1601 N. Tucson Blvd. Suite 9
Tucson, AZ 85716-3450
Phone: (800) 635-1196
Hotline: (800) 419-4777
Association of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto

Volume 48, No. 3 March 1992


In the view of the US Dept. of Health and Human Services, all Americans become wards of the government upon reaching the age of 65. Although it may come as a surprise to HCFA Administrator Gail Wilensky, not all patients are pleased with this status. Five patients are suing HHS for a declaration of their right to contract with a private physician, just as they did at age 64 (Stewart et al. v. Sullivan, see p. 3).

Physicians lost the 1975 case of AAPS v. Weinberger, which established that the government had the right to regulate medical services if it paid any portion of the bill. This case asks whether the government may control even that which it does not fund.

Physicians are required by law to file claims for all ``reasonable'' and ``necessary'' medical services that are supposed to be ``covered'' under Medicare, even if Medicare decides not to pay for them.

Furthermore, physicians are subject to all Medicare regula- tions, even if a claim is not filed, including the ones that are a secret. (AAPS Legal Counsel had to file a request under the Freedom of Information Act in order to obtain a copy of the Medicare carrier claims manual.) Should Medicare choose to make an example of someone, a physician could face a draconian penalty for an inadvertent, technical violation of the rules. Regulations have become so onerous that many physicians are restricting their Medicare practice or contemplating retirement.

Lois J. Copeland, MD, physician for the five patient plaintiffs, decided not to give up her beloved profession without a fight. She is the sixth plaintiff in the lawsuit.

There is no law forbidding a patient to pay a private physician with the understanding that no Medicare claim is to be submitted. Patients might wish to do this for many reasons. By filing a Medicare claim, they relinquish their right to privacy; their signature on the chart gives permission for Medicare to review whatever information is deemed necessary to process the claim. Some patients may wish to receive services that Medicare is likely to disallow-such as frequent home visits. They realize that physicians may be deterred from providing such services if forced to deal with denials, demands, and threats from Medicare bureaucrats. Still, patients may not wish to disenroll completely from Part B because alternate coverage is generally unavailable and because they cannot re-enroll without financial penalty.

Some Medicare carriers have acknowledged that patients may waive certain Medicare benefits. But they view any patient's agreement to this effect as nonbinding and revocable at any time. If a patient or a family member later decides to try to collect government money, the physician could be fined $2,000 for failure to file the claim, $2,000 for each service that exceeded a limiting charge, etc. Thus, Medicare turns a friendly face toward beneficiaries (voters) while controlling them by means of threats to their physicians. At the same time, physicians are made to look like the patient's adversary.

Although there is no statute to this effect, there is impor- tant case law suggesting the impossibility of legal private contracts between physicians and Medicare beneficiaries. In New York State Ophthalmological Society v. Bowen, the US Court of Appeals ruled that a patient could not pay privately for a second surgeon at cataract surgery (see AAPS News, March 1990). To establish jurisdiction, the plaintiffs stipulated (and the government agreed) that:

[B]ecause there is no such thing as service- specific partial enrollment in Medicare Part B, the patient can protect his physician from sanctions only by ``disenrolling'' from Medicare.

Judge Mikva accepted the stipulation, without citing any statute: ``[U]nless a patient relinquishes all Part B benefits by disenrolling from Medicare, he is not free to purchase this needed service.'' (This is dictum, a judge's statement of opinion on a legal point other than the principal issue of the case. The point has not actually been litigated to date.)

Freedom of choice is the issue brought by the plaintiffs-not increased Medicare spending or increased fees. Medicare would save money if patients chose to obtain services outside the program. And physician fees might actually be less. Of 91 early respondents to a recent AAPS survey, 75% said they could reduce all fees by an average of about 20% if they did not file insurance claims or send bills.

Freedom may also be the issue for the government. According to Paul A. Hein, Jr., MD, the government has not failed to achieve its objectives, as the public believes. Rather, the objectives are not what they seem. The ostensible purpose of Medicare is to pay senior citizens' medical bills. But if the bills were the true concern, the government would just pay them. ``Medicare is designed to control the physician, under the guise of assisting the oldsters with their bills....The ultimate purpose of Medicare is to destroy the private (i.e. not govern- ment-involved) practice of medicine'' (Iatrofon, Jan, 1992).

