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Volume 60, No. 3 March 2004


Having failed to engineer a federal takeover of American medicine early in the Clinton years, the same players are still pursuing the agenda by a different approach.

They are emphasizing the dragons to be slain two that play well in the press are "uninsurance" and "medical errors" rather than the remedy, the latest flavor of socialized medicine.

Their powerful ally is the Institute of Medicine (IOM) of the National Academy of Sciences, a private, nonprofit, self- perpetuating society with a congressional charter to advise the federal government on scientific and technical matters.

Like many other private organizations including the AMA, the IOM is now being leveraged by a grant from the Robert Wood Johnson Foundation (RWJF). The IOM Committee on the Consequences of Uninsurance includes many prominent former members of the Clinton Task Force on Health Care Reform, such as James Mongan of the Massachusetts General Hospital, Shoshanna Sofaer of Baruch College, and Diane Rowland of the Kaiser Family Foundation.

About 18,000 deaths per year, guesstimates the IOM, result from uninsurance. And since "we all pay" for the care of the uninsured, why not insist that everyone prepay?

The purchase of insurance is voluntary, the IOM notes, although many are "involuntarily uninsured" because somebody else didn't buy the insurance for them or because insurers can't or won't sell it at an affordable price.

Involuntary "universal" coverage is the first and fundamental principle of the IOM Committee.

And since voluntary efforts by physicians and medical institutions haven't eliminated errors, more centralized and extensive data collection is needed, with the enforcement of "quality" by withholding payment or excluding "providers." This ties in with Principle #5, "promoting access to high-quality care that is effective, efficient, timely, patient-centered, and equitable." Variations in patient cost-sharing could be used as an incentive for "appropriate service use."

The goal is universal coverage by 2010. Prototype options include major expansions of the bankrupt Medicare, Medicaid, and SCHIP programs, plus refundable tax credits for persons of moderate income; employer and individual mandates; individual mandate (penalty for noncompliance not specified) with refundable tax credits; and of course "single payer" Medicare for all with a "global budget" and the option to purchase supplemental policies for noncovered services.

Since it promotes centralized management of vast quantities of data, what example does the IOM set for scientific analysis? The widely repeated assertion that medical injuries account for 48,000 to 98,000 deaths per year (AAPS News Jan and Apr 2000) is "now looking about as respectable as a Chinese government press release on human rights," states Linda Gorman of the Independent Institute.

The estimate was based on an extrapolation from 173 deaths in the Harvard Medical Practice study to the entire population. Deaths from "medication error" included deaths from drug abuse. Classification of deaths as resulting from error were based solely on the judgment of physicians who reviewed the medical record. As Troyan Brennan, a coauthor of one of the studies on which the IOM report was based, wrote: "There is no evidence that such judgments can be made reliably."

In claiming that uninsurance causes poor health outcomes, even death, the IOM ignores the most important confounding variable: income. A strong correlation between income and health status is seen not only in the U.S. but in countries with "universal" health insurance. Moreover, U.S. Medicaid recipients appear to do about as badly or worse than the uninsured in receiving medical services or maintaining good health (Scandlen G. NCPA Brief Analysis #416, 8/21/02).

One specific example of scaremongering is the assertion that breast cancer death rates are 30 to 50% higher in the uninsured. While the IOM does not make its original numbers available, Sean Parnell of the Heartland Institute calculates, based on reasonable assumptions, that the 5-year breast cancer survival rate ranges from 88% in privately insured women to 82% in uninsured women in the U.S. The 5-year survival rate in universally "insured" Canadian women: about 82%.

The IOM methods of correlation, extrapolation, unfounded assumptions, and biased selection are best characterized as "junk science." It serves the agenda of promoting the recycled, spin- cycled Clintonite "managed competition" or "pay or play" ideas, and sets the stage for the triumph of the special backroom group on single payer, Hillary Clinton's favorite.

An inescapable fact is that everybody pays for medical care. The only question concerns the mechanism. As Thomas Sowell explains, there is no "solution" to the problem of economic scarcity only tradeoffs. To a woman who said that "the people demand solutions," he replied: "The people can demand square circles if they want. But that doesn't mean that they will get them. What they are more likely to get is the illusion of a solution by someone seeking their vote."

