1601 N. Tucson Blvd. Suite 9
Tucson, AZ 85716-3450
Phone: (800) 635-1196
Hotline: (800) 419-4777
Association of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto

Volume 52, No. 1 January 1996


``This plan will be declared dead many times,'' said Ira Magaziner.

Congress killed the Health Security Act. But the dough in Hillary's kitchen is rising again and coming out the sleeve. The yeast (a dedicated cadre), with a little bit of sugar (grants from tax-exempt organizations such as the Robert Wood Johnson Foundation), is doing its work under cover.

The fifty States have been called the ``laboratories of democracy.'' Some of these kitchens are cooking up schemes from recipes developed by the Clinton Health Care Task Force. Ingredients include Medicaid waivers, school-based clinics, ``outcome-based education,'' ``outcome-based practice guidelines,'' and computerized information systems.

Attempts to enact much of the Clinton Care program at the state level succeeded in Washington, Kentucky, and Minnesota. (In Washington, most of the law was later repealed, largely through the efforts of the state chapter of AAPS.) Kentucky and Minnesota showed a similar pattern (see AAPS News, Jan 1995) of RWJF grants, contingent upon passage of correct legislation.

Minnesota implemented Option 3, outlined in Health Care Task Force Documents (e.g. ``TOLLSTAG'' on Disk 017), or ``Kids First Coverage.'' The Task Force envisioned that the national version would be first implemented on January 1, 1995, with ``phase-in by population, starting with children,'' and universal coverage achieved by January 1, 2000.

The Minnesota version derived from a 1987 Children's Defense Fund program for poor children, costing $1.3 million per year, and expanded into a $1 billion/yr, mandatory managed-care program for all Minnesotans. (A detailed analysis of the Minnesota Health Reform Act and the role of the RWJF-available soon on the web site-was prepared for the Medical Liberties Defense Fund by Kent Masterson Brown).

As Task Force documents showed, ``Kids First is really a precursor to the new system.'' It could be implemented through Medicaid or another plan. The Task Force advocated school-based health services, built upon ``the highly successful models sponsored by the Robert Wood Johnson Foundation.'' The school- based clinics are a ``point of access to comprehensive systems.'' About 60% of children who receive services from a school-based clinic located near a health center eventually become health- center users.

The latest pilot program is now underway in Pennsylvania- without so much as a by-your-leave from the legislature. Involved officials have been less than cooperative when legislators try to find out what is going on.

``The more questions we ask, the harder it is to get information,'' stated Rep. Sam Rohrer.

HillaryCare is coming in as an educational program. The Department of Education is receiving ``free money'' by billing Medicaid directly for ``mental health'' services provided in a school setting. Eligibility for Medicaid has been extended to any child who is ``learning disabled,'' including anyone who does not meet the goals of ``Outcome-Based Education.''

The program bypassed the normal regulatory review process and was put in place on the basis of a memorandum of understanding with the governor. RWJF was a key player.

Parental consent is not required to perform surveys; although these ask intrusive psychological questions, they are classified as ``education.'' A cabal of lawyers devised a ``consent'' process for the school-based clinic. If a permission slip is sent home and placed in the student's file, and a refusal is not returned within 7 days, treatment is ``authorized.''

This really constitutes notification rather than consent, Mr. Rohrer stated, but there is not even a requirement to show that the form actually arrived at the student's home. Parents might never find out that their child was undergoing psychotherapy, as Medicaid does not sent them an Explanation of Benefits form.

Treatment may be prescribed, according to Mr. Rohrer, not only for students who are ``at risk'' for substance abuse, suicide, antisocial behavior, etc., but also for those who are ``at risk of being at risk.''

Pennsylvania provides 45% matching funds for Medicaid. Mr. Rohrer noted that one line item on the budget mysteriously increased from $10 million in 1994 to $65 million.

Mr. Rohrer is holding hearings and has introduced House Bill 2105, the Pennsylvania Education Restoration Act, which would prohibit treatment without informed written consent and would protect the confidentiality of student records.

H.B. 2105-and publicity-are major threats to the success of what has been called a ``cookie-cutter children recipe.''

Another potent threat is posed by independent physicians. There is a concurrent drive (television ads, etc.) to expand the power of managed-care networks, which, just coincidentally, might be the providers for school-based clinics.

