Pressing On

Health Savings Accounts: It’s extraordinary to see the interest and excitement over these new and improved versions of MSAs. Our voicemail and e-mail are full of questions from people and reporters wanting to learn more. Aetna and Fortis, and surely other companies as well, plan to speed their products to the market by January 1, taking a giant step toward empowering health care consumers to gain more control over health spending decisions.

Next steps: Allowing workers with money left over at the end of the year in their Section 125 health accounts to roll over the balance into their own new HSAs. And convincing the states to lift regulations and mandates that interfere with their citizens’ ability to take advantage of these new accounts.

Medicare signing: DAR Constitution Hall near the White House was the site on Monday morning for the signing ceremony of the Medicare bill. As you know, we had a lot of problems with the bill but also found much to build on and truly believe that it is the best bill that could have been passed in this Congress.

It was quite amazing to be there and to see a bill containing some of the ideas that we had offered and supported actually become law. HSAs are the most important, with my colleague Greg Scandlen working tirelessly for more than a decade to see this idea become a viable reality.

And starting next year, seniors will have access to card plans offering competitively negotiated discounts on prescription drugs, with lower income seniors receiving up to $600 a year in 2004 and 2005 to help with their drug purchases. What isn’t spent at the end of the first year rolls over to the next. This program is based upon an idea that Joe Antos of AEI and I developed to create a defined contribution that gives government certainty over its costs and seniors an incentive to make the dollars go as far as possible. While the program is temporary, we expect it will be very popular, and it puts down a good marker for incentive structures in future programs.

Medicaid: We haven’t talked much about this joint federal-state program lately, but I have a new idea to offer.

As we all know, many states expanded Medicaid to more and more of their citizens when they were flush with revenues in the ’90s. But they found they had dug themselves into a deep financial hole when the recession hit and the entitlement bills kept pouring in.

And the poorest ones, like my home state of New Mexico, got into the most trouble because they get such a generous match: For every dollar they spend on Medicaid, the federal government matches it with three. It’s like continuing to shop at Macy’s 75% off sale, even when you can’t pay last month’s credit card bills.

Does it make sense, though, for the federal government to subsidize Medicaid at the same match rate for someone earning less than 100% of poverty as for someone at 250% of poverty? I don’t think so. So here’s my idea. The federal government should institute a “scaled match.” It will continue to reimburse at the current Medicaid match rate for lower-income citizens, but if states want to increase eligibility to higher income levels, the match rate will be lower and they will have to put more of their own money on the table.

It only seems fair that government programs should focus more resources on those at the lower end of the income scale and not water down benefits for them because more and more higher-income citizens have been added to the rolls.

Your feedback is welcome.

Travelogue: Medicare has taken over this space for the last several weeks and I haven’t had time to report on trips to Chicago (for a terrific seminar hosted by Greg Scandlen for participants in his on-line Health Benefits Reform discussion group), to New York for a speech on consumer-driven health care at the NYU School of Medicine (even in liberal Manhattan there was surprising interest and not-so-surprising opposition from single-payer advocates), and now in California, for a long-weekend in beautiful Carmel to watch my husband play in a children’s charity golf tournament in Pebble Beach…


? Overview of the Medicare prescription drug and reform conference agreement, H.R. 1

? Medicare drug discount card program

? More medicine is not better medicine

? Has the pharmaceutical blockbuster model gone bust?



Authors: Jennifer O?Sullivan, Hinda Chaikind, Sibyl Tilson, Jennifer Boulanger, and Paulette Morgan

Source: Congressional Research Service, 12/4/03

The Congressional Research Service (CRS) has published a 25-page summary of the 402-page Medicare conference report that includes a description of the Medicare Advantage program and an explanation of the prescription drug benefit. The report covers topics such as design and benefit structure, as well as cost containment and appeals, regulatory and contracting provisions. In addition, the Kaiser Family Foundation released a side-by-side analysis of the Medicare bill which compares S. 1, H.R. 1, and the Conference Agreement, organized by categories such as premiums, cost sharing, deductibles, and government subsidies.

Full text of CRS Report:



Full text of Kaiser analysis:


Grace-Marie Turner offers her own analysis of the Medicare bill in this week?s National Review. The legislation, writes Turner, ?contains important victories for reform – including Health Savings Accounts (HSAs) and incentives for private health plans to stay in Medicare ? It cracks the door by engaging consumers and competition in a sector of the economy dominated by government-fixed prices and bureaucratic control.?

Full text of Turner article (subscription required):



Source: Department of Health and Human Services, 12/10/03

Two days after President Bush signed the Medicare bill into law, HHS published in the Federal Register the 475-page interim final rule for the Medicare Prescription Drug Discount Card Program. The regulations have a 30-day comment period. Congress specified that no more than six months from the date of enactment of legislation, the discount card program would take effect. Senior citizens and disabled citizens on Medicare will be able to purchase government-certified discount cards for up to $30 annually to receive cost savings that HHS estimates at 10 to 15 %. ?A key part of the Medicare-approved prescription drug discount card program is a subsidy of up to $600 a year for eligible low-income beneficiaries,? states the HHS press release. ?Individuals whose income is less than $12,124 each year or married couples whose income is less than $16,363 may qualify for this special help. In addition, Medicare will cover the cost of the enrollment fee for these low-income cardholders.?

Full text of regulations:



Author: Elliott S. Fisher

Source: The New York Times op-ed, 12/1/03

Dartmouth professor of medicine Elliott Fisher and five colleagues published a study earlier this year on regional variations in Medicare spending that found “neither the quality of care nor patients’ satisfaction with it was related to costs.” Writing in The New York Times, Fisher reports that the difference in spending is mainly due to the way medicine is practiced in high-cost regions. “Our study suggests that perhaps a third of medical spending is now devoted to services that don’t appear to improve health or the quality of care – and may make things worse,” he writes.

Abstract of Fisher op-ed:


A new Health Affairs web exclusive forum builds on this research and examines possible ways to reduce Medicare spending. In one of three articles, Steven Lieberman and colleagues at the Congressional Budget Office explore two approaches to reduce spending: reducing the expenditures of high-spending individuals through programs such as disease management and reducing expenditures in high-spending regions. ?From a budgetary perspective, a strategy centered on high-spending individuals could hold the promise of greater ?bang for the buck,?? Lieberman et al. write. ?Simply, there?s more money concentrated

in fewer individuals.?

Liberman et al. article:



Source: Bain and Company, 12/8/03

It now costs nearly $1.7 billion to bring a new prescription drug to market, representing a 55% increase over the average cost of new drugs from 1995 to 2000, according to a new study by the business consulting firm Bain and Company. Recent data published by Tufts University showed that the cost of bringing a new drug to market is $800 million, but the Bain study uses a different methodology which also accounts for commercialization costs and the price of failed drugs. The study also points to declining R&D productivity, noting that only one compound reaches the market out of every 13 discovered and placed in pre-clinical trials, down from one in eight from 1995-2000. Bain and Company recommends replacing the traditional blockbuster approach to developing new drugs with a newer, tailored model consisting of four key elements: shift from opportunism to focus; use partnerships to manage risk and return; develop a customer-driven approach; and develop an integrated business model.

Full text:



Medicare Prescription Drugs and Low Income Beneficiaries

Alliance for Health Reform Event

Monday, December 15, 12:15 pm – 2 pm (Lunch available at noon)

Room 325, Russell Senate Office Building

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

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

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.

Elizabeth Lamirand

Editor, Health Policy Matters