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of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto
Volume 48, No. 11 November 1992
CASE FOR PRIVATE CONTRACTS ARGUED IN
A person would have to be ``certifiably insane'' to turn
down a Medicare check, said Judge Nicholas Politan during oral
arguments in the US District Court in Newark, New Jersey, on
Sitting right before him were three patients who want to do
just that. The other two patient plaintiffs in the case known as
Stewart versus Sullivan are in a nursing home and could
not be present. One is a quadriplegic.
The patients and their personal physician, Dr. Lois J.
Copeland of Hillsdale, New Jersey, are suing the Department of
Health and Human Services (HHS) for a declaration of the right of
patients and physicians to contract privately, without
disenrolling completely from Medicare Part B (see AAPS
News, Mar. and Sept. 1992).
The Judge found it difficult to believe that any patient
would ever want to pay a doctor more than the doctor was entitled
to under Medicare's formula. He was also unwilling to believe
that anything other than the size of the fee was of concern to
the physician plaintiff, even though she has stated that she
would gladly treat these patients privately for less than the
scheduled fee or for no charge at all.
In fact, the Judge wondered why the case was in Court at
all. No physician has, as yet, been sanctioned under the
Medicare ``policy'' against private contracting (although the
government's brief itself contains a threat to sanction Dr.
Copeland if she violates the policy). Why shouldn't a physician,
he asked, just wait to be sanctioned, then proceed through the
chain of administrative appeals and finally to the US Court of
Appeals if dissatisfied with the result? He seemed unconcerned
about the cost (years, tens or hundreds of thousands of dollars
in legal fees, and loss of most of the physician's practice).
The Judge didn't believe that Medicare regulations posed a
Draconian threat. Specifically, he did not think it possible
that the Department of HHS could drive Dr. Copeland out of
business for traveling 30 miles to a nursing home, seeing a
patient ``unnecessarily,'' and accepting ``$10'' from him.
``America is not structured that way,'' he declared.
The Judge asked the US attorney what could happen to
physicians who attempted to contract privately. How would the
Secretary of HHS enforce its ``policy''?
``We don't know. We'll have to wait and see,'' said US
attorney Peter Robbins. ``The Secretary has not decided that a
sanction will automatically be sought in every case.'' The issues
involve discretion by both the Secretary and administrative law
judges, and no guidelines have been developed.
The Judge inquired about statements from Medicare
intermediaries that seemed to constitute a veiled threat.
``We don't know who issues those statements,'' said the US
There were some muted sounds of skepticism or indignation
from the audience, perhaps from a physician who was contesting
about $80,000 in civil monetary penalties from Medicare.
``Shut up!'' said the Judge, demanding decorum in his
The US attorney agreed that Medicare might determine a
requested service to be ``unreasonable'' and/or ``unnecessary.''
To cover that eventuality, the patient could sign a waiver form
agreeing to pay for the service himself if Medicare denied it.
But if reimbursement was forthcoming after all, the patient would
surely want the check-unless he was ``crazy.'' In that case, he
could make a charitable donation, refund the check to the
Treasury, or rip it up.
The US attorney was adamant about the requirement to file a
claim in every instance. Congress did not write a special ``opt
out'' provision in the statute requiring the physician
to file all claims. Perhaps physicians could file anonymous
claims if no reimbursement was desired, but the government had to
have the statistics concerning what services were provided.
The Judge did not believe that claims filing could be
burdensome. Physicians have a staff, and they have successfully
engaged in the ``paper chase'' for years, he noted.
``Just look at the doctors' parking lot.''
As to the patients' concern about confidentiality, the Judge
inquired: ``Is privacy a real right, or a lawyer-created
right?'' Why should patients mind if a bureaucrat knew about
their medical history, he asked.
Only one constitutional claim was explictly argued by
plaintiffs' attorney Kent Masterson Brown: the denial of any
review, judicial or administrative, of fees dictated under the
Relative Value Scale. However, if the Medicare statute is now
construed to deny the right of patients to contract for private
medical care, then serious constitutional questions might arise.
