Volume 61, No. 9 September 2005
Networks, as in a system of crossed roads, can be useful,
even essential, facilitating cooperation and commerce.
In radio or television, a network is a chain of transmitting
stations controlled and operated as a unit (Webster's New
World Dictionary 1960). The big three networks facilitated a
monolithic definition of newsworthiness and cultural values,
recently being challenged by cable and webcasting.
Third-party networks in medicine are more like the second
type. They too tend to homogenize and "standardize" content, with
not a little input from the commercial sponsors. And they are
also under threat, from "consumer-driven health care," which
gains much support from the internet.
Through the use of peer pressure, third-party supervision,
and financial incentives and possibly pure intimidation
networks influence physician thinking. Unquestionably,
independent thinkers are a bane to central planners. "How to get
reluctant physicians aligned with your strategic goals" and "how
you can reduce physician push-back" are topics for a $227 audio
conference by the Healthcare Intelligence Network.
"Nonuniformity," "disparity," and "fragmentation" are Bad
Things. We need to "re-engineer the system" so that everybody
participates in the "best practices" for diagnosis and treatment
everywhere in the nation: including the usual litany of
cholesterol screening, antitobacco counseling, mammography, blood
pressure checks, and certain blockbuster drugs. Achieving the
"industry transformation" goals requires, of course, the National
Health Information Network (NHIN), stated NHIN czar David Brailer
to the Ways and Means Committee.
"Pay for Performance" is an integral part of the restructuring with its implication that networks will drop physicians
who incur too many expenses. If physicians insist on the
standards set by the AMA House of Delegates (see p 2) for P4P,
doctors could be "left behind in the regulatory setting," warned
Trent Haywood, M.D., CMS acting deputy chief medical officer.
Doctors will be "sidelined" and "not in a leadership capacity,"
he added (Am Med News 7/11/05).
In other words, doctors could lose their current preeminence. Information technology (IT) already permits their
"fungible" work (radiology reading and calculating requirements
for total parenteral nutrition) to be done offshore (Allen Weiss,
M.D., Naples Community Hospital Healthcare System, to Ways and
Means Committee). Only 11% of promised IT savings will accrue to
"health care providers"; the other 89% would go to business and
government (Patriot-News 7/27/05).
The key feature of "Health Management as a Serious Business
Strategy," as presented by Dee Edington of the Univ of Michigan
Health Management Center, is to manage the person, not the
risk or the disease. A 19-year study involving millions
of people showed that only 1.5% comply with any program to its
Despite the momentum toward central control of both patients
and doctors, the consolidation of the IT network requires, as in
the game of Prisoner's Dilemma, that everyone act in a way that
may seem contrary to his own interest before anyone enjoys the
promised benefits. The tremendous up-front investment, and the
recognition that benefits, if any, will be delayed for years, are
But the most serious threat seen by California insurance
commissioner John Garamendi (see p 2) and other advocates of
"universal care" (government takeover), is the rapidly increasing
market penetration of Health Savings Accounts (HSAs).
Writes James G. Knight, M.D., "Once a significant number of
Americans with [HSAs] are...fully vested and in control of their
own health care future, it will be an almost impossible sell
politically to push these voters into government-run health
care." Garamendi et al. see the rapidly approaching HSA "tipping
point" as a clear and present danger to their vision.
"The third-party payment system in primary care is going
down," writes Robert Berry, M.D. "It will vaporize like the chief
Nazgul, the Witch King, did in The Lord of the Rings
after Eowyn stabbed him through the hole in his helmet. And we
will be free of their coercion and terror."
Apparently foreseeing this threat, managed-care interests
got Special Rules inserted into the HSA enabling statute to
protect their networks. There can be higher deductibles for out-
of-network providers. And no one (neither physicians, patients,
nor banks) can benefit from the efficiencies of direct patient
payment at the time of service because no one knows the
network price until a claim is submitted for "re-pricing."
