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Tuesday, August 31, 2004

Profits and investments

[Henry I. Miller, "Fighting Disease Is Only Half the Battle," The Wall Street Journal, 25 August 2004.]

In this column, Miller counters yet another claim that the pharmaceutical industry is reaping "excessive profits" and needs to be regulated as a public utility:

In "The Truth About the Drug Companies," Marcia Angell, a lecturer at the Harvard Medical School and a former editor of The New England Journal of Medicine, joins the fray. She accuses the drug industry of profiteering, of making itself "a marketing machine to sell drugs of dubious benefit" and of using "its wealth and power to co-opt every institution that might stand in its way, including the U.S. Congress, the FDA, academic medical centers, and the medical profession itself." She believes that the industry "feeds off the NIH" and that new drugs "nearly always stem from publicly supported research." She blames the industry, "corrupted by easy profits and greed," for the paucity of genuinely innovative and affordable new drugs.

How persuasive is she? In 1999, the National Institutes of Health investigated whether its research funding commonly leads to the development of new drugs, the profits from which taxpayers might be entitled to share. Of 47 drugs that had earned revenues of $500 million or more, NIH support had figured significantly in only four.

Dr. Angell's denunciation plays down the drug companies' huge investments in research and development. The research-based pharmaceutical industry (that is, excluding companies that make generic drugs) currently spends upwards of $33 billion annually on R&D, investing a far greater percentage of sales (17.7 percent) in research and development than any other industrial sector, including electronics (6 percent), telecommunications (5.1 percent), and aerospace (3.7 percent).


Sebelius confused about who pays for health insurance

[Scott Rothschild, "Sebelius promises increased health insurance," The Lawrence Journal-World, 28 August 2004.]

It's good to see that Governor Sebelius is showing a commitment to tackling the issue of the uninsured in Kansas, but she could use a brushing-up on her understanding of basic economics.

Gov. Kathleen Sebelius on Friday promised a major initiative to increase the availability of health insurance and a proposal to link the award of state contracts to companies that offer workers' benefits.

Sebelius, the state's former insurance commissioner, said one way to ensure workers have health insurance and other benefits was for the state to consider those issues when awarding contracts.

When companies don't provide insurance or other benefits, she said, costs for health care usually fall back on taxpayers and private insurance policyholders.

"We want to be sensitive to not only the bottom line, but what is not on the bottom line," she said, adding that her administration soon would establish new bidding rules to take into account the benefits offered by companies seeking state business.


The reality is that employees are paying for their health insurance whether the company has a plan or not. If the Governor is serious about increasing insurance accessibility, she will need to focus less on the small pool of employees awarded state contracts and instead reduce the number of insurance mandates in the state, encourage the use of health savings accounts, and consider a program of tax credits to purchase health insurance.

Getting all the facts on the uninsured

[Kirk A. Johnson, Ph.D., "The Data on Poverty and Health Insurance You’re Not Reading," WebMemo #556, The Heritage Foundation, 27 August 2004.]

News reports on the recently-released Census data regarding the number of uninsured in the U.S. have largely taken the view that this is a huge and mounting problem. As The Heritage Foundation's Kirk Johnson points out, though, we may not be getting the full picture:

While most of the [Current Population Survey (CPS)]-based report focuses on the static issues of year-to-year health insurance and poverty rates, there is a small mention of another Census Bureau series of reports called the "Dynamics of Economic Wellbeing." These reports, based on data from the long-standing Survey of Income and Program Participation (SIPP), track actual individuals over time, as opposed to the CPS, which only provides snapshot information. For that reason, the CPS has been criticized for providing an incomplete picture of these social indicators.

By surveying people over time, SIPP provides a rich source of data and information for policymakers and public at-large. In the SIPP reports are some startling but seldom-reported findings:

- Spells of uninsurance are short-lived. The typical family that loses health insurance is uninsured for only 5.6 months on average.

- Very few people lack health insurance long-term. Only 3.3 percent of all Americans went without some kind of health insurance for four or more years. Additionally, only one in nine people were without health insurance for more than two years of the four-year study period.

- Health insurance coverage rates have risen over time. In 1996, some 8.8 percent were without health insurance for the entire year, a figure that dropped to 8.0 percent by 1999. Conversely, 78.2 percent of all Americans had health insurance for the entire year in 1996, which rose to 80.4 percent by 1999.

[T]he Census Bureau’s own statisticians argue that SIPP provides a better measure of health insurance coverage than CPS. In a recent research report on the differences between CPS and SIPP in this regard, Census Bureau statistician Shailesh Bhandari wrote, "Since the SIPP collects monthly information and allows us to see changes from month to month, SIPP may be closer to the truth. This implies that although designed to estimate the coverage at some point during a year, the CPS is underestimating it."


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

Monday, August 30, 2004

Kansas surpasses all neighbors except Missouri in new mandate ranking

[Victoria Craig Bunce and JP Wieske, "Health Insurance Mandates in the States 2004," Council on Affordable Health Insurance, July 2004.]

Kansas is home to 37 health insurance mandates. Only Missouri, with 39, exceeds that number. Colordado and Oklahoma each have 35 and Nebraska has 27. While not all mandates are equal, every mandate drives up the cost of insurance. Kansas now ranks 15th in the nation for the number of uninsured in the state. Perhaps it is time to reevaluate the value of the mandates currently in place.

While mandates make health insurance more comprehensive, they also make it more expensive because mandates require insurers to pay for care consumers previously funded out of their own pockets. In some markets, mandated benefits increase the cost of health insurance by as much as 45%.

Mandating benefits is like saying to someone in the market for a new car, if you can’t afford a Lexus loaded with options, you have to walk. Having that Lexus would be nice, as would having a health insurance policy that covers everything one might want or need. But drivers with less money can find many other affordable options; whereas when the price of health insurance soars, few other options exist.

According to a 1999 study conducted by the Health Insurance Association of America (HIAA), as many as one in four individuals who are without coverage are uninsured because of the cost of state health insurance mandates.

Elected representatives find it difficult to oppose any legislation that promises enhanced care to potentially motivated voters. The sponsors of mandates know this fact of political life. As a result, government interference in and control of the health care system is steadily increasing. So too is the cost of health insurance.

In 1965, only seven benefits were mandated by the states; today, the Council for Affordable Health Insurance (CAHI) has identified more than 1,800 mandated benefits and providers. More are on their way. In January 2004 alone, CAHI followed the introduction of 295 new mandates in states across the country. This number only increased as the legislative sessions progressed.

How do state legislators justify their actions? One way is to deny a mandate is a mandate. For example, legislators may claim that requiring health insurance to cover a type of provider — such as a chiropractor, podiatrist, midwife or naturopath — is not a mandate because they aren’t requiring a particular therapy. But if insurance is required to cover the provider; it must pay for the service provided. There is no essential difference in requiring insurance to cover a chiropractor (a provider) or chiropractic care (the therapy).

Another way they justify their support is to assert the new mandate will cost little or nothing. Indeed, legislators and a mandate’s supporters usually claim that mandating a new provider or benefit will save money. But with 1,800 mandates in force we have lots of evidence: mandates virtually always cost money rather than save it.


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

Friday, August 27, 2004

Why do Canadian drugs cost so much?

[Brett J. Skinner, "Generic Drugopoly: Why Non-patented Prescription Drugs Cost More in Canada than in the United States and Europe," The Fraser Institute, August 2004.]

Yes, you read the title correctly. As it turns out, despite all of the attention certain brand-name drug price discounts in Canada receive, many drugs are actually more expensive across the border. This report from the Canadian Fraser Institute explains why:

Studies comparing international prices of prescription pharmaceuticals have found that Canadian prices are close to the international median price for patented drugs but higher for non-patented single-source (usually brand-name) drugs, and also higher for non-patented multiple-source (mostly generic) drugs. Furthermore, in studies comparing Canadian to American drug prices, it has been found that Canadian prices are significantly lower overall for patented drugs, but are usually higher than American prices for generic drugs.

Given that Canadian incomes are lower than incomes in most of the countries used for drug price comparisons by the PMPRB (and much lower than incomes in the United States), economic theory would predict that in a free market the prices for drugs would also be lower in Canada, a price-to-income relationship that has also been observed for many non-pharmaceutical products. Therefore, the observation that Canadian prices for non-patented drugs are higher that the international median and that Canadian prices for generic drugs are higher than American prices, is counter-intuitive and merits investigation into the reasons for this irregular pricing pattern.

This study concludes that interventionist and biased Canadian pharmaceutical policies are leading to prices for non-patented and generic drugs that are higher than would be expected under normal free-market conditions. This means a large and growing number of consumers are suffering unnecessary economic losses of significant
magnitudes. Furthermore, the lack of a free market for pharmaceuticals and inconsistent protections for intellectual property rights is reducing incentives for innovation. This raises the probability that future consumer access to life-improving and life-saving medicines in Canada could be limited.