Just what did the plaintiffs expect his ``lowly district
court'' to do about it, the Judge wondered.
``You would have me stop the wheels of Medicare? Awesome. I
only thought I could shut down Newark Airport.''
The Judge has not yet rendered a decision. An appeal to the
Third Circuit is anticipated whenever the opinion is handed down.
``Do you think you are `certifiable'?'' one of the patient
plaintiffs was asked after the hearing.
``I know when I have been insulted,'' she said. ``I didn't
lose my ability to make my own decisions just because I have
reached the age of 65.''
Physicians Want CLIA Repealed
Although organized medicine took a stand favoring the
Clinical Laboratory Improvement Act of 1988 (at least in
principle), 78% of physicians responding to a recent AAPS
questionnaire favored outright repeal of the Act, and 87% favored
either repeal or applying the Act to large commercial
laboratories only. The response rate was about 11%. To our
knowledge, this is the only membership survey obtained by a
medical organization on this subject. All of the groups invited
to participate in the recent meeting on CLIA called by the
President's Council on Competitiveness (see AAPS News
Sept. 1992) were asked for such data, and none could supply
As a result of CLIA regulations, 44% of physician respond-
ents will restrict the testing that they do, and an additional
25% will discontinue laboratory testing altogether. Of
physicians who will restrict or discontinue testing, 84% cited
the cost of compliance as one of the reasons. The median annual
cost was estimated to be about $1800. Of those who voiced an
opinion on the cost of lab tests to patients, 92% said it would
increase, in many cases by more than 100%.
Tucson family physician Abraham Byrd, MD, shows how his lab
has become entangled in the web of CLIA regulations.
In response to an open-ended request, about 30% of
physicians contributed a comment. Not a single one referred to a
potential benefit to be expected from this legislation. A number
believed the Act resulted from a desire of big laboratories to
squash competition from physicians' office labs. Some other
``The best solution is for physicians to take control of
their own destinies: withhold services or break the law en masse.
Remember the Boston Tea Party?''
``I'm quitting! I'm fed up! I'm only 50, but I'm getting
``The greatest harm will be in small labs that switch to
doing waived tests that are cruder and less accurate, e.g. for
``Will they start regulating compasses and protractors for
``CLIA will delay by diagnosis by 24 to 48 hours.''
``All regulators, inspectors, and behavior modifiers should
be at least as qualified as those they inspect....''
Peer Review and Intellectual Conformity
If it comes to prohibiting, there is not aught more
likely to be prohibited than truth itself, whose first
appearance to our eyes, blear'd and dimm'd with prejud-
ice and custom, is more unsightly and more unplausible
than many errors.
John Milton (1644)
How should a knowledgeable physician act if he is the first
to suspect that standard practice is incorrect? Our doctor can
be guided only by experience and intuition. He can cite no
published work, nor can he ask his patient to return in 5 or 10
years, when physicians might know more....
The first physician who, in 1853, positively pointed to the
mosquito as the spreader of yellow fever...was investigated by a
commission, which found his views inadmissible and all but
declared him insane. Semmelweis ordered his students to wash in
chlorinated lime between the dissecting room and the maternity
ward. A medical editor wrote that it was time to stop such
In our own day George Crile, Jr., who departed from the
traditional Halsted mastectomy, was reprimanded by the Cleveland
Academy of Medicine. In 1934, a chest surgeon who urged 300
colleagues to support measures to curb smoking was laughed off
The peer review offence is deviation per se....
Robert Carlen, MD, Sayville, NY
[These ideas were rejected by JAMA and N Engl J Med
before being published in The Lancet 338:823-4, Sept 28, 1991.]
What Is Poverty?
Because so many medical assistance programs are designed to
tax the ``rich'' or the middle class to aid the ``poor,'' it is
essential to know just how poverty is defined.