The contract may not state the price clearly; obscure the price
by unspecified bundling rules and modifiers; permit the third
party to change fees without notice; or require adjudication of
the claim before the provider can charge anything.
An insurance contract is a two-party contract
between the subscriber and the company, which reimburses
the subscriber when a loss is incurred. The remnant of the
concept is the term "reimbursement," now misused to mean "fee."
The Blues warped the concept back in the 1930s, writes Greg
Scandlen, with the invention of third-party payment to providers,
creating a triangle. "There is no accountability, and each point
in the triangle is ignorant of what the others are doing."
In steps the Network and its government overseer. Patients
and physicians will become fungible pieces serving the agenda of
the controllers unless and until they declare independence.
The Network is portrayed in a Huntoon lampoon
as a giant spider and a web superimposed on a U.S. map: "The
WedontCare cooperating provider network wishes to establish a
close, long-term relationship with cooperative providers so as to
insure that those enrolled on our network are served more
promptly preferably while they are still warm."
AMA Supports P4P
In a resolution opposed by the Board of Trustees, the AMA
House of Delegates adopted a policy of opposing any "pay-for-
performance" initiative that did not meet the AMA principles that
it should (1) ensure quality of care, (2) foster the patient-
physician relationship, (3) offer voluntary participation, (4)
use accurate data and fair reporting, and (5) provide fair and
AMA Secretary John Armstrong, M.D., said that the resolution
"substantially changes the direction of our Association" and
"ties our hands." Additionally, it "will not delay pay-for-
performance" (Am Med News 7/11/05).
AAPS Past President Chester Danehower, M.D., AMA Delegate
from the Illinois state medical society, told the Reference
Committee that the AMA should oppose P4P altogether. Setting
conditions implies acceptance of the principle.
At the same time that delegates said that they adamantly
oppose the use of P4P for cost-cutting, they adopted the
recommendations of a report that calls for using P4P and other
strategies to cut the cost of caring for the 5% of patients who
consume nearly 50% of medical expenditures (ibid., p 25).
Garamendi's Assertions, and the Facts
The Garamendi report titled "Priced Out: Health Care in
California" claims that HSAs "put the entire health system at
risk" because they are attractive to high-income people and the
young and healthy. It ignores evidence that they are even more
attractive to low-income and older people. Assurant Health found
that 29% of its HSA policyholders had incomes under $50,000, 57%
were older than 40, 73% were families with children, and 37% were
previously uninsured. While Garamendi complains that "insurance
coverage is shrinking while premiums are increasing," he
recommends measures that will increase premiums further, such as
mandated prescription drug coverage. The report also claims that
financial disincentives in consumer-directed plans will cause
people to forgo early treatment. In fact, HSA holders were as or
more likely to receive preventive care, saying they would "save
money in the long run." (See Galen Institute Health Policy
Matters 8/5/05 and David Hogberg, American
"Free" Software Quite Costly
Saying that lack of electronic records is one of the biggest
barriers to quality improvements, Medicare announced its plans to
give away the Vista software used in VA facilities, which is
written in MUMPS.
Reputedly, Vista is hard to establish and maintain, and
installation costs at least $10,000 (NY Times 7/21/05).
Many needed add-ons to the basic system are not free.
Medicare Modernization Boosts Managed Care
Although only 10% of Medicare beneficiaries have enrolled in
an HMO, to take advantage of the MMA's prescription drug benefit
they will either have to join an HMO (a "Medicare Advantage"
plan) or a Prescription Drug Plan. Thus, most Medicare patients
will have to deal with some form of managed care, at least for
their drugs. Only drugs on the plan's formulary will be
available, and physicians will have to deal with numerous
different formularies (AzMed June 2005).
