Tucson Blvd. Suite 9
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 52, No. 2 February 1996
PATIENTS' BILL OF RIGHTS
When asked for a copy of their patients' rights, managed
care organizations were at a loss, reported Kathryn Serkes, who
handles media relations for AAPS.
``But one of them offered me a list of patients'
responsibilities,'' she said.
When a prospective buyer calls a managed care organization,
she will find that application forms are readily available. But
sometimes the MCO wants the signed application and a check before
providing a list of benefits. And none of the representatives
telephoned by Ms. Serkes was able to locate and send a copy of
the provider contract.
As stories of MCO abuses proliferate in the mainstream
media, and as further threats to private medicine appear on the
legislative horizon, AAPS is proposing to Congress a Patients'
Bill of Rights.
There is nothing basically new in the Patients' Bill of
Rights, which is taken from the Patients' Freedoms articulated by
the AAPS Assembly in 1990 and incorporated in the Principles of
AAPS. It does make explicit the contractual provisions of
managed care plans that are most likely to compromise medical
treatment. Disclosure of most such provisions must be made to
employers upon request, to comply with an Arizona statute that
went into effect in January, 1996.
Natural rights of patients include the right to seek
consultation with the physician(s) of their choice; to contract
with their physician(s) on mutually agreeable terms; to be
treated confidentially, with access to their records limited to
those involved in their care or designated by the patient; and to
use their own resources to purchase the care of their choice.
Patients also have the right to full disclosure from their
insurance plan, including the existence of incentives to limit
care; the full cost of the plan; authorization procedures; and
any restrictions on physicians' freedom to criticize the plan or
give advice based on the individual physician's own best judgment
The degree to which patients' rights have been compromised
under managed care is clear when the AAPS Patients' Bill of
Rights is compared with the ``Principles of Patients' Rights and
Responsibilities'' endorsed by more than 100 health
``The endorsed principles suggest the need for patient
protections in the following areas: choice among a
reasonable number of providers and timely referral to
specialists when needed;... access to open, easy-to-
understand, and timely appeal process on negative coverage deci-
sions;...the right to know the basis for provider payments and
any potential conflicts of interest that may exist''
[emphasis added] (BNA's Health Care Policy Report
Another document intended to be the basis for sample
legislation, the Consumers' Bill of Rights, was developed by
Consumers Union, Citizen Action, and Citizen Action of New York.
This is basically another formulation of the socialist principle
of some citizens' claim on the property and labor of others
(illustrating its inherent constraints on freedom). It advocates:
``timely access to appropriate health care; an
affordable choice of qualified health care
professionals; [and]...representation in decision-
making...'' [emphasis added] (BNA's Health Care Policy
AAPS initiated its campaign with an advertisement in the
December 11, 40th anniversary issue of National Review.
All AAPS members will receive a copy of the Patients' Bill of
Rights suitable for posting. Congressional sponsors for
legislation are being sought.
AAPS will also help to publicize true experiences showing
the human impact of corporate socialism or managed care.
Reporters find few physicians who are willing to speak on the
record about certain issues, especially ethical conflicts. Yet
when physicians are forced to risk ``deselection'' or serious
impairment of their families' financial well-being, they may find
themselves compromising patient care.
Telephone: (800)635-1196; TeleFAX: (520)326-3529 or
(703)716-3400 (also accessible to Media Relations Department)
World-Wide Web site is at http://www.misnet.com/aaps/
Heartland PolicyFAX: (510)208-8000
Send us your FAX number if you would like to
receive Action Alerts by FAX (send it again if your area code has
Managed Care Statistics
Now that 50 million Americans are enrolled in HMOs, there is
an increasing clamor for quality measurement. The National
Committee for Quality Assurance (NCQA) has developed the
``flagship'' tool for evaluating managed care organizations: the
Health Plan Employer Data and Information Set. HEDIS is now used
by more than 300 health plans. At a conference sponsored by
Harvard Medical School, Arnold Epstein (Robert Wood Johnson
Fellow assigned to Sen. Kennedy's office at the time he chaired
Working Group 9 of the Clinton Health Care Task Force) outlined
the controversies about HEDIS. Quality measurements are a small
component of the total and focus primarily on preventive care
rather than outcomes. Furthermore, there is no risk adjustment.
