Outside the Box

There really wasn't a controversy about whether to delay Medicare's scheduled cuts in physician fees, but you'd never know it from reading about this issue in the mainstream media over the last month.

Both sides wanted to undo the cuts, but the real debate was over how to pay for the "fix" since the cuts were built into the federal budget. The leadership's solution was to get the money from the popular Medicare Advantage program, particularly private Medicare fee-for-service plans.

This is yet another example of the growing politicization of the health sector in the U.S. And it shows how the congressional leadership used the issue of delaying the cuts to obscure a secondary agenda of trimming private plan participation in Medicare.

Republicans who voted against the measure earlier because they objected to the "pay for" were hammered when they went home for recess last week.

Both houses of Congress now have passed legislation to delay for 18 months the scheduled 10.6% reduction in physician fees, with a promise that fees would be increased by 1.1% in 2009.

President Bush has threatened the veto the bill because he believes it is so important to keep private, competing plans in Medicare, but both houses have passed the legislation by veto-proof margins, so it will be an uphill fight.

Battles like this will continue as long as we have a massive spending program dominated by price controls and politically-motivated decisions.

The silver lining in this may be to show physicians what would be in store for them under a government-run health care system. Do they really want to have to wage a national fight every year to literally get an Act of Congress passed just to keep their fees level? And is a 1.1% pay increase next year — which will be another battle, by the way — really worth much of a celebration?

There has to be a better way!

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Visionary reform

And there is: Congressman Paul Ryan (R-WI) has developed a Roadmap for America's Future that moves us off the field of these small battles and into the larger arena of visionary reform.

He has developed a legislative plan that would put Medicare, Medicaid, and Social Security on a sustainable pathway while transforming our hopelessly complex and burdensome income tax code so America can be competitive in a 21st century global economy. And he would modernize the financing of private health insurance along the way.

The stakes are enormous, and these skirmishes over physician payments completely obscure the meteorite heading toward us because of uncontrolled entitlement spending.

A recent analysis by Peter Orszag, director of the Congressional Budget Office, says that Congress has three options to address the unsustainable growth of entitlement programs:

  • Deficit financing. If Congress fails to act and if deficit spending is used to finance these programs, it would cause economic growth to come to a stop by 2040, and by the late 2040s, per capita income would fall by 17 percent.
  • Raise taxes. If taxes were raised to finance the programs, all federal income tax rates would have to be substantially increased, with the top rate jumping to 88 percent. Adding payroll and state and local taxes, this could mean a top tax rate of greater than 100 percent. That would mean you'd turn your entire income over to the government — and still get a bill for more!
  • Cut spending. Congress also could act now to restrain the automatic and unchecked growth of Medicare, Medicaid, and Social Security. What hope do we have of that after this week's Medicare battles?

I have long believed that we must get outside the box of battles over spending cuts to individual programs to focus on much larger and transformative changes.

For the first time, a legislative plan has actually been developed that does just that, with the very able assistance of Ryan's terrific staff on the House Budget Committee, where he serves as ranking Republican. I have known Paul Ryan since he was an intern in Jack Kemp's office more than 15 years ago where he was imbued with the passion for free-market ideas.

Now, as a leader in Congress, Ryan has developed a plan that would allow the U.S. to survive and even thrive in a 21st century economy, fulfill the promise of the entitlement programs, and lift the incredible burden of debt the country — and our children and grandchildren — are facing.

"In the history of our country, each generation has confronted the challenges before it so that the next generation will be better off and have a more prosperous future," he told a Capitol Hill briefing on Tuesday sponsored by the National Center for Policy Analysis.

The current trajectory is unsustainable. Without change, our economy will collapse and the next generation will be poorer, and the light of liberty that has been America for more than two centuries will surely fade.

"Entitlement spending is the seminal economic fight of our time," Ryan told a gathering at The Heritage Foundation yesterday. And he has offered a plan to let that light continue to shine.