Insuring the uninsured

[Genaro C. Armas, "Ranks of Poor, Uninsured Rose in 2003," Associated Press, The Wichita Eagle, 26 August 2004.]

The Census Bureau just released new numbers on poverty and the uninsured, and the situation is not improving:

The number of Americans living in poverty increased by 1.3 million last year, while the ranks of the uninsured swelled by 1.4 million, the Census Bureau reported Thursday.

It was the third straight annual increase for both categories.


Clearly, Kansas policymakers need to focus on strengthening the economy and working towards accessible coverage for all. What are some steps that can be taken? The Galen Institute's Grace Marie Turner offers a few suggestions:

We have been saying for years that government incentive policies for health insurance must be modernized to keep pace with a changing economy. With a highly mobile workforce, tying health insurance to the workplace is out of step with the economy. These new numbers prove it. There is no reason for people to lose their health insurance when they lose their jobs, but that’s just what is happening.

And while private insurance declined, the new Census Bureau data show that the number of people covered by government programs rose, from 25.7 percent to 26.6 percent, largely as a result of the growth of Medicare and Medicaid.

The bottom line: Government programs expanded, and private insurance shrank.

The number of uninsured is slowly going to get worse without policy changes. Adding 45 million people to government program rolls just isn’t an option.

Refundable tax credits for the uninsured, deductibility of individually-purchased health insurance, and new purchasing options are crucial to begin to give more people more options to buy affordable health insurance – insurance they can take with them even if they lose their jobs.


[Matthew Hisrich, "State mandates reduce insurance affordability," The Flint Hills Center, May 2004.
Matthew Hisrich, "Greatest increase in uninsured found among wealthy," The Flint Hills Center, May 2004.
Richard Teske, "How the Kansas Business Health Partnership Can Learn From Other Health Purchasing Cooperatives (HPC’s)," The Flint Hills Center, October 2000.]

Thursday, August 26, 2004

Financial incentives built into Medicaid work against efforts to scale it down

[James W. Fossett and Courtney E. Burke, "Medicaid and State Budgets in FY 2004: Why Medicaid Is So Hard to Cut" (Albany, New York: Rockefeller Institute of Government, Federalism Research Group, July 2004).]

Ever wonder why policymakers are willing to raise taxes or cut other programs but refuse to really grapple with Medicaid? Researchers at The Rockefeller Institute set out to determine why, and studied Kansas as one of ten sample states. Here are a few of their conclusions:

- The attitudes and actions of elected officials, particularly governors, were the most important influence on the nature and extent of Medicaid spending cuts. In four states, governors made more or less explicit decisions to protect Medicaid from significant spending cuts and were largely successful.

- There are several reasons why Medicaid has proven so hard for states to cut. State governments derive considerable financial benefit from Medicaid by using it to pay for social service programs previously supported by state funds and through various “creative financing” techniques that allow states to receive substantial Medicaid funding without increasing their own spending. In addition, providers such as hospitals and nursing homes that receive Medicaid payments are major employers and purchasers in legislative districts, adding to the constituencies opposed to reducing Medicaid spending.


Kerrycare would be expensive, ineffective at addressing uninsured

["Kerrycare," NCPA Daily Policy Digest, 26 August 2004.]

NCPA president John Goodman questions whether Kerry will really be able to deliver the goods on help for the uninsured in a recent Wall Street Journal column. NCPA provides a brief summary below:

John Kerry’s health plan would cost in excess of $1 trillion over 10 years, says John Goodman, president of the National Center for Policy Analysis. However, the cost could be much higher, yet accomplish very little.

The ostensible purpose of the proposal is to insure about two-thirds of the estimated 44 million people without health insurance at any one time. However, even Kerry assumes that for every 10 people who sign up, three people will lose private insurance from an employer; and it could be much worse.

- Studies in the 1990s found that every additional dollar spent on Medicaid led to a reduction in private insurance of 50 to 75 cents.

- More recent evidence suggests that private sector crowd-out is approaching one-to-one: Each new Medicaid enrollee is offset by one less person with private insurance.

- Moreover, most of the private sector subsidies will go to people who are already insured; and employers get their subsidies even if they fail to insure a single additional employee.

The changes Kerry proposes are far more radical than he has let on, says Goodman:

- If he is successful, millions of middle-income families will enroll in Medicaid, the federal-state health program for the poor.

- Millions more will get their insurance through a system of managed competition, similar to what Hillary Clinton proposed more than a decade ago.

- Most people would be unable to remain in the private health plan they have today.

Versus the budget Kerry has promised to balance, the program cost is more than three times the new revenue he hopes to get from high-income earners.

[Matthew Hisrich, "A Better Alternative to Kerry Plan Already Exists," The Topeka Capital-Journal, 8 August 2004.]

Reimportation reconsidered

[Myron Kushner, "The Current Bandwagon, the Long-term Consequences," The Heartland Institute, 25 August 2004.]

Myron Kushner offers some observations on the viability of reimporting drugs from Canada in this news release from The Heartland Institute:

- Canada’s population is about 30 million. Canada imports 60 percent of its drugs from the United States. Canada manufactures very little of its own drugs, and much of the remaining 40 percent of its drugs are imported from China, South Africa, Turkey and Philippines;

- Canada’s drug research/development and manufacturing industry dried up years ago, perhaps because stringent cost controls drove profitability out of the system;

- Over 80 percent of the pharmaceutical breakthroughs and inventions in the past 10 years have taken place in the United States due to a strong research/development commitment;

- The populations of Illinois (12.5 million), Minnesota (4.9 million), and Wisconsin (5.4 million) are equal to 76 percent of all of Canada. Is it logical to assume that Canada would divert its already imported drugs to meet the huge market demands of the United States? The law of “Supply and Demand” would suggest that Canada would need to raise prices;

- If Canadian drugs are re-directed to the United States, what impact would this have on the Canadian medical system?

- Given that Canada imports a majority of its drugs from the United States, is it logical to assume that our drug companies would increase their production for Canada knowing that the drugs will merely reappear in the United States market at reduced prices? The law of “Common Sense” would suggest that they would not do that;

- If we told Giant Eagle, Heinens, or Topps that they must sell everything for a 20-30 percent price reduction, what impact would that have on the food supply industry?

- An absolutely great terror tactic would be to corrupt the drug supply of the United States. Is now really the time to bypass our control systems and open our supply to potential tampering by terrorists?

- There’s another bandwagon moving across the landscape. It has to do with keeping jobs in the United States vs. “off-shoring.” Somehow the “Importing Drugs from Canada” and the “Keep Jobs in the United States bandwagon” seem inconsistent to me.


Wednesday, August 25, 2004

Some insurers move toward drug sample bans

[Liz Szabo, "Health care cutting costs by closing door on drug reps," USA Today, 24 August 2004.]

While fine dinners and golf trips may already be a thing of the past for drug reps to court doctors with, some insurers are cutting off access altogether. The result is savings on prescription costs, and surprisingly, the drug manufacturers may even be relieved about the new policies:

Employees at Affinity Health System conducted a controversial sort of spring cleaning this year.

The company, based in northeast Wisconsin, cleared its clinics of clocks, calendars and other freebies dished out by drug companies. The goal: to strip away promotional items that encourage doctors to prescribe pricey brand-name drugs.

Drug salespeople also may no longer buy lunch for office staff as a way to finagle more time to pitch their products, says Michael Madden, Affinity's medical director for primary care.

And Affinity is developing a policy to dramatically cut back on free drug samples. Consumers who refill prescriptions for brand-name pills may spend hundreds of dollars more than if they started off with cheaper generics, Madden says.

With prescription drugs driving up the cost of medical care, Affinity is among a small but growing number of health systems that are turning their clinics into commercial-free zones.

Such changes have been unpopular with drug reps, who say they're just trying to help doctors stay up to date on the latest medical information, as well as some physicians, who often reserve samples for patients who can't afford prescription drugs. Some health companies have tried to soften the blow of banning samples by hiring specialists to help poor patients enroll in discount-drug programs.

Some health systems have seen dramatic results. Drug costs declined 10% after the Seattle-area Everett Clinic banned sales reps and samples in 1998, even as costs rose 15% at competing practices, says medical director Al Fisk.

The University of Wisconsin Hospital and Clinics offers patients vouchers for free generics in place of samples. Lee Vermeulen, director of the school's Center for Drug Policy, estimates that every $1,000 spent on generics saves the health care system — including patients, insurers, employers and others — $1 million a year.

Some doctors complain that reformers are going too far. Drugmakers note that samples also let patients try medications — to make sure that they don't cause allergic reactions or side effects — before paying for a larger supply.

Christine Kirby, a spokeswoman for Aventis, says her company opposes policies that limit interactions between drug reps and doctors. "We believe that access to relevant scientific and educational information leads to optimal patient care," she says.

Doctors such as John Billi of the University of Michigan Medical School say that restrictions on drug marketing actually ease the pressure on manufacturers. "If one pharmaceutical company does it, they all have to do it," says Billi, associate dean for clinical affairs. "We feel like we're helping them by calling off the arms race."


