Volume 55, No. 4 April 1999

DRAGNET

As part of its "Save Medicare" campaign, the federal government, in a public-private partnership with AARP, is deputizing 39 million senior citizens as "infantry" in the war against fraud-offering a bounty of up to $1000 if the citizen's report leads to a monetary "recovery."

Seniors are advised to talk to their "provider" first. But if they feel uncomfortable in doing so, or if the results are unsatisfactory, they should not hesitate to call the toll-free number, and the government will take care of everything:

"Every report will be reviewed. And while your call may not result in the filing of criminal charges, Medicare may seek a recovery....Often, officials seek a `pattern of abuse' rather than a single incident, so every call counts [emphasis added]."

The senior citizens are going to need those magnifying glasses that were given out at the training sessions (along with a T-shirt and baseball cap). The patient will probably be the only person to receive notice of an alleged limiting charge violation by a non-participating physician-in coded microprint.

According to Medicare B Hotline, December, 1998: "Effective November 1, 1998, the Upstate Medicare Division was instructed to discontinue mailing of Limiting Charge Exception Reports [LCERs]. We will continue to monitor amounts billed in excess of limiting charge regulations. Until further notice, remittance statements will be considered sufficient notice of any limiting charge violations."

The carrier is not required to send a copy of the remittance statement to the physician-who has only 30 days to challenge the allegation of overcharging.

"My experience with these LCERs is that Medicare has never been right in a single case that I can recall," writes AAPS Director Lawrence Huntoon, M.D., Ph.D. Usually, the notices are carrier errors. But they are assumed to be correct unless the physician challenges them successfully.

"The complexity is such that Medicare can't really tell when a true limiting charge violation has occurred as opposed to a false allegation of same," stated Dr. Huntoon. Nonetheless, in each and every case, "my patients were wrongfully advised that I had `overcharged' them or done something wrong. The `adjusted Explanation of Medicare Benefits' that the Blue Bunglers generate after they have wrongfully accused me just doesn't undo the damage they have done to the patient-physician relationship, and the Blue Bunglers frequently balk at writing the patient a letter to explain their error."

When an official makes an error, "there is no consequence. The bureaucracy is totally unaccountable," Dr. Huntoon states.

Although limiting charge violations only apply to non- participating physicians, all physicians who treat Medicare beneficiaries are at risk in other areas targeted by the fraud squads: upcoding; failure to provide adequate documentation to justify coding; or signing certifications for home health services or durable medical equipment or ambulance transportation that is not "medically necessary"-by the reviewer's definition.

Senior citizens are not the only troops being recruited. CLIA inspectors are being trained to watch for Medicare violations as they inspect physician office laboratories. Carriers and fiscal intermediaries are urged to refer all suspected fraud to the OIG. Then there's your compliance officer or your attorney. One prosecutor stated that "she could envision a day in the near future when the government would require attorney-client privilege be waived as a part of participation in federal health care programs" (BNA's HCFR 2/10/99).

Patients are also under suspicion. North Carolina will begin fingerprinting Medicaid recipients as a deterrent against fraud, beginning October, 1999 (BNA's HCPR 12/14/98).

The White House has announced another legislative and regulatory package intended to save an additional $2 billion purportedly lost to fraud. Washington, DC, attorney William Sarraille stated: "Talk about a stacked deck...I don't know what else there is for Congress" to give law enforcers in the way of additional tools. "The government at this point just has incredible power and is reaching a point of aggressiveness that is really quite remarkable" (BNA's HCFR 1/13/99).

One tactic is to use the threat of jail more vigorously in an effort to get plea bargains and settlements, stated the lead prosecutor in the case against BC/BS of Illinois, in which one mid-level employee has so far been sent to prison (Medicare Compliance Alert 1/1/99).