Virtually everyone uses a level of monetary income to define
a poverty ``line.'' The resulting inconsistencies have recently
been described by Robert Rector of the Heritage Foundation (see
Wall St J 9/3/92) and by Christopher Sarlo of Nipissing
University in Ontario (Fraser Forum, Aug, 1992, published by the
Fraser Institute, 626 Bute St., Vancouver, BC V6E 3M1, telephone
For example, Sarlo points out that to achieve the same
standard of living as a ``poor'' nonworking family that receives
social assistance of $18,500 plus other benefits, a nonpoor
family with a single parent would have to earn $32,000, which is
above the relative poverty line. Also, some members of
households with a relatively high income might actually suffer
deprivation if the head of the household chooses to purchase non-
necessities (such as lottery tickets or alcohol) before meeting
the family's basic needs.
After compiling vast quantities of statistical data, which
are published in his book Poverty in Canada, Sarlo
reaches a startling conclusion: ``It is impossible to determine
the number of poor in Canada, even approximately.''
Sarlo and Rector agree that living standards of the ``poor''
are much higher than the figures would suggest, but that the
``war on poverty'' has been a dismal failure in terms of creating
personal responsibility, incentives to work, and hope for the
Another Special Fraud Alert Issued by Office of the
This time targeting a variety of incentive programs used by
hospitals to compensate physicians, the Office of the Inspector
General (OIG) has issued another ``Special Fraud Alert.'' The
OIG believes that certain incentive programs could constitute
remuneration to induce the referral of business paid for by
medicare and Medicaid and thus violate the anti-kickback statute,
42 U.S.C. §1302a.
The ten programs that the OIG found to be questionable
- Payment of any sort of incentive by the hospital each
time a doctor refers a patient to the hospital;
- Use of free or significantly discounted office space or
equipment in facilities located close to the hospital;
- Provision of free or significantly discounted billing,
nursing, or other staff services;
- Free training for a doctor's office staff in areas such as
management techniques, CPT coding, and laboratory techniques;
- Guarantees that the hospital will supplement a doctor's
income up to a certain amount;
- Low-interest or interest-free loans or loans that may be
``forgiven'' if referrals are made to the hospital;
- Payment of the cost of a doctor's travel and expenses for
- Payment for a doctor's continuing medical education courses;
- Coverage under a group health insurance plan at a lower cost
to the doctor; and
- Payment for services in excess of their fair market value.
The list set forth in the ``Special Fraud Alert'' is by no
means exhaustive. Rather, it is intended to illustrate areas
where the OIG is showing special interest in the enforcement of
the anti-kickback statute, 42 U.S.C. §1320a.
Although many of these incentives have been commonly
employed by hospitals all across the country in recent years,
they are now subject to criminal and stiff civil penalties.
Although the OIG predicates his attack on these incentives by
asserting that they ``interfere with the doctor's judgment of
what is the most appropriate care and may inflate the costs to
Medicare and Medicaid programs by causing doctors to
inappropriately overutilize the services of a particular
hospital,'' they are, in fact, another example of the growing
exercise of control over medical care by the federal government
through the use of threats, intimidation, sanctions, and even the
Whereas we must all be wary of the actions of the OIG, we
must also closely scrutinize the legitimacy of its actions. The
LLCS will monitor developments closely.
Medicare Spending Up 7.4%
A 7.4% growth in Medicare spending from $109.7 billion in
fiscal year 1990 to $117.8 billion in 1991 reflects a rising
number of claims submitted. Although the number of Medicare
beneficiaries grew only 1.9%, from 34.2 million to 34.9 million,
the number of claims increased nearly 11% to reach 600 million
(BNA's Medicare Report 9/18/92).
AAPS predicted an increase as a result of forcing physicians
to file claims. But the connection has apparently not been
noticed by Congress or HCFA.
Medicare Cost-Shifting and Invisible Rationing
In 1993, seven out of 10 US hospitals will lose money on
Medicare inpatients, with an average loss per patient of $900,
according to the American Hospital Association. The impact will
be greatest in hospitals with 100 to 299 beds.
