Volume 60, No. 11 November 2004

THE UNINSURED: REFRAMING THE ISSUE

Depending on how you count, the U.S. has between 10 and 70 million uninsured persons.

Focusing instead on uninsured services, "we are all uninsured for some things, and we are all insured for others," writes Greg Scandlen in a pathbreaking analysis entitled "Rethinking the Uninsured" just released by the Galen Institute (www.galen.org).

Owing to federal EMTALA law, everyone must receive needed emergency treatment upon presentation to an emergency room that receives any federal funding. And even young men between the ages of 21-24, nearly 40% of whom are counted as uninsured, are generally covered for the things most likely to happen to them workplace injuries and car crashes.

The assertion that lack of insurance means lack of medical care is patently false. The uninsured received $98.9 billion worth of medical services in 2001 (Health Affairs Web Exclusive 2/12/03). Only $34.5 billion was in the form of uncompensated care; $26.4 billion was paid out of pocket; $24.6 billion, by private insurance programs; and $13.8 billion, by public insurance programs. Presumably, some of these persons were privately covered for part of the year.

The amount of uncompensated care runs to 2.8% of the $1,235 billion total of U.S. personal health spending. "You pay more for deadbeats every time you use a credit card," writes Linda Gorman of the Independence Institute. "The charge-off rate for credit cards in the U.S. runs about 7%." Other industries that function perfectly well have higher loss ratios than medical services, and using the Kaiser figure of $7 billion for uncompensated care, the ratio is negligible. It is possible, however, Ms. Gorman explains, that some facilities get hit with most of the losses and little of the supposed compensation.

Discontent is boiling over: from underpaid physicians and hospitals, and from overburdened employers faced with escalating premiums. Medical science has reached the point, stated John Goodman, that the entire GDP could be spent on medical services, in useful ways. Under the current system, the problems appear unsolvable. It is thus time to reformulate the questions, Scandlen proposes.

Rather than obsessing over the absence or presence of insurance, it is more useful to consider the appropriate role of insurance in relation to other ways of paying for services. What should be covered, and who should decide?

Some argue for "basic" benefits, some for "comprehensive," and others for "catastrophic." Who will define the terms? If Congress decides on coverage for 300 million Americans in a single-payer system, the definition of terms is a matter of life or death for millions of practitioners. Thus, money that could go toward meeting medical needs will be diverted to lobbying.

The alternative is to allow Americans to decide for themselves on the tradeoff between lower premiums with less coverage, and higher premiums with more coverage, or the balance between medical services and other necessities of life.

Individual choice, it is argued, leads to adverse selection. People buy more coverage for care they are likely to use. The flip side, which should be of equal concern to policymakers, is moral hazard. People use more services if they are covered. Both problems suggest the value of minimizing the amount that is paid through an insurance mechanism.

Scandlen notes that when speaking of "health insurance," most people mean prepayment for known consumption. Economically, there is no difference between making 60 payments of $100 each before using a service, and "post-paying" for the same service over 5 years, as people commonly did in the past when they brought home a baby and a coupon book from the hospital. Insurance, on the other hand, involves pooling risk. Policymakers tend to overemphasize the "pool" instead of the "risk," leading to the tragedy of the commons.

"There is no big unallocated pool of money," writes Scandlen: every dollar held by the insurer is contractually obligated. It's the risk that is pooled. One is better off never having to collect a benefit.

With prepayment, carriers are in the administration business, explains Joseph Lee Pugh of The Pugh Group. They can't get rich churning the money unless they keep some of it by denying claims. "That is the money you make in the risk business by not having too many claims to pay." Mr. Pugh states that insurers need to learn that it will be more profitable to "market high-deductible plans where losses and claims are more predictable and transaction costs are lower."

In attempting to help the poor, Scandlen points out, there is no reason to aim the subsidy at the premium rather than at the user level. If higher deductibles, with assistance available for out-of-pocket costs, can lead to more efficient utilization, "we owe it to the taxpayers to test these other models."

We need a burst of innovation in the delivery of services, Scandlen states: transformative change that is impossible to predict or control, driven by empowered consumers.

