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Association of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto

Volume 59, No. 11 November 2003


When H. Todd Coulter, M.D., an internist, opened his clinic in Ocean Springs, MS, everyone said that he would fail. Not only was he a black Catholic from Chicago, but he had decided not to call Medicare or any other insurer "Massa."

At the 60th annual meeting of AAPS in Point Clear, AL, Dr. Coulter said he got tired of having the hospital's foot on his neck, after it guaranteed to pay his expenses, and of having to beg Blue Cross/Blue Shield for $10 payments. He decided to gain control over his practice.

Dr. Coulter had a "PhD": "poor, hungry, driven." He lived below his means, worked as hard as possible, and paid off $87,000 in debt in 11 months. Then he took a leap of faith. He opened a small walk-in clinic with one employee and a "Doctor on Duty" sign in the front.

The fee for a visit is $40, not quite enough to take his wife and five children to dinner at Chuck E. Cheese's. The office financial statements that he distributed show a healthy profit.

"I don't have financial problems, or HIPAA problems, or Medicare problems," he stated. "I'm a conscientious objector to participation in Medicare." He also loves practicing medicine and wants his children to become doctors.

Dr. Coulter believes in practicing the "5 E's": educate, empower, enfranchise, emancipate, and evangelize.

It is essential, he says, to remain free of any relationships that could compromise your integrity even if you risk losing referrals and patients. It helps to be crazy: "You have to be crazy enough to get off the Titanic."

Robert Berry, M.D., also told of his experiences in breaking from the herd. He left emergency medicine to open a primary care clinic in a town of 15,000 in rural Tennessee (AAPS News, Mar 2001). Fees are listed up front and average between $35 and $50, "between an oil change and a brake job."

Starting with "the least of these" the uninsured "gives us the moral high ground." At first, 95% of new patients had no insurance. Now around 75% have no insurance or a high deductible; some of the previously uninsured were persuaded by office handouts to start a Medical Savings Account. All accounts are settled in the currency of the day.

"I don't take insurance cards: non-promises to pay except after much hassling and signing one's integrity away in a 50-page contract."

His fixed overhead, Dr. Berry reports, is about $50/hr, including labor. Next year this should decrease to $40/hr. The average physician in family practice has 4.42 full-time employee equivalents and spends $70/hr on personnel alone; Dr. Berry has only one FTE. His average net income on an hourly basis has been comparable to a local urgent care doctor's.

"All you have to do is not sign the contracts, or give... notice that you are canceling [them]. If you don't do this, some other physician in your community might get the jump on you in starting a practice like mine," Dr. Berry advises. It's the way back to personal medicine and the right thing to do.

A surgical specialist's experience opting out of Medicare was presented by Timothy Kriss, M.D., a neurosurgeon in Versailles, KY. He outlined the process step by step.

Revenue will definitely drop, Dr. Kriss warned, perhaps permanently. The lost Medicare work and the lost income are not proportionate, however. Less predictable is the "ripple effect" on the rest of your practice.

Despite some difficulties, the office staff is "unchained" by opting out. "It is impossible to overestimate the lift you and your staff will get when you dump the biggest albatross of all time," Dr. Kriss remarked. It is especially wonderful to be able to pitch the inch-thick Medicare updates that might contain a new rule that would be disastrous to overlook.

Michael Harris, M.D., a urologist from Traverse City, MI, gave an update on a procedure that he pioneered: the medical administrativectomy. It's the treatment for end-stage medical economics manifested by bureaucratosis, chronic mega- administrativitis, toxic FTEmia, metastatic formoma, and HIPAA spasmaticus.

Some prep for the radical surgery is advisable. Dr. Harris suggests simplifying personal expenses, saving cash, taking a Valium, and strengthening your faith in manna in the desert. His own practice underwent the procedure in stages, the last being to opt out of Medicare in October, 2001.

By January, 2002, his Medicare-eligible patients decreased to 10% of his practice, from 67% in 2000. The proportion is now back to about 40%. Revenue dropped, but so did overhead. While net income has decreased, Dr. Harris enjoys spending more time with each patient, added vacation time, and going home at 5 p.m. instead of 9 p.m.

"No one wanted to get off the Titanic either," he said. The Atlantic is cold, and no cappuccino is served on lifeboats.

But "you gotta do it," he said. "There's no excuse."

