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Association of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto

Volume 62, No. 3 March 2006


In the clamor for "universal health care," most people assume that the goal is to provide better care to all. They should read the new book Can We Say NO? The Challenge of Rationing Health Care from the Brookings Institution, funded by the Robert Wood Johnson Foundation (RWJF). Authors Henry Aaron and William Schwartz conclude:

The choices are clear. We can simply pay the enormous bill for all beneficial medical care whatever the cost. Or we can ration. If we follow the second course, we must begin by extending health care to essentially all Americans [emphasis added].

Obviously, the bills are unpayable. We need a sustained slowdown in the growth of expenditures. Eliminating waste and profits won't accomplish that. These authors can visualize only one method: "rationing the denial of some beneficial care to some people who have the financial means to pay for it."

They distinguish this from what some call "rationing by price." In a market economy, some persons are unable to afford certain things. With rationing, people who can afford to buy something cannot get it because of scarcity imposed by a "nonmarket allocation system," such as queues.

The authors look at Britain, where "physicians enjoy a residue of authority." The private system is an escape valve, which may "abet tighter controls than would otherwise be acceptable." A central question is "whether and under what conditions to allow care outside the controls."

Charitable contributions may be strongly discouraged because they help "providers...escape budget limits." Or they may be permitted, in order to mute opposition to tight formal budget limits by allowing augmentation of certain spending outside the system. Indeed, "health planners might strategically shortchange precisely those services or facilities that potential donors could be expected to support."

The authors recognize that shielding people from cost leads to burgeoning demand. But demand-side limits are rejected out of hand as defeating the whole purpose of insurance.

With patience, advocates of socialized medicine might be able to reach their goal incrementally. As a Wall Street Journal editorial points out, "the U.S. is approaching a tipping point where the reforms needed to preserve an innovative, market-based system may become politically impossible." Almost half the medical dollar is already spent by government. As baby boomers age, the growth of Medicare alone will lead us far down the path to government-rationed care (WSJ 2/1/06).

"America is, in effect, heading towards a version of socialised medicine by default" (Economist 1/26/06).

Then there's the retirement time bomb ticking in state and local governments, as well as private industry. The city of Duluth, for example, when it finally decided to calculate the cost of the promises it had been making, found that free lifetime medical care to all its retirees would cost $178 million, twice the city's operating budget. Similar shocking discoveries are being made nationwide (NY Times 12/11/05).

But "single-payer" advocates are not resting. "This will be a critical year in the struggle for real health care reform," writes Quentin Young, M.D., in a Call for Action by Physicians for a National Health Program (PNHP).

Former Oregon Governor John Kitzhaber, M.D., is itching to "pass something illegal" in his state to "cover everyone." Is that rationing? "You bet," he proudly replies. He wants a "grenade with the pin pulled out" to "roll...into the Beltway in 2007" (Fortune 10/3/05).

Everywhere, there seems to be a "coalition" with a name like Campaign for Better Health Care, generally with links to the RWJF, George Soros and the Open Society Institute, and other "´┐Żbernanniests," writes Linda Gorman. "It's like playing a game of whack-a-mole that is impossible to win. And with every battle they increase the fraction of the population dependent on the government for care."

Dependents need to be compliant. The first concern of disabled persons on Colorado Medicaid, Gorman writes, is retaliation by withdrawal of services if they complain about fraud or mistreatment. A California mother writes that her public assistance was cut because she refused further immunizations since the first set made her daughter so ill. The universal trap needs to be sprung before Americans wake up.

More than 3 million Americans have already embarked on an escape route from the road to dependency by purchasing a relatively high-deductible insurance policy combined with a Health Savings Account. The cost of "consumer-driven" plans rose 2.8% between 2004 and 2005, compared to 7.4% for HMOs and 6.4% for indemnity plans, states Deloitte Services.

Unfortunately, many HSA products still involve expensive red tape, with continued involvement of third parties in "re-pricing" and other managed-care procedures, giving PNHP something that deserves criticism. Real savings would come with direct cash payment. By eliminating all bureaucracy from the $720 billion in expenditures less than $5,000, Sean Parnell of Heartland Institute estimates savings of $144 billion before accounting for changes in utilization as people decide for themselves what care isn't worth the cost.