A few of the recommended actions include: (1) Eliminating Certificate-of-Need and other anticompetitive regulations; (2) Price transparency; (3) Emphasizing customization instead of standardization; (4) Focusing "best practices" information on improving the knowledge base of physicians and patients rather than on mandatory compliance or discipline of outliers; and (5) Legislation that enables a citizen of one state to purchase insurance regulated by another state.

One of the most significant developments, which does not require public policy changes, is "a growing movement by physicians to reject the rules and regulations of managed care plans and Medicare in favor of direct cash payment by patients": the original AAPS Non-Participation Policy.

What's Stalling the Economy?

In 2003, fuel and power costs went up 21%, and cost increases have been averaging 10% since January. Steel prices have soared an average of 42% since December. But it's the dastardly 8% increase in health insurance premiums that's purportedly stalling the recovery, writes Linda Gorman.

It is stated that more than one in six households headed by a person under the age of 65 spends 10% or more of gross family income on health insurance premiums and out-of-pocket costs. "Horrors! We must rein in this terrible spending!!" writes Greg Scandlen observing that six out of six households spend more than 10% on taxes.

The "Percent of Poverty"

In proposing expansions of government programs, "the forces of darkness prefer to talk about percentages of poverty levels rather than actual incomes," writes Linda Gorman. She thinks that most people are clueless about the shape of the income distribution curve, vastly overestimating the number of people who make huge incomes, and believing themselves to be closer to the bottom of the distribution than they really are.

National median income in the U.S. is $43,318 (see www.census.gov/hhes/income/histinc/h08.html). The 2003 poverty threshold for two adults and two children was $18,660 ( www.census.gov/hhes/poverty/threshld/thresh03.html). If someone advocates covering everyone up to 300% of the federal poverty level, Ms. Gorman suggests asking for figures. You will probably have to produce them. Then you can ask how putting more than half the people on the dole will solve anything [3 x $18,660 = $55,980]. In Colorado, 35.7% of households make less than $35,000, which is a little less than 200% of poverty. The 2000 demographic profiles for all states are at: censtats.census.gov/cgi-bin/pct/pctProfile.pl.

Socialized Medicine Updates

Administrative Efficiency. A 93% increase in spending in the British NHS since the mid-1990s produced only a 29% increase in health "outputs" (Sunday Times [London] 7/11/04).

Private Spending. In nations with socialized medicine that permit a "two-tier" system, the portion of the medical dollar spent on private insurance and medical care is: Denmark, 18%; Japan, 19%; Germany, 22%; France, 24%; Italy, 24%; Australia, 32%; Netherlands, 36%; Switzerland, 42%; United States, 56% (The Economist 7/17/04).

Outsourcing. By promoting medical services alongside tourist destinations, Thailand and Malaysia attracted more than 600,000 patients in 2003. Surgery brokers are springing up in the UK and Australia to arrange private treatment in Asia for patients stuck on waiting lists. The practice is in its infancy in Canada. Patients from Calgary applaud the excellent service in India. Dr. Sunil Patel, President of the Canadian Medical Association, says that some Asian hospitals offer treatment better than that available in North America. And "doctors are starting to learn that patients suffering long waits suffer irreparable harm." After waiting six months for hip or knee replacements, patients' joints "stiffen like strips of leather left out in the sun," said Dr. Michael Dunbar, a Halifax orthopedic surgeon (H. Sokoloff, National Post).

AAPS Briefs Congressional Staff on Pain

The DEA may issue reassuring statements about its policy toward physicians who "properly" prescribe opioids for pain. But there is really "No Safe Harbor," explains AAPS in a response distributed at a Sept. 17 congressional briefing, "as long as doctors are subject to criminal prosecution and the draconian penalties reserved for drug dealers, when the case hinges on a disagreement between practitioners as to what is proper treatment for a patient."

Journalist Maia Szalavitz refuted the assertion that doctors are creating addicts by prescribing pain relief: "90% of prescription drug abusers have also used cocaine or psychedelics," she said. Most patients do not enjoy taking opioids.

Professor Ron Libby stated that a war on doctors is now a surrogate for the failed War on Drugs. The claim that only 0.075% of 972,000 doctors with DEA registrations is targeted for diversion investigations needs to be placed in the context that only about 4,000 physicians in the entire country are brave enough to prescribe the large doses needed to control chronic intractable pain. As many as 18% of them may be targeted.

