Volume 53, No. 1 January 1997

Save the Children

The next program in the salami-slicing operation called ``incremental health care reform'' will probably be directed toward ``saving the children'' (see pp. S1-S2): no surprise to those who have read the documents from the Clinton Task Force on Health Care Reform.

The question is who will save them and from what? In 1973, Hillary Rodham wrote, ``I want to be a voice for America's children'' (Harvard Education Review). She has long advocated ``children's rights'' and argues that the inferior position assigned to children under the law should be seen as ``part of the organization and ideology of the political system itself.'' The children's rights movement is a ``logical extension of earlier movements to give civil rights to slaves and women.''

``The basic rationale for depriving people of rights in a dependency relationship is that certain individuals are incapable of or undeserving of the right to take care of themselves and consequently need social institutions specifically designed to safeguard their position,'' she wrote (see The Seduction of Hillary Rodham by David Brock, the Free Press, 1996).

Hillary Rodham purportedly believes that children (or some children) are fully competent to decide issues affecting their future, such as motherhood and abortion, schooling, cosmetic surgery, treatment of venereal disease, and employment. The corollary is that parents are incompetent to decide, and children must have their rights protected by the state.

The ``right'' of the hour is the right to ``coverage'' (sometimes confused with the ``right to medical care''). The White House is considering proposals such as that of Vermont Governor Howard Dean to place children up to age 18 in a managed care program with comprehensive preventive and acute care services, dental coverage, and vision benefits. Also under study is a ``Families First'' proposal to provide subsidies to help working families buy special children-only health plans,'' according to Chris Jennings, special assistant to the president for health policy development (BNA's HCPR 9/23/96). (Jennings previously served as liaison between Hillary Rodham Clinton and the President's Task Force on Health Care Reform.)

The creation of a new entitlement is supposed to occur within the context of a balanced budget, since children are an inexpensive population to cover. ``We're talking about less than 1% of the federal budget....This shouldn't even be controversial,'' stated Governor Dean (ibid.).

The preferred mechanism is school-based clinics.

Watch for buzzwords such as ``streamline,'' ``simplify,'' ``economize,'' ``consolidate,'' ``accountability,'' ``efficiency,'' and ``decentralization''the same ones used to sell the so-called Careers Act and Workforce Development Act, stymied in conference after sailing through both houses. The consolidation of health care with ``outcome-based education'' and ``school-to-work'' careers planning would make it possible for the state to completely usurp the ``development of human resources'' (formerly called the upbringing of children).

The results of state-guaranteed health-care ``rights'' of children can be predicted from the results of the state- guaranteed ``right'' to an education:

  1. Skyrocketing costs. Nationally, the average cost per pupil was $6,857 in public schools (where there are almost many nonteachers as teachers), compared with $3,116 in private schools. (In New Jersey, costs were $8,315 and $1,775.)
  2. Academic performance so poor that the Scholastic Aptitude Test (SAT) had to be both dumbed down and ``recentered'' to prevent comparison with earlier years.
  3. Exposure to the drug culture. Nearly one third of students reported being offered, sold, or given an illegal drug on school property in 1995 (MMWR, 9/25/96). A GAO report on the $1.1 billion spent on drug education stated that the impact was ``unknown.'' The curricula typically presented ``nonjudgmental information'' (Phyllis Schlafly Report 10/96).
  4. Exposure to legal psychotropic drugs. About 2.4 million public school children are on Ritalin, and about 25% of those develop symptoms of manic depression, requiring additional medication and perhaps hospitalization (Science News 150:111, 1996).
  5. Crime. A USA Today survey found that 43% of public school children avoid the restrooms due to fear.
  6. Psychological testing, ``comprehensive'' sex education, ``environmental'' education, and other methods that tend to undermine parental authority and discredit parental values.

