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Volume 58, No. 9 September 2002

THE ADMINISTRATIVE COST FALLACY

According to advocates of socialized medicine, the United States is "paying for national health insurance-and not getting it" (Steffie Woolhandler and David Himmelstein, Health Affairs 2002; 21(4):88-98, funded by the Soros and the Robert Wood Johnson Foundations). Counting tax deductions and indirect payments, as through the Federal Employees Health Benefits Program (FEHBP), the current tax-financed share of health spending is 59.8%, 15 points more than the 45.3% estimated by the Centers for Medicare and Medicaid Services (CMS).

Between 1965 and 1999, Woolhandler and Himmelstein calculate that tax-financed health expenditures per capita increased from about $60 to about $2600. In 1965, such expenditures in the U.S. were well below total spending levels in most developed countries. In 1999, they exceeded total health spending per capita in every nation except Switzerland. The federal proportion of direct spending nearly tripled from 11.4% to 31.8%, while the state and local government proportion remained stable at about 13.5%.

"Government is already spending nearly enough [more than $725 billion], but it's spending it wrong," stated Himmelstein. A total government takeover "would require smaller tax increases than most people imagine."

"Our allegedly private health care system is funded mainly by taxes," the authors conclude. They then assert that the system is under "private control" and imply that federal control of all $1.2 trillion would end the squandering of resources.

The source of the magical savings to offset the cost of caring for the uninsured and underinsured: administrative savings and recovery of profits now "siphoned off" by insurers and drug companies. Some major assumptions are needed:

1. Government programs are administered more efficiently than private ones. Half of the estimated $309 billion in health administration costs could be saved by shifting to national health insurance, claim Woolhandler and Himmelstein. After all, Medicare purportedly spends only 2% on administration, and Medicaid 5%, in contrast to private industry costs of 12% to 20%.

Such estimates, however, omit many costs that are spread through various agencies of federal, state, and local governments. If these are considered, the administrative overhead of public programs amounts to $0.27 per each dollar of benefits to patients, compared with $0.16 for private insurance- 69% more, according to a study by Mark Litow for the Council for Affordable Health Insurance (CAHI), March 1994.

Comparing like items-such as benefits development, eligibility, payroll, and data processing-line by line, private industry is consistently more efficient. CAHI adds to the government's tab the cost of developing legislation, writing regulations, and judicial review, as well as $35 billion of the 1993 interest on the national debt and $5.2 billion in interest for state borrowing for government-funded health programs.

Not included are the costs imposed on medical professionals and institutions, either by government or private insurers. No credible study of such costs has been done, though there are many indications that the burden is huge and results in serious barriers to access to services (AAPS News June 2001, www.aapsonline.org/medicare/medrep.htm ). For example, when a Texas Medicare contractor asked randomly selected physician practices for additional documentation, 62% did not bother to send it and had their claims denied: if a practice has to do any extra work beyond submitting a claim for services worth less than $65, it loses money (AM News 7/22/02).

2. Government accounting is honest. While passing a corporate crime bill quadrupling the penalties for ordinary "mail fraud" from 5 years to 20 years in prison, forcing attorneys practicing before the SEC to turn in their clients, and imposing the same punishment for "attempted" crimes as for crimes actually committed, the government persists in financial mismanagement much worse than Enron's. For 5 years, the GAO has been unable to render an opinion on government consolidated financial statements because of material weakness in internal controls. In 2000 and 2001, $463 billion was looted from trust funds (T Schatz, Scripps Howard 7/12/02). As early as the 1960s, statistician Barkev Sanders warned that the Social Security Administration was concealing the truth in actuarial estimates in order to sell national health insurance (S Blevins, Medicare's Midlife Crisis, 2001).

"No corporation on earth comes close to the accounting fraud practiced year after year by the federal government," wrote Rep. Ron Paul, M.D. (R-TX). "In fact, there is no real accountability at all for the trillions in tax dollars...spent annually ( www.house.gov/paul).

