The Good News

We are so very pleased to announce that Joel White, former staff director of the House Ways and Means Health Subcommittee, is joining the Galen Institute as a visiting senior fellow. In his new role, Joel will advance our work on the key areas of health and tax policy and will promote free-market ideas for health reform through speeches and writing.

Joel is president of JCWhite Consulting, a firm he established since leaving Capitol Hill earlier this year to provide strategic, political, and policy advice to clients. Joel’s work with the Galen Institute will be in addition to his full-time work with JCWhite Consulting.

Having worked with Joel for many years on health policy initiatives, I am honored to welcome him here so we can continue to work together to advance free-market ideas. Joel has an unmatched track record of promoting competition and patient choice in the health sector, and we look forward to continuing to work with him to offer ideas that will bring health care financing into the 21st century.

And we also are pleased to announce a new staff member at the Galen Institute. Brad Hallman, a recent law school graduate with a keen interest in public policy, is joining Galen as a health policy analyst. He will focus on a broad range of issues, but already has been helpful with our research on the State Children’s Health Insurance Program.

He joins Tara Persico and Jena Persico, the powerful duo who handle just about everything else at the Galen Institute and are indispensable members of our research, publications, newsletter production, development, and meetings-management team.

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And some more good news this week: America’s Health Insurance Plans released during a White House ceremony this week the results of its member survey showing that 4.5 million people were covered by HSA-qualifying health plans as of this January.

That’s a 43% increase over last year, and the biggest growth is in the large group market, up from 162,000 in 2005 to more than 2 million this year. And the numbers continue to reflect interest in the uninsured in these new products, with one-fourth of those signing up previously without coverage.

The average monthly insurance premiums for single coverage are $240 and $580 for families in the small group market — clearly reflecting small businesses’ interest in these more affordable products. The survey also shows a surge in use of consumer information tools such as online access to accounts, cost information, education tools, and personal health records. HSAs are just one offering in the constellation of consumer-directed care options that also include the older sister of HSAs, Health Reimbursement Arrangements.

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It’s clear when an argument hits a nerve with people on the other side of an issue. For example, you will recall that members of our Health Policy Consensus Group produced a Fact Sheet on Medicare Advantage (MA) plans last month. We reported in our paper, based upon government data, that: ?MA plans are particularly attractive to those who do not have other sources of supplemental coverage and are more sensitive to price.? These beneficiaries are attracted to the ?broader coverage and more predictable costs of MA plans.?

If Congress were to cut funds for Medicare Advantage, as it is threatening, and plans were to pull out of the program, these beneficiaries could lose ?an absolutely key safety net,? according to former Clinton Administration Medicare official John Gorman.

So the Center on Budget and Policy Priorities, a well-known liberal think tank, produced its own report. But unfortunately, they distorted the argument:

They argue that ?Nearly half (48 percent) of all Medicare beneficiaries with incomes below $10,000 are enrolled in, and thus receive supplementary coverage through, Medicaid.?

Yes, but as we argue, it is lower-income seniors above the Medicaid eligibility threshold who find MA plans particularly attractive.

Seniors with annual incomes of $10,000 to $20,000 are those who are much less likely to have retiree supplementary coverage and who find private Medigap premiums too costly. They are disproportionately minorities and would be hit hardest if Congress proceeds to cut funding for the program to pay for a massive expansion of health insurance coverage for children. Our argument stands.

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And then another report comes along that you will surely be hearing quoted a lot this month during the debate over allowing the federal government to impose price controls on prescription drugs in Medicare, AKA ?allowing the government to negotiate prices.?

The Institute for America’s Future makes an outlandish claim that Medicare could save $30 billion a year if Medicare were to directly negotiate prices with drug companies.

The official Congressional Budget Office calculations show that savings from government interference in drug price negotiations ?would very likely be less than $10 billion? over 10 years ?and could be significantly less.?

So how does the Institute for America’s Future come up with such a huge number? They describe their calculations in their four-page paper:

?Under Part D, the CBO projects that the gross government spending for prescription drugs in 2008 under Part D will be about $52 billion. Assuming that the government is covering 2/3rds of all prescription drug spending, with individual seniors covering a third of costs, the total gross prescription drug spending for Medicare enrollees will be approximately $78 billion. Approximately $5 billion of this pays for the excessive administrative costs, which still leaves $73 billion in prescription drug expenditures. If Medicare was able to negotiate similarly to the VA and get prices reduced by 40%, the effect would be savings of roughly $30 billion a year.?

