2006 Agenda

The White House clearly will be focusing on health care as a top-tier domestic policy issue in 2006. President Bush’s economic adviser, Allan Hubbard, previewed for reporters this week some of the initiatives the president will unveil in his State of the Union address on January 31.

Health Savings Accounts will continue to be a top priority, likely allowing larger tax-free deposits and expanding tax preferences to those who purchase health insurance on their own.

Portability will be a primary goal: HSA accounts already are portable from job to job, but the accompanying health insurance is not. Allowing individuals to deduct the cost of a health insurance policy they buy on their own helps to level the playing field with those who get a generous tax deduction when they get their health insurance at work.

Also expect proposals that will help consumers get information on health care prices and quality so they can make better informed spending decisions. Mr. Bush said in a speech in Louisville, KY, this week that the ideal health system would be one in which “there is a direct connect between provider and customer, [and] where there’s transparency in the pricing system.”

The president also can be expected to recommend giving people more options in where they purchase health insurance. With 45 million people falling through the cracks of the employment-based system, surely we need an alternative that allows people to buy insurance through other kinds of groups.

These are all important initiatives that would inject more consumer power and market forces into the private health sector. The president also is expected to continue to push his plan to offer special subsidies to the uninsured to purchase health coverage.

Mr. Hubbard said that the president does not plan to tackle directly the distortions in the tax code which are responsible for so many of the problems in the health sector, as his Tax Reform Panel had advised. That’s too bad, but our consolation is that many of the changes Mr. Hubbard outlined will move toward the same goals – creating more private ownership of health insurance through direct tax incentives and new group purchasing opportunities which will encourage people to make more efficient health purchasing decisions.

For the last decade, the primary focus of health reform has been on helping the uninsured. But we are seeing a shift as rising health costs are creating a new anxiety in the middle class. Families fear they could lose their health insurance and face huge bills they couldn’t pay or be forced to forgo the best medical treatments.

As a result, middle class anxiety about health insurance is evolving into an important political issue. These proposals, which give people more security through private ownership of health insurance and greater control over their health care expenses, help address that anxiety and also move toward more sound health policy.

The American Enterprise Institute will feature a forum on January 20 about a new book that serves as a touchstone for the president’s anticipated health policy proposals. The event features former Bush economic adviser Glenn Hubbard, who co-authored the book Healthy, Wealthy, and Wise with Dan Kessler and John Cogan. See our events section below for registration information. See you there.

Grace-Marie Turner


  • Medicare’s hidden administrative costs: A comparison of Medicare and the private sector
  • National health spending in 2004: Recent slowdown led by prescription drug spending
  • Consumer-driven health plans: Early evidence and potential impact on hospitals
  • California’s uninsured: Crisis, conundrum or chronic condition?
  • Old-style medical care — for an additional price
  • Advertising restriction represents a health hazard
  • Revolutionizing health care

Author: Merrill Matthews, Ph.D.
Source: Council for Affordable Health Insurance, 01/10/06

Merrill Matthews of the Council for Affordable Health Insurance has produced an important new study showing that Medicare’s administrative costs are higher and the private sector’s are lower than commonly believed. Medicare often is cited as an example of why government health programs are more economical to run than private health insurance. “You’ve heard the claims: Medicare administrative costs are about 2 percent of claims costs, while private insurance companies’ administrative costs are in the 20 to 25 percent range — or more,” Matthews says. But Matthews, working with Mark Litow of Milliman, Inc., found that Medicare’s administrative costs are closer to 5.2% and would be higher if other hidden costs were included. And that private sector costs are lower, at 8.9%, than critics claim.
Full text: www.cahi.org

Authors: Cynthia Smith, Cathy Cowan, Stephen Heffler, Aaron Catlin, and the National Health Accounts Team
Source: Health Affairs, January/February 2006

U.S. health care spending rose only 7.9% in 2004, marking the slowest rate of increase since 2000, according to Smith et al of the Centers for Medicare and Medicaid Services. “Hospital spending accounted for 30% of the aggregate increase between 2002 and 2004, and prescription drugs accounted for an 11% share – smaller than its share of the increase in recent years and much slower in absolute terms,” write the authors. Health care spending in 2004 reached $1.9 trillion, representing 16% of the Gross Domestic Product, or $6,280 per person. Medicare spending in 2004 reached $309 billion, while Medicaid reached $121.6 billion, continuing its recent slowdown.
Full text (requires subscription): content.healthaffairs.org

