HSA plans. But James is running into
strong opposition from the National Association of Retired
Federal Employees (NARFE) and the federal unions, namely the
National Treasury Employees Union (NTEU) and and the American
Federation of Government Employees (AFGE). The NARFE-union
position is that HSA plans will lead to adverse selection in the
program and a death spiral: HSAs will drain off the young and
healthy members of the workforce and leave the older and sicker
folks in the traditional plans.
The standard adverse selection arguments against HSAs are
overdone. Indeed, folks with high and predictable medical costs
are likely to find an HSA very attractive. The more likely impact
of HSAs will be to dampen costs and expand direct patient control
over medical dollars. According to a February 25, 2004, study by
the Joint Economic Committee of Congress, since 1960 real per
capita medical spending has increased sevenfold; and a key factor
has been the fact that since 1960, the proportion of medical
bills paid out of pocket has decreased from half to barely one
seventh. By moving from a comprehensive to an HSA plan, the costs
will become transparent for patients and doctors for routine
medical expenses. While this may not reverse the spending trends,
which are governed by several factors, it certainly could dampen
The Bush Administration is also promoting refundable tax
credits, worth $1,000 per person and up to $3,000 per family.
Critics say that the credits are not generous enough to reduce
significantly the number of the uninsured. This dispute often
centers on the design of the credits and the kind of coverage
that families would or could buy with the assistance of a credit.
The Administration is also promoting association health plans
(AHPs) and increased funding for community health programs.
Backers of AHPs want small businesses to be able to pool their
resources and reduce costs by purchasing through associations.
The Big Issues
The debate on medical care has not gone far enough; it
is invariably framed simply in terms of insurance coverage. Other
dimensions are routinely overlooked. The most important are:
Loss of control over key medical decisions by both
doctors and patients. This includes the range of
treatment options and the privacy of their medical records. Given
the ideological bent of most of Washington's health policy
analysts, complaints about loss of patient control tend to focus
on private managed care plans. This misses the broader point.
Managed care is only a manifestation of the underlying problem.
Millions of Americans are enrolled in plans by their employers or
by state Medicaid bureaucracies. In those circumstances, the
patient's power is reduced or eliminated entirely. Today, one
cannot, for all practical purposes, fire a poorly performing
insurance company; only the employer or the government
agency can. Physicians believe that they can either put up with
it, or go invest in real estate. Tomorrow must be different.
The unfairness in the tax treatment of medical
insurance. Hardest hit are moderate to low-income
workers who work for small firms. Because they do not get any
medical insurance at the workplace, they do not get the tax
breaks that accompany employment-based insurance. Thus, compared
to other workers, they pay a higher proportion of their income in
The growing bureaucratization of medicine through
third-party payment systems. This includes the cancerous
growth of regulation and red tape, particularly for physicians.
This is contributing to a dangerous demoralization of the medical
profession. The growth of HSA plans, fostering a restored
patient-physician relationship, could reverse these trends.
What Is To Be Done?
Ideally, the best solution involves two basic steps. The
first is to abolish the entire system of existing tax breaks for
medical insurance. Market distortion and inequity, and the
frustration of consumer choice and consumer-driven competition
are the main reasons for eliminating the current tax regime.
Current state and federal tax breaks amount to $189 billion,
according to John Shiels, an analyst with the Lewin Group. If you
don't want to impose a $189 billion annual tax increase on
Americans, then the second step is to decide how to provide
equitable tax relief for medical expenditures.
Conservative and libertarian economists tend to favor a
national system of tax credits, structured so as not to
discriminate against consumer choice. The "free rider" issue has
to be confronted: what to do about persons who refuse to buy
coverage and then incur a catastrophic cost? One suggestion is
that those who impose costs on the taxpayer should lose their
personal exemption from income tax.
The second needed change concerns the basic rules for
medical insurance. These need to require that every product offer
real insurance, i.e. catastrophic coverage for unforeseen and
expensive events. Other requirements include a provision for some
limited underwriting for health risk, such as tobacco use, as
well as underwriting on the basis of age, sex, and geography;
guaranteed renewability of coverage; and fiscal solvency
requirements. Ideally, the basic insurance rules should be set at
the state level. On issues such as statewide purchasing pools,
subsidies for low-income folks, and reinsurance mechanisms to
cope with adverse selection, policy trails off into the weeds,
and so many get lost and confused. But these are often technical
issues, and experience here is the best teacher. With 50 states,
you can have 50 teaching moments. States potentially hold the
greatest promise for creativity and innovation in the redesign of
The key political decision is whether to undertake a total
transformation of the system in one major effort, or create a
parallel system of tax credits for the uninsured and expand it
over time. Large employment-based health insurance works pretty
well, and probably should not be disturbed; small companies,
however, are not the best vehicles for delivering insurance, and
the expansion of a new tax credit system for the employees of
small firms, as well as for persons now struggling in the
individual market, makes a great deal of sense.
For the Record: Based on its voting analysis, the
prestigious National Journal has recently identified
Sen. John Kerry (D-MA) as the "most liberal" United States
Senator. Senator Kennedy ranks 12th, well behind Senator Hillary
Rodham Clinton, who ranks 7th.
Robert Moffit is Director, the Center for Health Policy
Studies at the Heritage Foundation, Washington, D.C.