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of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto
Volume 57, No. 8 August 2001
A BILL OF GOODS
The "Patients' Bill of Rights" (PBOR) passed by the U.S.
Senate has been called the "Lawyers' Right to Bill," a symptom of
the codependency of the Democratic Party and the Association of
Trial Lawyers of America. Most of the discussion has focused on
who could be sued and for how much (see p. S1). By no means the
most important question, it is still one to be taken seriously,
even if-ATLA take note-the feeding frenzy could be short-lived.
Proponents, such as Senator Bob Graham (D-FL) say that it
would "put those life-and-death decisions back into the hands of
doctors and patients" and make HMOs liable for their actions.
Like Senator McCain, persons who believe this haven't read the
bill. Nor are they aware that, thanks to a U.S. Supreme Court
decision, HMOs can already be sued in state court for
malpractice. Such suits are a growth industry (Greg Scandlen,
NY Post 6/16/01).
The PBOR's actual effect could be to change the standard for
insurers' liability from a contractual basis to a one-size-fits-
all tort principle, as James Blumenstein of Vanderbilt Law School
points out (Wall St J 6/22/01). This would turn every
benefits determination into a potential medical malpractice case.
What the nation rejected in 1994-a uniform and mandatory package
of benefits ("rights")-could enter through the back door of
The key problem is that managed-care contracts promise to
provide "total health care benefits" or whatever is "medically
necessary"-which courts have held to mean all treatments that are
safe and effective, unless they are "experimental"-while actually
applying a cost-effectiveness standard. It is because consumers
have been misled by HMO advertising that so many are upset with
the "crossbreed" [provider/insurer] product, states Thomas
Schmidt of Prime Health Care.
A free-market solution would be a return to indemnity
contracts, which spell out the precise benefits as negotiated
between insurer and insured, putting customers in control of
their own dollars. The PBOR solution is a "rearranged set of
third-party decisionmakers hoping to spend other people's money
while telling them what is good for them," as described by Tom
Miller of the Cato Institute. Independent external reviewers will
not be bound by the terms defined in the insurance contract. And
while there may be physicians involved, they will not be
the patient's attending physician.
Most of the PBOR in fact is a definition of hoops and
loopholes. Maybe a patient-or more likely his heirs-will get into
a courtroom and possibly win the jackpot there. Or maybe the
patient will stumble, or the plan will evade liability while
following the "process."
The rules themselves are likely to be a full-employment
program for lawyers, interpreting all the clauses starting with
"if," "except," "provided that," or "unless." Most importantly,
the rules apply to all insurance plans, not just those
presumably targeted by the legislation. Thus, the best name for
the PBOR is probably the one proposed by David Limbaugh: the
"patients' bill of regulations" (WorldNetDaily 7/6/01).
Limbaugh asks: "When the main problem with the system is the
elimination of competition, does it make sense to attempt to
remedy the situation with further restrictions on the market?" As
Washington, D.C., attorney John Hoff points out, the bill's
"mind-numbing number of legal requirements that are stated in
ambiguous terms" could prevent fee-for-service plans from being
able to operate.
"Talk about bait and switch," writes Tom Miller, "[the
PBOR] makes HMOs look like small-time con artists."
The full ramifications of the PBOR are not known. As Greg
Scandlen writes, "It's beginning to feel like HIPAA all over
again." Congressmen don't have "the slightest concern about the
consequences-intended or not-of their actions."
Clearly, costs will increase, both from regulatory
compliance and new federal mandates. Therefore, people will lose
insurance-even if employers don't feel threatened by greater
legal liability. Will people say of PBOR what Gerry Smedinghoff
said of Stark legislation: "Don't bother slogging through it.
Like a war novel, everyone gets killed in the end"?
The PBOR might hasten the death of HMOs-already collapsing
under their own weight-but at the price of "a deal with the devil
that will haunt us on all our attempts to correct the system,"
states Greg Scandlen.
