White Water Threat


MEDICARE FORUM: HHS Secretary Michael Leavitt gave a visionary but chilling speech about the looming threat that Medicare presents to taxpayers, to our economy, and to other functions of government during a major forum we co-sponsored in Washington on Tuesday with the American Enterprise Institute and The Heritage Foundation.

First, the setting: More than 250 people attended the first event we've held at the Newseum, Washington's newest and most modern museum devoted to interactive media exhibits.

The conference room atop the glass building had a panoramic view of the Mall, with the Capitol as the backdrop for Sec. Leavitt's speech. It was a majestic setting for a visionary speech and an impassioned panel discussion about a powerfully important topic.

Sec. Leavitt titled his speech "Drifting to Disaster" and used a vivid example of whitewater canoeing to give the audience a sense of the danger ahead:

The river is "the growing obligation our nation has to pay for the health care of our senior and disabled citizens. Medicare's liabilities have grown from a mere trickle 40 years ago" into Class 5 rapids today, he told the audience. "As new streamlets merge, it is becoming a raging torrent — more demanding and dangerous with each successive day."

Prophetically, the flag of the Canadian Embassy, which is next door, flew behind the Secretary during his speech.

Sec. Leavitt worked until 2 a.m. the morning of our forum to personally finish crafting his speech, reflecting the weight of responsibility and panic he says he feels as a Medicare Trustee.

I've written a more detailed report on the event, available on our website, with a link to Secretary Leavitt's entire speech, excerpts from the panel presentations, and several photos from the event. And you can join us by watching the webcast, courtesy of the Kaiser Network, at http://rs6.net/tn.jsp?t=ujctlmcab.0.0.xkzt75bab.0&ts=S0330&p=http%3A%2F%2Fwww.kaisernetwork.org%2Fhealthcast%2Fgalen%2F29apr08.


HSAs: America's Health Insurance Plans yesterday released its latest estimates of the number of people who have health insurance that would qualify them to have Health Savings Accounts. The number is up 35% over last year to 6.1 million, showing their growing appeal.

AHIP for the first time produced estimates of how many people in each state have HSA-qualifying insurance. California leads with 638,999 (even though the state legislature refuses to allow people to deduct their HSA deposits from their state income taxes). Minnesota had the highest percentage penetration of HSAs, representing 9.2% of the insurance market. Massachusetts and New Mexico need to get with the program: They came in next to last at .9%, followed only by Hawaii at .1%.

Two key findings:

  • HSAs clearly are an important health insurance option for small business. The fastest growing market for HSA-qualifying insurance was in the small group market, accounting for 31% of new policies.
  • The average balance in an HSA account is $1,083, money that consumers have saved and can spend on future health care needs.

Roy Ramthun of HSA Consulting has produced an excellent and more detailed summary, which you can find here.


Rep. Pete Stark of California, an avowed opponent of HSAs, would of course not miss an opportunity to bash HSAs. So on the same day that new figures were released, a Government Accountability Office study that he and Rep. Henry Waxman ordered was released, finding that people with HSAs were wealthier than people covered by other types of insurance.

"HSAs clearly are attractive to higher-income people who are looking for tax shelters. But they aren't the answer for providing adequate health-insurance coverage for the average American," Rep. Waxman said.

"Instead, they are an effective tax shelter for people whose average incomes are nearly triple that of average tax filers," Rep. Stark said.

The GAO used 2004 and 2005 IRS data — two years behind the AHIP numbers — which does not reflect the growing appeal of this insurance option in all age and income categories. Karen Ignagni, AHIP CEO, said that "newer data indicate that individuals are not storing assets in these accounts but using them for health-care services."

So here we have a new option in HSAs that gives people — including beleaguered small business owners and employees — a way to save money on health insurance and put money aside for future health care needs. And the big guns are loaded against it.

First HSA substantiation, and now this. It just doesn't end!


MCCAIN: Sen. John McCain is spending the week focusing on health care, with speeches from Tampa, to Cleveland, to Denver. In his major speech on Tuesday, outlining additional details about his health policy proposal, he focused on his central theme of restoring power and control over health care decisions to doctors and patients. Our summary below provides additional details and a link to the speech.

But today, The New York Times carried an article headlined: "McCain health plan could mean higher tax."

The lead says that the fixed refundable tax credits Sen. McCain is proposing ($2,500 for individuals and $5,000 for families) would "have the effect of increasing tax payments for some workers, primarily those with high incomes and expensive health plans."

Good grief! Since when is a regressive subsidy good policy? The current tax treatment of health insurance does provide generous subsidies for higher-income workers who have expensive policies, yet lower-income workers pay taxes to subsidize that coverage while often going without insurance themselves. Why wouldn't we want to fix that?

Giving individuals more control over their health spending, as Sen. McCain would do through refundable tax credits, would give Americans new incentives to shop for value in their health coverage. Sen. McCain wants to create a level playing field in which everyone would have an equal opportunity to purchase good coverage.