Can patients win against the awesome power of HHS? R.S. Jaggard, MD, AAPS President in 1972-73, states that he retains his optimism, ``remembering that, on one occasion, a destroyer (weighing 2,100 tons and having five guns of 5-inch caliber) attacked four battleships, including Yamato (65,000 tons, nine guns of 18.1 inch caliber and six guns of 5-inch caliber on each side), and they were the ones who turned tail and called off the fight.''

On Bureaucratic Management

From an interview with Rita Klimova, Czechoslovakian Ambassador to the United States:

Q: A paper published by the Institute of Hygiene and Epidemiology in Prague states that ``the unfavorable downward trends in the parameters of public health...reflecting the ever decreasing quality of the environment [are principally caused] by a centralized and administratively complicated system of institutions...resulting in loss of responsibility,'' Do you share this view?

A: Yes! Because every government bureaucrat has wanted to complete his tenure. What comes after doesn't interest him. These nonelected government officials have a very short attention span. Their only interest is in making life easy for themselves.

National Wilderness Institute
25655 Georgetown Station, Washington, DC, 20007


The GP and British National Health Insurance

In 1935, Donal Sheehan, a British practitioner wrote to Dr. Harvey Cushing about his experiences with the British health insurance act. His father had a busy general practice, largely among the poor, which was taken over by his elder brother.

``On account of the state insurance scheme, there is a much greater financial security than in my father's time. The work is, however, no longer one of medical attendance, but is chiefly clerical, filling out certificates and keeping records.''

The system caused ``an enormous increase in semi-malinge- ring,...which is of course pandered to by the doctor. There is in addition a fabulous expenditure and waste on medicines, as every patient demands and gets a bottle of `something' for the most trivial of ailments...All the druggists are therefore wholeheartedly behind the scheme.''

Dr. Sheehan stated that funds were grossly mismanaged, and that ``having made the assumption that all doctors must be thieves, the state has had to pay for hosts of other thieves to watch 'em.''

Harvey Cushing: A Biography, originally published 1946
The Classics of Surgery Library


Cooperating With Your Enemy

Private Doctors of Australia states that: ``Medical practice is a private contract between patient and doctor and no business of the government or the RACGP [Royal Australian College of General Practice] which is not the elected voice of general practice but properly an educational body.''

PDA notes that the RACGP is heavily subsidized by the government and that ``subsidy usually comes with conditions favorable to government.''

PDA was opposed to ``bulk-billing'' (billing the government rather than the patient) from the start. The Australian Medical Association (AMA) spoke of the need to abolish bulk billing only when doctors became dissatisfied with the remuneration allowed by the fee schedule. The PDA would remain opposed, even if payment were substantially increased, because ``any direct payment by the government means direct control by the government.''

Australian Private Doctor, July/Aug 1991


On Constitutionality

In ruling against Dr. Albert Fisher, who challenged the constitutionality of mandatory assessments of physicians for the Wisconsin Patient Compensation Fund (see AAPS News, Dec. 1991), the Wisconsin Court of Appeals stated, in an unpublished Dec. 11, 1991, decision:

It is well established in the law that all legislative acts are presumed constitutional, that a heavy burden is placed on the party challenging a statute's constitutionality, and that if any doubt exists it must be resolved in favor of constitutionality [emphasis added].

On citizens' rights to equal treatment under the law, the Court stated:

The Fourteenth Amendment permits states to enact laws which affect some groups of citizens differently than others and is offended only if the classification rests on grounds wholly irrelevant to the achievement of the state's objective. State legislatures are presumed to have acted within their constitutional power despite the fact that, in practice, their laws result in some inequality....The public policy involved is for the legislature, not the courts, to determine.


Myths on ``National Health Insurance''

Twenty myths about medicine in nations with socialized medicine are exploded in a new report by John Goodman and Gerald Musgrave:

On cost control: Real increases in medical spending per capita have been virtually the same in US and Canada over a 20-year period. The method of cost control used by socialist administrators is the denial of services.