Such report cards create an incentive to ``game the system''
by ``recruiting a different mix of patients, eliminating
physicians with bad statistics, focusing on measured components
to the detriment of other aspects of care, and upcoding
diagnoses,'' according to Epstein. ``One of the scariest things
is that if there is inadequate risk adjustment, people at risk
will be avoided.'' He pointed to ``anecdotal evidence'' that in
New York and Pennsylvania, patients in desperate need of care are
having difficulty finding a surgeon (BNA's Health Care Policy
As the use of HEDIS data expands, NCQA President Margaret
O'Kane said that the committee needs to refine its analysis to
better understand ``what the numbers mean'' (BNA's Medicare
Many HMO evaluations rely on surveys of patient
satisfaction-and the details may belie the headlines. According
to an article entitled ``Ind. Managed Care Enrollees Give Quality
of Care High Marks, Agency Says,'' only 78% of the 433
participants were satisfied with the program overall, and only
49% rated Hoosier Healthwise as better than their previous
traditional Medicaid services (ibid.).
If sick patients are surveyed, managed care looks
worse. When 473 nonelderly persons with a significant illness
were looked at separately, in a study conducted at the Harvard
School of Public Health, the 254 patients in managed care were
more likely to complain that their physician provided care that
was inappropriate or incorrect (12% vs. 5% of fee-for-service
patients); failed to explain how to take prescriptions (10% vs
4%); or made them wait a long time for an appointment (17% vs
7%). Of those who saw specialists, managed-care patients were
more likely to say that the examination was not thorough (12% vs.
3% FFS); the physician spent too little time (15% vs. 6%); or the
physician did not care (15% vs. 7%). Managed-care patients were
not more likely to receive preventive services
(MSSNY's News of New York, Nov. 1995).
Although these results received little publicity, the
New York Times carried a lengthy article about another
study entitled ``H.M.O. Quality Called Equal, at Less Cost''
(9/8/95). The ``Medical Outcomes Study'' (funded by the same
source, the Robert Wood Johnson Foundation, and published in
JAMA 1995,274:1436-1444) showed that patients who are
not very sick tend to remain stable over a two-to-four year
period, regardless of the financing mechanism for their medical
care. Surprise! (The mean baseline blood pressure in the
hypertensive patients was 142/82, and the mean baseline blood
glucose in the non-insulin-dependent diabetics ranged from 132 in
the IPA patients to 193 in the FFS patients. The FFS patients
were significantly older than the managed-care patients.)
Policy is being made despite the lack of evidence for the
safety or efficacy of managed care of the truly sick-and in spite
of troubling experience.
Recently, the State of New York capped ``voluntary''
enrollments in Medicaid HMOs, reporting that 13 of 18 plans had
been cited with statements of deficiencies and the other five
received letters of concern about problems that did not rise to
the level of a formal citation.
One concern is misleading promotion, such as the ``classic
bait and switch'' used by Oxford, or the failure to disclose that
CIGNA, MetLife, and US Healthcare can override a primary care
physician's decision to send a patient to a specialist or
hospital (BNA's Health Care Policy Week 12/4/95).
Another problem was that State Health Department
investigators posing as Medicaid patients were unable to get
appointments for checkups or baby immunizations.
Despite such problems, New York is pressing for a federal
waiver to make the program mandatory. Additionally, new standards
and criteria would require managed care plans to make 60% of
their network's physicians available for Medicaid patients in the
program's first year, with the proportion increasing to 80% the
second year and 100% the third year (BNA 12/1/95). Governor
Pataki proposes to cut state Medicaid spending $1.1 billion by
reducing payments and increasing the number of Medicaid
recipients required to enroll in managed care from 660,000 to 1.2
million (BNA's Medicare Report 12/22/95).