That's probably why there is such a furor in Bucks County, near Philadelphia, over a proposal by a union negotiator for teachers at a small technical high school. Ed Moffit suggested that the school board could save money for taxpayers while offering a better medical plan for teachers: medical savings accounts. Instead of applauding the idea, the administrators were furious. They refused to release the health census information needed to seek quotes from insurers.

``Comprehensiveness'' is not just a buzz-word for social engineering schemes. It is essential for assuring ``cooperation'' with the goals of the program, and MSAs would defeat it.

Secrecy and belief in inevitability are other essentials. Blackbirds who don't want to be baked into the pie had better sing now about the message of freedom and independence.

AAPS Information, Please...

World-Wide Web page address:

CompuServe: AAPS files are in the Politics forum, Health Care Section, or the Issues forum, Rush Limbaugh section.

FAX: Current documents are available from our FAX-on- demand service, (703)716-3404. Many older documents can be obtained for a charge from the Heartland Institute's PolicyFax service, (510)208-8000.

FAX alert network: To receive periodic Action Alerts, send us your FAX number. The FAX machine must be capable of picking up automatically. If you think you should be on the network and have not recently received an Alert, be sure that we have your correct number. And please inform us if your area code has changed! Our FAX is (520)326-3529.

Medi-Cal HMOs Won't Let Go

Several public-interest law firms have filed suit against the California Department of Health Services (DHS), seeking enforcement of the patient's right to leave the program on request (Rodriguez v. Belshe, Calif SuperCt(Los Angeles), No. BS 035856, filed 9/27/95). Hurdles to disenrollment in managed care allegedly include refusal to respond to requests for disenrollment forms; placing Medi-Cal recipients on endless ``hold'' when they telephone for disenrollment forms; ``losing'' forms instead of sending them to DHS; failing to have bilingual staff or answering machine messages; and requiring recipients to make an appointment for formal plan grievance procedures prior to disenrollment (BNA's Medicare Report 10/6/95).

Doctor Shortage in Kentucky?

Thanks to ``health care reform,'' Kentucky hospitals are having trouble filling vacancies. And while established physicians are hesitant to leave because of the large investment they have in their practices, new doctors are not eager to stay. Surveys done by the University of Kentucky and by The Family Foundation in Lexington showed that only 19 to 20% of new graduates intended to stay, compared with 43% in prior years. One reason: the 2% tax on gross income, which may amount to 6% on the personal income of physicians with high office overhead. On the average, taxicab drivers are paid more for bringing a patient to the office than physicians are paid for medical treatment, including lab tests (Liberty Standard 10/95).

Guidelines Used Successfully by 13%

Only 20% of medical organizations surveyed by HHS reported using clinical practice guidelines produced by the federal government, and 63% of the users had difficulty with them. Only 8% of the users made an attempt to measure their impact. The most common difficulty was uncertainty about how to use the guideline; second most common was resistance by clinicians.

In 1994, the Agency for Health Care Policy and Research (AHCPR) spent $5 million of its $154 million appropriation on guideline development and $10 on distribution and evaluation.

Though no benchmark for successful use of guidelines has been established, AHCPR considers the 32% of respondents who reported they had used or planned to use a guideline to be ``extremely encouraging'' (BNA's HCPR 10/30/95).

CLIA Reduces Lab Testing

About two thirds of physician office laboratories (POLs) have reduced or eliminated on-site lab testing due to additional procedures and costs associated with the Clinical Laboratory Improvement Act of 1988, according to a survey conducted by Mathematica Policy Research, Inc. The survey contradicts studies done by the federal government that showed no decrease in tests done by POLs.

``The law has set back testing about 20 or 30 years by preventing POLs from taking advantage of the latest technology,'' stated M. Edward Keenan, vice president of the Amer. Academy of Pediatrics (BNA's Medicare Report 10/13/95). Some large companies have abruptly changed course and found new markets for their diagnostic kits in European and Third World countries, according to a Heritage Foundation study.

Although CLIA has added an estimated $1.3 to $2.1 billion to the nation's medical bill, an exemption for POLs was dropped from Budget Reconciliation under the Byrd rule because CBO calculated that no deficit reduction would result.

New Math

Under the GOP budget plan, Medicare per capita spending would rise from $4,800 in 1995 to $6,700 in 2002, a 40% increase over 7 years. Critics argue that it's unfair to ``cut'' Medicare. By similar math, we could celebrate a middle-class tax ``drop'' from $4,966 to $6,994 (Budget Watch 11/1/95).

