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of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
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Volume 60, No. 11 November 2004
THE UNINSURED: REFRAMING THE
Depending on how you count, the U.S. has between 10 and 70
million uninsured persons.
Focusing instead on uninsured services, "we are all
uninsured for some things, and we are all insured for others,"
writes Greg Scandlen in a pathbreaking analysis entitled
"Rethinking the Uninsured" just released by the Galen Institute
Owing to federal EMTALA law, everyone must receive needed
emergency treatment upon presentation to an emergency room that
receives any federal funding. And even young men between the ages
of 21-24, nearly 40% of whom are counted as uninsured, are
generally covered for the things most likely to happen to
them workplace injuries and car crashes.
The assertion that lack of insurance means lack of medical
care is patently false. The uninsured received $98.9 billion
worth of medical services in 2001 (Health Affairs Web
Exclusive 2/12/03). Only $34.5 billion was in the form of
uncompensated care; $26.4 billion was paid out of pocket; $24.6
billion, by private insurance programs; and $13.8 billion, by
public insurance programs. Presumably, some of these persons were
privately covered for part of the year.
The amount of uncompensated care runs to 2.8% of the $1,235
billion total of U.S. personal health spending. "You pay more for
deadbeats every time you use a credit card," writes Linda Gorman
of the Independence Institute. "The charge-off rate for credit
cards in the U.S. runs about 7%." Other industries that function
perfectly well have higher loss ratios than medical services, and
using the Kaiser figure of $7 billion for uncompensated care, the
ratio is negligible. It is possible, however, Ms. Gorman
explains, that some facilities get hit with most of the losses
and little of the supposed compensation.
Discontent is boiling over: from underpaid physicians and
hospitals, and from overburdened employers faced with escalating
premiums. Medical science has reached the point, stated John
Goodman, that the entire GDP could be spent on medical services,
in useful ways. Under the current system, the problems appear
unsolvable. It is thus time to reformulate the questions,
Rather than obsessing over the absence or presence of
insurance, it is more useful to consider the appropriate role of
insurance in relation to other ways of paying for services.
What should be covered, and who should decide?
Some argue for "basic" benefits, some for "comprehensive,"
and others for "catastrophic." Who will define the terms? If
Congress decides on coverage for 300 million Americans in a
single-payer system, the definition of terms is a matter of life
or death for millions of practitioners. Thus, money that could go
toward meeting medical needs will be diverted to lobbying.
The alternative is to allow Americans to decide for
themselves on the tradeoff between lower premiums with less
coverage, and higher premiums with more coverage, or the balance
between medical services and other necessities of life.
Individual choice, it is argued, leads to adverse selection.
People buy more coverage for care they are likely to use. The
flip side, which should be of equal concern to policymakers, is
moral hazard. People use more services if they are covered. Both
problems suggest the value of minimizing the amount that is paid
through an insurance mechanism.
Scandlen notes that when speaking of "health insurance,"
most people mean prepayment for known consumption. Economically,
there is no difference between making 60 payments of $100 each
before using a service, and "post-paying" for the same service
over 5 years, as people commonly did in the past when they
brought home a baby and a coupon book from the hospital.
Insurance, on the other hand, involves pooling risk. Policymakers
tend to overemphasize the "pool" instead of the "risk," leading
to the tragedy of the commons.
"There is no big unallocated pool of money," writes
Scandlen: every dollar held by the insurer is contractually
obligated. It's the risk that is pooled. One is better
off never having to collect a benefit.
With prepayment, carriers are in the administration
business, explains Joseph Lee Pugh of The Pugh Group. They can't
get rich churning the money unless they keep some of it by
denying claims. "That is the money you make in the risk business
by not having too many claims to pay." Mr. Pugh states that
insurers need to learn that it will be more profitable to "market
high-deductible plans where losses and claims are more
predictable and transaction costs are lower."
In attempting to help the poor, Scandlen points out, there
is no reason to aim the subsidy at the premium rather than at the
user level. If higher deductibles, with assistance available for
out-of-pocket costs, can lead to more efficient utilization, "we
owe it to the taxpayers to test these other models."
We need a burst of innovation in the delivery of services,
Scandlen states: transformative change that is impossible to
predict or control, driven by empowered consumers.