3. Administration is the key to excess costs. Even if $150 billion could be shaved from administrative costs, national health insurance would worsen a far more important cause of excess costs: overuse resulting from third-party payment itself. Martin Feldstein estimates that moving from total out-of-pocket payment to total third-party payment might increase expenditures by as much as 250%. While some of the increase adds value-though less than required to justify the expense-a substantial part is deadweight loss. Much of the administrative load is designed to control overuse, but is far less effective than the normal free- market pressures exerted by customers spending their own money (S Liebowitz, "Why Health Care Costs Too Much," Cato Policy Analysis 211, 6/23/94).

If Physicians for a National Health Program really wanted to cut costs, they'd be advocating SimpleCare and insurance for catastrophes only. But as Robert Moffit points out month after month in our Legislative Supplement, the argument is not about money: it's about structure and control.


Siphoning Off Profits

Though socialist ideologues such as Physicians for a National Health Program (PHNP) members Woolhandler and Himmelstein malign private profit, its corrupting influence is restrained in a free market by accountability to customers and stockholders. (AAPS News July 1998, July 2000). Nonprofits, in contrast, are accountable only to government.

Taxes siphon wealth away only from for-profits. When Blue Cross of California converted to a for-profit, it had to fork over $3.2 billion to compensate for taxes not paid. The excess revenue of not-for-profits can be used for other purposes, such as to compensate officers. In 2001, the executives of nonprofit Premera Blue Cross earned about twice as much as those of commercial insurers (Seattle Times 7/11/02).

Regulations that add cost but no value also siphon away wealth that could be used to reward those who dedicate time and talent to the enterprise, or who risk capital to fund it. William Summers, M.D., of Albuquerque explains that the "doctor on the treadmill" must pay opposing, nonproductive armies: government bureaucrats through taxes, and compliance bureaucrats through salaries.

Over the past 30 years in the U.S., the poor became a fund- generating mechanism for both profits and non-profits. Under charity care, there was no interest in seeing patients beyond what was essential. But the system now needs the poor to be ill to stay in business: the poor actually generate more revenue for hospitals than HMO patients. Because most effective prevention- lifestyle change-is not chargeable, there's no revenue to be gained from prevention, writes former Texas Health Commissioner, William Reynolds Archer III, M.D. Despite rationing care by not paying physicians and subjecting them to nightmarish administrative burdens, Medicaid and SCHIP are bleeding state budgets dry, with no end in sight. The attempt to integrate care for the poor-which is basically an uninsurable risk-into a private "insurance" system is a coming trainwreck. Dr. Archer argues for separate, community-based, direct-care services run in a wholly different way from private insurance, and not structured in a way that increases costs and drives out private insurance.

The results of restoring private profit are best seen in a five-year privatization experiment in socialist Sweden: private nursing home costs-down 30%; costs of care among private special- ists-down 40%. At St. G”ran's, the privatized hospital, one of the country's largest: costs for laboratory tests and xrays-down 50%; overall hospital costs-down 30%; waiting times-down dramatically; number of patients served-up by 100,000 per year (NCPA Brief Analysis 369, 8/31/01).

 

Public-Private Profit Sharing

The Robert Wood Johnson Foundation-sponsored reform of Colorado Medicaid is a model for government and its contractors to split the profits from reducing treatment to desperately ill people who have no choice. Schizophrenics are denied newer antipsychotics-which cost thousands more but save money by reducing hospitalization-until they have a psychotic break on 1950s drugs that frequently cause permanent damage. Teenagers depressed because of breaking up a relationship have the same claim on resources as patients incapable of normal functioning. Proponents of "universal care" want to extend this model to all (Linda Gorman, Independence Institute issue paper 2-2001, 4/19/01).