To make up for the shortfall, hospitals are believed to
overcharge patients with private medical insurance by as much as
40% (BNA's Medicare Report 9/18/92).
Although the Medicare Handbook states that patients are
theoretically entitled to up to 150 days of hospital care, the
government won't actually pay for it. The average Medicare
reimbursement to hospitals in 1989 was for 4.7 days, exactly half
of the number billed. For the most complex and costly
procedures, the average Medicare payment was for the equivalent
of 10 to 12 days, also half the amount billed.
Hospital admission rates for the elderly fell by 16% from
1983 to 1987, and the average length of stay decreased from 10.37
days to 8.71 days. While regulators cite these figures as
evidence of progress in cost containment, 63% of internists felt
that they were under pressure to discharge patients prematurely.
A Rand Corporation study reported that 23% of hip fracture
patients were discharged too soon, compared with 12% before the
advent of DRGs (NCPA, Executive Alert, Sept-Oct, 1992).
Older Physicians Just Say No
According to a survey by Merritt, Hawkins, and Associates, a
national physician search firm based in Irving, TX, 50% of older
physicians would retire immediately or accelerate retirement
plans if medicine is nationalized.
The survey of 150 physicians aged 55 or older showed that
physicians spend up to 10 times longer on government or insurer
paperwork than when they entered practice. About 40% would not
choose medicine as a career today, and 60% would not recommend a
medical career for their children.
The impact on physician manpower could be devastating. The
AMA reports that 29% of US physicians are 55 or older and that
older physicians work longer hours and see more patients (Arizona
Medicine, May, 1992).
Despite the persistence of...republican forms, [America is
becoming] a mass democracy in which elected officials are more
and more irrelevant and corrupt as their powers and duties are
usurped by bureaucratic elites that cannot be removed.
Despotism, masked in republican costume, is not yet enthroned,
but already it whispers sweetly in the ears of those who sit in
the consular chairs of the leviathan state.
Samuel Francis, Chronicles, Aug. 1991
AAPS welcomes Drs. Jake J. Allen of Great Falls, MT; Richard
P. Ames of Ridgewood, NJ; Eric J. Anderson of Great Falls, MT;
Gregory S. Birse of Palm Beach Gardens, FL; John G. Cametas of
Richmond, VA; Philip M. Catalano of Bradenton, FL; Kyle W.
Chapman of Seattle, WA; Alain de La Chapelle of New York, NY;
John W. Demetree of Bradenton, FL; Robert Dennis of Neptune, NJ;
Dennis Dietrich of Great Falls, MT; G. David Fain of Ocean
Springs, MS; Wilbur Fine of Morgantown, WV; Donald M. Fraser of
Lewiston, NY; David D. Fulghum of Bradenton, FL; James W. Harding
of Greenbelt, MD; William P. Homan of White Plains, NY; Elizabeth
W. Johnston of McLean, VA; Arthur Lerner of White Plains, NY;
William R. Loomis of Spokane, WA; Michael P. MacLaverty of Mt.
Prospect, IL; Van Megariotis of Clifton, NJ; J.S. Montgomery III
of Houston, TX; William W. Moss of Bradenton, FL; Eric Mudafort
of Bradenton, FL; Henry J. Palacios of McLean, VA; Steven P.
Parker of Pensacola, FL; Robert C. Shuman of Marietta, GA;
Lawrence C. Varner of Farmville, VA; Carl J. Viviano of Merrill,
WI; Robert B. Wagner of Rockville, MD; Steven C. Watsky of
Bradenton, FL; Carl Weber of White Plains, NY; Edward A. Zane of
New Milford, CT; J. Fred Znider of Fountain Valley, CA; and the
Nassau-Suffolk Physicians Guild, Inc., of East Meadow, NY.
New student members are: Yaser Abdelhamid, Charise R.