The same children deemed capable of weighing ``alternatives'' such as drugs, abortion, and homosexuality, come from parents who can't be trusted to manage a Medical Savings Account. In a discussion with Rep. Dennis Hastert (R-IL) about MSAs, Hillary Rodham Clinton said ``we can't trust the American people to make those type of choices [about medical care]. Government has to make those choices for people.'' Additionally, ``we can't afford to have that money [in MSAs] go to the private sector. The money has to go to the federal government because the federal government will spend that money better'' (American Spectator 11/96).

Underneath the ``traditional values'' packaging, Hillary Rodham's plan to reform schools required that every school conform to a set of elaborate, state-imposed standards designed by an elite cadre, or else be shut down (Brock, op. cit.

Her agenda for American medicine is similar: the elimination of private influences that could interfere with the establishment of nanny-state despotism in which all of the non- elite have the same rights as children or slaves, under state parentage.

The ``health care'' battle, especially ``KidCare,'' truly is a battle to save the childrenand our heritage of freedom.


States Demand Information ... or Else

Required Reporting of Immunizations. As of Jan, 1, 1997, all physicians in New York City are required by law to report all immunizations of patients under the age of 8 to the Department of Health's Central Registry. Failure to report within 14 days could result in a fine of $2000 (MSSNY's News of New York, Nov. 1996). The forms also require physicians to report the vaccination history of any child not previously reported. The Dept. of Health acknowledged that this could lead to duplicative and possibly conflicting information within the registry, if a child sees more than one physician (EVPgram, Medical Society of New York, 10/11/96)

Mandatory Electronic Claims Submission. Public Health Law 2807 now makes it mandatory for physicians in New York to submit electronic claims to all insurers, as of April 1. AAPS Director Lawrence Huntoon, M.D., reports that ``a few lucky, low-volume practices like mine are able to fill out a waiver form that permanently excludes us from having to comply. However, we did not receive one of the coveted waiver forms in a general mailing (like the one that informed us of the requirement). I had to write for mine repeatedly. Also, we were told that the Dept. of Health would not provide written confirmation of receipt of your Waiver Notification Form. I guess they don't want to tell physicians whether they got it so that later the physician can be fined and jailed for failure to submit the proper form, true to the KGB tradition of `show me the man, and I'll show you his crime'.''

Practice Data Demanded. Wisconsin physicians must either fill out a form giving data about their practices, or face a $10,000 fine and/or 9 months in jail. The form asks about the percentage of time spent in various types of activities; the involvement of advance practice nurses or physician assistants; acceptance of new patients or Medicare or Medicaid patients; and specialties. Barbara Rudolph, Ph.D., Deputy Director, Office of Health Care Information, (608)267-0236, told AAPS Executive Director Jane M. Orient, M.D., that the department had received replies from 95% of Wisconsin physicians. Without the leverage of the fines and jail time, Rudolph thought that only 30% would have replied. She said that the state needed the data to apply for federal dollars for underserved areas; to set up long distance learning for advance practice nurses; and to gauge the impact of a 24-hour waiting period for abortions on women in rural areas. (The form doesn't ask about abortion.) Also, HMOs use the data, she said.

``We don't have an agenda,'' she assured Dr. Orient. ``And we're not that dictatorial.'' She stated that the ``provider community'' was involved in designing the form and wouldn't permit abusive extensions. ``Doctors have a choice: spend five minutes of their time doing the form, or pay the fine.''

The other option would be license revocation, and she thought that doctors would prefer a fine.

Steven Mueller, the attorney to whom Rudolph referred questions, said they had been receiving a number of outraged calls. He didn't think doctors would be vigorously prosecuted [in which case the Office is guilty of false threats rather than abusive prosecution]. AAPS will review the statute.

``It's not the number of minutes required to fill out the form,'' stated Dr. Orient. ``It's the principle of using forced labor to aid and abet something that some physicians may abhor, such as HMOs, central planning, or abortion.''?

Action Plan for the Month

Send your Congressional Delegation (two Senators and one Representative) the enclosed Affirmation of Citizens' Rights. Demand that they sign it or explain why a tyrant like King John recognized fundamental rights that they would deny. Send us a copy of replies.