A few of the recommended actions include: (1) Eliminating
Certificate-of-Need and other anticompetitive regulations; (2)
Price transparency; (3) Emphasizing customization instead of
standardization; (4) Focusing "best practices" information on
improving the knowledge base of physicians and patients rather
than on mandatory compliance or discipline of outliers; and (5)
Legislation that enables a citizen of one state to purchase
insurance regulated by another state.
One of the most significant developments, which does not
require public policy changes, is "a growing movement by
physicians to reject the rules and regulations of managed care
plans and Medicare in favor of direct cash payment by patients":
the original AAPS Non-Participation Policy.
What's Stalling the Economy?
In 2003, fuel and power costs went up 21%, and cost
increases have been averaging 10% since January. Steel prices
have soared an average of 42% since December. But it's the
dastardly 8% increase in health insurance premiums that's
purportedly stalling the recovery, writes Linda Gorman.
It is stated that more than one in six households headed by
a person under the age of 65 spends 10% or more of gross family
income on health insurance premiums and out-of-pocket costs.
"Horrors! We must rein in this terrible spending!!" writes Greg
Scandlen observing that six out of six households spend
more than 10% on taxes.
The "Percent of Poverty"
In proposing expansions of government programs, "the forces
of darkness prefer to talk about percentages of poverty levels
rather than actual incomes," writes Linda Gorman. She thinks that
most people are clueless about the shape of the income
distribution curve, vastly overestimating the number of people
who make huge incomes, and believing themselves to be closer to
the bottom of the distribution than they really are.
National median income in the U.S. is $43,318 (see
www.census.gov/hhes/income/histinc/h08.html). The 2003
poverty threshold for two adults and two children was $18,660 (
If someone advocates covering everyone up to 300% of the federal
poverty level, Ms. Gorman suggests asking for figures. You will
probably have to produce them. Then you can ask how putting more
than half the people on the dole will solve anything [3 x $18,660
= $55,980]. In Colorado, 35.7% of households make less than
$35,000, which is a little less than 200% of poverty. The 2000
demographic profiles for all states are at:
Socialized Medicine Updates
Administrative Efficiency. A 93% increase in spending
in the British NHS since the mid-1990s produced only a 29%
increase in health "outputs" (Sunday Times [London]
Private Spending. In nations with socialized medicine
that permit a "two-tier" system, the portion of the medical
dollar spent on private insurance and medical care is: Denmark,
18%; Japan, 19%; Germany, 22%; France, 24%; Italy, 24%;
Australia, 32%; Netherlands, 36%; Switzerland, 42%; United
States, 56% (The Economist 7/17/04).
Outsourcing. By promoting medical services alongside
tourist destinations, Thailand and Malaysia attracted more than
600,000 patients in 2003. Surgery brokers are springing up in the
UK and Australia to arrange private treatment in Asia for
patients stuck on waiting lists. The practice is in its infancy
in Canada. Patients from Calgary applaud the excellent service in
India. Dr. Sunil Patel, President of the Canadian Medical
Association, says that some Asian hospitals offer treatment
better than that available in North America. And "doctors are
starting to learn that patients suffering long waits suffer
irreparable harm." After waiting six months for hip or knee
replacements, patients' joints "stiffen like strips of leather
left out in the sun," said Dr. Michael Dunbar, a Halifax
orthopedic surgeon (H. Sokoloff, National Post).
AAPS Briefs Congressional Staff on Pain
The DEA may issue reassuring statements about its policy
toward physicians who "properly" prescribe opioids for pain. But
there is really "No Safe Harbor," explains AAPS in a response
distributed at a Sept. 17 congressional briefing, "as long as
doctors are subject to criminal prosecution and the draconian
penalties reserved for drug dealers, when the case hinges on a
disagreement between practitioners as to what is proper treatment
for a patient."
Journalist Maia Szalavitz refuted the assertion that doctors
are creating addicts by prescribing pain relief: "90% of
prescription drug abusers have also used cocaine or
psychedelics," she said. Most patients do not enjoy taking
Professor Ron Libby stated that a war on doctors is now a
surrogate for the failed War on Drugs. The claim that only 0.075%
of 972,000 doctors with DEA registrations is targeted for
diversion investigations needs to be placed in the context that
only about 4,000 physicians in the entire country are brave
enough to prescribe the large doses needed to control chronic
intractable pain. As many as 18% of them may be targeted.