Eric Sterling, author of much of the legislation being used to prosecute doctors, said that the intention was never to give the DEA a veto over the practice of medicine and that the DEA has far exceeded any reasonable application of the law. The results of the law have been far different from the legislative intentions. The death rate from drug overdose has more than doubled, and street drugs are purer and less expensive than in 1980. Despite 1.6 million arrests for drug offenses, drug trafficking would rank about 15th on the Fortune 500. Corruption and "testalying" are pervasive in the system. Both state and federal prison populations have increased nearly tenfold since 1950.

"The work that I was involved in in enacting [mandatory minimum sentences] is probably the greatest tragedy of my professional life," Sterling has said.

In contrast to street traffic, legal prescribing has been seriously chilled. Pain clinics are shutting down with very little notice, leaving desperate patients who often can find no physician willing to prescribe for them, stated Siobhan Reynolds of the Pain Relief Network (PRN). The result can be "Death by Tylenol" said Rev. Ron Myers, Sr., M.D.

Reps. Ron Paul (R-TX) and John Conyers (D-MI) have introduced legislation to defund the DEA.

Materials distributed at the briefing may be downloaded from www.aapsonline.org/painman/pbmaterials.htm. These include the widely disseminated DEA "FAQ" produced with Last Acts Partnership, which has now been removed from the DEA site. (This document was referred to by Judge David Bury in sentencing Dr. Jeri Hassman, aapsonline.org/painman/hassent.htm).

AAPS Calendar

Sept. 21-24, 2005. 62nd annual meeting, Arlington, VA.

Florida Court OKs Fishing Expeditions

In an opinion filed Oct 6 in the case of Rush Limbaugh v. State of Florida (Case No. 4D03-4973), a Florida appeals court stated: "the State's authority to seize [medical records in a criminal investigation] by a validly issued search warrant is not affected by any right to privacy in such records."

Concurring in part and dissenting in part, Judge Melanie May observed that "our legislature has consistently protected medical records" and chided the majority for keeping its "eyes wide shut" to the right to privacy. She agreed that the State had the right to seize the records, but said that a citizen has a right to a post-seizure hearing on the disclosure of records not relevant to the crime under investigation. Mr. Limbaugh's physicians had provided all records, not just those that might pertain to the suspected crime of "doctor shopping."

AAPS General Counsel Andrew Schlafly, who filed an amicus brief on Mr. Limbaugh's behalf, writes: "This is the end of privacy in medical records.... The message to patients is clear: anything you tell your doctor can and will be used against you. Rush Limbaugh has not been charged with a crime, and yet the State of Florida seized many of his highly personal medical records, without prior notice."

While acknowledging that the law requires "health care providers to recognize a right of privacy in medical records," the Court ruled that this applies only to subpoenas, not search warrants. Overturning the 2400-year-old Oath of Hippocrates, the new rule is that "doctors will keep for the State sensitive information so that it can be used against the patient," Mr. Schlafly states. "It's open season on anyone's medical records."

AAPS deplores forcing doctors to testify against their patients and will continue to fight this decision.

HIPAA Update

First Criminal Conviction. A Seattle man pleaded guilty under the HIPAA Privacy Rule to obtaining a cancer patient's Social Security number and date of birth from medical records, using them to obtain four credit cards, and racking up $9,000 worth of debt in the patient's name. Although the man could have been prosecuted for identity theft in other ways, HIPAA violations are easier to prove and carry harsher penalties than some identity theft laws. The government chose to target an individual who was not himself a covered entity, but was an employee of a covered entity.

"The HIPAA statute says that `a person' who willingly uses and discloses patient data in violation of the privacy rule can be penalized," writes Nicholas Rummell. "[T]he privacy regulation, which lists the requirements for compliance, refers only to covered entities" (HIPAA Compliance Alert 9/13/04).

"At some point in the future," observed Kirk Nahra of Wiley Rein & Fielding of Washington, D.C., "there will be a challenge to the government's ability to prosecute individuals who aren't covered entities under HIPAA."

"An employee of a covered entity is where the question is," Nahra said (BNA's HCFR 9/15/04).

The government appears to be overstepping its lawful authority, and AAPS will monitor this troubling development.