A Government Solution?
Concerned about HMO horror stories such as those told in the
New York Post, Rep. Jerrold Nadler (D-NY) introduced the
Health Care Consumer Protection Act of 1995, with the
cosponsorship of Ron Dellums (D-CA). This contains certain
disclosure requirements, including some but not all of those in
the AAPS Patients' Bill of Rights. However, all the details and
enforcement provisions-for example, to ``ensure'' that insurers
not offer inducements to practitioners-are at the discretion of
the Secretary of HHS.
A more specific law, the ``48-hour rule'' is proposed to
protect against the ``drive-through delivery.'' The AAPS Board of
Directors stated at its Jan. 6 meeting that mandatory 24-hour
discharges after childbirth are contrary to sound medical
practice. However, Dr. Lois Copeland, AAPS Immediate Past
President, warned of the law of unintended consequences. A
proliferation of regulations attempting to counter the hazards
inherent in managed care would be obviated by a return to the
Hippocratic ethic and true medical insurance, she noted.
``Let us put statistics on socialist rails in order that
they shall not be detached from the class struggle.''
The Criminalization of Medicine
Specific Intent. As prosecutors prepare to launch a
raft of Medicare and Medicaid fraud cases, they face a vexing
impediment: the necessity of proving that the accused knew that
his specific act was against the law.
In Michigan, a note about the applicability of ``specific
intent'' caused the attorney general to appeal a case that the
State had won (People v. Premen, No. 152049, LC
No. 91-003744 - see AAPS News Aug 1995). On Dec. 19, 1995,
the Michigan Supreme Court handed down an order that the appeals
court decision ``shall have no precedential force or effect,''
although it denied a request to review the decision itself. Two
justices dissented to the order on the grounds that the published
opinions of the Appeals Court ``are authoritative statements of
the law, not by grace of this court, but by the power vested in
the Court of Appeals by the Constitution.''
The dissenting justices further stated that such action
should not be taken without notice to other persons who might be
favorably or adversely affected by the action, and that the order
did not comply with the constitutional imperative to give a
statement of the facts and reasons for each decision.
Edgardo P‚rez-DeLeon will move for reconsideration of this
order because of its importance in his own appeal. He was
convicted of the ``general intent'' to collect Medicaid payment
while acting as office manager for his wife's internal medicine
practice (see AAPS News, Aug 1995). The judge refused to
give ``specific intent'' instructions to the jury.
AAPS has received no answer to its Nov. 1 letter to the
Michigan Board of Medicine, which asks: ``Does billing for an
`office visit of established patient' in Michigan imply the
performance of a physical examination in each and every instance
of the use of [Evaluation and Management codes 99215, 99214,
99213, 99212, 99211, or, in 1990, codes 90070, 90060, 90050, and
90040]?'' The letter states that ``physicians are interested
in...serving Medicare and Medicaid beneficiaries, but many are
not willing to risk fines or imprisonment for incorrectly
interpreting E&M codes.''
Mr. P‚rez was incarcerated for one year in the Ingham County
Jail, but despite Freedom of Information Act requests has yet to
receive an authoritative answer as to the illegality of the act
for which he was convicted. He notes the dilemma of a physician
faced with the requirement to (illegally) perform a ``medically
unnecessary'' service such as a physician examination in order to
be paid for rendering a necessary service. Because such conduct
could be construed as fraud, physicians ``prefer to stay away
from those government programs.''
While Deputy Attorney General Stanley Steinborn declined to
be burdened with legal research to answer Mr. P‚rez's question,
Mr. P‚rez pointed out that ``that research had to be done before
your office decided to prosecute me.''