The current tax code heavily subsidizes the highest inco
me workers who are buying the most expensive coverage, while leaving millions with nothing. People would only face higher taxes if they continue to purchase expensive health coverage. They will continue to have that choice, but it doesn't need to be subsidized by other hard-working Americans.

Grace-Marie Turner

Recent News Articles and Studies

The Right Rx
Prescription Drug Importation Could Be Destructive
Medicare Coverage Policies for Biologics: The Broad Gray Line
Preliminary Analysis of a Proposal for Comprehensive Health Insurance
Indiana: Health Care Reform Amidst Colliding Values
Premiums in the Individual Health Insurance Market for Policyholders under Age 65: 2002 and 2005
Medical Advances — Through Your iPhone?

The Right Rx

Senator John McCain
National Review Online, 05/01/08

Senator John McCain offered more details about his health reform plan this week, beginning as a good doctor would, with a proper diagnosis: "What exactly is the problem with the American health-care system?" he asks. "The problem is not that Americans don't have fine doctors, medical technology, and treatments. American medicine is the envy of the world. The problem is not that most Americans lack adequate health insurance. The vast majority of Americans have private insurance, and our government spends many billions each year to provide even more. The biggest problem with the American health-care system is one of cost and access, and as a result tens of millions of individuals have no insurance." He detailed his plans for refundable tax credits for health insurance and unveiled a new plan for guaranteed access to health insurance, pledging federal funding to help states create functional and funded insurance pools to help people with pre-existing conditions get coverage.

Prescription Drug Importation Could Be Destructive

Grace-Marie Turner, Galen Institute
South Florida Sun-Sentinel, 04/29/08

Plans that would allow the importation of prescription drugs from foreign countries would impose price controls on the U.S. drug market through the back door — with all the destructive consequences that come with such policies, writes Grace-Marie Turner. Legislation currently winding its way through Congress contains a "forced-sale" provision that would require U.S. drug manufacturers to sell their wares to foreign distributors in whatever quantity the firm demands and at whatever price the foreign government imposes, even if the distributor plans to export them back to America. A London School of Economics study shows that similar systems already in place in Europe have resulted in almost no consumer savings, writes Turner. Further, a report by the Congressional Budget Office estimated that drug importation would reduce costs by a mere 1 percent. Meanwhile, the long-term costs of importation would be devastating. By forcing drug manufacturers to sell at artificially low prices, importation would hobble the capacity of America's pharmaceutical researchers to create the next life-saving miracle cure, concludes Turner.

Tainted heparin in 11 countries has caused the deaths of 81 patients, highlighting the potential danger of cheaply produced — sometimes counterfeit — imported medicines, writes AEI's Roger Bate. Substandard and counterfeit drugs proliferate in many countries in Africa, Asia, and elsewhere.

Medicare Coverage Policies for Biologics: The Broad Gray Line

Joseph Antos, Ph.D., American Enterprise Institute
American Health & Drug Benefits, 04/24/08

AEI's Joe Antos discusses the issue of comparative effectiveness analysis and the impact of the Centers for Medicare and Medicaid Services drug coverage on the future of biologic products. Many politicians are drawn to comparative effectiveness analysis, hoping that evidence-based medicine will allow painless spending cuts in government health programs, says Antos. However, patients rarely have only one medical condition, and the physician must weigh the likely efficacy of alternative treatments for a patient who often differs greatly from the subjects in a clinical trial or an observational study. New biotech drugs will pose a harder problem for CMS, says Antos. Given the high financial and political stakes, Medicare will be loath to rush into anything and will want the private insurers and the medical community at the local level to lead the way. Medicare will exert more pressure on manufacturers for supporting evidence, genetic testing or protein markers, or other ways of identifying the patient population who would most benefit from an expensive new biotech drug. The implication is that Medicare coverage and payment policy will have a very powerful impact on the pharmaceutical industry, more so than we have seen in the past, says Antos.

Preliminary Analysis of a Proposal for Comprehensive Health Insurance

Letter to the Honorable Ron Wyden and the Honorable Robert F. Bennett
Congressional Budget Office and the Joint Committee on Taxation, 05/01/08

The CBO and Joint Committee on Taxation have released a preliminary analysis of the "Healthy Americans Act" co-sponsored by Senators Ron Wyden and Bob Bennett. The basic thrust of the proposal is to require individuals to purchase private health insurance and to establish state-run purchasing pools and a system of federal premium collections and subsidies to facilitate those purchases. The CBO and JCT focused their analysis on a single future year in which the proposed system would be fully implemented. For that purpose, they settled on 2014, the sixth year of the current 2009-2018 budget window. In that year, total federal outlays for health insurance premiums would be on the order of $1.3 trillion to $1.4 trillion, the report says. Those costs would be approximately offset by revenues and savings from: premium payments collected from individuals through their tax returns; revenue raised by replacing the current tax exclusion for health insurance with an income tax deduction; new tax payments by employers to the federal government; federal savings on Medicaid and SCHIP; and state payments to the federal government reflecting their savings on Medicaid and SCHIP.