Privacy Complaints. A new GAO report notes that 5,648 complaints have been filed in the first year after the implementation of the Privacy Rule. About two-thirds of the alleged violations were not within the scope of the Rule because the alleged action was not prohibited or because the cited entity was not a covered entity. About half the germane complaints were found valid ( www.gao.gov/new.items/d04965.pdf).

Ironically, the GAO report was released the day after CNN aired an announcement that neither President Bush nor Senator Kerry would release his medical records, and just before the Limbaugh decision.

"HIPAA only applies to physicians, hospitals, insurance companies, and certain other private actors. It specifically allows the government, broadly defined, to rummage around wherever it feels like it," writes Linda Gorman. "Since the private actors were already handling privacy issues fairly well, my cynical view from the hinterlands is that HIPAA was really intended to give the government free access.

"Given that a lot of the text was lifted from the Clinton plan, why am I not surprised?"

HIPAA is a publicity law, not a privacy law, states Stephen R. Katz, M.D., of Connecticut.

Citizens for Health et al. v. Thompson. Appeals briefs have been submitted in the Third Circuit in a challenge to the HIPAA Privacy Rule (Case No. 04-2550) filed by James C. Pyles of the American Psychoanalytic Association.

AAPS filed an amicus brief arguing that HHS has no authority at all to regulate medical privacy and that Congress unlawfully attempted to delegate authority to issue regulations.

"Without a constitutional provision authorizing Congress to enact laws impairing the obligation of contracts, HIPAA and the regulations may not impair a physician's obligations to keep a patient's confidences," writes AAPS.

AAPS argues that the Rule violates the Fifth Amendment by taking private property patients' medical information without compensation. Patient records become a commodity moving along the most highly traveled of any "public road." And once confidentiality is lost, nothing can restore it.

Briefs are posted at www.aapsonline.org under "privacy."

"Simplification." HIPAA was supposed to save millions of dollars in claims processing by mandating a standard format. There are, however, more than 400 variations in the information required by carriers. By the time the claim passes through the multiple layers between the physician and the payer, it may have mutated dramatically, owing to the entry of default options for required data that may have been omitted. Payment is slowed, and physicians have no idea whom to ask what new data to include or whether or why a claim has been rejected (Finkelstein J, AM News 9/13/04).

Whistleblower Verdict Mostly Upheld

Psychiatrist David Springer, M.D., mostly prevailed in U.S. District Court in Delaware against a motion for post-trial relief brought by defendants from the Delaware Dept. of Health and Social Services. Dr. Springer had suffered retaliation for the exercise of his free-speech rights in drawing attention to patient-care problems (AAPS News May 2004), including overcrowding, poor security, inadequate treatment, and unsafe conditions. While the Court reversed the award of $100,000 for noneconomic damages, the compensatory and punitive damage awards stood, and defendants will also have to pay Dr. Springer's attorney fees. In particular, the Court concluded that Dr. Springer's intention was to improve conditions and there was no way to conclude that his comments were "disruptive."

Correspondence

Reality Sets In. As Robert Samuelson writes in the Washington Post, "The real causes of higher [health- care] spending are stubborn:... people want the latest and best at someone else's expense." Seeing emergency rooms close around them, "compassionate" spenders of other people's money are beginning to understand that "free" medical care isn't really free. Watching liberals brainstorm for ways to resurrect the concept of something for nothing, via more taxes and more government controls, is like watching cartoon characters doing CPR on the Tooth Fairy. Pump and blow as they might, their efforts are futile. The laws of economics will not be defied.
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY

The Message of "Free" Goods. The price of a product represents an exchange of efforts. It tells the consumer how much he must exert himself as a producer in order to pay for the desired consumption. It tells the producer how much the consumer values his product. Zero-priced goods disappear; they tell the producer that his efforts are worthless.
Charles Courtney, Riverside, IL

Water Flows Downhill. Central dictation of prices always causes misallocation of resources. If surgery prices offer almost-guaranteed high returns, while medical services offer almost guaranteed low returns (or even losses), why are we surprised that investment flows into one while avoiding the other? You cannot force a person to sell some services at a profit and others at a loss. That person will always find a way to engage in more of the profitable behavior and less of the unprofitable. Yet most seemingly fail to grasp this relatively simple concept.
Sean Parnell, Heartland Institute