Someone will decide that: if not patients saving their own money, then bureaucrats or physicians spending other people's money under a budget. Some die who might have lived: in the Netherlands, newborns under 25 weeks' gestation aren't treated (Timesonline 1/6/06). Other languish with pain or disability.

As AAPS Director Robert Berry, M.D., notes, universal care might as well be called "Alice in Wonderland Part 2."

As Aaron and Schwartz reveal, it's not about care. It's about control of our wealth, our health, and our lives.

Socialized Medicine Reports

U.S. Charity Curbed. GlaxoSmithKline announced that Medicare-eligible patients will no longer be allowed to receive products under Bridges to Access. "We...believe that our patient assistance program has been very helpful in providing medicines to people in need. Therefore we are disappointed by the guidance from the Office of Inspector General which indicates that a pharmaceutical company's continuation of...assistance to financially needy Medicare beneficiaries... presents heightened risks under the federal anti-kickback statute" (letter to physicians, 12/10/05).

"Laboratories of Democracy." Kentucky Kare: usual RWJF- inspired plan destroyed state's private insurance market; used state pension system to "cover" the uninsured, bankrupting it. TennCare: practically destroyed medical infrastructure before government gave up. Washington State: came to its senses and bailed out after a couple of years. There have been 12 to 13 RWJF-funded state experiments since 1991. Reputable experiments on all U.S. citizens over 65 and lower-income people in the states show that "single payer increases costs, retards innovation, and ends up denying care to millions of people who formerly had access," writes Linda Gorman.

Quality Down Under. Russell Faria, D.O., of Newport, OR, writes of a physician sanctioned for botched surgeries in the U.S. who was hired by a government hospital in Queensland, Australia, to help reduce the number of patients on the waiting list. He did that: they called him "Dr. Death." Concerned nurses, who tried to hide patients from him, were threatened with prison if they spoke out to the press. Non-Australian doctors, who can only get a license restricted to one hospital, feared loss of their license and visa if they spoke out. The Nurses Union told ABC radio of a "culture of bullying" in Queensland Health. The doctor was said to be "very budgetly attractive to the hospital" (www.abc.net.au, 6/12/05).

Two-Tiered System in Germany. Facing multibillion-Euro deficits, the German health system, described as "poor in quality and expensive," is "heading for collapse." German politicians say the social welfare state is at risk, as some call for a "reactionary revolution." Others say that privately insured persons need to be moved into the public system and that no plans should be allowed to select good risks. Cost containment measures are failing; every third xray is said to be unnecessary; and the truly sick are neglected. Nearly 90% of Germans favor more competition and more choices; 71% think private patients get superior care. Search Google on "Zwei Klassen Medizin."


John J. Dwyer, M.D., R.I.P.

Our beloved past president John J. Dwyer, M.D., of Chicago, IL, an orthopedic surgeon, died on Feb 2, 2006. Dr. Dwyer joined AAPS in 1976, and was a tireless fighter for freedom and integrity. He served several terms on the Board of Directors and founded the Illini chapter. As a combat surgeon in the Vietnam War, he was awarded the Bronze Star and attained the rank of major. He is survived by his wife Maureen, five children, and six grandchildren. Memorials may be made to Pro-Life Action League, 6160 N. Cicero Ave. Suite 600, Chicago, IL 60646.


Canada Shorts Acute and Chronically Ill.

"Can- adians have been betrayed," writes Bert Brown (Calgary Herald 11/20/05). Patients with nonemergent conditions face long, painful, sometimes fatal waits. They are beginning to ask, "Why can't I pay for my health care when I need it?" The assertion that emergency patients get prompt care is also being challenged. "Hallway medicine [is] the reality in emergency care," writes David Lowry (Vital Signs 11/05). Paramedics are placed in halls to monitor patients so that ambulance crews can unload and return to the streets. "Our biggest fear is that someone will drop dead [in the waiting room]."