Law enforcers apparently consider themselves to be The Law. Despite the official withdrawal of the 1997 E&M guidelines, noncompliance with them may be the basis of an allegation of upcoding. If a physician corrects a record improperly, it may constitute "fraud," but carriers may alter claims with impunity. One Medicare reviewer reportedly insisted on changing the procedure code for an automatic refraction to a code for a higher-paying procedure that she thought produced a printout like the one in the record. For the physician to accept this payment would be fraudulent.

In Utah, Rambo-style investigations by Medicaid enforcers have been violating state law on subpoenas; denying physicians the right to counsel; charging physicians $1000/hour for being investigated; and invading medical offices without notice to demand immediate copies of records. One physician, who objected to these tactics, found his office broken into and his computers confiscated; agents left a search warrant on his desk.

The Utah Medical Association has strongly objected to such lawless actions. Utah physicians have threatened to resign en masse from the Medicaid program.

The police state of medicine, described in the July/August, 1998, issue of The Medical Sentinel, is rapidly advancing.

Can the rule of law survive?

Choose Thought

At WCA Hospital in Jamestown, NY, posters have started to appear, urging physicians to consider the CHF Clinical Pathway. Curiously, noted Dr. Lawrence Huntoon, the pathway just happens to be for 6 days, the Medicare-approved length of stay for CHF. The Pathway defines what is appropriate in terms of diagnostics, assessments, treatments, activity, nutrition, safety, and discharge planning, which is initiated on Day 1. Dr. Huntoon suggested issuing all patients a pair of red ruby slippers on admission, and teaching them to recite "there's no place like home." He also recommends that patients come to the hospital clean, as a bath is not one of the approved activities on Day 1 or Day 6.

Dr. Huntoon is circulating his own posters which read: "Yes, I have considered the clinical pathway, and I choose to think instead," along with a "Dear Colleague" letter critiquing the Utilization Management Plan. As a side effect, local AAPS membership is growing. And the "inevitable" trend toward "box- checking monkey medicine" appears to be turning.

Updates on Socialized Medicine

10,000 Doctors Strike in Germany. Throughout Germany, thousands of practices closed as physicians and other medical professionals demonstrated in the streets, carrying banners: "Neues Gesundheitsgesetz: Patientenversorgung in Gefahr" (new health law endangers patient care). The new law will cut outlays for drugs to below 1992 levels. Newer medications, in particular, will be restricted.

When a German physician performs a service, he does not know how much (or whether) he will be paid. Points are accumulated, and at the end of a period, the value of a point is determined. If more work is done, the value of each point diminishes (Fr„nkischer Tag, 12/19/98).

Uncounted Costs of Delays. When a 17-year-old boy had his pulmonic valve replacement cancelled for the second time, due to the limited resources in Ontario hospitals, his father, a physician, recounted some of the costs: lost school time, such that the boy will probably have to repeat a grade; total chaos in his father's office schedule and patient's lives, now x2; total chaos in his wife's job, x2; stress and anxiety in the entire family; and added medical costs. Such human costs of socialism seldom figure into the proponents' calculus. But some Canadians yearn for an end to the "pre-Gorbachev era" and for the emergence of a coexisting private sector medicine (Ontario Physicians' Alliance, 700 Bay St., Suite 1802, Toronto, Ontario, Canada M5G 1Z6, telephone: (416)595-1817).

Some 44% of Canadians now rate their system as "only fair," poor, or very poor, up from 13% in 1991, according to a survey conducted by Angus Reid Group Inc. for the Globe and Mail (Wall St J 2/12/99).

The Cost of Free Medicine in Britain. Between 1948 and 1994, British life expectancy increased by eight years, and infant mortality decreased by 27 per 1,000 life births: improve- ments attributed to socialized medicine. However, in the 37 years prior to the NHS, which included two major wars, British life expectancy increased by 18 years, and the infant mortality rate declined by 72. Did the NHS retard progress?

