Power and Control

We were awash in bad news this week on the health care front:

? The Medicare Trustees’ report raised alarms across the nation about the accelerating insolvency of the program.

? The feud between former CMS administrator Tom Scully and chief actuary Rick Foster became front-page news over Foster being told to withhold his higher cost estimates of the Medicare bill from Congress.

? The Wall Street Journal reported Wednesday on a study by Families USA saying that drug prices have surged and will erode savings from the new Medicare drug discount cards that will be issued this spring.

? The House Civil Service Subcommittee held a hearing on Wednesday that deteriorated into hand-wringing over Health Savings Accounts and whether they should be an option for federal employees.

But there was one bright spot: HHS Secretary Tommy Thompson’s announcement that he has selected 28 companies to offer Medicare-approved drug discount cards. In addition, 43 sponsors representing private Medicare HMOs and PPOs will offer the cards to their members. Twenty-nine applicants were turned down, most often because they couldn’t show they had adequate financing or didn’t include enough drugs or pharmacies.

Families USA is likely to be very surprised about the real savings that seniors will see. Early reports indicate that pharmaceutical companies are giving very generous discounts to the drug card plans while coupling their existing patient assistance programs with the cards.

That, on top of the $600 credit to low-income seniors, likely will make the first benefit of the new Medicare law very popular.

But are there bigger issues going on here with all the bad news? I believe so.

First, the warnings in the trustees’ report are very real. A program based upon an open-ended entitlement to benefits is unsustainable in a sector where costs continue to outpace overall inflation and where Medicare enrollment will double over the next several decades.

(Contrast this with the Social Security program, which is based upon cash payments to beneficiaries. Its solvency projections are unchanged. There is a lesson here that a defined contribution for Medicare is the answer.)

Medicare must change to bring spending discipline into the program. The tools Washington has employed so far – price controls and rationing – clearly haven’t worked and will never work. The only idea from the other side is to raise taxes.

Last year’s Medicare law took the first steps in making the program more responsive to market forces by engaging consumers and competition. But the trustees couldn’t estimate how these changes would impact future spending.

In Washington, virtually every battle is about power and control. The health care debate is growing more shrill in the continuing struggle between those who believe government should control health care and those who believe in a vibrant competitive marketplace where consumers are armed with spending power and information.

Out in the real world, the market is starting to be transformed around creative uses of Health Reimbursement Arrangements and Health Savings Accounts. Power and control are slipping away from Washington as a result, and the central controllers are getting desperate.

We are reaching the tipping point where a free market, empowered consumers, and genuine competition actually can have a chance to take hold in the health sector for the first time. But since nearly half of all U.S. spending on health care flows through government programs, hundreds of billions of dollars of power still reside with politicians.

The shake-out will continue through the decade, but we are seeing how intense the battles are becoming.

Grace-Marie Turner


? 2004 Medicare Trustees? report

? Fixing the new Medicare law: How to build on the drug discount card

? Beware the pitfalls of ?evidence-based medicine?

? Brain repair

? Health and the income inequality hypothesis



Source: Centers for Medicare and Medicaid Services, 03/23/04

The Medicare Trustees issued their annual report earlier this week, warning that the hospital trust fund will be bankrupt by 2019, seven years earlier than predicted last year. According to the report, ?About 2 years of this change are attributable to the new [Medicare] legislation,? including the new drug benefit and increased payments to private health plans and rural health providers. Medicare’s accelerated financial deterioration is also due to the coming influx of millions more beneficiaries and health costs that persistently rise faster than overall inflation rates. Members of the Health Policy Consensus Group and others had varying opinions and additional light to shed on the report. See below for links.