As Marianne Jennings of Arizona State University writes:
"The right-to-sue in the pending [PBOR] is a stick to beat payers
into universal coverage." She favors a free-market system,
observing that "if you can go elsewhere, you don't need a bill of
rights." And if you can't: "No lawyer can change those mortality
rates in the universal access systems of our socialist friends
who began with rights for everyone and ended with a system that
never denies care but that imposes a death sentence with the wait
to get it" (Jewish World Review 6/6/01).
If we don't like HMOs' rationing schemes, will the
government's be better? In Medicare, the denial of claims for
medical necessity exceeds that in the private sector (Wall St
J 6/27/01). Medicare patients cannot sue now, and a federal
judge in Michigan recently ruled that poor people may not sue
state officials to force them to provide benefits guaranteed
under federal Medicaid law (Robert Pear, NY Times
Many conservative analysts agree with Marcia Angell, M.D.,
former editor of the New England Journal of Medicine , on
this point: "Our experiment with private managed care has failed.
The system is imploding, ... and [a PBOR] will accelerate its
demise. High time" (NY Times 6/23/01).
Her answer: single payer. Is its achievement the real motive
behind the Kennedy Bill of Wrongs?
MSA Advocate Bret Schundler Wins NJ Primary
About three months ago, pundits were saying that it would
take a miracle for Bret Schundler to win the Republican
gubernatorial primary in New Jersey. Miracles happen.
Eight years ago, the Wall Street Journal published
an editorial entitled "Earthquake Hits Jersey City," when
Schundler became the first Republican mayor in 75 years. The
population is 67% minorities and only 6% Republican. Now, he has
"crushed the GOP machine" to win statewide victory.
Schundler won the active support of many AAPS members,
promising to bring Medical Savings Accounts to state employees,
as he has done in Jersey City. Alieta Eck, M.D., writes that
"Schundler is the only Republican willing to buck the moneyed
special interests to work in the best interests of the
taxpayers." Louis Keeler, M.D., former President of the Medical
Society of New Jersey, notes that Schundler "led a remarkable
turnaround in Jersey City, reducing crime, attracting new
businesses, and reducing the tax burden." AAPS Past President
Lois Copeland, M.D., reminds physicians that Schundler's Democrat
opponent, Jim McGreevey, led the legislative battle for mandatory
Medicare assignment and kept dissenting physicians from speaking
at a town hall meeting.
The New Jersey race this fall will be of national interest.
Insurance in New Jersey
In 1992, New Jersey law made it illegal for insurers to earn
a profit. Guaranteed issue and community rating make it
impossible as well. Deductibles above $4,500 are illegal. The
premiums for an individual policy through Trustmark are $12,000
per month. The revenue for such policies: $0. This
absurd price guarantees no takers but permits Trustmark to claim
that it does offer individual policies, which are required as a
condition of offering group policies. This "legal placeholder"
would permit it to take advantage of a change in regulatory
policy without waiting 5 years to reenter the State.
Some families in New Jersey, including Dr. Eck's since 1997,
are making use of noncontractual faith-based plans such as the
Christian Brotherhood Newsletter (CBN) to share large expenses. A
big problem is that self-pay patients are greatly overcharged.
Many CBN members pay $40 per month to enroll in Care Entree, a
patient advocacy group that negotiates prices with participating
doctors, hospitals, pharmacies, and other facilities (see www.careentree.com). A
savings of 20% to 80% can be achieved if bills are paid in full
within 30 days.
Request from Researcher on the War on Doctors
Ronald T. Libby, Ph.D., Professor of Political Science at
North Florida University, is seeking 200-300 physicians whose
constitutional rights have been violated by government agents. He
promises confidentiality. Address: Dept. Political Science, Univ.
of North Florida, 4567 St. Johns Bluff Rd S, Jacksonville, FL 32-
224, tel. (904) 620-2977 or 270-0940, [email protected] or [email protected]. Homepage: www.unf.edu/~rlibby.
Cost of Government Day: July 6
Americans for Tax Reform announced that the average American
works 187 days to pay his share of the cost of government: 87
days to pay federal taxes, 41 days to pay all state and local
taxes, and 58 days to pay for regulations.