How has the patient-physician relationship fared? Patients are often treated in an "offhand and disdainful way." And 40% of British doctors report being assaulted by at least one patient in the last year. "And why not?" writes Theodore Dalrymple. "It is as good a way as any to make sure the doctor gives you what you want" (Wall St J 7/21/98). Is this social justice?

Imperial Accountability. To Canadian Prime Minister Chr‚tien is attributed a "fiat fit for a Khan": "Some mornings I want to give them more money [for health care]; the morning after I say no. We'll see in the budget."

Columnist Gordon Gibson writes: "With imperial ambitions and profligate spending in search of votes, Ottawa has built up a huge debt and massively occupied the taxation field in this country....Rather than stand on principle and demand a revamping of the fiscal framework, the provinces and territories...are forever mendicants, tincuppers, porcine predators jostling each other at the federal trough, looking for federal money. It is a quest for power without responsibility" (Globe and Mail 1/19/99).

Lessons from Queue Jumping. How people act is a more reliable barometer of opinion than their response to polls. The vast majority of Canadian physicians and hospital CEOs admit to involvement in the care of a patient who received "preferential access." Economist Martin Zelder writes:

"[Q]ueue-jumping is not necessarily a problem, but medicare is. Where queue-jumping mimics the market, efficiency is enhanced; where it further masks the market, efficiency is worsened. We could stop worrying about which jumping is good and which bad if the cause of jumping-the queues-were eliminated. The means to that end-redefining `accessible' care as requiring a copayment greater than $0, and ending the government's monopoly on insurance coverage of `medically necessary' treatment...." (Fraser Forum 2/99).

Sick, Untreated, and on the Streets. Dr. Richard O'Reilly of the University of Western Ontario reported that 68% of psychiatric beds closed between 1960 and 1996, and 2,000 of the remaining 5,000 were scheduled to close by 2003.

Wellesley emergency room, which sees 35,000 patients each year, is being closed down.

Relative Values in Ontario. House calls: physicians, $16.70 and a fee for examination; veterinarians, $52.50 and a fee for examination; plumbers, $95. EKG: for humans, $15.50; for dogs and cats, $66.30. X-ray of the femur: humans, $20.25; cats, $84.20 (Dr. Hewlett's PH Bureaucratic Blunder Bank).

AAPS Calendar

Oct. 14-16, 1999. 56th annual meeting, Coeur D'Alene, ID

Does DOJ Follow Its Own Rules?

The U.S. Department of Justice has stated repeatedly that it is not out to criminalize honest errors, but only to punish fraud, and has released guidelines to assure that this occurs.

At a Medicare Fraud Fighter's rally in Burnsville, MN, AARP and federal officials repeated that "most providers are honest," while urging seniors to "be the eyes and ears of Medicare to limit fraud and abuse."

Twila Brase, R.N., President of the Citizens' Council on Health Care, stated from the floor that "it's a mistake to pit patients against doctors, making suspicion and fear the overriding mindset in the examining room."

Ms. Brase asked Rick Ostrum of the FBI: "Considering your statement about the power of greed, isn't there potential that good doctors will be accused in an attempt to get rewards from HCFA, and investigators will seek to have good doctors prosecuted or fined for minor errors in order to validate their own existence? Won't even more doctors choose to drop the Medicare program rather than deal with the threat?"

Ostrum said that they would take care to judge the worthiness of each accusation. Paul Murphy of the Department of Justice said he thought it was "unfair" to suggest that there would be inappropriate pursuit of "nonmeritorious cases," in view of the limitation of staff and financial resources.

The General Accounting Office (GAO) is among the skeptics. In a February report to Congress, GAO said it was "too early to tell" how well DOJ was complying with guidelines for enforcement of the False Claims Act. GAO stressed that it faced a major challenge because DOJ refuses to release much of the information needed, citing confidentiality and the risk of compromising open investigations.

Senator Charles Grassley (R-IA) called restriction of access to information "wholly unacceptable" (BNA's HCFR 2/10/99).