And the most cost-effective vote getter is benefits for the worried well at the expense of the critically ill.

The choice, which is likely to be made irreversibly before 2010, is between expanded freedom and centralized control. The debate, again, is about governance, not just money.

Shall we force everybody to pay up front for all "necessary" medical care for everyone living in the U.S., while turning over decisionmaking to a self-interested medical oligarchy, freed from the challenge of innovators or competitors? The economic term for this system, as Greg Scandlen of the Galen Institute reminds us, is fascism, the primary feature of which is private ownership by a state-sponsored oligarchy.

What If There Had Been No Medicare?

Milton Friedman suggests that without Medicare, Medicaid, or the tax exemption that provides a hidden $100 billion subsidy to medical care, medical expenditures would be at about half their current level. The typical form of medical insurance would be catastrophic, with a very high deductible.

Longevity would probably have been unaffected. The dramatic increase in lifespan between 1900 and 1950 showed no systematic relationship to medical spending. The major increase in spending that accompanied the much slower but steady increase after 1950 was probably not causally related (Public Interest winter 2001).

Regina Herzlinger of the Harvard Business School writes that misallocation of capital dictated by Medicare rules has "produced vast temples to cardiology, a service Medicare has overpriced; and shreds of service for emergency care, a service that Medicare has underpriced." Innovators are penalized by delays and mispricing; Medicare waited a full year to cover implantable defibrillators that can prolong life for up to 7 years. Medicare expenditures are wasteful, yet cruel in that they restrict care (Wall St J 11/26/03).

CMS Administrator Tom Scully likens his job to the carnival game whack-a-mole. When spending shoots up, you whack it down, as by rules that kill investment in biotechnology. Although he now calls Medicare a "wonderful system," he once styled it "an unbelievable disaster" (Wall St J 7/16/03).

If not for Medicare rules, writes Gina Kolata, seniors might have had much greater access to lung reduction surgery for emphysema, implantable left ventricular assist devices (NY Times 8/17/03) and who knows what else?


Expanding Freedom, Reducing Costs

Removing the shackles on the free market, and allowing it to diminish uninsurance and costs is essential for preventing the demise of private medicine by 2010. Some methods are:

Slash Administrative Costs. The key is to do away completely with insurance overhead for expenses under the [high] deductible. Linda Gorman advocates the "shoebox method." Keep receipts until the end of the relevant time period, then discard them if you haven't accumulated enough to file a claim.

David Stern, M.D., of Belvidere, IL, states that if he switched to a pay-at-the-door system, he could manage without a computer network and three of his 4.75 employees, see two to three patients per hour instead of four to six, and spend as much time with patients as needed. Patients' out-of-pocket costs would increase by about $20 per visit, but they would need fewer visits, so the net would be a wash. The impediment: most patients would rather give up control and be "taken care of" by their insurer than accept medical bills as a cost of living.

Permit and Encourage Competition. Alieta Eck, M.D., of Somerset, NJ, is investigating the possibility of patients taking a surgeon, an assistant, and an anesthesiologist to a hospital in the Dutch Antilles to have surgery, at 20% of the cost to an uninsured patient in New Jersey.

In many states, mandates have driven insurers from the market and made individual plans prohibitively expensive. One proposal is regulatory competition: Allow consumers to choose the State that regulates their medical insurance. Consumers could see on average a 25% reduction in premiums.

End Price Controls, Deregulate. The only places in the U.S. with scarce housing and rising rents are places like L.A., San Francisco, and N.Y.C. that have rent control, writes Herbert Rubin, M.D., of Los Angeles. Thomas Sowell observes that in 1909, people spent less than 18% of their income for housing before the federal government first got into providing housing, in 1937, and before the rash of "green tape." Now, 28 million Americans spend more than 30% of their income for housing.

Experience with deregulating natural gas delivery, airlines, trucking, and financial services shows that volume and innovation increased, and costs fell 30 to 40%, writes Linda Gorman. "There is every reason to expect the same benefits from deregulating medicine." The net burden of regulation probably exceeds the annual cost of insuring 44 million people, according to Christopher Conover of Duke University.