England "Wired" for IT
English primary care practices are "wired" because the
pharmaceutical industry years ago offered free hardware and
software in return for access to anonymized prescribing
information. In the U.S., "innovative financing" for IT has been
inhibited by concerns about Stark self-referral rules (Don
Detmer, M.D., American Medical Informatics Assn, to Ways and
Means). A safe harbor for IT financing has been proposed.
Connecting for Health (CFH), the world's biggest civil IT
project, is intended to link 31,500 GPs in Britain to 300
hospitals and change the way almost 1.4 million NHS employees do
their jobs. If CFH can't expand patient choice and shorten
waiting lists, it will be seen as a major failure for Prime
Minister Tony Blair.
Early hyperbole has given way to pessimism as some doctors
"are balking at being asked to recast their clinical records in a
uniform and, as they see it, time-consuming way." They are being
asked to "go from a solipsistic to communitarian environment."
Many fear that patient records will not be secure
AAPS Urges Caution on NHIN
In a July 27 press
release, AAPS warned Congress that "speeding on the
information superhighway will result in a medical pile-up." In
written testimony to the Ways and Means Committee, AAPS stated
that "forcing technology on medicine by top-down central planning
risks an end to advancements in information technology." Congress
should "allow the technology to evolve, and be voluntarily
adopted as it becomes useful."
Most importantly, AAPS objected to having patients'
confidential records subjected to "sneak-a-peek" access by
persons unknown to the patient, and without consent.
Can IT Bridge the "Quality Chasm"?
Extravagant promises about the NHIN find little actual
support in the medical literature:
"Most studies [on the reliability of peer assessments] found
...that physician agreement regarding quality of care is only
slightly better than the level expected by chance" (JAMA
"[C]onsiderable danger arises from...the use of [data on
individual physicians] to include or exclude their services from
insurance coverage...because the samples are too small and
adjustment for severity of illness and socioeconomic status of
...patients is inadequate" (N Engl J Med 2004:350:2409-
"Few studies of [Computer-Based Clinical Decision Support
Systems]...have assessed patient outcomes and only a small
proportion of these have found benefits" (JAMA 1998:
"High rates of clinically significant ADEs [adverse drug
events], ordering errors, and unrecognized ADEs were noted at a
VA hospital that had adopted a wide range of computer
technologies and personnel strategies designed to improve
medication safety" (Arch Intern Med 2005;165:1111-1116).
Sept 21-24, 2005. 62nd annual meeting, Arlington, VA.
Oct 22, 2005. SEPP meeting in Pittsburgh, www.sepp.net.
Sept 13-16, 2006. 63rd annual meeting, Phoenix, AZ.
Top Canadian Court Stays Ruling
On June 9, the Supreme Court of Canada struck down Quebec's
ban on private medical insurance (AAPS News, July 2005). Arguing that the decision could
cause chaos in the delivery of medical services in the province,
the Quebec and federal governments asked for an 18-month delay in
implementation. The Court suspended the ruling for 12 months.
"It's almost as though there's a hidden constitution such
that any ruling that goes against socialism is automatically
suspended," stated AAPS Director Lawrence Huntoon, M.D. "You can
see what socialists fear most freedom and the ability of people
to make their own decisions. Allowing individuals to receive
private medical care won't cause chaos, but socialists fear it
will cause a loss of their control."
The only reason for maintaining the prohibition on private
medicine, writes columnist Mark Steyn, is "reluctance to let go
of the bedrock principle equality of ***, universal lack of
access...." As one reader of the National Post had
written, "one of the great virtues of socialized medicine was the
way prominent wealthy influential figures such as Steyn and the
prime minister were forced to use the same system as everybody
else...." But this is meaningless in practice.
"I vote with my feet and drive south," replies Steyn. The
money that Canadians spend on private medical care in Buffalo
could be keeping Canadian doctors and nurses at home.
Peter MacKay, in Steyn's view the leading contender for the
position of next Conservative loser, said the Supreme Court
decision had "brought medicare into peril" and would leave us
with a "10-tier system of private-public health care."
