The Kerry Plan

Now that Democrats have selected Sen. John Kerry as their presidential nominee, a quick review of his key health policy proposals seems in order.

The most distinctive feature of the Kerry health initiative is his plan to have the federal government take over high health care costs for employers ? and in a way that moves toward the cherished liberal goal of mandating that all employers provide health coverage to all workers.

The federal government would reimburse employee health plans for 75% of the costs of catastrophic costs they incur above $50,000.

In exchange, employers would be required to:

? Provide affordable health coverage to all of their workers (the mandate)

? Demonstrate that the premium savings are passed on to workers

? Encourage disease management programs

Let?s hope that employers see through this and realize that the subsidies are likely to shrink while the mandates are certain to grow.

The Kerry idea means that health insurance would no longer be insurance, even in name. With real insurance, a large number of individuals pay premiums to pay for the few that have catastrophic costs. This is the proper role of insurance companies. If the federal government takes over this role, then health coverage will only be a dollar-trading exchange for routine and intermediate health costs.

Having the government take over catastrophic health costs also is a slippery slope that would provide less incentive to employers to manage costs. There would, in fact, be an incentive for employers to get marginally high-cost workers off their rolls and into the federal till as soon as possible. This, in turn, could accelerate health costs and likely increase the premium costs for workers ? exactly the opposite of Kerry?s intent.

Kerry?s plan also is strong on expansion of government programs, especially Medicaid and SCHIP. He wants all children enrolled in health programs when they register for school, and states would get enhanced payments to add parents with incomes up to 200% of poverty to their rolls.

There is little talk in the Kerry plan about individuals having control over their own choices. The words consumer choice and Health Savings Accounts don?t show up in any of his health proposals that I could find. Further, there is little acknowledgement that the world is changing and that insurance needs to be more portable, with costs and choices determined by consumers, not politicians.

Bottom line cost of the Kerry plan: About $900 billion over 10 years to provide insurance coverage to 29 million more Americans.

But there is good news: The plan does not try to create a new health care system, a la the Clintons. Rather, it targets individual programs and segments of the population with new programs.

Kerry also calls for tax credits to help with the purchase of health insurance, and he sees the Federal Employees Health Benefits Program as a good model for a new type of purchasing pool.

So there is some common ground, but also many differences with the consumer-friendly, market-based initiative of President Bush.

Let the debate begin.

Grace-Marie Turner

 

RECENT NEWS, ARTICLES, AND STUDIES FROM THE HEALTH POLICY WORLD:

? Don?t ask, don?t tell

? The Durbin-Lincoln small employers health benefits program (SEHBP)

? Choice and drug costs

? The wrong remedy for Rx drugs

? Wanted: leadership at the FDA

? The economic impact of pharmaceutical parallel trade in European union member states: a stakeholder analysis

DON?T ASK, DON?T TELL

Author: Joseph Antos, Ph.D.

Source: American Enterprise Institute, 03/01/04

?The dispute continues in Washington regarding the costs of the recently enacted Medicare reform bill,? writes AEI?s Joe Antos. In February, the White House announced that the new Medicare law [MMA] would cost $534 billion between 2004 and 2013, not $400 billion as projected by the Congressional Budget Office. Antos argues that none of the projections are reliable because ?the cost estimate for MMA has many moving parts and is driven by multiple layers of assumptions about how seniors, health care providers, pharmaceutical companies, employers, and others will respond to new policies that depart significantly from past experience. Under those circumstances, good analysts can make reasonable assumptions and arrive at wildly different results.? Antos suggests moving beyond ?political contentiousness? to focus on ?fundamental reform that changes the incentives facing patients, providers, and health plans, and that improves the efficiency of health care delivery.?

Full text: http://www.aei.org/publications/pubID.20021,filter./pub_detail.asp

THE DURBIN-LINCOLN SMALL EMPLOYERS HEALTH BENEFITS PROGRAM (SEHBP)

Author: Jeff Lemieux

Source: Centrists.org, 03/04/04

A new bill that would create a version of the Federal Employees Health Benefits Program (FEHBP) for small businesses is a good start to rectify the many problems with health insurance markets, writes Jeff Lemieux of Centrists.org. Proposed by Senators Richard Durbin (D-IL) and Blanche Lincoln (D-Ark.), the Small Employers Health Benefits Program (SEHBP) would be administered through the federal Office of Personnel Management and would limit enrollment to businesses with 100 employees or fewer. The SEHBP also would give businesses with low-wage workers earning less than $25,000 a year refundable tax credits equaling 25% of the premium for single workers and 35% for family coverage. Although the program is geared toward small businesses, Lemieux writes that the SEHBP could also be used “as a qualifying venue for transitional health coverage,” much like COBRA.

