The Rule of Law

Sens. John McCain (R-AZ) and Byron Dorgan (D-ND) have threatened to hold up the nomination of Mark McClellan to head the Centers for Medicare and Medicaid Services because Dr. McClellan refuses, as FDA commissioner, to permit the importation of price-controlled drugs from Canada into the U.S.

This boggles the mind. The FDA commissioner is sworn to uphold the law of the land ? as are United States Senators ? and importing drugs from Canada is illegal. They clearly want McClellan to join the ranks of renegade governors and mayors who are flirting with breaking the law, if not outright breaking it.

What on earth is happening to the rule of law in this country?

And now some legislators are doubly incensed because McClellan is being named to head the congressionally-mandated commission to study drug importation. Never mind that as an economist, a physician, and head of the FDA, he has more knowledge of the subject than all of his critics put together.

Dr. McClellan is a superb public servant. He has demonstrated extraordinary vision and will prevail in these battles to continue to masterfully guide our huge health care battleship into the 21st century.

Health Affairs studies

Economist John Sheils of the Lewin Group estimates that Americans receive a $188.5 billion tax break for health insurance, primarily through job-based coverage. The findings show that this largely invisible subsidy is growing more and more regressive by the year: A family making $100,000 or more now gets a subsidy worth $2,780 a year for health insurance. One making $10,000 or less gets just $102.

President Bush has proposed a way to rectify the imbalance by offering refundable tax credits worth up to $3,000 to lower- and middle-income Americans to help them buy private insurance.

But now we have a study by researchers at the Center for Studying Health System Change and the Urban Institute that says refundable tax credits will significantly increase health care costs for low-income people eligible for the credits.

The study says that 86% of the target population would wind up spending more than three times as much as they do now on health care with the Bush credit.

?One reason for this greater spending amount is that on average the uninsured pay about 35 percent of the total cost of the health care they use, with the remainder covered by charity care, bad debt, public clinics, and other sources,? the authors explain. Once they are uninsured, they no longer receive the free care.

In addition, because they have health insurance, they are likely to use more health care.

But if we were to accept these arguments as a reason to not enact tax credits, we would be saying that people would be better off with the anxiety of not having health insurance and getting less care, and the system is better off providing them charity and uncompensated care. Surely not.

Another flaw in their argument is assuming a static world. The authors acknowledge they can?t calculate ?the possible development of new, lower-premium insurance products that might appeal to the target population.?

The world would be different in the presence of these new incentives. By offering more than $70 billion in tax credits to the uninsured, as the president has proposed, people will seek out the best value for their money, and the marketplace surely will respond by offering more affordable policies. Low income people would be better off with millions more gaining health insurance.

Turning things around: Five hundred senior doctors in the United Kingdom took out a full-page ad in the Times of London calling for radical change to Britain?s National Health Service.

With a socialized, government-run health care system, there is only one way for radical change to go and that is to inject more consumerism and competition into the system. The doctors are fed up with bureaucratic dictates of a politically-driven system that pours money into providing more massage treatments for citizens but leaves transplant patients to die.

The world is changing, but ever so slowly?.


? The cost of tax-exempt health benefits in 2004

? Recent attacks on Health Savings Accounts

? Medical spending growth and the level of insurance coverage

? The performance and potential of consumer driven health care

? Combating counterfeit drugs

? Don?t despair over disparities


Authors: John Sheils and Randall Haught

Source: Health Affairs Web Exclusive, 02/25/04

Total federal tax expenditures for health benefits equaled $188.5 billion in 2004, up from $111.2 billion in 1998, write John Sheils and Randall Haught of the Lewin Group. But the findings raise questions about equity in the health care system since a large percentage of the expenditure goes to higher-income families. ?Because 43.6 million Americans, most of whom are in relatively low income groups, are uninsured, it is important to ask whether it is appropriate that 26.7% of federal health benefits tax expenditures goes to the 14% of the population with the highest incomes,? the authors write. Efforts to reform the tax expenditure, such as refundable tax credits, would refocus the benefit so that those with lower incomes could obtain coverage.