Government Breaks Law to Avoid Default

When the government shut down nonessential services on November 15, sending around 800,000 employees home, it made interest payments to creditors on time. To do this, Treasury Secretary Rubin illegally used assets that do not belong to the Treasury Department: he raided the pension funds of federal employees. This shows what backs the ``full faith and credit'' of the US government.

According to Martin Weiss, this is the first time in history that high government officials actually considered default as a viable alternative. And though Wall Street seems relieved about the agreement to balance the budget in 7 years, the agreement is based on the assumption that nothing will go wrong during that time. Weiss points out that the US has its most highly leveraged economy in history. Total interest-bearing debts in the US are up to $17 trillion; in addition, there are at least $20 trillion in obligations that do not bear interest (such as guarantees on bank deposits). While focused on the deficit, no one is speaking of lowering the national debt (Safe Money Report 11/17/95), which has passed $4.752 trillion.

The Law of the Land

Article XIV, Section 4 (ratified July 9, 1868):

``The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrections or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss of emancipation of any slave; but all such debts, obligations, and claims shall be held illegal and void.''

Confidentiality Data: Essential to ``Reform''

Key participants in the Clinton Task Force on Health Care Reform included corporations (e.g. CIS, EDS, and WEDI) offering information systems, which hoped to set the standards and win the contracts for the extensive data collection required by the Health Security Act. The objectives were much broader than speeding up claims submission and payment.

The Minnesota model establishes extensive data collection initiatives, ``including the creation of outcome-based practice parameters to provide an absolute defense against malpractice allegations, and consolidation of existing data,'' according to the Medical Liberties Defense Fund report.

Under the HealthRight program, the Health Care Analysis Unit was authorized to require providers and carriers to provide patient health records, with unique patient identification numbers. The Unit was also required to negotiate with private organizations such as United HealthCare and ``establish linkages'' with them. Data collected on individuals could be released to ``researchers'' (a class not limited by definition) or to purchasers of health-care services.

The commissioner can seek funding from private sources, which acquire a property right in the data. In Pennsylvania, where the governor signed a grant agreement similar to that in Minnesota, the Foundation acquires an irrevocable royalty-free license and access to all the medical data, which they could use or sell to third parties, according to Rep. Sam Rohrer.

Uses of Minnesota data include ``educational efforts'' regarding practice parameters; measuring physicians' performance against ``outcome-based'' parameters for purposes of licensure and staff privileges; and collection of the provider tax.

In Pennsylvania, mental health problems are included in the educational records to which the federal government has full access, and very detailed information can be sent to private entities without parental knowledge.

Medical Records Confidentiality Act of 1995

Senators Bennett, Leahy, Kassebaum, Kennedy, Frist, Simon, Hatch, Gregg, Stevens, Jeffords, Kohl, Daschle, and Feingold have introduced S. 1360, a bipartisan bill ``to ensure personal privacy with respect to medical records and health care-related information.''

While the bill is possibly well-intentioned to protect patients against abuse of information in rapidly proliferating electronic networks, the American Psychiatric Association stated that it could ``codify and legitimize release and transmission for profit of an individual person's medical record without that patient's consent'' (written testimony to the Senate Labor and Human Resources Committee, Nov 17, 1995).

The APA fears that patients will decide not to seek care if they fear damaging disclosures of personal information. Already, patients refrain from filing insurance claims for this reason. The creation of a computerized information network ``threatens the doctor/patient relationship by jeopardizing, in a global fashion, the confidentiality of that relationship.''

In oral testimony, Denise Nagel, M.D., warned that the bill authorizes the creation of databases without the patient's knowledge or consent; allows police broad authority to search databases directly (without even knowing a patient's name), instead of obtaining a specific record from the patient's doctor; preempts all common law and existing state statutes; and sets a ceiling rather than a floor on medical confidentiality.

Senator Bennett himself said that he hoped his bill would ``head off the cacophony of state laws that hinder the creation of large regional or national medical data bases.'' George Annas, health law professor at Boston Univ, called the bill the ``data bank efficiency act of 1995'' (NY Times 11/15/95).

According to Dr. Nagel, a Maryland law will soon require physicians to report on every patient encounter, even those paid for by the patient. Nothing in S. 1360 would interfere with compulsory data reporting.