While Sweden, Holland, France, and "the rest of the EU's
impeccably progressive pantywaist jurisdictions" permit private
medicine, even nominal conservatives in Canada feel the need to
prostrate themselves before the Liberal Party orthodoxy of "no
tier health care," Steyn observes.
"I will never compromise public health insurance...because
it is the only system that most Canadian families, including my
own family, have ever used," proclaimed Stephen Harper.
"Well, yes, and the same could have been said of feudalism
in tsarist Russia," notes Steyn (westernstandard.ca
AAPS Objects to New System of Records (SOR)
The Dept of HHS has proposed to establish the HIPAA
Information Tracking System (HITS) to store the results of
investigations by the Office of E-Health Standards and Services
(OESS) of alleged violations of the Transactions and Codes Sets,
Security, and Unique Identifier provisions of HIPAA. The
information will also be used to combat fraud and abuse.
"Due to investigatory activities, CMS is exempting this
system from the notification, access, correction, and amendment
provisions of the Privacy Act of 1974."
In comments on the proposed SOR, 70 F.R. 38944, AAPS raised
three objections: (1) Complaints about a noncovered entity should
never be entered into the SOR because HHS lacks jurisdiction. (2)
It is baseless for SOR to maintain information about any entity
for 25 years, five times longer than the statute of limitation
for most crimes. (3) There are insufficient safeguards against
access to information by "agency contractors or consultants."
AAPS General Counsel Andrew Schlafly wrote:
Such contractors or consultants often harass
physicians improperly in connection with financial
disputes, and unfettered access by such contractors or
consultants to this complaint information would be
improper and without statutory justification. At a
minimum the physician should receive prior notice and a
meaningful opportunity to object prior to releasing
this information to his adversary.
Read full comments here.
Fraud Control Efforts Intensified
California Attorney General Bill Lockyer is offering a
$1,000 reward to anyone providing information that leads to the
conviction of a provider for Medicaid fraud. "Condo commandos"
can cash in without going to the trouble of building a
whistleblower suit. Officials sent more than 3.9 million flyers
to households with a Medi-Cal recipient, and 50,000 flyers for
providers to post in their waiting rooms. There is an on-line
complaint form at www.ag.ca.gov/bmfea.
The AG is targeting schemes for offering low-income beneficiaries
inducements, such as children's shoes, for undergoing an
unnecessary medical procedure.
Such incentives will cause patients who don't understand
their bills to blow things out of proportion, subjecting many
physicians to unwarranted investigations or audits, warned
attorney Gabe Imperato of Florida.
At least four other states are considering similar programs
(Medicare Compliance Alert 7/11/05).
Other bounty hunters deployed by CMS include a new group of
Recovery Audit Contractors (RACs) whose sole revenue is a
contingency fee from recoveries based on miscoding, unnecessary
services, or incorrect payment amounts. A 3-year pilot project
has been launched in California, New York, and Florida
State Medicaid Fraud Control Units (MFCUs) are under
pressure to garner enough overpayments or fines to cover their
costs; 14 MFCUs failed to break even. To help Washington's
laggard MFCU, which returned only 65 cents on the dollar, the
state health department is allowing MFCU to access the data
mining database it created with an outside contractor (ibid.).
To keep providers from gaming the system by removing claims
from scrutiny, CMS has ordered carriers to keep copies of all
claims that are deleted or voided. Frequent deletions will be a
red flag for an audit, so providers are urged to double-check
claims for accuracy before submission (ibid.)
One bright spot is the reversal of Arthur Andersen's
conviction too late to save his firm. This eases fears of
destroying old documents as long as one follows a routine
retention policy and is not under investigation, stated Vickie
Yates Brown (MCA 6/13/05). Most adult records need to be
kept 5 years; HIPAA compliance-related records, 6 years; and
audit-related information, 7 years.
