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Tucson, AZ 85716-3450
Phone: (800) 635-1196
Hotline: (800) 419-4777
of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto
Volume 55, No. 4 April 1999
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
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
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
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
Can the rule of law survive?
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
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).
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
Senator Charles Grassley (R-IA) called restriction of access
to information "wholly unacceptable" (BNA's HCFR
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
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
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....-
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.
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
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 AlertTax Credit Mania
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
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
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
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
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
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