Nominating and Resolutions Committee Reports
The following slate will be presented at the annual meeting:
President: Dr. Robert Urban of Belle Vernon, PA
President-Elect: Dr. Chester Danehower of Peoria, IL
Secretary: Dr. Charles McDowell of Alpharetta, GA
Treasurer: Dr. R. Lowell Campbell of Corsicana, TX
Directors: Drs. Samia Borchers of Dayton, OH; Claud Boyd of
Augusta, GA; John Boyles, Jr., of Centerville, OH; Melissa Kline
Clements of Oklahoma City, OK; Albert Fisher of Oshkosh, WI;
David MacDonald of Renton, WA; and Hilton Terrell of Florence,
Resolutions are due by Sept. 25. (Call 800-635-1196.)
HCFA Name Change Contest
Additional entries have come to our attention: Dr. Lawrence
Huntoon submitted BAD, for Bureaucratic Abuse and Disruption.
"This is not a marketing problem or a perception problem. HCFA
got its BAD reputation the old-fashioned way: it earned it." The
staff of Sen. Pete Domenici (R-NM) suggested HADES, for Health
and Death Evaluation Services. Thompson's suggestion, MAMA, was
rejected because women felt insulted, and it reinforced the
agency's paternalistic (maternalistic?) image. The winner: CMS,
for Center for Medicare and Medicaid Services, pronounced
"Commies" or "C-MESS." The cost in reprinting HCFA stationery and
publications will run into the millions.
Secretary Thompson has received the prestigious Porker of
the Month Award from Citizens Against Government Waste for "his
superficial and wasteful attempt to perform cosmetic surgery on
an agency with a well-earned bad image, instead of enacting
July 31. Making a Federal Case out of Health Care: Five
Years of HIPAA. Rep. Dick Armey, Mark Pauley, Conrad Meier, John
Hoff, Richard Epstein, Madeleine Cosman, Grace-Marie Turner, Greg
Scandlen, and others. Cato Institute, $175, see www.cato.org/events/hipaa
Oct. 24-27. 58th annual meeting, Cincinnati, OH. **See enclosed by Glen Crick, who
has a return engagement.**
Nov. 17. AAPS, PA chapter, and SEPP. Healthcare Summit
2001, featuring Medical Savings Accounts, Pittsburgh, PA, call
(724) 929-5711 or see
Sept. 18-21, 2002. 59th annual meeting, Tucson, AZ.
"Loyalty to petrified opinion never yet broke a chain or
freed a human soul." Mark Twain
HIPAA Guidance Issued
The "First Guidance on Patient Privacy Protections" issued
by HHS can be downloaded from www.hhs.gov/ocr/hipaa
. This 50-page documents promises future changes in some
of the most absurd features of the rule to "correct any
unintended negative effects" on quality or access to care.
If and when the changes make it through the bureaucratic
rulemaking process-one hopes before the enforcement date of April
14, 2003-the federal government will allow pharmacists to fill
phoned-in prescriptions before obtaining the patient's written
consent, and "direct treatment providers" to schedule
appointments. Also, "a change will increase covered entities'
confidence that certain common practices [such as using sign-up
sheets, displaying X-rays on lightboards, keeping medical charts
at the bedside, and disposing of used prescription vials without
shredding] are not prohibited under the rule."
Note: "A pharmacist may provide advice about over-the-
counter medicines without obtaining the customers' prior consent,
provided that the pharmacist does not create or keep a record
of any PHI [protected health information]." [Physicians,
however, had better continue documenting all their advice.]
HHS apparently does not intend to change the requirement
that, with certain exceptions, physicians who directly treat
patients obtain documented consent in federally approved format
before using any PHI to help a patient. (See the
transcript of Donna Boswell's talk at the spring meeting, under
"privacy".) The consent
requirement does not apply to health plans or
clearinghouses. The Healthcare Leadership Council continues to
urge HHS to discard the prior consent-for-use requirement as
If you are concerned that the Privacy Rule violates the
Fourth Amendment, relax. "The only new authority for
government involves enforcement of the Privacy Rule itself."
