Kansas Health

Putting a cap on high-end insurance policy subsidies

[John O. Fox, "The Tax Break That Corporate Execs Don't Need," The Washington Post, 25 July 2004.]

Mount Holyoke College lecturer John Fox details in this article just how absurd current tax policy is regarding federal tax exemptions for health care coverage. He takes up an idea proposed under Ronald Reagan's Treasury Department to cap the exemptions. Building upon this idea, policymakers should consider decoupling the exemption from employer-based insurance altogether:

Helping uninsured Americans acquire basic health coverage is an important presidential campaign issue. Not only are there an estimated 43 million uninsured, but premiums for those who do have insurance are rising at double-digit rates, employers are shifting an increasing share of the costs onto employees, and many people who used to work for companies that paid part of their insurance are now self-employed and have to foot the whole bill themselves. So both President Bush and Sen. John Kerry are promising to make coverage more affordable for the uninsured. But I bet you're wondering just where Congress is going to find the money to make this possible. Without the money, the candidates' promises are, let's face it, empty.

Bush proposes to spend $90 billion over the next 10 years to extend coverage to about 5 percent of the uninsured, but he has yet to tell us where the funds will come from. Kerry proposes to spend at least $650 billion over the same period to help about 60 percent of the uninsured, and expects to pay for it by rolling back the Bush tax breaks for the top 2 percent of taxpayers, an unlikely event if the Republicans retain control of Congress.

So let's get real. Want to know how to cover all of Bush's plan or make a significant down payment on Kerry's? Here's how: Congress could eliminate a tax break that for the last 50 years has irresponsibly subsidized deluxe health insurance policies, mostly for corporate management.

If tax relief for health insurance were limited to basic policies, the additional income tax revenues -- $15 billion in 2004 alone, according to a 2001 Congressional Budget Office estimate -- could go a long way toward covering the uninsured. Moreover, tax breaks for deluxe policies excessively drive up the cost of health insurance, and health care, for everyone. So curtailing this tax break is a winner for the great majority of Americans.

FTC and DOJ question state mandates, certificates of need

[Press release, "FTC and DOJ Issue Report on Competition and Health Care," The U.S. Federal Trade Commission, 23 July 2004.]

The Federal Trade Commission and Department of Justice recently released a report entitled "Improving Health Care: A Dose of Competition," that, among other things urges state governments to reconsider the effectiveness of insurance mandates and certificate of need policies:

Culminating a two-year project, the report reviews the role of competition and provides recommendations to improve the balance between competition and regulation in health care. The report provides significant recommendations and observations on a variety of topics, including the availability of information regarding the price and quality of health-care services; cross-subsidies; physician collective bargaining; insurance mandates; hospital merger analysis; managed care organizations’ bargaining power; and hospital group purchasing organizations.

The report is based on 27 days of FTC/DOJ Joint Hearings on Health Care and Competition Law and Policy, held from February through October 2003; an FTC-sponsored workshop in September 2002; and independent research. The hearings gathered testimony and written comments from more than 300 participants, including representatives of various provider groups, insurers, employers, lawyers, patient advocates, and leading scholars on subjects ranging from antitrust and economics to health-care quality and informed consent. Almost 6,000 pages of transcripts of the hearings and workshop and all written submissions are available on the FTC’s Web site.

States should...

[r]econsider whether Certificate of Need Programs best serve their citizens’ health-care needs. On balance, the FTC and DOJ believe that such programs are not successful in containing health care costs, and they pose serious anticompetitive risks that usually outweigh their purported economic benefits

reconsider whether current mandates best serve their citizens’ health-care needs. When deciding whether to mandate particular benefits, governments should consider that mandates are likely to reduce competition, restrict consumer choice, raise the cost of health insurance, and increase the number of uninsured Americans.

[Matthew Hisrich, "State Mandates reduce insurance affordability," The Flint Hills Center, May 2004.]

Kerry's slow and steady approach to nationalized health care

[Michael Cannon, "Kerry vs. Health Care," The Cato Institute, 30 July 2004.]

Democratic Presidential candidate John Kerry has been accused of being overly vague on how he intends to transform the nation. In one area, though, he has offered some clear indications of his plans. Kerry's health care proposal, recently endorsed by Kansas Insurance Commissioner Sandy Praeger, would veer the U.S. health care system down the path of socialized medicine. As Cato's health policy studies director Michael Cannon shows, this is a dangerous course for the nation to follow:

Prominent liberal columnist Paul Krugman recently wrote that "considering its scope, [John] Kerry's health plan has received remarkably little attention." Krugman may not enjoy watching it get the attention it deserves: The Kerry health plan would undermine health coverage and reform more than any proposal since President Clinton's Health Security Act, and deserves as much scrutiny.

First off, Kerry would greatly expand eligibility for Medicaid, the government health program originally devised to provide coverage for the poor. This move would:

- Spend hundreds of billions of dollars to provide coverage to millions who already have it.

- Increase the cost of private insurance.

- And cause many to lose their current coverage involuntarily, leaving them with worse coverage or none at all.

According to Rand Health (the health-care division of Rand Corporation, the nonpartisan think tank), up to half of those who enroll in Medicaid under eligibility expansions already have private insurance but drop it -- or are dropped by their employer -- when they become eligible. Combined with estimates from former Clinton health official Ken Thorpe, this suggests that under the Kerry plan, taxpayers would spend $300 billion over 10 years to provide Medicaid coverage to as many as 18 million people who already have private coverage today.

Those who end up on Medicaid may find it a poor substitute: The Kaiser Family Foundation reports that women on Medicaid have twice as much difficulty finding a doctor who will see them as women with private insurance.

And draining 18 million paying, risk-spreading customers from private pools would make the coverage even more expensive -- which in turn would cause more workers to lose the coverage they now have.

Second, Kerry proposes a "health alliance" where all employers and individuals could purchase taxpayer-subsidized coverage from a menu of options, much like federal employees do. This move:

- Is unlikely to expand coverage.

- Could eliminate federal workers' choices.

- And would serve as a platform for a government takeover of private health insurance.

Rand Health found that when states tried similar reforms, "alliances did not have their intended effects. They did not increase the percentage of small businesses that offered health insurance, nor did they reduce small-group market health insurance premiums."

Under the Kerry proposal, insurers would have to offer the same plans to both federal workers and those in the Kerry health alliance. Any plan that proves unprofitable in one would be taken away from the other -- which could take away from federal workers the coverage they now enjoy.

Finally, the proposal's lavish subsidies seem designed to draw all insurers and insured into the Kerry health alliance, where they would meet Kerry's third and final proposal.

For health plans in the alliance, Kerry proposes having the federal government pay three-fourths of all claims over $50,000 -- that is, he'd nationalize a large share of the health-insurance industry. Over time, this would lead to nationalization of the entire industry.

With the deficit growing and health-care costs climbing, the federal government would need to limit its exposure (for claims below $50,000 as well, to ensure patients do not "unnecessarily" reach that threshold). The most likely tools would be those used in Medicare: coverage standards, price controls, administrative bureaucracy and fraud prosecutions. As a preview of things to come, Kerry already proposes allowing the federal government to approve premiums within the health alliance.

By starting small, over time Kerry could achieve what Clinton could not: an effective government takeover of the health-care sector.

Thorpe's widely cited cost estimate of what the Kerry plan would cost -- $653 billion over 10 years -- also doesn't withstand scrutiny. First, Thorpe's projections cover nine years, not 10. Second, they implausibly erase much of the cost by assuming the Kerry plan would so increase efficiency that taxpayers would get back 30 cents of every dollar spent.

Without those projected savings and with a 10th year added in, Thorpe's projections suggest the Kerry plan would cost $1.1 trillion over 10 years -- which most agree would require a broad-based tax increase.