Rights of Canadian Physicians

The Ontario government has proposed barring doctors from setting up new practices in big cities. Additionally, the government capped fees and ended subsidies for liability insurance. Specialists complain that the allowed fees do not cover the true cost of providing service. The Ontario Medical Association recommended a work slowdown. For several months, obstetricians and some other specialists have refused to see new patients. The health ministry negotiated an open-ended contract with Detroit Medical Center for interim prenatal, postnatal, and delivery care.

Family physicians also feel aggrieved, and ``impotent against the government colossus.'' They have developed a ``GP Job Action Menu'' that resembles in some respects the 1965 AAPS Nonparticipation Strategy for Medicare, such as withdrawing from hospital committees (Medical Post 10/1/96).

The government's reform agenda is ``consolidation'' of power in the hands of an omnipotent agency called the Health Services Restructuring Commission. Noncompliance by a hospital could mean being placed under government supervision (Globe and Mail 11/16/96).

New Brunswick was the first province to develop a physician manpower policy, based on a full-time equivalents (FTE) calculation called ``fuzzy'' and ``inaccurate.'' Not only does it affect new residents, but it can disrupt the plans of physicians who would like to phase out their practices and retire (Medical Post, 10/1/96).

While New Brunswick interns challenge in court the program that keeps them from practicing in certain areas, Pierre Boucher, an executive of the Quebec Health Insurance Board, states: ``It's not a God-given right because you've graduated from medical school that you should practice wherever you like'' (Wall St J Interactive Edition 11/11/96).

One could ask whether one loses one's God-given right to liberty, including the right to work wherever one can find employment, simply by earning a medical degree. But under Canada's single-payer system, all doctors are effectively employees of the government.

Although there is increasing pressure for some privatization in Canada, strong ideological opposition remains. ``If you allow people to opt out, we will spend more because it would allow people to buy more,'' stated Rosana Pellizzari, M.D., Spokesperson for the Medical Reform Group in Toronto at a Nov. 23 conference sponsored by the Massachusetts Medical Society. She dismissed evidence that people were having to wait a long time for needed care by stating the source (the Fraser Institute) was ``not credible,'' being a ``right-wing think tank.''

As criticism of managed care heats up, the pressure builds for U.S. ``single-payer'' (socialized medicine without a private escape hatch), which deprives doctors of the right to offer, and patients of the right to buy the medical services they wish.


Calculating a Sentence

As pointed out in last month's issue, the sentence in an insurance ``fraud'' case depends critically upon the ``losses'' experienced by the insurer. At oral argument in the appeal in USA v. Jeffrey Jay Rutgard (95-50309), the judges ordered further briefing to explain the amounts of money charged for each count, there being a discrepancy in the record between figures of $65,140.02 and $557,548.74.

The defense brief, filed by Charles M. Sevilla of San Diego, found four causes for the difference:

  1. The larger figure includes the total amount of the insurance check in which payment for a single charged procedure was bundled together with any number of payments for other procedures performed on any number of other payments, with respect to which no evidence was presented at trial. [If the physician directs all payments to be made to the patient, this problem cannot arise -- Ed.]
  2. The larger figure includes amounts from 85 counts which were dismissed at trial on motion by the Government.
  3. The larger figure includes the amount billed rather than the amount paid. Participating physicians can charge any amount they like, but the amount paid is dictated unilaterally by Medicare.
  4. There were 24 duplicated counts in the indictment; Dr. Rutgard was charged under both false claims and mail fraud for the same episode, so the amount of money was doubled.

In the brief filed simultaneously by the Government, the prosecutors basically refused to answer the question posed by the Court, stating that a ``proof of loss per count'' approach was contrary to the instructions in the Sentencing Guidelines and to Ninth Circuit law. Instead, they stated: ``if sentencing losses due to fraudulent schemes were limited to the counts of conviction, counts involving tens of thousands of victim payments in a telemarketing fraud case would have to be individually pleaded.'' Instead, the government seeks testimony by ``insiders'' to show that a business is operated as a scheme to defraud. Prosecutors reiterated statements by several witnesses, which purportedly proved that Dr. Rutgard's practice was ``permeated with fraud'' so that every single payment was presumed fraudulent. Dr. Rutgard ``was motivated first and foremost to defraud insurance, not to render proper patient care,'' they stated.