Some suspect that the guidelines were issued only because of the threat that DOJ's powers might be curtailed. In laboratory unbundling cases, the DOJ "declined" (resolved without adverse action) 351 of the 401 matters closed since the guidelines were issued in June, 1998. Hospitals have received no more mass mailings of "demand" letters from U.S. attorneys, threatening prosecution under the False Claims Act if the provider did not agree to a financial settlement.

Another GAO report is due in August.

It Depends on What "Bribery" or "Perjury" Is....

In January, 1999, the full federal court of appeals in Denver overturned a ruling by three of its members, which held that it was bribery for prosecutors to offer witnesses leniency in exchange for their testimony. That ruling overturned a cocaine trafficking and money laundering conviction based on such testimony.

The anti-bribery law in question reads: "whoever...directly or indirectly gives, offers or promises anything of value to any person, for or because of the testimony under oath or affirmation given or to be given by such a witness upon a trial" should be fined or imprisoned for not more than two years, or both." It was argued that the promise of leniency would give a witness a strong motivation to lie.

Judge Paul J. Kelly, Jr., wrote: "If justice is perverted when a criminal defendant seeks to buy testimony from a witness, it is no less perverted when the government does so."

DOJ lawyers argued that including the Government in the term "whoever" would be a radical departure from the nation's ingrained legal culture and "would result in criminalizing historic practice and established law."

Agreeing with prosecutors, Judge Portfilio wrote: "The defendant's argument is: In a criminal prosecution, the word `whoever' in the statute includes within its scope the United States acting in its sovereign capacity. Extending that premise to its logical conclusion, the defendant implies Congress must have intended to subject the United States" to criminal prosecution. "Reduced to this logical conclusion, the basic argument of the defendant is patently absurd."

Unquestionably, prosecutors have tremendous discretion. In 1940-before racketeering, money laundering, and conspiracy laws- Supreme Court Justice Robert H. Jackson said: "The [federal] prosecutor has more control over life, liberty, and reputation than any other person in America."

A 1998 series by Bill Moushey and Bob Martinson in the Pittsburgh Post-Gazette (see www.post-gazette.com) documented many instances of abuse, including "prosecutors lying, hiding evidence, distorting the facts, engaging in cover-ups, paying for perjury, and setting up innocent people to win indictments, guilty pleas, and convictions."

Huge budgets exacerbate the problem, according to former U.S. attorney Thomas Dillard: "The war on crime has gotten to the point that all these [prosecutors'] offices are stuffed to the gills with resources. They have to justify their existence. They go out and make things crimes that weren't even crimes 10 years ago." Many prosecutors have political ambitions. Some, according to Dillard, "are on a divine mission, and anything that gets in their way is evil."

Court oversight over prosecutors has been "contracted...to a point of total nullity," according to former prosecutor Bennett Gershman. The DOJ is supposed to punish attorneys who violate citizens' rights, but according to the Post-Gazette, rarely even investigates complaints. The DOJ rarely disciplines officials for unethical behavior, and it is almost impossible for a criminal defendant to sue a federal officer for damages.

"The result of the tolerance for perjury is that the liar almost always wins," stated Mr. Moushey.

A Citizens Protection Act passed the House on a vote of 345- to-82 in the last Congress, but the DOJ managed to kill all but the provision that requires federal prosecutors to abide by the ethics laws of the state in which they work, which is supposed to go into effect this April. The DOJ complained that the Act would hamstring their efforts to fight drugs, child pornography, and international terrorism [not to mention upcoding or certifying medically unnecessary care].

RICO Upheld in Fraud Claim Against Humana

In a January 20 decision, the U.S. Supreme Court ruled that a class of 84,000 Nevada plaintiffs can sue Humana under the Racketeer Influenced and Corrupt Organizations Act (Human Inc. v. Forsyth, U.S., No. 97-303).