Pharmacist Says No to Part D

Jim Porter's Pharmacy Compounding Specialties of Dallas doesn't accept Medicare drug plans, or any other insurance. Mr. Porter doesn't put up with overloaded phone lines, angry customers, endless waits for payment, or other snafus. He offers a senior discount plan. Enrollees pay 6% above Mr. Porter's cost plus $5 for most manufactured drugs; a 10 to 12% mark-up is common at pharmacies. Enrollment requires only a name, address, phone number, and birth date. The discount does not apply to compounded drugs. The 200 seniors who signed up don't have to worry about premiums, deductibles, or copayments. Medicare officials warn seniors that "discount plans aren't forever" and that Medicare will penalize seniors who sign up for Part D after May 15, by adding 1% to the premium for each month's delay (Dallas Morning News 2/8/06).


Hospitals Opt Out of JCAHO

Affiliates of Northern Arizona Healthcare (NAH), including Flagstaff Medical Center, announced that they are terminating their voluntary contract with JCAHO. Reasons cited: costs, redundant or unnecessary survey processes, and concerns about the motivation and accuracy of recent surveys (Arizona Medical Association, Medicine This Week 11/18/05).


AAPS Calendar

Feb 22/23, 2006. Arizona AAPS dinner meetings in Phoenix and Tucson: Dr. Lawrence Huntoon on sham peer review.

Sept 13-16, 2006. 63rd annual meeting, Phoenix, AZ.

Hermann Goering to a war correspondent: "Your America is doing many things...which we found caused us so much trouble. You are trying to control people's wages and prices people's work. If you do that you must control people's lives. And no country can do it part way. I tried it and it failed. Nor can any country do it all the way either. I tried that too and it failed."

Ludwig Erhard ended price controls in Germany in 1948, on a Sunday, when the American occupation authorities were out of their offices spawning the "German economic miracle."
Thomas DiLorenzo, The Free Market, December 2005

Appeals Court Upholds Springer Verdict

In a precedential decision, which can now be cited by other physicians who stand up to administrators, the U.S. Circuit Court of Appeals for the Third Circuit upheld the jury verdict in favor of David Springer, M.D., against the Delaware Psychiatric Center (Case No. 04-4124). The decision is posted at www.aapsonline.org/judicial/044124p.pdf.

The hospital objected to the AAPS amicus brief, but the Court allowed it, citing our argument that "the issue transcends the relationship between the parties and instead impacts upon thousands of patients damaged as a result of hospital errors, incompetence, wrongdoing, and cover-ups."

The Court expressed concern that the government attorneys may have had a conflict of interest in representing both the State and the hospital administrator.

This is an important victory, in which the physician was able to overcome sovereign immunity.


Parental Notification Law Upheld

In an unusual unanimous ruling, the U.S. Supreme Court held that a federal appeals court wrongly overturned the whole of a New Hampshire law requiring parental notification before performing an abortion for a minor (Ayotte v. Planned Parenthood, 04-1144). Only a few applications of the law would present a Constitutional problem, wrote Justice Sandra Day O'Connor. "The lower courts can issue a declaratory judgment and an injunction prohibiting the statute's unconstitutional application." She stated that the Court was not revisiting abortion precedents.

The Minnesota law, on which the New Hampshire law is patterned, has been in force for more than 20 years, with no reported health emergencies suffered by Minnesota teens (Steven Ertelt, LifeNews.com 1/18/06).

The AAPS amicus brief is posted at aapsonline.org .


Roe v. Privacy

While the Senate debate over the confirmation of Justice Samuel Alito used "privacy" as a code word for Roe v. Wade, the Roe Court eschewed the Ninth Amendment approach to privacy that was best explained in Justice Arthur Goldberg's concurring opinion in Griswold v. Connecticut. The same Roe justices upheld the Bank Secrecy Act, finding that people had "no expectation of privacy" for information shared with a third party even if common law, state constitutions, and private contracts required it and that consumers have no standing to challenge the law. Nearly a century of precedent protecting our personal papers was thrown out by Roe justices in important privacy cases, writes J. Bradley Jansen (Wash Times 1/22/06).

In his dissent in California Bankers Association v. Schultz (1974), Justice William Douglas wrote that "a mandatory recording of all telephone conversations would be better than the recording of checks under the Bank Secrecy Act, if Big Brother is to have his way.... In a sense, a person is defined by the checks he writes."

