Fuel to the Fire

The Bush Administration’s budget won’t be released until next week, but it already has poured fuel on the fiery debate over health care costs by estimating that the 10 year cost of the new Medicare bill will be more than $530 billion, one-third more than Congress’ $400 billion estimate.

Several points:

  1. Entitlements ALWAYS cost more than we think. When Medicare was enacted in 1965, it was projected to cost $9 billion by 1990. Real price that year: $67 billion.

  2. There are often disagreements between the Congressional Budget Office, which produces estimates for Congress, and the Office of Management and Budget, which produces them for the administration. The CBO re-confirmed last week its $400 billion estimate. The difference is in the assumptions the actuaries use in their computer modeling. “It’s difficult to predict the behavior of 40 million people in a market that does not now exist,” one official said. In other words, no one knows.

  3. Do the liberals, who think that the benefit is too meager, expect that the higher cost estimates are going to help them in their argument that the benefit needs to be made even richer, largely by plugging the doughnut hole in the drug benefit?

    Their answer, of course, is to decry the provision in the new law that prohibits the government from “negotiating” lower drug prices from pharmaceutical companies. But governments don’t negotiate prices, they dictate them. This is also known as price controls.

    And the CBO has an answer to that as well: In a Jan. 23 letter to Senate Majority Leader Bill Frist, CBO director Douglas Holtz-Eakin said that “striking that provision would have a negligible effect on federal spending.” Why? “?because CBO estimates that substantial savings will be obtained by the private [drug] plans and that the [HHS] Secretary would not be able to negotiate prices that further reduced federal spending to a significant degree.”

Finally, the Medicare bill contains changes that are going to alter the market by engaging more competition and market forces, and those changes are traditionally very hard for actuaries to estimate. One bit of news that opponents of free markets wouldn’t have expected came from Boston this week.

An Associated Press report said that Massachusetts seniors will actually see their health insurance premiums fall in March. The three largest Medicare HMOs said premiums would be reduced 36-48 %. The sharpest decrease will be for members of Blue Cross’s Medicare plan, where premiums will drop from $162 to $84 a month. The company said it would apply all of the new revenues it is getting from the government to lowering premiums.

Imagine that! A private sector health care firm is actually taking action to lure more customers to its plan by reducing prices. The health sector might actually start to work more like the rest of the economy. Some people don’t like the Medicare law, but there’s a lot more in it than the drug benefit, including a real prospect for change.

There were a number of other important events, papers, and reports last week. Greg Scandlen wrote a new paper about the crushing regulatory environment in Maryland, and Joe Antos and Jack Calfee have produced a touchstone paper on the Medicare law, with a concise description of its highlights and valuable insights. See below for summaries. Also, Gail Wilensky testified on the uninsured before a Senate committee. And then there was our visit to the White House. For more, click here.

Grace-Marie Turner



? Rethinking Maryland?s health care future

? Of sausage-making and Medicare

? When family matters most

? Democrats can?t shake the pack on health care

? The value of investment in health care

? Changes in health insurance coverage during the economic downturn: 2000-2002

? Border wars: the prescription drug battle with Canada



Author: Greg Scandlen

Source: The Maryland Public Policy Institute, 01/27/04

Maryland?s two competing proposals for mandatory universal coverage are ?doomed to fail? because they do not address the need for fundamental reform, writes Galen?s Greg Scandlen. Maryland is one of the most highly regulated states in the country – it has the most mandates of any state, a Health Care Commission that has created a regime in which two insurers control 88% of the small group market, and one of the most restrictive Certificate of Need programs in the country. ?Rather than establishing more mandates and regulations, it is well past time for Maryland to try something new,? writes Scandlen: ?Rely on the common sense of its citizens to make their own decisions about their health care needs, and tap into the energy of a competitive private sector to deliver valuable services at reasonable costs.?

Full text: http://www.mdpolicy.org/publications/policy_report/PolicyReport2004-1.pdf



Authors: Joseph Antos and John E. Calfee

Source: AEI’s Health Policy Outlook, January-February 2004

Joe Antos and Jack Calfee of the American Enterprise Institute write that the drug benefit and expansion of health plan competition enacted in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 promote market principles. However, those major reforms do so with heavy regulation: private plans will be given more opportunity to offer services to seniors, including subsidized drug plans, but with restrictions that could blunt the effectiveness of competition in restraining cost growth. The new law also tweaked the Medicare system in a number of ways, continuing a long tradition of creating new regulatory complexities in a vain attempt to ameliorate the distortions caused by old rules.

Full text: http://www.aei.org/publications/pubID.19765,filter./pub_detail.asp


Author: Robert Goldberg

Source: The Washington Times, 1/23/04

Robert Goldberg of the Manhattan Institute describes his experiences with the health care system as he tried to find care for his daughter, who is struggling with bulimia. ?Today, she is on the road to recovery, thanks to a mix of new medicines, caring therapists, savvy specialists, her own courage and my ability to set aside tax-free money that I used to pay for the best care possible,? writes Goldberg. ?[U]nder the president’s proposal, millions of children like my daughter will have the chance to obtain the best care possible for devastating and life-ending illnesses like bulimia, bypassing insurance companies and government-run programs that ration access to cutting edge cures in the name of universal care.?