Eric Sterling, author of much of the legislation being used
to prosecute doctors, said that the intention was never to give
the DEA a veto over the practice of medicine and that the DEA has
far exceeded any reasonable application of the law. The results
of the law have been far different from the legislative
intentions. The death rate from drug overdose has more than
doubled, and street drugs are purer and less expensive than in
1980. Despite 1.6 million arrests for drug offenses, drug
trafficking would rank about 15th on the Fortune 500. Corruption
and "testalying" are pervasive in the system. Both state and
federal prison populations have increased nearly tenfold since
"The work that I was involved in in enacting [mandatory
minimum sentences] is probably the greatest tragedy of my
professional life," Sterling has said.
In contrast to street traffic, legal prescribing has been
seriously chilled. Pain clinics are shutting down with very
little notice, leaving desperate patients who often can find no
physician willing to prescribe for them, stated Siobhan Reynolds
of the Pain Relief Network (PRN). The result can be "Death by
Tylenol" said Rev. Ron Myers, Sr., M.D.
Reps. Ron Paul (R-TX) and John Conyers (D-MI) have
introduced legislation to defund the DEA.
Materials distributed at the briefing may be downloaded from
include the widely disseminated DEA "FAQ" produced with Last Acts
Partnership, which has now been removed from the DEA site. (This
document was referred to by Judge David Bury in sentencing Dr.
Sept. 21-24, 2005. 62nd annual meeting, Arlington, VA.
Florida Court OKs Fishing Expeditions
In an opinion filed Oct 6 in the case of Rush
Limbaugh v. State of Florida (Case No. 4D03-4973), a
Florida appeals court stated: "the State's authority to seize
[medical records in a criminal investigation] by a validly issued
search warrant is not affected by any right to privacy in such
Concurring in part and dissenting in part, Judge Melanie May
observed that "our legislature has consistently protected medical
records" and chided the majority for keeping its "eyes wide shut"
to the right to privacy. She agreed that the State had the right
to seize the records, but said that a citizen has a right to a
post-seizure hearing on the disclosure of records not relevant to
the crime under investigation. Mr. Limbaugh's physicians had
provided all records, not just those that might pertain to the
suspected crime of "doctor shopping."
AAPS General Counsel Andrew Schlafly, who filed an amicus
brief on Mr. Limbaugh's behalf, writes: "This is the end of
privacy in medical records.... The message to patients is clear:
anything you tell your doctor can and will be used against you.
Rush Limbaugh has not been charged with a crime, and yet the
State of Florida seized many of his highly personal medical
records, without prior notice."
While acknowledging that the law requires "health care
providers to recognize a right of privacy in medical records,"
the Court ruled that this applies only to subpoenas, not search
warrants. Overturning the 2400-year-old Oath of Hippocrates, the
new rule is that "doctors will keep for the State sensitive
information so that it can be used against the patient," Mr.
Schlafly states. "It's open season on anyone's medical records."
AAPS deplores forcing doctors to testify against their
patients and will continue to fight this decision.
First Criminal Conviction. A Seattle man pleaded guilty
under the HIPAA Privacy Rule to obtaining a cancer patient's
Social Security number and date of birth from medical records,
using them to obtain four credit cards, and racking up $9,000
worth of debt in the patient's name. Although the man could have
been prosecuted for identity theft in other ways, HIPAA
violations are easier to prove and carry harsher penalties than
some identity theft laws. The government chose to target an
individual who was not himself a covered entity, but was an
employee of a covered entity.
"The HIPAA statute says that `a person' who
willingly uses and discloses patient data in violation of the
privacy rule can be penalized," writes Nicholas Rummell. "[T]he
privacy regulation, which lists the requirements for
compliance, refers only to covered entities" (HIPAA
Compliance Alert 9/13/04).
"At some point in the future," observed Kirk Nahra of Wiley
Rein & Fielding of Washington, D.C., "there will be a challenge
to the government's ability to prosecute individuals who aren't
covered entities under HIPAA."
"An employee of a covered entity is where the question is,"
Nahra said (BNA's HCFR 9/15/04).
The government appears to be overstepping its lawful
authority, and AAPS will monitor this troubling development.