Bowman, James P. Fulop, Char Glenn, Char Glenn, Angela Hairston,
Eric P. Kuivinen, Travis Lee, Gina Love-Walker, Brian Mehling,
Rahul Mehta, Mark Mueller, Lois Owings, R. Scott Russell, Lily R.
Savage, Christopher J. Sesslar, Rakesh Sharma, Lori C.
Vavul-Roediger, Michelle Witherspoon, and William Wong.
Letters to the Editor
Re: ``Nursing Home Invaded''
I am amused that the State finds fault with the private
sector when state mental hospitals are poorly staffed, poorly
equipped, and poorly ventilated. Of course, neuroleptic
malignant syndrome/hyperthermia never arose as a result of the
government's deficiencies. Would that the public sector were
held to the same standards as the private sector.
Stanley Rossen, MD, Park Ridge, NJ
Most judges interpret American law by what I call the Soviet
rule of law. Here is an example:
Question: Dear Judge, May I emigrate from the Soviet Union?
Answer: Yes, Bob, you may emigrate but without your wife
Conclusion: Yes, I may emigrate ``on paper'' but ``in
practice'' I must remain in the Soviet Union.
So it is with Medicare law. I can cease treating Medicare
patients in theory but since the vast majority of ill patients
are over 65 I am, for all practical purposes, a prisoner of the
Robert Gervais, MD, Mesa, AZ
October 24, 1992. Freedom in Medicine seminar, Columbus, OH.
(To register, call Herb Gillen at the Ohio State Medical Assoc.,
October 6-9, 1993. 50th Annual Meeting, San Antonio, TX.
Legislative AlertClinton Unveils New Health Care
With election day closing in, Arkansas Governor Bill
Clinton has unveiled a more detailed version of his plan for
national health care reform.
Clinton has dropped ``play or pay,'' the employer-mandated
insurance proposal so popular among liberal leadership in
Congress. But its replacement does not escape serious problems,
the kind that have been dogging the employer mandates for several
The new plan is a curious mixture and represents a
coalescing of some powerful political forces. The broad outlines
of the Clinton proposal are congruent with the plan recently
outlined by the American College of Physicians (ACP), with the
support of the American Association of Retired Persons (AARP) and
business and labor leaders who have been favoring the older
``play or pay'' regime that has been stalled in Congress.
If elected President, Governor Clinton promises to send his
complex reform package to Capitol Hill to be enacted in the first
hundred days of his Administration.
``Play or Else.'' The latest Clinton Plan is basically
an expanded employer-based system, replacing the ``play or pay''
approach with a simple and straight mandate on employers.
The plan does not allow business to opt out of the system of
private insurance by paying an additional payroll tax to finance
a new public health insurance plan. The plan calls for phasing in
the employer mandate, with small employers coming in at the end
of the process.
The updated version of the Clinton program would give
employers new tax subsidies, complementing the tax subsidies
already allocated by the IRS for the companies that now provide
health insurance. The new subsidies would be in the form of tax
credits for small businesses that are deemed unable to afford
Clinton and his advisers are also looking at extending
private insurance, rather than creating a new public plan. The
latest version of the Clinton Plan calls for the creation of
health care purchasing groups to allow small businesses to take
advantage of the economies of scale. In concept, this is not
unlike the concept of Health Insurance Networks (HINS) found in
the Bush Administration's proposal issued last February 6th.
Likewise, it bears a striking resemblance to the establishment of
Health Care Purchasing Cooperatives being proposed by Congressman
Jim Cooper of Tennessee and the conservative Democrats in the
House of Representatives.
While guaranteeing subsidies to small businesses to help
them provide private insurance coverage, the Clinton plan is also
guaranteeing ``universal access'' to health insurance. Under the
plan, the federal government will buy or subsidize private
insurance for Americans who are not working, depending on their
needs. The Clinton plan will also end Medicaid, and simply buy
private insurance for those now enrolled in the program through
the new ``purchasing groups.'' In effect, Clinton is calling for
a privatization of the Medicaid program.
