Time and Opportunity

SCHIP: Negotiations appear to have broken down over SCHIP.

Democratic leaders from the House and Senate and rank-and-file House Republicans have been trying for two weeks to draft a new compromise to expand and reauthorize the State Children's Health Insurance Program. Democratic leaders hoped to make enough changes to pick up the 13 or so Republican votes they needed to override President Bush's veto of the bill.

The program continues to operate under a temporary extension that expires December 14. If the negotiations do fail, the leadership has threatened to continue the funding extension to next fall and bring up a new bill in the heat of the national election campaign.

An optimist would see this as an opportunity to further educate the public about what is really going on about expanding the program to cover kids well into middle-income families. Three points:

 

  • Crowd-out is real: Since 77% of children in families earning $40,000 – $60,00 a year already have health insurance, does it make sense for Congress to be so aggressive in pushing income eligibility to those levels and beyond, surely crowding-out private coverage in the process?

    A recent USA Today/Gallup poll found that 52% of Americans side with Bush's proposal to focus the program on children from families earning less than twice the poverty level — about $40,000 a year for a family of four.

     

  • State responsibility: There is time to answer warnings that possible shortfalls could force states to drop coverage for needy children. The Congressional Research Service calculates that 21 states need a combined additional $1.6 billion from the government in fiscal year 2008 to maintain their programs.

    But the Government Accountability Office earlier found that most shortfall states are those that cover adults and children in higher-income categories.

    States have a responsibility to be good stewards of public money. This is the STATE CHILDREN'S Health Insurance Program, and states do have a responsibility to make sure that the children who most need help from this program continue to receive it.

     

  • Better ways to expand coverage: And finally, if the debate is pushed off to next year, this provides an opportunity to have the larger debate about the best way to provide help to families in the Galen Gap who receive little or no help in purchasing health insurance and who are most likely to be uninsured.

    There are better ways to provide incentives for people to purchase the portable, private health insurance of their choice for themselves and their families, and we need to make that case.

     

**********

Pay or Play: A new study by researchers from Cornell University makes it very clear that a mandate on employers to provide health insurance is clearly not the way to go.

Drs. Richard Burkhauser and Kosali Simon conclude in "HealthCare Reform: The Economics of 'Pay or Play' Employer Mandates" that an employer mandate would mean:

 

  • At least 125,000 of the lowest-income workers, often those with the fewest skills who have the greatest difficulty finding work, would lose their jobs.

     

  • Further, poorer workers who do get coverage would "fully pay for their health insurance via reductions in their hourly wage."

     

  • The researchers find that 11 jobs would be lost by poor workers for every 100 newly covered poor workers, and 27% of the working poor still would not have health insurance.

"[L]ike the minimum wage, these pay or play mandates force employers to provide compensation above the competitive market price for low skilled workers and hence will reduce the employment of precisely the group of low income workers least able to compete in the market that the program was intended to help," Burkhauser and Simon conclude. "For this group of 124,745 poor workers identified in our simulation, pay or play mandates not only fail to bring them employer provided health insurance but also take away their job."

It is astonishing that so many states continue to look at what the authors call "a very blunt instrument" as a way to expand health insurance coverage.

And an individual mandate won't help. As I emphasize in my speeches, an individual mandate quickly turns into an employer mandate. In Massachusetts, for example, the legislative demand that employers must make a "fair and reasonable" contribution to health insurance for workers has turned into a requirement that they pay one-third of the premium costs. The legislature is seriously considering moving the trigger to 50% next year. And that surely is only the beginning.

The authors conclude that "a health insurance tax credit that would cover the cost of a health insurance policy modeled on the EITC should be studied in greater detail as it is potentially more effective in subsidizing the health insurance of the working poor than pay or play mandates" because it avoids these "disemployment incentives."

Amen.

**********

Medicare: Open season has begun, giving seniors an opportunity to review their prescription drug and Medicare coverage and switch plans if they choose.