The defense filed a motion to strike the government's brief as nonresponsive, or alternately to permit appellant to ``respond to the new matter...as he is confident he will be able to show similar inaccuracies as in the respondent's main brief.''

``The government has used the supplementary brief as an overt dodge of the court's specific and uncomplicated question for an itemization of costs per count. The government misuses its brief as a launching pad for a multi-topic presentation of legal and factual arguments on sentencing-related legal issues, responses to comments made at oral argument, alleged summaries of patient testimony, and other topics which in no way relate to the limited assignment....in a context in which appellant has no reply.''

The defense cites one example in which the government did not charge Dr. Rutgard for indisputably necessary surgery, but did indict for two post-surgery office visits (total payment $125.80), the question being whether these were for unrelated problems not included in the global surgical fee. ``This example shows the manner in which the government's `let's take it all' permeation theory is totally without merit.''

Mens Rea

From Defendant's Supplementary Brief and Memorandum of Law Pursuant to Standard 11 of the Minimum Standards for Indigent Criminal Appellate Defense Standards in People of the State of Michigan vs Edgardo Perez-DeLeon (COA#171788).

This brief was submitted by Mr. Perez-DeLeon in propria persona, against the advice of counsel, insisting that this issue be raised on appeal.

``By enacting the Kassebaum-Kennedy Act, the U.S. Congress reaffirmed the civil liberty of the mens rea requirement established by the U.S. Supreme Court in Morrissette vs. U.S. (342 U.S.246(1951))....[w]hat distinguishes a free from an unfree society is that in the former each individual has a recognized private sphere clearly distinct from the public sphere and the private individual cannot be ordered about but is expected to obey the rules that are equally applicable to all (Hayek, The Constitution of Liberty, 1960). To deprive medical providers of the mens rea requirement in criminal prosecutions involving fraud, convicting [them for what they should have known], is to ask a class of citizens to obey rules not equally applicable to all....

``[T]he issues of due process involve reconciling the legitimate needs of a society to maintain law and order and the fundamental right of every citizen to be protected from unconstitutional surveillance, arrest, conviction, and punishment. Defendant asserts that there is no legitimate need to maintain law and order in denying medical providers the mens rea requirement....''

Correspondence: Legal Consultation Service

In response to a question concerning whether advice in AAPS News to ``show patients calculations of the overhead cost of filing claims and discount fees by a comparable amount'' would violate the federal antitrust laws, citing Section 2(a) of the Robinson-Pateman Act:

Such price discrimination is perfectly legal and, indeed, even desirable under strict economic construction of the Clayton Act, as amended in 1936 by the Robinson-Pateman Act. Section 2(a) of the latter Act sets forth the so-called ``cost justification'' defense for price discrimination: ``Nothing herein contained shall prevent [price] differentials which make only due allowance for differences in the cost of manufacture, sale, or delivery.'' More generally, proscriptions against price discrimination primarily apply to the sale of goods or commodities, in contrast to the rendering of professional services. The Seventh Circuit has expressly ruled that the Robinson-Pateman Act does not apply to medical services. See Ball Memorial Hospital v. Mutual Hosp. Ins. 784 F.2d 1325, 1340 (7th Cir.), rehearing denied, 788 F.2d 1223 (7th Cir. 1986).

Strict application of the prohibition against price discrimination would require, not prevent, physicians to charge differently for services having different costs. ``True economic [price] discrimination [occurs] by charging the same price to different groups of buyers, even though the costs of serving them differ (H. Hovenkamp, Federal Antitrust Policy: the Law of Competition and Its Practice, Section 14.f1, at 529, 1994). The question reminds us that we must be alert to possible misuse of the antitrust laws by HMOs and others. But physicians need not be paralyzed by fear from engaging in economically rational pricing strategies.