On access: On waiting lists for surgery, there are 25,000 patients in New Zealand, 250,000 in Canada, and more than 1 million in Britain.

On equity: People in Britain's highest social class received 40% more medical care in relation to their need for it than did people in the lowest social class. Across the health regions of British Columbia, spending on specialists' services varies by as much as 35 to 1.

NCPA Policy Report number 128, which contains 88 pages and numerous references and graphs, can be obtained from the National Center for Policy Analysis, 12655 N. Central Expy, Suite 720, Dallas, TX 75243, (214)386-6272.


Infant Mortality

Socialized medicine is often proposed as a way to improve infant mortality rates. Yet in England, infant mortality in the lowest socioeconomic class is double the rate in the highest class, just as it was before the introduction of the NHS in the late 1940s (Victor Fuchs, Health Affairs, winter 1991).

Medical intervention is most important in the survival of low-birthweight infants. At any given high-risk birthweight, perinatal survival in the 1980s was substantially better in the US than in Norway or Japan, which have the lowest overall infant mortality rates (Nicholas Eberstadt, Wall St J 1/20/92).

To order audiotapes of ``Medicine and Freedom: the Doctor, the Government, and the Law,'' call 1-800-635-1196.

Medicare Patients Challenge Prohibition

on Private Medical Care

On January 31, 1992, five patients and their private physician filed suit in the US District Court in Newark, NJ, against Louis Sullivan, Secretary of the US Dept. of Health and Human Services (HHS) and Medical Service Association of Pennsylvania d/b/a Pennsylvania Blue Shield, the Medicare carrier, challenging the defendants' prohibition against private contractual relationships between patients over the age of 65 and their physician.

The suit is the first of its kind in the United States in seeking to establish the right of Medicare beneficiaries to contract and pay for medical services privately, on a case-by- case basis, without having to disenroll completely from Medicare Part B.

Plaintiffs in the suit are James Stewart, Joan Kennedy Taylor, Trudy Drucker, Warren Kose, and Connie Streich, all patients over the age of 65 enrolled in the Medicare program, and their private physician Lois J. Copeland, MD, an internist. (Dr. Copeland serves as a Director of AAPS.)

The impetus for the lawsuit came from numerous patients and physicians throughout the US, who asked the Legal Service whether the lack of privacy and confidentiality, the paperwork, the hassles, and the fears associated with the Medicare program could be selectively avoided by privately contracting for services outside the program and simply not submitting a bill to the federal government.

The Legal Service's investigation determined that HHS has promulgated a ``policy'' requiring patients age 65 or over to tax the government by having their physicians submit a claim every time ``covered'' medical services are rendered. The Medicare carriers have issued bulletins to physicians that openly state that Medicare is an ``all or nothing'' program for patients over the age of 65. One such bulletin reads as follows:


According to Medicare law, physicians and suppliers cannot voluntarily dissociate themselves from the Medicare program if they continue to provide covered services to Medicare patients.

Some physicians have contacted Medicare and requested that they be removed from the program. As long as covered services are provided, however, a provider must abide by all Medicare rules and regulations pertaining to those services.

The law cannot be bypassed by having patients sign a disclaimer stating that services provided to them should not be billed to Medicare.

The following are the only ways a physician can dissociate himself/herself from the Medicare program:

(1) Discontinue providing covered Medicare services, or

(2) Surrender his/her license or certificate in those instances where such a document is required to practice.

We at Medicare realize that it is a challenge to keep up to date on the ever-changing rules and regulations regarding Medicare. To ensure effective dissemination of information, Medicare continuously produces newsletters to keep its providers abreast of the latest changes in the program. We encourage you to read your newsletter carefully and contact us if you have any questions.

The lawsuit seeks a declaration of rights that such a ``policy'' of the US Dept of HHS and its Medicare carriers is void and of no force and effect. Further, it seeks an injunction prohibiting HHS from sanctioning physicians who privately contract with their patients or from forcing patients age 65 or over to disenroll from Medicare in order to enter into such private arrangements on a case-by-case basis.