Dire Economic Warnings

"The GAO [General Accounting Office] was unable to express an opinion as to whether the U.S. Government's consolidated financial statements were fairly stated for the sixth consecutive year," writes U.S. Comptroller General David M. Walker. "In the case of the Social Security and Medicare Trust Funds, the federal government took in taxpayer money, spent it on other items and replaced it with an IOU.... These additional amounts [of debt] total tens of trillions of dollars.... [T]hey are likely to exceed $100,000 in additional burden for every man, woman, and child in America today, and these amounts are growing every day."

The International Monetary Fund warns that "there is little time to address these programs' underlying insolvency before government deficits and debts begin to increase unsustainably.... The possible global risks of a disorderly [dollar decline] especially to financial markets cannot be ignored."


Robert England, R.I.P.

Robert England, M.D., who served as AAPS President in 1969, died on Christmas Day, 2003. He was a general practitioner and orthopedic surgeon in Illinois. His wife Helen preceded him in death by a few months.


AAPS Calendar

April 19. "America's in Pain" March on Washington. See www.painreliefnetwork.org for details.
May 15. Board of Directors meeting, Chicago.
Oct. 13-16. 61st annual meeting, Portland, Oregon.

A cartoon depicted a elderly person at a counter labeled "Medicare," who was being asked how he planned to pay for his coverage. The man was handing his grandchild across the counter. --Rep. Tom Tancredo (R-CO)

Court Upholds Conviction Based on Lies

In a shocking ruling, the federal Court of Appeals for the Seventh Circuit held that the government can lie to put a doctor in jail. Dr. Robert Mitrione and his wife proved that a government employee testified falsely in convicting them (AAPS News May 2003). After the trial, the judge found that the government testimony was "false to a dramatic degree." On appeal, the Seventh Circuit agreed that the trial judge had found "perjury" by the key witness. It also agreed that under its rule for the past 75 years, the conviction must be reversed if the jury might have reached a different verdict. But on Feb. 9, the court shifted the burden to the doctor to prove that the jury probably would have reached a different verdict without the lie, abandoning its own 75-year-old rule.


FAQs on Opting Out of Medicare

Q: What if an opt out is unsuccessful?

A: The government has ruled as follows: "A physician or practitioner who fails to properly opt-out continues to be bound by the Medicare claims filing and charge limit rules identified in  405.430(b). However, he or she may make an unlimited number of attempts to properly opt-out at any time." 63 FR at 58857.

Q: What is the most common mistake concerning opting out?

A: Failure to renew the opt out two years later. Unless the doctor repeats this process every two years, he automatically reverts back to the Medicare program and will have a huge administrative burden of reimbursing patients and billing Medicare for those services.

Q: Can a physician facing possible exclusion from Medicare opt out instead?

A: Apparently yes, because nothing in the affidavit requires any statement about the possibility of being excluded from Medicare. The government, in fact, studied this obscure issue and expressed concern that one doctor out of the 1,107 who opted out in 1998 and 1999 was subsequently excluded from Medicare. The government was upset that this one doctor did not have to tell his existing patients that he was subsequently excluded from Medicare. Such disclosure would have been meaningless, of course, because the patients privately pay anyway. But government wants the full power to stigmatize. oig.hhs.gov/oei/reports/oei-04-99-00590.pdf.

[The opt-out statute is codified at 42 USCS  1395a.]


Medicare Law Squelches Competition

Slipped into the massive Medicare expansion law is an 18- month moratorium on the whole-hospital exception in the Stark physician self-referral law, which bans doctors who have a financial interest in new specialty hospitals from being paid for Medicare services rendered at the facilities they own.

After the moratorium is up, the American Surgical Hospital Association will try to persuade the federal government to "leave us alone," while the "other side will try to put us out of business" (BNA's HCFR 1/7/04).

Entrepreneurial innovations that have allowed other areas of the U.S. economy, such as retailing, to boom, are "chopped off at the knees" in the medical sector by such rules, as Regina Herzlinger (see p. S2) has observed.