A Global Budget. The Clinton plan calls for a national
limitation on health care ``costs'' (expenditures), both public
and private. A national budget will be established by a ``na-
tional health care board,'' comprised of representatives from
business, ``health care providers,'' consumer groups, labor, and
As envisioned by Governor Clinton and his advisers, patients
will have access to a variety of options, including managed care
networks organized by doctors and hospitals and private insurers.
These managed care networks will receive a fixed amount of
money for meeting the ``full needs of consumers.'' Each state
will set an ``upper limit'' on fees-including those of
practitioners and institutions outside the networks-to ensure
that they fall within the national budget. This limitation on
total spending is supposed to induce doctors and hospitals and
insurers to be efficient, avoid waste, and ``eliminate
By limiting what Americans can spend on health care in both
the public and private sectors, Clinton and his advisers expect
this national budget to control costs. The idea is to make sure
that costs rise no faster than wages, generating a savings of
approximately $700 billion by the year 2000. Moreover, the plan
calls for dedicating these savings to ``paying for expansions in
Comprehensive Insurance Reform. The Clinton package
includes: open enrollment, including the banning of all pre-
existing medical condition exclusions found in contemporary
insurance programs; community rating of insurance premiums; the
requirement of a ``comprehensive benefits package,'' including
preventive and primary care services, mammograms and routine
health screening, physician and hospital care, coverage for
prescription drugs and basic mental health care; and the
establishment of ``publicly-sponsored'' purchasing groups, the
pooling of businesses and individuals to buy private coverage at
lower costs. Governor Clinton argues that health care networks
will have to compete to win the business of these health care
purchasing groups, thereby bringing medical costs down.
Other Features. The Clinton plan would: (1) increase
the self-employed health insurance tax deduction from 25% to
100%; (2) place price ceilings on prescription drugs; (3)
establish standard insurance claims forms, standardized billing
codes and electronic claims processing; (4) ``crack down'' on
fraud and abuse by providers and insurers; (5) institute
liability reform through alternative dispute resolution
mechanisms and the development of a clear set of medical practice
Outlook. The newest reincarnation of employer mandates
is an odd mixture. Politically, the Clinton plan is designed to
break down the stout resistance of business, particularly small
But the key question remains: Where will the money come from
to pay for new subsidies to medium sized or small businesses, to
cover the typical cost of $3600 per year for family coverage?
From a new employee payroll tax? A new sales or excise tax ? A
There are other unanswered questions. How will a global
budget work? How would the government determine how much
Americans should spend on medical services each year? What
happens if the spending target is reached? And if there are
``savings,'' how will these be captured by the government, when
the bulk of those savings will be realized by price controls on
private health care services? (The Bush Plan faces the same
Waiting for Perot
The Bush and Clinton plans are models of infinite detail
compared with that of Ross Perot. In his book United We
Stand, Perot bemoans health care costs, praises preventive
medicine, and says that the health care problems are ``struc-
tural.'' Perot states that comprehensive reform should be based
on a ``public-private partnership.'' and that there should be an
independent federal agency to oversee cost containment. The
details are maddeningly vague.
The Rise of Market-Based Reforms and Medical Savings
While Clinton and Bush are slugging it out in the several
states, Congress is winding down with barely a whimper on health
The full Senate has been considering HR 11, a bill amending
the Internal Revenue Code to provide tax incentives for
enterprise zones, an urban policy strategy advanced by HUD
Secretary Jack Kemp and the Bush Administration. On September
23rd, the Senate adopted an amendment (by voice vote) which
incorporated the text of S 1872, the small group market reform
package authored earlier this year by Senator Lloyd Bentsen (D-
TX). Because of controversial tax provisions, the measure is
unlikely to be passed this year.
In the House, about 60 conservative Democrats led by
Congressman Jim Cooper of Tennessee thwarted attempts by their
liberal Democratic colleagues to bring out a price control bill,
based on the global budget/RVS/DRG model, HR 5506. The liberal
Democratic paralysis in the House on health care reform thus
turned into rigor mortis.