He also stated that ``if you don't understand what I mean,
which is what the State Plan and the Public Health Code mean, it
is probably because these laws are too complicated for you and
for the rest of the people to understand. It has taken me a lot
of time to unscramble them.''
Mr. P‚rez has also appealed to Arthur Weatherbee of HCFA to
help process his FOIA request ``related to the clamping down of
billing errors/incorrect combination of services that resulted in
a 2,200 page manual.''
``The producers of a manual with 87,000 incorrect
combinations of so-called comprehensive and component codes
should know which is the appropriate way to bill for [brief
discussion of a report, scheduling referral appointment,
provision of a prescription with appropriate counseling, or
completion of a disability form]....[I] included the news
coverage [from AM News] on the coding clampdown so you
know I am not inventing the unnamed manual.''
Mr. P‚rez believes that his billing was perfectly lawful.
In another action critical to expediting physician
prosecutions, the Inspector General of HHS will consider
appealing to the U.S. Supreme Court in the case of Hanlester
Network v. Shalala CA 9, No. 93-55351, 11/15/95). The Ninth
Circuit Court refused a petition for rehearing en banc its
decision that ``a party can only violate the anti-kickback
statute if it engages in prohibited conduct with the specific
intent of disobeying the law-thereby requiring the government to
prove a person knows he or she is violating the law'' (BNA's
Medicare Report 12/1/95).
``Coming attractions'' in fraud prosecutions, according to James
Sheehan, assistant U.S. attorney for the Eastern District of
Pennsylvania, include more cases brought against physicians for
care beyond what is medically necessary or for exceeding billing
limits or for denying care to HMO members. ``We can already
see...situations where HMOs deny care and the doctor doesn't
advocate for the patient because he or she is afraid of...getting
kicked out of the network.'' Sheehan expects juries to side with
patients: ``it's a very, very difficult issue to deal with if
you're a defendant'' (ibid.)
The health care fraud and abuse provisions in the Clinton
seven-year budget plan would make civil monetary penalties not
subject to the automatic stay imposed under the Bankruptcy Code
and would allow the interception of wire, oral, or electronic
communications for fighting health care fraud. It would also make
health care offenses predicate offenses to RICO (BNA's Health
Care Policy Report 12/18/95).
The Managed Care and Fraud Working Group of the Dept. of
Justice is trying to retool. Detecting and quantifying fraud is
much more difficult in capitated systems with no billing records.
Prosecutors will try to establish systemic underutilization
rather than spotlighting individual medical decisions. Standards
and baselines have not yet been cited in court (BNA's
Medicare Report 12/8/95).
Making Malpractice a Crime. A decision in the
Eighth Circuit could convert every malpractice case into a
potential violation of the Emergency Medical Treatment and Active
Labor Act (EMTALA or the ``Anti-Dumping Act''), according to
Chief Justice Richard S. Arnold, dissenting in the case of
Summers v. Baptist Medical Center, CA 8, No. 95-1468,
Emergency room personnel discharged a patient who had
fallen out of a tree, and the patient ended up in intensive
care two days later with bilateral hemopneumothoraces. The case
was remanded to the lower court to determine whether or not the
patient had complained of chest pain and thus whether the
emergency personnel had violated the required screening
procedures in failing to perform a chest x-ray (BNA 12/15/95).
Missing a diagnosis through negligence is a civil tort.
Failure to uniformly apply screening criteria is a federal crime.
Taking the Name of the Lord in Vain New
regulations eliminate the $100,000 annual cap on penalties for
misusing the symbols for HCFA or HHS and apply them to every
individual piece of mail (BNA 12/1/95).