One rationale for databases is cost control. Equifax claims that ``we can do for the system what miracle drugs have done for the individual patient.'' But Henry Aaron of the Brookings Institution argues that computerized data bases will drive up medical costs (Beverly Woodward, NY Times 11/15/95).

In written testimony, AAPS stated that the effective protection of patient privacy requires the following:

1. The right of all Americans to seek medical treatment outside of any medical insurance plan in which they may be enrolled should be explicitly guaranteed-especially (but not exclusively) if the plan requires electronic data storage or transmission as a condition of coverage.

2. Electronic data storage or transmission should require the patient's explicit, fully informed consent.

3. No medical professional may be required to perform any act that violates his conscience as a condition of being permitted to practice his profession or specialty.

4. Patients should have a cause of civil action against any individual, including an agent of the government, who causes him harm by the misuse of computerized data. To this end, an electronic data processing system should include a mechanism for tracking all persons who access identifiable records.

[Complete AAPS testimony is available from our FAX-on-demand service. Dial (703)716-3404 and follow the directions.]

Bill Clinton on Privacy and Private Contracting

From a July 31, 1995, letter to Mr. James C. Pyles, Counsel, Coalition for Patient Rights, signed by Bill Clinton:

``I do not advocate prohibiting an individual from purchasing outpatient mental health services directly from a practitioner, even if those services are also provided by the individual's health plan. Neither the Health Security Act nor my current health care proposals are meant to curtail this prerogative. I support the right of patients to receive these services without being compelled to disclose clinical records to health plans or to the government. Further, I endorse the right of practitioners to provide outpatient mental health services directly to individuals without penalty.''


Note to George and Nancy from Walt:

``Draft Boards: I once wrote a paper extolling this model as an example of `democratic administration.' It was nothing of the sort. It was a cynical veneer.

``School Boards: School systems are, in fact, very well insulated from parental control....In practice, local educational bureaucracies and the state educational authorities are in substantial control and the Boards are something of a foil. A great sounding, popular model, is also largely a cynical veneer.''

Box 1796, Interdepartmental Working Group files from National Archives II

Members' Page

A Letter to Bill Clinton. Dear Mr. President: I would like to thank you from the bottom of my heart for shutting down the Federal Government. I think that this is the best idea you have had your entire term....It is my understanding that approximately 40% of federal workers are considered ``nonessential.'' As a physician, who is constantly being told by some undereducated HCFA/Medicare bureaucrat that the government is not going to pay for what it considers to be ``nonessential'' medical services (after they have been provided), I am wondering why it is that we pay ``nonessential'' government bureaucrats at all....
L.R. Huntoon, M.D., Ph.D., Jamestown, NY


A Letter to AMA President Lonnie Bristow (upon reviewing comments to Congress re the AMA Medicare proposal): ...You state: ``We must correct the current competitive disadvantage of physician-sponsored health plans. Physicians are positioned to ultimately balance the cost and quality equation better than any others in the marketplace....A simple program to help stimulate physician plans, much as was done for HMOs in the 1970s, is a necessary direction to pursue.''

This is chilling stuff, sir....Is this a request for a handout? Do you know where this money will come from? Managed care companies owned by corporations are bad enough. Managed care organizations owned by physicians are without doubt the most effective rationing organizations that could possibly exist. A physician who agrees to participate in a corporate managed care company is what I call an appeaser...He is willing to compromise his principles, i.e. to ration to just a few patients, such that his life may go on for the most part undisturbed....If, however, the physician owns the company (which will profit from such care denial) his take per denial will be substantially greater and the incentive to ration will become irresistible. The physician has now become not an appeaser, but a collaborator...An appeaser would say, ``managed care is here to stay. Might as well learn how to get along with it.'' A collaborator would say, ``Hey, let's see if we can get on the inside, maybe form our own rationing company and get rich!'' Coupled with tort reform, this is a recipe for true unaccountability....
G. Keith Smith, M.D., Edmond, OK


Is Anesthesia Essential? I congratulate Dr. Huntoon for his continuing efforts to expose the bungling of the Medicare bureaucracy. I contribute the following example: I received a mailing (two months after the date of publication) from the Kentucky Medicaid program that announced that all the anesthesia codes were being deleted as not payable under the system; payments to anesthesiologists for ``deep lines'' were no longer going to be paid for if performed at the time of surgery; and emergency modifiers were no longer going to be paid for providing emergency services for labor epidurals or C-sections.

