It is incomprehensible that any terrorist attack could have been more destructive and devastating than Katrina and its aftermath of floods. Washington and the nation are horrified and furious over the death and destruction along the Gulf Coast, and, like 9/11, the first impulse is to figure out who is to blame. Mother Nature is not a very useful target so the political blaming was almost inevitable, with President Bush the most visible target.

But as Bob Williams of the Evergreen Freedom Foundation in Washington State explained Tuesday in his superb commentary in The Wall Street Journal, “The primary responsibility for dealing with emergencies does not belong to the federal government. It belongs to local and state officials who are charged by law with management of the crucial first response to disasters.”

Mayor Rudy Giuliani didn’t wait for federal troops. He sent in New York’s fire and police forces immediately after the Twin Towers attacks.

Seeing a huge fleet of yellow school buses under water in New Orleans is heartbreaking and just one example of the failure of local and state officials in executing disaster plans and exerting immediate leadership to save lives.

But the political blaming has turned the Washington policy agenda upside-down. Federal relief is expected to cost at least $100 billion and will likely rise from there. Other policy and spending initiatives are on hold, and the policy agenda now will be calculated in the pre- or post-Katrina climate.


One of the major controversies this week has been whether or not Congress will proceed with plans to reduce Medicaid spending by $10 billion over the next five years – $10 billion out of $1.3 trillion in expected spending over that time.

Members on both sides of the aisle have passionately pleaded that this is the worst possible time to consider changes and spending reductions in Medicaid. But it could just as easily be argued that this is the best time to begin.

The Medicaid Commission issued its report on schedule on September 1 with our recommendations for savings, and when you look at the list, it’s hard to see how any of the hurricane victims could be affected.

First, the changes would not likely go into effect for a year or more. Second, governors would be given great flexibility on whether or not they want to implement changes, and they would certainly not do anything that would make matters worse for their citizens. And third, many of the changes are prospective – stopping new spending scams from developing, making it more difficult for wealthy seniors to shift or hide assets in order to qualify for Medicaid, and modifying the prescription drug reimbursement formula, for example.

House Energy and Commerce Committee Chairman Joe Barton stressed during a hearing yesterday, “Evacuees from Hurricane Katrina will not be put in jeopardy because of these reform proposals.”

The arguments for proceeding with Medicaid modernization require thinking about the future and thinking outside the box:

  • If this program is to be available in the future for the most needy, it’s vital that changes be made now to target the resources to those who will need them most. The Medicaid safety net already is fraying, and change is essential.

  • And Katrina shows that we must always balance spending priorities among competing programs. There will always be trade-offs. Even the United States of America can’t do it all. If more had been spent to protect New Orleans and to prepare for this disaster, thousands of lives could have been saved. That $10 billion might be put to much better use elsewhere.


Two new papers were published during the August recess, and I want to make sure you didn’t miss them: First, we published a new paper on “Consumerism in Health Care: Early Results are Positive” that summarizes many of the studies to date on experience with HSAs and HRAs.

And America’s Health Insurance Plans has published an important new study, “Individual Health Insurance: A Comprehensive Survey of Affordability, Access, and Benefits.” This is a comprehensive survey of companies doing business in the individual health insurance market, and it shows that individually purchased insurance is more affordable, accessible, and offers broader benefits than widely believed.

A bit of bright news in otherwise very troubled times.

Grace-Marie Turner


  • Aging America’s Achilles’ heel: Medicaid long-term care
  • Income, poverty, and health insurance coverage in the United States: 2004
  • The moral-hazard myth
  • Voices of health reform
  • Treasury and IRS issue proposed regulations concerning Health Savings Account comparability rules

Source: Cato Institute, 09/01/05

Medicaid’s dysfunctional long-term care (LTC) benefit, which accounts for about 35% of total Medicaid expenditures in most states, “has become ‘inheritance insurance’ for baby boomers, lulling them into a false sense of security regarding their own future LTC needs,” writes Stephen A. Moses of the Center for Long-Term Care Reform. Moses argues that “Medicaid’s loose eligibility rules for LTC create perverse incentives that invite abuse and discourage responsible LTC planning,” and he offers several recommendations to improve LTC’s financing system. “The single most effective step Congress and the president can take to fix Medicaid, reduce its cost, and improve the quality of LTC would be to replace Medicaid’s wide-open home equity exemption with a more limited exemption of home equity or none at all,” writes Moses. “That simple measure combined with other, lesser modifications would pump desperately needed oxygen into LTC markets, ease the tax burden of Medicaid, enable Medicaid to provide better access to higher-quality care for the genuinely needy, and supercharge the market for LTC insurance and home equity conversion products.”
Full text:

Authors: Carmen DeNavas-Walt, Bernadette D. Proctor, and Cheryl Hill Lee
Source: U.S. Census Bureau, 08/30/05