The Congressional Budget Office, in a May 19, 2008 letter to Mr. Ryan, said that his plan would slow the growth of budget deficits from entitlement spending and eventually eliminate them. Importantly, the plan also includes significant reductions in federal income tax rates that would spur economic growth. Economic growth would continue to grow, rising from $45,000 per capita in 2007 to $165,000 in 2082 — a dramatic reversal from the projections under the tax-increase/deficit spending scenario described by CBO.

Here's a brief overview of the Roadmap:

  • Social Security: Workers could dedicate a portion of their payroll taxes to private accounts that they could own and will to their children. Social Security payments would be indexed progressively, and the eligibility age for benefits would be indexed to better reflect life expectancy.
  • Medicare: Beginning in January of 2009, beneficiaries could receive up to $9,500 annually toward premiums for private insurance, with the payment indexed for inflation; these premium support payments would be income related and additional help would be provided to low-income beneficiaries.
  • Medicaid: States could choose whether to continue the current Medicaid program or participate in a new program that provides subsidies for recipients to obtain private insurance.
  • Health Insurance: A new system of refundable tax credits would be offered ($2,500 for individuals and $5,000 for families) to purchase private insurance. The credits could be combined with individual and employer contributions to allow people to purchase private insurance that is portable from job to job. The credits could be combined with Medicaid and SCHIP subsidies to help lower-income Americans have the dignity of private insurance. People also could purchase insurance in an interstate market.
  • Tax Reform: The plan would give people a choice of staying with the current tax system, with its complexities, inconsistencies, economic distortions, and compliance burdens, or filing under a simpler system. The new flatter tax system would offer a generous $39,000 personal exemption for families and a 10% income tax rate above that, up to $100,000 for joint filers. A 25 percent tax rate would apply for taxable income above that. Taxes on capital gains, dividends, and estates would be eliminated entirely. The corporate income tax also would be eliminated and replaced with
    an 8.5 percent business consumption tax.

I will write more about the details of his plan in the future and am planning a major paper about it. Stay tuned. Paul is a star, and his visionary plan charts a positive course for our nation's future.

Grace-Marie Turner

Recent News Articles and Studies

Congress Is Trying to Limit Your Health Care Choices
How Good Is Our Health Care System?
Have Health Reformers Forgotten Medicare?
Code on Interactions with Healthcare Professionals
From Heart Transplants to Hairpieces: The Questionable Benefits of State Benefit Mandates for Health Insurance
Health Care Reform in Massachusetts: Medicaid Waiver Renewal Will Set a Precedent
When Things Go Wrong, It's Better To Be at Home
Giving the Country a Checkup

Congress Is Trying to Limit Your Health Care Choices

Grace-Marie Turner, Galen Institute
New Hampshire Union Leader, 07/10/08

In New Hampshire, more than 35,000 people who are trying to save money on health insurance could get slapped with new paperwork requirements from Congress, writes Grace-Marie Turner. Under a measure recently passed in the House, federal regulators would need proof that each withdrawal from an HSA is spent on qualified medical expenses. The prospect of navigating an administrative labyrinth would scare many away from HSAs as substantiation would be costly and time-consuming, writes Turner. Supporters of the measure claim HSAs are prone to abuse because expenditures are self-reported, but there are safeguards in place. Most HSA payments are made with a specially designated debit card, so it's easy to track where the money goes. And unqualified withdrawals are subject to taxes plus a 10% penalty. Lawmakers shouldn't be throwing up administrative hurdles to keep Americans away from HSAs, concludes Turner.

How Good Is Our Health Care System?