Privacy Complaints. A new GAO report notes that 5,648
complaints have been filed in the first year after the
implementation of the Privacy Rule. About two-thirds of the
alleged violations were not within the scope of the Rule because
the alleged action was not prohibited or because the cited entity
was not a covered entity. About half the germane complaints were
found valid (
Ironically, the GAO report was released the day after CNN
aired an announcement that neither President Bush nor Senator
Kerry would release his medical records, and just before the
"HIPAA only applies to physicians, hospitals, insurance
companies, and certain other private actors. It specifically
allows the government, broadly defined, to rummage around
wherever it feels like it," writes Linda Gorman. "Since the
private actors were already handling privacy issues fairly well,
my cynical view from the hinterlands is that HIPAA was really
intended to give the government free access.
"Given that a lot of the text was lifted from the Clinton
plan, why am I not surprised?"
HIPAA is a publicity law, not a privacy law, states Stephen
R. Katz, M.D., of Connecticut.
Citizens for Health et al. v. Thompson.
Appeals briefs have been submitted in the Third Circuit in a
challenge to the HIPAA Privacy Rule (Case No. 04-2550) filed by
James C. Pyles of the American Psychoanalytic Association.
AAPS filed an amicus brief arguing that HHS has no authority
at all to regulate medical privacy and that Congress unlawfully
attempted to delegate authority to issue regulations.
"Without a constitutional provision authorizing Congress to
enact laws impairing the obligation of contracts, HIPAA and the
regulations may not impair a physician's obligations to keep a
patient's confidences," writes AAPS.
AAPS argues that the Rule violates the Fifth Amendment by
taking private property patients' medical information without
compensation. Patient records become a commodity moving along the
most highly traveled of any "public road." And once
confidentiality is lost, nothing can restore it.
Briefs are posted at www.aapsonline.org under "privacy."
"Simplification." HIPAA was supposed to save millions
of dollars in claims processing by mandating a standard format.
There are, however, more than 400 variations in the information
required by carriers. By the time the claim passes through the
multiple layers between the physician and the payer, it may have
mutated dramatically, owing to the entry of default options for
required data that may have been omitted. Payment is slowed, and
physicians have no idea whom to ask what new data to include or
whether or why a claim has been rejected (Finkelstein J, AM
Whistleblower Verdict Mostly Upheld
Psychiatrist David Springer, M.D., mostly prevailed in U.S.
District Court in Delaware against a motion for post-trial relief
brought by defendants from the Delaware Dept. of Health and
Social Services. Dr. Springer had suffered retaliation for the
exercise of his free-speech rights in drawing attention to
patient-care problems (AAPS News May
2004), including overcrowding, poor security, inadequate
treatment, and unsafe conditions. While the Court reversed the
award of $100,000 for noneconomic damages, the compensatory and
punitive damage awards stood, and defendants will also have to
pay Dr. Springer's attorney fees. In particular, the Court
concluded that Dr. Springer's intention was to improve conditions
and there was no way to conclude that his comments were
Reality Sets In. As Robert Samuelson writes in the
Washington Post, "The real causes of higher [health-
care] spending are stubborn:... people want the latest and
best at someone else's expense." Seeing emergency rooms close
around them, "compassionate" spenders of other people's money are
beginning to understand that "free" medical care isn't really
free. Watching liberals brainstorm for ways to resurrect the
concept of something for nothing, via more taxes and more
government controls, is like watching cartoon characters doing
CPR on the Tooth Fairy. Pump and blow as they might, their
efforts are futile. The laws of economics will not be defied.
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY
The Message of "Free" Goods. The price of a product
represents an exchange of efforts. It tells the consumer how much
he must exert himself as a producer in order to pay for the
desired consumption. It tells the producer how much the consumer
values his product. Zero-priced goods disappear; they tell the
producer that his efforts are worthless.
Charles Courtney, Riverside, IL
Water Flows Downhill. Central dictation of prices
always causes misallocation of resources. If surgery prices offer
almost-guaranteed high returns, while medical services offer
almost guaranteed low returns (or even losses), why are we
surprised that investment flows into one while avoiding the
other? You cannot force a person to sell some services at a
profit and others at a loss. That person will always find a way
to engage in more of the profitable behavior and less of the
unprofitable. Yet most seemingly fail to grasp this relatively
Sean Parnell, Heartland Institute
False Signals. All economic actors in American medicine
made plans according to government payments that proved
unsustainable. Government attempted to correct its errors by
draconian fee cuts and regulations. Those who based their
business decisions on flawed signals are facing bankruptcy.
Robert P. Gervais, M.D., Mesa, AZ
Consumerism Reigns! According to a story in USA
Today, an uninsured woman negotiated a price of $4,000 for
her daughter's surgery. When the bill came, it was for $21,000.