The percentage of uninsured Americans remained stable at 15.7% in 2004, virtually unchanged from the previous year, reports the U.S. Census Bureau. “The number of people with health insurance increased by 2.0 million to 245.3 million between 2003 and 2004, and the number without such coverage rose by 800,000 to 45.8 million,” according to the report. Among those with job-based health insurance, coverage declined from 60.4% in 2003 to 59.8% in 2004. While private insurance declined, the number of people covered by government programs rose, from 26.6% to 27.2%, due to increases in the number of people with Medicaid coverage.
Full text:

Author: Malcolm Gladwell
Source: The New Yorker, 08/29/05

Malcolm Gladwell, the now-famous author of Tipping Point and Blink, tackles health care in his latest piece for The New Yorker, with a disappointing analysis of “The Moral-Hazard Myth.” Gladwell cites Professor Mark Pauly as writing the paper that has become “the single most influential article in the health economics literature” concerning the moral hazard in health insurance, “the term economists use to describe the fact that insurance can change the behavior of the person being insured” (i.e., if something is free or nearly so, you will consume more of it). But Gladwell twists and distorts Pauly’s thesis to suggest that Health Savings Accounts are a tool to keep people from using health services to “[m]ake the insured a little bit more like the uninsured.” Gladwell devolves to make a case for a European-style social insurance model and wonders why on earth Americans would be so devoted to their clearly flawed health care system.
Full text:

Grace-Marie’s letter to the editor of The New Yorker in response:

Author: Richard L. Reece, M.D.
This new book by Dr. Richard Reece features interviews with forty leading health care experts, including physicians, health plan executives, consultants, professors, and leaders of think tanks. The interviews are arranged into six parts: advocates of private-public consensus as a solution; advocates of a government-assured coverage solution; advocates of a consumer-driven solution; leaders representing the vested interests of physicians and hospitals; leaders representing the vested interests of health plans; and leaders representing support and supply chain interests. “I created this book of interviews to get inside the minds and hearts of health care stakeholders who work full-time within the system,” writes Dr. Reece. Grace-Marie Turner is interviewed in Part 3 about consumer and market driven care.
Book available for purchase at:

Source: Department of the Treasury, 08/26/05

Large employers have been requesting additional information to help them in integrating Health Savings Accounts in their benefit offerings. Responding to these requests, the IRS and Treasury have issued proposed regulations regarding comparability rules for employer HSA contributions. “HSA rules do not have nondiscrimination rules restricting the amount of benefits provided to highly compensated employees,” according to the Treasury release. “Instead, the HSA statute requires that all employer pre-tax contributions to employee HSAs be comparable. That is, all employer contributions to employee HSAs must be the same amount or the same percentage of the High Deductible Health Plan deductible for all employees with the same category of coverage.”
Link to the proposed regulations:


Counting the Uninsured: Three Surveys, Three Answers
American Enterprise Institute Event
Friday, September 9, 2005, 12:00-3:00 p.m.
Washington, DC

For additional details and registration information, go to:

The Trouble with Medicaid
Cato Institute Capitol Hill Briefing
Friday, September 9, 2005, 12:00 p.m. (Lunch Included)
B-354 Rayburn House Office Building
Washington, DC

For additional details and registration information, go to:

Health Services for Children: The Role of Medicaid and Its Benefit Package
Cosponsored by the Alliance for Health Reform and The Commonwealth Fund
Friday, September 9, 2005

They have reached the room capacity for this briefing, and are not able to take any new registrants. But you may watch the webcast of the briefing starting late Friday afternoon at and a transcript will be available by next Wednesday.

The Emerging Issues Forum
Sponsored by The Heartland Institute
Tuesday, September 13, 2005, 10:00 a.m. – 4:00 p.m. (registration at 9:30 a.m.)
Chicago, IL

For additional details and registration information, go to:

Price Sensitivity in Health Care: A New Look at the Evidence and Implications for Policy
American Enterprise Institute Event
Thursday, September 15, 2005, 9:15 – 11:00 a.m.
Washington, DC

For additional details and registration information, go to:

No More Excuses: Business and Health Information Technology
Hosted by the National Chamber Foundation
Thursday, September 15, 2005, 8:30 a.m. – 3:00 p.m.
Washington, DC

For additional details and registration information, go to:

21st Century Health Care Terrorism: The Perils of International Drug Counterfeiting
Hosted by the Pacific Research Institute and the Center for Medicines in the Public Interest
Tuesday, September 20, 2005, 8:00 am to 2:00 pm
Washington, DC

For additional details and registration information, go to:

Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features research and writings by participants in the Health Policy Consensus Group, articles of interest from the health policy world, and announcements of coming events. 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 the newsletter and our organization, please visit our website at

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