Tip of the Month: Watch out for this technicality that impeded relief in a privileges case: When a 75-year-old patient died despite efforts by the physician to save her, the hospital blamed the doctor and partly revoked his privileges. Dr. Bhanukumar C. Shah then sued for violation of federal discrimination laws. However, Dr. Shah admitted in his deposition that he was not an employee of the hospital, and the record lacked evidence of how hurtful a revocation is on his employability elsewhere. The federal Court of Appeals for the Sixth Circuit said non-employees, who do not cite injury to employability elsewhere, cannot sue a hospital for discrimination over privileges. Shah v. Deaconess Hosp. (6th CIr. Jan. 14, 2004).


Government Aims to Track Every Pain Pill

Proposed legislation such as H.R. 3015, the National All Schedules Prescription Electronic Reporting Act of 2003, would create a national databank of all prescriptions for Schedule II, III, and IV controlled substances that "health care practitioners and pharmacists...can access to determine whether a particular prescription is medically unnecessary." Any dispenser failing to transmit the required information to the Secretary of HHS "shall be subject to a civil monetary penalty of $100 for each such failure, and a maximum civil monetary penalty of $25,000 for such failures concerning any particular patient."

Many States are also considering such legislation. In Florida, Purdue Pharma agreed to pay $2 million to help fund the program, in return for the State ending its investigation of its marketing practices (Bloodworth D, Orlando Sentinel 1/17/04). AAPS joined the Pain Relief Network, the American Pain Institute, and the National Pain Patients Coalition in opposing this measure on the grounds that it will further chill legitimate prescribing to chronic pain patients.

"In an effort to appear tough on drug abuse and diversion, Florida's elective representatives are attacking patients in pain,"stated Siobhan Reynolds of the Pain Relief Network. "Doctors already turn them away in droves."

Prescription monitoring programs have already proven to be inaccurate and ineffective in curbing abuse, she said, especially as illicit prescription drugs are readily available through the internet and other channels.


Liability Insurance for Pain Doctor Cancelled

Rev. Ronald Myers, Sr., M.D., a family practitioner, Baptist Medical Missionary, and founder of the American Pain Institute, reports that the Medical Assurance Company of Mississippi will not review his professional liability coverage after April, 2004, because he treats the former pain patients of another physician whose license had been suspended.

Michael Houpt, CEO, stated that Dr. Myers was not "practicing pain medicine," citing lack of board certification in pain medicine or special training in that field.

Dr. Myers responded that specialists in family medicine were trained in the treatment of chronic pain as well as many other conditions. He is the only physician in Tupelo, MS, willing to treat Medicaid recipients who have chronic pain. He stated that the carrier's decision represented "medical malpractice red- lining," "medical malpractice social engineering," and "medical malpractice racism."

Dr. Myers is a leader in the movement to demand congres- sional hearings on the "DEA war on doctors, pharmacists, and pain patients" ( www.americanpainin stitute.org).


Is SimpleCare Illegal in New York? Item 43 of things that can be cited under "unprofessional conduct" according to New York Education Law Sec. 6530 is: "failing to complete forms or reports required for the reimbursement of a patient by a third party. Reasonable fees may be charged for such forms or reports, but prior payment for the professional services to which such forms or reports relate may not be required as a condition for making such forms or reports available."

If a patient agreed to SimpleCare (payment in full at time of service without coding or filling in insurance forms) but wanted to try to get reimbursement from the insurer, it appears that the physician could be liable to delicensure and a $10,000 fine if he refused to fill out the forms.
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY


Shredding Insurance Company Requests. My intake sheet says that we do not accept insurance as payment. It also says that if patients want to try to get reimbursement we can subcontract that work out to a professional biller for a $10 surcharge. So if I get a request from a patient's insurance company to transcribe the information on the receipt onto a form, I put it in the paper grinder. Sometimes I even get calls from third-party payers over a $35 claim. I just tell them we don't take third-party payment, and the claim is between them and their client. If they don't want to get left behind in the revolution in consumer-driven medical care, they had better learn to adapt right fast because this inefficient process is about to be reduced to sawdust.
Robert S. Berry, M.D., Greeneville, TN


Why Are Prices High? Years ago, Sen. Ernest Hollings (not exactly an icon of intellect but sometimes witty), when asked why the CPI was rising so fast, explained the phenomenon by saying "there's too much consumin' going on!"