"These physicians on the frontlines, all under the age of 45, are blazing the trail back to freedom in medicine," stated AAPS Executive Director Jane Orient, M.D.

An exodus of physicians from prepaid health plans could educate and empower a critical mass of cash-paying patients to demand reasonable laboratory and hospital costs also not by "negotiating" but by taking their business elsewhere. Because of inflated costs, health plans own patients as well as doctors.

What price emancipation? For most, it saves money. Moving from a comprehensive policy to a $5,000 deductible can add, after taxes, $275/month to the average family paycheck. Only 12% of families would need to spend it on medical care, said John Stone of the U.S. Freedom Foundation.

The whole plantation system, which has ruined American medicine, needs to be dismantled. Doctors must lead the way.

HIPAA Updates

Overzealous interpretations of the Privacy Rule are causing patients far more problems than violations do. In one case, a hospital withheld a heart donor's records, and a transplant recipient had to be treated without information concerning a potential infection. Some patients wait hours for treatment because of reticence to fax records or lab results. Such disruptions were not intended in the Privacy Rule.

"Once the patient has acknowledged the `Privacy Notice,' the physician or other healthcare entity is free to use that patient's protected health information for treatment, payment and healthcare operations (TPO). It is better to err on the side of providing continuity of care than to overzealously enforce HIPAA" (MICA Risk Advisor, 9/03).

OCR is referring cases for possible criminal prosecution for Privacy Rule violations. Only a "small percentage" of the 1,800 complaints to the Office of Civil Rights since April 15 have so far been referred to the Justice Dept., but even one prosecution would be significant (HIPAA Compliance Alert 9/29/03).

U.S. vendors are liable for breaches by foreign outsourcers. It's unclear how the U.S. government would prosecute offshore companies, where one in ten information technology jobs will be located by 2004. "If an employee in a firm in India violates a HIPAA privacy requirement, the U.S. firm is just as liable as if its employee did the evil deed," stated Frank Poggio of The Kelzon Group (HIS Insider Weekly 9/22/03).

Law enforcement is impeded by HIPAA as hospitals deny police access to crime and accident victims. Efforts to reconstruct motor vehicle crashes take more time. "The law has taken on mythic proportions" (Hartford Courant 8/7/03).

A "contingency" plan will pay Medicare claims in old format, at least temporarily, to prevent cash flow disruptions, according to Jared Adair of CMS. While the federal government is "encouraging" private payers to do likewise, many want more assurances than officials are willing to give that they will not be penalized for being in technical violation of the law (Reuters Health, 9/23/03). In guidance issued July 24, CMS said that providers and health plans that do not show "good faith efforts" to meet the transaction code sets deadline could be fined $25,000 per transaction. "Good faith" will be defined on a "case-by-case" basis (HIPAA Compliance Alert 9/15/03). Aside from avoiding penalties, "plans could increase their float tremendously by rejecting wide scale numbers of claims," stated Rob Tennant of Medical Group Management Association (Internal Medicine News 9/1/03).

Hospital Billing Under Scrutiny

House Energy and Commerce Committee Republicans Billy Tauzin and James Greenwood have requested reams of information related to the "billing inequalities many uninsured patients face during hospital visits" (BNA's HCFR 7/23/03).

Insurers commonly refuse to disclose what they pay to hospitals or physicians, claiming the information is proprietary. In Minnesota, a "Fair Health Plan Contracting Act," which would require open disclosure, is introduced annually. Last year it was passed but vetoed by the governor. Are insurers and large medical institutions against consumer empowerment?

Insurance and the Uninsured

Between 21 and 31 million people, not 41 million as reported by the Census Bureau, lack insurance for an entire year, according to the CBO ( ftp.cbo.gov/42xx/doc4210/05-12-Uninsured.pdf). The number of people who purchased insurance on their own increased last year by 582,000, to 26.6 million (Galen Institute 10/3/03). Nearly half of the uninsured (43.3%) are not citizens (U.S. Census Bureau).

The "topsy-turvy pseudomarket that `prepaid healthcare' creates" raises costs dramatically for those least able to pay them, as Stephen Katz, M.D., points out. In Bridgeport, CT, the cost of open-heart surgery to the uninsured has risen from $30,000 in 1997 to more than $165,000 while Medicare pays the DRG price of $6,000.

Plastic surgeons in New York City routinely send their post- op cosmetic (noncovered) cases to the Waldorf Astoria, where a posh room can be had for $300/day. Nurses visit regularly, and the surgeons make rounds there.