About two weeks after I wrote to the Medicaid commissioner, I received a one-page mailing that restored the anesthesia codes, carrying a two-month earlier date....Emergency modifiers for 3:00 a.m. epidurals were not restored....

Apparently the system is now designed to squeeze private practitioners to provide service without adequate payment until they go out of business....

Why do most professional organizations want to cave in, saying, for example, that managed care is inevitable? (They said the same thing about the Clinton Plan)....To AAPS I say: ``you are our only hope.''
Lee A. Balaklaw, M.D., Louisa, KY 

Zoapathy. A new degree, Z.D., is needed for the New Medicine found in managed care. The Doctor of Zoapathy, Willy Savemore, or Dr. Zip as we call him for short (very short on care) has earned his name by signing up for BIG, Inc.'s double reverse incentive plan, whereby he gets paid more if he cares less (i.e. does not show up as an outlier on the printouts) and he gets blacklisted from any and all BIG's if he acts like a real doctor by giving BIG any flak....

BIG has been good at selling its story to the government that by using ``modern business strategies,'' BIG will solve the national medical crisis. The plan involves separating physicians from physicians, separating physicians from patients, and separating physicians and patients from their money....

I believe we should seek help from the SPCA. This is veterinary medicine, zoo care, zoapathy, as we are now dealing with patients whose care is dependent on their owner's decisions, their boss's decisions, and their contract's fine print. The hapless physician had no choice but to sign up with BIG if he wanted to continue to treat those patients. But did he care enough about the patients (before they became pets) to give them sound advice and fair warning before they rolled over, jumped, crawled, and are now begging?

AAPS is making this battle seem feasible to win. If only we would all help fight ignorance and discourage zoapathy, zoapaths, and apathy on the part of patients in the zoo!
Thomas Jackson Tidwell, M.D., Columbus, GA


AAPS Calendar

Jan. 6, 1996. Board of Directors meeting, Harvey Suites Hotel, near Dallas-Ft.Worth airport (all members welcome).
Oct 10-12, 1996. 53rd annual meeting, La Jolla, CA.

Legislative Alert

The Continuing Budget Battle

The rhetorical rubber has hit the policy road. Both the House and Senate have passed an historic measure to balance the federal Budget, embodied in a huge Omnibus Reconciliation Bill. At stake in the debate are the big questions of public policy-the size and kind of government and the future of Medicare and Medicaid, plus the availability of such reforms as Medical Savings Accounts (MSAs).

Meanwhile, November's Presidential veto of the Continuing Resolution (CR)-to keep the federal government operating at current funding levels-briefly shut down some nonessential functions of the federal government. The President's reason for vetoing the CR is that it would retain the Medicare premium contributions among the elderly at the current 31.5% of the cost of the program, rather than 25%, as is supposed to happen under current law, effective next year.

The new CR, passed immediately after Congress and the White House agreed to work out their differences, only lasts until December 15th. If broader budget disagreements are not resolved, there could be another shutdown. There might not be another CR. Instead, Members of Congress could send the President individual appropriations bills for the agencies and departments of government. Another possibility is the passage of ``rifle shot'' Continuing Resolutions, which would keep certain key agencies and functions open for business but leave other agencies unfunded. This was the rhetorical prescription, but not the actual policy, of President Ronald Reagan in the last big budget crises of the 1980s: ``Let's shut down the government and see if anyone notices.''

In preparing for the November shutdown, the Clinton Administration had to make a managerial determination about which employees in the many different federal agencies and departments would be ``essential.'' Remarkably, the Clinton Administration determined that 58% of the employees at the US Department of Health and Human Services (HHS) were ``non-essential'' and thus subject to the furlough.

The Deal

After intense negotiations, the Congressional leadership and the White House agreed to a 7-year commitment to balance the federal budget, the timetable of the ``Contract with America.'' The balanced budget is to be estimated by the Congressional Budget Office (CBO), following ``thorough consultation'' with the Office of Management and Budget (OMB).

Some of the troops in the House majority seemed willing to cave under increasing political pressure. The polls started to show that the Congressional leadership has been taking a public relations beating, especially over Medicare, and that Americans were blaming Gingrich and Co. for the budget impasse, rather than the Clinton team, by a two-to-one margin. At the same time, a much broader sentiment started to take hold of Members that if they caved to the White House on the balanced budget, they would have only made things worse for themselves and would ensure political defeat later on. They would have gone through all of the Sturm and Drang without reaping any of the rewards of the policies they had so publicly committed themselves to in the 1994 election.