Full text of the report:


From The Wall Street Journal:


From Jeff Lemieux of Centrists.org:


From Robert E. Moffit, Ph.D. and Brian Riedl of The Heritage Foundation: http://www.heritage.org/Research/HealthCare/bg1740.cfm

From Matt Moore of the National Center for Policy Analysis: http://www.washtimes.com/commentary/20040323-091213-3689r.htm

From the Cato Institute:



Authors: Grace-Marie Turner and Joseph Antos

Source: Galen Institute, 03/25/04

?Congress has provided a good start on a properly structured drug benefit though its transitional card program with funding for certain low-income beneficiaries,? write Grace-Marie Turner of the Galen Institute and Joe Antos of the American Enterprise Institute. In a paper to be published by The Heritage Foundation, the authors argue that establishing a fixed contribution on the card allows both government and seniors to track prices and savings, and encourages consumers to save for future drug needs. ?The early interest in this program and its rational structure suggest that it could provide a basis for a permanent program involving privately-negotiated drug discounts and fixed subsidies for the purchase of routine medications, with an added benefit of protection against catastrophic drug expenses,? write the authors.

Full text: http://www.galen.org/pdrugs.asp?docID=619


Author: Grace-Marie Turner

Source: The Galen Institute, 3/18/04

?It is undisputed that medical care would be improved if doctors based their treatment decisions upon the best studies available,? writes Grace-Marie Turner. ?But a new debate is emerging over who should produce these studies and how to enforce compliance.? Some political and medical leaders are asking that doctors be required to practice ?evidence-based medicine? with the government playing a significant role in commissioning studies and enforcing compliance. ?[I]t would be a dangerous and slippery slope if government were to get into the business of dictating what the ?right? treatments are, locking these decisions into inflexible laws and regulations that would almost immediately become outdated,? writes Turner.

Full text: www.galen.org/pdrugs.asp?docID=618


Author: Robert Langreth

Source: Forbes, 3/29/04

Each year, 700,000 Americans suffer strokes, causing 160,000 deaths and $51 billion in disability costs, according to Forbes magazine. But despite many efforts, there are virtually no drugs available to treat strokes effectively. ?At least 20 antistroke compounds have entered large human trials in recent years after promising lab results, but only one, Genentech’s clot-buster Activase, has made it to the market,? writes Robert Langreth. He details new research being conducted and provides a close up view of the incredible risk and difficulty of developing new drugs ? especially drugs for stroke victims. (If price controls on prescription drugs were instituted, companies would have much less of an incentive to continue this expensive and risky research ? and many fewer cures would be developed.)

Full text: www.forbes.com/business/forbes/2004/0329/110.html


Authors: Sally Satel, M.D. and Nicholas Eberstadt

Source: American Enterprise Institute, February 2004

In their new book, Dr. Sally Satel and Nicholas Eberstadt find that ?available data do not support a causal relationship between distribution of wealth and population health.? The newly popular ?inequality hypothesis? predicts that inequality of income, not necessarily poverty, is bad for people?s health. But Satel and Eberstadt examine the available evidence and find that: 1) Country or state-level comparisons between patterns of income inequality and health seem to support the hypothesis, but these comparisons are misleading because statistical constructions are being mistaken for real effect; 2) Variables other than income distribution can explain observed differences in health between groups; and 3) ?Sociobiology? experiments with animals provide some of the basis for ?inequality hypothesis? speculations about the stress of hierarchies and adverse health for human beings.

Full text: www.aei.org/publications/bookID.749/book_detail.asp


Resolved: Congress Should Remove the Ban on Drug Reimportation

Cato Institute Debate

Tuesday, March 30, 2004, 12:00 pm

Washington, DC

For additional details and registration information, go to: http://www.cato.org/events/040330pf2.html.

How Leading Health Plans Are Reshaping Health Care

American Enterprise Institute Health Policy Discussion

Tuesday, April 6, 2004, Noon – 2:00 p.m.

Washington, D.C.

For additional details and registration information, go to: http://www.aei.org/events/type.upcoming,eventID.770,filter./event_detail.asp

Health Care In Maryland: Diagnoses And Possible Remedies

Maryland Public Policy Institute Forum

Thursday, April 8, 2004, 12:00 p.m. -1:30 p.m.

Annapolis, Maryland

For additional details and registration information, go to: www.mdpolicy.org.

Health Care 2004: Opportunities for Reform and Innovation

Washington Policy Center Conference

Thursday, April 22, 2004, 7:30 a.m. ? 1:30 p.m.

Seattle, WA

This event will feature Grace-Marie Turner as the lunch keynote speaker. For additional details and registration information, go to: http://www.washingtonpolicy.org/events.html.


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 http://www.galen.org/.

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Editor, Health Policy Matters