The complaint alleges that the ``policy'' of HHS conflicts with the Medicare Act 42 U.S.C. §1395a et seq., as amended, and that therefore the Secretary lacks the statutory authority to enforce such a ``policy.'' Specifically, the statute provides that individual patients age 65 or over ``may obtain health services from any institution, agency, or person qualified to participate [under the Medicare Act] if such institution, agency, or person undertakes to provide [them] such services'' and that Title 42 U.S.C. §1395b provides that ``[n]othing contained in [42 U.S.C. §§1395 et seq.] shall be construed to preclude any State from providing, or any individual from purchasing or otherwise securing, protection against the cost of any health services....''

Essentially, the complaint alleges that these statutory provisions guarantee the rights of patients to ``self-insure'' for medical services to the extent that they choose, without being totally stripped of all Medicare benefits, effectively becoming uninsured.

Furthermore, the complaint asserts that the ``policy'' of the Secretary violates the Administrative Procedure Act, Title 5 U.S.C. §§ 551 et seq., in that no rule-making, including the filing of notice in the Federal Register and permitting public comment, has ever been initiated or accomplished by the Secretary. No rule or regulation respecting the ``policy'' has ever been published by the Secretary.

Finally, the complaint alleges that even if the Secretary's ``policy'' does not violate the guarantees embodied in the Medicare Act and the Administrative Procedure Act, it violates Article 1, Section 1, of the US Constitution in that such a ``policy'' represents legislation, which is the province only of the elected representatives in Congress. Additionally, the lawsuit asserts that the ``policy'' denies Medicare beneficiaries their rights to privacy and confidentiality in their medical treatment, in violation of the First, Fourth, and Ninth Amendments to the US Constitution, and deprives Medicare patients of the equal protection of the laws, in violation of the Fifth and Fourteenth Amendments.

HHS has 60 days to file an answer or otherwise respond to the complaint.

Litigation is being supported by the American Health Legal Foundation through its Freedom of Choice fund. Contributions may be addressed to AHLF, 1601 N. Tucson Blvd. Suite 9, Tucson, AZ 85716. Further information about the complaint is available from AAPS, 1-800-635-1196.

New Members

AAPS is pleased to welcome Drs. Ronald E. Alley of Des Moines, IA; R.O. Anya of Imo State, Nigeria; Roland Beverly of Fontana, CA; James F. Black of Marshalltown, IA; Robert P. Blume of Pittsburgh, PA; Myron E. Bodnar of Medina, OH; W. Sanford Brechbuhler of Ashland, OH; Ann Bullington of Phoenix, AZ; Jimmie H. Carpenter of Seneca, SC; J. Stanley Conner of Houston, TX; Harry W. Depew of San Diego, CA; Matthew Dodds of Casper, WY; Dennis Easter of Downey, CA; Charles Kelman of New York, NY; Steven Lacher of Towson, MD; John Clifford Lasnetske of Bremerton, WA; Charles Moss of Emerson, NJ; John F. Perry of Avis, PA; R. Wayne Porter of Corning, AR; Dirk Robertson of Atlanta, GA; Robert K. Scott, II of Lewisburg, WV; Paul M. Slaughter of Pearsall, TX; and Ira D. Thompson of Huntsville, AL.

New student members are: Yiu-Chung Chan of Columbus, OH; P. Conti of Columbus, OH; Stephanie Falbo of Columbus, OH; Tadd R. Ferguson of Columbus, OH; Douglas Kohler of Columbus, OH; Lancaster Lo of New York, NY; Skye McDonald of Phoenix, AZ; Tamara I. Parker of Westerville, OH; Bhairavi Patel of Beavercreek, OH; Luis F. Porrata of Syracuse, NY; Alexander J. Rim of Columbus, OH; Donald Seidler of Columbus, OH; Todd T. Trier of Tucson, AZ; and H. David Wu of Tucson, AZ.


Letters to the Editor

To the Research Division, AAPS [concerning questionnaire about third-party imposed costs]:

I believe all these questions are an exercise in futility. I don't see how we can prevail if we take their money.

I perform almost no third-party work. I have never done any Medicare or Medicaid. I don't make a lot of money, but my life is simple and clean.