Canada's "free" health care and America's future needs

[Robert J. Cihak, M.D., "Canada's Medical Nightmare," Health Care News, The Heartland Institute, 1 September 2004.]

Robert Cihak warns that despite the claims of Canadian health care fans what America needs is less government intervention in health care, not more:

For decades, Canadians have cast pitying glances at us poor American neighbors who actually have to pay for our medical care while they get theirs for "free."

Yet the major candidates in Canada's recent national election both agreed the country's health care system is failing. They made the usual socialist diagnosis of "not enough money." None of the candidates mentioned government control as what ails the Canadian system.

On this side of the border, Senator Edward Kennedy (D-Massachusetts), with presidential candidate Senator John Kerry, also from Massachusetts, in tow, promotes Canadian health care to U.S. voters, in the hope we too can have "free" medical care.

Barring epidemics and other disasters, fewer than one out of 10 people in prosperous societies will face a major medical crisis in any one year. Those suffering people, however, are the ones who need help the most, and the aging of the baby boomers in the United States makes it likely more serious illnesses will afflict more Americans in the next couple of decades. The kind of minor health care services the Canadian system provides well are not what America's aging Baby Boomers will need most urgently in years to come.

America's health care system already includes too much Canadian-style bureaucratic delay and inefficiency. For example, the slow acceptance by Medicare and Medicaid of medical innovation, their exacting paperwork requirements, delayed and low payments of claims, and the threat of overzealous prosecution by health care bureaucrats are driving doctors out of business and giving patients fewer medical options.

Fixing those flaws would seem to be a much more promising prospect than a further move down the road Canada has followed to high costs and low quality of health care.


Faith-based health-care plans explored

[Phyllis Berry Myers, Richard Swenson, M.D., Michael O'Dea, and Robert E. Moffit, Ph.D., "Why It's Time for Faith-Based Health Plans," Heritage Lecture #850, The Heritage Institute, 24 August 2004.]

The Heritage Institute recently held an interesting event on the possibilty of national health care tax credits and the potential for a return to a system of insurance based on association. Here are some excerpted comments from Dr. Robert Moffit:

The recent enactment of health savings accounts is a welcome change in the tax treatment of health insurance. It is a start in the right direction. Yet there is much more to be done in transforming the conventional health insurance market into a system that is consumer driven and genuinely competitive.

Federal tax policies largely shape the health insurance market. All roads to real health care reform ultimately lead to the reform of the tax code in the health insurance system. A simple syllogism: If you want to reform the health care system, you have to reform the health insurance markets. If you want to reform the health insurance markets, you must reform the tax treatment of health insurance. You simply cannot get to a consumer-driven, patient-centered system, which allows for the creation of faith-based health plans, without such a change. Period.

What is wrong? The current tax treatment undermines the affordability of health insurance and restricts consumer choice because the insured person has nothing to do whatsoever with the policy. The employer owns the policy; the consumer does not. It hides the true cost of health care. Actually, many people do not know what they are paying for.

What are the needed tax changes? First and foremost, a health care tax credit, preferably replacing existing tax breaks. A health care tax credit system would be portable, and it could be universal or targeted. Today, President Bush is proposing a more targeted tax credit, aimed at individuals and families without workplace health insurance. In any case, whether policymakers adopt a comprehensive or a targeted approach, that is, frankly, a matter of political prudence.

Yet the basic policy is simple enough: Give taxpaying citizens direct assistance, in terms of tax relief, for the purchase of insurance or medical services, or give vouchers to low-income people to offset the cost of insurance. My preference would be to extend this direct assistance to offset out-of-pocket medical costs and help expand access to health savings accounts. If we are going to have neutrality in the tax code, the tax treatment should apply to all of these health care options, including new options sponsored by religious institutions or faith-based organizations.

Policymakers will also have to set some conditions. If you are going to establish tax relief for insurance, the insurance should be real insurance, and that means it should cover you for catastrophic events. My own preference is that the size of tax credits should be based roughly on need. All individuals or families would qualify for a basic credit, but beyond a basic credit, you could vary its size according to income or health care needs. In other words, if you are lower income, and you have higher health care costs, policymakers may want to vary the credit amount accordingly, making it more generous. The more persons covered under private health insurance, the less dependence there will be upon government health or welfare programs. You would also have to make insurance and regulatory reform changes compatible with the new health care tax credit system.

What a lot of us in the policy community have forgotten is that, in the late 19th and early 20th centuries, when it came to insurance--old age, disability, dismemberment, and sickness benefits--there were numerous fraternal societies in the United States that sponsored insurance and social services, and they covered millions of Americans. Many of these were faith-based organizations. My personal favorite is an interesting group called the Bohemian Roman Catholic Union of Texas, serving men of Bohemian birth and descent. Their total insurance was valued at $3 million in 1925 dollars.

None of this is fanciful. America was once rich with such institutions. They were flourishing. America is, as Alexis de Tocqueville observed, a nation of "joiners." We still are today. With the change in the insurance market, coupled with the proposed change in the tax code and the establishment of equity in the way in which we deal with health options, we could revive similar institutions in an increasingly diverse 21st century America, with the possibility of uniting health insurance with the faith-based health care delivery. Think about that.


Tuesday, August 24, 2004

Here comes another "crisis"

[Arnold Kling, "Middle Man Mess," Tech Central Station, 24 August 2004.]

One of the basic tools of the insurance industry is risk pooling. Essentially, if enough people from enough backgrounds are included in a group of insured, then the company can spread the risk of high cost individuals among lower cost individuals and keep costs for them - and their customers - low. Tech Central Station's Arnold Kling explains how the ongoing process of people leaving the employer-based insurance model may lead to calls for greater regulation of the insurance market for all:

"A relentless rise in the cost of employee health insurance has become a significant factor in the employment slump, as the labor market adds only a trickle of new jobs each month despite nearly three years of uninterrupted economic growth.

"Government data, industry surveys and interviews with employers big and small indicate that many businesses remain reluctant to hire full-time employees because health insurance, which now costs the nation's employers an average of about $3,000 a year for each worker, has become one of the fastest-growing costs for companies."
-- New York Times

If employers bear the cost of health insurance, then I'm the Easter Bunny. It is fairy-tale economics to believe that "nice" employers give away health insurance, while "mean" employers withhold it. In reality, employers compensate their employees using a combination of cash and non-cash benefits. Workers bear the cost of health insurance.

The right way to think about health insurance is not as something that employers provide but as something that employers sell to their employees. Your employer is an intermediary between you and the insurance company. Step one, your employer company decides how much to pay for your labor. Step two, the company takes some of that pay and makes you buy health insurance with it.

The reality is that workers always pay for health insurance. The more money that a company pays for employee health insurance, the less it can afford to give the employee in wages. From the employer's perspective, health insurance is part of the cost of labor, and the laws of economics dictate that those costs will be borne by workers, regardless of whether the employer acts as an intermediary.

Health insurance disintermediation is widespread in today's economy. The New York Times article quoted above describes one type of disintermediation, which is the use of temporary workers who do not have health benefits. However, there are many other forms of health insurance disintermediation. When someone quits or is laid off and becomes a self-employed contractor, that is disintermediation. When a firm downsizes its work force and sub-contracts to a small firm that does not pay health insurance benefits, that is disintermediation.

In recent years, there has been a striking divergence between household and payroll measures of employment. According to households, there are millions of more jobs than there were when President Bush first took office, while there are fewer jobs listed on employer payrolls. I suspect that disintermediation accounts for some of this discrepancy, as workers effectively opt out of employer health insurance by becoming self-employed.

In theory, we could force everyone who works for a company, even as an independent contractor, to obtain health insurance through that company. However, you cannot force employers to pay more for labor than the value of what workers produce. If you forced every employer to offer generous health insurance benefits even to contractors and temporary employees, then the recipients' take-home pay would have to be reduced and/or hiring would have to be curtailed.

Disintermediation is a free-market response that is good for workers who otherwise would be unemployed or receive low take-home pay. Those workers who would rather not buy so much health insurance at the company store are able to obtain the employment and wages they prefer because of disintermediation.

As health care becomes a larger and larger share of consumption, health insurance disintermediation will become a larger and larger factor in employment decisions. Low-risk workers will tend to opt out of the corporate labor market. Corporations will tend to hire from a pool of workers with relatively high health risks. This in turn will raise corporate health costs more, which will lead to even more disintermediation.

The phenomenon of low-risk employees opting out of the corporate health insurance market, leaving employers with a high-risk pool, is what economists call adverse selection. The employees who are willing to give up a lot of cash wages in exchange for health insurance represent an adverse risk population.

Joseph Stiglitz's work on adverse selection and insurance markets earned him a share of the Nobel Prize in 2001. One of his theories is that an insurance market may disappear entirely because of adverse selection. As more low-risk people opt out, the average cost of insuring high-risk people increases, to the point where high-risk people cannot afford insurance. Although we are a long way from that point in health insurance today, it is sobering to consider that disintermediation could be leading in that direction.

