Surreal Spending

The House is poised to take a final vote on the compromise $800-billion spending bill on, appropriately, Friday the 13th, with the Senate likely to follow soon after.

In my 36 years in Washington, I have never seen such a surreal environment, with hundreds of billions of dollars in borrowed taxpayer money being spent without committee hearings or even meaningful public debate over the thousands of new and expanded programs the bill funds.

The bill pumps $150 billion more into our already-bloated health sector, with the biggest sums going to Medicaid ($87 billion), health information technology ($20 billion), and COBRA subsidies ($25 billion).

The $25 billion will pay 65% of the premiums for workers who have lost or left their jobs so they can keep their former employer's health insurance for nine months. This creates a new health spending program without the slightest debate over the economic distortions it would cause. And hold your breath if you think the subsidies really will end after nine months.

This imposes a back-door mandate for employers to continue providing health insurance to workers long after they have left. Extending it just may crack the already fragile ability of employers to continue offering health coverage. The marginal companies may drop insurance altogether rather than be faced with paying health bills for workers who have left their employ and who no longer are contributing anything to the company's output.

But that’s not all: The bill takes a giant leap into centralization over decisions about health care. It provides $1.1 billion for "comparative effectiveness" research and creates a new 15-member federal health board, composed entirely of federal employees appointed by the president, charged with running the research program to assess which drugs and other medical treatments are most effective.

While the Senate insisted that the board's decisions would be based on "clinical" and not "cost" decisions, it quickly will be charged with deciding which medical treatments the federal government will or will not pay for, as has happened in other countries where these boards exist today.

House Appropriations Chairman David Obey (D., Wis.) explained earlier that drugs and treatments “that are found to be less effective and in some cases, more expensive, will no longer be prescribed.” The treatments some patients desperately need might not be on the list. And this will soon be law, without any debate in Congress.

And Sen. Daschle may be gone, but not the $400 million slush fund for the secretary of Health and Human Services “to accelerate the development and dissemination of research assessing the comparative effectiveness of health care treatments and strategies.”

The one flicker of good news is that negotiators deleted a new program that would have provided 100% federal funding to expand access to Medicaid for the unemployed, with no income or asset tests.

This was one of the most egregious provisions in the House bill and would have thrown the door wide open to fraud.

States are primarily responsible for fighting fraud in their Medicaid programs. Yet if the federal government is reimbursing them 100 percent for adding new populations to the program, what incentive would they have had to make sure the money was being spent wisely?

Congressional Quarterly said the provision was “derided by critics as permitting outgoing Bush cabinet members to sign up for the low-income health insurance program.” That did it.

There’s much more, which you can read about here. In all, this bill takes us down a path toward greater centralized control over our health sector. In the process, we will lose the dynamic creativity of the marketplace that can respond to the needs and demands of consumers, replacing it with the slow, rigid, unresponsive, rule-driven processes of bureaucracy.

This is not change I can believe in.

Grace-Marie Turner

Recent News Articles and Studies

The Wrong Stimulus for Health Care
Market Innovation Makes a Difference
Another Medicaid Bailout
A Preliminary Analysis of Health Savings Account Balances, Contributions and Withdrawals: 2007 & January-June 2008
'Too Old' for Hip Surgery
Note to Congress: Expanding Health Care Entitlements Is Bad Policy


The Wrong Stimulus for Health Care
William Winkenwerder, Jr. and Grace-Marie Turner
National Review Online: The Corner, 02/10/09

The health-related provisions in the stimulus bill take a sharp turn toward greater government control over our health sector, without any hearings or serious debate in Congress and without telling the American people what the changes would mean for their personal health care, write Turner and Winkenwerder, a physician who served as Assistant Secretary of Defense for Health Affairs in the Department of Defense from September 2001 until April 2007. They detail the health-related provisions in the bill, including a new 15-member federal health board, composed of federal employees appointed by the president, charged with running comparative effectiveness research to assess which drugs and other medical treatments are most effective, a new employer mandate in the form of COBRA expansion, creation of a new federal subsidy program, and expansion of Medicaid.

Market Innovation Makes a Difference
Grace-Marie Turner, Galen Institute
The Oklahoman, 02/08/09

It may seem counter-intuitive to put "President Bush" and "successes in health reform" in the same sentence, but the Bush administration made undeniable progress in creating a climate friendly to innovation in the health sector, writes Turner. Bush promoted policies that have helped to slow the growth in health insurance costs, created new models for care delivery and financing, and fostered a more patient-centered health sector. This progress may soon be quashed by politicians eager to exert more government control over health care. This would force the private health sector to operate under the same rule-driven, price-fixed, benefit-restricted dictates as the public sector. The Obama administration faces a multitude of policy challenges, but it is important to respect the genius of the market when it comes to responding to consumer demands, improving health care quality, and lowering prices through efficiency a
nd innovation.


