Growing Pains

It’s been three years since the hot summer when the House and the Senate debated and then passed bills to create the new Medicare prescription drug benefit. And yet the battles still rage.

  • A new study in Health Affairs says that “Seniors give Part D mixed reviews, and majorities are less satisfied with Medicare and with the government as a result of their experience with this program.” (Two of the three authors, BTW, are economists with the University of Munich and the other is from Berkeley?)

  • However, Kaiser reported that “More than eight in 10 seniors who enrolled in Medicare are satisfied with their plan,” that initial experiences have been positive, and three of four would pick the same plan again.

    But it said that 20% had a “major problem,” including having to pay unexpected costs, leaving the pharmacy without being able to fill a prescription, not receiving their enrollment card, and having to switch drugs. (Sounds more like start-up problems to me?)

  • And Robert Pear of The New York Times wrote on Sunday a piece entitled, “Medicare beneficiaries confused and angry over gap in drug coverage.”

    The doughnut hole is indeed a problem, and no insurance company would have designed a policy like the one Congress created. But companies have been very creative in using actuarial equivalence to offer plans with some coverage in the gap, and 72% of seniors with drug coverage don’t have a gap in their plan.

    Robert Pear also cites CMS Administrator Mark McClellan as saying that seniors often can reduce their costs by switching to generic drugs and by taking advantage of assistance programs offered by many states and by drug manufacturers. When they hit the gap, beneficiaries also have access to drug discounts negotiated by their plans, and can clearly see the prices they’ll pay at

    Further, “Poor people eligible for Medicare and Medicaid have no gap in the benefit. In addition, many retirees found that employer-sponsored health plans provided better drug benefits than Medicare, so they stayed in those plans, which rarely have a gap in coverage.” Pear also says that about 3 to 3.5 million people may fall into the doughnut hole this year, “about half the number predicted.”

These are growing pains for a new program impacting 42 million people, not fatal flaws. It’s going to take time for seniors, companies, and the government to figure out a new system that involves choice, competition, and at least a modicum of individual responsibility.


Health IT: The House last week passed the Better Health Information System Act of 2006 (H.R. 4157) designed “to improve the efficiency and safety of the nation’s health care system.” One key provision would have required hospitals to make public the prices that Medicare, insurance companies, and individuals pay for various medical procedures.

Supporters of price transparency, including Ways and Means Chairman Bill Thomas, said this would make it easier for owners of Health Savings Accounts to comparison shop, but the provision angered the hospital industry, which succeeded in killing it.

Clearly, more consumer pressure is needed to bring large institutions into the 21st century era of price transparency.

One of our favorite columnists, Holman Jenkins of The Wall Street Journal, has a terrific column this week about hospitals needing to get with the evolving 21st century health care system. See below for a summary and link.


And Sen. Kerry has once again issued his call for universal health insurance. He’s right when he says “We’re stuck with a 20th-century healthcare system that just doesn’t work for the 21st-century economy.” Unfortunately, his proposal would lock in our present system rather than let it evolve into one that is more responsive and adaptable to a mobile workforce in a global economy.

For example, he wants taxpayers to take over “a percentage of the highest cost cases” for employers. That means locking in the employment-based system — with many strings attached for employers and new costs for taxpayers.

Unfortunately, Mr. Kerry’s plan offers the same old ideas in a new package: More government intrusion into health care decision making and digging deeper into taxpayers’ pockets to foot the bill.

A true 21st century health care system would give consumers the power to purchase the health insurance that is right for them and their families by making health insurance portable, opening up competition so it can be more affordable, and offering new subsidies for lower-income people to purchase private health insurance rather than expanding public programs like Medicaid that already are bankrupting the states.


Movers and Shakers: We are very pleased to report that our colleague Tom Miller will be joining the American Enterprise Institute in August as a resident fellow. Tom is the latest addition to AEI’s already impressive company of health policy experts including Bob Helms, Joe Antos, Jack Calfee, Sally Satel, and Newt Gingrich.

Tom has demonstrated his commitment to free market ideas over many years, first at the Competitive Enterprise Institute, then directing Cato’s health policy studies, and most recently as the senior health economist at the Joint Economic Committee of Congress.

His initial focus will be on the private market for health insurance, but expect to see important work on many aspects of health reform — further enhancing AEI’s consistent and growing influence in the health policy debate.