The problem posed by Stiglitz is that free choice and insurance pooling may be incompatible. If multiple types of insurance coverage are available, then low-risk consumers will gravitate toward a different type of coverage than high-risk consumers. The high-risk consumers lose the benefit of being pooled with low-risk consumers.

The consequences of health insurance disintermediation are generally favorable. It gives workers opportunities for jobs and take-home pay that otherwise would not be available. I would like to see complete disintermediation, so that health insurance is always bought directly by individuals, rather than through employers.

However, disintermediation raises two possible concerns for public policy. One concern is that some workers who opt out of the company store as their source of health insurance are doing away with health insurance altogether. A hard-core libertarian might not care, but others, myself included, would favor some form of mandatory catastrophic coverage.

A second concern is that disintermediation is reducing risk pooling, which may leave some high-risk consumers unable to pool risks with low-risk consumers. High-risk consumers might be protected by catastrophic re-insurance paid for by taxpayers.

If the government response to health insurance disintermediation were limited to a requirement for everyone to obtain high-deductible health insurance coverage and a provision for catastrophic re-insurance, that would be a relatively positive outcome. However, what is likely to happen instead is that health insurance disintermediation is going to lead to demagogic claims that we face a "crisis," and that this "crisis" justifies a much heavier hand of taxpayer funding and regulation as the "solution."


HSAs evaluated from a privacy standpoint

["Pros and Cons of Health Savings Accounts (HSAs)," The Institute for Health Freedom, 23 August 2004.]

This article from The Institute for Health Freedom questions whether the adoption of Health Savings Accounts are on balance a net gain for consumers concerned with issues of privacy and government intervention in health care. The conclusion is that the benefits outweigh any costs:

There are both pros and cons with HSAs that should be considered.

Let's look at the pros first. When consumers spend their own money, they are more cost-conscious. When someone else pays the bills (even if only in appearance), consumers tend to overconsume goods and services and push prices higher. The bottom line is that HSAs will provide strong economic incentives for more rational use of medical care, give patients strong incentives to demand higher quality care (after all they are paying for it), and help keep prices competitive.

Now the cons. HSAs keep health insurance and health care tied to the IRS code. For those worried about privacy, that might raise a serious concern. Additionally, HSAs strengthen the federal government's power to direct consumer behavior. Ed Crane, president of the Cato Institute, recently wrote: "Where is the dignity in a tax code that treats Americans like so many gerbils—do this and you get sugar water; do that and you get an electric shock?" Even so, allowing citizens to put money (tax free) into privately owned HSAs is a huge step away from employer-owned health insurance.

Consider the best and worst case scenarios for using an HSA. In the best case you accumulate money in the account for health treatments considered deductible by the IRS and for services not covered by Medicare. (Seniors most likely won't be able to use the money for Medicare-covered services.)

In the worst case, you accumulate money and upon retirement decide to use it on services not considered qualified deductible medical expenses by the IRS. In that situation, you would pay taxes on the HSA money (but no 10 percent withdrawal penalty if you are over age 65) and then use it to pay for those services.

In either case, many Americans would be better off than they are with today's predominantly employer-sponsored managed health care.


Forbes: Kansas one of the worst states in which to die

[Matthew Herper and Aude Lagorce, "The best places to die," Forbes, 18 August 2004.]

As an hospitable final resting place, Kansas ranks close to the bottom. A new analysis by Forbes magazine places Kansas at 41st in the nation. The researchers looked at the following factors: Health care quality; Legal protection; Cancer deaths in hospital, in nursing homes, or at home; Percent of Medicare patients using hospice in the last year of life; and Estate Taxes.

In America, the way we die is largely determined by where we live. Geography dictates what kind of care is provided to the dying and whether death following a long illness occurs at home, in a hospital or in a nursing home. But don't move just yet. Patients can gain control over how they die by talking about end-of-life care with their families and physicians. If patients speak up, sheer numbers will force the health care system to take better care of the dying. Over the next 30 years, the number of people older than 85 will more than double to 9 million.

[John McClaughry, "Patient Power: A Health Care Reform Agenda for Kansas," The Flint Hills Center, May 2004.]

Monday, August 23, 2004

"Shiny and new" HSAs

[Linda Stern, "A Health-Care Windfall," Newsweek, 23 August 2004.]

From Newsweek's Money section, here's a quick overview of Health Savings Accounts and some tips on where to look for additional information:

Rich Phillips has a wife, three kids and a need for health insurance that won't bust his budget. When the Austin, Texas, consultant left a salaried job last fall to start his own company, Phillips, 34, was getting quotes of about $1,000 a month to replace the policy offered by his former employer. Then he discovered Health Savings Accounts (HSAs), a new type of low-cost, high-deductible, big-benefit health-insurance policy. Now he pays $350 a month in premiums and tucks away $300 a month into a tax- deductible savings account. "This is a great plan, the future of health care," says Phillips.

HSAs aren't those familiar accounts that allow you to stash a pretax $2,000 that you must spend in the same year; these policies are shiny and new. They were a sleeper provision of last year's Medicare bill that became legal on Jan. 1, before most insurance companies were ready to roll them out. But by October, some 80 insurers will be offering HSAs, says Dan Perrin, executive director of the HSA Coalition, a lobbying group. By the end of next year, six of 10 large companies will have an HSA choice for their workers, according to Hewitt Associates.

Designed to please everyone, HSAs pair a high-deductible catastrophic health plan with an individually controlled tax-deductible savings plan. The high deductibles (at least $1,000 for individuals, $2,000 for families) make the monthly premiums affordable.

But they also let consumers with solid finances stash cash for future medical costs. HSA holders can get a tax deduction of up to $2,600 for individuals and $5,150 for families. That money is tax-free if it's used to pay doctor bills or even things ranging from aspirin to acupuncture, long-term-care premiums, eyeglasses and braces for the kids. Or... it doesn't have to be used at all. Savers can accumulate money in their HSAs for decades and then use it for retirement. If they use them for medical care, ever, they are tax-free. "It's like a super IRA," says Wil Heupel, an Edina, Minn., financial adviser.

Shopping around is important: the plans differ by provider and state. Here's how to hook up your own HSA:

Start with the health insurance. The best tax breaks in the world won't do you any good if your policy won't pay up when you're sick. Call your current insurer and find out whether your policy is HSA compatible, or whether you can switch seamlessly to an HSA policy. Comparison-shop other plans at eHealthinsurance.com. Once you've found one or two that you like, call your doctor and ask for an opinion.

Plan your saving strategy. Most insurers are offering paired savings and insurance accounts, so your premium and savings checks go to the same place. They typically send a checkbook that you can use to draw down the savings account as you need it. Compare fees, ease of access to your money and the interest rates. Many of these accounts are structured for people who intend to use their savings every year to cover their medical expenses and don't pay high rates.

Ramp up the investment. If you can afford to stash tax-deductible money in your HSA, leave it there for years and shop for the savings account separately. Start at HSAInsider.com, which lists all the banks, brokers and insurance companies offering HSA savings plans. Look for ones that offer good investment choices and keep their fees low. Some providers to consider are hsaadministrators.com, which offers Fidelity funds, and hsabank.com, which offers full brokerage access to stocks and mutual funds for investment- minded HSA savers. Shop carefully, and you'll be feeling better in no time.


Friday, August 20, 2004

As the population ages, who will provide care for the elderly?

[Robert B. Friedland, "Caregivers and long-term care needs in the 21st century: Will public policy meet the challenge?," Issue Brief, Georgetown University Long-Term Care Financing Project, July 2004.]

This recent report makes an excellent but troubling observation. Over the past three decades, the 85 and older population has grown at roughly twice the level of those aged 25 to 54. In this decade, however, the growth rate of the 85 and over population will continue at the same level while that of the 25 to 54 year olds will drop to zero. In a market setting, demand and supply would shift to meet needs. In a system dominated by government programs, though, it is worth asking how society will be able to maintain current levels of service, let alone those necessary in the future:

Long-term care is hands-on assistance provided to people who need help with fundamental daily activities such as bathing or eating, over a substantial period of time. This type of assistance is labor intensive and is provided by family, friends, and volunteers, as well as by hired personnel. Most people with long-term care needs (83 percent) live in their own home; among those living at home, the majority (78 percent) does not hire any help. Families are critical in providing most long-term care, even when care is purchased.

Over the next 15 years the number of people who need long-term care is expected to increase by 30 percent. Soon thereafter, the number of people likely to need long-term care is expected to increase even more dramatically. Estimates of the long-term care population suggest that the number of people with long-term care needs will more than double between 2000 and 2050. Government estimates suggest that the number of people using paid long-term care services—in a nursing facility, alternative residential care (such as assisted living) facility, or at home—could nearly double, increasing from 15 million in 2000 to 27 million in 2050.