 

AAPS Opposes Enactment of Pediatric Rule

Attempting to moot the challenge to the FDA's Pediatric Rule brought by AAPS, the Competitive Enterprise Institute, and Consumer Alert, Senators Kennedy, Clinton, and others have introduced S. 2394. In letters to members of the Senate Health, Education, Labor, and Pensions (HELP) Committee, AAPS opposed the bill, stating that it "denies potentially life-saving drugs to patients of all ages, including seniors, until they can be tested on children-even drugs that are not intended for children." AAPS believes that adults, not children, should bear the brunt of the risks of drug testing. "We are appalled that this Rule, by the FDA's own calculation, exposes as many as 30% of the child subjects to needless risk" ( www.aapsonline.org/legis/pedrule.htm).

Proponents of the bill describe a 1999 incident in which seven infants in Tennessee required surgery for pyloric obstruction after receiving erythromycin to control a pertussis outbreak. This side effect, which occurs only in infants under the age of 1 month, was previously unknown. A controlled study- giving a drug solely for research purposes to enough infants to turn up a 7 in 200 incidence of this side effect- would be unethical. Erythromycin is still the drug of choice.

Studies are already in "crisis mode" due to failure of patient recruitment efforts. "If you have a hypertensive kid, hold on to him. He'll be in hot demand," said Robert Temple, associate director for medical policy at the FDA (Wall St J 5/29/02).

According to the Alliance for Human Research Protection, parents are paid $645 to have a child participate in a study of psychostimulant drugs.

 

Drug Costs, U.S. and Canada

With drugs as with other items, costs are often confused with expenditures. Lawrence Reed, President of the Mackinac Center for Public Policy, notes that drug expenditures increased by 13.6% in 2000, reflecting new products and increased overall use. However, the average price of drugs increased by 3.9%, a rate comparable to overall inflation. Between 1965 and 1999, costs for drugs (as for dental care, vision care, and appliances, which also have a high percentage of out-of-pocket payment) increased only 150-200%, while GDP increased 94% and hospitalization by more than 350% (Liebowitz, op. cit.).

In the Canadian paradise, where price controls siphon off drug company profits to delay the bankruptcy of medicare, patented drugs may be cheaper (even after getting the required Canadian prescription), but generic and over-the-counter drugs are about 30% more expensive than in the U.S. Up to half the price differential on patented drugs is due to litigation costs. Most new drugs are developed in the three countries without price controls (the U.S., Britain, and Switzerland), where companies can earn a sufficient return on investment (Thomas Bray, Wall St J 7/23/02). Should Canada be called a freeloader?


The Other War on Drugs

This drug war should really be called a war on patients with chronic pain, because they will be the main casualties. But federal law enforcement officers claim to be targeting the "source" - doctors who prescribe OxyContin.

This probe is consuming more resources than any other drug investigations in recent memory (Josh White, Washington Post 8/4/02. p. A1). More than a dozen federal agencies and scores of local and state officials are working feverishly to build cases. It's a complex job, as prosecutors find it difficult to prove that a doctor knew-or should have known-that someone was not a "bona fide patient."

Gene Rossi, a federal prosecutor in Alexandria, VA, promises to "root out [culprits] like the Taliban."

Prosecutors are using racketeering and money laundering statutes that used to be reserved for drug kingpins and Mafia dons. "But they also work on these doctors," stated Gregg Wood, a health care fraud investigator in the U.S. attorney's office in Roanoke, VA. Investigators use records that the doctors themselves are required to file with the government.

Among the targeted physicians is William Hurwitz, M.D., of McLean, VA, who treats about 300 chronic pain patients dependent on opioids. Dr. Hurwitz was eventually vindicated after his license was revoked in 1996 (see AAPS News Nov 1996 and The Medical Sentinel July/Aug 1998). His talk at the 2001 AAPS annual meeting on "Freedom to Practice: the Role of Licensure Boards and Prosecutors" is available on tape.

Dr. Hurwitz stated that prosecutors may be trying to obtain a conviction for felony murder. Under laws intended to fight organized crime, he could have all his assets seized and be unable to pay a lawyer.

The government's position seems to be, he said, that doctors should be policemen, and policemen should be doctors.

