The Real Deal

Newspapers have been filled with articles about the crisis that General Motors is facing with its health costs.

Executives say the $5.6 billion that the company will spend this year on health benefits adds $1,500 to the cost of each GM car and is a major factor in its $1.1 billion first quarter loss.

Columnist Matt Miller argues in Fortune magazine that GM’s competitors in other countries aren’t saddled with this “ball and chain” because they have government (taxpayer-financed) health care systems. He and others are issuing new calls for government to step in to socialize health costs.

It’s time to get a better grip on reality – and basic economics.

Here’s the real deal:

  1. The cost of employer-provided health insurance is part of employee compensation – both earned today and deferred into the future. Health benefits are simply a form of employee-earned, non-cash wages – no matter how the company chooses to list them on its accounting ledger.

  2. The $1,500 cost isn’t going away. If GM doesn’t pay health costs directly, it would pay indirectly through higher taxes on the company and on workers, just as their competitors in other countries do.

  3. The auto makers have some of the most generous health benefits in the country – no deductibles or co-payments in many cases – and their exploding health costs show the predictable result. Would it be fair to saddle the florist shop up the street with higher taxes to bail GM out of decades of too-generous labor contracts?

GM Chairman and CEO Rick Wagoner told The Wall Street Journal last month that the company needs to introduce new incentives for its workers to regulate health spending through a consumer-driven, competitive marketplace. That’s a great start and refreshing to hear the CEO looking for new solutions.

But the plea from those who advocate more government control over our health system, including Miller and New York Times columnist Paul Krugman, shows that the battle over who controls our health care system is far from over.

Will we have time to energize the free market with better incentives or will the central planners prevail? We are not out of the woods.


The Senate once again tackled drug importation this week.

Passions ran high during a HELP committee hearing, with Sen. Judd Gregg showing anger and frustration in trying to get fellow Republican Sen. Olympia Snowe to explain exactly what “manufacturing changes” her bill would require to guarantee safety.

Politics and political expediency know no bounds with this issue. Safety is a very real concern. Gregg accused Snowe of “creating a Russian roulette regime in the name of politics.” He said her bill would undo 100 years of drug safety law with 20 pages of legislation.

But with a recent poll showing that 77% of Americans say they want to import cheap (price-controlled) drugs, some politicians just can’t resist getting in front of this bandwagon. The latest tack is that people are importing drugs anyway so Congress might as well make it legal. (Talk about relativism?)

When people are asked if they would support importation if they knew drugs would be coming from Estonia, Latvia, Slovenia, Slovakia, and Greece, support plummets. How much would we have to spend to inspect drugs to make sure they come from safe sources and not counterfeiters or even terrorists?

In this session of Congress, we’re looking to the House and to Speaker Hastert to hold the line on the drug importation theatrics and be the grown-up to protect the public. The American Enterprise Institute also injected sanity into the debate with a Capitol Hill forum on April 15.


Be sure to look for my colleague Greg Scandlen’s newsletter next week for a full report on several studies that came out this week on Health Savings Accounts. You’ll get the straight story from him. Click here if you aren’t already a subscriber to his Consumer Choice Matters newsletter, and we’ll be sure to sign you up.


And join us for our Capitol Hill briefing on May 3 during “Cover the Uninsured Week,” jointly sponsored by the Galen Institute, the Council for Affordable Health Insurance, and the Center for Health Transformation.

Called “Targeted Solutions for the Uninsured,” we’ll explore ways to help the uninsured that don’t involve creation and major expansions of costly government programs. Click here to view the agenda and register for the briefing.

Grace-Marie Turner


  • Early implementation of the health coverage tax credit in Maryland, Michigan, and North Carolina
  • Speak not of error
  • One nation under therapy: How the helping culture is eroding self-reliance
  • HSAs: Need only the healthy and wealthy apply?
  • Cutting drug safety net
  • Exploring the new Medicare drug benefit

Authors: Stan Dorn, J.D., Tanya Alteras, M.P.P., and Jack A. Meyer, Ph.D.
Source: The Economic and Social Research Institute, 04/05

Implementation of Health Coverage Tax Credits (HCTCs) in Maryland, Michigan, and North Carolina, which achieved above-average enrollment results, could be used as a basis for broader reforms to help design future health insurance tax credits, write Stan Dorn, Tanya Alteras, and Jack Meyer of the Economic and Social Research Institute in a report prepared for The Commonwealth Fund. Key findings of the report show that “the HCTC program has made an excellent start, successfully developing program infrastructure and preventing the kind of marketing fraud that marred a previous tax credit program.”