Despite all this, Kerry's most alarming policy is his long-standing opposition to health savings accounts, a new coverage option made available this year. Since January, tens of thousands of uninsured Americans have gained coverage with health savings accounts, and millions more could do so soon.

Kerry has voted against health savings accounts in the past and today likens them to the tax relief he seeks to eliminate. His allies in the Senate have introduced legislation to repeal them, even though that would cut off the surest way to make health insurance affordable.

America is not without her health-care problems, and serious changes are needed. Certainly no presidential candidate has perfect answers. But a status quo that includes health savings accounts is far better than the vision put forth by Sen. Kerry.

[Matthew Hisrich, "Additional Medicaid Spending is Irresponsible," The Flint Hills Center, 22 July 2004.]

Some hospitals lowering bills for the uninsured

[Jodie Snyder, "Hospitals reducing rates for uninsured," The Arizona Republic, 28 July 2004.]

Hospitals often charge patients with insurance reduced rates negotiated through their insurer, but charge those without insurance the full price. While this could be seen as incentivizing insurance, some say it translates into taking advantage of those least able to pay. Now, faced with public pressure and realizing some patients might actually be more willing to pay rather than default if rates are reduced, some hospitals are changing their policies:

Increasingly, uninsured patients are receiving price breaks at hospitals. At University Medical Center, for example, lab tests that went for $70 are now $22; CAT scans are $200 instead of $1,000.

In the Valley, at least four major hospital systems have changed their policies or are planning to, according to a survey by The Arizona Republic.

Their actions address one of the unpleasant ironies of the health care business: Uninsured patients, who are often least able to cover their hospital bills, are billed at full price, while a 40 to 60 percent discount is given to those with insurance.

Insurance companies negotiate for lower prices from health care providers.

The billing differences have come under scrutiny in congressional hearings and class-action lawsuits. Especially under fire: non-profit hospitals that receive tax breaks in exchange for offering charity care yet file liens against patients' homes and cars to collect unpaid debts.

"They are deathly afraid of having their not-for-profit tax exemption removed for not providing charity care," said Roger Hughes, executive director of St. Luke's Health Initiatives, a Phoenix-based health care policy organization.

Hospital officials said they made the changes after top federal officials gave their permission. The hospitals had believed Medicare regulators would not approve the move because offering different billing rates might be seen to violate Medicare rules against kickbacks.

For hospitals, charging less may mean they have an easier time trying to figure out their bottom lines.

Over the past few quarters, hospitals, especially for-profit institutions, have had to write off millions in bad debt. Financial analysts also have become nervous, worrying that the lawsuits and congressional hearings could hurt hospitals' ability to make bond payments or worse. In Illinois, for example, a hospital lost its property-tax exemption because of its treatment of the uninsured. It was billed for $1 million in back taxes. Analysts now want hospitals to address their charity care and uninsured care as part of their bond prospectuses.

Also, if hospitals charge less, they may have a greater chance of collecting on their bills because people may make more of an effort to pay them if they don't seem so overwhelming. Hospital officials estimate that they get just 10 cents to 40 cents on the dollar if they turn bills over to collection agencies.

That may help hospitals' bottom lines, but it's also a clear benefit for patients' pocketbooks.

Medical errors on the rise

["Fatal Medical Errors," NCPA Daily Policy Digest, 29 July 2004.]

Pharmaceuticals and new technologies are often blamed for rising health care costs, but there is another, more ominous factor at work according to recent reports:

A new study estimates that the number of patients who died from medical errors is more than double the findings in a 1999 report that sparked major concern.

If hospital errors were reported by the Centers for Disease Control as a cause of death, they would rank sixth, ahead of diabetes, influenza, pneumonia and Alzheimer’s disease, according to researchers.

The study by Health Grades Inc., a consulting firm in Colorado, used data from Medicare patients over age 65. The data was then adjusted to compensate for age. Researchers found that:

- Medical errors contributed to almost 600,000 patient deaths over the past three years, or about 195,000 per year.

- An earlier Institute of Medicine report estimated that 44,000 to 98,000 preventable deaths occurred each year due to medical errors.

- The costs associated with treating Medicare patients who were victims of medical errors is about $2.9 billion a year.

Pill-splitting pros and cons

[Karen Uhlenhuth, "Split the pill," The Kansas City Star, 28 July 2004.]

A quick way to save money on prescription drugs can involve simply cutting them in half - the pills, not the dosage, that is. Many drugs are priced similarly per pill regardless of the dosage and therefore have the potential to be ordered at higher dosages and then split. As this article points out, though, there are many factors to consider before doing so.

Regardless, what readers should take away from such examples is that being a savvy consumer can pay off. Too often when it comes to medicine passivity or lack of concern take over - in part because insurance is generally picking up the tab for the bulk of the cost.

Pill-splitting is simply one way to take a more active role. Recent research has shown that just taking a trip to another pharmacy can lead to significant savings. Shopping around, a method used for most other purchases, is rarely applied when it comes to filling prescriptions.

Can "MinuteClinics" relieve overburdened ERs?

[Michelle Andrews, "Next to the Express Checkout, Express Medical Care," The New York Times, 18 July 2004.]

Coming soon to a grocery store near you: express medical care. Staffed by nurse practitioners, these speedy and low-cost alternatives to doctor's visits are certainly not the answer to rising health care costs. But, they may serve as part of the answer to the reliance of the uninsured on the most expensive form of medical care - the emergency room.

When Jodi West woke up one Friday in May with a weepy, crusty right eye, she rinsed her face and hoped that it would clear up on its own. By the next morning, the infection had spread to both eyes, and she realized that she would have to see someone about it. But she knew that she would have to be quick: her 7-year-old daughter was dancing in two recitals that day. So they got in the car and drove off, not to a hospital emergency room, but to the Target store in Shoreview, Minn., about 15 minutes from their home in Centerville.

There, at a clinic in the store, they went to a kiosk and signed the register. After about five minutes, a nurse practitioner ushered Ms. West, 37, into a tiny examining room. She asked a few questions, examined her eyes, wrote a prescription and sent them on their way. "It took 20 minutes, tops," Ms. West said. "I wish these clinics had been around when my son was young and getting ear infections all the time."

The clinics, called MinuteClinics, are cropping up in Target and Cub Foods stores in the Minneapolis-St. Paul area. Now in 10 stores, the MinuteClinics aim to diagnose and treat about a dozen common ailments -- like strep throat, sinus and ear infections and seasonal allergies -- in about 15 minutes. They also provide vaccinations and offer screenings for cholesterol and blood pressure problems.

Because waiting times can stretch into hours at doctors' offices, urgent-care clinics and emergency rooms, the clinics' slogan, "You're sick, we're quick," has a powerful appeal.

The concept is catching on in other cities. Since last fall, clinics with names like FastCare, Quick Care and MEDspot have opened in cities like Milwaukee, Louisville, Ky., and Fort Wayne, Ind. Though the services vary and only some accept insurance, they share a commitment: "It's all about saving people time," said Linda Hall Whitman, the chief executive of MinuteClinic.

The clinics are popular because they are fast -- and relatively cheap. At MinuteClinic, a visit to test for strep throat costs $44, versus an average of $109 at a doctor's office or $328 in an emergency room, according to the Minnesota Council of Health Plans, a trade group.

Steve Pontius, a founder of MinuteClinic, said he and his two partners came up with the idea for it in 1999 while talking about the trouble of taking children to a doctor for simple ailments. Once, Mr. Pontius said, he was sure that his son, then 5, had an ear infection. "When it's your fourth child, you just know," he said. After they waited three hours at an urgent-care clinic, a doctor examined him. In three minutes, he gave the expected diagnosis.