False Signals. All economic actors in American medicine made plans according to government payments that proved unsustainable. Government attempted to correct its errors by draconian fee cuts and regulations. Those who based their business decisions on flawed signals are facing bankruptcy.
Robert P. Gervais, M.D., Mesa, AZ

Consumerism Reigns! According to a story in USA Today, an uninsured woman negotiated a price of $4,000 for her daughter's surgery. When the bill came, it was for $21,000. She requested a breakdown, which even the doctor didn't understand. She sent her notes of all the services her daughter received in the 20-hour period, with the names of the staff members and a list of drugs. The hospital backed off, and reduced the extra charges to $610.
Richard A. Matthews, CEBS, Hilton Head Island, SC

The Hazard of Tax Subsidies. The sick and the injured we shall always have with us. We therefore need to find a sustainable way to meet this need. Wedding an organization's existence to the tax policies of one administration might well make it a widow in the next and where would the patients be when the nonprofit shuts down? The physician who depends solely on his patients for income could survive if the "free" clinic hasn't driven him away.

I got a good view of this principle while working in Haiti. The U.S. had extra rice, and what could be more generous than giving food to the starving? Unfortunately, many rice growers were forced out of business, so when the temporary generosity was exhausted, there were no rice farmers to meet the demand.

It is very dangerous to disrupt natural exchange between individuals. In Haiti, it caused more starvation. In the U.S., it will eventually deplete the supply of medical services to those in the greatest need.
Robert Berry, M.D., Greeneville, TN

History of the Tax Deduction for Medical Expenses. The medical expense deduction goes back to 1939. In 1954, a 3% of income threshold was placed on it. In 1965, an additional deduction of $150 was added for the purchase of health insurance. In 1982, the $150 was removed, and the threshold was raised to 5% of adjusted gross income. In 1986, the threshold was raised again to 7.5% of AGI.
Greg Scandlen, Galen Institute

"Reform" Proposals. Passing out money confiscated from taxpayers in increments of $1,000 or less is feel-good help that will cost a lot to supervise and will do little to change behavior. A health center for the poor in every county means federal employees with salary and benefits: costs escalate and care diminishes. If the government and personal-injury lawyers got off our backs, retired doctors and others would chip in to supply charity care to the poor. HSAs are great, but need to be available with fewer strings. More freedom, less bureaucracy!
Alieta Eck, M.D., Somerset, NJ

Kudos to the Pioneers. The real progress in privatizing medicine is being made by AAPS and doctors who have opened "cash only" practices and opted out of Medicare.
Donald Salmon, M.D., Las Vegas, NV

It's Not about the Uninsured. It has been suggested that "caring" foundations (interest groups) give money to charities or insurers to provide care or insurance, instead of spending millions to "study" problems. No takers. Why?
Joseph Lee Pugh, Diamondhead, MS

Legislative Alert

The Presidential contest is shaping up to be a decisive showdown on the future direction of American medicine. Neither candidate has a specific blueprint, a single coherent plan that would itself transform the system. Neither candidate has outlined anything like a Canadian style system or a free-market overhaul of the existing third-party payment system. So, strictly speaking, neither candidate has the Big Plan.

Instead, both Bush and Kerry have embraced what we might call, for a better word, incrementalism. They both have outlined an array of specific proposals that address specific topics from expanding access to the uninsured, to health insurance market reform, professional liability, the role of information technology, and the future of Medicare and Medicaid and long- term-care insurance. Frankly, both candidates have offered a very mixed big of proposals, which, taken as a whole, would lead the nation in two very different directions.

The Bush package would, according to analysts at the Lewin Group, amount to $227.5 billion in new spending over the next ten years, not counting implementation of the new Medicare law. On the other hand, Bush also signed into law the creation of Health Savings Accounts, and they promise to revolutionize the market and bring an unprecedented level of personal control. If they catch on, Bush will have achieved an enormous breakthrough for personal freedom.