Many patients report that OxyContin has relieved otherwise intractable, unbearable pain, and restored ability to function. But streetdealers find "Redneck Heroin" to be one of their best moneymakers. The drug is claimed to have killed 450 people. About 6 million prescriptions were written for it last year, giving a fatality rate of about 1 in 100,000 prescriptions.

To put law-enforcement priorities in perspective, 430,000 deaths in the U.S. each year are attributed to tobacco; 110,000 to alcohol; 30,000 to suicide; 18,000 to homicide; and at least 7,600 to nonsteroidal anti-inflammatory agents (www.drugwarfacts.org). According to National Vital Statistics Reports, vol. 48, no. 11, there were 16,926 deaths from legal and illegal drugs in 1998. The North American Society of Pacing and Electrophysiology claims that the death toll from prescription drugs alone is much higher-more than 100,000 per year ( www.naspe-patients.org).

Related to the enforcement actions, there has been at least one physician death from suicide. Dr. Benjamin Moore, who worked at the Myrtle Beach [SC] Comprehensive Care and Pain Management Clinic, pleaded guilty to fraud and to prescribing without "a legitimate medical purpose," though he performed no billing tasks and, according to pain management experts, followed a conservative office protocol for prescribing opioids. It is said that he faced up to 45 years in prison (Wash Post, op. cit.)-potential indictees and their families are often confronted with such in terroram threats.

A plea to Congress from Judy Hall, a chronic pain patient who took her own life (see www.cpmission.com), states that up to a third of undermedicated pain patients commit suicide.

Tip of the Month: The Fifth Circuit recently allowed a hospital to suspend the privileges of a staff member/competitor without any prior notice or opportunity to be heard. On July 10th, the court affirmed Midland Memorial Hospital's summary suspension of cardiologist Dr. PV Patel, who had opened his own labs and clinics that competed with Midland and members of its staff. Patel v. Midland Mem. Hosp. & Med. Ctr., 2002 U.S. App. LEXIS 13834. A subsequent review exonerated Dr. Patel's surgeries, and his privileges were ultimately restored. But he was denied a remedy for his damages. Moral: be alert to such ambushes, and protest them as early as possible.

The Court relied heavily on the en banc decision in Caine v. Hardy (see AAPS News Nov 1991), finding that "procedural due process is a flexible concept whose contours are shaped by the nature of the individual's and the state interests in a particular deprivation." A pretext of public safety is enough for a summary suspension, even if the defendant is not actually dangerous. Dr. Patel's racial discrimination claims were dismissed because the statute "does not provide a remedial cause of action against local government entities and local government officials in their official capacities." References to Dr. Patel as "sand nigger" who was "parking his camel" were considered by the Court to be mere "stray remarks."

 

Board Violated Doctor's Rights, Court Rules

"State medical boards may have to give the equivalent of a Miranda warning to doctors they are investigating," writes Howard Fischer of Capitol Media Services, July 11, 2002.

In the case of Webb v. Arizona Board of Medical Examiners (1 CA-CV 01-0010), the Court of Appeals of Arizona reversed a lower court ruling and found that the Board had denied due process of law to Yuma surgeon Dale F. Webb, M.D.

Dr. Webb had treated a patient for an abscessed inguinal node. Three months later, a metastatic anal cancer was diagnosed at Scripps Clinic. After an informal interview, at which Dr. Webb appeared without counsel, the Board censured him publicly for "unprofessional conduct."

Judges held that Dr. Webb was not advised that he had the option to decline an informal hearing and choose a full, formal hearing. Moreover, Dr. Webb had no opportunity to cross- examine the adverse witness nor to submit evidence on his own behalf- minimal requirements in a process that could result in deprivation of the property right to practice medicine.

Dr. Webb stated that he did not believe it would have been "good medicine to haul the patient into surgery and excise this lymph node" when it appeared so infected. He felt that scheduling a follow-up for two weeks later (for which the patient did not report) was not "insufficiently aggressive."