"We thought if we could find a way to deliver the service quickly and conveniently, that people would be willing to pay for that," Mr. Pontius said.

More than 142,000 patient visits later, it looks as if they were right. In August, MinuteClinic will open three new clinics at Targets in Minnesota. And with plans to open in other states, MinuteClinic or one of its rivals may soon be in a supermarket or discount store near you.

"Obesity epidemic" questioned

[Rosie Mestel, "Worth Its Weight in Debate," The Los Angeles Times, 23 July 2004.]

From the film "Supersize Me" to Tommy Thompson, Americans are inundated with discussions of how much they are overweight. Some are beginning to question the claims behind such scare tactics, and whether they are leading to healthy outcomes:

Two-thirds of us are now deemed overweight, with half of those classified as obese, according to the government. In March, the U.S. Centers for Disease Control and Prevention said obesity was killing at least 400,000 Americans a year, almost as many as the 435,000 death toll from tobacco.

Obesity skeptics say this is the latest in a long string of exaggerations.

"There's this tremendous cultural hysteria about this issue which is really not justified at all by the scientific and medical literature," said [Paul] Campos, a University of Colorado law professor and author of "The Obesity Myth." "P.T. Barnum — wherever he now may be — must be furious with the notion that he can't get in on this thing."

Campos and others contend that study after study — including those of 1.8 million Norwegians and 115,195 Massachusetts nurses — have found that people who were overweight had a lower risk of death than those who were lean. Some studies (such as one of 9,228 middle-aged and elderly Israeli men) have reported that people who intentionally lost weight died sooner than those who stayed fat.

Jeffrey Friedman, an obesity geneticist at Rockefeller University, said the apparent weight rise of Americans was in large part an illusion. Very fat people have certainly gotten a lot fatter, he said, presumably because their genes make them especially prone to gain weight in today's food- and leisure-rich environment. Nearly everyone else has stayed more or less the same, or gained just a few pounds.

The perceived national obesity crisis is actually a problem for a narrow group of people, he said. Targeting the entire population with an exercise-and-eat-less public health campaign won't solve the problem.

USC sociology professor Barry Glassner sees something familiar about the obesity epidemic he reads about daily. It reminds him of headlines about flesh-eating bacteria and satanic preschool molestation — topics explored in his 2000 book "The Culture of Fear: Why Americans are Afraid of the Wrong Things."

"From the hysteria from government officials and the media, one could easily get the impression that gaining a few pounds is the equivalent of taking up smoking or removing the seat belts from your car," he said.

The current obesity flap, he said, is one more example of what sociologists like to term a "moral panic." Obesity is the ghoul du jour — and predictably, our reaction is over the top.

What drives the skeptics craziest of all is what they term the tweaking of data to exaggerate the risks from extra weight. They say such shaky methodology pervades the body weight literature.

The most egregious recent example of this, they say, was the CDC's pronouncement in March that obesity was killing 400,000 Americans a year. The study, which was used in the kickoff of a federal anti-obesity campaign, came up with its estimate by taking the death risk of young people who were obese and applying it to the whole population.

But a variety of scientists, including some at the CDC itself, later took issue with the study. One of them, Stanton Glantz, a professor of medicine at UC San Francisco, said the methodology made no sense because the death risk from obesity for young people was known to be high, and the risk for the elderly was tiny. The result was a highly inflated death estimate.

Even with this abyss of disagreement there are some areas where both sides agree. Diets work very poorly: Most people can lose only about 10% of their body weight, and most tend to gain back their weight over time.

Exercise improves health, no matter what you weigh.

Steven Blair, president of the Cooper Institute, a nonprofit research and education foundation in Dallas, says exercise is by far the most important factor in long-term health. He has monitored thousands of men and women for decades — and showed that a person's performance on a treadmill test at the study's start was a better predictor of later health than was body weight.

"It's better to be fat and fit than be lean and unfit," he said.

A new model for health care in the U.S.

[Building a Better Health Care System, National Coalition on Health Care, July 2004.]

The much-anticipated bi-partisan National Coalition on Health Care report finally hit the public recently. As was predicted here a short while ago, a key component of the plan is universal coverage achieved through expanded public programs, employer mandates and higher taxes.

Unless we improve the quality of care, we will not be able to manage costs or afford universal coverage. Unless we manage costs effectively, we will not be able to achieve equitable financing or cover all Americans. And unless we assure coverage for everybody, we will be unable to make the system less complex, establish a level playing field without cost-shifting, or create a truly competitive health care marketplace.

While it is impossible to argue that the nation's health care system is in need of reform, to state that equity, efficiency, simplicity, or effectiveness will arise from a greater government role in medicine is to reveal a dangerous naivete regarding economics and public choice. Only by restoring the role of the market in health care can this broken system be repaired.

Treasury Department releases HSA Q&A

Interested in the finer points of HSAs? The U.S. Treasury Department recently released an extensive Q&A document on Health Savings Accounts.

"Limited Paternalism"

[Arnold Kling, "Our Coming Ideological Battles," Tech Central Station, 20 July 2004.]

This recent column from Tech Central Station provides a decent roadmap toward a future not dominated by single-payer health care. That such a plan will reduce calls for socialized medicine may be unlikely, but it certainly should undermine efforts to cast those calls as reasonable:

America's health care system has many flaws. However, the solution is not to enlarge government's role. What I would like to see is a role for government in health care that is streamlined, rationalized, and bounded. I call this approach "limited paternalism."

Limited paternalism has the following components:

- Direct provision of health care services to the poor. For example, government-subsidized clinics in poor neighborhoods with nominal charges (say, $10 per visit).

- Aim to switch from a system of employer-provided health insurance to consumer-purchased health insurance, by ending the tax deductibility of insurance for corporations and eliminating requirements that companies provide health insurance.

- Mandatory catastrophic health insurance for all families not eligible for Medicaid. Rather than expand Medicaid and other government programs upward to the middle class, as some Democrats propose, tighten eligibility for these programs and require co-payments for all but the poorest participants. Eventually, phase out Medicaid and replace it with health care vouchers.

- Phase Out Medicare, and instead mandate health care savings accounts. This would change the medical portion of retirement security from a defined-benefit plan, which Congress will tend to pack with benefits that it cannot pay for, to a defined-contribution plan, which is much sounder financially and much fairer generationally.

- Institute government-provided "catastrophic reinsurance" for very high medical expenses. The Kerry campaign has proposed this for expenses of over $50,000 per year. The purpose of catastrophic re-insurance is to enable private insurance companies to compete for business without having to screen out high-cost individuals. Of all the mechanisms for spreading the cost of break-the-bank illnesses among the general public, catastrophic reinsurance would involve the government in the least number of individuals and the least number of medical decisions. While the rest of the Kerry health care plan tends to be the opposite of what I would like to see, this proposal strikes me as a good plank in any health care reform platform.

"Limited paternalism" may not be everyone's ideal. However, the most likely alternative will be creeping socialism -- or perhaps galloping socialism. As more and more medical care comes under the auspices of government, the American system will start to acquire the flaws of Canadian health care. Without a safety valve.

Bringing medical technology up to speed

[Julie Schmit, "Health care's paper trail is costly route," USA Today, 19 July 2004.]

With the increased presence of technology in medicine - MRIs, laser surgery, and a host of other applications - it is easy to assume that the medical community is ahead of the curve. When it comes to paperwork and record-keeping, though, the industry has fallen behind. Research indicates that adapting new technology can lead to gains in effeciency and significant savings. But the hurdle that remains is the cost of such a transition:

Technology has cut costs and increased productivity in industry after industry.
But health care, a $1.6 trillion beast that wallops business and consumer pocket books more and more, still largely runs on paper.