Hernando Cortez, when he invaded Mexico in the 16th Century, had the right idea about big adventures into uncharted territories: Best to Burn the Boats. If no retreat is possible, victory is all there is left.

Another odd development was that while polls showed that public opinion was divided and increasingly hostile to the GOP position on the budget, Members of Congress were getting large numbers of calls from people in their own districts to hang in and hold the line for a balanced budget.

The political problem for the Congressional leadership is standard for any majority in Congress. For the President, the battleground is different; he can, and does, speak directly to the American people on his agenda and his priorities, overshooting the Beltway debate, thus defining the terms of the national debate. President Ronald Reagan did it to Tip O'Neill and his Democratic majority in Congress; Clinton is doing it to Speaker Newt Gingrich with similar success. Gingrich, in terms of the poll numbers, has been in the basement.

In the Senate, the same dynamics were at play. Some of the senior Senators were weakening and actually pushing for a ``goal'' of 7 years to balance the budget instead of a hard target, and were even willing to concede the assumptions and calculations to the OMB. The CBO/OMB divide is critical, for the assumptions are quite different. The OMB baseline allows for hundreds of billions in extra federal spending, the main source of federal deficits in the first place.

Senate Majority Whip Trent Lott of Mississippi, House Budget Committee Chairman John Kasich of Ohio, and House Majority Leader Richard Armey of Texas were the chief spine stiffeners in the Congressional leadership. The language of the White House Congressional agreement was drafted by Lott.

The White House had to make sure that the Democratic leadership was willing to go along with any deal; the agreement promises to ``protect veterans and the environment.''

While Clinton won the initial PR battle, the question was whether he could keep it up. Hardly noticed in the general media, except for the November 20th Baltimore Sun, was a weapon that the Republicans had already tested in selected media markets. It was a short ``infomercial'' of Clinton talking about his timetable-rather, his timetables-for balancing the federal budget. In one shot after the other of official footage, Clinton talks about his 5-year commitment to balance the budget, then his 8-year proposal, then his 10-year proposal, his 9-year proposal, and then his concession that it probably could be done in 7 years, etc. The piece was devastating. One White House staffer, quoted in the Baltimore Sun, conceded: ``They are killing us with that ad.''

Coming Crack Up

Whatever the outcome of the budget battle, liberalism may lose. In wild twist, the editorialists of the Washington Post and other liberal outlets recognize this, and are calling upon the White House to get serious on the Budget and come to terms with Congress. The reason: If the Balanced Budget effort fails, including efforts to curb the huge and growing entitlements, then Congress will not have the guts to do it again. But that too comes with a price, a price even liberals can't afford to pay. The price: liberal government, as we know it, won't survive anyway. It's all over. Finished. The reason: The federal entitlements will, at their current pace, gobble up all remaining tax dollars and programs will necessarily shrink or be financed through ever larger chunks of wealth-killing deficit spending. The guarantee: A lower standard of living for working families.

The National Commission on Entitlement Reform, headed up by Senator Bob Kerrey (D-NE) and John Danforth of Missouri said as much, noting that at the current rate of spending, in 16 years Social Security, Medicare, Medicaid and rising interest on the national debt will consume all federal revenue. Former Reagan Administration Director of the Office of Personnel Management Donald J. Devine likewise argued in the November 22, 1995 Washington Times: ``The liberals will not be able to buy more dependent clients to justify their centralized power system that is the welfare state.''

Health Policy Stakes

Under the proposed Balanced Budget Act of 1995, medical savings accounts (MSAs) are afforded equal tax treatment with all other types of employer-provided health insurance. There is to be no federal taxation on deposits into MSAs. Moreover, those who are self-employed may contribute to an MSA and get a 100 % deduction for their contribution. Under the Congressional proposal, money in the account belongs to the worker, who will have complete control over it. Therefore, it is portable; the worker can take it with him if he moves or changes jobs or is fired. The funds can be rolled over from year to year for future medical expenses or for retirement needs, including longterm care insurance. And the interest earned on the MSA is also not subject to taxation.