After denying Dr. Webb the opportunity to respond to the Board investigator, Chairman Richard Zonis, M.D., announced the censure and said, "That is on your record forever." Only then was Dr. Webb asked whether he had any questions.

"You're saying it was damaging to the patient. In what way would it have altered..." Chairman Zonis cut him off and declined to "go into those details."

The Court found that the Board could not "provide a fair hearing on an issue of negligence without identifying the standard of care and articulating the alleged deviation." If the Board undertakes on remand to establish that Dr. Webb's conduct was unprofessional, it must provide reviewable findings of actual harm resulting from a deviation from an articulated standard of care, and not just the opinion of Board members.


Correspondence

A False Claim. Although the elitist bureaucrats claim "low administrative costs," in truth the administrative costs are killing them. Upstate Medicare can't even afford to continue printing the Medicare Bulletin.

Although our office was one of the first in Western New York to file electronically, and did so for more than a decade, Medicare kicked me off its "security clearance" list for refusing to sign their highly one-sided contract. Our computer can generate a paper HCFA 1500 as easily as an electronic claim; the difference is that it costs the carrier a lot more money because personnel have to key in the data.

Doctors who request a paper copy of the on-line bulletin or who file paper claims will help in speeding the ultimate demise of the Medicare program.
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY

 

HIPAA Process. If I fail to comprehend and obey all the obtuse HIPAA "privacy" rules, my life could be ruined by a felony charge for not adhering strictly to the "process"-even if no patient is unhappy or has his rights violated. Still, very few doctors-or lawyers or legislators-understand what you mean when you say that HIPAA criminalizes medicine.

The Fourth Amendment does not apply under HIPAA, and warrantless searches are justified, because government has the right to control its property. By accepting government money, doctors forfeit their private property rights.
Robert P. Gervais, M.D., Mesa, AZ

 

JCAHO and Pain. In 2001, I was diagnosed with esophageal cancer. Miraculously, they say I am cured, but I still require narcotics for pain control. In my experience, the only thing the smiley faces and red pain cards did was pay bureaucrats to meddle where they have no business. Physicians who didn't know how to treat pain properly continued not to treat it, and those who did know helped me with my problem. For more details, see www.drsheingorn.com .
Larry Sheingorn, M.D., Rockville, MD

 

The Role of Lawyers. The common thread in the problems of medical practice and the Andersen trial-where the accountants were the fall guys-is the extraordinary power of lawyers to do grave damage in every sphere while cloaking their activities in the mantle of the Law. They are like a Fifth Column, penetrating every nook and cranny of life, with no competence at anything substantive. Their role is the manipulation of power. Dan Quayle tried to make a dent in the system, but his efforts have disappeared from sight.
Lawrence Cranberg, Ph.D., Austin, TX

 

One Way to Outlaw Private Medicine. In New Jersey, it is illegal to practice without malpractice insurance, and insurers are not writing new policies. Only the medical school can hire doctors. This is one way to make all doctors state employees.
Alieta Eck, M.D., Somerset, NJ

 

We're Free! Dr. David MacDonald and I are now 100% SimpleCare. We have had full clinics since we opened under this arrangement. Patients are happy and very willing to bill their insurers. We have no contracts with anyone. Patients choose either the SimpleCare fee (no codes, minimal documentation) or a CPT-coded superbill. They typically get reimbursed 60% of charges, whereas we typically got only 45-50% when we were team players as participating providers.
Vern Cherewatenko, M.D., Renton, WA

 

The Cost of Price Controls. Ironically, our goal of removing uncertainty has actually increased it. It is certain that Medicare and Medicaid will go broke. It is uncertain as to when or how.
Charles Courtney, Riverside, IL

 

