Innovation or Reversion

Consumer choice is poised to revolutionize the health insurance and health care markets in the U.S., and Medicare better pay attention. The 70 million Baby Boomers who will start entering the Medicare program in eight years will demand the kind of choices in Medicare they are beginning to receive through their jobs today.

Join us for a Galen Institute briefing on Consumer Choice in Medicare where experts will explore ways that Medicare beneficiaries can receive the consumer choice options offered to millions of working Americans. The briefing is this coming Tuesday, October 7, at 2:00 p.m., room 121 Cannon House Office Building.

The Census Bureau released its annual estimates of the uninsured this week, showing that more people received health coverage through government programs and fewer through job-based coverage last year. This largely reflects a soft economy: When people lose their jobs, they lose their health insurance and are more likely to qualify for public programs.

But the number of people who purchased health insurance on their own last year rose by 582,000 to 26.6 million. Brave souls, these, since the tax code so discriminates against individual purchase of health insurance and since state regulations and mandates can drive prices sky high.

Like Medicare, the way we subsidize health insurance in this country is stuck in the past. Federal and state governments simply must begin to modernize their public policies to enable more of these entrepreneurial workers to buy private health insurance.

Our economy is going through a rough transition, with private companies squeezing out inefficiencies and eliminating jobs that can be replaced by machines. Information technologies also allow more people to venture out as consultants, start new companies, and create gainful employment in new kinds of arrangements.

If we continue to tie health insurance subsidies to the workplace in this highly mobile economy, we will continue to have rising numbers of uninsured.

Refundable tax credits would allow people to keep their health insurance as they move from job to job, obtaining group coverage through organizations that are more stable forces in their lives, like churches, professional associations, or even credit unions.

The 2004 presidential debate will focus on the best way to expand health coverage. Will we continue to expand antiquated government health programs or will Washington get its act together to enter a new age of individual choice, engaging market dynamics to give consumers the tools to buy private coverage and force companies to provide more choices and lower costs?

Biotech: And finally, I spoke on Wednesday at a conference in Chapel Hill, NC, organized by The Atlantic Bridge, run by the dynamic Liam Fox, a physician and Member of Parliament who is the Conservative Spokesman for Health.

North Carolina is working to attract biotech, pharmaceutical, and life sciences companies, and Dr. Fox invited a number of them to speak about the challenges they face. We are truly at the threshold of an explosion in knowledge that will enable treatments and cures we can?t even imagine today.

New companies rely on venture capital funders, and they rely on a promise that the companies will be able to recoup their investment in developing these new technologies.

We are at a crossroads in this country. Will companies like this succeed so we can lead the world to a new kind of health system that rewards innovation and saves future health costs by keeping people well? Or will we go the route of Europe, which was once the apex of pharmaceutical innovation, and demand only the cheapest prices on existing technologies? Many of the choices Congress is making right now will determine which course we take.



? Whistling by the ERISA graveyard

? When are health costs excessive if $15,000 is average?

? Speech before First International Colloquium on Generic Medicine

? How not to handle health care

? Numbers of Americans with and without health insurance rise

? From transitional to universal health coverage



Author: Greg Scandlen

Source: Galen Institute, 9/25/03

The media has focused on how the ?pay or play? health care bill passed by the California legislature will have a profound impact on the business climate in that state, ?but all of that is moot, because the bill will never be enforced,? writes Greg Scandlen of the Galen Institute. The Employee Retirement Income

Security Act (ERISA), passed in 1974 to allow companies to provide health and pension benefits on a consistent basis across the United States, has clearly forbidden such legislation ever since it was enacted. ?The California legislature either never read ERISA, or maybe it thought it could get around it by using different terminology?Or maybe it knew perfectly well this bill was illegal and passed it anyway for political showmanship,? writes Scandlen. ?Whatever the reason, this bill is a zombie ? it may be walking around, but it is already dead.?



Author: C. Eugene Steuerle

Source: Urban Institute, 9/29/03

?The day when the federal budget can cover little other than health and retirement programs looms ever closer,? writes Gene Steuerle of the Urban Institute, adding ??neither costs nor benefits are getting their due.? Steuerle points out that even without the new Medicare drug benefit Congress is working to create, the typical couple retiring today will receive about $250,000 in Medicare benefits, while a person retiring in 2030 is promised $500,000. The realities are sobering: The average household will spend $15,000 on health care this year through taxes and direct and indirect spending, and health costs now total close to one-fifth of households? personal income. ?Many elected officials seeking health care reform don’t even know these figures, much less what to make of them,? writes Steuerle. ??But if we want real health reform, we have to leave Wonderland (i.e., Washington, D.C.) behind now and take careful stock of who’s getting what and who’s paying.?