But the pushback against the private, competitive Part D drug program also is escalating. I did a radio program yesterday on WHO in Des Moines in which a caller said that his premium has increased 1,200% since he first signed up. Pressed further, he said he had joined the most economical Humana Part D plan originally offered at $1.87 a month, meaning his premiums would now be about $22 a month. He could, of course, switch plans, and still have a premium under $10. And if he has low or moderate income, he might not have to pay any premiums.

A paper by Jack Hoadley analyzes premiums charged by the 1,824 stand-alone Medicare Part D plans offered in markets across the country for 2008. Premiums range from $9.80 a month to $107.50 a month. "The average monthly premium would increase from $27.39 in 2007 to $31.99 if enrollees remain in their current plans next year — a 17 percent increase," he writes.

But the majority of seniors (52%) will see either a decrease in costs or an increase of less than $5 a month and another 28% will see premiums increase by $5 to $10 a month.

And seniors are becoming more sophisticated shoppers, realizing that the premium cost is not the full story. They are looking at the lists of drugs covered, whether the plan offers coverage in the gap, and whether a Medicare Advantage plan that covers hospital, doctor, and drug costs in one may be the better deal.

Seniors have caught on very quickly. Tell your parents and grandparents to shop around (1-800-Medicare or medicare.gov). They are leading the way to show that consumer choice and competition work, even in an imperfect government program.

Grace-Marie Turner

RECENT NEWS ARTICLES AND STUDIES:

Health Care Costs

The Long-Term Outlook for Health Care Spending
Congressional Budget Office, 11/07

CBO's latest study has rocked the political community with its projections that, absent changes:

 

  • Total spending on health care would rise from 16% of gross domestic product today to consume nearly half of the GDP in 75 years.
  • Federal spending on Medicare and Medicaid would rise from 4% of GDP today to 19% in 2082.

This new study shows significantly higher federal spending on Medicare and Medicaid under current law than other official projections do, which typically assume that spending grows much more slowly in the future than it has in the past. Although projections by CBO and by the Medicare trustees track each other relatively closely for the next two or three decades, by the end of 75 years, Medicare spending under CBO's projections is about 50% higher. The study concludes that, without changes in federal law, federal spending on Medicare and Medicaid is on a path that cannot be sustained.

A variety of evidence, however, suggests that there are opportunities to constrain health care costs without incurring adverse health consequences, write Dr. Peter Orszag, CBO director, and Dr. Philip Ellis, CBO senior analyst, in The New England Journal of Medicine. One approach that could reduce total health care spending (rather than simply allocating it among different sectors of the economy) involves generating more information about the relative effectiveness of medical treatments and enhancing the incentives for providers to supply, and consumers to demand, effective care. Shifting insurance designs toward targeted therapies merits consideration, they argue.

A Health Plan for Wal-Mart: Less Stinginess
Michael Barbaro and Reed Abelson
The New York Times, 11/13/07

Wal-Mart is getting positive news coverage, even in The New York Times, for its enhanced employee health insurance offerings. The nation's largest private employer provides health insurance to 100,000 more workers than it did three years ago. Employees can choose from a variety of plans, offering annual deductibles from $350 to $2,000, with some plans including health care "credits" to use for routine care. One worker opted for a plan that costs about $500 a year for a $350 deductible, saying "It's very affordable for me." Wal-Mart is considering bringing its legendary cost-cutting skills to the broader health industry, selling anything from wheelchairs to health insurance at much lower prices.

Health Insurance: Overview and Economic Impact in the States
America's Health Insurance Plans, 11/07

AHIP looks at the economic benefits health insurers bring to each of the 50 states in jobs created, wages and taxes paid, and employees insured. Health insurance plans covered more than 249 million people in 2006; employed nearly 470,000 people in health insurance jobs (2004); and contributed to the $14.8 billion collected in state insurance premium taxes (2004). The report provides a one-page analysis for each state and the District of Columbia, as well as rankings for comparison.