The Cost of Protection. For more than a decade I have used a Peak Flow Meter. The plastic mouthpiece cracked, and I went to Walgreen's to replace it, or, if necessary, the whole piece of plastic, which probably cost $0.25 to make. I was told I could have it-with a prescription (when my doctor returns from vacation) and $25, thanks to the government. After all, in America we can't have people running around unsupervised, blowing into a piece of plastic.
Jim McMahon, Pres., Analytical Consulting Co., Phx, AZ

 

Market Destruction. We have not had a competitive fee- for-service marketplace since the Blues were incorporated. Before then, medical costs consumed only 4.7% of GDP. Social planners, bureaucrats, politicians, and special interest groups have quadrupled growth in medical costs compared with the rate of inflation, without improving access at the lower end of the economic spectrum. These people are in denial, incapable of recognizing the truth that we need to return to individual rights, responsibility, and control.
Roger Beauchamp, D.D.S., Escanaba, MI

 

"Nonprofits." Instead of hiding their losses, many tax- exempt organizations, especially hospitals, routinely hide their profits: it's a reverse Enron scheme. They launder money through a complicated accounting scheme with subsidiary vendors, enriching management and local politicians and denying service to patients. They will kill to avoid competition-as from physicians who generate efficiencies that benefit patients.
"J Swift"


Legislative Alert

Bush Launches Campaign to Reform Malpractice Law

Good news! The President has announced a major campaign to reform medical malpractice laws. In many states, there is a medical malpractice crisis. Median jury awards increased 43% between 1999 and 2000. Malpractice premiums are soaring and could average a 20% increase or more this year. And patient access to care is being compromised. The President is asking Congress to address this issue. According to the White House, medical malpractice reform could reduce costs to the federal government by $30 billion a year or more, and could reduce medical costs for all Americans by $60 billion or more.

HHS Secretary Tommy Thompson unveiled a new HHS report that details the cost of inaction on the medical malpractice problem. Said Thompson: "This is a problem for America's doctors-and a danger to all Americans. Americans are paying the price of excessive lawsuits through higher insurance premiums, difficulty in getting a doctor when they need one, higher taxes and missed opportunities to improve patient safety. We must put an end to the malpractice litigation lottery that favors a handful of powerful personal injury lawyers and instead create a common sense system that ensures injured patients receive fair and prompt compensation without threatening access to quality care for all other Americans."

The HHS report focuses on the consequences of the current system, particularly in obstetrics and among medical specialists, noting that a major trauma center in Las Vegas, Nevada, was forced to close because of the malpractice premiums being imposed on trauma surgeons. Thompson's team at HHS also underscored the higher costs and the lowered quality of care that follows from the practice of defensive medicine to ward off potential lawsuits; the breakdown in communications on "adverse events" for fear of inciting lawsuits; the aversion to high-risk specialties and surgeries because of the fear of litigation; and the reduction in volunteer services at community clinics caused by the high cost of liability insurance. (The HHS report, Confronting The New Health Care Crisis, is available at aspe.hhs.gov/daltcp/reports/litrefm.pdf.)

The Bush Administration has endorsed the Health Act (H.R. 4600) legislation sponsored by Rep. Jim Greenwood (R-PA). It would limit non-economic damages to $250,000; allow punitive damages only in rare cases, capping them at twice the greater of economic damages or $250,000; and impose a sliding scale cap on attorneys' fees in medical malpractice cases.

Strong opposition from congressional Democrats is certain. The legal profession, even more so than organized labor, is the biggest financial base of support for Democrats. According to the Center for Responsive Politics, in the 2000 election, lawyers and law firms have given about 72% of their $44 million in campaign contributions to Democrats. In this year's election cycle alone, the Association of Trial Lawyers of America has distributed about $1.8 million to candidates, and 87% of that amount has gone to Democrats. In the first test vote this year, Senator Mitch McConnell (R-KY) offered a medical malpractice reform amendment to the Medicare prescription drug legislation being debated in the Senate just before the August recess. It was handily defeated.