Grace-Marie Turner


  • Shopping for health
  • A specter stalks the hospital biz
  • Pay-for-performance: Is Medicare a good candidate?
  • The American Dream Initiative
  • Sending patients packing
  • Employer comparable contributions to health savings accounts

Author: Grace-Marie Turner
Source: The New York Sun, 08/01/06

“Isn’t it astounding that last year Americans laid out nearly $2 trillion for health care with only the vaguest inkling of the price?” Grace-Marie Turner of the Galen Institute writes. She applauds efforts by the Centers for Medicare and Medicaid Services to boost price transparency by posting online the range of Medicare payments last year for 30 elective inpatient hospital procedures at every hospital in every county in the country. CMS also lists the number of specific procedures done at each hospital, and the agency plans to post payment information for ambulatory surgery centers later this summer and for common hospital outpatient and physician services this fall. “If our nation is ever going to get its health care costs under control, it needs to know what those costs actually are,” concludes Turner.
Full text:

Author: Holman W. Jenkins, Jr.
Source: The Wall Street Journal, 08/02/06

Hospitals are struggling to adapt “to a world in which patients?start to look with a shopper’s eye on the price and value of hospital services,” writes Holman Jenkins in The Wall Street Journal. “Movie theaters, grocery stores and car dealers all make sure you pay for their goods and services whether they charge you before or after the fact,” writes Jenkins. Hospitals are compensated with taxpayer funds for much of their charity care to uninsured patients, but even patients with insurance pay only about 40% of hospital co-payments and deductibles. He says, “hospitals are just discovering such ploys as getting the customer’s credit-card data before he lies down on the gurney.” Jenkins cautions that, as self-pay transforms the $660 billion hospital industry, it “also will have its unpleasant and controversial moments as consumers are obliged to shed the illusion that paying for hospital care is somebody else’s (or nobody’s) responsibility.”
Full text (subscription required):

Author: Michael F. Cannon
Source: Yale Journal of Health Policy Law & Ethics, Forthcoming 2007

Pay-for-performance (P4P) “is an unproven tool with significant potential pitfalls,” writes Michael Cannon of the Cato Institute, and warns that “policymakers should take a cautious approach.” Cannon writes that “Congress can realize the potential of provider-focused P4P incentives, while reducing the likelihood of harm, by confining provider-focused P4P to private Medicare Advantage plans and by encouraging greater participation in those plans.” Financial incentives should also be targeted at patients. “Patient-focused financial incentives would offer greater transparency and allow patients and their doctors to deviate from treatment guidelines when doing so is in the patient’s interest,” he concludes.
Full text:

Source: Democratic Leadership Council/Progressive Policy Institute, 07/24/06

Affordable health care is a key pillar of The American Dream Initiative, an “opportunity agenda for the middle class,” released by a coalition of progressive think tanks under the leadership of Sen. Hillary Clinton. “We must do more to stop the premium spiral, from improving the way we care for people with chronic illness, to modernizing the way health care does business, to helping small businesses obtain more affordable coverage for their employees,” according to the plan. The American Dream Initiative also calls for universal children’s health care, better use of health information technology, strengthening Medicare for the long term, and making a national commitment to finding cures for diseases like cancer, AIDS, and Alzheimer’s.
Full text:

The Democratic Leadership Council has also published its 2006 State and Local Playbook, which offers solutions to state and local-level policy problems. The Playbook offers new information on online access to living wills, healthy employees, and restraining prescription drug costs and provides updated information on a number of health care topics including the uninsured, health courts, chronic illness, and health information networks.
Full text:

Authors: Julie Appleby and Julie Schmit
Source: USA Today, 07/27/06

Companies that help arrange medical travel abroad for individuals are introducing programs aimed at employers who want to save money by offering this option to their employees, according to USA Today. “The appeal is obvious: Heart surgeries and hip replacements in such countries as India, Thailand and Mexico can be had for less than one-third the cost in the USA,” even including travel and hotel expenses, reports USA Today. Experts say that significant financial incentives for employees may be necessary and that employers may not embrace the concept due to safety and liability concerns. But, promoters of medical tourism “contend that the option to go abroad may help cure one of the most difficult problems in America: how to provide quality medical care at an affordable price,” write Appleby and Schmit.
Full text:

Source: Internal Revenue Service, 07/28/06

The IRS has issued final regulations on HSA comparability rules. Current rules say that an employer contributing to one employee’s HSA must contribute comparable amounts to the HSAs of all comparable employees. These final regulations provide additional flexibility in several areas including: 1) allowing different comparable contributions based on variations of family coverage (self plus one, self plus two, and self plus three or more); 2) exempting collectively bargained employees from the comparability rules; and 3) clarifying the exception to the comparability rules for employer contributions made through a Section 125 cafeteria plan.
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Preparing for the National Provider Identifier: What it Means for the Industry
America’s Health Insurance Plans Audio Conference
Thursday, August 17, 2006, 1:00 p.m. – 2:30 p.m.

For additional details and registration information, go to:

Crisis of Abundance: Rethinking How We Pay for Health Care
Cato Institute Book Forum
Tuesday, August 29, 2006, 12:00 p.m. (luncheon to follow)

For additional details and registration information, go to:

Medicare and Medicaid Conferences & Long-term Care Workshop
America’s Health Insurance Plans Event
September 10-14, 2006

For additional details and registration information, go to:

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

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