Be reassured that medical facilities need not be retrofitted
to become suitable for espionage headquarters: no need for
soundproof walls or encryption of wireless communications or
telephone systems. "Reasonable" safeguards (to be defined by the
Office of Civil Rights, retroactively) are all that is necessary.
Cubicles, shields, or similar barriers "may" suffice.
For enforcement, the OCR has a $3.2 million budget
allocation this year and is hiring new agents.
Privacy Act Violations
As the HHS Guidance states, "All federal agencies must also
meet the requirements of the Privacy Act of 1974, which restricts
what information about individual citizens-including any personal
health information-can be shared with other agencies and with the
public." So who should worry?
In fact, government is the biggest privacy offender,
according to House Majority Leader Dick Armey in a June
Plaintiffs who have been mired in court proceedings for
years attempting to obtain redress under the Privacy Act include
Linda Tripp (see
www.lindatripp.com) and Judicial Watch. In 1998,
a deposition of Terry W. Good, Director of the Office of Records
Management, provided evidence of a wholesale disregard for the
Privacy Act by the Clinton White House. More than a year ago,
Judge Royce Lamberth ruled that Clinton's release of the Willey
files was a criminal violation of the Privacy Act.
The wheels of justice grind slowly.
Pain Management and the Law
The physician seeing a patient with pain must navigate a
treacherous strait between Scylla (tort law, elder abuse law, and
JCAHO) and Charybdis (criminal law and the War on Drugs).
In 1990, a North Carolina jury awarded $15 million in
damages against a nursing home where a nurse failed to administer
prescribed pain medications to a terminally ill patient. In 1997,
a South Carolina judge awarded $200,000 for undertreatment of a
cancer patient's pain. In June, 2001, a Northern California jury
awarded $1.5 million to the survivors of an 85-year-old cancer
patient. This landmark ruling invoked the elder abuse law; under
California law, a family cannot collect damages for pain and
suffering once a patient has died.
The physician claimed that he feared adverse drug reactions
because the patient had chronic lung disease, and at least one
expert witness felt his treatment was appropriate.
Evidence against the doctor included nurses' notes stating
that the patient rated his pain as a "10" on a 1-to-10 scale.
This is the scale now posted in hospitals at the behest of JCAHO,
often with the smiling-face chart supplied by Purdue Pharm-
aceutical Company. Patients now have a "right" to pain
management, and pain has become the "fifth vital sign."
According to AAPS member Councill Rudolph, M.D., a general
surgeon in Winchester, TN, the JCAHO standards might be suitable
for a pain clinic. They are ludicrous for a hospital, or
especially an emergency room, which treats drug addicts and
patients whose pain is an indispensable sign of a treatable
disease that is being assessed (such as appendicitis).
Dr. Rudolpf is trying to find the source of the JCAHO
standards. The AMA did not return his calls. Many organizations
(including the American College of Surgeons, the American Society
of Addiction Medicine, and the American Academy of Pain Medicine)
were not asked. The American Society of Anesthesiologists and the
American Academy of Family Physicians recommended
against the standard.
On the other hand, physicians still face delicensure or
imprisonment for alleged overprescribing. Robert Weitzel, M.D.,
of Utah has been arraigned on two counts of manslaughter and
three of negligent homicide, despite amicus statements from AAPS
and others. He had prescribed morphine to severely demented
elderly patients, who had refused aggressive medical treatment
and developed medical complications in the geropsychiatric unit.
www.weitzelcharts.com, AAPS News May 2001, and "prosecutions" at
www.aapsonline.org.) The prosecutor dropped his effort to
retry Dr. Weitzel for first-degree murder, of which he had
already been acquitted-at the last moment, after Dr. Weitzel had
already expended $15,000 preparing for a hearing on the double-
The prosecutor is being investigated by the Bar for
unethical conduct because of withholding key exculpatory
testimony. He could be severely sanctioned for continuing an
unwarranted persecution. He can't afford to lose.