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Source: Mark B. McClellan, MD, Ph.D., 9/25/03

In his first international speech, FDA Commissioner Mark McClellan uses strong, clear arguments and powerful data to show the sweeping global implications of drug pricing. McClellan says “excessive price controls [are] slowing the process of drug development worldwide. If we continue on our current path of trying harder and harder to shift the costs of developing new medicines to someone else … everyone’s effort to get a free ride on new drugs will grind the global development of new drugs to a halt.” This is especially dangerous in an age where “the development of new treatments…[are] carefully targeted to be highly effective given the molecular features of a disease in a particular type of patient.” McClellan says patents must be protected, and we must share the cost of developing new drugs and biologics. “If holding a patent for a new and innovative product does not mean that its value to world health can be recovered, that means less development of new treatments and less improvement in world health,” says McClellan.

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Author: David Gratzer

Source: The Wall Street Journal, 10/1/03

If Congress passes a prescription drug benefit for Medicare, “Washington will become the biggest funder of prescription drug purchases in the world” and Medicare bureaucrats “could soon dictate what drugs will be covered, under which circumstances and at what price for seniors,” writes David Gratzer of the Manhattan Institute. “Experience overseas shows that governments that pay for prescription drugs tend to involve themselves extensively in both pricing and availability,? Gratzer warns. Patricia Danzon of the University of Pennsylvania recently found that in heavily-regulated countries, like Greece, Belgium, and France, new medications can take up to nine months to reach patients after being approved by the EU. To avoid the European trap, the U.S. should model Medicare reform after the FEHBP, in which prescription drug plans are independently managed. “But if the government offers a drug benefit without changing Medicare’s payment structure, there will be little distance between the offices of the Centers for Medicare and Medicaid Services and the nation’s pharmacies,” Gratzer concludes.

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Source: U.S. Census Bureau, 9/30/03

The latest figures from the U.S. Census Bureau show the number of Americans without health insurance rose by 2.4 million, to 43.6 million, between 2001 and 2002. “For the second year in a row,” says the Bureau, “the overall decrease in coverage was attributed to a drop in the percentage (62.6% to 61.3%) of people covered by employment-based health insurance.” Galen’s Greg Scandlen says the Bureau’s count “demonstrates the inherent problem of relying solely on employers to provide health insurance coverage to most Americans: When people lose their jobs, they also lose their coverage.” Scandlen says the refundable tax credit proposed by the President would allow millions of people to acquire or continue health coverage without having to rely on their employer to do it for them. We?ve also included a link to a related article by Ronald Bailey in Reason Online.

Census Bureau data:

Reason article:



Author: Jeff Lemieux

Source:, 9/24/03

Jeff Lemieux of describes ?a step-by-step approach, that builds from ?transitional? health insurance for unemployed workers toward a more general system of tax credits and purchasing groups that would substantially reduce the number of Americans without health insurance.? The Health Coverage Tax Credit (HCTC) created by the Trade Adjustment Assistance Act of 2002 shows bipartisan compromise on health coverage and can be used as a starting point for expanding coverage. Lemieux recommends building on the HCTC in five steps: 1) ensure that the TAA health tax credit is successfully implemented; 2) extend the credit to all workers receiving unemployment benefits; 3) allow the tax credit to ?follow? workers to their new jobs, especially if their new employer didn?t offer coverage or would otherwise impose a waiting period before the coverage started; 4) allow at least some part of the tax credits to follow low-wage workers indefinitely, regardless of whether or not their new jobs offered health coverage; 5) expand eligibility for the tax credits to all low-wage workers, not just those who were previously unemployed.

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Assessing the Medicare Bills: Will Seniors Be Able to Buy Quality Health Insurance?

The Heritage Foundation Panel Discussion

Monday, October 6, 2003, 12:00 p.m.

2105 Rayburn House Office Building

RSVP through this link: or call (202) 675-1752.

Consumer Choice in Medicare

Galen Institute Briefing

Tuesday, October 7, 2003, 2:00 ? 4:00 p.m.

Cannon House Office Building, Room 121

Washington, DC


Losing Coverage, Paying More: How Retirees with Private Drug Coverage Will Fare Under the Medicare Bills

The Heritage Foundation Event

Tuesday, October 7, 2003, 12:00 p.m.

Washington, DC

For additional details and registration information, go to:


Health Policy Matters is a weekly newsletter containing commentary on health policy developments, summaries of timely and informative studies and articles on free-market health reform, and notices of upcoming events. It features research and writings by participants in the Health Policy Consensus Group. 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 this newsletter and our organization, please visit our website at

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