At the 60th annual meeting in Point Clear, AL, the AAPS Assembly passed the following two resolutions, posted in their entirety at www.aapsonline.org:

Resolution to Oppose a Single-Payer Medical System

BE IT RESOLVED THAT: The Association of American Physicians and Surgeons declares that medical care is a not a right that can be bestowed by the state and that any laws, regulations, or policies that attempt to establish a government- mandated entitlement to medical care are not only unconstitutional and therefore illegal, but immoral and inimical to the physician's ethical principles;

AND BE IT FURTHER RESOLVED THAT: AAPS will actively oppose any and all state or federal initiatives to legislate such a "right" or entitlement via a government-controlled or single- payer plan under any name;

AND BE IT FURTHER RESOLVED THAT: AAPS urges all physicians to oppose a government-controlled or single-payer plan as harmful to patients, and therefore inconsistent with a high standard of medical ethics.

[If you need more Petitions and articles on "Single Payer"

to distribute, call (800) 635-1196.]

Resolution Affirming the Sanctity of Human Life

BE IT RESOLVED THAT: the Association of American Physicians and Surgeons supports the right to life of human beings from the moment of conception to natural death.

AAPS Calendar

Oct. 13-16, 2004. 61st annual meeting, Portland, Oregon.

Dr. Hurwitz Jailed

On the eve of Rosh Hashana, William Hurwitz, M.D., was arrested by 20 armed guards and will remain in jail until trial in March, unless family and friends can raise $2 million bond. The government had already seized his assets.

Dr. Hurwitz is a prominent advocate of using opioids in doses adequate to treat intractable pain (see www.jpands.org/vol8no1/hurwitz.pdf ). Assistant U.S. Attorney Mark Lytle compared him to a crack dealer and said that if convicted, Dr. Hurwitz could face life imprisonment (Wash Post 9/30/03).

Speaking at the National Press Club, Siobhan Reynolds of the Pain Relief Network, whose husband has been a patient of Dr. Hurwitz, said that "the Justice Department is misidentifying pain doctors all over the country as drug dealers. What they are enforcing is a national public health catastrophe in pain." AAPS Public Relations Counsel Kathryn Serkes and Rev. Ronald Myers, Sr., M.D., Founding President of the American Pain Institute, also spoke ( www.aapsonline.org/painman/painrn.htm ) in defense of physicians.

The Administration is delivering on its threat to treat pain doctors "like the Taliban," stated the AAPS press release. Yet all of Dr. Hurwitz's prescriptions were being closely supervised and approved by the Virginia Board of Medicine.


Comments from Physicians Who Treated Pain

Because physicians fear retribution for speaking out on pain control, these comments are without attribution:

According to one state medical board, it is not illegal for patients to make up falsehoods, and patients would not be prosecuted even if physicians could prove they had lied. Patients who were terminated could sue a physician for abandonment; documenting violation of an opioid contract as the reason for discharge may be protective. However, having a pain contract does not necessarily protect the physician from prosecution if the patient violates it.

The DEA wants doctors to use medical testing to answer non- medical questions, such as whether the patient is trustworthy. Driving records, arrest records, and consumer credit histories would be more useful.

The more poorly tolerated and ineffective the pain drug, the better it appears in the eyes of law enforcement.

Days before his suicide, Benjamin Moore, D.O., wrote: "I know that the prosecution could care less if I rot in jail the rest of my life. As a matter of fact, they might prefer it. But they might be willing to negotiate if I give them what they want. So, since I'm being extorted by the `legal' system, ... I will admit guilt. But what do I admit guilt to?... Prescribing drugs illegitimately? Only by mistake, not intentionally. But I would concede that if I had to. Theoretically if the penalty were a mandatory death sentence, then I would rather go to trial. I'm not as afraid of death as I am loss of freedom.... I'd rather say anything they want me to than face [being incarcerated for life]. That is a fate that should only be reserved for the worst of the worst.... Al Capone got 10 years. They're saying I'm worse than Al Capone?"


Tip of the Month: Be wary of what you tell corporate staff physicians: it may be used against the employees. Dr. Sheila Horn was a physician on staff of The New York Times. She said that on "frequent occasions" internal departments told her to provide them with confidential medical records of employees "without those employees' consent or knowledge." She also said a V.P. instructed her to "misinform employees regarding whether injuries or illnesses they were suffering were work-related so as to curtail the number of Workers' Compensation claims filed against" the Times. She refused and was later terminated as part of a reorganization. Wired Magazine has ranked the Times as the second worst company in the entire country on privacy. The hypocrisy is that the Times editorial page pushed for the onerous Privacy Rule. Dr. Horn sued the Times, but lost.