The AMA and the Utah Medical Association "recognize the
state's legitimate interest in regulating the practice of
medicine,... even by the criminal courts," wrote UMA president
Val Johnson, M.D., ("Utah Physicians Not Chilled," Salt Lake
Tribune 6/24/01). Mark Fotheringham of the UMA said that if
Dr. Weitzel's case caused physicians to look more carefully at
their practices, the benefit of the case to patients outweighs
any physician concerns (Salt Lake Tribune 6/11/01).
Utah-licensed physicians responding to an AAPS poll disagree with
this viewpoint by a ratio of more than 2:1.
If They Have a Choice.... One summer when I was in
college I worked as a helper on a Pepsi delivery truck. On a hot
day, we stopped for a cold drink, and I said, "I'll take a
coke,"-to me, a generic term for cola. The Pepsi driver got a
little miffed and said he'd only buy me a Pepsi product.
Recently, I got a call to the ER late at night when I wasn't
on call. The patient had specifically requested me, although I am
the only neurologist in town who does not participate in any form
of managed care. I learned that not only is he a managed-care
"beneficiary," but he actually works for one of the largest
managed-care companies in our area. The Pepsi man just ordered a
Lawrence R. Huntoon, M.D., Ph.D.
The Government Has Had Its Chance. To the editor of
Orthopedics Today, who said that "perhaps national
health insurance is the only way": Anyone who advocates federal
control of medicine should look at the job the government has
have done with the VA hospital system.... It has had 190 years to
work on the program.... Up to 95% of eligible veterans seek
medical care elsewhere. The country should demand that the system
be perfected using politicians, and not the American people, as
David Hubler, M.D., Duncanville, TX
Pain Relief in Utah. Hammurabi's law, an eye for an eye
and a tooth for a tooth, also required a physician to forfeit his
life if his patient died. Most people know that there would be no
modern medicine if we still functioned under that law.
Dr. Weitzel's trial has already begun to have a chilling
effect in Utah. When faced with the threat of a criminal trial,
which may depend only on a spurious complaint from a disgruntled
employee, even the conscientious physician may decide,
insensibly, to withhold prescribing pain relief in an adequate
dosage. In Dr. Weitzel's case, accusations were placed before a
jury even though exonerating evidence had been discovered, and
even then this evidence was withheld from the jury....Quite
quickly we could find ourselves again operating under the law of
Wallace H. Ring, M.D., Salt Lake City, UT
Please Help with Mandates in Virginia. Virginia just
added a mandate for hepatitis B vaccine for sixth graders; it was
previously required for infants and first graders. Our state
legislature gave the Dept. of Public Health extensive powers to
amend vaccination recommendations without any oversight. I sent a
letter to two newspapers and two legislators without results. The
Division of Immunization told me to read the information
(propaganda and lies) on the CDC's web site! This was doubly
stupid because I had cited the CDC's misleading information in my
letter to them.
I am willing to supply nearly any child an exemption to
hepatitis B vaccination, but I cannot reach the public if the
media and legislators refuse to publish or discuss my letters.
Therefore, I am appealing to your organization for help. If
Virginia-based members would all write to their legislators and
newspapers, perhaps someone would take notice. I am appalled at
the widespread physician complicity on this matter. The medical
dictum of "first, do no harm" is being ignored when it comes to
hepatitis B vaccinations of children at minimal risk for the
Name removed by request.
[The full letter is under "State Issues" on our web
Relief. Well, I went ahead and did it [Medicare opt-out
affidavit enclosed]. Boy, do I feel relieved-as though a burden/
guilt/conflict has been resolved.
Robert F. Merchant, Jr., M.D., Reno, NV
Doctors for Lawsuits? When I read McCain's assertion
that he had the support of doctors for his "Patient's Bill of
Rights," I thought, "hmm, doctors support liberalized lawsuit
capabilities against themselves? Beam me up, Scotty,...."