Semantic Notes. An article from the AP
(which I am beginning to think stands for ``Associated with
Pravda'') stated that ``complaints arose that
aggressive marketing techniques were being employed [by
HMOs] on some of those Medicaid recipients.'' That's a little
like saying that ``aggressive solicitation techniques'' were
employed by those who made an unexpected withdrawal from the bank
at gunpoint. What actually happened was that certain HMOs were
caught lying outright to Medicaid recipients so as to scare them
into signing up with their HMO. The State decided to
``punish'' these HMOs by telling them that they would have
to ``cool off'' for a bit and not sign up any more Medicaid
patients-for six months....The New York State Health Commissioner
then goes on to state that ``We are insisting that our taxpayer
dollars buy quality care that is delivered in a cost-
effective way.'' (The State pays $100 to the hospital for a
physician assistant to see a Medicaid patient in the ER, or $7.50
for a physician to see the same patient in his office. Between
July 1 and Oct 9, 1995, New York paid physicians $0 to see
Medicaid patients in the ER, until a temporary restraining order
was handed down.)
Closer to home, although the hospital CEO didn't get the
Robert Wood Johnson Foundation Grant needed to form a ``one-stop
shopping'' hospital network to enslave all the local doctors, he
is now looking for other sources of funding (doctors'
wallets). At a recent medical staff meeting, I was not allowed to
speak about a bylaws change that called for ``corrective
action'' (suspension or loss of privileges) for conduct that
``interferes with the operation of the hospital.'' The
President of the medical staff assured me that the wording was
only intended for those who were either drunk while practicing in
the hospital or running naked in the halls. I was not reassured
when he mentioned to me after the meeting that the hospital CEO
``didn't like the AAPS literature and other articles concerning
the negative aspects of managed care that I had placed in the
doctor's lounge.'' He indicated that should the hospital take
any action for ``disruptive speech,'' I could always count
on an appeal to the Executive Committee.
I'm beginning to think I might find a more friendly
environment standing in the middle of Bosnia.
L.R. Huntoon, M.D., Ph.D.,
Polls and Patient Satisfaction In any one
year, only about 4% of people have a major health problem.
Therefore, all polls on satisfaction with medical care should
start with a baseline 96% satisfaction. Anything less indicates
lack of satisfaction. So all of those 88% satisfied or 92%
satisfied patient reports are really negative responses, not
Frank R. Di Fiore, M.D., Private Physicians
New Math and Newspeak. From a letter to AdminiStar,
Medicare Part B Provider Service: According to the 1996 Fact
Sheet on the inside front cover fold out in the Participation
Program for Physicians Fee Schedules, there is a 0.4% increase in
the fee schedule for nonsurgical services including anesthesia.
The participating provider conversion factor was $14.15 in 1995,
and is $14.12 in 1996.
According to my calculations, this represents a 0.21%
decrease, not an increase. George Orwell would clearly
appreciate this doublespeak (see 1984).
Lee A. Balaklaw,
M.D., Louisa, KY
Cost Saving = Cost Shifting Statistically
speaking, 10 to 20% of Medicare patients account for 70% of
expenditures. If high users are just 70% as likely to join an
HMO as the average patient, and if the HMO is paid 95% of the
average cost, then the HMO makes a 16% profit even before it
drastically cuts payments to hospitals and specialists. If high
users are half as likely to join, the initial profit is 30.5%.
and if the HMO also cuts payments by 30%, the profit is 51%.
The patients who show up at recruitment seminars are
generally healthy enough to boogie after a hearty lunch. But
should an unlucky HMO attract more than its share of high users,
it can convert them into low users by delaying or denying
services. If they get disgruntled and leave, it is doubtful that
a salesman will try to woo them back.
Medicare HMOs give the illusion of an automatic 5% saving,
but in effect they simply shift real medical expenses to the fee-
Reinventing Clinton Pennsylvania Blue
Cross/Blue Shield is leading the charge to managed care since the
death knell for the Clinton Plan. Their prescription for
improving access in rural physician shortage areas: fewer
physicians (through defeating ``any willing provider''
legislation). Physicians are coerced into participating by
threatening ``loss of market share.'' They may be delisted or
deselected without cause. Some contracts even prohibit physicians
from discussing reimbursement concerns with patients if this may
directly or indirectly cause them to disenroll. Why has Blue
Shield, which is Pennsylvania's largest health insurer, offered
its 7,000 employees and their dependents the indemnity type plan,
but not the Keystone HMO plan?