I do offer my patients more information than is necessary for their use in order for them to contend with their insurance companies. I sometimes charge for this information in proportion to the effort required to compile and transmit it.

We must remember that the people who would socialize America do not care about better medicine or worse medicine or even the costs that they are forcing on medical care. Their aim is to rule by force and to control everything of value. They are the enemy and a contumacious attitude is the best in dealing with them.
James H. Peoples, MD, Kinston, NC


It is time to sound the alarm! Physicians have lost more freedom in the past year than in the past quarter century. In the past year we have seen: (1) the phase-in of the RBRVS system of payment, which removes the last vestige of freedom that physicians had to decide what their time and effort was worth; (2) the establishment of the National Practitioner Data Bank, a central computerized clearing house, which will maintain dossiers on physicians; and (3) the Clinical Laboratory Improvement Act, the implementation of which was carried out using tactics borrowed from negotiators of the now-defunct Soviet Union, first proposing draconian regulations and then enacting milder ones so it would seem to physicians that they had actually gained something by their protests, when in fact they had lost everything.

Our leading professional organization[s]...now resemble nothing so much as professional organizations in the former Soviet Union, subservient to and managed by the State in order to maintain control over their members.

It is time we put our patients' welfare and our professional freedom ahead of financial gain and stop cooperating with the Government in the destruction of our profession....

R. Wayne Porter, MD, Corning, AR


Controlling Medicine

Politicians control medicine in two basic forms. In the Marxist model, government regulates medical care through public ownership of existing medical facilities. In the social fascist model, the State regulates every aspect of medical practice- without actual ownership of the medical hardware- through licensure of doctors, price control of medical procedures, and prior approval of medical products....

Whenever politicians and civil servants are entrusted with health care, they inevitably want to mold medicine to the objectives of the State. Bismarck constructed the first model social security scheme; [his goal was] a strong and united Germany capable of efficient production of iron and blood.... The framework [that Hitler inherited] from Bismarck endowed him with a well-oiled medical tool, ready for any task.
L. Alphonse Crespo, MD
The Voluntaryist, Feb., 1992 PO Box 1275, Gramling, SC 29348


AAPS Calendar

Aug. 16-18, 1992, Ninth Congress of IATROS (the internation al voice of private doctors, Hotel Grand Marina, Helsinki, Finland. For further information contact R.S. Jaggard, MD, (319)283-4985.

Oct. 15-17, 1992. Annual Meeting, Seattle, WA.

Legislative Alert

AAPS Report from Washington

Numerous proposals are on the table as the debate over ``health care'' reform heats up.

The White House Proposal. Although the White House initiative has not been officially released at the time of this writing, the broad outlines have been leaking out. So far, it appears that the plan will include:

  • A refundable tax credit to help uninsured Americans pur- chase a basic package of insurance. (A minimum level of $1000 to $1200 a year for those below the official poverty line has been mentioned in the press. Given the political challenge facing the President on this issue, the credit may be larger.)
  • Incentives or requirements for states to enroll Medicaid patients in prepaid HMOs.
  • A cap or tax on the value of employer-provided insurance for families making $100,000 per year or more. (The tax would probably begin at benefit packages worth $4000 a year or more.)
  • An increase in Medicare premiums for families making $100,000 per year or more. (Means testing would be a huge policy change for Medicare.)

The Congressional Democratic Offensive: ``Town Hall'' Meet- ings. Democratic Congressmen fanned out all over the country in January to recite the obvious litany of problems. These ``town hall'' meetings were a mixed curse for many members of Congress. Some generated more questions than Members of Congress can satisfactorily answer. People are starting to compare their current situation with the likely outcome of proposed reforms, and they are becoming alarmed. Employees are beginning to worry about being dumped into a public plan. At two such meetings, when Congressmen asked whether the US should adopt some sort of national health insurance, the majority of hands went up. But very few indicated willingness to support such a reform with heavy new taxes. Some battle-scarred veterans of the Congressional health wars are even starting to sniff the repulsive odor of the dead Medicare Catastrophic Coverage Act of 1988, which Congress had to repeal when the costs became known.