Senator Kerry has a set of initiatives that go in a very different direction. They would cost between $1 and $1.5 trillion over ten years. Recent conservative rhetoric on the Kerry health plan has been pretty hot. He does not, however, propose a single- payer system. Nor does he suggest price controls or premium caps, or forcing Americans into regional alliances a la Clinton. What he propose is to expand existing third-party payment systems, particularly Medicaid. The Medicaid expansion is massive, and will reach up the income scale into the middle class. Moreover, he proposes to have the government pick up all high-end costs for all patients with annual medical expenses exceeding $30,000 a year and allow businesses and individuals to enroll in the Federal Employees Health Benefits Program (FEHBP) in a separate pool. His proposed changes in the FEHBP would radically transform it into something very different from what it is today. Both items would entail substantial increases in federal spending and regulation, with the cumulative effect of putting the system on a glide path toward national health insurance.

The Good

Bush is proposing an expansion of Health Savings Accounts, as well as refundable tax credits for low-income uninsured Americans to buy health insurance and participate in HSAs. Bush has proposed truly innovative insurance market reforms, including the idea of interstate commerce in health insurance, enabling people to buy affordable coverage across state lines. This holds open the potential of creating large national pools, the marketing of plans by interstate associations and organizations, and lower administrative costs. National competition is a good thing for insurance, and for doctors, clinics, hospitals, and specialty centers. Bush is also in favor of serious professional liability reform, including a cap on damages for pain and suffering. The lawyers hate it.

Kerry is to be commended for recognizing that the tax treatment of health insurance is decisive, and changing it will spur increased private coverage. Kerry has also offered some promising professional liability proposals, including pre-trial screening against frivolous lawsuits, a mandatory mediation process, and limiting punitive damages to cases of intentional misconduct or real negligence.

The Bad

Bush wants to continue to cover children through Medicaid and SCHIP and has embarked on a $9.4 billion program to do it. A much better idea would be to stop treating children as separate from their parents, but rather as part of a family unit, if necessary juicing up the refundable tax credits for private coverage. Every government expansion of coverage contracts private health coverage. That is a bad thing.

Kerry's FEHBP gambit is a bad idea. It is one thing to say that the FEHBP is a good model for Medicare reform, or the reform of health insurance markets in a consumer-driven direction. It is quite another to say that FEHBP is, or should be, a vehicle for covering the uninsured. The FEHBP is designed to cover federal workers with an average income of almost $56,000 per year ($71,000 per year in the D.C. area), and not low-income working people in small businesses. The premium for the average family plan next year will be more than $10,000, which is way beyond the means of most low-income uninsured folks or retirees. Kerry addresses this problem, not by encouraging the purchase of more affordable coverage, but by providing a subsidy for any person whose insurance premiums exceed 6% of income. Now follow this: Young healthy people won't buy such expensive coverage, but older sicker people will, so there will be a disproportionate number of older and sicker folks in the program. This will set off a raging adverse selection, spiraling costs, and market instability. Next step: federal officials will intervene, draft more rules and regulations, impose some nasty risk-adjustment mechanism that has never been tried before, or require all plans to offer a uniform comprehensive benefits package. Say goodbye to choice, competition, and the FEHBP as we have known it. The program would likely devolve into a version of giant, Clinton-style regional alliances, run by Clinton-style regulations.

The Ugly

Bush's Medicare entitlement expansion is ugly. The Medicare drug benefit will cost well in excess of the latest estimate of $534 billion over ten years, and will possibly reach $2 trillion in the second decade. By the end of the year, expect the ten-year estimates to be higher. The Medicare entitlement expansion will crowd out private drug coverage, forcing millions of Americans who lose their employment-based drug coverage to pay more for an inferior government benefit. As previously noted, the best option is to delay implementation.

Kerry's federal subsidy for high-end costs is equally ugly. It involves a massive cost shift to the taxpayers. As the Buffalo Bills quarterback and conservative Congressional champion Jack Kemp of New York used to say: If you want less of something you tax it; if you want more of something you subsidize it. So, expect more high-end costs and more federal spending.

But you can bet that the idea of socializing catastrophic costs, passing on an estimated premium savings of $1,000 per family, will be popular. Insurance companies probably won't mind at all, and big employers, like the automakers, will surely like the idea of dumping high-end costs onto the taxpayer. Small employers may or may not like it, because with the premium rebate proposal comes a series of very specific requirements on small businesses, including the requirement to cover all employees and keep track of their spending. Businesses are tired of government mandates. The big question is whether a promised $1,000 premium reduction is worth a guaranteed tax increase of $1,000 or more.