The "expectation of privacy" is central to the debate over warrantless monitoring of phone calls. Today, indeed, "America Expects Surveillance": the title of an op-ed piece by Attorney General Alberto R. Gonzales (WSJ 2/6/06). The "special needs" exception to the warrant requirement has been upheld by the Supreme Court as consistent with the Fourth Amendment.


State Medical Liability Reform

In a Heritage Backgrounder issued Jan 16, Randolph W. Page and Derek Hunter outline several options for tort reform.

The "early offer" rule limits the ability of claimants to win huge noneconomic damages, while allowing quick recovery of economic losses.

Patient indemnity insurance comparable to flight insurance, previously proposed by AAPS, could reduce the role of litigation in compensating patients for bad outcomes.

Other ideas include special health courts and limiting liability for physicians caring for Medicaid, charity, or emergency patients. The paper can be downloaded from: www.heritage.org/Research/HealthCare/bg1908.cfm.


Does Tort Reform Save Lives?

Americans spend their medical dollars to support not just one industry, but two, George Melloan points out (WSJ 1/31/06). Tort lawyers freeload on the system, he says.

The Association of Trial Lawyers of America argues that tort law creates incentives to reduce harms. But by increasing costs, torts could decrease the use of risk-reducing measures.

Between 1981 and 2000, states passed 141 tort reform laws. A regression analysis on nonautomotive accidental death rates showed that most tort reform measures were associated with statistically significant reductions in death rates. These reforms resulted in an estimated 14,000 fewer accidental deaths possibly because of the availability of more emergency physicians and better medical treatment (Paul Rubin, WSJ 10/8/05).


Nurses Win Fight Against Mandatory Flu Vaccine

The Washington State Nurses Association (WSNA) won a victory in U.S. District Court, which upheld an arbitrator's decision that Virginia Mason Medical Center could not make influenza vaccination a condition of employment. While WSNA strongly encourages nurses to receive the vaccine, "it's a basic right for people to make decisions regarding their own health care treatment," stated Barbara Frye, R.N., Director of Labor Relations at WSNA.


CMS Demands More Documentation for Consults

As of Jan 17, it is no longer enough for physicians who accept Medicare to document that they did a consult. Theyare also responsible for assuring that the referring physician properly documented whether he was requesting a consultation, or transferring care. Without a satisfactory record, a carrier can deny the consulting specialist's claims, order recoupment, or file a false claims case for upcoding (MCA 2/6/06).


Lavish QIO Contractor Meetings Probed

The Senate Finance Committee is scrutinizing the expenditures of private contractors known as Quality Improvement Organizations, who receive $300 million annually to investigate complaints of poor care and to improve quality of care rendered by physicians, hospitals, and nursing homes. Last summer, The Washington Post reported that the groups rarely looked into patient complaints and that some executives receive lavish pay and perks. Conferences are frequently held at posh resorts (Wash Post 1/6/06).


P4P Already Morphing. American Medical News of Jan. 30 published a feature article entitled "National spending growth on doctor services rises," showing a curve graphed to look as if it's taking off like a rocket. Perhaps by showing such things over and over to doctors, the AMA can soften up the doctors on Pay for Performance. The AMA is apparently positioning itself to trade acceptance of P4P for fixing the sustained growth rate (SGR) formula to avoid projected physician fee cuts of 25 to 30% over the next 6 years. And P4P is already set to become P4Q or P4O. CMS economist Cynthia Smith is quoted as saying: "As costs rise, the efficiency of health care spending is increasingly scrutinized, which has led to greater interest in paying for improved quality or outcomes."
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY


Who Defines Quality? Insurer-determined quality for a captive audience of insureds means that the people who profit from reducing costs by reducing quality are controlling its definition.

When someone from on high tries to dictate quality, one usually ends up with a bunch of process measures. That's what happened in education. And the professional education blob had different ideas of quality than most parents. The only education quality improvement idea that has shown any prom-ise is to strap the money to the kids and let the parents decide.