Given the sizable increase in the number of people who may need long-term care in the future, it is important to ask: will there be enough paid caregivers and family caregivers to meet projected long-term care needs? Currently, many persons who need long-term care have a number of family members available to provide care or have a significant pool of caregivers available for hire. However, as this paper will show, after 2015 the number of people likely to need long-term care will increase substantially faster than the number of people available either as family or as paid caregivers. Families will need more support to supplement their efforts and more paid caregivers will be necessary to provide this support.

If the market does not respond to meet these needs soon, policy makers, working with payers and providers of long-term care services, may need to find ways to encourage workers to remain in the long-term care labor force, encourage a larger share of the labor force to seek employment in the long-term care sector, and enhance how long-term care providers work with families to expand the capacity of family caregivers. Family caregivers need all the help they can get to provide care, including purchasing modifications to the home, purchasing labor-enhancing and labor-saving technologies, and figuring out how best to integrate paid caregivers into their homes. Paid caregivers will also be necessary for those who do not have any family available to provide care. Since 2015 is slightly more than a decade away, it is not too soon to start working towards fundamentally improving the efficiency and effectiveness of how care is delivered.


Free markets at home beget free markets abroad

[Roger Pilon, "Drug Reimportation: The Free Market Solution," Policy Analysis No. 521, The Cato Institute, 4 August 2004.]

From The Cato Institute, here is another statement of the counter-intuitive argument that the best way to end market price abuses from socialized countries is to allow reimportation. Certainly, there is a case to be made that opening our markets here to free trade will actually drive socialized nations toward true pricing. The problem remains, however, that current WTO agreements allow those countries to estentially steal patents from American companies. Pilon's solution apparently is to hope for the best, and then reimpose the reimportation ban should the experiment fail:

“Drug reimportation” has become the focus for a host of drug problems that have become political problems primarily because drugs are so highly regulated, both here and abroad. The natural solution to such problems is to allow greater scope for market forces. That is the correct intuition, which animates, initially, all of the proposals for lifting the reimportation ban now in place in America. However varied or mistaken the different proposals may be, they all turn on the basic idea that free markets and the competition they encourage, not price controls, are the way to produce more and better drugs at lower prices. Indeed, what is the reimportation ban if not an impediment to free trade and a free market?

Thursday, August 19, 2004

There is no free federal money

["Latest Medicaid bailout plan would provide Ohio at least $225 million if Congress approves," Gongwer News Service, 16 August 2004.]

This is a good follow-up to the Walter Williams piece. If you're drowning, it doesn't make much sense to reach for help from someone else that's drowning. And yet, that's exactly what states are doing with regard to their budgets.

Kansas debt rose faster than any other state from 1992 to 2002 in part due to the rising cost of Medicaid. Some policymakers are still hoping that the federal government will come through with a bailout for the state for fiscal years 2004 and 2005. How will the feds pay for that? Good question. Right now, The White House is estimating that this year's deficit will hit a record $445 billion. Does this seem like a sustainable situation?

[States] would receive...Medicaid relief funds under legislation currently before Congress (S2671, HR4961). Sponsored by Senators Jay Rockefeller (D-W.Va.) and Gordon Smith (R-Ore.) in the Senate, and U.S. Reps. Sherrod Brown (D-Ohio) and Peter King (R-N.Y.) in the House, both plans would provide about $6 billion to states.

The bills would extend the Medicaid component of a $20 billion bailout approved by Congress in 2003. Under both plans, the relief would apply to federal fiscal years 2004 and 2005, with most of the funds coming in the second year. Federal fiscal years begin Oct. 1.

A spokesman for the National Conference of State Legislators, which along with the National Governors Association plans to lobby in support of the bills, said the measures would get more attention after the Nov. 2 elections, and if they pass would likely be part of an omnibus budget bill.

NCSL Federal Affairs Counsel Michael Bird said Monday that Congress has yet to pass any appropriations bills this year, so the Medicaid funds could be attached to a variety of budget legislation. As with the last bailout, states are being cautioned not to count too heavily on the funds, he said.

"It's a wild card at this point, given the uncertainty of the congressional legislative process right now," Mr. Bird said, adding: "This is really a placeholder to be attached to something else."

Mr. Bird said that despite the general opinion that state budgets are in recovery mode, there are still "an awful lot of dead bodies on the playing field" and thus states have a strong argument in seeking additional Medicaid help. "Medicaid is taking on a larger and larger portion of state budgets, practically doubling over the last 10 years with no relief in sight," he said. Medicaid accounted for an average 12-13% of states' general revenue spending a decade ago, and that number has risen to 22% today.


[Matthew Hisrich, "A Backgrounder on Kansas Medicaid," The Flint Hills Center, 19 July 2004.
Matthew Hisrich, "Staying the Course: Medicaid Reform in Kansas," The Flint Hills Center for Public Policy, February 2004.]

The difference between zero-price and free health care

[Walter E. Williams, "Economics 101," The Cato Institute, 18 August 2004.]

To those under the impression that society can confer a free good upon its members, George Mason economist Walter Williams has a quick lesson: there is no such thing. This is a particularly valuable point to inject into the discussion of public policy in health care:

Economic ignorance allows us to fall easy prey to political charlatans and demagogues, so how about a little Economics 101?

How many times have we heard "free tuition," "free health care," and free you-name-it? If a particular good or service is truly free, we can have as much of it as we want without the sacrifice of other goods or services.

Take a "free" library; is it really free? The answer is no. Had the library not been built, that $50 million could have purchased something else. That something else sacrificed is the cost of the library. While users of the library might pay a zero price, zero price and free are not one and the same. So when politicians talk about providing something free, ask them to identify the beneficent Santa Claus or tooth fairy.

We don't give second thought to the many wonderful things others do for us. Detroit assembly-line workers get up at the crack of dawn to produce the car you enjoy. Farm workers toil in the blazing sun gathering grapes for our wine. Snowplow drivers brave blizzards just so we can have access to our roads.

Do you think these people make these personal sacrifices because they care about us? My bet is they don't give a hoot. Instead, they along with their bosses do these wonderful things for us because they want more for themselves.

People in the education and political establishments pretend they're not motivated by such "callous" motives as greed and profits. These people "care" about us, but from which areas of our lives do we derive the greatest pleasures and have the fewest complaints, and from which areas do we have the greatest headaches and complaints? We tend to have high satisfaction with goods and services like computers, cell phones, movies, clothing and supermarkets. These are areas where the motivations are greed and profits. Our greatest dissatisfaction is in areas of caring and no profit motive such as public education, postal services and politics. Give me greed and profits, and you can keep the caring.

Again, when politicians come to us pretending they're Santa Clauses or tooth fairies delivering benefits only, we should ask what's the cost; who's going to pay and why.


Wednesday, August 18, 2004

Consumer-directed health plans growing in popularity

[Shari Roan, "More choice, at a cost," The Los Angeles Times, 16 August 2004.]

Greg Scandlen, the speaker at our upcoming luncheons in September, is featured prominently in this recent article on health care trends:

Learning what a treatment or procedure costs — then deciding whether to pay for it — is a new step for most Americans with health insurance. Even traditional fee-for-service plans, in which consumers pay 20% of a bill, don't prompt most people to analyze a procedure's cost or their actual need for it, experts say. But when consumers are held solely responsible for a medical bill, they tend to think twice.

Having patients assume responsibility for such costs is the centerpiece of this increasingly popular type of insurance, called consumer-directed healthcare. Now a small part of the insurance market, about 2%, consumer-directed plans are expected to become much more common in the next few years as a way to potentially curb employers' rising healthcare costs. The plans could account for 7% of health insurance by 2007 and one-quarter in about five years, according to Forrester Research, an independent technology research company.

Eventually, about 40% of consumers who now use preferred provider organizations or point-of-service plans will likely opt for consumer-directed plans, predicts Brad Holmes, vice president and research director of Forrester, who has studied the trend.

The strategy, which takes some of the control over spending away from employers and insurers, typically allows people to select their own physicians and hospitals, avoiding "gatekeepers" who might limit their care.

In turn, consumers pay more up front — such as the first $1,000 to $2,500 per year spent on healthcare — and bear the responsibility to spend those funds wisely. Consumers can then find themselves considering whether to have that ingrown toenail treated or whether to choose a generic heart medication over a more expensive brand-name product.

"I think there is hardly an employer in the country who isn't considering some version of this approach," says Greg Scandlen, director of the Center for Consumer Driven Healthcare at the Galen Institute, a nonprofit health policy research organization in Alexandria, Va. "The notion that consumers can take charge of their own healthcare is what puts the sizzle behind this."

The trend has both proponents and critics. Proponents say people will be more careful and cost-conscious if they have a stake in how far their money goes. Critics say such health plans simply foist a larger share of costs on consumers.

"Financial incentives are the key to these plans, whether they are spending accounts, tiered plans or plans with co-insurance," says Peter Lee, president and chief executive officer of the Pacific Business Group on Health, a healthcare purchasing coalition based in San Francisco. "Every one of those is a financial vehicle to help consumers understand that health care dollars are their dollars."