Members' Page

Get HCFA to Confirm Your Fees. Each year I write Mr. Preston Lowen, my personal HCFA bureaucrat, a letter with specific questions about the fees. Nearly every year for the past 8 or 9 years we have found some error in the fee schedule. When I specifically request them to review all of the CPT codes we use and the corresponding charges, they can't throw me in jail or fine me later for ``overcharging.'' I have, in fact, been cited for ``Limiting Charge Violations'' when I used the fees that they confirmed were accurate. When I pointed that out to them via a copy of their own letter to me with their signature on it, they were a bit red-faced. In the age of Kennedy-Kassebaum, one can't be too careful.
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY

Who Is Greedy? We feel that we have been under federal government scrutiny for about ten years and have lived in isolation for four years in an old house which became our prison. Finally, I am trying to make it liveable again. What an irony! It took me 7 or 8 years to restore this former boarding house, which I purchased for very little money, after a major fire. For years, we had no kitchen and no bathroom. It took so many years because I did all of the work myself. I learned every aspect of the building trade. I labored terribly hard on it, and I was quite proud that I created an old European-like home for us. The prosecutor's favorite line to the judge was: ``Your honor, this woman lives in a magnificent mansion. Just make her sell it and give us the money!'' In the Communist era in Prague, our families lived through Government property seizures, but in the worst nightmare I couldn't imagine it in this country.
Mrs. Blanka Krizek, Washington, D.C.

[Mrs. Krizek also did billing for her husband's psychiatric practice. The Krizeks' appeal-a 15-minute oral argument-was heard in the US Court of Appeals in Washington, DC, on Dec. 2. See AAPS News October 1996.]

Will Patients Pay Doctors? Recently, I have read several editorials that state that prior to the rise of third-party payers, physicians lived on poverty-level incomes. Under new editorial leadership, that is the message coming from Postgraduate Medicine, and I am wondering if this is true (I doubt it). Is this a new subliminal attack against medical savings accounts? That doctors will not get paid if they must rely on direct payment from patients?
Albert L. Fisher, M.D., Oshkosh, WI

Keep Out the Feds. When I came home from San Diego, I thought it would be possible to set up an MSA plan here, so I visited with a banker friend and some local insurance people. I envisioned a checking account plan on which the fees for basic services could be paid by writing a check to the doctor, avoiding all paper work except for the usual bank statements. The patient would keep copies of bills for possible audit.

The banker tells me that since the bank would have a fiduciary responsibility, the account would have to be handled by the trust department (expensive). National banks would have to get approval for a plan, which would be expected to take a year or two. It is interesting that insurance companies are considering annuities for the MSA (red tape).

Standard policies appear to have deductibles of $1000 or $2500, while Kennedy-Kassebaum specifies not less than $1500 or more than $2250. This appears to be another deliberate roadblock, requiring insurers to devise new plans.

One insurance man said there is not much point in developing plans because the rules and regulations won't be written for months, and all their work could be for naught.

As things stand, it might be best to ignore federal programs. I like the AAPS credit union idea.
Margaret Emmons, M.D., Clinton, IA

Counterfeit Rights. How can you tell true from counterfeit rights? When gold coin was money, the final arbiter for true vs. counterfeit was the acid test. The acid test of a right is this: does the alleged right prohibit-or authorize-the initiation of force? If it prohibits the initiation of force, it is a genuine right. If it authorizes the use of force, it is a fake, a fraud, a rip-off. Note that welfare ``rights'' authorize forcible collection of handouts and that sensitivity ``rights'' authorize forcible silencing of peaceable speech. Those who advocate such bogus rights are the enemies of freedom.
Michael Miller, Quackgress Press #28, [email protected]
Ste. #601, 105-150 Crowfoot Cr. NW, Calgary, AB 3TG 3T2