In suburban Maryland, a 74-year-old Medicare recipient confronted Congressman Tom McMillen with a handful of confusing bills, and demanded to know if Medicare was supposed to be the model of an administratively simple, single-payer system. McMillen emphasized the need for cost control, but when pressed, had to admit that that means cutbacks in services.

A number of AAPS members (or their wives) took advantage of the opportunity to present free-market ideas to meeting attendees as well as their Congressmen.

Democratic reform proposals are of two general types: national health insurance and mandatory insurance for business (``play or pay''). There are several variants in administration and financing.

The Russo Bill (HR 1300), with 46 cosponsors, is the main vehicle for national health insurance in the House of Repre- sentatives. Marty Russo (D-IL) proposes:

  • ``Universal coverage'' for all Americans, with benefits to include hospital care, physicians services, prescription drugs, preventive care benefits, and long-term care.
  • A single payer (the federal government).
  • A ``global budget'' set by HHS. (The scope of HHS authority would be enormous, covering the level of spending for every state. Much as in Canada, hospitals would be reimbursed on a set budget, and physicians paid on a set fee schedule.)
  • No cost-sharing by beneficiaries.
  • Financing through corporate income taxes, personal income taxes, new employer payroll taxes, and premiums for long-term care.

Canadian-Style Administration. HR 8, sponsored by Mary Rose Oakar (D-OH) with 22 cosponsors, would also establish a national system of universal coverage, but it would be run almost entirely by state governments. (Canadian provinces actually run the Canadian health care system). These state-run systems, however, would not be independent of the federal government. Under this plan:

  • The federal government would establish minimal standards for health benefits provided on the state level, including hospital services, physician services, and diagnostic, preventive and mental health care. HR 8 also provides long-term care benefits.
  • Private insurers would have a minimal role. States could authorize them to sponsor plans meeting the minimum benefit levels required by the federal government, but the number of such private plans, including HMOs or PPOs, would ultimately be determined by the state governments.
  • Each state would be responsible for setting a health care budget based upon its projections of hospital costs and the costs of physicians services within the state. Physicians would be paid on a fee schedule, as under Medicare.
  • Financing would be a responsibility of the state, but each would receive a federal contribution.

The Stark Expanded Medicare System. HR 650, introduced by Rep. Fortney ``Pete'' Stark (D-CA), with six cosponsors, would simply expand the current, single-payer Medicare system, now serving 34 million elderly Americans, to cover all 250 million American citizens.

  • Benefits would be broader than Medicare, including maternity and pediatric care, but long-term care would be covered under a separate program (HR 651).
  • Medicare ``cost controls'' would be extended to the entire population: DRGs, the RBRVS, and ``volume performance standards.''
  • Financing would be by joint payment of premiums by employers and employees, plus extra an extra 2% tax on all gross incomes that are at least 200% above the federal poverty line (now officially defined as $13,350 for a family of four).

A similar plan, HR 1777, has been introduced by Sam Gibbons (D-FL). Extra benefits would be added to cover persons over the age of 65. The Medicare payroll tax would be increased.

John Dingell (D-MI), Chairman of the House Committee on Energy and Commerce, has also introduced a single-payer plan, HR 16, with comprehensive benefits for all Americans. HHS would have the authority to delegate administration to local authorities. The National Health Care Trust Fund would be ``partially financed'' by a value-added tax (VAT).

Health USA Program. The most important Senate measure establishing national health insurance is a centerpiece of the presidential campaign of its author, Bob Kerrey (D-NE). Important features include:

  • ``Universal coverage'' with a full range of hospital and physician service benefits plus prescription drugs and long-term care.
  • State responsibility for controlling costs through ``negotiated fee schedules'' and ``expenditure caps.''
  • Competition among ``approved,'' ``private'' plans that would receive a fixed capitation payment from the state for each enrollee. (Competition on the basis of price would be forbidden.)
  • No billing of patients except for copayments allowed by Health USA.
  • Joint financing by federal and state governments through payroll taxes, corporate taxes, increased personal income taxes, and excise taxes.

Under this system, ``physicians would have the market freedom to choose approved plans with which they contract'' and to negotiate over the conversion factor and the expenditure targets (JAMA 267:552-558, 1992). No other freedoms are specifically allowed.

