The Vision

With Congress away this week, we can take a momentary break from the heat of the health care debate to focus on the bigger vision of health system change.

Ways and Means Chairman Bill Thomas spent an hour last week painting his vision of what?s wrong with our health care system and what fundamental changes are needed to set it aright.

In a speech in Washington sponsored by the National Center for Policy Analysis, Thomas described in vivid detail the crazy system we have in the United States for subsidizing health insurance. Click here for a video of Thomas’ speech.

The greatest subsidies go to those with the highest incomes to buy Cadillac health plans, skewing the system toward over-utilization of health care by those who are often healthiest. And they can get these generous subsidies as long as they are willing to let their employers decide where and from whom they can get their medical care.

These subsidies are financed in part by the taxes of those who are at the bottom of the economic ladder and who often are uninsured — workers who make too much to qualify for public programs like Medicaid and who don?t have the good, high-paying jobs that provide health insurance.

The result is a system in which people who are the healthiest and cheapest to insure get the biggest subsidies while those who need coverage the most and have the fewest resources get the least help and have the hardest time getting coverage.

Who in their right mind would design such a system? he asked.

Thomas? diagnosis tracked perfectly with the Health Policy Consensus Group?s statement on a ?Vision for Consumer-Driven Health Care Reform,? first developed in 1993, where we conclude:

?The United States does not have a properly functioning market for health care, and the financing system needs to be reformed. The market is distorted by a tax policy that is mistargeted, miscalibrated, and open-ended. This tax policy provides generous benefits to those who have higher incomes and receive health insurance through the workplace. Yet it offers little or no assistance to those at the lower end of the income scale. Particularly at a disadvantage in the current system are those who fall through the cracks between this tax subsidy and Medicaid.?

It is extraordinary and unprecedented to have a chairman of the House committee, with so much power over health issues, understand so clearly these policies and their resulting distortions.

Thomas? solution: Catastrophic coverage for everyone, with employer tax subsidies redistributed to provide subsidies for lower-income Americans. He sees this lower-cost catastrophic insurance as being virtually universally available through tax-preferred dollars, with other types of coverage accessible with after-tax dollars (and with additional help for low-income).

He wants a market as free of government distortions as possible so that people, not politicians, are making decisions about the health coverage that best suits them.

He sees Health Savings Accounts, which give consumers control over decisions and resources and an opportunity to create their own savings, as moving in the right direction. This doesn?t mean blowing up the employment based system through which more than 160 million Americans receive health insurance. But it does mean creating a new channel for the millions left out of that system to get coverage.

Thomas? vision is a journey of a thousand miles. But we need to know where we are going before we can get there, and we are taking the first steps.

Grace-Marie Turner


? How to curb spending on drugs

? Testimony of Jack Calfee before the Georgia House Committee on Industrial Relations

? Long-term care: Consumer-directed services under Medicaid

? Statistical abstract of the United States: 2003

? Are high carbohydrate diets making people fat?


Author: Gail R. Wilensky

Source: The Washington Post, 2/15/04

?Let’s be clear,? writes Gail Wilensky of Project HOPE. ?Government doesn’t negotiate prices — it sets them.? Wilensky makes a case against government negotiating prescription drug prices for Medicare and instead recommends combining ?the effects of group purchasing with efforts by the government to make good information available about both the clinical effectiveness and cost-effectiveness of new drugs that come on the market.? [But beware of the danger of politics affecting government decisions about which drugs are or are not cost effective…]

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A Washington Post editorial this week also warned against government price controls on prescription drugs. ?Governments are notoriously bad at setting prices, and the U.S. government is notoriously bad at setting prices in the medical realm,? writes The Post. ?The Congressional Budget Office has also stated that government interference would have a ?negligible effect on federal spending? because the private plans will do just as good a job.?

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Source: American Enterprise Institute, 02/11//04

A proposed bill before the Georgia legislature (H.B. 1061) would establish comprehensive price controls over patented pharmaceuticals and ?would do far more harm than good,? said AEI?s Jack Calfee in testimony before the House Committee on Industrial Relations. Calfee gave a brief introduction on pharmaceutical pricing and innovation in the United States and offered three reasons why price controls are harmful: 1) pharmaceutical price controls will be arbitrary, unpredictable, and highly politicized; 2) price controls would reduce the rewards for using pharmaceuticals to reduce costs in other parts of health care; 3) price controls would reduce the payoff from innovation, thereby slowing down the development of needed therapies. ?Virtually all economists agree that price controls should be avoided in almost all markets,? said Calfee. ?Pharmaceutical price controls in Canada, Europe, and elsewhere have delayed the adoption of innovative drugs and are a major reason why Europe has fallen far behind the United States in pharmaceutical R&D after decades of world leadership.?

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Author: Karen Tritz

Source: Congressional Research Service, 02/06/04

The Congressional Research Service, in a report authored by analyst Karen Tritz, provides an overview of experimental programs for disabled Medicaid beneficiaries that allow them to manage and direct their own community-based and home services. Tritz uses the well-known Cash and Counseling Demonstration as a model to illustrate recent research and development initiatives undertaken by the states. Introduced in Arkansas, Florida, and New Jersey, the demonstration lets certain elderly and disabled beneficiaries choose and purchase certain services from the caregivers of their choice. Preliminary findings from Arkansas? program find increased consumer satisfaction and a reduction in unmet needs for personal care. This report explores issues for other states considering implementing similar programs.

Full text: /assets/CRS_LTCare.pdf

STATISTICAL ABSTRACT OF THE UNITED STATES: 2003 (Section 3: Health and Nutrition)

Source: U.S. Census Bureau, 2/12/04

The U.S. Census Bureau this week released a wealth of data profiling virtually every aspect of health services and health spending. The Health and Nutrition section of the 2003 Statistical Abstract (pages 127-216) presents statistics on health expenditures and insurance coverage, including Medicare and Medicaid, medical personnel, hospitals, nursing homes, and other care facilities, injuries, diseases, disability status, nutritional intake of the population, and food consumption, all available on-line.

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Author: Grace-Marie Turner

Source: Galen Institute, 2/16/04

The debate over low-carb vs. low-fat diets is intensifying: First, the recently-released death report for diet guru Dr. Robert Atkins shows he died an obese 258 pounds (which his family attributes at least partly to fluids he received in the hospital after a fall on the ice). Second, a new government study shows Americans now are consuming dramatically more calories AND carbohydrates. Turner suggests there may be a correlation since carbohydrates set off a chain reaction that can result in excess calorie consumption and weight gain.

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The Rx Price Control Battle: A Prescription for Disaster?

Cosponsored by the Institute for Policy Innovation & Pacific Research Institute

Tuesday, February 24, 2004, 12:00 – 2:00 pm. (lunch provided)

National Press Club, Zender Room

Washington, DC

For additional details and registration information, go to:

The Performance and Potential of Consumer Driven Health Care

Joint Economic Committee Hearing

Wednesday, February 25, at 10:00 a.m.

Dirksen Senate Office Building, Room 628

Washington, DC

For additional details, go to:

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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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