Prescription Drugs

Don't Harbour the Patent Pirates
Jon Entine, American Enterprise Institute
Ethical Corporation, 11/12/07

The United Nations estimates that half the drugs sold in the developing world — worth $45 billion annually — are bogus and often deadly. Meanwhile, in the name of cheap drugs, advocacy groups are doing their best to undermine the international property rights system, Entine writes. If pharmaceutical companies were to lose patent protection, it would put a brake on future innovation: research costs for expensive drugs would never be recouped, new treatments would not be developed, and that in turn would exacerbate the problem of rising health costs. Counterfeiters using chalk or even poisonous fillers will always be able to undercut the cost of genuine drugs. But without patent protection, the flood of fakes could soar, not decline. Fair warning: once the ability to protect innovation becomes situational, business models crumble, leaving corporations little incentive to risk capital to develop new products. That could kill the market for everything from designer handbags to life-saving designer drugs. And it will kill people.

Health Systems Abroad

The Potential of Private Sector Health Care in Canada
Brian Ferguson, Ph.D., Atlantic Institute for Market Studies
Canadian Health Care Consensus Group, 10/07

The Canadian Health Care Consensus Group explains that allowing private health insurance into the system would not be "apocalyptic." The declining quality of the public system is leading to increased support for substitute private insurance, they write. Increasing the role of the private sector in the health care system is a way to increase the flexibility of the system and to return decision-making authority to physicians. They argue that the health care system is "too complicated to be run by a handful of administrators who assume that uttering decrees about things like waiting times is sufficient to solve the problem of waiting times." The people who are most directly involved in delivering care should be asked to take more responsibility for deciding how that care should be delivered so they can spot changing circumstances before they reach the point where the national media start running crisis stories.

Separately, a new report from the Vancouver-based Fraser Institute finds that Canada spends more on health care than any other industrialized nation except Iceland and Switzerland, yet it ranks near the bottom in terms of access to physicians and new medical technology.

Market Forces in Health Care

A Gift of Life Deserves Compensation: How to Increase Living Kidney Donation with Realistic Incentives
Arthur J. Matas
Cato Institute, 11/07/07

Patients with end-stage renal (kidney) disease have three options: no treatment (in which case they will die), dialysis, or a kidney transplant. With an average wait of more than five years, more than 40% of listed candidates may die before ever undergoing a transplant. The best way to increase the supply of kidneys without drastically changing the existing allocation system is to legalize a regulated system of compensation for living kidney donors, Matas argues. Compensation for donors could take many forms, including a fixed payment, long-term health insurance, college tuition, tax deductions, or some combination of these alternatives. Such a system could be established using the infrastructure already in place for evaluating deceased donors and allocating their organs. At the end of the day, one must ask this simple question: Which is the better option — establishing a system of compensation (even though it might not be easy) or maintaining the status quo (while transplant candidates suffer and die)?

Dr. Sally Satel of AEI, a kidney transplant recipient, has long been arguing for similar policies.

UPCOMING EVENTS:

Patient Centric Leadership Forum
Duke University Center for Research on Prospective Health Care Event
Tuesday, November 20, 2007, 9:00 a.m. – 3:00 p.m.
Washington, DC
For more information, contact Alexandra Preate at apreate@capitalhq.com.

The Long-Term Outlook for Health Care Spending
American Enterprise Institute Event
Tuesday, November 27, 2007, 9:00 a.m. – 10:30 a.m.
Washington, DC

Risks of Therapeutic Drug Substitution Policies
Institut Economique Molinari and Centre for the New Europe Event
Wednesday, November 28, 2007, 12:30 p.m. – 2:30 p.m.
Brussels, Belgium

Health Care Briefing: Professionalism in Medicine
Burness Communications Event
Monday, December 3, 2007, 9:00 a.m. – 11:00 a.m.
Washington, DC

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.

If you wish to subscribe to this free weekly newsletter, update your address, or be removed from our list, please send an e-mail message to galen@galen.org.

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.