Indiana: Health Care Reform Amidst Colliding Values

Mitchell Roob, Secretary of Indiana's Family and Social Services Administration and Seema Verma, consultant
Health Affairs, 05/01/08

Roob and Verma describe the success of the Healthy Indiana Plan (HIP) in a blog posting for Health Affairs. HIP is the first Medicaid expansion in the nation to be modeled in the spirit of a high deductible health plan/health savings account, which promotes personal responsibility while providing subsidized health protection to those who can least afford it. The plan is a melting pot of philosophical approaches an
d compromises; a plan that has attracted liberals and conservatives; and a plan that has withstood the test of CMS scrutiny and Medicaid rules, write the authors. HIP brings recipients and the State together in a market-based partnership to use resources judiciously and to promote provider competition resulting in improved transparency, quality and value for all Hoosiers, they write.

Premiums in the Individual Health Insurance Market for Policyholders under Age 65: 2002 and 2005

Didem Bernard, Ph.D. and Jessica Banthin, Ph.D.
Agency for Healthcare Research and Quality, 04/08

The average premium for a health insurance policy purchased in the individual market in 2005 was $3,664 for individuals and $5,568 for families, according to a new AHRQ study. In general, the study finds that older purchasers pay higher premiums than younger purchasers, reflecting the relatively higher health care costs that people incur as they get older. In 2005, average premiums for single coverage were $1,580 for purchasers aged less than 40, $3,325 for purchasers aged 40 to 54, and $4,288 for purchasers aged 55 to 64. Nationwide, the total number of policyholders with individual health insurance was 6 million in both 2002 and 2005, the report says.

Medical Advances — Through Your iPhone?

Olga Kharif
BusinessWeek, 04/30/08

Bioengineering professor Boris Rubinsky of the University of California has what he hopes is the perfect antidote to bulky, expensive medical machines: the mobile phone, writes BusinessWeek. Rubinsky says that by reducing a complex electromagnetic imaging machine to a portable electromagnetic scanner that can work in tandem with a regular cell phone and a computer, he has essentially replicated a $10,000 piece of equipment for just hundreds of dollars. Cell phones may also help reduce the frequency of medical errors and play an integral role in remote care for patients with chronic illnesses, the magazine reports. For example, San Francisco-based BeWell Mobile has created an application that lets asthma or diabetes sufferers enter their home test results into their cell phones and send them to their doctor daily. If a patient's glucose levels spike, the software suggests the patient hold off on certain foods or try a different medication. A recent two year trial with BeWell at clinics in California has shown the software can drastically cut down on emergency room visits.

Upcoming Events

Consumer Health World Conference
May 4-7, 2008
Las Vegas, NV
Grace-Marie Turner will discuss "Challenging the Candidates: How Will the New President's Policies Impact Consumers and Health Care?" at 1:15 p.m. on May 5. Email galen@galen.org for a registration discount code.

Is the Grass Really Greener? A Look at International Health Care Systems
Cato Institute Capitol Hill Briefing
Monday, May 5, 2008, 12:30 p.m. (Lunch Included)
Washington, DC

Public Forum on Medicare & Medi-Cal
California Medicare Coalition Event
Thursday, May, 8, 2008, 9:30 a.m. – 12:00 p.m.
Sacramento, CA

Building Blocks for Universal Health Care in New York: Bridging Coverage Gaps with Information Technology
Hudson Center for Health Equity & Quality Event
Thursday, May 8, 2008, 10:00 a.m. – 4:00 p.m. (Lunch included)
New York, NY

Grace-Marie Turner speaking on The Rod Grams Show
KLTF-AM Radio Broadcast
Thursday, May 8, 2008, 10:05 a.m. ET
Little Falls, MN

6th Annual Health Care Conference
Washington Policy Center Event
Tuesday, May 13, 2008, 7:30 a.m. – 4:00 p.m.
SeaTac, WA
Grace-Marie Turner will discuss the presidential candidates' health care plans during her keynote address.

Health Reform and the 2008 Election: Opportunities and Pitfalls
Health Affairs Briefing
Tuesday, May 13, 2008, 8:45 a.m. – Noon
Washington, DC

National Medicare Education Program (NMEP) Coordinating Committee Meeting
Centers for Medicare & Medicaid Services Event
Thursday, May 15, 2008, 8:30 a.m. – 12:45 p.m.
Washington, DC

Whatever Happened to Medicare Reform?
Cato Institute Policy Forum
Thursday, May 15, 2008, 12:00 p.m. (Lunch included)
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 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 http://rs6.net/tn.jsp?t=ujctlmcab.0.0.xkzt75bab.0&ts=S0330&p=http%3A%2F%2Fwww.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.