I think we can justifiably say that in medical care and insurance "there's too much guvernin' going on!" And it's been going on for much too long!
Stephen R. Katz, M.D., Fairfield, CT

Paying for Quality. Paying doctors and health plans in Medicare [also see p. S2] according to their performance essentially supports government-directed medicine. It means that some official outside the examination room will determine what constitutes a good performance and what does not.
Twila Brase, R.N., www.cchc-mn.org


Just think, we could apply the same oversight in other services that are currently between private parties. Government officials could determine whether my gardener did a good job on my lawn and whether my auto mechanic fixed my brakes properly. No more unemployment, as government workers will double from the current 22 million to 44 million. And of course, they'll all get Cadillac health plans. Sen. Norm Coleman (R-MN), father of "Medicare payment for quality," should get an economics prize: the Lenin Award.
Craig Cantoni, Scottsdale, AZ


Where to Start on Medicare Reform. Start with new beneficiaries. Make an age-adjusted voucher (possibly risk- adjusted also) available to them, say that covers about half the premium, and allow them to contract with private carriers. (Medicare pays only about half the cost of elderly care on average.) Reform is a generation-long process.
Greg Scandlen, Frederick, MD


Seniors' Preferences. I have been in the senior market since 1980. When presenting education programs to seniors in the 1980s, I was surprised to learn that many would prefer a high- deductible plan with a savings component. Supplemental premiums are quite high in relation to the out-of-pocket expenses they are meant to cover. Even without a tax-free savings plan, a high- deductible plan is advantageous.
Joseph Lee Pugh, Diamondhead, MS


Absurd Laws. An absurd example of a nutty law: "We state lawmakers say that everyone should have the right to visit the moon. Accordingly, we have decided to repeal the law of gravity." Real examples are: community rating, guaranteed issue of individual plans, model-plans-only laws, elective benefit mandates, forced loss-ratio-refunds, etc., that drive prices up and reduce the number of people insured.
Art Jetter, CLU, Omaha, NE


Socialism Never Decreases Costs. If costs are excessive in the U.S., it is because it suffers under a variant of socialism. More socialism is not the answer; socialism always increases total costs, decreases output, and stifles innovation. In Canada, costs are shifted from one form to another; waiting is a genuine cost. Three out of four of my relatives had to travel to Buffalo, NY, to obtain medical care. My brother-in-law arguably died because of unconscionable delays in Canada.
Robert P. Gervais, M.D., Mesa, AZ


Are Patients Too Dumb to Permit a Free Market? To paraphrase my father, some of whose relatively poor math students went on to make very good money in the grocery business, "If you put dollar signs in front of numbers, many people show a 50 point rise in their IQ."
Robert F. Hamilton, M.D., Godfrey, IL

Legislative Alert

State of the Union

In his State of the Union address, President Bush outlined a series of recycled proposals for American medicine:

Health care tax credits for the uninsured. The President's proposal would provide tax credits worth up to $1,000 per person and $3,000 per family to those without health insurance.

Association health plans. The idea is that if small businesses can band together and negotiate for lower medical insurance rates, they could cover more workers.

National medical malpractice reform. The President is proposing the same tort relief for doctors that he offered last year which passed the House of Representatives but was blocked by Senate Democrats. The outlook for success in the Senate is not much better this year.

The implementation of HSAs. The President noted that, beginning this year, "...millions of Americans will be able to save money tax-free for their medical expenses in a health savings account." He added one major policy change: "And tonight I propose that individuals who buy health care coverage as part of our new health savings accounts be allowed to deduct 100 percent of the premiums from their taxes." Bush also asked for $100 million to promote electronic information and data systems in the financing and delivery of medical care.

The implementation of Medicare law. The Administration is already implementing a universal Medicare drug discount card program that will enable seniors to get discounts of between 10 and 25%, with low income seniors getting a special subsidy worth $600. The subsidized drug discount card was promoted by conservative health policy analysts as a way to target low-income seniors without coverage through a market- friendly system of private accounts. The discount program sunsets with the implementation of the Medicare drug entitlement beginning in 2006. The new law also includes Medicare benefit expansions for preventive care, including diabetes screening, heart disease, and wellness examinations, which will go into effect in 2005.