Full text: http://www.centrists.org/pages/2004/02/25_lemieux_health.html

CHOICE AND DRUG COSTS

Author: Thomas P. Miller

Source: The Washington Post, 2/27/04

In this letter to the editor, Tom Miller questions former Medicare administrator Gail Wilensky?s recommendation in a Feb. 15 commentary that the government and private sector jointly make determinations about the cost-effectiveness of prescription drugs. Making such a program work would mean that ?health program administrators and politicians won’t be tempted to impose price controls through the back door,? Miller writes. He argues that this requires two ?heroic? assumptions. ?First, that the federal government could succeed at crafting effective guidelines in an environment of constantly changing, innovative and increasingly customized health care. Second, that it would be able to remain an honest broker while being the primary payer for hemorrhaging Medicare expenses,? Miller writes.

Full text of letter: http://www.washingtonpost.com/wp-dyn/articles/A10795-2004Feb26.html

Wilensky op-ed: http://www.washingtonpost.com/ac2/wp-dyn?pagename=article&node=&contentId=A41070-2004Feb13?Found=true

THE WRONG REMEDY FOR RX DRUGS

Author: Edwin J. Feulner, Ph.D.

Source: The Hill, 2/26/04

Lawmakers looking to save money ?want to let the federal government use the ?enormous market clout? of 41 million Medicare beneficiaries to drive down the cost of drugs,? writes Ed Feulner, president of The Heritage Foundation. But Feulner argues that a better way to keep costs down and keep a wide range of drugs available is to allow private pharmacy benefits managers (PBMs) to negotiate prices. ?That way, Medicare can exploit the even more ?enormous market clout? of private PBMs instead of trying to reinvent the wheel?The goal is to make sure that all retired people have access to the best drugs at the best prices. And the answer is more freedom, not more government tinkering.?

Full text: http://www.thehill.com/op_ed/022604_feulner.aspx

WANTED: LEADERSHIP AT THE FDA

Author: Dr. David Gratzer

Source: National Review Online, 3/2/04

Food and Drug Commissioner Mark McClellan has worked hard to reform the FDA during his short tenure, but it remains one of this country?s most ?risk-adverse? agencies, writes David Gratzer of the Manhattan Institute. ?[I]f the White House is serious about America’s health and the future of medicine, it had better find an excellent replacement for Dr. McClellan ? and fast,? he writes. Gratzer cites the FDA?s handling of the anti-cancer drug Erbitux as one example. ?For two years, the FDA procrastinated on approval, arguing that it lacked adequate data for this anti-cancer drug. Finally, this month, the FDA gave the green light ? acting, incidentally, on the same basic data set previously deemed inadequate,? he writes. ?Annoy the bureaucrats, Mr. President, and fill the FDA vacancy with a reformer.?

Full text: http://www.nationalreview.com/comment/gratzer200403020902.asp

THE ECONOMIC IMPACT OF PHARMACEUTICAL PARALLEL TRADE IN EUROPEAN UNION MEMBER STATES: A STAKEHOLDER ANALYSIS

Authors: Panos Kanavos, Ph.D., Joan Costa-i-Font, Ph.D., Sherry Merkur, M.Sc., and Marin Gemmill, M.A.

Source: London School of Economics and Political Science, 01/04

Various healthcare stakeholders including patients, pharmaceutical companies, and health insurance organizations do not benefit from the practice of drug reimportation, or ?parallel trade? as it is known in Europe, according to findings from the London School of Economics and Political Science. The authors examined the policy of parallel trade in European Union member states and Norway and found that the main beneficiaries are the parallel traders themselves. ?[T]he hypothesis that pharmaceutical parallel trade stimulates price competition and drives prices down in destination (importing) countries over the long-term is rejected. There is also very little evidence lending support to the argument that parallel trade stimulates (price) competition among exporting and importing countries,? conclude the authors.

Full text: http://www.lse.ac.uk/collections/LSEHealthAndSocialCare/pdf/Workingpapers/Paper.pdf

UPCOMING EVENT:

Can Market Competition Cure an Ailing Health System?

A Joint Conference of the Center for Studying Health System Change and Health Affairs

Friday, March 12, 2004 – 9:00 a.m. – 2:15 p.m.

Dirksen Senate Office Building

Washington, DC

For additional details and registration information, go to: http://www.hschange.org/index.cgi?conf=show&what=16.

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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