Visits to new doctors require patients to fill out forms for the same old information. Getting test results from one office to another can take days. That often leads to duplicate tests, excess costs and poor care.

Based on tech's impact on other industries, John Chambers, CEO of Internet titan Cisco Systems (CSCO), says technology could cut health care costs by at least 25% — and improve care. In May, President Bush set the goal for every American to have an electronic medical record, instead of the traditional stuffed manila folder, within 10 years. At the same time, he named David Brailer to the new position of national coordinator of health information technology.

On Wednesday, Brailer is expected to announce government plans to nudge the industry forward. In the past 18 months, lawmakers introduced at least five bills pushing health care tech ideas.

It won't be an easy fix, though. Billions in investments have been lost on health care tech. The reasons are many. Health care is a huge, fragmented industry: 700,000 doctors; 5,700 hospitals. Each piece collects data its own way. Existing systems don't talk to each other. More common standards are needed. Privacy has been a concern.

The biggest reason, though, is economic. Doctors and hospitals bear the cost of new hardware and software. Their productivity suffers when they change decades-old work processes. But those who pay for care, insurers and employers, get the first financial benefit because of increased efficiency and fewer costly errors.

For many doctors, "the economics don't work," says John Glaser, chief information officer of Partners HealthCare System in Boston. Yul Ejnes, an internist in Rhode Island, uses computers to process office bills and appointments. He banks online. But Ejnes still uses paper medical charts for patients. Existing software is too hard to use, he says. Then there's the cost — "$10,000, $20,000 or more per doctor," he says. Sure, he'd eventually benefit. But the real financial gain would go to insurers, hospitals and others. "And they're not paying anything for it."

More than 90% of the 30 billion health care transactions done annually occur via phone, fax or paper, says the eHealth Initiative, a non-profit formed to spur tech adoption. While 90% of physicians in Sweden and the Netherlands use electronic patient medical records, fewer than 20% of U.S. primary-care physicians do, the same percentage as Greece, says market researcher Harris Interactive.

Health and Human Services Secretary Tommy Thompson estimates the USA could save $140 billion a year using more tech. That's a lower estimate than Chambers', but about equal to Mexico's '04 federal budget.

More important, tech could improve care. The Institute of Medicine in 1999 called medical errors one of the nation's leading causes of death, citing studies that they resulted in 44,000 to 98,000 deaths a year in U.S. hospitals. If doctors adopted computer systems that not only replaced paper records but also warned if a drug prescribed to a patient might interact badly with another they're taking, 2.1 million fewer patients would suffer drug reactions, says a 2004 study by the Center for Information Technology Leadership.

While every effort helps, wide-scale tech adoption won't hit critical mass until the federal government changes how it pays for health care, Glaser says.

The government — via programs such as Medicare and Medicaid, and as a big employer — pays for more than one-third of all U.S. health care. Often, it rewards doctors and hospitals to do more tests, not less. It doesn't reimburse doctors for e-mail consultations, thereby encouraging more visits.

In May, Sen. Edward Kennedy, D-Mass., introduced a bill that would link Medicare payments for the first time to the use of technology. Hospitals that do, and meet other goals, would eventually get higher federal financial reimbursements than those that don't.

NCPA: The new Medicare drug benefit was guaranteed to fail

[Bruce Bartlett, "New Coke and Medicare," NCPA, 21 July 2004.]

In this column, NCPA senior fellow Bruce Bartlett explains that unless senior got everything they wanted for free, they were prepared to be disappointed by the hugely expensive Medicare drug benefit. Now policymakers must determine if they have the political will to follow the example of the private sector and get rid of a bad idea:

Back in 1985, the Coca-Cola Co. made a major screw-up. It decided to get rid of its classic cola drink and replace it with something sweeter called New Coke. The company had extensively market-tested the new product and was convinced that it would lead to higher sales. But when consumers found out that they would lose the Coke they had loved for 100 years, there was a vast outcry and the company was forced to dump New Coke and bring back the old formula.

Republicans have made a similar screw-up in adding a prescription drug benefit to Medicare. They looked at polls showing strong support for a Medicare drug benefit and concluded that enactment of such a program would make them more popular. But as the Coca-Cola Co. discovered, people may tell market researchers one thing, but when confronted with a new reality they can quickly change their minds.

So far, the data not only shows that Republicans have reaped no political benefit from the Medicare expansion, but they are losing support because of it. Ironically, those who will benefit directly from the new drug subsidies, the elderly, are the most hostile. In the process, Republicans have thrown away whatever credibility they had for fiscal responsibility, and are now actively opposed by many conservatives disgusted by their budgetary profligacy.

A December Gallup poll shows why support is falling. Among the elderly, 73 percent thought the new program wouldn't go far enough in helping them pay for prescription drugs. In other words, the elderly were guaranteed to be disappointed by the drug program no matter how much it cost. Unless it gave them 100 percent of whatever drugs they wanted for free, they were going to think that they could have done better. And, of course, the Democrats have been highly vocal in telling them that their program would have been better.

Consequently, Republicans are now starting to realize -- as Coca-Cola did -- that they screwed-up big time. As columnist Robert Novak reports, "Senior administration officials privately admit that last year's prescription drug bill was a disaster substantively and politically."

It is here where we really see the difference between the public sector and the private sector. When Coca-Cola executives realized that they had made a big mistake, they switched gears, brought back Classic Coke and eventually deep-sixed New Coke. They had no choice in a competitive marketplace. But government officials never admit error. So Republicans seem intent on slogging the benefits of a new drug benefit that will cost trillions of dollars for people who don't like it.

But there may be hope. According to the National Journal, Democrats in Congress are promising to "repeal and replace" the drug plan next year. It notes that this was successfully done in 1988 after Congress passed a catastrophic health coverage bill that seniors rebelled against. If Republicans are smart, they will take Democrats up on their offer and kill the drug bill before it becomes cemented in place for all time.

Overweight bureaucracies

[Edward Hudgins, "Obese Medicare and Fatheaded Politicians," The Objectivist Center, 18 July 2004.]

Obesity was recently reclassified under Medicare as a "disease." As Objectivist Center Senior Fellow Edward Hudgins explains, the real problem in the U.S. is the expanding waistlines of government agencies:

Obesity and poor health habits are certainly problems in this country. But the solution lies in true personal responsibility, a sense that one's life is so important and of such value that one would commit moral treason to one's self by allowing one's body to fall into disrepair.

A greater threat to the health of our country is the obese size of government, with Medicare the overweight poster child that illustrates the danger to the heart of our liberties. Our biggest problem is not with fat in our waistlines but, rather, in the heads of politicians who want to micromanage our lives. The lesson of HHS's classification of obesity as a "disease" is that the government should go on a diet, shedding hundreds of billions in needless spending, starting with the entire Medicare program.

Controlling Medicaid costs must come before benefits expansion

[Robert Tanner, "Governors Grapple With Aging of America," Associated Press, The Wichita Eagle, 19 July 2004.]

A group of protesters in wheelchairs tried to convince state governors to make home-based care more accessible at the recent National Governors Association meeting. While home-based care can be more attractive than nursing home care, it is exactly this attractiveness that should give governors pause.

Making home care more readily available for those on Medicaid should be a long-term goal, but the priority must be on cost containment. Until Medicaid is returned to its original intent as a program for the truly needy, additional benefits should not be added. As it is, Medicaid is unsustainable and will soon require legislators to either cut other areas in the budget, raise taxes significantly, or both.

In a state with mounting debt, this is a time for narrowing the focus of entitlement programs, not trying to transform them into the solution for all of the problems in the health care system.