She requested a breakdown, which even the doctor didn't
understand. She sent her notes of all the services her daughter
received in the 20-hour period, with the names of the staff
members and a list of drugs. The hospital backed off, and reduced
the extra charges to $610.
Richard A. Matthews, CEBS, Hilton Head Island,
The Hazard of Tax Subsidies. The sick and the injured
we shall always have with us. We therefore need to find a
sustainable way to meet this need. Wedding an organization's
existence to the tax policies of one administration might well
make it a widow in the next and where would the patients be when
the nonprofit shuts down? The physician who depends solely on his
patients for income could survive if the "free" clinic hasn't
driven him away.
I got a good view of this principle while working in Haiti.
The U.S. had extra rice, and what could be more generous than
giving food to the starving? Unfortunately, many rice growers
were forced out of business, so when the temporary generosity was
exhausted, there were no rice farmers to meet the demand.
It is very dangerous to disrupt natural exchange between
individuals. In Haiti, it caused more starvation. In the U.S., it
will eventually deplete the supply of medical services to those
in the greatest need.
Robert Berry, M.D., Greeneville, TN
History of the Tax Deduction for Medical Expenses. The
medical expense deduction goes back to 1939. In 1954, a 3% of
income threshold was placed on it. In 1965, an additional
deduction of $150 was added for the purchase of health insurance.
In 1982, the $150 was removed, and the threshold was raised to 5%
of adjusted gross income. In 1986, the threshold was raised again
to 7.5% of AGI.
Greg Scandlen, Galen Institute
"Reform" Proposals. Passing out money confiscated from
taxpayers in increments of $1,000 or less is feel-good help that
will cost a lot to supervise and will do little to change
behavior. A health center for the poor in every county means
federal employees with salary and benefits: costs escalate and
care diminishes. If the government and personal-injury lawyers
got off our backs, retired doctors and others would chip in to
supply charity care to the poor. HSAs are great, but need to be
available with fewer strings. More freedom, less bureaucracy!
Alieta Eck, M.D., Somerset, NJ
Kudos to the Pioneers. The real progress in privatizing
medicine is being made by AAPS and doctors who have opened "cash
only" practices and opted out of Medicare.
Donald Salmon, M.D., Las Vegas, NV
It's Not about the Uninsured. It has been suggested
that "caring" foundations (interest groups) give money to
charities or insurers to provide care or insurance, instead of
spending millions to "study" problems. No takers. Why?
Joseph Lee Pugh, Diamondhead, MS
Legislative AlertHealth Care at High Noon
The Presidential contest is shaping up to be a decisive
showdown on the future direction of American medicine. Neither
candidate has a specific blueprint, a single coherent plan that
would itself transform the system. Neither candidate has outlined
anything like a Canadian style system or a free-market overhaul
of the existing third-party payment system. So, strictly
speaking, neither candidate has the Big Plan.
Instead, both Bush and Kerry have embraced what we might
call, for a better word, incrementalism. They both have outlined
an array of specific proposals that address specific topics from
expanding access to the uninsured, to health insurance market
reform, professional liability, the role of information
technology, and the future of Medicare and Medicaid and long-
term-care insurance. Frankly, both candidates have offered a very
mixed big of proposals, which, taken as a whole, would lead the
nation in two very different directions.
The Bush package would, according to analysts at the Lewin
Group, amount to $227.5 billion in new spending over the next ten
years, not counting implementation of the new Medicare law. On
the other hand, Bush also signed into law the creation of Health
Savings Accounts, and they promise to revolutionize the market
and bring an unprecedented level of personal control. If they
catch on, Bush will have achieved an enormous breakthrough for
Senator Kerry has a set of initiatives that go in a very
different direction. They would cost between $1 and $1.5 trillion
over ten years. Recent conservative rhetoric on the Kerry health
plan has been pretty hot. He does not, however, propose a single-
payer system. Nor does he suggest price controls or premium caps,
or forcing Americans into regional alliances a la Clinton. What
he propose is to expand existing third-party payment systems,
particularly Medicaid. The Medicaid expansion is massive, and
will reach up the income scale into the middle class. Moreover,
he proposes to have the government pick up all high-end costs for
all patients with annual medical expenses exceeding $30,000 a
year and allow businesses and individuals to enroll in the
Federal Employees Health Benefits Program (FEHBP) in a separate
pool. His proposed changes in the FEHBP would radically transform
it into something very different from what it is today. Both
items would entail substantial increases in federal spending and
regulation, with the cumulative effect of putting the system on a
glide path toward national health insurance.