Chief CMS Medical Officer Suspended
Sean Tunis, M.D., named Chief Medical Officer of CMS in
2003, has had his medical license suspended. He has also been
fined $20,000 and must complete 35 hours of CME before he can
practice medicine again. Based on an anonymous letter, the
Maryland Board alleged that Dr. Tunis had falsified CME
certificates for 60 hours of credit, using government supplies,
and had submitted them with an application for reappointment. Dr.
Tunis admitted to fabricating the certificates but said he was
confident he had simply been reconstructing the records for
credits he had legitimately obtained (MD Net Guide
Dueling Crises. You know it's a problem when you see a
cartoon like this in the Buffalo News: Under a sign
reading "New York, the Vampire State," Count Dracula
("Albany") is holding the damsel's body ("Taxpayer") in his arms.
She's holding a note that reads "Medicaid costs."
I predict that Medicaid will encounter devastating financial
problems before Medicare does. The burden of Medicaid taxes is
oppressive, especially in New York, which has promised the most
generous welfare benefits in the nation. Medicaid is the largest
line item in every county budget in the state. Unfunded state
mandates have bled county taxpayers dry. Farmers are complaining
that they bear a disproportionate burden of property taxes
because of their occupation. Erie County has spent so much on
Medicaid that it cannot afford toilet paper for the county office
building. Proctor & Gamble staved off an immediate crisis by
donating a truckload of its new Charmin MegaRoll, a $16,000
value. Additional donations will be welcomed (Buffalo
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY
A New Bureaucracy. Call it the Dept of Officially
Compelled Charity. Its motto would be "charity or jail," and its
job would be to maintain an address to which all "health care
providers" send bills for uncompensated care, provided that they
have followed all federal and state affirmative action,
contracting, hiring, and licensing regulations. The DOCCC would
then root through the bills and pay whatever it feels like.
Linda Gorman, Independence Institute, Englewood, CO
Surviving on TennCare. Participating doctors learned
the art of the "churn." This involves stacking the practice with
relatively healthy patients and bringing them back every few
months for 5-minute checks. The system sets up disincentives to
caring for the truly sick and incentives for providing a lot of
Robert Berry, M.D., Greeneville, TN
Is Medical Care a Public Good? In economics jargon, a
public good is one that cannot or will not be produced for a
profit, since it has large externalities. An externality exists
when someone makes a decision that benefits him personally but
creates a cost for someone else. Medical services have been
turned into a public good by government policy that crowds out a
consumer market and distorts supply and demand. Eighty percent of
Americans now make medical decisions that benefit them personally
but increase costs for others. Enjoy a risky lifestyle and expect
someone else to pay for your surgery.
Craig Cantoni, Scottsdale, AZ
Where Does It End? Politicians have no stopping place
when it comes to raiding your wallet to finance their schemes.
Since they don't yet have 100% of our money, the day of reckoning
can be postponed, perhaps until after they have retired from
public life. They can buy more time with rationing and cost-
shifting. You'd think they might have learned something from the
Tennessee and other Medicaid experiments.
Joseph Lee Pugh, Diamondhead, MS
Mandated Benefits. The Health Insurance Association of
America produced a study of the effects of mandated benefits on
coverage (membership.hiaa.org/pdfs/jensenrpt.pdf), showing that as many as one
in four uninsured Americans lacked benefits because of mandates.
Blue Cross/Blue Shield once did an annual survey on mandates, but
since it decided to oppose Association Health Plans, it has been
characterizing mandates as "important consumer protections." Its
anti-mandate material has become hard to find.
Greg Scandlen, Hagerstown, MD
IT in the Field. I receive electronic medical records
from several states, from the local Veterans Administration
hospital and from a few private physicians, mostly in large
groups. Universally, these records are almost impossible to
interpret well and are difficult and time-consuming to read. They
are obviously directed toward maximizing payment, not toward
communicating useful medical information clearly and succinctly.