Greg Scandlen, National Center for Policy Analysis
White Knight to the Rescue. Remember, the Clinton
health plan was built around managed care-which just goes to
highlight the fact that HMOs were created and protected by the
very government that wants us to hit them over the head when they
do what they are designed to do. Employer-based health insurance
is the culprit, and there are very strong forces that want to
keep us laboring under those less-than-ideal situations. Typical
government: create a monster, then play the hero by slaying it
for all to see.
Alieta Eck, M.D., Somerset, NJ
It's Not About the Right to Sue. Whether or not people
have the right to sue an HMO is a diversion. The very existence
of this debate continues to brainwash people to believe that
health insurance equals medical care. The two are not the same.
HMOs do not deny treatment; they deny coverage. The treatment
(still) is available to anyone who wants to pay for it [except
Medicare beneficiaries--ed.]. The more we allow ourselves to be
drawn into the debate about who bears the burden of proof when an
HMO denies coverage, the less we are able to convince people to
take charge of their own medical care. Anecdotes rarely make good
Richard Relph, HealthBenefitsReform listserv
Legislative AlertSenate Passes Big Patients'
After a sharp and bitter debate, the Senate passed the
"Patients' Bill of Rights" (S. 1052) by a vote of 59 to 36.
The Big Change. The bill is supposed to reform HMOs. As
Sara Rosenbaum, Professor of Health Law and Policy at George
Washington University, points out, HMOs are a hybrid of
"insurers" and health care "providers." The law that applies to
practitioners does not apply to insurers, but when the two are
strangely blended, as they are in the unique case of HMOs, the
legal difficulties are compounded. As Rosenbaum also notes, at
the state level, the law governing the liability of HMOs has been
The Kennedy-Edwards-McCain-bill (S. 1052) skips over this
evolutionary process, and even goes beyond HMOs. It amends the
Employment Retirement Income Security Act of 1974 (ERISA) and
gives patients the right to sue in state courts for "medically
reviewable" decisions-decisions involving medical necessity or
appropriateness-by health plans. The bill also creates an avenue
for suits in federal courts for "administrative" decisions on the
part of health plans that result in injury or death. However,
patients cannot sue in both at the same time.
Is It Overkill? As a Gallup Poll recently revealed, 89%
of individuals and families are satisfied with their medical
coverage. And the professional literature shows that where
employers give individuals a choice of plans their satisfaction
is much greater than where they don't have a choice of plans.
Can employers be sued? Yes-if they participate directly in
making a decision that results in a patient's injury or death.
So, what constitutes direct participation? If an employer self-
funds plan benefits, and makes decisions relating to those
benefits, and contractually determines who can and cannot get
paid, there is an avenue for litigation. If an employer should
manage the plan, and determines eligibility for enrollment in the
plan, or reserves the right to interpret the plan, there is an
invitation to liability. All attempts to limit employer liability
One big smokescreen has now disappeared: the Texas argument.
During the 1999 debate on the Norwood-Dingell House bill (HR
2990), proponents argued that a flood of costly lawsuits was
unlikely because patient protection legislation, backed by the
Texas Medical Association and others, had been enacted in Texas,
and few suits were filed. Taking up the challenge, Senator Phil
Gramm (R-TX) offered the Texas language as the substitute
litigation language in S. 1052, arguing that Senators should have
no problem supporting the very language they and other proponents
had so often used as an argument that employers would not be
vulnerable. No deal. The Gramm amendment was defeated. Moreover,
Sen. Wayne Allard (R-CO) offered an amendment to shield small
employers from suits. The Allard amendment was also handily
defeated. Certainly, there is nothing in bill that insulates an
employer from the threat of a suit, whether or not that suit
would be successful or dismissed.
While S. 1052 would allow patients to sue plans in state
courts for "medically reviewable" decisions, there are no limits
on damages under state law, either for punitive damages,
economic, or non-economic damages. For patients who sue in
federal courts, there would be no punitive damages, but the court
could imposed civil penalties up to $5 million if a plan did not
follow prescribed standards.