Bush is proposing an expansion of Health Savings Accounts,
as well as refundable tax credits for low-income uninsured
Americans to buy health insurance and participate in HSAs. Bush
has proposed truly innovative insurance market reforms, including
the idea of interstate commerce in health insurance, enabling
people to buy affordable coverage across state lines. This holds
open the potential of creating large national pools, the
marketing of plans by interstate associations and organizations,
and lower administrative costs. National competition is a good
thing for insurance, and for doctors, clinics, hospitals, and
specialty centers. Bush is also in favor of serious professional
liability reform, including a cap on damages for pain and
suffering. The lawyers hate it.
Kerry is to be commended for recognizing that the tax
treatment of health insurance is decisive, and changing it will
spur increased private coverage. Kerry has also offered some
promising professional liability proposals, including pre-trial
screening against frivolous lawsuits, a mandatory mediation
process, and limiting punitive damages to cases of intentional
misconduct or real negligence.
Bush wants to continue to cover children through Medicaid
and SCHIP and has embarked on a $9.4 billion program to do it. A
much better idea would be to stop treating children as separate
from their parents, but rather as part of a family unit, if
necessary juicing up the refundable tax credits for private
coverage. Every government expansion of coverage contracts
private health coverage. That is a bad thing.
Kerry's FEHBP gambit is a bad idea. It is one thing to say
that the FEHBP is a good model for Medicare reform, or the reform
of health insurance markets in a consumer-driven direction. It is
quite another to say that FEHBP is, or should be, a vehicle for
covering the uninsured. The FEHBP is designed to cover federal
workers with an average income of almost $56,000 per year
($71,000 per year in the D.C. area), and not low-income working
people in small businesses. The premium for the average family
plan next year will be more than $10,000, which is way beyond the
means of most low-income uninsured folks or retirees. Kerry
addresses this problem, not by encouraging the purchase of more
affordable coverage, but by providing a subsidy for any person
whose insurance premiums exceed 6% of income. Now follow this:
Young healthy people won't buy such expensive coverage, but older
sicker people will, so there will be a disproportionate number of
older and sicker folks in the program. This will set off a raging
adverse selection, spiraling costs, and market instability. Next
step: federal officials will intervene, draft more rules and
regulations, impose some nasty risk-adjustment mechanism that has
never been tried before, or require all plans to offer a uniform
comprehensive benefits package. Say goodbye to choice,
competition, and the FEHBP as we have known it. The program would
likely devolve into a version of giant, Clinton-style regional
alliances, run by Clinton-style regulations.
Bush's Medicare entitlement expansion is ugly. The
Medicare drug benefit will cost well in excess of the latest
estimate of $534 billion over ten years, and will possibly reach
$2 trillion in the second decade. By the end of the year, expect
the ten-year estimates to be higher. The Medicare entitlement
expansion will crowd out private drug coverage, forcing millions
of Americans who lose their employment-based drug coverage to pay
more for an inferior government benefit. As previously noted, the
best option is to delay implementation.
Kerry's federal subsidy for high-end costs is equally ugly.
It involves a massive cost shift to the taxpayers. As the Buffalo
Bills quarterback and conservative Congressional champion Jack
Kemp of New York used to say: If you want less of something you
tax it; if you want more of something you subsidize it. So,
expect more high-end costs and more federal spending.
But you can bet that the idea of socializing catastrophic
costs, passing on an estimated premium savings of $1,000 per
family, will be popular. Insurance companies probably won't mind
at all, and big employers, like the automakers, will surely like
the idea of dumping high-end costs onto the taxpayer. Small
employers may or may not like it, because with the premium rebate
proposal comes a series of very specific requirements on small
businesses, including the requirement to cover all employees and
keep track of their spending. Businesses are tired of government
mandates. The big question is whether a promised $1,000 premium
reduction is worth a guaranteed tax increase of $1,000 or more.