Interest in such plans got a jump-start last year with the creation of health savings accounts.

As with existing health-spending accounts, consumers can use the new accounts to set aside money annually, tax-free, for medical costs. Unlike spending accounts, however, the savings accounts earn interest and can be rolled over from year to year if the money goes unused.

According to a recent survey of 270 companies by Hewitt Associates, a national human resources consulting firm, 60% of large employers are likely to soon offer the new accounts. Aetna and Blue Shield of California announced last month that they will offer high-deductible plans with health-savings accounts. Many large employers are considering such plans, says Pam Kehaly, general manager of special accounts at Blue Cross of California.

A typical plan, for example, has an annual $2,000 deductible that must be met before insurance will kick in; the insurance company then pays 90% of costs, she says. Although the deductible is high, the consumer can use a health savings account to pay for those initial expenses.

"Plan designs in the past have insulated people from the cost of healthcare. The concept now is that maybe people will think about their choices and the impact of their choices," Kehaly says.


Lawsuits are hurting our health

[Henry I. Miller, "There's a Cure for Frivolous Drug Lawsuits," The Los Angeles Times, 16 August 2004.]

The pharmaceutical industry is one of the most heavily regulated sectors of the economy. And yet, mere allegations of harm from a drug can lead to a string of lawsuits, which in turn can lead to closing a product line or even bankruptcy. The end result is a stifling effect on new and innovatinve products and a shrinking pool of available treatments:

Morning sickness — the nausea and vomiting that afflicts more than half of all pregnant women — can be debilitating. There used to be an excellent prescription medication to treat it, but the manufacturer stopped selling the drug in the United States. Safety problems? Unprofitability? Not at all. Frivolous, debilitating lawsuits killed this drug.

During the 1970s and 1980s, nearly 2,000 lawsuits were filed against Merrell Dow Pharmaceuticals, alleging that the company's drug, Bendectin, had caused birth defects in the offspring of women who took it to prevent morning sickness. Not a single judgment against the company was upheld, but ultimately Merrell Dow discontinued manufacturing Bendectin because of fears that an unreasonable jury might some day award huge damages.

Despite a generally high level of rigor and quality control in the pharmaceutical industry and intense scrutiny by the Food and Drug Administration, drug and medical device companies are tempting targets for product liability litigation. Even when no causal relationship between the product and injury or illness can be demonstrated, or when the alleged injury is a minor side effect listed on the product's label, companies are at risk.

Experts estimate that our tort system costs Americans $180 billion annually in higher costs for purchases as diverse as Little League baseball bats and automobiles. That's more than $1,500 per household annually in increased product costs.

This is not an efficient way to prevent dangerous products from being sold. The threat of liability suits makes businesses wary, but it also shifts their focus from whether the product actually is safe to how vulnerable the product is to claims for damages. The prospect of baseless litigation is also a major disincentive for a company to work on new medical technologies.

The protection of consumers from shoddy products is important, but where pharmaceuticals (and similar products such as pesticides) are concerned, most liability suits are redundant: Rigorous federal regulation already protects the public.

This redundancy argues for a "regulatory compliance defense" against allegations of product liability. In other words, a pharmaceutical manufacturer's liability would be mitigated by regulators' extensive control over every phase of development — including clinical research, pre-marketing evaluation, post-marketing surveillance and the preparation of labeling and advertising materials. If a manufacturer meets the stringent and comprehensive regulatory requirements for product approval, and makes the product in the prescribed way, any mishap from the product would be considered to be nonculpable. Such a defense would apply to damages caused by unforeseen circumstances, but it would not extend to fraud or negligence.

The existing system for attributing product liability is a drag on national competitiveness and innovation and is detrimental to public health. This state of affairs is nauseating. If only I had some Bendectin.


Tuesday, August 17, 2004

Obesity epidemic spreads to U.S. Olympic team

["Oblimpians???," Press Release, The Center for Consumer Freedom, 16 August 2004.]

Sometimes a little perspective can be helpful in heated public policy debates. Here's a good example:

USA Olympians represent the nation’s finest. So how can they also represent the nation’s fattest?

Despite their physical superiority, the U.S. government considers a lengthy list of its own Olympic delegation as contributors to the nation’s so-called obesity epidemic, with over 75 athletes officially considered “overweight” or “obese” according to the federal measurement standard.

Sound crazy? Not as crazy as many of the ridiculous statistics fueling the over-hyped “obesity epidemic” today. In 1998, the U.S. government changed the standard by which overweight is measured. As a result, over 30 million Americans (including aspiring gold medalists) were shifted from a government-approved weight to the overweight category -- without gaining an ounce!

So should kayaker Joe Jacobi (5’7’’, 165 lbs) worry about sinking? Should water polo star Tony Azevedo (6’1’’, 193 lbs) instead enter the belly flop competition? Or track star Maurice Greene (5’9’’, 176 lbs) do the 100-meter waddle? Of course not, but they may find themselves in the crosshairs of the self-described “food police” at the Center for Science in the Public Interest and trial lawyers led by John “Sue the Bastards” Banzhaf who want “fat taxes” and restaurant lawsuits to force us all to slim down.

“The fact that so many of these athletes are considered overweight or obese is proof that much of the so-called obesity epidemic is based on faulty assumptions and overblown statistics,” said Rick Berman, executive director of The Center for Consumer Freedom. “Common sense faces a big hurdle when our government’s war on fat sees counts Olympians as Oblimpians.”

Does the government think you’re fat? Take the test. Go for the gold and plug in your height and weight to get an instant verdict on how the government stacks you up against the USA’s best athletes including the following stars:

Tennis: Taylor Dent - OVERWEIGHT
Fencing: Jon Tiomkin - OVERWEIGHT
Rowing: Henry Nuzum - OVERWEIGHT
Cycling: Christian Stahl - OVERWEIGHT
Basketball: Tim Duncan - OVERWEIGHT
Table Tennis: Ilija Lupulsku - OVERWEIGHT
Track and Field: Casey Malone - OBESE
Boxing: Jason Estrada - OBESE
Track and Field: Reese Hoffa - OBESE
Wrestling: Kerry McCoy - OBESE
Judo: Rhadi Fergason - OBESE


Illinois to test the reimportation waters

[Don Babwin, "Ill. Gov. Unveils Online Pharmacy Network," Associated Press, The Wichita Eagle, 17 August 2004.]

Illinois will join the ranks of northern states actively facilitating prescription drug reimportation under a new plan unveiled today. Will the federal government step in? Will U.S. drug comapnies further restrict supplies to Canada? Will other states follow suit? There's only one way to find out, Illinois Governor Rod Blagojevich has apparently decided:

Ignoring a federal ban on prescription drug imports, Illinois' governor announced Tuesday that the state would have an online clearinghouse running within a month to help residents purchase drugs from Canada, Ireland and the United Kingdom.

The state won't import the drugs itself, but plans to contract with a Canadian company to connect state residents with foreign pharmacies that have been approved by state health inspectors.

"We have taken every possible step we could think of to convince the FDA, and convince the Congress, and anyone and everyone who will listen, that people across Illinois, and across our country, deserve access to safe and lower cost prescription drugs," Gov. Rod Blagojevich said. "The federal government has failed to act. So it's time that we do."

Prescription drugs are often cheaper in Canada and other countries because of government price controls. The Food and Drug Administration opposes allowing prescription drug imports because it says it cannot guarantee the drugs' safety.

Federal officials earlier rejected an Illinois request to set up a pilot program to buy drugs from Canada. The governor's new plan would be an "aggressive expansion," said William Hubbard, FDA associate commissioner for policy and planning.

"The drugs that would be accessed from this program would be illegal and we would have serious concerns because the drugs wouldn't be regulated by an American health authority," Hubbard said.

Blagojevich has said safeguards could be built in to any program, including limiting the imports to only refills of already approved prescriptions.

The savings would be high, he said. A study Blagojevich commissioned last year found Illinois would save $91 million if state employees and retirees bought drugs from Canada. If all Illinois residents used the program, the first year of saving could reach $1.9 billion, he said.

By also tapping into pharmacies in Europe, the proposed network would go beyond those in Minnesota and Wisconsin, where Web sites help residents buy prescription drugs from Canada.

Generic drugs, narcotics or drugs that can spoil during shipping would be excluded from the program. And each pharmacy used would be certified by the state and subject to the same inspections and regulations used in Illinois, Blagojevich said.

Eventually, the governor hopes to encourage state employees and retirees to use the system by offering to waive their insurance copay, Blagojevich spokeswoman Abby Ottenhoff said.

"We can't keep asking the 500,000 senior citizens who live in Illinois and lack prescription drug coverage to keep deciding, 'Do I pay for my medicine or do I pay for my groceries?'" Blagojevich said. "These are real choices people have to make every single day."


The problem here is that prescription drugs from Canada are a different animal than say, foreign steel or farm produce. While in both cases consumers experience a benefit in the form of lower prices in the short term, the long term affects are where they grow apart.