In the meantime, the growth of a large bloc of Democrats
favorable to competition and a greater reliance on free market
forces, and solidly opposed to Canadian style global budgets and
price fixing, is a significant development in the Congress. It
will surely have implications for Clinton and Company if the
Arkansas Governor should win the Presidency in November. Already,
the rise of the Conservative Democratic Forum (CDF) as a player
in the Congressional health care debate has clearly had an
influence on the Clinton camp, as is evident from the subtle and
politically shrewd changes in Clinton's plan, particularly its
movement away from public insurance to a private system,
including the replacement of Medicaid by private insurance. If
Clinton were to drop global budgets and price controls on doctors
and hospitals, his plan would more closely resemble the ``managed
competition'' proposal put forth by the CDF rather than anything
surfaced by Congressmen Stark, Waxman, and Rostenkowski.
While House Democrats are debating among themselves the
virtues of ``managed competition'' markets versus global budgets
and price controls, their Republican counterparts are pushing
legislation for more open markets, including consumer-based tax
credits and medical savings accounts.
Opening Up the Federal Market. Perhaps the most
interesting proposal to surface is that of Congressman Sam
Johnson (R-TX), a GOP freshman. Johnson's bill, HR 5970, would
mandate that all uninsured persons be given tax credits, based on
need, and be enrolled in any plan of their choice. Any of the
more than 300 or so private plans competing in the Federal
Employees Health Benefits Program (FEHBP) nationwide would be
certified as eligible to receive tax credits in partial payment
of the premiums. As a government program, serving Members of
Congress and federal employees, the FEHBP is considered unique in
that it uses market forces of consumer choice.
In order to finance the tax credits to assist the uninsured
in the purchase of health insurance, HR 5970 would cap the
current tax exclusion on the value of employer provided insurance
at $3600, meaning that no more than $3600 in employer provided
health insurance benefits would be tax-free income. The revenues
from the taxation of benefits above that cap would, according to
the Congressional Budget Office, generate $30 billion a year.
Thus, the tax-credit provisions would be budget neutral.
The proposal to open the FEHBP to the uninsured has a
dramatic political appeal. It allows the constituents to share
in the same benefits that are open to congressmen.
Rep. Johnson and his colleagues view the FEHBP as a way
station to a more comprehensive market-based reform, resulting
from a permanent change in the federal tax code.
Medical Savings Accounts. Other key provisions in HR
5970 would include the establishment of 100% deductibility of
health benefits for self-employed persons and a permanent system
of medical savings accounts. Individuals or companies would be
allowed to deposit funds tax free into a special account, up to a
limit of $4800 plus $600 for dependents. Funds in the account
could only be used for the payment of medical expenses.
A similar measure, HR 5988, has been introduced by
Congressman Bob McEwen of Ohio. Its most important effect would
be to change the health insurance market from an employer-based
to a consumer-based system, establishing portability in benefits
and providing direct tax relief to individuals regardless of
their place of work. The bill includes tax credits to help
purchase coverage. Total deductibles could not exceed $1000 for
individuals or $2000 for families. If a company no longer wished
to offer health insurance to employees, the bill would require
the company to turn the value of the health insurance package
As with several other Congressional reform initiatives, Mc-
Ewen's bill would require guaranteed renewability and the
elimination of exclusions from insurance based on pre-existing
Like the Johnson bill, the McEwen bill is budget neutral.
That is, it will not, of itself, add or subtract from the total
level of federal spending on private health insurance under
current law. The tax credit provisions are financed simply by
replacing the huge, tax subsidies for employer-based insurance
with a national system of tax credits. The total revenues
available for these subsidies amount to an estimated $88 billion.
McEwen argues that increased choice and competition in the
health insurance industry (due to shifting tax breaks from
employers to families), coupled with assistance in meeting out-
of-pocket expenses (through a basic tax credit of $1100 plus 18%
of other health care expenses), will both control health care
costs and assure universal access to health care.