The Bush Administration has another potentially serious problem in its federal malpractice campaign. Tort law is state law. There is nothing in the Constitution that would give the Congress the authority to override the states' tort laws, and many conservatives in Congress, particularly those conservatives who have made a career out of fighting unconstitutional expansions of federal authority over states, are not likely to back the Administration's efforts to federalize medical malpractice law. This is true even though many are sympathetic to the plight of the physicians. So, look for some serious Constitutional wrangling among conservatives on Capitol Hill.

Nonetheless, this is good news for doctors and patients alike. The Bush Administration has put the medical malpractice problem front and center of the national policy agenda. It will force a real debate. And even in the absence of comprehensive federal legislation, the debate is likely to spur the several states to remedial action. Already, the Governor of Nevada has called the state legislature into a special session to deal with the Nevada crisis. Specifically, states could take steps in reducing the growing pressures on physicians by applying Rep. Jim Greenwood's medical malpractice reform proposals as amendments to state tort laws. Such provisions could include: an up-front disclosure of attorneys' fees; a limitation on non-economic damages (such as pain and suffering) of up to $250,000; restricting punitive damages to $250,000 or twice the amount of economic damages (such as medical expenses or the cost of domestic services); and a limitation on attorneys' fees ensuring that the maximum amount of recovery for damages would go to patients. A sound malpractice reform measure would also provide for unlimited economic damages. A similar model for medical malpractice reform would be the Medical Injury Compensation Reform Act of 1975, enacted by the California legislature.

A Small Victory on Trade Legislation

More good news. For the first time in the history of the federal tax code, Congress has provided individual tax relief for the purchase of medical insurance. As part of the Trade Adjustment Act, House and Senate conferees agreed to a 65% advanceable, refundable health care tax credit for workers displaced by trade adjustments, an estimated 195,000 persons. These workers could use the tax credit for their COBRA coverage (if eligible), enrollment in state high-risk pools, health insurance plans offered to state employees, or plans similar to those offered to state employees. Tax credits would also be available to workers who secured coverage through group insurance plans, employers, their spouse's employer, or a state arrangement with the private sector to create a health insurance pool. Tax credits could not be used to buy into Medicaid, nor could they be used to purchase individual medical insurance, unless the worker had previously owned such a policy one month before losing his job. (In the trade bill negotiations, Congressional leftists insisted on limiting workers' options to buy medical insurance on the individual market-nothing new there.) The trade legislation would also give states $1 million each to set up high-risk pools and matching funds for states with already established high-risk pools. It's a small step, but a major change in federal policy.

The Big July Drug Bust

On July 31, the Senate, after an intense and bitter debate, failed to deliver a Medicare prescription drug bill, ending the likelihood that Congress would enact any Medicare prescription drug benefit this year. Because of the pre-ordained Senate budget rules, any proposal to craft a prescription drug benefit would either have to fall within the Senate budget limit ($300 billion over ten years) or secure 60 votes necessary to waive the Senate budget rules. In a series of votes, four Senate Medicare drug proposals failed to garner the necessary 60 votes: the Senate Democratic Leadership proposal, the $594 billion Graham-Miller-Kennedy bill; the $370 billion Tripartisan Plan, backed by Senators Grassley, Jeffords, and Breaux; the $160 billion Hagel-Ensign catastrophic coverage plan; and finally, as a last-ditch effort by Democrats, the $390 billion Graham-Smith "compromise." All down the tubes.

The Graham-Smith "compromise"-the proposal offered by Sen. Robert Graham (D-FL) and Gordon Smith (R-OR)-was the last measure to be considered; it went down by a mixed party vote of 49 to 50. Senate leftists dubbed the proposal a compromise because they conceded their key objective of securing a "universal" prescription drug benefit and instead agreed to target subsidies to low-income Medicare patients. In other words, they agreed to "means testing," a major break from past policies. According to syndicated columnist Matt Miller, each year roughly $200 billion in federal entitlements and tax subsidies goes to people earning more than $50,000; that's a lot of votes. Senate conservatives were not mollified and largely voted against the proposal, and with good reason: none of these proposals included any serious structural changes in Medicare.