This is a government program, and you cannot separate a government program from politics. Politicians would have a juicy target. Why should we have the government come to the rescue at $30,000 worth of costs, or $50,000, instead of $20,000, $10,000, or even $5,000? And why should patients pay 25% of high costs, rather than 20%, 10%, or 0%? Political pressure will be relentless to reduce the percentage if not the threshold: you can bet on it. Promising something for nothing, or a lot for a little, always wins in politics.

Finally, there is the issue of counting the patient personal spending to the threshold where the taxpayer funding kicks in. The government will want to make sure that the spending is real, and that means audits, and audits mean investigations and records and lots of extra administrative duties for employers, health plans, and government officials. Lots of work. Probably lots of rules. Regulations. Guidelines. The government will also want to make sure that the spending is "medically necessary and appropriate."

The cost of Kerry Plan is also ugly. Different assumptions will get you different results, and that is why economists haggle, getting into the methodological weeds, where some have wandered, never to return. In one sense, it doesn't make any difference.

Emory University Professor Ken Thorpe's analysis, which is cited by the Kerry campaign, estimates a $653 billion cost over ten years. For the same period, the Joe Antos-American Enterprise Institute study comes up with $1.5 trillion; the Lewin Study, with $1.25 trillion; and the National Center for Policy Analysis, with roughly $1 trillion. Whichever you pick, the Kerry tax package is not going to cover the cost of the Kerry health plan.

Here's why. The Senator is proposing to cut the deficit in half in 4.5 years, make all of the middle-class income tax cuts permanent, add a new jobs tax credit, and cut corporate taxes. At the same, he wants to add new initiatives for funding education and relief for state and local governments, plus programs for energy, the environment, and technology. Over the period 2005 to 2014, the Urban Institute projects a net revenue reduction of $643 billion, and the Heritage Foundation Center for Data Analysis a reduction of $686 billion. That's better than government work. The vaunted tax increase on the rich defined as Americans with family incomes greater than $200,000 a year would bring in revenues of little more $174 billion over that time period, and even keeping the estate tax would only garner $2.7 billion. Thus, unless he scales back his spending plans, Heritage estimates that Kerry would in fact have to raise taxes by between $2,090 and $2,829 per household. That's a hefty increase and not just on The Rich.

Doctors, hospitals, and clinics are capable working wonders for millions of Americans, but the next President and the Congress are going to have to fix the financing of the system. HSAs are a great start. But only a start. The federal government will have to address distorted health insurance markets, massive cost shifting, artificial restrictions on consumer preferences, and the insulation of plans and providers from robust and healthy competition.

Are You Better Off?

How Reaganesque! Families USA, a left-wing group pushing for more government control over medicine, is telling us the obvious: medical costs are higher, and they are squeezing wages. Are you better off than you were four years ago?

Their report is not remarkable. Over the period 2000 to 2004, health insurance premiums rose faster than earnings in 35 states. On average, workers' premiums rose 35.9%, while earnings rose by only 12.4%. Ron Pollock, the chief honcho of Families USA, is saying that workers are being squeezed by runaway costs over the past four years, as employer-based insurance premiums rose from $7,028 in 2000 to $9,320 in 2004, and the average amount paid by workers for the coverage rose from $1,433 to $1,947 (by 35.9%). The number of persons who ended up paying more than 25% of their income for health-related costs jumped from 11.6 million to 14.3 million in 2004, a 23% increase. And one out of three people under age 65 went without medical coverage for some period of time in 2003. Pollock says that all of this needs "immediate" attention. He doesn't specify what is to be done.

This is nothing new. Medical care costs have been running at more than twice the rate of inflation for many years, particularly since the late 1960s and the early 1970s, with the advent of Medicare and the expansion of Medicaid. We have a growth in population, and the new numbers reflect that. But in 2003, we had 15.6% of the population uninsured, compared to 15.3% in 1993. So, if the implication is that George Bush did this, then he must stand in the guilty line well behind Bill Clinton and just about every other President back to Lyndon Baines Johnson. In the 1970s, medical costs had reached such a level of crisis that President Jimmy Carter wanted Congress to impose price controls on hospitals, and pushed a Hospital Cost Containment Act that failed. Costs continued to rise throughout the 1980's and early 1990s.

Meanwhile, remember one thing: any politician who promises to deliver something for nothing is lying through his teeth.

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