Language Rule to Be Challenged

AAPS will be joining a lawsuit seeking to invalidate Clinton Executive Order 13166, which forces physicians to provide and pay for a translator for patients who do not speak English. The regulation has dreadful consequences for malpractice claims: even when a patient appears to understand, his attorney can later argue that it was malpractice not to provide a translator.

ProEnglish, a Washington, D.C., based organization, will be suing along with several individual physicians.

President Bush revised the rule for the second time on August 8, making largely cosmetic changes. Now a patient may use friends or family as translator (previously not allowed), but the physician must inform the patient of the availability of a "free" alternative. Every physician who accepts Medicare or Medicaid must comply with the Rule or face sanctions from the Office of Civil Rights another reason to opt out.


AAPS Files Amicus; Board Drops Charges

In a very unusual action, the West Virginia Board of Medicine dropped a case against cardiovascular surgeon Rakesh Wahi, M.D., days after AAPS filed an amicus brief in the Supreme Court of Appeals for West Virginia.

Having had their charges against Dr. Wahi dismissed twice previously, jealous colleagues filed essentially the same charges a third time. The complaint was that Dr. Wahi performed "[h]igh risk surgical procedures, having [a] projected mortality rate of 7% or higher by national standards," which were, the Board said, "prohibited" by the hospital.

The outcome of the surgery was to rescue all the patients, who had been told by doctors at Charleston Area Medical Center that they were beyond hope. Dr. Wahi's success rate far exceeds the national average.

"Is this the type of surgeon who should be disciplined by the Board?" AAPS General Counsel Andrew Schlafly wrote. "Is it now considered improper to help patients when `national standards' predict they will more likely die?"

Mr. Schlafly argued that res judicata and the statute of limitations precluded Board action. "A clean bill of health from dismissal should be exactly that without chance of it being arbitrarily reconsidered and reversed years later."

The claims were purely pretextual, "reflecting a misguided determination to drive this medical innovator out of town."

The complete brief is posted at www.aapsonline.org/judicial/wahi.pdf.

"Perjury has become the coin of the realm in federal law enforcement. People are arrested because of lies. People go to prison because of lies. People stay in prison because of lies, and bad guys go free because of lies." Bill Moushey, 1998


New York Slashes Physicians' Fees. New York State, its counties, and many of its cities are in dire financial straits. Medicaid is one of the biggest expenditures. So, the legislature passed Social Services Law Sec. 367-a(1)(d), effective July, 2003, which reduces Medicaid copayments in Medicare/Medicaid eligible patients by 80%. This does not affect payments to ambulance services, psychologists, and certain state-certified clinics. If the physician withdraws from Medicaid, he will not be allowed to collect the copayment from the patient.

The involuntary servitude imposed by this government-run program is becoming increasingly apparent. The impact on access to care by dual-eligible patients is predictable and certain.
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY


Honest Accounts. In the accounting profession, "intentional fraud is only the most extreme manifestation of a far more pervasive and pernicious problem...: unconscious bias.... If we want honest financial accounting, we need to truly eliminate conflicts of interest" (Wall St J 11/13/02).

The sick parallels between the accounting profession and managed care are remarkable. Most doctors working for managed care (or Medicare) are not outright crooks, but the architects of the managed-care paradigm clearly understand the inherent perverse incentives and know that over time managed-care doctors acquire the "unconscious bias" in favor of the Plan, to the detriment of the patient. Unfortunately, many supposed defenders of free markets deny this effect or expect that physicians will resist it.
Robert P. Gervais, M.D., Mesa, AZ


A Simple Calculation. Early on, some of us figured out that it is better to be less busy and make less money than to be very busy and make less money. So we avoided HMOs. After 12 years, we are busier and make more. Because we have a margin in our time and income, we are building a charity clinic.
Alieta Eck, M.D., Somerset, NJ