[Matthew Hisrich, Staying the Course: Medicaid Reform in Kansas, The Flint Hills Center for Public Policy, February 2004.]

43 percent of HSA applicants did not indicate any prior coverage

[Laura Trueman, "Health Savings Accounts: Myth vs. Fact," Brief Analysis No. 479, National Center for Policy Analysis, 19 July 2004.]

For those who interested in addressing the uninsured, recent data from NCPA and The Coalition for Affordable Health Coverage (CAHC) indicates that HSAs are filling a much needed role, and most of the criticisms of the policies are proving unfounded:

- Some 43 percent of HSA applicants did not indicate any prior coverage,
according to Assurant.

- Nearly one-third (32.8 percent) of all HSA applicants to eHealthInsurance - and about half of those with incomes under $35,000 — had not had coverage for at least six months prior to enrollment.

- Nearly half (46 percent) of HSA purchasers have family incomes of less than $50,000, according to eHealthInsurance.

- Some 38 percent of its HSA purchasers have only high school or technical school training, says Assurant.

- Many HSA purchasers live in modest homes — 38 percent in homes with a market value of less than $125,000 — and 27 percent of enrollees have a net worth of less than $25,000 (Assurant)

- More than two-thirds (70 percent) of HSA purchasers are over age 40.

- HSAs were purchased by a broad cross section of vocations, and less than 57 percent of purchasers were from professional and managerial occupations.

- Most HSA purchasers — 77 percent — are families with children; 8 percent are single parents, and 45 percent live in households of four or more people.

- Purchasers of high deductible, tax-qualified MSAs made 31 percent more preventive care office visits, compared to people with conventional health insurance.

- Generic drug usage was consistently higher for MSA purchasers.

- Assurant Health received applications representing 56,396 members for Individual HSAs in the first four months of 2004, far more than the number of MSA applications Assurant received in the first four months of 2003.

- A survey by Mercer Human Resource Consulting found that nearly threequarters of employers are "very" or "somewhat likely" to offer HSAs by 2006.

Manhattan Institute launches online health care magazine

A new project of The Manhattan Institute, Medical Progress Today is described as "a web magazine devoted to chronicling the connection between private sector investment and biomedical innovation, market friendly public policies, and medical progress."

Self-fulfilling prophecy?

[David Broder, "Health care urgently needs an overhaul," The Wichita Eagle, 16 July 2004.]

In today's column from David Broder we find out that there is a groundswell of support for a "massive overhaul" of the U.S. health care system. He mentions Senate majority leader Bill Frist discussing the need for a "radically transformed" system, GM chairman G. Richard Wagoner calling for an end to "partisan politics," and the upcoming release of the National Coalition on Health Care's proposed solution to the issue that will "go far beyond any proposal now being considered."

Broder doesn't touch on much of Frist's relatively consumer-driven proposal, perhaps in an effort to lump Frist's efforts in with those of less consumer-oriented motivations.

But while consumer-driven reform suggestions hold the promise of beneficial change in the industry, others simply repeat the same tired calls for single-payer health care. Bold innovations do not consist of re-hashing ideas that have been tried and failed in other countries. We'll just have to wait and see, though - perhaps the ongoing discussion will truly lead to some creative ideas.

It is troubling, though, that to some degree there seems to be a complicity on the part of the federal government towards a shift towards greater socialization of medicine. As has been reported on this blog and in plenty of other places, government medical programs such as Medicaid and Medicare are leading to massive debt increases at both the federal and state level.

Common sense would seem to indicate that it might be time to cut back on eligibility levels and services that were expanded during the free-spending 90's. Yet, exact opposite is taking place.

With the Medicare overhaul, America received a hugely expensive drug entitlement. And now, recent news reports indicate that obesity has been included as eligible for Medicare benefits. This has the potential to be incredibly costly, as well. Certainly Tommy Thompson is aware of the grim financial situation faced by these programs already. Is there an attempt to intentionally set up the system for collapse so that politicians can then come in and provide the kind of overhaul of the nation's health care system discussed above? Again, we'll just have to wait and see.

Unnecessary open-heart surgery? Fraud eats up health care dollars

[Vanessa Maltin, "Fraud plagues U.S. health care," The Atlanta Journal-Constitution, 13 July 2004.]

Medical fraud adds an unnecessary burden to a system that is in many respects overwhelmed. In any situation where fraud occurs, it is important to investigate not only the individual incidents but the incentives that allow such behavior to become attractive:

An estimated $85 billion was lost to health insurance fraud last year, the Blue Cross and Blue Shield Association said Tuesday.

That figure is 5 percent of the $1.7 trillion spent on health care nationwide in 2003, officials said at a news conference marking National Fraud Awareness Week.

A symptom of the increasing problem is that physicians are now willing to put patients at risk, said Tim Delaney of the FBI's health care fraud unit. He cited a California case in which a cardiologist performed open-heart surgeries on patients who did not need them.

Among the most common types of health care fraud were improperly prescribing drugs, performing unnecessary medical procedures, billing for services never provided, masquerading as health care professionals and billing for a more expensive service than the one performed.

"Every dollar stolen from the health care delivery system by fraud perpetrators is a dollar not available for necessary life-saving treatments, drugs, research or emergency services," said Byron Hollis, anti-fraud director for the trade association of the independent Blue Cross and Blue Shield insurance plans.

To combat the trend of increasing fraud, Blue Cross and Blue Shield, which insure more than 88 million people, recently created an anti-fraud strike force to coordinate efforts among the 41 companies in the system. Last year, Blue Cross and Blue Shield reported recovering $240 million from fraudulent claims, a 52 percent increase from 2002.

Blue Cross and Blue Shield says that patients can help combat fraud by double-checking bills and telling their insurance provider of suspicious items.

New study details savings through tort reform

[News Release, "Rand study finds California medical malpractice award caps have cut payments by 30 percent to those who win lawsuits," Rand Corporation, 12 July 2004.]

As medical malpractice insurance rates skyrocket around the country, it is interesting to note that California has been able to fundamentally change the rules of the game:

A landmark California law that caps non-economic awards in medical malpractice lawsuits has cut defendants’ payments by 30 percent to plaintiffs who win such lawsuits at trials, according to a RAND Corporation study issued today.

But because of limits on attorneys’ fees contained in the California Medical Injury Compensation Reform Act (MICRA), net recoveries actually realized by these plaintiffs were only 15 percent less than they would have been without the award caps or fee limits, researchers found.

In addition, researchers found that the combination of award caps and attorney’s fee limits reduced by 60 percent the amount collected by plaintiffs’ attorneys, which would have resulted in a significant shift in the types of malpractice claims an attorney might agree to represent.

“While MICRA’s impact on claims that do not reach trial is difficult to measure, the law has had a direct and observable role in about half the malpractice cases where there is a verdict for the plaintiffs,” said Nicholas M. Pace, the project’s lead researcher. “For defendants, for plaintiffs, and for attorneys, MICRA has clearly changed the playing field upon which malpractice claims are litigated in California.”

MICRA was passed by the California Legislature in 1975 when the state was in the midst of a medical malpractice insurance crisis, with premiums skyrocketing and some medical specialists unable to find coverage.

The law limits to $250,000 the amount a plaintiff can recover for non-economic damages such as pain, suffering, distress, or disfigurement. Damages for economic losses, such as medical expenses or lost wages, are not capped.

Juries in California make malpractice judgments without knowledge of the limits and judges then adjust the awards to comply with the state law. The law also limits the fees that may be collected by plaintiff’s attorneys, establishing a sliding scale that decreases the percentage paid to plaintiff’s attorneys as the size of a judgment grows.

Digging a hole

[Phillip Brownlee, "IOUs," The Wichita Eagle, 14 July 2004.]

