Alarm Bells

The New York Times this week set off alarm bells in Washington with a lead story by Robert Pear entitled “Medicare law is seen leading to cuts in drug benefits for retirees.”

You will recall that the issue commanding attention at the highest levels during the Medicare debate last year was making sure that seniors’ retiree coverage would be safe when the permanent drug benefit comes on line in 2006 (the ?Part D? benefit).

Now we have the Times quoting new government estimates that “one-third of all retirees with employer-sponsored drug coverage” could have their benefits reduced or eliminated.

Medicare Administrator Mark McClellan immediately issued a news release saying that the Times article “is incorrect. The Times based the story on a staff proposal that was previously rejected because it did not adequately protect benefits for seniors under Medicare.”

An analysis by Joe Antos of AEI suggests “there’s a strong case based on facts that employers will not drop the benefit precipitously.” Here’s why:

? The subsidy for employers to retain retiree coverage nearly equals the government subsidy for the new drug benefit “?so the system is not biased in favor of the government program, for once.”

? The subsidy is tax free to employers, which makes it worth about one third more, “a big increase in purchasing power for retiree benefits.”

? And perhaps most importantly, the law may provide an opportunity for employers to help fill one of the biggest problems with the Part D drug benefit ? the infamous doughnut hole.

All of this adds up to a very big deal, making retiree coverage more attractive than the standard Part D benefit. But some crucial details of the new Medicare law remain murky. Let?s hope the regulations, currently under review at the Office of Management and Budget, help to clarify the employer?s role and options.


The attacks on the Medicare bill continue: Newsday carried a story this week, ?Medicare cards little help,? citing a study by ?Democrats in the House Committee on Government Reform? that said seniors would be better off getting their drugs from the Veterans? Administration or Canada. They clearly don?t know that many fewer seniors are eligible for VA drug benefits than for the savings on the new Medicare drug cards.

Rep. Carolyn McCarthy of New York tells her constituents in a press release that ??the Medicare prescription drug discount cards provide little or no help with the cost of medicines.?

It?s imperative that seniors get the full story of the value of the benefit: The $600 subsidy for low-income seniors, discounts negotiated by private drug plans, and pharmaceutical company assistance programs. These combine to offer seniors the best deal, especially for those who don?t have other coverage.


And speaking of drugs being a better deal in Canada: The Institute for Policy Innovation held a packed briefing on Capitol Hill on Thursday that left attendees in stunned silence following videos and speeches documenting the safety problems with imported and counterfeit drugs.

Merrill Matthews hosted, playing the tape of an earlier speech by Rick Roberts of the University of San Francisco. Roberts recounted his experience with counterfeit and bogus AIDS drugs he purchased from a legitimate pharmacy.

He says the FDA needs to focus on the problems we already have, not open the distribution channel to thousands more middlemen. ?There are bad guys out there who are very organized at selling and distributing fake drugs, and they are only in it for the money?I can?t imagine that any savings on imported drugs could be worth your life.?

The forum was webcast and is available at


We launched our new Consumer Choice Community initiative this week, with special thanks to the very hard work and creativity of Tara and Jena Persico and Liz Lamirand of the Galen Institute.

Over the last several months, it became clear to us that we needed to create a way to energize a new network of leaders and potential leaders who want to help speed the movement toward consumer-directed health care.

We opened the new CCC website to members on Monday to start a new conversation among people all over the country who share an enthusiasm for changes that are giving consumers more control over spending on their health care and health insurance and providing them with more and better choices in a competitive market. To learn more or to join the community, please visit our website.

Grace-Marie Turner


? Transforming health care: a patient-centered, consumer-driven and provider-friendly vision

? Attacking rise in health costs, big company meets resistance

? Association group insurance and association health plans: They are not the same

? Geographic variation in Medicare per capita spending: Should policy-makers be concerned?

? Medical progress today



Author: Senator Bill Frist, 07/12/04

Senate Majority Leader Bill Frist painted his vision of ?a consumer-driven system [that] empowers individuals…that gives them the best information with which to make these decisions?and gives them a greater stake, and greater responsibility, in their own health care.? In his National Press Club speech on Monday, he offered several bold proposals including capping the unlimited tax break for job-based health insurance and allowing people to get a tax deduction for health insurance “whether they buy insurance on their own or through an employer.? He proposes a new system for private re-insurance, called ?Healthy Mae,? that would establish a platform for private insurers to share risk among themselves for high-cost cases. A follow-up statement contrasted his Healthy Mae private plan with Senator John Kerry?s proposal to have the government pick up most of the expense for high-cost employees.