Please spare me from expert control. In a pediatric practice, one may have to put up with invasive questionnaires and some puffed-up doctor lecturing your preadolescent on sex, drugs, and bicycle helmets. With this kind of meddling, one's world view now affects a child's access to medical care. Some pediatric practices refuse to care for a child who is not fully immunized as it might downgrade their report card. There's quality improvement: doctors who won't tend to a child's medical needs just because his parents don't agree with the immunization schedule. Next it will be smokers.

We've seen amazing quality improvements over the past 200 years thanks to voluntary standards set by professional societies, consumer information in the popular press, and well- informed patient self-help groups. We'd be much better off spending the energy devoted to "evidence-based" quality measures to dismantling the medical regulatory state and the unsustainable system of third-party funding.
Linda Gorman, Independence Institute, Golden CO


Tax Subsidies. If medical insurance were not tax deductible, there would be no insurance for small claims. Why should there be insurance for services that cost the same as an oil change or a brake job? Third-party payers are not evil; they just exploit the subsidies our politicians have given them. The subsidy favors some people (employees of large companies) over others (cleaning ladies, general contractors, small retailers, etc.). It is a sophisticated form of theft, and if theft is evil, the subsidy is evil. It creates encounters like one in our parking lot: a Lexus pulled up, a teenage boy jumped out and asked what our clinic charges for a sore throat. After hearing the reply ($35), he told his mom, and the Lexus screeched off.
Robert S. Berry, M.D., Greeneville, TN


Dependency. As Ben Franklin wrote about England's health and welfare laws: "I fear that giving mankind a dependence on anything for support in age or sickness, besides industry and frugality during youth and health, tends to flatter our natural indolence, to encourage idleness and prodigality, and thereby to promote and increase poverty, the very evil it was intended to cure." The opportunity for the individual to live irresponsibly at the expense of others is the unanticipated effect of employer and government-based health and welfare, which amounts to indirect thievery.
Steven Bassett, Oak Park, IL


Nothing Ever Changes. It was written in the 1970s that: "The military-industrial complex came about as a result of government's power to use stick-and-carrot methods to rule business (which was just one part of politicians' efforts to rule everyone)." Complex, contradictory, vague, complex, all- encompassing regulations gave bureaucrats power to destroy any business on a whim. Yet businessmen had to accept government contracts because the government drastically curtailed private- sector opportunities by "crippling the economy with regulations and bleeding it by taxation." Most businessmen came to accept the situation as "normal and necessary." Substitute "medical" for "military" and "physicians" for "businessmen": the situation is the same.
Robert P. Gervais, M.D., Mesa, AZ


Government Administrative Efficiency? The state and federal governments have few examples of hands-on administration in actual health plans. Medicare, MediCal, and CalPERS, three examples of oft-quoted efficiency, all use the private sector to deliver their plans. The low-cost administration is borne on the backs of existing claims and administrative structures in the private sector, which are already in place to serve the remainder of the public.
David Hogberg, Public Interest Institute, Mt. Pleasant, IA


Military Medicine. U.S. soldiers are under the same restrictions as all Canadians. They cannot pay for their own medical care, even if unable to obtain it through the government.
Kenneth Christman, M.D., Dayton, OH

Legislative Alert

The State of the Union

President Bush's January 31st address to the nation was billed as major vehicle for an outline of an ambitious health policy agenda. The New York Times, The Washington Post, and other national media outlets were reporting that Bush would break new ground in his widely anticipated speech. In reality, the President only devoted one single paragraph to health issues in a speech that focused mostly on international relations, Iraq and the war against terrorism, as well as Presidential initiatives on energy, taxes, and homeland security.

As the President ascended the rostrum in the House of Representatives, the White House did issue a more detailed description of the President's health policy initiatives, fleshing out details that were absent from the speech. Beyond health savings account (HSA) and insurance provisions, President Bush will be offering initiatives for price transparency and quality information, medical information technology, chronic conditions, and community health initiatives. The details will be forthcoming with the submission of the President's budget.

Getting Incentives Right. In his address, the President cited a series of incremental initiatives, including a plea for greater equity in government policy for all American who purchase medical insurance, additional changes to the HSA law that would juice up and expand the HSA option, a greater reliance on electronic medical records (which he said would reduce costs and medical errors), and medical malpractice reform.