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Author: Greg Scandlen

Source: Galen Institute, 02/24/04

In an open letter to Members of Congress, Greg Scandlen of the Galen Institute answers critics of Health Savings Accounts who have misused and misinterpreted studies to make their case against providing HSAs to federal workers. Scandlen?s letter takes on the studies one by one and provides the facts, challenging opponents? interpretations and making a case that providing HSAs would benefit not only federal workers but all Americans. ?It is not necessary to base policy on nine-year old speculations, projections, estimates, and simulations. Today we have real-life experience ? It would be a shame if the federal government deprived its workers of the opportunity to take advantage of this bright new idea by basing its decisions on outdated or irrelevant studies,? he concludes.

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Source: Joint Economic Committee, 02/25/04

The Joint Economic Committee, chaired by Sen. Robert Bennett (R-UT), explains in a new report how rising health costs ?price some Americans out of the health care market and impose increasing burdens on taxpayers, wage earners, and employers.? Key findings: 1) In the last 40 years, real health spending per person has increased nearly seven-fold; 2) Americans paid about half of health care expenses directly out of their own pockets in 1960; today they pay directly less than one-seventh; 3) Increased insurance coverage results in higher health care spending, because ?more payments are made by third-parties, and people lose direct control over spending decisions.? The report notes that consumer-driven health care approaches, like Health Savings Accounts, can be used to ?strengthen the patient/physician relationship, improve accountability, and ensure consumers receive the greatest value for their health care dollar.?

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Source: Hearing before the Joint Economic Committee, 2/25/04

In testimony before the Joint Economic Committee, Howard Leach, head of human resources for Logan Aluminum in Kentucky, related his company?s positive experience with consumer directed health care for the company?s 1,000 workers. The company CUT its health costs by 18.7% in 2003 over 2002, ?an improvement of $925,000 in the company?s bottom line,? Leach said. Logan tailored an Aetna HealthFund package to include incentive deposits into employees? health accounts, averaging $418.75 for each employee. Employees earn deposits to their accounts by getting annual health risk appraisals, and more than 90% are now participating in health management programs. The net effect of employee out-of-pocket costs was an increase of only $200 per employee for the year, comparable to the national average.

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Source: Food and Drug Administration, 02/18/04

The Counterfeit Drug Task Force, formed by the Food and Drug Administration in 2003, has issued its final report highlighting specific steps the agency is taking to protect the pharmaceutical supply chain ?against increasingly sophisticated criminal efforts to introduce counterfeit drugs.? The report identifies six critical elements necessary to secure the U.S. drug distribution system: 1) Implementation of new technologies to better protect our drug supply, including authentication and modern track and trace technology; 2) Securing the movement of the product as it travels through the U.S. distribution chain; 3) Enhancing regulatory oversight and enforcement to prevent illegal wholesalers from becoming licensed; 4)Increasing penalties for counterfeiters; 5) Heightened vigilance and awareness of counterfeit drugs; and 6) Increasing international collaboration.

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Authors: Sally Satel, M.D., Jonathan Klick

Source: American Enterprise Institute, 02/23/04

AEI?s Sally Satel and Jonathan Klick discuss the political debate over the Department of Health and Human Services? decision to use the word ?difference? instead of ?disparity? in the executive summary of their National Healthcare Disparities Report. The report states that individuals lower on the socioeconomic scale are in poorer health and receive different treatment than those with higher education and more resources. Opponents of the word change argue that HHS is downplaying the disparity issue and ?placing politics before social justice.? But Satel and Klick, who have seen both versions of the report, argue that it ?rightly attacks the disparity issue as a socioeconomic problem tied to access to quality care and to the health literacy of potential patients ? If anything, to say that the differences ? which are real and surely need attention ? are born substantially of racial discrimination in the health care system is the true manipulation of the science.?

Full text:,newsID.19981/news_detail.asp


Medicare: Did the Devil Make Us Do It?

American Enterprise Institute Health Policy Discussion

Friday, February 27, 2004, 9:15-11:00 a.m.

Washington, D.C.

For additional details and registration information, go to:,eventID.756,filter./event_detail.asp

A Vision For Health System Change And… How To Bring It About!

Heritage Foundation Event

Tuesday, March 2, 2004, 11:00 a.m.

Washington, DC

For additional details and registration information, go to:

Inside Scoop on HSAs

Council for Affordable Health Insurance Telebriefing

March 4, 2004, 10:00 a.m. until 11:30 a.m. EST.

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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Elizabeth Lamirand

Editor, Health Policy Matters