Full text:

A new paper by Jeff Lemieux of compares Senator Frist?s proposal with that of Senator Kerry and finds enough similarities to provide ?a coherent framework for bipartisan action on health costs and coverage,? including tax credits, expansion of public programs, risk sharing, and new purchasing pools.

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Author: Vanessa Fuhrmans

Source: The Wall Street Journal, 07/13/04

The Wall Street Journal profiles Pitney Bowes?s efforts to contain rising health care costs for its 46,000 U.S. employees. The article describes its struggle with ?increasingly powerful hospital groups in California, whose price increases pushed the company?s average cost of a hospital admission in that state to $20,500, twice what it paid elsewhere.? The reason: ?In recent years, hundreds of California?s independent community hospitals have consolidated into networks so big that insurers can?t afford to shut them out. Many are using their economic power to charge for every specific procedure and service,? the Journal writes. For example, the average cost of knee arthroscopy in the San Francisco area, where most of the company?s 2,000 employees in the state live and work, climbed 36% to $11,447 last year. ?Even a big company with an entire team dedicated to rooting out the source of rising health-care costs has little power to change these dynamics,? the article concludes. (Maybe they should try consumer power.)

Full text (subscription required):,,SB108966806811161599l,00.html


Source: The Council for Affordable Health Insurance, 07/04

The Council for Affordable Health Insurance explains the ?distinct differences? between association group insurance and Association Health Plans (AHPs). Millions of Americans currently receive health coverage through association group insurance, which is regulated by the states and offered through groups like the AARP or the local Chamber of Commerce. AHPs, by contrast, are not yet available, although legislation to create them has been percolating for several years. The AHP legislation ?would put insurance sold through associations under federal oversight? and would allow traditional companies to provide health coverage; ?associations could become their own insurers, paying health claims themselves, rather than using an insurer.? CAHI also presents a side-by-side chart comparing association group insurance and AHPs based upon characteristics like solvency standards, guaranteed issue, and mandated benefit coverage.

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Source: The Robert Wood Johnson Foundation, July 2004

The Robert Wood Johnson Foundation?s Synthesis Project has published a report analyzing geographic variations in Medicare spending. In 1996, spending per capita in the highest spending area was $8,500, almost three times higher than the lowest area of $3,000. The study?s key findings: More than half of the variation in Medicare spending is due to geographic differences in health care utilization; people living in areas with more hospitals and doctors relative to population receive more services; and higher spending is not associated with better care. ?People in higher spending areas use more services but do not have more appropriate care, better health outcomes, or reduced mortality.? Among the authors? conclusions: ?While higher spending is not associated with better health care, simply reducing spending in higher cost areas will not produce more effective and efficient care.?

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Source: The Manhattan Institute

The Manhattan Institute?s Center for Medical Progress launched a new website this week called This web-based magazine includes the most relevant and up-to-date news, research, and commentary on health care issues and policy for health care industry scholars, journalists, and policy makers. The first spotlight article is ?The Medicare Modernization Act 2003: How America Can Invest in a Healthier Future? by Mark McClellan, CMS administrator. Be sure to go to the ?Events? section for the transcript of the Manhattan Institute?s important June 10 conference, “The Campaign to Fight AIDS: Ensuring Access to the Best Medicine.”

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Health Care System Crisis: View from the Front Lines

American Enterprise Institute Event

Tuesday, July 20, 2004, 12:00 ? 1:30 p.m.

Washington, DC

For additional details and registration information, go to:

Health Policy Matters is a weekly newsletter containing commentary on health policy developments, summaries of timely and informative studies and articles on free-market health reform, and notices of upcoming events. It features research and writings by participants in the Health Policy Consensus Group. Health Policy Matters is published by the Galen Institute, a not-for-profit public policy organization specializing in information and education on health policy. For more information about this newsletter and our organization, please visit our website at

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Elizabeth Lamirand

Editor, Health Policy Matters