Why Employers Are Locked In. There are two reasons why employers can't offer cash to their workers instead of "benefits": (1) It's illegal. Under ERISA, every employee has to be treated the same way. Offering cash to some and benefits to others violates this principle. It's a Public Choice problem: everyone must get the same thing in the same way. (2) It's taxable. Compensation that can extend beyond the current taxable year is considered "constructive receipt," and employers are required to pay taxes on it (including FICA, Medicare, FIT, SIT, unemployment, and state disability).
Gerry Smedinghoff, Phoenix, AZ


How Much Insurance Do We Need? The type of insurance - "we" need depends on "our" current assets, liquidity, appetite for risk, health status, and the availability of other ways to protect "us" from the risk of bankruptcy and dependence on penurious government handouts. Deciding, in advance, what consumers need (mandates, low deductibles, professionals doing simple lab tests) is the approach that caused the current mess.
Linda Gorman, Englewood, CO


A Needed Mandate. We have a mandate in the rest of the economy that anyone of legal age who incurs a debt is responsible for paying it. By permitting people with or without insurance to escape payment at the time of service, we encourage them to be irresponsible consumers and putty in the hands of single-payer advocates.
Joseph Lee Pugh, Diamondhead, MS


HIPAA and Communication. Physicians are still willing to accommodate patients and colleagues by faxing patient- beneficial information to each other [see p. 2]. This may change when the first physician is prosecuted. When I mentioned the situation to a bureaucrat, he asked, "Which doctors are sending out information without written authorization?" When I asked why he wanted names, he replied, "So I can report them and force compliance" (Medical Tuesday Network, 8/26/03)
Delbert Meyer, M.D., Carmichael, CA


Federal "Justice." Those who think a judge will throw out a ridiculous case that has already cost taxpayers millions of dollars do not understand the federal system. I used to think that innocent people never got convicted. I now know it happens every day; ask any federal defense attorney. If you thought the War on Drugs crippled the Constitution, just wait for the War on Terror to devastate it.
John Minarcik, M.D., Skokie, IL


My Daughter Could Live Only in the U.S. My 6-year-old daughter has congenital nephrotic syndrome of the Finnish type. Finland has a socialist solution: abortion. All the single-payer systems I have checked (Germany, Canada, the U.K., and others) would refuse treatment until she died. About 90% of the drugs that have helped her were developed in the U.S. Thank God we live in the U.S., where I can select the doctors and treatment, without asking permission from government!
Bryan Bahnmiller, Monument, CO


The Expensive Waste of Overinsuring. The low-income person should be the last to buy the "luxury" of overinsuring. But it is hard to squeeze the facts into an emotional issue.
Frank Timmins, HealthBenefitsReform group

Legislative Alert

Trench Warfare: The Medicare Conference

Senate Majority Leader Bill Frist set a deadline of October 17 for the Medicare conferees to come to agreement. House Ways and Means Committee Chairman Bill Thomas (R-CA) says that the conferees have agreed on one-third of the issues dividing the House and Senate, and that they are making progress. Well, we'll see. Recall that the President has been a relentless cheerleader for this thing called the Process, and indicated that he wanted to sign a Medicare bill ASAP. First, there was the July 4 Holiday. No deal. Then it was before the August recess. Still no deal. Then it was supposed to be in September. No deal again. So, now it is October.

Well, this is hard stuff, especially if your basic outline, as it is in the Senate, is grounded in the dismal statutory provisions of the struggling Medicare+Choice program, and then, again, you have a lot of extraneous stuff to sort out and agree upon: billions of dollars in special payments to rural carriers Senators Grassley (R-IA) and Baucus (D-MT) insist, of course; the differences between big hospitals and little hospitals; the interests of pharmacists versus the mail-order drug guys; and the pharmacy benefit managers. Big health-care groups and the noisy seniors lobbies, who are generally cheerleaders for the big Medicare bills see the messy, but evolving, Medicare conference as another venue to micromanage competition and get more goodies. Bruce Vladek, Clinton's former HCFA chief, correctly described the Medicare legislative process, in a perceptive Health Affairs essay, as a free-for-all of special-interest politics.

Three Little Problems

First, there is the Sticker Shock factor. Yes, the cost of the universal drug entitlement is turning out to be more than they thought it would be. In June it was $400 billion; in July, it jumped to between $425 and $432 billion, saith the Congressional Budget Office (CBO) never known to underestimate the cost of any health-care scheme. Capitol Hill observers predict it will jump even higher before the process is finished. Nobody thinks that the flood of the red ink is going to recede any time soon. At the original $400 billion, Public Trustee Tom Saving has estimated that this will add a measly $2.6 trillion to the unfunded liabilities of the Medicare program the benefits promised that are not paid for with any dedicated revenues to the Medicare program. Younger taxpayers will get hit big time.