In the case of steel or agriculture "dumping" (the latter of which the U.S. has a reputation for elsewhere), another country is doing either one of two things. For one, they may simply have an advantage in that particular area either due to technology or natural resources. In this situation, it makes economic sense to purchase those goods which would be far more expensive to manufacture here. The second possibility is that through some nationalized policy, another country is subsidizing the production of a product or good and therefore is able to sell it for less here. Here, that country has chosen to give consumers in the U.S. a gift at the expense of their economy and their taxpayers. Doesn't make a lot of sense for them, but who are we to argue?

The difference with drugs is that the bulk of them are not foreign goods. These are products that U.S. firms have manufactured, then sent to another country. At that point, the other country (Canada, for instance) passes a law which basically says, "Lower your prices or we'll start making generic copies of all of your products," and extorts a lower price out of American companies. Then, Americans get wind of these lower prices and say, "Gee, Canadians get all the advantages of socialism, why can't we? What's the harm?" and begin chartering buses and hopping online to buy their drugs.

Again, the short-term consequence will be the same, which is why politicians are so into the idea - they generally love short-term "fixes." Over the long-term, though, such actions will take their toll on U.S. companies employing U.S. workers to create innovations that are first available in the U.S.

A better action aould be to push other countries to stop taking advantage of our technology through "pirate legislation" like that in Canada. Maybe then those countries can begin creating their own pharmaceuticals and international price competition can be restored.

Monday, August 16, 2004

Demographics will pull the rug out from under the budget

[Bruce Bartlett, "The baby boom bust," Townhall, 16 August 2004.]

NCPA's Bruce Bartlett reviews Peter G. Peterson's new book Running on Empty in this recent column. The emphasis is on how Medicare and Social Security will not be able to withstand the onslaught of the baby boomers, but the states will fare no better with Medicaid:

Cassandra was a creature from Greek mythology that was given the gift of prophecy, but cursed by never being believed, even though her predictions were always correct. The closest thing we have to a living Cassandra is financier Peter Peterson, who has been warning for decades about an impending fiscal calamity from unchecked entitlement spending. His latest book on the subject, Running on Empty, has just been published.

Peterson points out that our long-term fiscal situation was dire even before the Bush Administration took office. It is a fantasy to think we could have preserved budget surpluses if only Republicans hadn’t cut taxes, engaged in an unnecessary war, or increased Medicare benefits. These things have all worsened our fiscal situation, in Peterson’s view, but even taken together they represent only a small part of a much larger problem.

That larger problem is essentially demographic, coupled with poorly designed entitlement programs. As long as we had a relatively young and growing population, the burden of paying for entitlements like Social Security and Medicare was manageable. But with the aging of the giant baby boom generation and a labor force that is growing much more slowly, all of a sudden the day of reckoning is within sight.

The first baby boomer becomes eligible for early retirement at age 62 in just 4 years. If members of that generation take early retirement in the same percentages as the current generation of retirees, then almost 60 percent of them are going to start drawing Social Security benefits the minute they can. Thus we will simultaneously see a sharp reduction in the labor force and an increase in government spending that must be paid for by a shrinking pool of workers.

Not only is this bad for taxpayers, but it is bad for retirees. Boomers taking early retirement will get 30 percent lower Social Security benefits for life than they would get if they only waited until age 66. Moreover, if they try to work after taking early retirement, they will lose $1 in benefits for every $2 they earn above $11,640. Those above age 66 can earn as much as they want and lose no Social Security benefits.

Even if boomers keep working, however, we still have a fiscal problem that needs urgent attention. It would be better to do so before a financial crisis forces action. But I am not optimistic that will happen.


Canadians growing restless with health care system

[Sheryl Ubelacker, "Confidence in health system declines," Canoe, 16 August 2004.]

Just as some Americans are calling for an inreased government role in health care, our neighbors to the north are blaming government for their system's woes:

TORONTO - A growing number of Canadians are giving the country's health care system a mediocre or failing grade, a report card by the organization representing Canada's doctors suggests.

"The report card shows that things are getting worse," said Dr. Sunil Patel, president of the Canadian Medical Association, which released the national poll to coincide with its annual meeting this week in Toronto. "Year over year, Canadians have identified that their confidence in their health care system is eroding."

While the quality of medicare earned a B overall, the proportion of C and F grades jumped by eight per cent compared with a similar poll commissioned by the CMA last year.

The Ipsos-Reid telephone poll, conducted July 9-12, posed a range of questions on attitudes towards health care to 1,057 Canadian adults, asking them to assign an A, B, C or F grade to various aspects of the system, with A the highest and F representing a failing grade.

"The confidence of Canadians is steadily declining," said Patel.

"They are getting worried. They do not believe the health-care system on the present track will be there for their children."

Canadians ranked their own contributions - adopting healthier lifestyles and using services more judiciously - and those of health professionals in keeping the heart of the system pumping, assigning health-care providers and hospitals with overall B grades, the poll suggested.

"They are saying the system has been held together by the monumental efforts of the health-care providers . . . whereas they've given a C or an F to governments because of either mismanagement or inadequate funding or poor efficiencies and too much wrangling in the political arena," said Patel.


Friday, August 13, 2004

NCPA offers a history of HSAs

["A Brief History of Health Savings Accounts," Brief Analysis #481, NCPA, 13 August 2004.]

Here's a good summary of how HSAs came about, as well as a good visual explanation of how they work:

Image hosting by Photobucket

In June 2002, encouraged by the National Center for Policy Analysis (NCPA) and the Wye Group on Health, the U.S. Treasury Department issued a Revenue Ruling clarifying that unused funds in Health Reimbursement Arrangements (HRAs) -- employer-funded accounts similar to Health Savings Accounts (HSAs) -- could be rolled over from year to year tax free.

Like Medical Savings Accounts (MSAs) in South Africa, HRAs are very flexible. Employers, for example, can alter copayments and deductibles to encourage employees to buy medications for chronic conditions or to encourage preventive care.

There are some limitations:

- HRAs can never be cashed out and taken as compensation by the employee, and they are generally not portable.

- Thus, HRAs are essentially expense accounts with use-it-or-lose-it incentives; nonetheless, they have been very important politically in building large employer support for consumer directed health care.

In contrast to HRAs:

- HSAs create an actual savings account that belongs to the worker, can travel from job to job, and be passed on to heirs.

- To a large extent, they allow people to choose between health care and other uses of money.

- Funds can be withdrawn and spent for nonhealth purposes after age 65, after paying normal income taxes. Prior to age 65, a 10 percent penalty applies.

Health Savings Accounts is truly an idea whose time has come. HSAs promise to revolutionize the American medical marketplace. However, Congress should allow insurance companies and employers more flexibility to experiment and innovate, so that the market can discover what works best, says the NCPA.

Thursday, August 12, 2004

Medical tribunals may be an answer to malpractice lawsuits

["Medical Tribunals: A Healthy Alternative to Litigation," NCPA Daily Policy Digest, 12 August 2004.]

With skyrocketing medical malpractice insurance costs affecting health care around the country, the idea of medical tribunals might be just what the doctor ordered:

Medical tribunals based on a no-fault system could fix our dysfunctional tort system, say attorney Roslyn Rosenwasser Ross and Dr. Gilbert Ross, executive director of the American Council on Science and Health.

Escalating liability premiums and multimillion dollar judgments have caused doctors to flee, drug companies to eschew potentially lifesaving but risky new drugs, and put entire industries into bankruptcy. Useful products have been withdrawn, and costs passed on to consumers while enriching trial lawyers.

Medical tribunals could accommodate local custom and practice, but create the beneficial expectation of some degree of uniformity and rationality, say Ross and Ross. Benefits include:

- Major cost savings from the reduction in baseless litigation.

- Further savings would come as the endemic practice of defensive medicine -- “health care” delivered to look good upon subsequent examination, not for any health benefit -- diminished dramatically.

Tribunals would be composed of people with experience in various fields, but not technocrats; good faith and impartiality are the only absolute requirements. They would be committed to rendering judgments free of emotion and beholden to no pressure groups, say Ross and Ross.


The virtues of being a muggle legislator

[Raymond J. Keating, "Harry Potter, congressman," The Washington Times, 11 August 2004.]

If you think you can magically defy the laws of economics, you shouldn't run for Congress:

In the world of politics, various members of Congress seem to think that by waving the magic wand of legislation, they can repeal the laws that govern science and human nature. It's as if Harry Potter and his many friends at the Hogwarts School of Witchcraft and Wizardry were elected to the U.S. House of Representatives and Senate.

However, while the wizards and witches in the fantasy world of Harry Potter books and movies have magical powers, Congress does not. Reality cannot be altered no matter how much power politicians believe they wield.

A routine favorite of congressional witchcraft and wizardry is trying to bend the laws of economics. That's the case with ongoing efforts to allow for the re-importation of prescription drugs from other countries, which passed in the House of Representatives last year and is being considered in the Senate.