However, the authors also found serious problems with the program, including reduced take-up rates, “delays and confusion surrounding enrollment into the advance-payment option,” and “some dissatisfaction with coverage offered by participating health plans.” When designing future health insurance tax credits, the authors suggest that policymakers can increase enrollment by raising the size of the credit, clarifying the advance-payment procedures, and creating “new federal strategies to get short-term subsidies to qualified individuals promptly.”
Full text:

Authors: David A. Hyman and Charles Silver
Source: Cato Institute’s Regulation magazine, Spring 2005

Health care providers, tort reformers, and patient safety advocates often blame the frequency of medical errors and malpractice in the United States on the legal system, charging “that fear of liability causes providers to hide mistakes instead of reporting them and improving their delivery systems,” write David A. Hyman of the University of Illinois and Charles Silver of the University of Texas. The authors have a different take, however: “We think it exceptionally likely that providers are blaming the legal system for undesirable behaviors?that occur for other reasons, and those behaviors would continue to occur if the tort system were scrapped.” They acknowledge that the current liability system “does a thoroughly unimpressive job of dealing with health care errors” and that it should be reformed so that providers are rewarded for making error reports “and for doing something about the problems they identify – as well as punishing providers for hiding their mistakes and failing to address known deficiencies.” The authors also recommend “a larger strategy of using carrots and sticks to align the interests of healthcare providers and patients” rather than relying exclusively on the legal system or the elimination of tort regulations.
Full text (pdf):

Authors: Christina Hoff Sommers and Sally Satel, M.D.
Source: American Enterprise Institute, April 2005

In their new book, Christina Hoff Sommers and Dr. Sally Satel challenge the rise of “therapism,” a doctrine assuming that “a diffident, anguished, and emotionally apprehensive public requires a vast array of therapists, self-esteem educators, grief counselors, work-shoppers, healers, and traumatologists to lead it though the trials of everyday life.” Sommers and Satel dispute many commonly held ideas including that emotional openness is necessary for one’s psychological well-being. The book “rejects the presumption of fragility and challenges the dogma of self-revelation; it exposes the folly of replacing ethical judgment with psychological and medical diagnosis, save for instances where individuals are severely mentally ill,” write the authors. “The book contends, in other words, that human beings, including children, are best regarded as self-reliant, resilient, psychically sound moral agents responsible for their behavior.”
Book summary:

Syndicated columnist George Will provided his own take on the book in his latest Washington Post column:

Authors: Victoria Craig Bunce and Merrill Matthews, Ph.D.
Source: The Council for Affordable Health Insurance, April 2005

“It is time for the critics to look at the data [on health savings accounts] and abandon their doomsday warnings,” write Victoria Craig Bunce and Merrill Matthews of The Council for Affordable Health Insurance. This paper provides a summary of recent survey results from eHealthInsurance, America’s Health Insurance Plans, and Watson Wyatt. Despite a great deal of evidence to the contrary, critics are still asserting that HSAs will only attract the healthy and the wealthy. “The fact is that middle-aged families – which, on average, are more likely to have higher health care bills than young workers – are choosing HSA plans, just as the eHealthInsurance and AHIP data show,” write the authors.
Full text:

Author: Russel A. Bantham
Source: The Washington Times, 04/19/05

New legislation that would allow importation of prescription drugs “from 25 different countries and 25 different regulatory systems” including Estonia, Latvia, Slovenia, Slovakia, and Greece could flood the United States with unsafe and counterfeit drugs, writes Russel A. Bantham, executive vice president and COO of PhRMA. These countries often have “weak or nonexistent laws for the drugs they export” and are “not countries commonly thought of for their leadership in drug development and drug safety.” For example, while Greece regulates drugs “meant to be consumed for Greeks?they don’t have safety provisions for the medicines meant only to be exported from Greece,” writes Bantham. “This means the drugs that Greeks take may not necessarily be the same as the drugs Greeks sell. This is a critical, vital distinction.”
Full text:

Source: Health Affairs Web Exclusives, 04/19/05

Health Affairs released four new articles this week focused on the upcoming Medicare prescription drug benefit.

  • Cindy Parks Thomas et al of Brandeis University examined how seniors enrolled in a major national prescription drug discount program from September 2002 – August 2003 used the cards. The authors found that people who purchased the card for $20 were more likely to use it than those who were automatically enrolled as a free Medigap benefit.

  • Bruce Stuart et al of the University of Maryland School of Pharmacy examined data from the Medicare Current Beneficiary Survey and found that “Medicare beneficiaries react to interruptions in prescription coverage by reducing their drug spending and that the impact is magnified for beneficiaries with three common chronic diseases.”

  • Dana Gelb Safran et al presented findings from a 2003 national survey of Medicare beneficiaries. The authors describe several key issues, including the important role that prescription drugs play in the health care of the elderly, and side-effects and other factors, including costs, which impact the high rate of non-compliance. They also found that the MMA’s low-income provisions have great potential to bring relief to the high percentage of low-income seniors who lack prescription coverage across the country.

  • Finally, there is an interview with Barrett Toan, CEO of Express Scripts, one of the three largest pharmacy benefit management firms in the country.

Full text:


Targeted Solutions for the Uninsured
Sponsored by the Galen Institute, the Council for Affordable Health Insurance, and the Center for Health Transformation
Tuesday, May 3, 2005, 9:30 a.m. – 11:30 a.m.
Washington, DC

For additional details and registration information, go to

Can Health Savings Accounts Cover the Uninsured?
Cato Institute Policy Forum
Tuesday, May 3, 2005, 12:00 PM (Luncheon to follow)
Washington, DC
For additional details and registration information, go to:

Health Courts: Exploring the Concept
AEI-Brookings Joint Center Event
Thursday, May 5th, 2005, 8:30 a.m. – Noon
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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Elizabeth Lamirand, Editor
Health Policy Matters