Full text: http://www.washtimes.com/op-ed/20040122-082812-6201r.htm


Author: Ronald Brownstein

Source: Los Angeles Times, 01/29/04

Health care consistently ranks among the top issues voters are most concerned about, yet it has been a ?non issue? in helping voters decide which Democratic presidential candidate to support, writes Ronald Brownstein, staff reporter for the Los Angeles Times. Virtually all of the candidates? plans propose expanding coverage to the uninsured through public programs, making it hard for voters to distinguish one plan from the next, but they also throw in a mix of initiatives drawn from the Republican playbook, like tax credits and new types of insurance purchasing arrangements. The article provides a thumbnail description of the health reform proposals of the Democratic presidential candidates.

Full text: http://www.latimes.com/news/politics/la-na-health29jan29,1,310563.story?coll=la-headlines-politics


Source: The Value Group (a coalition of leading health care organizations), 1/28/04

Since 1980, annual per capita health care expenditures have increased by $2,254, but this study by distinguished researchers Bryan Luce, Frank Sloan, and Josephine Mauskopf quantifies the value of that extra spending: Annual death rates have declined by 16%; life expectancy has risen by 3.2 years; disability rates for people over 65 declined by 25%; and people spend 56% fewer days in the hospital. Without these improvements in health, the U.S. would have spent $634 billion less on health care between 1980 and 2000, but there would have been 470,000 more deaths, 2.3 million more people with disabilities, and 206 million more days spent in the hospital. Their bottom line: ?Each additional dollar spent on health care services has produced health gains valued at $2.40 to $3.00.?

Full text: http://www.advamed.org/publicdocs/media_briefing.html


Authors: John Holahan and Marie Wang

Source: Health Affairs Web Exclusive, 1/28/04

The Current Population Survey data from 2000?2002 shows that the number of uninsured Americans grew by 3.8 million during this period, and the ?primary factor was the widespread decline in employer-sponsored insurance,? write John Holahan and Marie Wang of the Urban Institute. The paper attributes the decline in employer-sponsored insurance to several factors including higher unemployment, a shift from employment in large firms to small firms, and rising health insurance premiums. ?The predominant way in which Americans have health insurance coverage is through employers, but in the past two years (2000-2002) we have seen that this coverage is quite vulnerable to economic fluctuations,? write the authors. (Hello? Perhaps we need new alternatives for those shut out of the system for job-based health insurance, like refundable tax credits to individuals so they can buy their own health insurance that they can take with them from job to job.)

Full text: http://content.healthaffairs.org/cgi/content/abstract/hlthaff.w4.31


Source: Pacific Research Institute, 1/27/04

The Pacific Research Institute hosted a debate on prescription drug importation this week in San Francisco, featuring Dr. Milton Friedman, Congressman Gil Gutknecht, Sally C. Pipes, and Don McCanne, M.D. The transcript of this debate can be viewed at: http://www.pacificresearch.org/press/rel/2004/ma04-01-27/transcript.pdf.


Consumer Choice Health Care: Reports From The Field

Galen Institute Event, moderated by Greg Scandlen

Wednesday, February 11, 2004, 2:00 ? 4:00 pm

562 Dirksen Senate Office Building

Washington, DC

RSVP to Tara Persico at tara@galen.org or call 703-299-9205. For additional details go to http://www.galen.org.

The Top Ten Things People Believe About Canadian Health Care, But Shouldn?t

The Heritage Foundation Event

Wednesday, February 4, 2004, 12:00 noon – 1:00 p.m.

Washington, DC

For additional details and registration information, go to: http://www.heritage.org/Press/Events/ev020404.cfm.

One Nation under Therapy

American Enterprise Institute?s Bradley Lecture Series

Monday, February 9, 2004, 5:30 ? 7:00 p.m.

Washington, DC

For additional details and registration information, go to: http://www.aei.org/events/type.upcoming,eventID.488,filter.all/event_detail.asp.

Top Ten Myths about the Uninsured

Urban Institute Event

Wednesday, February 11, 2004, 8:30 – 10:15 AM

Washington, DC

For additional details and registration information, go to: http://www.urban.org/conferences/uninsured/

Vision for Healthcare: Featuring Ways and Means Chairman Bill Thomas

National Center for Policy Analysis Congressional Briefing

Thursday, February 12, 2004, 8:30am

National Press Club – Washington, D.C.

For more information or to RSVP, please contact Matt Moore or Anna Frederick by phone (202 628-6671) or email washingtonevents@ncpa.org.

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 http://www.galen.org/.

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