M.D., Sharon, PA
President-Elect, Mercer County Medical
Oct 10-12, 1996. 53rd annual meeting, La Jolla, CA.
Legislative AlertBudget Stalemate
As of this writing, there is no resolution of the
federal budget debate; 260,000 federal employees are idle and
collecting partial pay. The entire episode opens up another vista
into the thinking of official Washington. Federal workers, facing
furloughs, are surely going to get paid. Private sector workers
rarely, if ever, get paid. Moreover, when Clinton and Congress
reached a temporary agreement to reopen the federal government
last November, White House Chief of Staff Leon Panetta
enthusiastically remarked that the short-term agreement now means
that we could put America ``back to work,'' George Will, writing
in the December 14th edition of The Washington Post,
encapsulated the mentality precisely: ``Panetta apparently
believes the federal government is America, or at least that
American creativity is entirely contingent on the functioning of
the federal government.''
At the creative Clinton White House, reinvention has reached
its limits. First, Vice President Al Gore said that well, no,
the Administration didn't really agree to CBO assumptions. Next,
House Republicans explode. Then, Mike McCurry, the very busy
White House press secretary (who at his rhetorical low point
suggested that the Congressional leadership would be just as
happy if the elderly were to die off) said that well, yes, the
Vice president indeed misspoke, and the Clinton Administration
was going to stick to the agreement to abide by the CBO
assumptions, which Bill Clinton, after all, had signed.
The Resolution had passed the House of Representatives by
351 to 40, with 133 Democrats supporting the measure.
Conservative and moderate Democrats are becoming increasingly
restive and unhappy with the White House. Charles Stenholm (D-TX)
is emerging as an independent power again in the House. As noted
by Washington Post columnist James Glassman, another
option is maturing for the House leadership if the Budget Talks
with the White House continue to stall: start dealing directly
with the new breed of ``Blue Dog'' Democrats who want to end this
gridlock and pass a veto-proof, bipartisan balanced budget.
The White House still holds the high political ground,
successfully painting Gingrich and his cohorts as unreasonable
extremists. Clinton charges that the rambunctious House freshmen,
the class of 94, are responsible for the stalemate. They won't
budge on their basic commitment: a balanced budget in seven
years, using ``honest'' numbers. They are doing precisely what
they said they would do if they got elected.
Like them or dislike them, the House freshmen actually
mean what they say. They make written promises to the public, en
masse, and they establish the grounds of a new public trust. If
they break that trust, then, they say, they are no different from
previous Congressmen. If the public changes its mind on the
balanced budget, or what it takes to get to a balanced budget,
then the public can throw them out.
While the President is beating the tar out of Gingrich and
Co. in the public opinion polls, Gingrich is winning on the
ground. With only limited support from the Senate, the House is
dramatically changing the terms of the national debate, even more
than Mr. Clinton's allies on Capitol Hill would care to admit.
The evidence is in the numbers. For example, the federal budget
represents 21.3% of the Gross Domestic Product of America. The
Balanced Budget Act of 1995, enacted by the Congress and vetoed
by the President, would reduce federal spending significantly and
reduce the federal budget to 17.2% of the GDP in ten years. The
Clinton Budget proposal, lacking in the same level of precise
detail, would nonetheless reduce the federal budget to 18.2% of
GDP over the same period. In other words, the Speaker and his
team are setting the policy pace. The Administration is
Medicare: Center of the Storm
The temptation to beat the Congressional leadership about
the head with the Medicare club is nigh irresistible to any vote-
seeking politician. According to Robert J. Blendon of the Harvard
School of Public health, Americans place Medicare last on a list
of programs they would like to see cut or reduced in order to
deal with the budget problem, even behind social security.