The President noted that in nearly 1,500 counties in the United States, there are no practicing obstetrician/gynecolog- ists, and pleaded with Congress to pass medical tort reform this year. In the past ten years, the House of Representatives has enacted medical malpractice reform seven times, and each time the proposal was killed or died languishing in the Senate, where Senate Democratic opposition is stiff and unyielding.

The heart of the President's health policy initiatives was to be found in modifications of the existing federal tax treatment of medical insurance. Today, Americans buying medical insurance in the individual market, roughly about 8% of the total of those who have coverage, are required by law to pay for that coverage with after-tax dollars. This increases their costs, by as much as 40% of the premium, compared to what they would get through an employer group policy. Individual medical insurance markets are burdened with other problems, including higher administrative and marketing costs, as well as often excessive state regulation of individual policies. For example, today there are more than 1,800 state-mandated benefits and medical procedures required by state legislatures. State legislators also often impose guaranteed issue and community rating rules for state regulated medical insurance, requiring insurers to cover everybody and often at the same rate. These together help to drive up costs.

Beyond individual purchase of medical insurance, all out-of- pocket payment for medical services are made with after-tax dollars, so that direct payment to physicians, for example, suffers under a tax penalty that does not apply to payments made through employer-based insurance. The tax code strongly favors the existing third-party payment system, and economists have long argued that there will never be a free market that is worthy of the name without a change in the tax code.

But Getting the Tax Policy Wrong. In his address, the President said: "We will strengthen Health Savings Accounts by making sure that individuals and small business employees can buy health insurance with the same advantages that people working for big businesses now get." This would apply to individuals, the self-employed, the unemployed, and early retirees, as well as workers who don't or can't get their medical insurance through the place of work.

This, on the surface, sounds like a good idea. Many of us like HSAs, and many of us are enrolled in them. Current law enables individuals to contribute up to $2,700 tax free, and families up to $5,450. There are now more than 3 million HSA policyholders, and their numbers are growing rapidly. The tiresome Leftist predictions that HSAs would only benefit the young and healthy, and that they would only appeal to upper- income folks, has not been borne out by the empirical evidence. They make medical insurance affordable for millions of Americans, including those previously uninsured, and they are generating high rates of personal satisfaction.

The President's proposal, however, creates a series of new problems. Based on the more detailed White House description of this initiative released at the time of the President's address, it is clear that tax liberalization is confined to the purchase of high-deductible/HSA plans. It would provide an income tax credit to offset payroll taxes paid on premiums for the HSA policies, and retirees purchasing a non-group plan would be able to make the premium payments tax free from their HSA.

The President also proposed to eliminate taxes on all out- of-pocket expenses, not just the deductibles, through expanded HSA options. The proposal would also provide a tax credit for payroll taxes paid on HSA contributions made by individuals. The White House projects that these changes would dramatically increase the attractiveness and the number of HSA plans.

Finally, while not specified in his speech to the nation, the President proposes to assist low-income individuals and families with a refundable tax credit for medical insurance. According to the White House briefing paper, a family making $25,000 or less per annum would be eligible for a $3,000 refundable tax credit (i.e., a government subsidy) to help buy a private HSA plan, and could put up to $1,000 of the credit into their account for routine medical expenses. Any funds remaining, of course, can be rolled over to the next year tax- free.

So, the President's proposal would not eliminate or neutralize the enormous bias of the powerful federal tax code, but would simply re-target it to favor HSAs and high- deductible health plans. So the many distortions of the current tax treatment of medical expenses would be complicated and distorted even further.

A Better Policy. If one is serious about creating a free market based on consumer choice, the government should not rig the rules of the game to favor one option. Right now, the government favors employer-based medical insurance, managed care, and third-party as opposed to direct payment.

If expanded tax deductibility is to be the vehicle for reform, the deductibility should be applied equally to all insurance, whether purchased directly or through an employer. This would introduce fairness and would allow for innovations. Likewise, the President's proposal to provide tax relief for the direct payment of medical services could decrease costs by eliminating the bureaucratic claims-filing apparatus. There is nothing sacred about passing payment through a bank account labeled an HSA. If a person wants to pay a doctor directly with any funds from any account and under any conditions that he sees fit, that should be the business of the patient and the doctor, and should not be penalized in any way by government policy. If Congress decides to build upon President Bush's proposals for expanded tax deductibility, it should do so with a view toward establishing a real open market. That means strict neutrality.