The New Physician. I thought you might be interested in what they are looking for in a ``physician'' nowadays in a federally-funded community health center in Tuscaloosa, Alabama: he must ``meet the Center requirements of compliance with rules, policies and procedures; provide comprehensive care through the implementation of health care plan and written protocols; maintain clinical tracking data;...emphasize the prevention of disease and the promotion of health;...function interdependently as a cooperative primary care team member;...review and update clinical protocols annually.''
R. Wayne Porter, M.D., Corning, AR

AAPS Calendar

Jan. 11, Board of Directors, Sheraton Gateway, Atlanta.
Sept. 17-20, 54th annual meeting, Chicago.


A Divided America

The preliminary sifting of the surveys has been underway for several weeks now, and a clearer picture is emerging. The Washington Post surveys show that the United States in 1996 is being governed by ``two majorities'': the majority that reelected a Republican Congress for the first time in 68 years and the majority that reelected a Democratic President for the first time since 1944. These ``two majorities'' differ on the basic issues, such as how big the federal government should be.

The crushing boredom of the 1996 campaign and the low turnout are not really signs of domestic political tranquility, although Clinton, as the Presidential incumbent, could not help but enjoy the benefits of apparent peace and prosperity. The lack of passion in the campaign disguises a deeper passion below the surface. According to the Post poll, the Clinton voters do want more government, not less. For them, Clinton's proclamation that the Era of Big Government is over is neither true nor desirable, and one can only suspect that they know better than most that Clinton doesn't really mean it. Remember how the President complained that his health care system was savaged by narrow-minded nasties around the country who ``misrepresented'' his health care plan as a ``government-run'' system? Please note that Hillary Clinton, traveling with the President in Australia, praised the Australian socialist system as a model for America. He really ought to have a heart-to- heart talk with Hillary, lest we get the idea that he's in sync with her ideas on ``health care reform,'' something like a government-run health care system.

The Deepening Medicare Mess

No matter what yardstick one uses, or how much one jiggles the numbers, or how much the President says he wants to ``protect'' Medicare (presumably from Gingrich?), the Medicare fiscal crisis deepens daily. Delay incurs a cost; the more delay, the worse the situation and the more difficult the remedies. The whole history of Medicare has been one of sharp and relentless increases. The number of persons enrolled in Medicare increased from 19.5 million in 1967 to 38.1 million in 1996, a 95% increase. Within the next ten years, these numbers will see a dramatic increase, even before the tidal wave of baby boomers starts hitting the program. If nothing is done, and Medicare continues to grow at its current rate, it will absorb 7.5% of the Gross Domestic Product (GDP) by 2030, and about 22% of the entire U.S. population will come under the program, according to August 1996 calculations of the Congressional Budget Office (CBO).

Even if Medicare were changed from a defined-benefit to a defined- contribution program, and consumer choice and competition were introduced, the program would still grow substantially, reaching 4.7% of the GDP in 2030, but taxpayers would save trillions of dollars, as syndicated financial columnist James Glassman wrote in The Washington Post Nov. 26, 1996.

Whether or not Congress and the President will do something serious about Medicare is open to question. Congressional Republicans, despite the imperfections of their 1995 plan, demonstrated an unprecedented seriousness in dealing with Medicare. Understandably, they are gun shy after the thorough trashing they got over the past two years. It is likely that Congress will take the easy way out and squeeze a few more bucks out of what the Washington wonks call ``the providers''- a bureaucratic phrase underscoring the ``health policy community's'' contempt for those who have earned the degree of Doctor of Medicine. Then, Medicare will lurch from crisis to crisis, and the costs to the taxpayers will skyrocket.