``Play or Pay'' or Mandatory Health Insurance. Under this concept, the federal government would guarantee universal coverage by requiring all employers either to: a) ``play,'' by providing private health insurance for their employees directly; or (b) pay into a public fund to finance a new public insurance system. Among Congressional Democrats, this approach clearly has the inside track. House Speaker Tom Foley (D-WA) told reporters last week that if ``play or pay'' legislation were brought to the House floor, it would pass.

The principal bill is S1227, introduced by Senator George Mitchell (D-ME) and backed by Sen. Edward M. Kennedy (D-MA). The bill was reported out of the Labor and Human Resources Committee on Jan. 22. Secretary Louis Sullivan of HHS vows implacable opposition to the measure.

The new ``Americare'' program would replace Medicaid. The Mitchell bill would create a Federal Health Expenditure Board to set expenditure targets and oversee negotiations between doctors and hospitals representatives and payers. The Mitchell bill also provides for the states to develop cost control and quality assurance plans, including the creation of ``quality improve- ment'' agencies.

Pepper Commission Recommendations. S1177/HR 2535, introduced, respectively, by Sen. Jay Rockefeller (D-WV) and Rep. Henry Waxman (D-CA) implement the Pepper Commission recommendations for reform. They are sure to appeal to those who like Medicare rules. Key features:

  • ``Play or pay'' provisions;
  • Minimum benefits requirements for both private and public plans;
  • Tax credits for small business;
  • Insurance market reforms, especially substituting community- based rating for experience ratings;
  • Financing through employer and employee ``contributions'' and a corporate and personal income surtax (HR 2535).

Calculating the Costs

Even as Senate Democrats, led by Sen. Edward Kennedy, are moving rapidly on the Mitchell bill, new data outlining the dramatic impact of the ``play-or-pay'' approach is having an explosive effect on the debate.

This month the Department of Labor released a comprehensive study by the Urban Institute, a prestigious Washington think tank, on the choices different employers would make if they were confronted with ``play-or-pay'' alternatives. The Urban Institute study was funded by the Department of Labor's Pension and Welfare Benefits Administration.

Using employers' insurance premium and payroll data, and assuming that the standard benefit package would include a $200 deductible for single persons ($500 for families), plus a 20% copayment and such ``cost control'' requirements as preadmission certification for hospitalization, the Urban Institute results showed that American workers would be dramatically affected by the implementation of national ``play-or-pay'' insurance reform. Assuming a 7% payroll tax, the Urban Institute Study found that:

  • Over 111 million people, or 52% of the population under the age of 65, would be added to the public plan.
  • About 51.7 million individuals who are now enrolled in private, employer-based insurance would be shifted into the public plan.
  • The vast majority of those currently uninsured (78.2%) would not be insured by private insurance, but would end up being in the public plan.
  • The vast majority of employees of small businesses would end up in the public plan-81.5% of the employees of firms with less than 25 employees, according to the projections of the Urban Institute study.

On the subject of costs, the study also released some explosive data. Employers would face an average increase of 223% in the cost of providing medical benefits. The cost to taxpayers would be $36.4 billion. The reason for these higher costs, according to the study, is that the larger public plan would cost billions more than the revenue it would produce.

Current programs for the nonelderly, such as Medicaid, Medicare for the disabled, and Champus cost $28 billion per year. Adding the new plan would result in a 131% increase over these expenditures. Looking specifically at the effect on employers:

  • Employers would incur an increase of $29.7 billion in the cost of providing health benefits.
  • Costs of the new program for firms with fewer than 25 employees would increase by 71%. The main reason is that these firms do not now provide health insurance. It is understandable why small businesses are the most hostile to this approach.
  • Medium-sized firms would experience a 21% increase, and even large firms would experience an overall increase in medical insurance costs amounting to 13% in the first year.
  • The Urban Institute study is a genuine milestone in the debate on health care reform. This no-nonsense dollars-and-sense analysis focuses on the real consequences of federal regulation of the health care system.

Will millions of working Americans accept being dumped into a middle-class version of Medicaid?