Wichita Eagle editor Phillip Brownlee points out in today's editorial that Kansas is on its way to the poorhouse if its policymakers continue to balance the budget by picking up additional debt:

State lawmakers like to brag about how they have held the line on raising taxes. But they don't mention how they did it: by borrowing record amounts of money.

Kansas had the biggest increase in the rate of borrowing from 1992 to 2002 of any state (a whopping 333 percent per capita).

In 1992, Kansas' bonded debt was $486 million, or about $195 for every resident -- the lowest per capita amount in the nation. Not anymore.

By 2002, the state's debt was $2.29 billion, or $844 per capita. And the borrowing hasn't slowed.

Kansas issued about $1.2 billion in bonds in the past two years. And by the end of this fiscal year, the state expects to owe $3.7 billion. If population growth trends remain the same, that debt will translate to $1,352 per resident -- or almost a 600 percent increase since 1992.

Already, Kansas has moved up from 50th to 17th in the nation in per capita debt, according to a 2004 report by Moody's Investor Services.

But some of the current borrowing will be repaid from the state's general fund, rather than from a designated revenue stream, such as motor fuel taxes. That will mean less money available to spend in coming years on education and other state needs.

As Flint Hills has shown, legislators can expect significant increases in the cost of Medicaid in coming years. Avoiding this issue will only make the debt matters currently facing the state that much worse.

As well, policymakers can hardly expect a bailout from the federal government - recent reports indicate their finances aren't in any better shape:

The government's deficit ballooned to $326.6 billion in the first nine months of the 2004 budget year, according to a snapshot of U.S. balance sheets released Tuesday.

That's more than 20 percent larger than the $269.7 billion shortfall for the corresponding period last year. For the current budget year which began Oct. 1, this spending has totaled $1.73 trillion, 6.4 percent more than the same period a year ago. Revenues came to $1.40 trillion, 3.5 percent more than the previous year.

So far this year, the biggest spending categories are programs from the Health and Human Services Department, including Medicare and Medicaid, $407.1 billion; Social Security, $397 billion; military, $322.3 billion; and interest on the public debt, $274.9 billion.

Congress gearing up for Medicaid reform

[Joel B. Finkelstein, "Congressional task force ready to tackle Medicaid reform," American Medical News, 19 July 2004.]

Now that members of Congress consider their work on Medicare complete, they are turning their attention to Medicaid. In this interview with Rep. Heather Wilson (R, N.M.), chair of the Republican House Task Force on Medicaid Reform, it appears as though the reform efforts may be on the right track:

Q: When considering Medicaid patients' ability to get the care they need when they need it, what do you see as problems with the program and how would you like to see them remedied?

A: The first one is the financing scheme for Medicaid, which is much more complicated than for Medicare. It's a joint state-federal operation that results in these Rube Goldberg schemes for states to shuffle money around and draw down more federal dollars. That is an inherent problem we are going to have to address. The financing mechanisms ... they're tied together with bailing wire and duct tape. They're fundamentally flawed.

The second major problem is that it does not focus on improving people's health, the quality of their lives. It is an old-fashion insurance-claims payment system. We have asked Medicaid directors: How do you measure the health status of the people who depend on Medicaid and what are you finding? They look at you like you're from Mars because that's not part of their work. They administer a federal program. Their job isn't to improve anybody's health. The program was not set up to improve anyone's health.

There is also a lack of flexibility. It's come to the point where it seems like the only thing that works with Medicaid is when you get a waiver. You need a waiver from the federal program to run a disease management operation. That makes no sense. We need to reform this program.

Q: In some states, Medicaid reimbursement rates have been frozen for years. How concerned are you that access to physicians is being limited by these low payments?

A: There is a significant underpayment with Medicaid, and it does create a problem, particularly in more affluent areas where you have a small percentage of folks who are on Medicaid, because doctors can say: "We don't take Medicaid." So [patients] end up in the emergency room when things just get too bad and they're often sicker. That's not a very cost-effective way to provide care.

Q: Which of the reforms you have discussed are needed right away and which will require sustained efforts?

A: We're going to try to move toward a comprehensive Medicaid reform bill. I don't underestimate the difficulty of doing that. ... There are little things we can do, an incremental bill we can introduce to fix things here and there. But the big problems with Medicaid are just that -- big problems -- and so we have to come up with comprehensive solutions and at least get them on the table.

Charity organizations work to address dental care needs

[Karen Shideler, "Filling a need," The Wichita Eagle, 12 July 2004.]

Concerned Kansans are working to make sure that their fellow residents receive the dental care they need:

In ways both small and large, efforts are under way to increase access to dental care for Kansans who can't afford it. Through Healthy Options for Planeview's dental program, 50 families are getting low-cost care this year. And through the Kansas Mission of Mercy, 2,000 or more will get free care early next year.

The first families in Healthy Options for Planeview's Healthy Parents, Smart Kids program are getting to dentists now, some for the first time in their lives. Fifty families will be helped in each of the next three years.

Participants pay 20 percent of the cost -- up to $150. They must participate in the Healthy Options for Planeview Moms and Mentors program and dental education classes.

On a much larger scale, the Kansas Mission of Mercy -- a massive effort in which volunteer dentists descend on a town for three days to provide as many free fillings, cleanings and extractions as they can -- will be in Salina in February and in Wichita the following year.

Wichita dentist Jon Tilton said the fourth and fifth Missions of Mercy will be similar to the first three, which have provided care to more than 2,000 people each. The Salina project will be Feb. 18-20, 2005; Wichita's will be Feb. 17-19, 2006.

Dentists already are accepting contributions and working on arrangements for both efforts, which will involve hundreds of volunteers from across the state.

The dental arm of Wichita's Project Access has helped 146 people with emergency dental problems since October. It helps low-income, uninsured people who are referred from hospital emergency rooms.

The United Methodist Health Ministry Fund recently awarded more grants for projects designed to improve oral health.

Most of the latest grants are for educational efforts. But one, to Cottonwood Inc. in Lawrence, will provide for a part-time dental clinic for people with developmental disabilities.

Hunter Health Clinic's dental clinic and the Sedgwick County Health Department's children's clinic continue to help others who need dental care.

Over-the-counter drugs and HSAs

[Eve Tahmihncioglu, "Over the Counter, Yes, but Out of the Insurance Plan," The Herald Tribune, 4 July 2004.]

Prescription medicines are increasingly becoming available over-the-counter. Not only can this more convenient and less expensive, but it also makes more treatments available to those without insurance. There are those with insurance who may now have to pay more, though, as this article reprinted from The New York Times explains:

While high prescription costs hog the spotlight, more and more consumers are being hit with another expense: over-the-counter drugs that aren't covered by insurance. Allergy drugs like Zyrtec and Claritin, as well as heartburn medications like Prilosec, can now be bought without a prescription, and drug makers are pushing to sell cholesterol drugs directly to consumers, too.

What is going on in this situation is that consumers are actually paying amounts that reflect the cost of the item they are purchasing--rather than the third-party model of flat co-pays regardless of cost. This means consumers may begin behaving more rationally about the choices they make:

Dr. Kathleen W. Wilson, an internal medicine specialist at the Ochsner Clinic in New Orleans, said her patients had various ways of coping. "They do not buy lifestyle medicine such as Claritin unless they can afford it or their symptoms really bother them," she said. "They adapt to the high price of reflux drugs by using them intermittently on the worst days and using the lower-priced drugs on the other days."

And as many insurance plans raise the co-payments for prescription drugs, some consumers find that switching to over-the-counter medications - even if they are not covered by insurance - can save money, especially if they shop around.

As well, as more people switch to consumer-driven plans such as HSAs, they will have the freedom to choose the OTC or prescription medicines of their choosing.