Second, there is the workability issue. If they do decide to go with the Medicare drug benefit, as currently designed, and rely on private health insurance to deliver it, they will be going where no private health insurer has ever gone before, to the best of our knowledge. Former Health Insurance Association of America President Chip Kahn once described it as positively strange, kind of like getting "insurance for a haircut."

A "Drug Only," stand-alone benefit. You have never seen such a thing. The private market has not produced any such thing. It does not exist anywhere. You can only as the House and Senate members do imagine it. You must employ what Professor Harold Hill, the itinerant and talkative rogue of Meredith Wilson's The Music Man, called the Think System.

So, let us imagine this thing. The Basics. It costs $420 per year in premiums; it has a deductible of between $250 or $275, and it pays 50% of the costs of a prescription up to a statutorily specified amount. Then, there is the now infamous gap in congressionally devised drug coverage, universally known as the "Doughnut Hole." The Doughnut Hole in the Senate bill is $3,700. In the House bill, it is $3,500. Then, and only then, would catastrophic coverage kick in; in the Senate the catastrophic would cover 90% percent and in the House version, 100% of the catastrophic costs.

Now, imagine, for a moment, someone trying to sell that benefit structure in open competition on the open market. Better yet, imagine labor leaders negotiating in favor of such a thing at the bargaining table, or imagine that the United States Office of Personnel Management (OPM) had decided to allow such an insurance option to compete for the business of federal workers and retirees, including Congressional staff and Members of the House and Senate in the venerable Federal Employees Health Benefits Program (FEHBP). Do you think it would be a smash hit with consumers on the open market? Millions flocking to buy it?

Think about it. A "voluntary benefit," universally available. Would anybody buy it? Some would: the folks who really needed it. So the benefit would attract the sickest and the most expensive, those with the highest drug costs. You are now talking about massive risk segmentation, rather like adverse selection on steroids. So how many private insurers do you think are going to participate in this new benefit? Probably not very many. But guess what? Senator Edward Kennedy (D-MA) has already figured that out. That's why Senator Kennedy has endorsed the "Bipartisan" Medicare bill in the Senate, because it has a "Fall Back" provision, wherein the government picks up the slack if the private plans in any given area don't show up for business. Count on the senior Senator from Massachusetts to insist on that provision with everything he can muster. If you think Senator Kennedy is missing something here, think again. Whatever one thinks of his political views or his position of health policy, one thing is crystal clear: Senator Kennedy at least knows what he is doing and where he is going.

Third is the disruption of the lives of millions of existing Medicare patients. This is giving House and Senate members heartburn. The call for "universal drug coverage" makes for a great bumper sticker. As policy, however, it gets a little sticky on the ground. You can't expand a government program without crowding out private coverage; and if you really want a universal benefit, you will, eventually, get a universal crowd out. That means the total financing and delivery of prescription drugs will become the business of the government, and the pharmaceutical industry will gradually be transformed into a public utility, and burdened with increasingly tough price controls as the demand for artificially cheap or free drug soars, particularly when the baby boomers demand more free drugs and demand them yesterday.

Concerning the bills in conference, CBO still insists that roughly one out of three seniors with employer-based coverage is going to lose it. This basic analysis has been recently confirmed by Professor Ken Thorpe of Emory University, a former adviser to President Clinton. Thorpe says that, yep, CBO's numbers are roughly correct, and the impact will vary around the country. Big states like California and Florida will be hit hard.

Corporate Welfare?

So now the Medicare conferees have a political problem. Seniors who find out about the government drug benefit don't like it, and they like it even less when they find out that they are going to be dumped out of their employer-based private coverage into an inferior government program. But there's another catch: the corporate catch. Corporations have racked up huge unfunded liabilities with medical insurance coverage for retirees, and the promises they made years ago are promises that they would just rather not keep, if they could find some way to exit gracefully, thank you very much. Well, you say, that was a bad business decision. Too bad. But the Big Boys reply that these retirees are everybody's problem. That's us, the little guys. So the taxpayers should take this all over, finance a massive entitlement expansion and get the big business guys off the hook.