The class alleged that Humana had negotiated agreements that entitled Humana, but not beneficiaries, to substantial discounts. For example, Humana might pay $550 on a hospital charge of $5,000, while the beneficiary would be liable for 20% of the undiscounted amount, or $1,000. Thus, the beneficiary might be paying 65% of the hospital bill while the insurer paid only 35%. Humana stated that its insurance billing practices have "always been consistent with industry and government practices" (BNA's HCFR 1/27/99).

Members' Page

Is There a Fourth Amendment? What has a plastic skin, flies, and was kidnapped a few months ago?.... Answer: our garbage. Somebody actually took our garbage bag from the curb in front of our house. Ordinarily, I wouldn't have noticed because it was "garbage day," but everybody else's garbage was still there....The bag was full of used coffee grounds, used kitty litter, and other such treasures. All correspondence is run through a shredder before it is discarded and then given to friends to use as bedding for their turkeys. If someone wants to try to put the cross-shredded material back together, they will have to fight the turkeys for it. Forget about super-encryption; we have shredded documents guarded by turkeys.

More recently, someone tampered with personal mail at our home, tearing the little perforations at the edges of computer- generated and sealed mail so that the contents could be read. Just coincidentally, a physician stood up at a medical staff meeting and accused the hospital administration of intercepting and opening his office mail (his office is in the hospital). He made a motion to oust the current hospital administrator, whom he had previously supported.

Hmm, I have been very high profile in fighting the hospital plan for forcing doctors into Clinical Pathways to save the hospital money. Have I made powerful enemies?

Mail tampering or mail theft is still a crime, isn't it?
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY

[Yes, but who enforces the law? The public partner is constrained somewhat by the Fourth Amendment, but this does not apply to the private partner. Just think what a public-private partnership (and inter-agency "coordination") could do....- Ed.]

Absolute Corruption. According to science fiction anthology editor John W. Campbell, science fiction exposed the fact that it is not absolute power which corrupts, but absolute immunity. He was referencing The Invisible Man by H.G. Wells.
Joseph Scherzer, M.D., Scottsdale, AZ

Legal Immunity. The genesis of legal immunity is the view under English law that "the king can do no wrong": sovereign immunity. When that immunity is extended to private entities (such as HMOs), all sorts of corruption results.
Andrew Schlafly, Esq., Wayne, NJ

HMO Rise Driven by Government. Congress has essentially mandated managed care for everyone. In 1973, it passed the HMO Act, which offered government subsidies to HMOs; gave nonlicensed HMO executives the power to challenge the medical judgment of physicians; and mandated that all businesses with more than 25 employees offer HMOs as an option. Until then, most employers, fearing increased costs and utilization, had avoided HMOs.

During the early 1980s, Congress began allowing states, through Medicaid Section 1115 waivers, to herd Medicaid recipients against their will into managed care programs. By June 1996, more than 40% of Medicaid recipients were enrolled in managed care programs. This "flexibility to develop innovative solutions" violates federal Medicaid law, which prohibits limits on treatment or choice of physician.

The government assures maximum profit and little risk for HMOs, and HMOs assure maximum political benefit and little risk to public officials who promise "free health care" without actually [having to take responsibility for delivering it].
Twila Brase, R.N., St. Paul, MN, www.cchc-mn.org

Criminal Background Checks. Wisconsin has a new law requiring criminal background checks of health care workers. Originally intended to protect patients from abuse by home health aides or nursing homes, the act has now been "interpreted" by bureaucrats to apply to doctors on hospital staffs [because medical staff bylaws are sometimes interpreted to constitute a contract].
Al Fisher, M.D., Oshkosh, WI

Beware of Prescription Drug "Coverage": From a letter to Charles P. Slavin, Director of the Florida Division of State Group Insurance: It was brought to my attention by one of my patients that you have set up arbitrary and capricious requirements for Ultram, requiring that two different chemical classes of NSAIDs have failed. Narcotic dependency, or inability to take opioids, must be present, or the patient must have failed an adequate trial of three other pain medicines.