Uninsured issues making headlines

[Alice Dembner, "Uninsured age 50-64 face higher death risk," The Boston Globe, 7 July 2004.
Julie Appleby, "Pfizer to offer discounts to uninsured," USA Today, 7 July 2004.]

A new report reveals the deadly consequences of a lack of health insurance:

More than 105,000 Americans age 50 to 64 may die prematurely in the next eight years because they lack health insurance, according to the first study to examine the link between insurance and death among pre-retirees, who face increasing health risks at the same time employers are cutting benefits.

The study, by researchers at Brigham and Women's Hospital, found the lack of insurance increased the risk of death by 43 percent, even when researchers adjusted for the fact that those without insurance are often sicker and poorer.

The researchers did not look at what caused deaths among the uninsured, but previous studies have found that those without insurance are less likely to get routine care or screenings for serious illnesses such as heart disease, cancer, and diabetes, which are prevalent in this age group.

If lack of health insurance were a disease, it would be the third leading cause of death among this age group, behind heart disease and cancer, the study found.

It predicted that the number of unnecessary deaths could grow to more than 30,000 a year by 2015 as baby boomers age, unless policy makers find ways to expand coverage.

"The consequences of being uninsured are growing more severe, especially for this older age group," said Dr. J. Michael McWilliams, a second-year resident at the Brigham and the lead author of the study, published today in Health Affairs. "We were surprised by the sheer number of preventable deaths."

Cato's Michael Cannon questions the accuracy, though:

"People don't die because of a lack of health coverage," he said. ''Some people die of a lack of healthcare."

Cannon concedes that providing health coverage makes it easier to get healthcare, but he said most proposals to expand insurance would increase medical inflation and push healthcare out of the reach of more people.

And, on the same day as this article appeared, pharmaceutical firm Pfizer announced plans to offer discounts to the uninsured:

The nation's largest drug company said Wednesday that it will discount medications to an estimated 60 million uninsured Americans, a move skeptics say is aimed at tempering criticism over drug prices but could set a precedent for other companies.

Pfizer, whose products include cholesterol drug Lipitor, pain medication Celebrex and impotence treatment Viagra, says its program will be open to all without health insurance and those whose insurance does not cover drugs, including Medicare patients.

By doing so, Pfizer becomes the first in the industry to go beyond offering discounts only to low-income residents. "From now on, all uninsured Americans will have the same purchasing power as large insurers for Pfizer medicines," said Pat Kelly, Pfizer's president of U.S. Pharmaceuticals.

Pfizer's discounts will vary depending on the uninsured consumer's income and the drug but will average 15% for those earning more than $45,000 a year and 37% for those under that amount.

Those who earn below 200% of the federal poverty level — about $18,620 for an individual or $31,340 for families — will get their medications free under a Pfizer program that is being expanded.

[Matthew Hisrich, "Greatest increase in uninsured found among wealthy," The Flint Hills Center, 10 May 2004.]

Point-counterpoint on health care rationing

[Arthur Caplan, "Good health care should not be only for wealthy," The Wichita Eagle, 7 July 2004.
Ronald Bailey, "The Health Care They Want to Give You Is A Right," Reason, 7 July 2004.]

A column from University of Pennsylvania medical ethics professor Arthur Caplan ran in the Eagle earlier this week. In it, he expresses his profound distate for a health care system that differentiates between people based on willingness or ability to pay. Here's an excerpt:

Denver was the setting a few weeks ago when more than 100 physicians from around the United States attended the first meeting of the American Society of Concierge Medicine. Concierge medicine is a special, high-end form of medical care that guarantees that if you need treatment you will get it, without a hassle, seven days a week -- but only for an extra fee. If you can pay amounts that range from $20 to thousands of dollars a month, you can guarantee that your phone calls will be promptly returned by your doctor and that you'll get special attention whenever you're admitted to a hospital.

Meanwhile, Tennessee is making over its state Medicaid program, known as TennCare. If this program gets implemented, many of the poor, elderly, children and disabled in Tennessee who rely on Medicaid will be told simply to get over it. And other hard-pressed states may well follow suit.

No one wants to see any state dissolve in a sea of red ink. But how can any American stomach a public health-care system that is so unfair to people who aren't rich?

Reason columnist Ronald Bailey responds with a few questions of his own. Why, for instance, should health care be different than any other area of the market where the more you pay, the more you get?

In free markets most goods and services are differentiated by quality and customers get what they pay for. The more one pays, the better one expects to be treated. But many bioethicists think that medicine is different—that "health care is a right." But this mentality leads them to the position that we only have a right to the health care the state chooses to give us—and that we ought to be, or at least will be, denied anything better.

In his column Caplan decries recent reform proposals for Tennessee's state Medicaid program. The reforms, known as TennCare, were launched with much ballyhoo 10 years ago. They involve the state government taking its allocation of federal dollars for Medicaid and using it to cover not only those residents who met Medicaid poverty guidelines, but also other poor residents lacking health insurance. As with most any open-ended government entitlement, TennCare is heading for bankruptcy. So the Tennessee legislature passed a reform earlier this year under which medical necessity would be defined as the least costly "adequate care," instead of the traditional standard of "most effective" care.

So eager is Caplan to play class warfare by contrasting concierge care with adequate care that he actually misses the main lesson to be learned from TennCare—that any government-run national single payer system would inevitably run up against fiscal limits and impose rationing on everybody. Bureaucrats would then be making health care decisions for us all. But then at least we could share the "solidarity" of all having the same equally inadequate health care.

Costs and benefits in the prescription drug market

["Value of prescription drugs," NCPA Daily Policy Digest, 8 July 2004.]

This item from today's NCPA Daily Policy Digest explains that there is a difference between what is seen and unseen. Even if prescription drug costs were rising at some outrageous level, a discussion of these costs would only be relevant to the extent that tradeoffs are included:

Politicians and activists who decry the high prices of prescription drugs often mention pharmaceuticals’ cost, but never their true value, says Kerri Houston, vice president of policy for Frontiers of Freedom.

Not only are prescription prices increasing slower than overall medical costs, she says, but prescription drugs often save money by offering alternatives to costly hospital stays and procedures:

- Drugs only account for 10 cents out of every health care dollar, and drug prices have been increasing by about 4 percent annually, below overall medical inflation.

- One study showed that patients on new congestive heart failure drugs avoided almost $9,000 in hospital costs over a three-year period, with potential nationwide savings of nearly $2 billion a year.

- Some $1.1 billion is spent on diabetic amputations every year, many of which are preventable through medication therapy.

All eyes on Tennessee

[William M. Welch and Julie Appleby, "States watching Tennessee's health care plan for the poor," USA Today, 6 July 2004.]

Tennessee is tinkering with their Medicaid program in an effort to reduce costs through strict controls on usage. While Tennessee is right to experiment with federal waivers and the state is projecting big savings, they may be compromising care for the truly needy while at the same time not addressing the tidal wave of costs that the baby boom generation will bring to the program:

One state's proposal to control the rising costs of health care for the poor has provoked alarm among national advocacy groups, which warn that bold new limits on prescriptions, doctor visits and medical treatments in Tennessee could spread elsewhere.

States from Florida to California are considering ways to contain huge and growing expenses for Medicaid, a shared state-federal program that provides care for the poorest Americans. Health care for the poor has become the most rapidly increasing cost for many states reeling from budget shortfalls during the last three years. Some have saved money by scaling back the number of people who qualify.

Experts say that what Tennessee proposes is unique. To avoid cutting people off the rolls, the state plans to seek federal approval to reduce medical benefits. The plan would limit the number of prescriptions and doctor visits for any patient and direct doctors to use the cheapest treatment alternative, such as an over-the-counter drug instead of a prescription. The Bush administration generally has encouraged states to seek cost savings.