Funding for the arts, welfare, and food stamps all ranked at the
top, in that order. From the standpoint of conventional political
wisdom, Gingrich and company are either certifiably nuts or
uncommonly courageous. Interestingly enough, Medicaid has been
subsumed under the welfare controversy, and gets much less
The Congressional proposal favors reducing the growth in
Medicare spending to twice the rate of inflation, or almost
identical to the rate of growth proposed by the Clinton
Administration in 1993, at the time it was trying to sell its
gargantuan health-care extravaganza. Indeed, Leon Panetta even
uses the Clinton Health Plan, that nobody (not even liberals on
Ways and Means) wanted, as a justification for the reduction in
Medicare spending two years ago, saying that the whole package-
including the powerful National Health Board, the Regional
Alliances, the 90,000 or so bureaucrats required to process the
paperwork, would be better for senior citizens. This is the
reinvention of Chutzpah. Incredible stuff, of course,
given the fact that none of the Medicare reductions would have
been plowed back into the Medicare system. These ``savings''
would instead have gone to pay, inadequately of course, for the
skyrocketing costs of the Clinton Health Care Plan, which,
according to the February, 1994, CBO estimates, would have added
another $70 billion to the federal deficits.
But again, the numbers. Under the current budget
projections, total Medicare spending would reach $332 billion in
2002. By reducing the rate of spending, the Congressional
Medicare reform plan would mean that Americans would spend $289
billion in 2002. Under the Clinton Budget proposal, Americans
would spend $301 billion that year. The difference-$12 billion,
or 4%-is being called the ``difference between extremism and
Some ask how long the Administration can keep this up.
Perhaps more to the point is the question of whether the
Congressional conservatives are really doing enough.
The Academy Weighs In, Again
A partial answer to the latter question was recently
supplied by the American Academy of Actuaries in a special
December 21st report: ``The GOP's version, the Medicare
Preservation Act (MPA), imposes fiscal controls on the Medicare
program that go a long way toward solving the program's longterm
economic problems.'' But the Academy also sounded a cautionary
note, saying that this reform could ``jeopardize access to high
quality care for all those who remain in the traditional fee-for-
service Medicare plan.''
In speaking of the Administration's Plan, Guy King, the
former HCFA Actuary who chaired the Academy's working group on
Medicare reform, says, ``It can only be considered a stopgap
measure because it falls short of addressing the significant
longterm financial problems of the Medicare program. It is
similar to the quick fixes enacted in the past that have allowed
the Medicare program to fall into its current financial state.
This proposal also includes accounting tricks to achieve short-
term fiscal soundness in the hospital insurance program. In the
long run, these tricks may undermine the economic discipline of
the trust fund.''
The Academy also noted that the Administration's reform plan
would be ``considerably more restrictive'' than the Congressional
plan in the choices available to seniors.
On the handling of ``provider reimbursement,'' the Academy
was critical of both the Clinton Plan and the Congressional
leadership plan: ``Both rely heavily on reductions in unit
payments to providers to achieve savings. Reducing unit payments
won't produce incentives for reducing the rate of growth in
health care expenditures,'' said King.
Federal employees, angry at being furloughed or declared
``non-essential'' (that politically incorrect designation was
recently changed by the Gore Reinvention Team to ``non-
emergency'') are complaining that Congress (mostly) and the White
House are sacrificing the continuity of good government for
short-term political gain, etc. Nothing could be further from the
truth. Nothing quite like this has happened in memory. The
Congress and the White House are engaged in a titanic political
struggle, which will affect every man, woman, and child in
America. At issue are the size and scope of federal government's
reach and authority and the economic future of the nation.