Just a few problems with that:

For starters, the VA beneficiaries consume about 2% of prescription drugs sold in this country and Medicare, about 50%. There’s no way that the government could get the deep, deep price discounts the drug companies give to the VA.

And the acting administrator of the Centers for Medicare and Medicaid Services, Leslie Norwalk, says that her agency simply does not have the expertise to engage in negotiations with the companies over the prices of thousands of drugs.

Some members of Congress have recommended that she just hire contractors to do it. Her answer: ?That’s exactly what we’re doing now? by having private drug plans negotiate with the drug companies through the competitive, market-based Part D plan! And, by the way, it is working, saving taxpayers hundreds of billions of dollars from original estimates.

The Senate is expected to tackle this issue this month. It’s clearly going to be a lively debate. Our recommendation: Don’t mess with something that’s working.

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And we at the Galen Institute wish you a Happy Easter and a blessed Passover.

Grace-Marie Turner

RECENT NEWS ARTICLES AND STUDIES:

  • Toward free-market health care
  • Comparing apples to anthrax
  • Perverse incentives in health care
  • The diagnosis and treatment of Medicare
  • Competition is good when it comes to Medicare drug benefits
  • One harsh prescription
  • A guide for state legislators: Creating an HSA state
  • Expanded health program for children causes clash

TOWARD FREE-MARKET HEALTH CARE
Author: Grace-Marie Turner
Source: Galen Institute, 03/31/07

At a speech before the Conservative Women’s Network last week, Grace-Marie said that surveys show that women ?believe that they, rather than a corporate human resources director, could make better decisions involving health coverage for their families if only they were given the chance.? She argued for portability of health insurance, giving people the option to buy policies across state lines, and equalizing the tax treatment of health insurance. She described the plan offered by President Bush that would allow people to ?buy health insurance that they can own and take with them from job to job? to gain ?more control over decisions involving their health insurance and health care.? (C-SPAN taped the speech for later airing. We will alert you with the schedule.)
Full text: www.galen.org

COMPARING APPLES TO ANTHRAX
Author: Grace-Marie Turner
Source: The Press Enterprise (CA), 03/23/07

The Cipro negotiations during the 2001 anthrax attacks, in which former HHS Secretary Tommy Thompson demanded that Bayer sell its powerful antibiotic drug well below its market value, ?proves that government doesn’t negotiate prices. It sets them,? writes Galen’s Grace-Marie Turner. As the Senate prepares to debate a measure allowing the government to negotiate prices for prescription drugs under the Medicare drug benefit, supporters often point to the Cipro negotiation as proof that the government can use its size and purchasing power to lower costs. But this ?analogy is deeply flawed,? writes Turner. ?What company would spend billions of dollars researching and developing a new drug when the government could dictate a below-market price at any moment or, worse yet, pull its patent and allow others to produce the pill?? she concludes. ?It would undermine the entire process of discovering new cures if the government?could arbitrarily determine how much pharmaceutical companies are paid.?
Full text: www.galen.org

PERVERSE INCENTIVES IN HEALTH CARE
Author: John C. Goodman
Source: The Wall Street Journal, 04/05/07

In a commentary for The Wall Street Journal, John Goodman of the National Center for Policy Analysis argues that changes must be made to the supply side of the health insurance system so that it operates more like the rest of the economy. He provides several examples of how medical services that do function like a market are successfully competing on both price and quality. Cosmetic and Lasik surgery, for example, both allow patients to pay with their own money and provide ?what is virtually impossible to find for other types of surgery — a package price covering all aspects of the procedure,? writes Goodman. The number of cosmetic procedures has grown sixfold over the past decade and a half, but because providers are competing on price and quality, the real price of cosmetic surgery declined. Goodman also cites research from the Dartmouth Medical School, which suggests ?that if everyone in America went to the Mayo Clinic, our annual health-care bill would be 25% lower (more than $500 billion!), and the average quality of care would improve.?
Full text (pdf): www.ncpa.org

THE DIAGNOSIS AND TREATMENT OF MEDICARE
Authors: Andrew J. Rettenmaier and Thomas R. Saving
Source: American Enterprise Institute, 04/03/07

In their new book, Rettenmaier and Saving “dissect the existing Medicare program, evaluate a series of previously suggested remedies, and put forward their own ‘prepayment’ solution.” The authors say that the current system provides patients with “no incentive to control costs” and “pits the interests of its patients against younger workers who are paying the bills.” Thus, the authors propose to finance the system by requiring age groups to pay for their own coverage during retirement through annual premiums paid “throughout their pre-retirement years.”
Full text: www.aei.org