Grace-Marie Turner, Galen Institute
San Diego Union-Tribune, 06/30/08

The World Health Organization's rankings of international health systems, which put the U.S. at 37th, are a poor reflection of reality, writes Grace-Marie Turner. Countries with tax-funded, socialized systems tend to be ranked higher simply because citizens are treated equally — even when the quality of care is much poorer than in the U.S. The most crucial reading of a health care system is how well you do if you get sick, but, amazingly, the WHO chose not to include that data in its survey. For key diseases that respond to medical care, an American patient's chances of surviving are much better than a patient in countries with much higher WHO rankings. For example, the prestigious journal Lancet Oncology compared cancer survival rates and found:

  • For American women diagnosed with breast cancer, 63% are alive at least five years after a cancer diagnosis, compared with 56% for European women.
  • The five-year survival rate for American men with prostate cancer is 99%; the European average is 78%.
  • For 16 different types of cancer, American men have a five-year survival rate of 66%, compared with only 47% for European men.

Have Health Reformers Forgotten Medicare?

Joseph Antos
American Enterprise Institute, 07/08/08

The current debate over physician payments in Medicare should be used as a starting point for a larger discussion on Medicare reform, writes Antos. It is uncertain whether broad health system reform will be accomplished in the next four years, but it is clear that reform will fail — or fall short of its goals — if Medicare is not an integral part of the proposal. Medicare is caught in a dilemma of its own making, writes Antos. It is hugely popular with the public, which does not want to see substantial changes in the program that could reduce benefits or impose additional costs on beneficiaries. Yet, if strong actions are not taken, Medicare soon will be unable to fulfill the public's expectation of generous health coverage that guarantees to millions of Americans access to the latest medical treatments. More regulations will not solve this problem, and neither will more money, if that means repeating the mistakes we are now making, concludes Antos.

Code on Interactions with Healthcare Professionals

Pharmaceutical Research and Manufacturers of America (PhRMA), 07/10/08

PhRMA this week released a stricter marketing code to ensure that pharmaceutical marketing practices comply with the highest ethical standards. The code reaffirms that interactions between company representatives and healthcare professionals "should be focused on informing the healthcare professionals about products, providing scientific and educational information, and supporting medical research and education." Among the changes, the revised code:

  • Prohibits distribution of non-educational items (such as pens, mugs, and other "reminder" objects typically carrying a company or product logo) to healthcare providers and their staffs.
  • Prohibits company sales representatives from providing restaurant meals to healthcare professionals but allows them to provide occasional meals in medical professionals' offices in conjunction with informational presentations.
  • Includes new provisions that require companies to ensure that their representatives are sufficiently trained about applicable laws, regulations and industry codes of practice — including this Code — that govern interactions with healthcare professionals.
  • Provides that each company will state its intentions to abide by the Code and that company CEOs and compliance officers will certify each year that they have processes in place to comply.

From Heart Transplants to Hairpieces: The Questionable Benefits of State Benefit Mandates for Health Insurance

John R. Graham
Pacific Research Institute, 07/08

Workers pay for health benefit mandates through reduced wages, working longer hours, and sometimes losing health insurance altogether, Graham concludes after surveying 28 original articles that attempt to estimate the cost of benefit mandates. The impact of this encroachment of mandates falls hardest on those buying health insurance on their own or firms that can't afford to self insure to escape the mandates. But that isn't stopping state legislators from passing more mandates. Mandates introduced since the year 2000 include: hearing aids, hormone replacement therapy, and reimbursement for clinical trial participation. In 2007, 13 states mandated coverage for the human papillomavirus vaccine. Meanwhile, only two mandated benefits were repealed between 1949 and 2002.

Health Care Reform in Massachusetts: Medicaid Waiver Renewal Will Set a Precedent

Greg D'Angelo and Edmund F. Haislmaier
The Heritage Foundation, 07/02/08

The core principle of the Massachusetts Medicaid demonstration waiver is an experiment in shifting from targeting government funds to health care providers to redirecting
those funds to patients to help them buy insurance, write D'Angelo and Haislmaier. As Massachusetts applies for a waiver extension for its major reform program, this policy precedent should remain in place and apply to other states requesting waivers as well, D'Angelo and Haislmaier conclude.

A report from the Government Accountability Office finds that the Centers for Medicare and Medicaid Services should review the billions of dollars being spent on supplemental Medicaid payments in all states. A separate report from the Department of Health and Human Services Office of Inspector General provides examples of fraud within the Medicaid program.