Making it Fair. Toward the end of the debate, Senator
Don Nickles (R-OK) offered an interesting amendment to make the
provisions and terms of S. 1052 apply equally to federal plans,
such as Medicare and Medicaid. If it is OK to sue private
insurance companies or employers for losses or damages due to a
denial of benefits or services, then why can't patient sue
the Medicare bureaucracy and its officials and its contractors
for injury or damages due to a denial of medical
services? Elemental fairness. The stunning Nickles
amendment was accepted on a voice vote. With the antagonism of
doctors and their angry patients, frustrated with Medicare, the
government could be in for some exciting litigation. Rest assured
that the government lawyers and the CBO will be scrutinizing this
amendment carefully. The Medicare bureaucracy's allies would love
to get rid of it quietly, or weaken it, or change its meaning, or
some how make it go away, in the upcoming House-Senate conference
on the bill. Watch very, very closely.
Curiously lost in the Senate debate on litigation is the
issue of regulation. The federal regulatory regime created by the
Senate bill is enormous. This regulatory infrastructure
will cover virtually every aspect of private health plan
operations, including utilization review, the standards
for the grievance and appeals process, and even the use of
formularies for prescription drugs. The language is very
prescriptive. That guarantees slow and sluggish change. Before
anything can change to reflect changing conditions in the market,
Congress will have to change the law. Meanwhile, expect an
explosion of paperwork. What the Senate bill would do is
pave the way for an expansion of the power of the HHS
bureaucracy, now incapable of managing Medicare, into the private
In a rational system, regulators and lawyers should always
be the last resort. When individuals and families can buy and own
their own policies, without a heavy tax penalty, they can make
the key decisions about coverage. Lawsuits and even a grievance
and appeals process then would be unnecessary for 99% percent of
the problems. If insurers performed poorly, patients would fire
them. Federal workers do it every year. It's much easier than
A Stimulus to Defined-Contribution Plans?
The enactment of a "patients' bill of rights" could send
frightened employers scurrying to find new ways to provide
medical insurance for millions of workers. Costs of the Senate
legislation, in particular, will find their way into higher
premiums, aggravating cost increases already underway. Premiums
jumped an average of 7.5% from 1998 to 1999 and 9.8% from 1999 to
2000. This year, increases of more than 11% for large and 12% for
small employers are expected.
One likely option is a "defined contribution" system. And
employers and employees should pursue it, according to a recent
report, Improving Americans' Health Care Coverage Through
Defined Contributions, authored by Grace-Marie Turner and
James Frogue, for the Heritage Foundation, available at:
www.heritage.org/library/backgrounder/ bg1453.html. As the
Heritage analysts note, the defined contribution would offer more
consumer choice-and higher levels of patient satisfaction-than
the "defined benefit" system available to most American workers,
in which employers offer only one medical plan to their
employees. Frogue and Turner point to the Federal Employees
Health Benefits Program (FEHBP), which covers members of
Congress, their staffs and about 9 million federal workers, as
one of the largest defined- contribution plans in the medical
insurance market. Workers can change plans if they are
dissatisfied and retain their insurance and doctors even if they
change jobs. Under FEHBP, numerous insurance companies vie to
insure federal employees.
To promote more "defined contribution" plans, the Bush
administration and Congress could ensure that the tax code
maintains employers' tax deduction for insurance and that
employee contributions to health care continue to come from pre-
tax income. But Congress also should abolish the caps on medical
savings accounts and amend the 1974 Employee Retirement Security
Act (ERISA) to allow the formation of interstate health-insurance
pools and let employees buy state-regulated coverage. Defined-
contributions plans if coupled with reforms to ERISA allowing
affiliated groups such as churches, unions, and trade
associations to purchase coverage for their members could bring
Groundbreaking Research on the Individual Market
At a June 21 press conference, House Majority Leader
Dick Armey (R-TX), House Ways and Means Subcommittee on Health
Chairman Nancy Johnson (R-CN), Rep. William Lipinski (D-IL), and
White House domestic policy adviser Mark McClellan joined Mr. Vip
Patel and executives of eHealthInsurance, the nation's leading
internet broker for health insurance for individuals and
families, and outlined the findings of the company's
groundbreaking study, "Analysis of National Sales Data of
Individual and Family Health Insurance: Implications for
Policymakers and the Effectiveness of Health Insurance Tax
Credits." (Information on the study is available at
This unprecedented market analysis shows that premiums for
coverage are far more affordable than many analysts have
previously thought, and that tax credit policies would
substantially offset the cost of many of these policies for
millions of Americans who do not now get health insurance through
the workplace. The company examined 20,000 policies purchased in
42 states covering 95% the US population, roughly divided equally
between men and women. The data base included 7,000 different
policies, offered by more than 70 insurers, including large firms
like Blue Cross Blue Shield.