SHARE THIS ARTICLE

About the author

SCHIP: Negotiations appear to have broken down over SCHIP.

Democratic leaders from the House and Senate and rank-and-file House Republicans have been trying for two weeks to draft a new compromise to expand and reauthorize the State Children's Health Insurance Program. Democratic leaders hoped to make enough changes to pick up the 13 or so Republican votes they needed to override President Bush's veto of the bill.

The program continues to operate under a temporary extension that expires December 14. If the negotiations do fail, the leadership has threatened to continue the funding extension to next fall and bring up a new bill in the heat of the national election campaign.

An optimist would see this as an opportunity to further educate the public about what is really going on about expanding the program to cover kids well into middle-income families. Three points:

 

  • Crowd-out is real: Since 77% of children in families earning $40,000 – $60,00 a year already have health insurance, does it make sense for Congress to be so aggressive in pushing income eligibility to those levels and beyond, surely crowding-out private coverage in the process?

    A recent USA Today/Gallup poll found that 52% of Americans side with Bush's proposal to focus the program on children from families earning less than twice the poverty level — about $40,000 a year for a family of four.

     

  • State responsibility: There is time to answer warnings that possible shortfalls could force states to drop coverage for needy children. The Congressional Research Service calculates that 21 states need a combined additional $1.6 billion from the government in fiscal year 2008 to maintain their programs.

    But the Government Accountability Office earlier found that most shortfall states are those that cover adults and children in higher-income categories.

    States have a responsibility to be good stewards of public money. This is the STATE CHILDREN'S Health Insurance Program, and states do have a responsibility to make sure that the children who most need help from this program continue to receive it.

     

  • Better ways to expand coverage: And finally, if the debate is pushed off to next year, this provides an opportunity to have the larger debate about the best way to provide help to families in the Galen Gap who receive little or no help in purchasing health insurance and who are most likely to be uninsured.

    There are better ways to provide incentives for people to purchase the portable, private health insurance of their choice for themselves and their families, and we need to make that case.

     

**********

Pay or Play: A new study by researchers from Cornell University makes it very clear that a mandate on employers to provide health insurance is clearly not the way to go.

Drs. Richard Burkhauser and Kosali Simon conclude in "HealthCare Reform: The Economics of 'Pay or Play' Employer Mandates" that an employer mandate would mean:

 

  • At least 125,000 of the lowest-income workers, often those with the fewest skills who have the greatest difficulty finding work, would lose their jobs.

     

  • Further, poorer workers who do get coverage would "fully pay for their health insurance via reductions in their hourly wage."

     

  • The researchers find that 11 jobs would be lost by poor workers for every 100 newly covered poor workers, and 27% of the working poor still would not have health insurance.

"[L]ike the minimum wage, these pay or play mandates force employers to provide compensation above the competitive market price for low skilled workers and hence will reduce the employment of precisely the group of low income workers least able to compete in the market that the program was intended to help," Burkhauser and Simon conclude. "For this group of 124,745 poor workers identified in our simulation, pay or play mandates not only fail to bring them employer provided health insurance but also take away their job."

It is astonishing that so many states continue to look at what the authors call "a very blunt instrument" as a way to expand health insurance coverage.

And an individual mandate won't help. As I emphasize in my speeches, an individual mandate quickly turns into an employer mandate. In Massachusetts, for example, the legislative demand that employers must make a "fair and reasonable" contribution to health insurance for workers has turned into a requirement that they pay one-third of the premium costs. The legislature is seriously considering moving the trigger to 50% next year. And that surely is only the beginning.

The authors conclude that "a health insurance tax credit that would cover the cost of a health insurance policy modeled on the EITC should be studied in greater detail as it is potentially more effective in subsidizing the health insurance of the working poor than pay or play mandates" because it avoids these "disemployment incentives."

Amen.

**********

Medicare: Open season has begun, giving seniors an opportunity to review their prescription drug and Medicare coverage and switch plans if they choose.