The Criminalization of Medicine

On the continuing saga of how to jail physicians, it should be remembered that in the last Congress the House Republicans got the Kennedy- Kassebaum mess started-not having a clue about what their colleagues Rep. Steve Schiff (R-NM) and Rep. Christopher Shays (R-CT) and eager Congressional staff on House Ways and Means, Energy and Commerce, and Government Oversight were cooking up. Schiff, Shays, and these nominally Republican senior Congressional staff started on this path by copying-word for word-the provisions of the repressive Clinton Health Care plan and incorporating them into the Kennedy-Kassebaum bill. Just what the 1994 ``Conservative Revolutionaries'' had campaigned on, right? The ``fixes'' the Gingrich crew added on to make the bill more palatable to organized medicine did not go nearly far enough. Honest physicians are still at risk in the regulatory maze created by Congressional staff and their befuddled bosses.

Congress should start by cleaning out, with Herculean efforts, the thickening and often incredibly stupid regulatory underbrush that ensnares honest, as well as dishonest, physicians. We worry about how to separate the dolphins from the tuna; can't we do the same for doctors and crooks? This takes guts. Remember, the Big Boys like government regulation; it cuts down on the competition. And a highly regulated ``market'' is just the right sort of environment for black marketeers and crooks to flourish.

Here Comes KidCare

Look for it shortly after the New Year, maybe even coming from a Congressman in your District. The Clintonites have been trying to figure out how they can get the infrastructure of the Clinton Plan or some variation of it quietly into place by setting up federally standardized health care benefits and imposing some sort of federal cost control mechanisms on a bigger slice of private sector insurance or medical services, without starting the shooting all over again. The Robert Wood Johnson Foundation recently sponsored a big conference on the subject of just how to do this. (And see AAPS News, Jan 1996.) Of course, the best way, from the standpoint of direct government control, is to expand Medicaid, as advocated by the Commonwealth Fund.

The public relations attractiveness of this is much like the effectiveness of the kidnapper who, surrounded by the cops, grabs the nearest child and dares the bewildered cops to open fire. You wouldn't want to hit the kid, would you? You wouldn't want to deny our superior brand of health care coverage, replete with the Washington wonkmeisters' latest regulatory gadgets, to the kids, would you? Like the befuddled cops faced with a kidnapping, the conservatives in Congress would be double dared to open fire on KidCare. They won't.

Some conservatives in Congress rightly think the answer to KidCare is a national system of tax credits to promote freedom of choice and establish an open market for medical services. But don't think liberals in Congress are beyond using tax credits to put an entirely different type of system in place. For example, Congressman Pete Stark (D-CA), long a champion of ``single- payer'' (socialized medicine for all with no private escape hatch), wants to establish a system of ``refundable'' tax credits for the purchase of ``dependent'' health care coverage; i.e., the eligible population would be any person under age 21. This would be a broad category; for Stark's bill has no means test for the ``kids'' who would qualify for coverage. With the Stark bill, you get the usual left-wing policy wonk bells and whistles-guaranteed issue; a punitive tax equal to 25% of the premium for any medical insurer (including self-insured plans) that fails to offer coverage to the eligible population; and, of course, a mandatory package of federal government standardized benefits. Under the Stark plan, every medical plan offering KidCare must at least offer the Medicare benefits package, along with government controls on coinsurance. Under the Stark bill, no insurance company would be required to charge copayments, deductibles, or coinsurance for well- child or newborn care.

Is Tax Reform the Next Stage?

If there's going to be a ``Technical Corrections'' bill-and there should be, if only to fix the violations of patient privacy that are embedded in the Kennedy-Kassebaum bill-the conservative Congressional leadership could outflank Kid Care and all of the other sidewinder attempts to slip Americans into either a highly regulated Clintonesque or Canadian-style system. To do this they should focus on one thing: make a concerted effort to enable patients to escape the repressive corporate rationing of medical care through employer-based managed-care arrangements, allow Americans to own-without tax penalty-their own medical insurance and personally fire insurance companies that do not perform. This can simply be done by making the tax treatment of medical insurance or medical services equitable, giving folks tax relief regardless of who writes the check for their insurance premiums.