When Things Go Wrong, It's Better To Be at Home

Suz Redfearn
The Washington Post, 07/08/08

The Washington Post reports on the potential disadvantages of medical tourism. When things go badly after an overseas operation, a patient may be left facing a host of challenges: lack of access to follow-up care at home; doctors who won't get involved in corrective procedures; extra money that must be spent to undo what has been done; and a complicated legal picture if they want to try to recoup costs, writes the Post. "Aftercare is one of the most important issues and problems in medical tourism," said Jonathan Edelheit, president of the Medical Tourism Association. Edelheit said that his organization is trying to educate U.S. doctors so that they will not discriminate against patients who are coming home from surgeries abroad and may be in need of care, writes the Post. The trade group is also trying to raise standards and increase transparency in the now wide-open and unregulated field.

Giving the Country a Checkup

Karlyn Bowman, American Enterprise Institute
The American, May/June 2008

While Americans are satisfied with their own health care, they worry about increasing costs and how well the system is serving others, writes Bowman. Recent polls on health care find:

  • 77% of Americans are satisfied with the quality of their own healthcare, but only 38% say they are satisfied with the country's healthcare.
  • 48% would prefer to maintain the current system based mostly on private health insurance while 41% would replace the current system with a new government-run healthcare system.
  • 50% of Americans think the healthcare system needs fundamental changes, but 44% think the government would do a worse job in providing medical coverage.
  • Americans' views on the healthcare system have remained virtually unchanged over the past thirteen years: In both 1994 and 2007, 17% say the healthcare system is in a state of crisis.

Upcoming Events

Innovations in Patient Care: Lessons from the Field
Alliance for Health Reform Briefing
Friday, July 11, 2008, 12:15 p.m. – 2:00 p.m. (Lunch included)
Washington, DC

The Premier Biotech and Pharmaceutical Public Policy Congress
Center for Business Intelligence Event
July 14-15, 2008
Arlington, VA
Grace-Marie will "Evaluate the Impact of Federal Elections on U.S. Healthcare Policy Reform" at 8:45 a.m. on July 14.

State Coverage Initiatives: Lessons for the Nation
U.S. House of Representatives Ways and Means Health Subcommittee Hearing
Tuesday, July 15, 2008, 10:00 a.m.
Washington, DC

Getting Better Value in Health Care
U.S. House of Representatives Committee on the Budget Hearing
Wednesday, July 16, 2008, 10:00 a.m.
Washington, DC

The Birth of Freedom
The Heritage Foundation Film Screening
Wednesday, July 16, 2008, 7:00 p.m. – 9:00 p.m.
Washington, DC

Prevention for A Healthier America: Investments in Disease Prevention Yield Significant Savings, Stronger Communities
Trust for America's Health Event
Thursday, July 17, 2008, 9:00 a.m. – 11:00 a.m.
Washington, DC
For more information, please contact the Trust for America's Health at 202-350-5789 or tfah@etrieve.org.

Making the Grade: Improving the U.S. Health System
The Commonwealth Fund Event
Thursday, July 17, 2008, 9:15 a.m. – 11:00 a.m. (Breakfast included)
Washington, DC
For more information, please contact The Commonwealth Fund at 202-789-2300 or commonwealth@allhealth.org.

Health Care Quality: Thumbs up in Oregon?
Oregon Health Forum Event
Tuesday, July 22, 2008, 7:00 a.m – 9:00 a.m.
Portland, OR

Emerging Issues Roundtable: Meeting Today's Challenges through Innovation and IP Rights
U.S. Chamber of Commerce Event
Wednesday, July 23, 2008, 2:00 p.m.
Washington, DC
For more information, please contact Natalie Ethridge at nethridge@uschamber.com or 202-463-5884.

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Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features a commentary by Grace-Marie Turner on the major developments and issues of the week as well as summaries of writings by participants in the Health Policy Consensus Group and other articles of interest from the health policy world, plus 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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