Author: Gail R. Wilensky
Source: Health Affairs, January/February 2006

“Even with the modest growth in HRAs and HSAs to date, their presence is likely to raise interest in current hospital pricing strategies and to increase pressure for pricing transparency,” writes Gail Wilensky in the latest issue of Health Affairs. She cites a number of studies offering early evidence on consumer-directed health plans and concludes, “The increased public interest in transparency, along with the need to inform consumers and physicians of the likely costs of a hospital admission, could push hospitals toward a more uniform pricing structure. Whether the country would be ‘better off’ with uniform pricing, or at least much smaller differentials in pricing, is debatable.”
Full text (requires subscription): content.healthaffairs.org

Author: John R. Graham
Source: Pacific Research Institute, 01/10/06

An examination of the uninsured in California reveals that the “problem of Californians without health insurance is not as awful as generally portrayed,” writes John R. Graham of the San Francisco-based Pacific Research Institute. “The most commonly cited figures for the long-term uninsured likely overstate their numbers by more than 100%”, and the state’s immigrant population, “a large portion of which does not have health insurance, masks an insurance coverage rate for citizens in line with the U.S. average,” writes Graham. He says policymakers can increase coverage for California’s uninsured by allowing tax deductibility of Health Savings Accounts and deregulating the state’s health insurance market.
Full text (pdf): www.pacificresearch.org

Author: Lee Peterson
Source: Daily Breeze, 01/09/06

“The day before Christmas Eve, Dr. Tom LaGrelius’ office was closed,” writes Lee Peterson for the Torrance, CA Daily Breeze. “About 12 calls from patients to the darkened medical practice were routed to LaGrelius’ mobile phone and, in answering them himself, the Torrance family physician said he realized two of them needed to be seen by a doctor…Rather than send them to a hospital emergency room and a likely wait of several hours, he arranged to meet them at his office and give them the care they needed with no waiting.” Dr. LaGrelius was able to provide this kind of access because he has converted his office into a “concierge” practice. “When you have time, you can make better decisions,” said Dr. Marcy Zwelling-Aamot, who also has a concierge practice. “You can be there when it’s timely. Your patients get what they need when they need it.”
Full text: www.dailybreeze.com

Authors: Jacob Arfwedson and Alberto Mingardi
Source: Financial Times, 01/10/06

Europeans have very limited access to information about prescription drugs because of a 1992 ban on drug advertising across the European Union. But policy experts Jacob Arfwedson and Alberto Mingardi argue that “patients increasingly want more influence over their treatment and drugs” and don’t want to rely only on their physicians and state authorities to tell them what drugs they can and can’t have. The authors see health consumers as “sovereign decision-makers,” and argue that “the EU ban on advertising is a big obstacle to the quest for more and better information on medicines.”
Full text: news.ft.com

Author: Robert Goldberg
Source: The Washington Times, 01/11/06
A recent analysis in The Wall Street Journal unfairly criticizes the new Medicare prescription drug benefit, saying that there is no political advantage to the plan and that it lacks consumer interest, writes Bob Goldberg of the Manhattan Institute. Goldberg finds it “incredible” that critics of the plan “think that millions of people who choose homes, retirement communities, colleges for their children and insurance plans will somehow be unable to be part of what is really the first large-scale example of a true consumer health product.” Goldberg writes that “what is really gnawing at the liberals is the fact that Medicare Part D is truly a tipping point or a point of no return away from government control health toward consumer-controlled medicine?The revolution in medical freedom has begun and there is nothing liberals can do to stop it.”
Full text: www.washingtontimes.com


Fixing the Health Care System
American Enterprise Institute Event
Friday, January 20, 2006, 9:00 – 10:30 a.m.
Washington, DC

This event will feature a conversation with R. Glenn Hubbard, Former Senator John Breaux, and Douglas Holtz-Eakin. For additional details and registration information, go to: www.aei.org.

Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features research and writings by participants in the Health Policy Consensus Group, articles of interest from the health policy world, and announcements of coming events. 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 the newsletter and our organization, please visit our website at http://www.galen.org/.

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