Both Democrats and Republicans in the House and Senate favor policies that would subsidize the drug coverage of low-income seniors, and would provide universal access to prescription drug coverage. The major breakdown in the consensus is on design and management. As Helen Dewar noted, "The Republicans wanted a plan that would rely on private insurers, saying it would promote competition and drive down costs. Democrats wanted a program that would be administered by Medicare, saying it's too risky to hand the program over to private industry" (Washington Post 7/31/02).

In other words, the real issues in this Senate debate (as in every health policy debate since Hillary's plan crashed and burned on the Senate floor in September of 1994) were never about the amount of money. The real issues were-and are-structural. Structure determines control. Once again-with feeling this time- we must remind our friends: It's the structure, stupid!

Structural Differences

Based on their recent proposals, congressional conservatives and moderates clearly favor a reliance on private- sector plans to deliver high-quality prescription drug coverage to senior citizens. The nifty policy trick is how does one do that, while keeping CMS from regulating private entities to the point that they are no longer really private, but mere extensions of bureaucratic decision-making. Good question. Tough to answer in the clinch, too.

In sharp contrast, leftists in Congress generally favor reliance on Medicare as currently structured as the vehicle for drug coverage. What many senior citizens do not know is that the management record of the agency that runs Medicare is one of the worst performing of any in the federal government. Because the Medicare managerial problems largely impact on doctors, hospitals, and other medical professionals, senior citizens are largely insulated from them. Most doctors but few seniors know that government management is no guarantee of efficiency or fair dealing, and no protection from bad behavior like that of officials at such corporate giants as Arthur Andersen or Enron. The Medicare bureaucracy can hurt you. Hurt you real bad.

Looming Medicare Costs

With the last minute collapse of the "compromise" Medicare drug proposal in the Senate, the bipartisan Concord Coalition issued an urgent and eminently sensible statement. Stop it. Just stop it. Stop adding Medicare drug benefits without reforming the Medicare program itself.

Medicare reform is not about today's Medicare patient population; it is about tomorrow's Medicare population. In the 1960s, entitlements made up about 30% of federal spending; today they account for two-thirds of all federal spending, and climbing. The Congressional Budget Office (CBO) has issued yet another report: The Looming Budgetary Impact of Society's Aging. You have heard it all before. But the latest is worth repeating. CBO points out that the rapidly aging American population is being serviced in the "current pay as you go scheme" by progressively fewer workers. In 1960, the life expectancy of women who had reached age 65 was 82.4; in 2000, it was 84.7; in 2030, it will reach 86.6. In 1960, the number of births per woman was 3.6; in 2000, it was 2.13; in 2030, it will be 1.95. In 1960, the over-65 population represented 17.3% of the population 20 to 64, the working population; in 2000, it represented 21.1%; in 2030, it will equal 35.5%. While the population over 65 will double by 2035, the number of workers to pay the bills for that population will only grow by 17%. And while the growth in medical costs now routinely outpaces the growth in GDP, CBO says we can expect these costs to grow at an even faster rate, not merely because the Big Baby Boom will gobble up Medicare dollars, but because of the increasingly intensive demand for ever advancing medical technology. Thus Medicare will eat up a larger and larger share of the "nation's production."

Congress does have access to the best work of responsible officials at the Government Accounting Office (GAO), the CBO, and top-level economists among the nation's leading public policy institutions. But because Medicare's insolvency is "years away," and nobody's Medicare benefits are at stake today, the prevailing attitude in Congress seems to be that we should all just cool our jets and wait until the "time is ripe" before actually doing something serious. CBO once again is sounding the warning. " [T]he problem with waiting is that doing so may not leave sufficient transition time to deal with it (the entitlement crisis) in a gradual fashion." Is anybody on Capitol Hill listening? Hello?

Robert Moffit is a prominent Washington health policy analyst and Director of Domestic Policy at the Heritage Foundation.