My physician friends who use EMRs complain that they are time-
consuming and clumsy. My patients who see doctors who use EMRs
complain that the doctor spends all his time punching data into
the computer rather than paying attention to their concerns.
Anthony M. Perry, M.D., Scranton, PA
NHIN Another Blow to Patient Privacy. We have seen
progressive loss of patient privacy. I am shocked at requests I
receive for patient records on immunization without the
patient/guardian's release, on the basis that it has been
determined that "giving this information constitutes no risk to
the patient." But personal information is as much a part of a
person's possessions as an arm, a car, or a skill. The National
Health Information Network must be absolutely rejected.
M. Kelly Sutton, M.D., Prescott, AZ
Get the Medical Record from the Original Source and Read
It. It's amazing how many people acquire thick medical charts
without ever having seen a real doctor to make the diagnosis. And
how many records have been edited by patients who "lost" the note
about the drug abuse history.
Russell W. Faria, D.O., Newport, OR
Legislative AlertCongressional GOP's Health Care
Congress is preparing several major health care bills.
Senate Majority Leader Bill Frist has unveiled the Healthy
America Act of 2005 (S.4), which includes major medical
malpractice reform, information technology and patient safety
provisions, and a health care tax credit that includes the
expansion of health savings accounts (HSAs) to low-income workers
in small businesses. The Senate is expected to take up the bill
after the August recess. Meanwhile the House of Representatives
is on a faster track. The House bills reflect Bush Administration
health policy priorities; however, the House is not preparing to
act on the Administration's tax credit proposals. Medicare,
except possibly for revisiting physician payment, is also not on
the table. GOP leaders are afraid that if they open up the big
Medicare drug benefit, all Hell will break loose.
Association Health Plans. Rep. Sam Johnson (R-
TX) has proposed legislation (H.R. 525) establishing AHPs. This
would enable small businesses to join together to secure
economies of scale and pool resources for health insurance. On
July 25, the bill passed the House 263 to 165. Like many Bush
initiatives, it faces an uncertain future in the Senate.
The large margin of the House victory was impressive, given
the intensity of opposition among liberal organizations and think
tanks. The Georgetown Health Policy Institute described the
Johnson bill as a "license to steal" because it would allow "scam
artists" to bypass state regulations, just like self-insured
firms under ERISA, which are governed by rules issued by the
Department of Labor. This is one of those odd cases in which the
Left favors state over federal regulation.
There is no question that AHPs would improve coverage
options for small businesses, many of which are forced to operate
within the framework of a dysfunctional state small-group
insurance system. In Maryland, for example, small businesses are
required to buy a state-approved comprehensive health benefit
package, with inflexible underwriting and a large number of
mandates, within a "market" dominated by two carriers who carve
up 94% of the total covered lives.
The weakness of the approach is that the proposed
associations are employment based, and thus they tend to
reinforce the current system. While the proposal is clearly
popular among small business organizations and trade
associations, AHPs are not, in themselves, a direct and decisive
step toward consumer-based medical coverage.
There is a way to make association plans work better. That
is to include associations outside the workplace, including those
sponsored by unions, trade associations, or ethnic or faith-based
organizations. Such associations could be broadly available to
employees in small firms, and could be financed through defined-
contribution programs. The options could include HSAs and other
innovative arrangements. Indeed, according to the latest data
from eHealth Insurance, the nation's largest internet broker of
insurance coverage, HSA plans continue to grow in number and are
increasingly affordable. In the first half of 2005, 62.6% of HSA
purchasers paid less than $100 per month for their insurance
plans, and nearly 80% have prescription drug coverage.