COMPETITION IS GOOD WHEN IT COMES TO MEDICARE DRUG BENEFITS
Authors: Merrill Matthews and Peter Pitts
Source: San Jose Mercury News, 03/28/07

Allowing the government to negotiate prescription drug prices in Medicare would result ?in cost-centric rather than patient-centric medicine,? write Merrill Matthews of the Institute for Policy Innovation and Peter Pitts of the Center for Medicine in the Public Interest. ?It’s a well-understood principle in economics: Price controls in competitive markets lead to shortages and rationing, as well as a distortion of prices for related products and services?Competition, by contrast, leads to higher quality, increased research and development, more choices and lower prices,? conclude Matthews and Pitts. ?If anything, Congress should be asking how to bring more of the rampant private-sector competition in the prescription drug benefit to the rest of the Medicare program.?
Full text: www.mercurynews.com

ONE HARSH PRESCRIPTION
Author: Sally Satel
Source: National Review Online, 04/03/07

Sally Satel, M.D., says that websites that match patients in need of organ donation with potential donors not only help organ recipients but also patients behind them on the transplant lists by allowing them to move up more quickly. Transplant surgeon Dr. Douglas W. Hanto, however, has argued that such ?solicitation? websites ?are unethical and should be banned? for ?violating the ?fairness? of the system by jumping their turn on the national organ-waiting list.? Such websites, though, are embraced by Dr. Richard Fine of the American Society of Transplantation who has ?urged his colleagues to ‘partner with alternative approaches to solicit organ donation? so that more potential recipients can use them.?
Full text: www.healthtransformation.net

EXPANDED HEALTH PROGRAM FOR CHILDREN CAUSES CLASH
Author: Robert Pear
Source: The New York Times, 04/01/07

New York Times columnist Robert Pear highlights the contrast between Republicans and Democrats in Congress over plans for expansion of the Children’s Health Insurance Program. Pear reports that ?Democrats want to triple spending on the program, by adding $50 billion, for a total of $75 billion over the next five years.? But Republican Rep. Jack Kingston of Georgia warns the Democrats’ plan is ?a huge expansion of government-sponsored health care?The Children’s Health Insurance Program has given Democrats a wide-open door for socialized medicine.? But Democrats are equally critical of Republican ideas to expand access to private insurance. Rep. John Dingell, Democrat of Michigan, says, ?To rely on a bunch of good-hearted insurance companies whose purpose is, quite frankly, to make money — to expect them to go into the charitable business of taking care of a lot of hungry and impoverished kids — strikes me as the height of folly.?
Full text: www.nytimes.com

UPCOMING EVENTS:

Health Care Reconsidered: Options for Change
Brookings Institution Hamilton Project Forum
Tuesday, April 10, 2007, 9:30 a.m. – 12:30 p.m.
Washington, DC

For additional detail and registration information, go to: www.brookings.edu.

A Prescription for Health Care Transformation
The Heritage Foundation Event
Tuesday, April 10, 2007, 10:30 a.m.
Washington, DC

Grace-Marie Turner will participate in a panel discussion following a presentation by Sen. Tom Coburn. For additional detail and registration information, go to: author.heritage.org.

Should the United States Be More Like Scandinavia?
Cato Institute Policy Forum
Monday, April 16, 2007, 12:00 p.m. (Luncheon to Follow)
Washington, DC

For additional detail and registration information, go to: www.cato.org.

Elements of State Health Reform: Individual Mandate and Employer Requirements
Kaiser Family Foundation Webcast
Tuesday, April 17, 2007, 2:00 p.m. ET
For additional detail and registration information, go to: www.kaisernetwork.org.

Nothing About Us Without Us: Patient/Consumer Participation in Evidence-Based Health Care
National Working Group on Evidence-Based Health Care Event
Thursday, April 19, 2007, 9:00 a.m. – 3:00 p.m.
Arlington, VA

For additional detail and registration information, go to: www.evidencebasedhealthcare.org.

Intellectual Property: Driving Global Growth
Institute for Policy Innovation Policy Forum
Thursday, April 26, 2007, 9:00 a.m. – 2:00 p.m.
Washington, DC
For additional detail and registration information, go to: www.ipi.org.

Consumer Directed Health Care Conference
April 30 – May 2, 2007
Las Vegas, NV
For additional detail and registration information, go to: www.consumerhealthworld.com. 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 www.galen.org.

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The views expressed in this newsletter are the opinions of the authors and do not necessarily reflect the views of the Galen Institute or its directors.

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