If consumers in Canada or Europe, for example, pay less for a drug developed in the U.S., then why not allow that drug to be re-imported? All it takes is a wave of the legislative wand.

[T]here are many costs that come along with price controls. For example, a report by Bain & Co. presented at the World Economic Forum for Health Care in January 2004 noted that, from 1992 to 2002, a dramatic shift in pharmaceutical profits occurred away from Europe, with its price controls, and to the U.S., where returns on research and development investment are much higher. Price controls cost Europe investment lost to the U.S. and high value-added jobs, reduced first drug launches and slower access to drugs.

It's no mere coincidence the U.S. now is the world leader in developing new medicines. What if the U.S. decided to impose price controls? University of Connecticut Professor John Vernon projects 50 years of price controls would reduce the number of new medicines for patients by 60 percent to 73 percent — and if the U.S. had price controls from 1980 to 2001, there now would be 330 to 365 fewer new medicines.

Researching and developing new medicines is a very costly, high-risk endeavor undertaken not only by large pharmaceutical firms but also by small, entrepreneurial ventures. On average, it takes 10-15 years to develop a new drug at a cost of more than $800 million. So, if we want new life-enhancing and life-saving drugs, investment is critical. Limiting returns by importing price controls is exactly the wrong policy.

In the latest film, "Harry Potter and the Prisoner of Azkaban," Harry's friend Hermione has mastered time travel, and they go back in time to try to fix something gone awry.

Many in Congress seem to think they too can time travel. After all, laws and policies that don't work or have bad effects can always be repealed or changed in the future, right? Well, in theory, the answer is yes. Experience, though, tells us political pride, blind ideology, and special interests get in the way, and make such remedies very rare.

The answer, of course, is not to make the mistake in the first place. Don't pretend some political chant or potion can twist reality. For importing price controls on prescription drugs, no prestidigitation can repeal the laws of economics. Playing Harry Potter with medicine is a deadly game. Congress needs to deal with the real world and drop the idea of allowing re-importation of prescription drugs.


Wednesday, August 11, 2004

HMOs clamping down

[Kim Dixon, "Survey: HMOs Bringing Back Cost Controls," Reuters, 11 August 2004.]

Just as some insurers are becoming more lenient in an effort to save costs, others are becoming less flexible:

HMOs are bringing back some tried-and-true but highly unpopular methods to stem crushing medical costs, a nationwide survey of executives and officials released on Wednesday found.

Employers turned to health maintenance organizations in the early 1990s to get a handle on rapidly rising health care costs. HMOs used unpopular methods like restricting choices of doctors and limiting hospital stays, and had some success in curbing medical cost growth.

But a backlash by patients, doctors and hospitals led to an easing in most restrictions. HMOs gave way to preferred provider organizations, or PPOs, with greater access to doctors and fewer restrictions on care.

Now, with health care costs rising at least twice the rate of inflation, HMOs are again tightening controls on patient care, according to 260 interviews with HMO and hospital executives, employers and regulators in 12 nationally-representative communities published in the journal Health Affairs.

"They are trying to target high cost services and those where they see a spike in use," said Glen Mays, a health policy professor at the University of Arkansas, and study author.

Sluggish economic growth is also putting pressure on HMOs to step up cost containment efforts, the survey found.

Some of the biggest health plans in the U.S., including Aetna Inc. and UnitedHealth Group Inc., are among those reinstating restrictions, the authors said.

For example, a New Jersey Aetna plan in 2000 had eliminated so-called prior authorization -- an administrative hurdle doctors must go through to get a hospital test or procedure approved by an HMO.

The Aetna plan brought the method back in many cases in 2002 -- in response to a sharp spike in use of expensive services.

Extreme examples like giving new mothers a day or less in the hospital to recover garnered headlines, feeding unpopularity of the old approach in the 1990s.

HMOs are taking more cautionary approach this time, the study found.

For example, not returning is the so-called doctor-as- gatekeeper approach, where a patient must go through a primary care physician to get access to a specialist.

Techniques coming back include tighter reviews on hospital lengths-of-stays and cutting off payment once a patient has hit a certain threshold of use, such as a third MRI, or magnetic resonance imaging, scan.

It is too early to tell whether these changes are really taking a bite out of costs, the authors said. Systematic changes including government controls on costs are more likely to contain costs over the long haul.

"The solutions need to move beyond individual employer solutions to be more effective," Mays said.


Don't stifle the technology that improves our health

[David Charles, M.D., "Stock Options and Health Care," Tech Central Station, 9 August 2004.]

Dr. David Charles, Chairman of the National Alliance of Medical Researchers and Teaching Physicians, explains in this recent column how the debate over stock options goes beyond just affecting pocketbooks - it can affect your health:

At first glance, the connection between preserving employee stock options and expanding the quality of American health care seems elusive at best, but the two issues come together on the common ground of technology.

Technology is the driving force behind the major medical advances of the last 30 years and even more impressive advances coming in the near future. To a great extent, innovative medical technology is often developed by entrepreneurial small companies whose strength lies in the size of their ideas rather than their cash flow.

These companies depend on employee stock options to attract and retain the talented people who make this technology possible. If companies are forced to declare stock options as an expense as soon as they are issued instead of waiting until the options are exercised, it would create a crippling financial burden for the entrepreneurial firms so essential to the next generation of medical science.

While health care funding debates inevitably focus on the cost of new technology, we should think carefully about the results this technology has delivered. I'm talking about fundamental improvements like average life expectancy going from 68 years in 1950 to 77 years and growing today. Deaths from heart disease have fallen by 40 percent since 1970 and breast cancer mortality has been reduced by 20 percent in just the last 13 years.

If government makes an arbitrary accounting rules change to require mandatory expensing of stock options, as some in Congress and the regulatory community want, it would be a major disservice to the little firms that supply so much of the energy and creative risk-taking needed to keep new medical technology coming.

I'm thinking of firms like HealthStream Inc. in my hometown of Nashville. Led by CEO Robert A. Frist, Jr., this high-tech start-up has become the national leader in Internet-based electronic learning systems for health care providers. HealthStream has only 150 employees, but almost all of them participate in the company's stock options plan.

As Frist explained in a recent letter to the Financial Accounting Standards Board: "It is not easy to attract high quality employees to an early stage company that, by nature, has very little employment stability. In order to attract this talent, we must make our employees equity owners and provide them a vested opportunity in the outcome of the company."

American health care needs what these companies have to offer. So my hope is that policy makers considering mandatory expensing of stock options will consider the ancient advice to physicians which says: "Above all, do no harm."


Tearing down the Berlin Wall of health care insurance

[Joel Belz, "Life support," World Magazine, 14 August 2004.]

While it can be easy to fall into despair over the current costly insurance system, columnist Joel Belz urges us not to lose hope:

If you think that the greatest significance of the collapse of the Berlin Wall 15 years ago was the freedom that event brought to several million East Germans, think again.

The really important lesson from that great tumble was this: Don’t ever assume that the impossible can’t happen! Don’t think that any captivity must necessarily last forever.

I thought about that last week with reference to two much more mundane, but still very costly, forms of bondage: health insurance and Social Security. Most of us these days typically set aside more than 25 percent of every paycheck to cover those two items, and are assured by the actuaries that we’re on a trajectory where it will soon take a full third of our compensation. Still, we gloomily knuckle under and consign ourselves to perpetual oppression.

Well. As candidate John Kerry would say—but not at all in the sense in which he means it: Help is on the way! The Berlin Walls of health insurance and Social Security are showing some huge cracks. And the election of 2004 will go far to tell us whether it’s real or phony help.

A relatively new approach called “Health Savings Accounts” (HSA) is picking up speed. Part of the Medicare Reform Act effective since [January] 1 of this year, and therefore now the law of the land, HSAs have several advantages over traditional medical insurance. The key is in moving important parts of responsibility for health care from the employer to the employee.

The incentives are at least threefold: (1) your desire to keep the money in that account for yourself, and perhaps to watch it grow year after year, slowing down your use of healthcare services; (2) your ability to shop among a variety of healthcare providers, with no limitations dictated by your insurance company; and (3) your option to ask your healthcare provider for a discount for cash—a discount increasingly available from providers eager to escape the high cost of paperwork and process. The huge overhead of the insurance bureaucracy, estimated by many to range between 30 percent and 50 percent of all healthcare costs, would begin to disappear.

Richard Matthews, a specialist in employee benefits for the last three decades, told us last week while outlining some of these details that no matter what, responsibility for healthcare provision will pass soon from the nation’s employers. “Employers simply can’t continue paying double-digit annual increases for health insurance,” Mr. Matthews said. “Their only option—already—is to take it out of employee paychecks. So now, the only question is whether employers pass that responsibility back to individual employees for their own decision-making (just like they do for homeowners insurance and car insurance) or to the federal government and a nationalized healthcare system. It will be one or the other. The present system will not continue.

In other words, this part of the Berlin Wall will either soon be torn down—or it will be built even higher. With a decision like that staring us in the face, isn’t it time for a little optimism?


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