There are several options available to do this. One is simply to limit the current tax exclusion on the value of medical benefits up to a certain amount and apply the revenue from that limitation for tax credits or vouchers. If the exclusion were limited to $415 per month for family coverage-a rich plan-or $200 a month for individual coverage, the option would increase income tax revenues by about $79 billion and payroll tax revenues by about $58 billion, for a total of $137.5 billion over the 1997 to 2002 period, according to the August 1996 calculations of the CBO. Another option, floated by David Kendall, a chief health care policy analyst with the Progressive Policy Institute (PPI), a moderate Democratic think tank, is focused on a tax credit for the uninsured. If a flat tax credit of $900 per person were used by half of the currently uninsured, roughly 20 million people, it would cost approximately $18 billion per year, an amount easily financed by the proposed cap on the value of the current tax exclusion for employer-based medical insurance.

Kendall suggests that state legislatures could provide a supplemental credit for the uninsured by adopting similar reforms at the state level, and the amount of funds to assist lower-income folks could be enhanced even further by means-testing Medicare: ``Low-income workers and their families, who often lack coverage, should not be forced to subsidize the coverage of wealthy retirees.'' Kendall argues that a tax credit, unlike the simple extension of a deduction, is worth more to workers in lower tax brackets-the workers and their families who need the help the most. Moreover, a tax credit would enhance choice, and could be used for managed-care plans (if folks wanted to buy them), medical savings accounts (MSAs), or fee-for-service plans. Even better, a tax credit would offset the negative impact of the Kennedy-Kassebaum bill's insurance regulation, including guaranteed issue, for it would give healthy and younger individuals an economic incentive, which does not now exist, to purchase individual insurance, making the ``portability reforms'' much less likely to drive up the costs of medical insurance.

Another, far more comprehensive option than simply a cap on the value of the tax exclusion and a limited system of tax credits for the uninsured is one long promoted by the Heritage Foundation: Simply replace the current tax exclusion of medical benefits-including the exclusion from income and social security payroll taxes-entirely with a national system of tax credits. All taxpayers would be eligible for a credit, regardless of their employment status. In a more ``conservative'' variation of this idea, the CBO estimates that a flat 20% credit, for amounts up to $415 per month for family coverage and $200 per month for individual coverage, could be financed by an increase in revenues of $283.7 billion over the period 1997 to 2002 from an elimination of the income tax exclusion. The idea of a national tax credit system for medical care has surfaced periodically, but it is a major reform, and politicians in Washington are gun shy of major reform, settling instead for nicks and picks of the regulatory kind that only get us deeper into the Canadian hole.

There are sound reasons for changing the tax treatment of medical insurance, even beyond its direct benefit for patients. Congress should even look at the whole tax system. The ``consumption-oriented tax breaks'' alone amount to $224 billion per year. Since 1950, according to the Concord Coalition, a bipartisan organization focused on reducing the federal deficit, the value of the tax exclusion for employer-paid medical benefits care has shot up thirty fold since 1950. According to the Coalition, when you add up all of the data governing consumption-oriented tax breaks-for medical care, housing, etc.-nearly three quarters of the tax benefits went to households with above-average incomes (greater than $30,000), and nearly half went to households with incomes greater than $50,000, in other words to middle- and upper- income Americans. Moreover, the life of employer-based medical insurance, even with the massive switch to managed-care plans designed to cut employer costs, is slowly ebbing. No matter which measure one uses, the number of working Americans being covered by employer-based medical insurance is declining. In 1990, according to the Lewin Group, 77.7% of all Americans had their insurance through their jobs; last year it declined to 73.9%; and, if current trends hold, it will decline to 70.4% by 2002. As a percent of the entire population, according to the Bureau of Census, the percentage of Americans covered by employer-based insurance has dropped from 62.3% in 1988 to 56.9% in 1994.

Changing the tax treatment of medical insurance would open up opportunities for Americans who do not get their insurance through the workplace; it would also create a level playing field and a more normal market and force the big insurance companies into the kind of direct competition that they will do everything to oppose in Congress. That's why the next phase of reform will take guts.