Another entity that could emerge through an expanded version
of AHPs is the ethical or faith-based health plan. These do not
yet exist in any number. There is one such plan in the Federal
Employees Health Benefits Program (FEHBP) that is sponsored by
the Order of the Sisters of St. Francis, a Catholic organization,
and it is likely that more such plans will arise. A broadened
version of individual membership association plans would enable
religious organizations to promote insurance policies compatible
with the moral convictions of millions of Americans. Health
officials would have to be directly responsible to individuals in
addressing the ethical application of medical technologies. While
conservatives often focus on the role of conscience clauses in
protecting the rights of doctors, hospital officials, and other
medical professionals, the change in the insurance market to
enable persons to buy insurance that reflects their personal
values would be an enormous step forward. Perhaps the Senate can
take this up, if the House does not amend the legislation to
incorporate this change.
Interstate Commerce in Health Insurance. Rep.
John Shaddeg (R-AZ) has authored an innovative change in the
health insurance markets: the creation of interstate commerce,
enabling purchase of health insurance across state lines. This is
a crucial element in the effort to control medical costs through
market forces. At present, a typical health insurance plan for a
family of four could be priced at $172 per month in Kansas or
Missouri, while a similar plan would cost $840 per month in New
York City (Wall St J 7/25/05). New York, like New Jersey
and several other states, requires guaranteed issuance of
coverage to all persons, plus community rating, which means that
all persons regardless of their health status are to pay the same
rates. There are more than 1,800 mandated benefits nationally,
with some states, like Maryland and Minnesota, off the proverbial
charts. According to the Council for Affordable Health Insurance,
Minnesota has 61 and Maryland has 58.
The Shadegg proposal (H.R. 2355) was amended slightly in the
House Energy and Commerce Committee, but was pulled from floor
consideration in late July because of growing opposition among
state regulators. It is likely to be put back on the active
Congressional calendar after the August recess.
Rep. Charles Norwood (R-FL), a champion of the aborted
"patients bill of rights" legislation, which would have created a
massive federal regulatory regime, emerged as a Republican leader
of those opposing the Shadegg bill. Norwood has been joined by
members of the congressional delegations of New York and New
Jersey, where state regulators impose heavy, costly sets of rules
on health insurance, including lots of mandated benefits.
Moreover, Blue Cross and Blue Shield representatives have also
come out strongly against the proposal. During the July 24 House
Energy and Commerce Committee mark-up, Shadegg agreed to address
some of Norwood's main concerns and won approval of an amendment
that would direct the Government Accountability Office (GAO) to
do a 5-year study of premium prices, the uninsured, and persons
with pre-existing medical conditions in all 50 states. Shadegg
also agreed to delay, for one year, the effective date of the
legislation, allowing states to review their regulations and
mandates. House Democrats proposed dozens of amendments, which
all failed on party-line votes. The measures were a transparent
attempt to gut the legislation: requirements that state
legislatures "OK" out-of-state insurers, that out-of-state
policies conform to all of the state mandates, and that the
insurance commissioner certify that an out-of-state carrier would
not offer a policy harmful to citizens of the state, plus a
series of federal benefit mandates.
The Shadegg bill has the potential to make health insurance
more affordable for millions of Americans. As The Wall Street
Journal noted, the current arrangement, which forces
millions of families into an all-or-nothing option buy a
Cadillac plan or go bare is an unjust public policy. As The
Journal also editorialized, "It's no exaggeration to say
that this could turn out to be the most humane and consequential
domestic achievement of the Bush years."
Expansion of Health Care Pooling. The House is
also considering an extension of federal funding for health
insurance pooling demonstrations and programs, including high-
risk pooling, also based on Rep. Shadegg's legislation (H.R.
3204). High-risk pooling mechanisms are another way to strengthen
the safety net for persons, often very sick persons, who cannot
get or afford medical coverage at standard market rates.
A Tax Cut for Medical Care?