[Matthew Hisrich, "Kansas needs bold Medicaid reform," The Flint Hills Center, 21 January 2004.]

KC Star columnist declares HSAs healthy

[Jerry Heaster, "A healthy method of saving," The Kansas City Star, 4 July 2004.]

Columnist Jerry Heaster speculates in this recent column that HSAs are just what the doctor ordered for rising health care costs and financial planning:

The advent of health savings accounts brings not only a new wrinkle to the health care insurance mix but also another nest-egg-building opportunity for retirement.

In fact, as the potential of this product for retirement savings becomes more appreciated, it's reasonable to expect the concept leading to sweeping evolutionary changes in how America finances health care coverage. [emphasis added]

The immediate impact is how this approach sensitizes participants to the need to become wiser health care consumers. The tradeoff for substantial premium savings is the relatively large deductible, which typically might be $1,000 for individuals and $2,000 for families.

With the insured paying so much of the upfront costs of their annual health care bill, it's assumed they'll be more discerning when deciding whether a health problem requires professional attention.

Over time, the challenge to gaining widespread acceptance will be convincing those eligible that the long-term benefits outweigh the higher short-term cost of self-insuring. The allure of these accounts in this respect is that they allow any buildup of funds to be carried over from year to year. Thus, the money not spent becomes tax-deferred savings for use either on future medical expenses or other emergencies. An added advantage is that the contributions can be parked in savings and investment accounts to produce added tax-deferred income.

The real beauty of these accounts, however, is how they can begin to work to the advantage of retirees for whom these accounts can become a supplementary source of health care financing to pay for outlays not covered by Medicare. Those 65 and over cannot continue contributing, but they can use what's accumulated to pay Medigap insurance premiums, cover what Medicare's drug benefit doesn't, finance dental and vision expenses, or help with long-term and assisted-living care needs.

Money used for medical-related outlays for those over 65 can be withdrawn tax-free, which makes it something akin to an individual retirement account for health care purposes. Moreover, the money can be used for nonmedical purposes, with the expenditures treated as taxable ordinary income with no 10 percent penalty.

Given the myriad expenses for which Medicare provides no help, and assuming Medicare's financial problems may lead to further benefit shrinkage, a sizable health savings account nest egg could go a long way toward alleviating the burden of out-of-pocket health care expenses in retirement.

Aetna announces success of consumer-directed plans

[Press Release, "Aetna HealthFund® First-Year Results Validate Positive Impact of Health Care Consumerism," Aetna Inc., 22 June 2004.]

Aetna insurance recently released data on the results of their foray into consumer-directed insurance, and the news is good. Not only did costs drop, but patients actually increased their use of preventative care:

Aetna announced today the results of a research study of first-year members in its Aetna HealthFund Health Reimbursement Arrangement (HRA) plan. The study of 13,500 HealthFund members, analyzing claims and utilization data for the full 12 months of 2003, provides further validation that the consumer-directed plan encourages active engagement in health care decision-making. Among the key findings, employers offering these plans as an option experienced low medical cost increases of 3.7 percent, while a full replacement plan sponsor experienced a medical cost decrease of 11 percent. These savings were driven by lower member utilization of physician and facility services. At the same time, member utilization of some preventive care measures increased by as much as 23 percent, and diabetic members either maintained or increased the frequency with which they received important tests and screenings.

"We’re pleased to see that the full-year findings for our Aetna HealthFund members are consistent with the preliminary results released earlier this year. In short, these early indicators show that the consumer-directed elements of the plan appear to have a positive impact on controlling health care costs, while at the same time enabling members to access the care that they need for both routine and certain chronic health care conditions" [said Aetna President Ronald A. Williams.]

Key study findings show that:

- General adult preventive exams increased by 23 percent, compared to an 8 percent increase for a similar population

- Gynecological exams increased 4 percent for both Aetna HealthFund members and a similar population

- Child preventive exams for three to four year olds increased 4 percent, comparable to a 5 percent increase for a similar population; for five to nine year olds preventive care increased by 8 percent, compared to a 6 percent increase for a similar population

- Aetna HealthFund members with diabetes either maintained or increased the level of care they received on important tests and screenings.

- Employers experienced a 3.7 percent medical cost increase, compared to double-digit increases for a similar population

- For the one full replacement plan sponsor in the study, medical costs decreased by 11 percent

- The low medical cost increases for all members in the study were driven by two major factors: a reduction in certain physician visits, including a 11 percent reduction in primary care office visits, and a modest 3 percent increase in specialist visits; and a reduction in utilization of facility services, including a 3 percent decrease in emergency room visits, a 14 percent decrease in outpatient cases, and a 5 percent decrease in inpatient admissions

- Members experienced a 5.5 percent decrease in pharmacy costs driven by a 13 percent decline in overall prescriptions and a 7 percent increase in overall generic utilization

"As a business facing intense competition and cost pressures, Logan Aluminum chose Aetna HealthFund because we saw its potential to help hold the line on a disturbing cost trend. But we also made this decision for the benefit of our employees," said Howard Leach, head of human resources, Logan Aluminum, Inc. Logan Aluminum is among the 19 plan sponsors included in the 12-month study, and is the only full replacement plan included. "Now, with more than a year’s experience in a consumer-directed plan, I am confident that we made the right call based on the fact that we’ve been able to reverse unsustainable health care cost increases, while at the same time not negatively impacting our employees’ use of preventive services and the care needed for serious medical issues."

Health care advice from mom

[Paul Jacob, "About-Face Up North?," TownHall.com, 13 June 2004.]

Sometimes advice from mom can apply equally well to public policy as to playgrounds. This is certainly the case for the debate over universal health care in the U.S. As Paul Jacob explains, using the argument that "everyone else is doing it," is no way to defend socialized medicine:

"Would you jump off a cliff just because all your friends are doing it?"

For too many American policy wonks, the answer is Yes. Though jumping off a cliff can be hazardous to your health, many commentators on health care prescribe a similar leap into the abyss of socialized medicine. You know the litany: "Every major industrialized nation has national health care, except for America."

Canada's National Post recently reported on a nationwide poll. "More than half of Canadians support a parallel private health care system that would let patients pay for speedier service," Tom Blackwell's June 1 article summarized. "The poll found 51 percent favour a two-tier system, with support highest in Quebec, at 68 percent, and Manitoba and Saskatchewan, the birthplace of medicare, at 57 percent."

If you need a test, getting it in Canada is not the speedy thing it is in America. There's usually a lag. This applies to treatments, too, especially the older you get.

In his book Code Blue, medical student David Gratzer reported that Canadians wait for radiation therapy three to four times longer than Americans do. The average wait for an MRI scan stretches almost to half a year, while Americans wait three days. Only a fifth of Canadians diagnosed with cancer can see a specialist within four weeks.

Funny thing is, just like in the late Soviet Union, Canada's system falls short of the egalitarian ideal. Even there, the richer you are, the better your recovery rate. And this is not simply because rich people treat themselves better than the poor can. It's also because queue-jumping — "pushing ahead in line" — is rampant. David Gratzer summarizes the importance of "celebrity and connections":

Last year, researchers from the Institute for Clinical Evaluative Sciences in Toronto surveyed cardiologists about preferential treatment. In a nutshell, the study's authors wanted to know whether the heart specialists were willing to help certain patients queue jump. Eighty percent responded that they did.

The rich and the famous just expect to go ahead. And do. "Bypass surgeries," Gratzer notes, "are performed 20 per cent more frequently in wealthier neighborhoods." Bypass indeed.

Americans should take caution. We certainly don't want to emulate a system whose patients now contemplate an about-face, emulating our system.