A new "Medicare Advantage" system will replace the flawed "Medicare+Choice" system. The new program will enable seniors to choose options with richer benefits than traditional Medicare. The 10.6% increase already announced is a dramatic reversal of previous policy, which had held funding to a 2% cap in spite of costs jumping at much higher rates. A new survey conducted by AAHP-HIAA shows that plans representing 93% of enrolled seniors will use the new funds to reduce monthly premiums, while plans representing 60% of these beneficiaries will increase benefits, including prescription drug coverage.

The President celebrated the enactment of the new Medicare law, and threatened to veto any Congressional proposal that would "...attempt to limit the choices of our seniors, or to take away their prescription drug coverage under Medicare..." The Democrats are prepared to do just that: quickly gutting the HSA provisions, rolling back funding for private health plans, and jacking up the power of the federal government to become a monopsony purchaser of prescription drugs.

The political response has been painfully predictable. Capitol Hill Republicans are largely cheering, and Democrats are either yawning or loudly condemning the White House for not being serious about the problem.

Kennedy's National Health Proposal

In what appears to be a direct response to the Bush agenda, Senator Edward M. Kennedy (D-MA) unveiled a comprehensive plan of his own at an annual projected cost of $100 billion in a major January 22 speech before his ideological allies at the national meeting of Families USA.

With regard to Medicare, Senator Kennedy said, "President Bush has just signed legislation to destroy Medicare and turn the elderly and the disabled over to the tender mercies of HMOs, the insurance industry and the pharmaceutical industry." Kennedy went on to say that the major priority is to bring down the cost of prescription drugs, and announced his support for a provision to let the government "negotiate lower prices" on prescription drugs, allow the reimportation of drugs from Canada and the European Union, and impose limits on direct-to-consumer advertising by drug companies. If these steps do not work to control rising prescription drug prices, Kennedy said that the federal government must be prepared to take further steps, including the creation of a national purchasing pool that will enable the federal government to "negotiate" with the pharmaceutical industry, not only on behalf of Medicare and Medicaid recipients, but on behalf of "all Americans."

On the broader issue, Kennedy outlines a series of problems with the "health care system" that are broadly acknowledged by liberals and conservatives alike. And he charges that Bush has no serious plan to reduce the number of the uninsured nor a serious proposal to control costs. Kennedy states that Americans spend $480 billion a year on administration, roughly 30 cents out of every dollar spent on medical care, and that more than 25% of all personnel are "performing administrative tasks, not providing care."

Kennedy's bill, The Health Security and Affordability Act, is largely a replication of the employer-based mandate that was the foundation of the Clinton Health Plan. It contains the following provisions:

An employer mandate. Businesses with 50 or more employees would have to provide medical insurance to their employees. Small businesses would have the option of making contributions to a national health benefit program based on their ability to pay. Very small businesses would be exempted from any contribution. The employer contribution, in any case, would be capped at 12% of payroll.

A benefit mandate. Employer coverage would have to be actuarially equivalent to the Blue Cross/Blue Shield Standard Option Plan now available in the Federal Employee Health Benefits Program (FEHBP) and would have to include mental health parity. Employers would be required to pay 75% of the premium of such a plan. (Nota Bene: There is no standardized benefit plan in the FEHBP; federal workers and retirees can choose from a variety of benefit options.)

Government subsidies to employees. Workers with incomes between 100 and 200% of poverty would pay their share of premiums on a sliding scale, and would be responsible for 50% of any cost sharing. Workers with incomes below 100% of poverty would be responsible for only "nominal" premiums. Taxpayers, present and future, would pay the difference between the employer premium and the cost of the plan.

A National Health Benefit Program. This program would also be at least equivalent in actuarial value to the Blue Cross/Blue Shield standard plan in the FEHBP.

Cost reduction and quality promotion measures. The Kennedy proposal would attempt to reduce costs by requiring all insurance companies to use computerized systems for all payment, claims, and information transactions. It would also establish grants for doctors and hospitals to use information- technology systems based on national standards for medical records and prescriptions. It would establish a new system for reimbursing medical services on the basis of value, based on quality standards to be determined by the Secretary of HHS in collaboration with other relevant government departments and the private sector. Doctors, hospitals, and other medical professionals would be required to collect quality data and make it publicly available.