While the Senate, and possibly the House, could still
consider a tax-credit proposal this year, the President's
Commission on Tax Reform, co-chaired by former Senators John
Breaux of Louisiana and Connie Mack of Florida, is reportedly
examining a more fundamental overhaul of the tax treatment of
Reformers want big changes. Employers should continue to
deduct company health benefits, just as they do wages, as a
regular business expense. But on the treatment of individual tax
relief for health insurance, there is a growing consensus among
economists that the current tax exclusion for employer-based
health insurance should be eliminated in favor of a universal
health care tax credit system. Short of abolishing the exclusion,
Congress should cap it at some equitable level. In sharp contrast
to current policy, Congress could channel more assistance to
Americans who need help purchasing medical coverage because of
lower incomes or higher medical costs.
Health and Human Services (HHS) Secretary Leavitt has
announced his appointments to the Administration's Medicaid
Commission. It includes some conservative stars, such as Kay
Coles James, former Director of the Office of Personnel
Management (OPM), who oversaw the FEHBP and included HSA plans in
the program; Grace Marie Turner, President of the free-market
Galen Institute; and Dr. Robert Helms, Health Policy Director of
the American Enterprise Institute. House and Senate Democrats
attacked the process, called the Medicaid Commission a "sham"
panel, and said that they would refuse to cooperate or accept any
positions on the Commission. The Commission has to find a way to
reduce spending by $10 billion over 5 years, and outline some
policy recommendations for long-term Medicaid reform.
The Commission has a big task. Medicaid has grown to cover a
broad and very diverse group of individuals. It provides care for
more than 53 million children, parents, pregnant women, disabled,
elderly, and even childless adults, plus long-term care to
Americans who previously have been middle class. Moreover, it is
suffering from serious rationing and quality problems. For
example, a 2002 Medicare Payment Advisory Commission (Medpac)
survey found that "approximately 40 percent of physicians
restricted access for Medicaid patients " Not surprisingly,
Medicaid is not a popular option among the uninsured. If people
are given a choice, Commonwealth Fund survey found that 65% of
Americans would prefer private coverage, and only 10% would want
Medicaid or Medicare.
Medicaid presents an enormous financial problem as States,
most of which must maintain a balanced budget, are facing
worsening fiscal problems. Medicaid obligations are consuming a
far greater portion of state budgets and squeezing out other
priorities. For the first time, as the National Governors
Association recently reported, Medicaid has surpassed education
as the largest part of state budgets. Like all entitlements,
Medicaid is becoming a challenge for Congress, too, with short
and long-term federal budget issues. For Fiscal Year 2006,
Medicaid is projected to cost the federal government $193
billion, and Congress expects to see growth rates ranging from 7
to 9% between 2006 and 2014.
An Agenda for Big Change?
What could the Commission recommend? Perhaps the first thing
is to separate health and welfare spending. Medical services and
social services are not the same, and much of what is funded by
the Medicaid program has nothing to do with medical care.
Congress and state legislators and administrators should start to
make administrative and budgetary distinctions. One option at the
federal level is for HHS to recognize this crucial distinction
and start to move Medicaid long-term care into Administration for
Children and Families, a welfare agency, and out of the Centers
for Medicare and Medicaid Services (CMS). While moving around
boxes on organization charts is normally a waste of time, this
may not be. Congress, state legislators, and taxpayers must
understand that Medicaid is fundamentally a welfare program, and
should be treated as such, rather than as an afterthought to
Likewise, the Commission could encourage baby boomers to
purchase private long-term care insurance, and penalize those who
refuse to do so and throw themselves on the good will and
generosity of the taxpayers. Currently, 70% of Medicaid money is
going to nursing facilities. Middle-class Americans are not
planning for their needs, and they are spending down their assets
and ending up as wards of the state. Medicaid, in other words, is
becoming another middle-class entitlement. Bad idea. The
relentless expansion of middle-class entitlements will shred the
safety net for the poor. So, the Commission should show some
gumption and call for limiting them.
It's politically easy to take on spending for small groups.
But to take on the big middle-class entitlements, that takes
Robert Moffit is Director, the Center for Health
Policy Studies at the Heritage Foundation, Washington,