This particular patient, in my judgment, requires Ultram alternatively with an opioid for successful management. I am past President of the Florida Academy of Pain Management, I serve on the Board of Advisors for the American Academy of Pain Management, and I have served on the Florida Pain Commission. I respectfully request that you allow for physicians to individually choose how to care for their patients when the criteria that you established do not work.
Jacob Green, M.D., Ph.D., Jacksonville, FL

Congratulations, Oregon. Thanks to Oregon for letting the nation know what may not work. The director of the Oregon state medical assistance program stated that the goal of universal coverage cannot be met. A major difference: when a program costing $50 or $50 billion in the private sector fails, managers shut it down and cut their losses. In government, they just add more money-your tax dollars.
Ernest J. White, Alexandria, VA, www.mdhcrx.com

Legislative Alert

As noted in the March issue of our Report, there has been some stirring in both the business community and on Capitol Hill to take a radically different approach to "health care reform" by changing the tax treatment of health insurance. This is grounds for serious optimism, as both Democrats and Republicans are starting to recognize that the same old regulatory requirements are not only not working, but are making matters worse. Free market reformers, regardless of their differences, have been united on the simple proposition that one cannot achieve real reform unless one changes the health insurance market, and one cannot change the health insurance market unless and until one changes the tax treatment of health insurance.

America s greatest economists understand this. The basic economic gospel on this issue, as stated by Milton Friedman: The Congress should eliminate the distinction between the tax treatments individuals get for the purchase of medical services as employees and the tax treatment that individuals get simply as citizens of the United States (Wall St J 10/8/98). While Friedman feels that the best alternative is to repeal tax preferences for the purchase of health insurance or medical services entirely, he recognizes that another way to fix the situation-a more viable alternative politically-is to simply extend the tax preference to "all medical expenditures" and create a level playing field. Says Friedman, "Either alternative would give individuals greater control over their own medical expenditures, lessen third party involvement and promote greater competition and efficiency in the provision of medical care. Medical savings accounts available to all with no restrictions are one way to extend the tax preference."

As this Report goes to press, the trickle of tax reform sentiment has grown into a veritable torrent of serious proposals. Congressman Bill Thomas (R-CA) is collaborating with Jim McCrery (R-LA) on a comprehensive tax credit system that would replace the existing tax structure for employer-based health insurance with a national system of tax credits. Also working on major tax credit proposals are Congressmen John Shadegg and Matt Salmon of Arizona.

In a letter to his colleagues Salmon states: "In most of the discussion of how to control the cost of health care and improve access and quality, the most important managers of all are usually left out of the equation-consumers."

Less comprehensive than the Thomas-McCrery, Shadegg, or Salmon proposals are those being developed by House Majority Leader Dick Armey (R-TX) and Rep. Jim McDermott (D-WA), best known among his colleagues as a champion of a Canadian- style health care system. Armey is proposing a limited credit to target those who are uninsured and don t or can t get health insurance through the place of work. In effect, what Armey would do is create a parallel system of tax breaks for the uninsured alongside the existing employer based system of tax subsidies. McDermott is proposing a flat 30% credit for the purchase of health insurance among those working families who don t have employer-based coverage.

Outside the Congress, among the Washington think tanks, from the libertarian Cato Institute to the conservative Heritage Foundation and the American Enterprise Institute to the Progressive Policy Institute, a "moderate" Democratic outfit, tax credits have long been a staple of comprehensive insurance reform. What is different this year is that the idea has moved well beyond the intellectual circles of those who occupy the center-right spectrum of American politics. Note that industry associations, not known for high falutin policy initiatives, are starting to develop tax-credit proposals. For example, the Council for Affordable Health Insurance (CAHI) is proposing a tax credit program, while the Board of Trustees of Not-for- Profit Hospitals is exploring private sector alternatives to the traditional employer-based health insurance. In a novel development, the American College of Physicians-American Society for Internal Medicine, whose health policies have listed to the left in the past, are now proposing to make lower income working people eligible for tax breaks, amounting to between $2400 and $2800 in tax credits per year. Their proposed credits would be financed by dedicating 12.6% of the estimated "budget surplus" to the new credits. Proponents expect that the credit could cut the current uninsured population by almost a fourth.

