Summer Excitement

While the health care debate traditionally heats up in the summer months, this year the legislative scene has been comparatively quiet. Most of the energy has been spent explaining ? or debating ? the various provisions of the new Medicare law, especially the Temporary Drug Discount Card and Health Savings Accounts.

The biggest excitement of the summer (and only in Washington would this be considered excitement) will be the release of long-delayed implementing regulations for the permanent Medicare drug benefit and more guidance on HSAs.

The regs are crucially important because they determine how the new programs will work. And the programs themselves could succeed or fail based upon the bureaucratic interpretation of the law.

The issue that appears to be holding up the HSA guidance at high levels in the Treasury Department is how much control to give employers in restricting distributions from HSAs. Clearly, big employers are pushing for more limitations.

But that misses the point of what HSAs are all about: Health benefits are part of an employee?s compensation package and it?s ultimately their money. After decades of an employer-based system, even employers are confused about this.

For HSAs to work, employers need to let employees have control over the money in their accounts to the extent of the law. If employers want to maintain control, they should set up Health Reimbursement Arrangements instead.


Meanwhile, a group of 87 companies, labor unions, health plans, consumer groups, and other organizations has renewed the call for ?a sweeping overhaul? of the U.S. health care system, including an accelerated pace toward universal health coverage.

Of course everyone should have health coverage, but we worry that the approach described by the National Coalition on Health Care this week would lead us away from the evolving and dynamic consumer-directed health care system and toward centralized, government control.

For example, they want to establish a new government board to ?seek to stop the acceleration in health spending? (price controls, anyone?), and another board to develop and refine national medical practice guidelines (which could be very valuable or very dangerous to innovation and competition).

Their options for universal coverage: A single-payer system, employer mandates, and expanded public programs.

Neil Trautwein, VP at the National Association of Manufacturers, warns that ?the recommendations reject the market trend toward consumerism, the likely key to fixing future health care costs for employers.?

We definitely want to work with as many people as possible toward health reform, but rejecting the one force that is leading to lower costs, more choices, and greater access to coverage is not progress.

Grace-Marie Turner


? Next to the express checkout, express medical care

? Helping those who need it most: Low-income seniors and the new Medicare law

? The Medicare discount drug cards: One month in

? Medicaid?s perverse incentives

? Closing the doughnut hole: No easy answers

? A detailed description of CBO?s cost estimate for the Medicare prescription drug benefit


Author: Michelle Andrews

Source: The New York Times, 07/18/04

The New York Times describes the growing popularity of MinuteClinics, express medical clinics located in Target and Cub Food stores in the Minneapolis-St. Paul area. Typically staffed by nurse practitioners, the clinics diagnose and treat several common ailments, like sinus and ear infections, strep throat, and seasonal allergies in about 15 minutes. ?The clinics are popular because they are fast ? and relatively cheap. At MinuteClinic, a visit to test for strep throat costs $44, versus an average of $109 at a doctor?s office or $328 in an emergency room,? writes the Times. MinuteClinics have seen more than 142,000 patients since opening in 1999. (Watch for the chain to expand to the Baltimore area later this summer.)

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Author: Mark McClellan, Ph.D.

Source: Senate Special Committee on Aging, 07/19/04

Medicare Administrator Mark McClellan testified at a Senate Aging Committee hearing this week that the new Medicare drug cards ?are already providing substantially lower drug prices for almost four million individuals? and ?about 25,000 additional beneficiaries are signing up every business day.? He described improvements in to make it easier and quicker for seniors to enroll, plus increasing to 3,000 the number of operators answering 1-800-MEDICARE. McClellan also described other provisions in the bill that have or will take effect to help low-income and minority seniors, and he provided an overview of CMS? planned procedures for launching the Part D benefit.

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Author: Derek Hunter

Source: The Heritage Foundation, 07/15/04

Derek Hunter of The Heritage Foundation provides an overview of the debate and controversy surrounding the Medicare Drug Discount Card and reviews the evidence of savings found in several studies. A study by the Centers for Medicare and Medicaid Services found potential savings of 32 to 85% for low-income seniors. Preliminary results of a study by the Lewin Group show that, on average, seniors save just above 20%, and those qualifying for the transitional assistance could save between 29 and 92%. Finally, an American Enterprise Institute report found that low-income seniors can save between 53 and 78%.

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Author: James Frogue

Source: American Legislative Exchange Council, July 2004

?The root cause of Medicaid?s problems is that the program is replete with perverse incentives from top to bottom,? writes Jim Frogue of the American Legislative Exchange Council. Frogue argues that the open-ended federal matching payment to states is ?most responsible for the fiscal problems with Medicaid.? He reviews proceedings of congressional hearings held this spring that revealed ?a never-ending game of financial cat-and-mouse between states and the federal government where the state mouse is always a step ahead of the federal cat.? Frogue concludes that the program could be reformed by giving block-grants to the states to eliminate the federal match or by putting the money in the hands of patients to tap into the free market for medical goods and services.

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Author: Patricia M. Danzon

Source: Health Affairs Web Exclusive, 07/21/04

In the latest Web Exclusive from Health Affairs, Gerard Anderson et al write that ?in 2003, citizens of Canada, the United Kingdom, and France paid an average of 34-59 percent of what Americans paid for a similar market basket of pharmaceuticals.? Anderson suggests that the doughnut hole in the Medicare drug benefit could be closed if we would simply impose Canadian-style price controls on our pharmaceutical industry. However, the authors acknowledge that ?[t]he trade-off is less pharmaceutical R&D.?

Patricia Danzon of Wharton counters several of Anderson?s assumptions including that the price differences between the United States and other countries are probably not as big as he assumes. ?Careful cost-effectiveness analysis would be more appropriate than trying to import other countries? price controls,? writes Danzon. ?Income-related subsidies are a better strategy for dealing with excessive cost sharing for low-income seniors.?

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Author: Philip Ellis et al

Source: Congressional Budget Office, 07/04

The CBO offers a detailed description of the economic assumptions that analysts used in preparing the $400 billion estimate last year of the cost of the new outpatient Medicare prescription drug benefit. The assumptions are critical in determining cost projections and a detailed description of these assumptions allows a much more informed debate. For example, CBO explains how it concluded that 87% of Medicare beneficiaries would participate in the drug benefit and why they conclude ?that the average cost per enrollee for providing basic benefits would be $1,640 in calendar year 2006, rising to $2,713 in 2013.? The sleeper: CBO assumes ?that average Medicare subsidy payments on behalf of retirees would be greatest if employers dropped drug coverage.?

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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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