One more thing: Expansion of tax deductibility would create greater fairness in the tax code and stimulate economic efficiency in the delivery of medical services. But it would not, of itself, significantly reduce the numbers of the uninsured nor reduce medical expenditures.

If the objective is to control rising costs, it is not clear how this will be achieved. Perhaps the increased competition envisioned by the proposal will prove to be sufficient in restraining cost growth. But, as economists generally recognize, new tax breaks encourage more, not less, consumption.

The uninsured problem is more straightforward. Most of the uninsured are in low-income working families, often employed in small businesses, and would not benefit directly from expanded tax deductibility. Hence, Bush proposes to target tax credits to HSAs to encourage the enrollment of low-income Americans. This does, however, limit the choices.

Promoting Portability in Coverage. In speaking of medical insurance coverage, the President said, "We will do more to make this coverage portable, so workers can switch jobs without having to worry about losing their health insurance." This is a key policy objective, around which there is a broad consensus. Real portability is only possible, of course, if you own and control your own medical insurance policy, just like other insurance policies. It is not portable if it is owned by your employer, or some other third-party payer. In the accompanying White House briefing materials on the President's proposal, it is clear, however, that the portability of medical insurance coverage is once again restricted to high- deductible/HSA plans: "Employers would have the ability to offer workers a portable HSA insurance policy that the employees would own, control and be able to take wherever they went. Their premiums would be tax free and would not be increased based on their health status at the time that they changed jobs, left the labor force, or moved."

The language of the Bush "portability" proposal is curious, because it specifies that employers would be the ones to offer these portable plans. To which, one must ask: why employers? In an open market, with equality of tax treatment, (or, alternatively, a flat tax arrangement), there would be no need for government bias for or against employer, or for or against any particular type of plan. In a real market, medical insurance, like other types of insurance, would be a product tailored to a variety of wants and needs, which are infinitely diverse.

Promoting Insurance Market Reform. Medical insurance markets in the United States are a mess. They are distorted by the federal tax code. They are further distorted by excessive and costly state regulation. Millions of Americans are priced out of existing coverage, or cannot get the affordable coverage that they want or need.

While he did not mention it in the State of the Union address, the White House staff has said that the President is supporting the creation of Association Health Plans (AHPs). These plans would enable small businesses to pool their resources in associations in order to purchase medical insurance for their workers. As embodied in House passed legislation in 2005, the AHP concept is restricted to businesses. This is, in substance, also the President's proposal. According to the White House language, "AHPs let small businesses join together to purchase health coverage, giving them the same advantages, administrative efficiencies, and negotiating clout enjoyed by big businesses and labor unions. By purchasing coverage for thousands of employees at a time, association members can pay lower premiums for better coverage."

Conservatives in Congress should recognize that AHPs do not in themselves advance a new system based on individual consumer choice and competition. If they think that this is a problem, the good news is that the answer is simple: expand consumer choice to include all kinds of association plans, not just employment-based plans. Thus, individuals and families should be able to join individual membership organizations as well as business associations, as the President also suggests, and employers could define contribution into these plans and secure tax breaks for doing so. That way, the medical insurance market would be opened up, and further diversified. Personal freedom would be expanded.

Likewise, the President has also proposed that Americans should be able to purchase medical insurance across state lines. The proposal would, in effect, create an interstate commerce in medical insurance. This is a good idea. It would allow the creation of large national pools and long-term insurance contracts, which could significantly reduce administrative costs, and make coverage more affordable. It would also allow people to purchase national health plans from organizations and associations with which they have an affinity, including plans offered by employees organizations, unions, and even faith-based institutions. A resident in Orlando, Florida, could buy a health plan domiciled in Seattle, Washington. National choice of different health plans is, of course, routinely available to federal employees and retirees in the Federal Employees Health benefits Program (FEHBP). Rep. John Shadegg (R-AZ) has sponsored the Health Care Choice Act (H.R. 2325) to accomplish this objective for all Americans.

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