Medicare Miscalculations

We are profoundly shocked to report that the projected Medicare costs are wildly off base again. The initial big explosion has occurred. Collateral damage all around, particularly on that credibility thing. More explosions are coming. Bet on it.

Last December 8, when President Bush signed the Medicare bill, Congressional leaders and the Administration officials said that it was a responsible bill. They also cited the Congressional Budget Office (CBO) estimate of the cost of $395 billion over 10 years, even though the CBO conceded that the figure was not based on a comprehensive reading of the legislation. Moreover, on the very day that Bush signed the bill, Douglas Holtz Eakin, the CBO Director, told a packed audience at the Heritage Foundation that in the second decade of the life of the new Medicare law the cost could reach $2 trillion.

Neither Heritage, nor the top policy analysts at the American Enterprise Institute, Cato, nor the National Center for Policy Analysis, nor, for that matter the moderate Democrats at the Progressive Policy Institute, ever put much credence in the official line about the cost of the Medicare bill, and thus all of them were strongly critical of the final product. Likewise, Harvard University's Regina Herzlinger warned of the broader systemic effects of the Medicare entitlement expansion: "With the effective passage of the Medicare drug bill, we have just vastly enlarged the health care sector. This is one seventh of our GDP that is run Soviet-style; where the doctors who are uniquely qualified to create and manage health service businesses are prohibited from owning most of them; where entrepreneurs often must pass a local government smell test before they are permitted to build new facilities; and, worst of all, where government dictates the prices and exact characteristics of insurance benefits for which it will pay. Most private insurers follow its lead" (Wall St J 11/26/03).

Most members of Congress simply ignored the best independent policy advice available, put aside their sound misgivings, and voted for the final product anyway. Before the final vote, House and Senate leaders told the rank-and-file members that, even though it was a massive expansion of entitlement spending, it was going to be a responsible program no crazy spending; no gut- wrenching surprises.

Well, well. The Administration's own budget estimate is that the bill will cost $534 billion over 10 years. As The Washington Post editorialized, the cost of the law is subject to a lot of uncertainties: the impact of the new tax breaks (the HSAs), the general rise in medical costs, the future costs of drugs and medical procedures that are not yet available but will be in 5 years, and the behavioral changes in seniors and physicians when the new incentives take effect. But the critical point, stressed The Post, is that Congress and the Administration are both "piling on obligations" with no knowledge of their scope and impact and saddling the next generation with enormous debt. Incidentally, the Bush Administration is already forecasting a whopping $521 billion deficit in 2004, though it thinks it can cut the deficit in half by 2007, promising fiscal discipline and tighter spending. We'll see.

The political fall-out continues. The National Journal is reporting that the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) completed an internal analysis of the Senate version of the Medicare bill on June 11, 2003, and found, then, that the projected cost of the Senate Medicare bill was $551.5 billion over the period from 2004-2013. That was in June, 2003. On Feb. 2, 2004, Reps. Henry Waxman (D-CA), John Dingell (D-MI), and Charles Rangel (D-NY) have sent HHS Secretary Tommy Thompson a stern letter asking for all of the Administration's cost estimates. In their letter, they use the old Watergate style refrain: "Congress and the public should know what the Administration knew about the costs of the prescription drug benefit and when the Administration knew it." (Rangel, along with Rep. Pete Stark (D-CA), proposed a drug provision during last year's debate that would have cost anywhere from an estimated $800 to $1 trillion over a 10-year period, something that should not be overlooked). Meanwhile, look for ramped-up calls for price controls on drugs, in one form or another.

What Is To Be Done?

Leaving this open-ended entitlement program in place makes the tacit assumption that there is no limit to what the taxpayers can or should be forced to give. The Medicare expansion, as so many conservative analysts warned last year, not only threatens the Bush tax cuts, but also the establishment of personal accounts in the Social Security System, as well as other conservative priorities. The Medicare drug entitlement goes into effect in 2006. Congress has a choice: do the right thing, admit that they were wrong to enact a universal entitlement in the first place, and instead target the assistance to low-income seniors. Otherwise, the Republican-controlled Congress imagine that will preside over a mountain of debt and a breathtaking process of wild, record-breaking federal spending.

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