But the pushback against the private, competitive Part D drug program also is escalating. I did a radio program yesterday on WHO in Des Moines in which a caller said that his premium has increased 1,200% since he first signed up. Pressed further, he said he had joined the most economical Humana Part D plan originally offered at $1.87 a month, meaning his premiums would now be about $22 a month. He could, of course, switch plans, and still have a premium under $10. And if he has low or moderate income, he might not have to pay any premiums.

A paper by Jack Hoadley analyzes premiums charged by the 1,824 stand-alone Medicare Part D plans offered in markets across the country for 2008. Premiums range from $9.80 a month to $107.50 a month. "The average monthly premium would increase from $27.39 in 2007 to $31.99 if enrollees remain in their current plans next year — a 17 percent increase," he writes.

But the majority of seniors (52%) will see either a decrease in costs or an increase of less than $5 a month and another 28% will see premiums increase by $5 to $10 a month.

And seniors are becoming more sophisticated shoppers, realizing that the premium cost is not the full story. They are looking at the lists of drugs covered, whether the plan offers coverage in the gap, and whether a Medicare Advantage plan that covers hospital, doctor, and drug costs in one may be the better deal.

Seniors have caught on very quickly. Tell your parents and grandparents to shop around (1-800-Medicare or medicare.gov). They are leading the way to show that consumer choice and competition work, even in an imperfect government program.

Grace-Marie Turner

RECENT NEWS ARTICLES AND STUDIES:

Health Care Costs

The Long-Term Outlook for Health Care Spending
Congressional Budget Office, 11/07

CBO's latest study has rocked the political community with its projections that, absent changes:

 

  • Total spending on health care would rise from 16% of gross domestic product today to consume nearly half of the GDP in 75 years.
  • Federal spending on Medicare and Medicaid would rise from 4% of GDP today to 19% in 2082.

This new study shows significantly higher federal spending on Medicare and Medicaid under current law than other official projections do, which typically assume that spending grows much more slowly in the future than it has in the past. Although projections by CBO and by the Medicare trustees track each other relatively closely for the next two or three decades, by the end of 75 years, Medicare spending under CBO's projections is about 50% higher. The study concludes that, without changes in federal law, federal spending on Medicare and Medicaid is on a path that cannot be sustained.

A variety of evidence, however, suggests that there are opportunities to constrain health care costs without incurring adverse health consequences, write Dr. Peter Orszag, CBO director, and Dr. Philip Ellis, CBO senior analyst, in The New England Journal of Medicine. One approach that could reduce total health care spending (rather than simply allocating it among different sectors of the economy) involves generating more information about the relative effectiveness of medical treatments and enhancing the incentives for providers to supply, and consumers to demand, effective care. Shifting insurance designs toward targeted therapies merits consideration, they argue.

A Health Plan for Wal-Mart: Less Stinginess
Michael Barbaro and Reed Abelson
The New York Times, 11/13/07

Wal-Mart is getting positive news coverage, even in The New York Times, for its enhanced employee health insurance offerings. The nation's largest private employer provides health insurance to 100,000 more workers than it did three years ago. Employees can choose from a variety of plans, offering annual deductibles from $350 to $2,000, with some plans including health care "credits" to use for routine care. One worker opted for a plan that costs about $500 a year for a $350 deductible, saying "It's very affordable for me." Wal-Mart is considering bringing its legendary cost-cutting skills to the broader health industry, selling anything from wheelchairs to health insurance at much lower prices.

Health Insurance: Overview and Economic Impact in the States
America's Health Insurance Plans, 11/07

AHIP looks at the economic benefits health insurers bring to each of the 50 states in jobs created, wages and taxes paid, and employees insured. Health insurance plans covered more than 249 million people in 2006; employed nearly 470,000 people in health insurance jobs (2004); and contributed to the $14.8 billion collected in state insurance premium taxes (2004). The report provides a one-page analysis for each state and the District of Columbia, as well as rankings for comparison.