So, now Congressmen are faced with this unpleasant political choice: Do you let the corporations just junk or scale back their retiree drug coverage and take the heat for doing so? Or do you insist on setting up a universal entitlement of unknown cost certainly more than $432 billion and get blamed for the policy that accelerates the dumping?

Dumping seniors out of private coverage or scaling back that coverage would collectively save large corporations billions of dollars. Because of the potential savings involved, any publicly owned company would face enormous shareholder pressure to eliminate or limit retiree coverage. So what to do? Some in Congress, according to The New York Times, are now pondering the wisdom of special subsidies to corporations to discourage them from dropping the private drug coverage of their retirees. So, there you have it. Congress first creates a costly mess, and then the consequences require a Congressional solution to the problem it created in the first place. The taxpayer gets hit twice. Watch carefully and see whether the Congress creates new subsidies to prop up their new entitlement. Expect fiscal conservatives in Congress and elsewhere to go berserk.

A New Agenda for the Medicare Conferees

The House-Senate conferees clearly have a lot of problems to sort out. But there are common-sense solutions. The question is whether the conferees will adopt them.

#1 Problem: The Drug Entitlement: Both versions would add a universal drug entitlement for seniors well in excess of the originally agreed upon $400 billion.

The Solution: Target subsidies to low-income folks without drug coverage, either through the AEI-Galen drug card proposal (a federally subsidized MSA for drugs) or the President's original "Immediate Helping Hand Proposal" of block grants to the states (over 4 years at a cost of $48 billion) to help low-income elderly folks with drug bills.

#2 Problem: The Need for Real Reform. Section 241 of the House version of the Medicare Prescription Drug and Modernization Act of 2003 would introduce private plan competition into Medicare, similar to the Federal Employee Health Benefit Program (FEHBP) beginning in 2010, and would be phased in over a period of five years. The FEHBP, the preferred model for the Bipartisan Commission, the Bush Administration, and most congressional conservatives, is a choice-based program available to all federal employees and retirees. It is a premium support (defined contribution) program characterized by broad choice of plans and little regulation or bureaucracy. Rep. Paul Ryan and 76 House Members have indicated that they would not support a final bill without Section 241. Senate leftists, led by Senator Kennedy, say they will never accept a bill with Section 241. Many conservatives fear that we are making a strategic mistake by setting up a drug benefit before reform; that we may never see such a transition set far in the future come to pass; and that, even if we do, 2010 is cutting it too close for comfort. The baby boomers retire in 2011.

The Solution: Speed up real reform (say to the year 2006, when the drug provisions in both bills take effect) and couple it with any benefit expansions. No benefit expansion without real Medicare reform.

#3 Problem: Excessive Regulation. In the Senate version, the Prescription Drug and Medicare Improvement Act of 2003, the government would standardize all private plans. Title II replaces the "Medicare+Choice" program with the "Medicare Advantage" program. However, the Medicare Advantage program is still largely governed by the same law that currently governs the Medicare+Choice program and contains many government rules and regulations. One of these many regulations, for example, is a requirement that private sector plans meet the same requirements for drug coverage as the new federal drug program, creating a one-size-fits-all package that leaves little room for diversification and market competition. For conservatives, this government standardization, at the expense of choice and competition, is unacceptable.

The Solution: Adopt the same rules for governance that apply to the plans in the FEHBP. The entire FEHBP statute, which governs the financing and delivery of care to 8.3 million persons, is less than 40 pages long. A Medicare reform statute likewise could be done in a few dozen pages of statute if it were really based on the FEHBP. The Senate bill is clearly not.

#4 Problem: Taxpayer Exposure to Huge Unfunded Liabilities. The $400-billion plus cost of the drug benefit over a 10-year period is the floor, not a ceiling, and the long-term costs to the taxpayers, plus the unfunded liabilities, will be enormous.

The Solution: Cap Medicare Entitlement Spending. The conference could impose a cap on entitlement spending to keep it at $400 billion, and then put serious entitlement cost controls into place for future years. This could include means-testing for not only the drug benefit, but also for all Medicare Part B benefits; raising the age of Medicare eligibility to 67; or imposing a future cap on prescription drug spending.

Robert Moffit is Director, the Center for Health Policy Studies at the Heritage Foundation, Washington, D.C.

[The AAPS White Paper on Medicare is posted at www.aapsonline.org/medicare/wpmedcar.htm , and the AAPS proposal for fundamental reform at www.aapsonline.org/medicare/aapspln5.htm.]