For the short term, according to an econometric analysis
conducted by the Heritage Foundation using the model developed by
Lawrence Meyer and Associates (the same one used by OMB and the
Federal Reserve Board), a balanced budget will mean an addition
$32.1 billion in real disposable income for American families
over the period 1995 through 2002; an additional $66.2 billion in
consumption spending; an additional $88.2 billion in real
nonresidential fixed investment; and an additional 103,700
housing starts. The analysis notes that these economic benefits
are fully realized through the happy combination of spending
reductions and tax reductions that official Washington's friends
in the press find so repulsive. They lead to higher household
spending, lower interest rates, increased productivity, greater
capital investment, and less inflation. Says Dr. William Beach,
an economist and tax analyst who oversaw the study, the results
are heartening but would be even better if Congress were to enact
a major reform of the federal tax code (such as a flat tax) to
spur large capital formation in the economy.
A European Future for Peoria?
In addition to the short-term costs of failure to balance
the budget, Congressional failure to get entitlement spending
under control will result in what Robert Samuelson recently
called America's French Connection-not illegal drug trade, but
the kind of unhealthy relationship between the citizens and the
welfare state that characterizes the current French Republic, now
undergoing strikes and similar incidents of civil unrest related
to government spending cutbacks. Today, total government spending
is 34% percent of America's national income. With the notable
exception of liberals in Congress and the universities, most
Americans are likely to think that this amount is too high. In
France, it is 54% percent. In Germany, it is now more than 50%.
And in Sweden, it is 67%.
The problem is that the public, in France and elsewhere in
Western Europe's social democracies, likes the modern welfare
state and all of its many ``free'' benefits but doesn't want to
pay for them with higher taxes. This is the crux of America's
Medicare debate also. The public would prefer to pass the costs
to posterity through continued deficit financing. This act of
collective self-delusion only puts off the worsening economic
problem while making the solutions ever more politically
unpalatable. In the current economic and political conflicts in
France, Americans can see their future.
Even Germany, the alleged economic powerhouse of Europe, is
succumbing to the problem. As Dr. Wilfried Prewo, a German
economist with the Hanover Chamber of Commerce, noted in a
remarkable December 8th speech to the Graduate School of the City
University of New York, Western Europe is now suffering from high
unemployment in spite of its economic growth. And the main cause
of the sluggish Western European job growth is the high cost of
labor. In Germany, following the ``Bismarckian'' model, social
programs are linked to employment, and thus are incorporated into
labor costs. In 1995, German payroll taxes amounted to 18.6% of
gross wages for pension insurance; 13.3% for health insurance; 1%
for nursing care; and 6.5% for unemployment insurance, totalling
39.4% of gross wages. While half of this is ``paid for'' by
employers, the German system, like all employer mandates, is
actually a tax on labor. The German worker's ``half'' of the
payroll tax, together with his other taxes, reduces his net pay
to 20% below the level of American workers.
The German state takes and distributes an ever larger share
of the national economic pie. But that is no guarantee of a
higher standard of living, contrary to the obsolete ideological
junk that European socialists continue to preach and promise.
Like the United States, the Germans today are going through
a demographic revolution: more and more retirees are increasingly
dependent on fewer and fewer active employees. By 2030, the ratio
will be worse than the United States: ``...there will be one
pensioner for one active worker with the consequence that the
worker's pension payroll tax would, on average, equal the average
pension.'' Meanwhile, the costs of the social welfare system in
Germany are exploding. According to Prewo, welfare expenditures
equalled investment outlays in 1970. By 1993, they were double
the investment outlays.
German Chancellor Helmut Kohl once remarked that when the
German government takes more than 50% of the national income, the
direction is back toward the repressive Communism that Germans
fought to escape: ``The welfare state impoverishes the
current generation, deprives future generations of growth
opportunities, and even shifts further liabilities onto a
weakened future generation. The welfare state's fate will mirror
that of the equally morally corrupt and economically exhausted
socialist systems at the end of the 1980's. Without reform, it
will implode just as Eastern Europe did in 1989.''