Prescription Drugs

Don't Harbour the Patent Pirates
Jon Entine, American Enterprise Institute
Ethical Corporation, 11/12/07

The United Nations estimates that half the drugs sold in the developing world — worth $45 billion annually — are bogus and often deadly. Meanwhile, in the name of cheap drugs, advocacy groups are doing their best to undermine the international property rights system, Entine writes. If pharmaceutical companies were to lose patent protection, it would put a brake on future innovation: research costs for expensive drugs would never be recouped, new treatments would not be developed, and that in turn would exacerbate the problem of rising health costs. Counterfeiters using chalk or even poisonous fillers will always be able to undercut the cost of genuine drugs. But without patent protection, the flood of fakes could soar, not decline. Fair warning: once the ability to protect innovation becomes situational, business models crumble, leaving corporations little incentive to risk capital to develop new products. That could kill the market for everything from designer handbags to life-saving designer drugs. And it will kill people.

Health Systems Abroad

The Potential of Private Sector Health Care in Canada
Brian Ferguson, Ph.D., Atlantic Institute for Market Studies
Canadian Health Care Consensus Group, 10/07

The Canadian Health Care Consensus Group explains that allowing private health insurance into the system would not be "apocalyptic." The declining quality of the public system is leading to increased support for substitute private insurance, they write. Increasing the role of the private sector in the health care system is a way to increase the flexibility of the system and to return decision-making authority to physicians. They argue that the health care system is "too complicated to be run by a handful of administrators who assume that uttering decrees about things like waiting times is sufficient to solve the problem of waiting times." The people who are most directly involved in delivering care should be asked to take more responsibility for deciding how that care should be delivered so they can spot changing circumstances before they reach the point where the national media start running crisis stories.

Separately, a new report from the Vancouver-based Fraser Institute finds that Canada spends more on health care than any other industrialized nation except Iceland and Switzerland, yet it ranks near the bottom in terms of access to physicians and new medical technology.

Market Forces in Health Care

A Gift of Life Deserves Compensation: How to Increase Living Kidney Donation with Realistic Incentives
Arthur J. Matas
Cato Institute, 11/07/07

Patients with end-stage renal (kidney) disease have three options: no treatment (in which case they will die), dialysis, or a kidney transplant. With an average wait of more than five years, more than 40% of listed candidates may die before ever undergoing a transplant. The best way to increase the supply of kidneys without drastically changing the existing allocation system is to legalize a regulated system of compensation for living kidney donors, Matas argues. Compensation for donors could take many forms, including a fixed payment, long-term health insurance, college tuition, tax deductions, or some combination of these alternatives. Such a system could be established using the infrastructure already in place for evaluating deceased donors and allocating their organs. At the end of the day, one must ask this simple question: Which is the better option — establishing a system of compensation (even though it might not be easy) or maintaining the status quo (while transplant candidates suffer and die)?

Dr. Sally Satel of AEI, a kidney transplant recipient, has long been arguing for similar policies.

UPCOMING EVENTS:

Patient Centric Leadership Forum
Duke University Center for Research on Prospective Health Care Event
Tuesday, November 20, 2007, 9:00 a.m. – 3:00 p.m.
Washington, DC
For more information, contact Alexandra Preate at apreate@capitalhq.com.

The Long-Term Outlook for Health Care Spending
American Enterprise Institute Event
Tuesday, November 27, 2007, 9:00 a.m. – 10:30 a.m.
Washington, DC

Risks of Therapeutic Drug Substitution Policies
Institut Economique Molinari and Centre for the New Europe Event
Wednesday, November 28, 2007, 12:30 p.m. – 2:30 p.m.
Brussels, Belgium

Health Care Briefing: Professionalism in Medicine
Burness Communications Event
Monday, December 3, 2007, 9:00 a.m. – 11:00 a.m.
Washington, DC

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.

If you wish to subscribe to this free weekly newsletter, update your address, or be removed from our list, please send an e-mail message to galen@galen.org.

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.

SHARE THIS ARTICLE

About the author