Perhaps the most comprehensive and detailed proposal yet offered by industry comes from the National Association of Health Underwriters (NAHU): Under the NAHU proposal all Americans not enrolled in Medicare or the military health plans would be eligible for a tax credit for the purchase of private health insurance. The amount of the credit would be $800 for an adult and $400 for a child, up to $2400 per family per year. The NAHU tax credit would be a flat credit, meaning the amount would be the same for all eligible persons or families, regardless of medical costs or income. It would be adjusted annually on the basis of the Consumer Price Index (CPI). It would be financed by simply changing the tax breaks that are now available to employees through the tax code (roughly $100 billion), as well as by changes in the Medicaid program. In other words, health benefits, just like wages, become taxable income, and the tax break would be available in the form of a flat credit rather than through the existing tax exclusion on the cost of health benefits at the place of work.

NAHU spokesmen argue that one of the chief advantages of their tax credit proposal is that it is simple to administer, largely because it is a flat credit. Thus, the calculations that must be made to administer a progressive credit, either in terms of income or health care costs, income or some risk factor, are unnecessary. Not only is the flat credit administratively simple, it does not allow for "gaming" because, as NAHU spokesmen insist, there is nothing to "game." It is a voluntary tax break; no one would be required to take advantage of it. At the same time, it is not intended to cover the whole cost of a family plan, but, like today s system, help offset the costs of private health insurance.

NAHU spokesmen also argue that their proposed credit will be superior to the existing tax breaks for health insurance for most American families: "For the vast majority of employees, the credit will more than offset the extra income tax on employer paid premiums. Even in the top 39% tax bracket, where the employer pays 100% of the cost of an average $5000 premium, the employee (average family of four) will come out ahead."

Finally, NAHU spokesmen argue that their proposal will not undermine employer-based health insurance, a charge made against many other tax-credit options, particularly those supported by conservative economists and policy analysts. Indeed, the NAHU argues that the credit will preserve the existing system of employer-provided health insurance: "The employer will still be permitted to deduct the cost of premiums as a business expense. The employer will not be required to pay a FICA tax on the employer paid premium that will be treated as unearned income to the employee. There will be no change in Section 125 Plans. The credit is not large enough to induce the employer to drop insurance coverage and leave the employees to fend for themselves in the individual market. Employers provide benefits in order to recruit good workers. That need will continue."

The NAHU proposal is highly refined, as these things go. But expect others soon to surface. This explosion of interest in tax policy as a key to health insurance reform is having a major impact. "Ideas," the great conservative philosopher Richard Weaver once said, "have consequences." And the consequences of years of thought and analysis are starting to take form.

Mandates and Misery

The Congressional Republican leadership is once again trying to figure out how to handle the agenda that the President has defined for them: the "patients' bill of rights." While Thomas and McCrery and others want to stake out a better and different agenda from that of the President, the lingering danger is that Congressional Leadership will be pressured into some sort of "go slow" compromise which will give the Clinton Administration, once again, the regulatory guts of its patients' rights legislation. The danger is that after the charges and counter-charges of "partisanship" hurled across the aisles in the poisoned atmospherics of the Clinton impeachment process, that the Congressional leadership will cave or be forced to settle for the bromide of "bipartisanship" on health care policy, which normally translates into taking the President s bad ideas, making them a little less worse, and enacting them into law with a "free market" fig leaf, perhaps yet another crabbed and highly regulated medical savings account "demonstration" somewhere, carefully designed to fail. One need only look back to the Kassebaum-Kennedy mush, or the equally bungled Balanced Budget Act of 1997, making the Medicare system even messier and even more highly regulated than it was in 1996. The ancient principle of healing is appropriate here: First do no harm-no more rules, no more regulations, and no more mandates making matters worse.