As the Congressional MSA is structured, it is designed to appeal to both low-income and high-income workers. Under conventional insurance plans now in the private sector, a worker or his family normally have to pay a $250 or $500 deductible with after-tax dollars before being entitled to insurance payment for medical services. For very low-income working people, the $250 or $500 deductible is a stiff payment. But with the MSA, low-income workers effectively have first-dollar coverage for medical expenses.

On Medicare, the final package will have $265 to $270 billion over 7 years in ``savings'' (diminished growth). The Senate has accepted the House language on copayments and deductibles for Part B enrollees; that is, there will be no change in either. The Medicare Part B premium level is set at 31.5% of the cost of the Part B program. This would yield $47 billion in savings over 7 years. Means testing has been adopted.

The House version called for the elimination of the CLIA regulations on doctors offices, authored by Congressman Bill Archer of Texas. But this provision was dropped in the House /Senate conference because of the Senate's so-called Byrd Rule, a procedural restraint on the kinds of items that can be incorporated into a budget reconciliation bill. Likewise, the House anti-trust reform provisions that would apply to physicians in the reformed Medicare system is, at this writing, also in trouble.

MSAs have been a regular point of procedural and policy controversy since the beginning of the budget battle. Under the Medicare reform plan, senior citizens who choose a health plan with a $3,000 deductible could get an MSA deposit up to $2,100. This means that they would pay the first $2,100 out of the MSA for medical services and the next $900 out of pocket. Any senior who spent less than the $2,100 would keep the balance. The private plan would pay all medical expenses greater than $3,000.

The standard argument of the opponents of MSAs is that they would be too attractive to younger and healthier beneficiaries, and thus would aggravate the problem of adverse selection. Indeed, the theory is that many of the older and sicker folks would remain in the traditional Medicare program. CBO has made just such an argument. But the premise that MSAs would only attract younger and healthier beneficiaries may not at all be true; in fact, some of the oldest and sickest beneficiaries may think that they have the most to gain from high-deductible plans. For someone who is likely to incur large physician and hospitalization costs, say $15,000 or more each year, it makes sense to take out a plan with a $3,000 deductible instead of the traditional Medicare 20% copayment requirements, which can quickly add up.

One can never second-guess a market. MSAs need a trial.

MSAs in the Medicare program were in trouble because of the Byrd Rule. They were eliminated under  313(B)(1)(b) of the Budget Act of 1974 because the provision would be construed as increasing the deficit, presumably because of revenue losses from the tax change. But now they are out of trouble. Sheila Burke, Senator Robert Dole's powerful and controversial health policy staffer, has told conservatives that the MSAs would be drafted in such a way as to be compatible with the Byrd rule. The Senate Finance Committee members and staff have thus been redrafting the MSA provision. Senator Paul Coverdell of Georgia has been the point man in effort to restore the Medicare MSAs.

On another front, Senate Members are thinking about an omnibus legislative vehicle to catch all of the Byrd Droppings in one package, if they can't do it through the budget reconciliation process.

It's Official

The development and composition of the giant 1342-page Clinton Health Care Plan, undertaken by the President's Task Force on Health Care Reform, headed by Hillary Rodham Clinton, cost almost $14 million. So says the General Accounting Office, the investigative arm of the Congress, according to an Associated Press Report of November 9, 1995. The GAO found that the biggest bucks went to HHS at $9.1 million. Question for the House (and Senate?): How many members of the federal work force assigned to work with Hillary's team have been designated ``non-essential'' during the recent budget impasse? Just curious.

It seems that the Administration officials, who were prepared to exercise unprecedented central planning authority over one seventh of the national economy, were no better at forecasting the cost of the development of their health plan than they were on the broader financial implications of the plan itself. The President told Congress and the nation on September 22, 1993, that his numbers were checked and rechecked by the best experts and numbers genii this side of Einstein and that the plan was fiscally sound. The CBO disagreed, and in February, 1994, said that the Clinton Plan would add $70 billion to the deficit. Here's a scary thought. The original estimate of the cost of developing the Clinton Plan was put by Administration officials in March 1993 at $100,000. In 1994 testimony before Congress, White House aide Patsy Thomasson upped the estimate to $211,000. Turns out Patsy, and a few others over there-including grownups like Leon Panetta who should know better-were a bit off. And now they want Congress to entrust them with assumptions and scoring on the federal budget?

In 1995, we know the truth.

Return to the home page

click here