This study also has direct implications for consumer choice
options being promoted by both the Bush Administration and
conservatives and moderates in Congress. For example, Reps. Dick
Armey (R-TX) and William Lipinski (D-IL) sponsored The Fair Care
for the Uninsured Act (HR 1331). Their bill would create a tax
credit of $1,000 per individual, $2,000 per couple, or up to
$3,000 per family. Rep. Lipinski remarked, "Not only do
eHealthInsurance's findings provide insight into the cost
effectiveness of tax credits for the uninsured, but the data also
proves that the proposed tax credit will cover plans that are
good for the consumer." According to McClellan, "The eHealt-
hInsurance report, which is based on real world data on the
affordability of private health insurance, is another piece of
evidence showing that health insurance tax credits can
significantly reduce the number of uninsured Americans. The
report highlights the importance of implementing a workable tax
credit, like that proposed by President Bush and many members of
Some of the key findings:
Policies are more affordable than commonly thought.
The data show that individual policies are normally running
between $1,200 to $1,500 per year. According to the report,
"These market data points from eHealthInsurance, together with
average premium data from various health plans and government
programs, all seem to refute the perception that average premiums
are multiples of two to three times more." Another surprising
finding is that premiums in the individual market were actually
lower than those commonly found among small businesses in the
small group market. Why is the perception so widespread that
individual market premiums are so much higher? According to the
report, "General perception may stem from specific high premium
cases rather than from statistically significant and
geographically and demographically diverse data sets. Individuals
paying high premiums may typically have pre-existing health
conditions, be near Medicare age or reside in one of the few
states with high prices due to guaranteed issue regulation for
the individual market."
Tax-credit options make individual insurance policies even
more affordable, particularly for low-income working people.
The study also found that major tax credit proposals like the
Armey Lipinski proposal would be meaningful for millions of
American who get no tax relief for the purchase of medical
insurance: half of the individual and family premiums in this
market are within the limits of the proposed tax credits, and
three-quarters have premiums that are within 75 to 100% of the
These consumers buy "comprehensive" coverage. The
policies that people buy on the individual market are more
likely to be "comprehensive" than "basic" or "bare bones."
Indeed, 88% of the insurance policies purchased by single
individuals and 84% of the plans purchased by families were in
the "comprehensive" category, almost invariably covering
These consumers buy plans with modest deductibles.
According to the report, of the HMO's that these consumers
purchased, 80% had no deductibles at all; of the PPOs, 71% had
deductibles of less than $1,000.
In terms of value for money, these consumers show a strong
preference for less insurance company management of benefits and
treatment rather than more. Preferred Provider Options (PPOs)
ware chosen by 75% of the consumers, while only 16% picked
HMOs. According to the report, "This would appear to
contradict any assumption that policies in the individual market
unduly restrict utilization of health services. Rather, it
suggests that when confronted with the various tradeoffs and
options, most consumers are willing to accept some, but not
substantial restrictions, in exchange for lower premiums."
Economists call this rational economic behavior. Consumers,
contrary to what critics of consumer choice insist, are not
Members of Congress, members of the medical profession,
health care policy analysts, taxpayers all, take note.
Robert Moffit is a prominent Washington health policy
analyst and Director of Domestic Policy at the Heritage