Michael DeBakey, the pioneering heart surgeon and director of the DeBakey Heart Center at the Baylor College of medicine, told the Wall Street Journal last October: "Intrusive government and the interposition of corporate managed care have imposed regulations that not only are burdensome and costly (more than 20 percent of health care expenditures), but are subverting the crucial physician-patient relationship." Nicely stated. And on this point the evidence is sharply mounting. Notice the results of the latest analysis of regulation of the health care system conducted by Professor Michael Morrisey of the University of Alabama and Professor Gail Jensen of Wayne State University on behalf of the Health Insurance Association of America (HIAA).

Some doctors will dismiss this study because of the sponsor. But the findings are perfectly in accord with previous studies done by independent analysts. After reviewing the more than 1000 state mandated benefits in all 50 states of the union, the HIAA study estimates that state mandates raise premiums by up to 13% for businesses that offer health insurance. Without mandates, 18% of small businesses without health insurance would buy it. In Maryland, the leader of mandate mania in the states, the mandates accounted for anywhere between 11 to 22% of health insurance claims; in Virginia, they account for 21%; and in Massachusetts, 13%. Premium increases for health plans vary with the level of mandates, of course. But the key finding of the HIAA study is that nearly one out of every four Americans without health insurance, more than 10 million Americans, have no health care coverage because of the cost of state mandates. That kind of thing, as Maryland s state legislators demonstrate, takes years of practice.

Competition and Cost Control

Under the current projections, Medicare will grow relatively slowly for the next ten years or so. But with the retirement of the baby boomers, things heat up. Between 2010 and 2030, according to the nonpartisan Congressional Budget Office (CBO), the retired population will grow about 3% per year, rising from 39 to 69 million. CBO expects that medical costs will grow much faster, especially in light of the demand for more sophisticated medical technology.

Well, the cost estimates for the Breaux plan-recently unveiled in outline by Senator John Breaux (D-LA), Co-Chairman of the National Bipartisan Commission on the Future of Medicare-have arrived by way of the work of the Commission staff and the CBO. The basic finding: Yes, Virginia, competition and consumer choice does control costs. According to a Commission staff memo, dated February 17, 1999, using an extension of CBO s projections, the Breaux proposal would slow the growth of Medicare spending gradually, by about 1% per year. Over the years, the impact of these accumulated savings would be considerable. The Commission staff estimate that by 2030, annual Medicare spending would be anywhere between $475 to $850 billion less under the Senator s proposal than under current law. While under current law, Medicare would be projected to grow to between 28 and 38% of the budget in 2030, under the Breaux proposal it would grow to 21- 28%. For the Medicare beneficiaries, the premiums would be supported by the taxpayer's contribution, just as premiums are supported for federal workers in the Federal Employees Health Benefits Program (FEHBP). Because the premiums for beneficiaries would be set at 12% of program costs, though individual premiums would vary with plan selection, the Commission staff estimates that Medicare beneficiary premiums would be 15-25% less than those projected under current law on average.

In spite of the impressive numbers, Senator Breaux has his work cut out for him. While Senator Kerrey (D-NE) and all of the Republican appointees on the Commission are behind his proposal, the Clinton Administration s appointees are either flatly opposed or driving a hard bargain on prescription drug coverage. Liberals in Congress, if Congressman Pete Stark of California is any barometer of rude rhetoric, are in the initial stages of launching a pre-emptive strike against Medicare reform. The new CBO director, Dan Crippen, is already coming under attack for writing a positive assessment of the Breaux proposal.

Look for "Mediscare II": Coming Soon to your local Congressional town hall meeting!

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