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of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto
Volume 59, No. 11 November 2003
GET OFF THE PLANTATION
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
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
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
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.
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
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.
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
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.
Oct. 13-16, 2004. 61st annual meeting, Portland,
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
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
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
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
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
"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
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
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
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 AlertTrench Warfare: The Medicare
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
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.
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
, and the AAPS proposal for fundamental reform at