Another Medicaid Bailout
Newt Gingrich and Jim Frogue, Center for Health Transformation
McClatchy-Tribune News Service, 02/09/09

For the third time this decade, states are looking to Congress for extra money in the stimulus bill to help with their Medicaid costs, despite the fact that since 1966, every state has had an open-ended claim on the federal treasury for their Medicaid costs, write Gingrich and Frogue. Whatever a state spends on Medicaid, within very broad parameters, it receives an average federal match of nearly 60%. In poorer states it exceeds 70%. The result of these incentives is that the cost of Medicaid to the states and to the feds has continued to skyrocket disproportionately. Instead, states should have to apply individually for a loan with a detailed plan for serious, long-term reform, they write. If Congress insists on a third federal bailout of state Medicaid programs this decade, then at the very least it should aim not to have any more in the future.


A Preliminary Analysis of Health Savings Account Balances, Contributions and Withdrawals: 2007 & January-June 2008
America's Health Insurance Plans, 02/09

AHIP presents a detailed analysis of financial activity in health savings accounts (HSAs) for calendar year 2007 and for the first six months of 2008. Five bank trustees of HSAs provided data for the study, representing a total of more than 1.1 million HSA accounts. Key findings:


  • Among the five banks, the number of HSA accounts in place has increased over time, with approximately 200,000 new accounts opened in 2005, 300,000 opened in 2006, 400,000 in 2007, and 175,000 opened in the first six months of 2008.
  • In the first half of 2008, 70% of HSA accounts in the study had a personal deposit, 40% had an employer contribution, 71% had withdrawals, 86% reported interest earnings, and 60% were charged a fee.
  • The average balance for all HSA accounts open as of June 2008 was $1,449. Average balances ranged from $747 for accounts opened in the first six months of 2008 to $3,125 for accounts opened in 2004 or earlier.
  • Among accounts with personal deposits in 2007, the average amount deposited was $1,517. Among accounts with employer contributions in 2007, the average contribution was $1,680.



'Too Old' for Hip Surgery
Nadeem Esmail, Fraser Institute
The Wall Street Journal, 02/09/09

Several cases currently before Canadian provincial courts show what Americans could expect from centralized health care decisionmaking, writes Esmail of the Vancouver-based Fraser Institute. In Alberta, patient Bill Murray waited in pain for more than a year to see a specialist for his arthritic hip. The specialist recommended a hip resurfacing surgery, but the government decided that Mr. Murray, who was 57, was "too old" to enjoy the benefits of the procedure and said no. He was also denied the opportunity to pay for the procedure himself in Alberta. He's heading to court claiming a violation of the right to life and security of the person guaranteed by the Canadian Charter of Rights and Freedoms. The experience of Mr. Murray and other Canadians — along with the untold stories of the 750,794 citizens waiting a median of 17.3 weeks from mandatory general-practitioner referrals to treatment in 2008 — show how miserable things can get when government is put in charge of managing health insurance.


Note to Congress: Expanding Health Care Entitlements Is Bad Policy
Dennis G. Smith
The Heritage Foundation, 02/12/09

Many Americans who have private insurance will lose their coverage if major health care policy proposals advanced by President Obama and congressional leaders, including Senator Max Baucus (D-MT), become law, writes Smith. Expansion of government programs undermines existing health insurance coverage for millions of Americans — a development directly contrary to President Obama's campaign promises — and aborts any salutary effort to mainstream millions of Americans who are trapped in poorly performing public plans into the private health insurance system in which most of their fellow citizens participate. Entitlement reform, lowering the cost of both public and private health insurance, and expanding private insurance coverage should be accomplished simultaneously, allowing for a smooth interaction among the various parts. Expanding government entitlement programs will thwart the ability to harness market forces to control costs — while depriving more and more Americans of the opportunity to secure the private coverage of their choice.

Upcoming Events

Pharmaceutical Price Regulation: Public Perceptions, Economic Realities, and Empirical Evidence
American Enterprise Institute Book Forum
Tuesday, February 17, 2009, 9:00 a.m. – 10:15 a.m.
Washington, DC

Real Change or Pocket Change? The High Stakes of Entitlement Reform for Young Americans
The Heritage Foundation Event
Wednesday, February 18, 2009, 12:00 p.m.
Washington, DC

Health Technology Assessment
Stockholm Network Event
Monday, February 23, 2009, 11:30 a.m. – 2:00 p.m.
Stockholm, Sweden

Health vs. Health Care: What and How Should We Purchase?
Oregon Health Forum Event
Tuesday, February 24, 2009, 7:00 a.m. – 9:00 a.m.
Portland, OR

Grace-Marie Turner speaking on the Small Business Advocate show
Nationally Syndicated Radio Broadcast
Wednesday, February 25, 2009, 7:30 a.m.

CPAC 2009
The American Conservative Union Event
February 26-28, 2009
Washington, DC
Grace-Marie Turner will speak on a panel entitled "Health Care: The Train Wreck Ahead" at 11:30 a.m. on Friday, February 27.



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

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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.