This is a government program, and you cannot separate a
government program from politics. Politicians would have a juicy
target. Why should we have the government come to the rescue at
$30,000 worth of costs, or $50,000, instead of $20,000, $10,000,
or even $5,000? And why should patients pay 25% of high costs,
rather than 20%, 10%, or 0%? Political pressure will be
relentless to reduce the percentage if not the threshold: you can
bet on it. Promising something for nothing, or a lot for a
little, always wins in politics.
Finally, there is the issue of counting the patient personal
spending to the threshold where the taxpayer funding kicks in.
The government will want to make sure that the spending is real,
and that means audits, and audits mean investigations and records
and lots of extra administrative duties for employers, health
plans, and government officials. Lots of work. Probably lots of
rules. Regulations. Guidelines. The government will also want to
make sure that the spending is "medically necessary and
The cost of Kerry Plan is also ugly. Different assumptions
will get you different results, and that is why economists
haggle, getting into the methodological weeds, where some have
wandered, never to return. In one sense, it doesn't make any
Emory University Professor Ken Thorpe's analysis, which is
cited by the Kerry campaign, estimates a $653 billion cost over
ten years. For the same period, the Joe Antos-American Enterprise
Institute study comes up with $1.5 trillion; the Lewin Study,
with $1.25 trillion; and the National Center for Policy Analysis,
with roughly $1 trillion. Whichever you pick, the Kerry tax
package is not going to cover the cost of the Kerry health plan.
Here's why. The Senator is proposing to cut the deficit in
half in 4.5 years, make all of the middle-class income tax cuts
permanent, add a new jobs tax credit, and cut corporate taxes. At
the same, he wants to add new initiatives for funding education
and relief for state and local governments, plus programs for
energy, the environment, and technology. Over the period 2005 to
2014, the Urban Institute projects a net revenue reduction of
$643 billion, and the Heritage Foundation Center for Data
Analysis a reduction of $686 billion. That's better than
government work. The vaunted tax increase on the rich defined as
Americans with family incomes greater than $200,000 a year would
bring in revenues of little more $174 billion over that time
period, and even keeping the estate tax would only garner $2.7
billion. Thus, unless he scales back his spending plans, Heritage
estimates that Kerry would in fact have to raise taxes by between
$2,090 and $2,829 per household. That's a hefty increase and not
just on The Rich.
Doctors, hospitals, and clinics are capable working wonders
for millions of Americans, but the next President and the
Congress are going to have to fix the financing of the system.
HSAs are a great start. But only a start. The federal government
will have to address distorted health insurance markets, massive
cost shifting, artificial restrictions on consumer preferences,
and the insulation of plans and providers from robust and healthy
Are You Better Off?
How Reaganesque! Families USA, a left-wing group
pushing for more government control over medicine, is telling us
the obvious: medical costs are higher, and they are squeezing
wages. Are you better off than you were four years ago?
Their report is not remarkable. Over the period 2000 to
2004, health insurance premiums rose faster than earnings in 35
states. On average, workers' premiums rose 35.9%, while earnings
rose by only 12.4%. Ron Pollock, the chief honcho of Families
USA, is saying that workers are being squeezed by runaway costs
over the past four years, as employer-based insurance premiums
rose from $7,028 in 2000 to $9,320 in 2004, and the average
amount paid by workers for the coverage rose from $1,433 to
$1,947 (by 35.9%). The number of persons who ended up paying more
than 25% of their income for health-related costs jumped from
11.6 million to 14.3 million in 2004, a 23% increase. And one out
of three people under age 65 went without medical coverage for
some period of time in 2003. Pollock says that all of this needs
"immediate" attention. He doesn't specify what is to be done.
This is nothing new. Medical care costs have been running at
more than twice the rate of inflation for many years,
particularly since the late 1960s and the early 1970s, with the
advent of Medicare and the expansion of Medicaid. We have a
growth in population, and the new numbers reflect that. But in
2003, we had 15.6% of the population uninsured, compared to 15.3%
in 1993. So, if the implication is that George Bush did this,
then he must stand in the guilty line well behind Bill Clinton
and just about every other President back to Lyndon Baines
Johnson. In the 1970s, medical costs had reached such a level of
crisis that President Jimmy Carter wanted Congress to impose
price controls on hospitals, and pushed a Hospital Cost
Containment Act that failed. Costs continued to rise throughout
the 1980's and early 1990s.
Meanwhile, remember one thing: any politician who promises
to deliver something for nothing is lying through his teeth.
Robert Moffit is Director, the Center for Health Policy
Studies at the Heritage Foundation, Washington,