The Linchpin

Cost is always the linchpin in any conversation over health policy. Several studies out this week show that cost increases are slowing, and that’s a big reason why the political debate over health reform has cooled – for now. Three examples:

  • Aetna released a study this week showing dramatic savings with consumer-directed plans. For example, companies that moved to Health Reimbursement Arrangements (the older sister of HSAs) for all of their employees in 2002 have seen premiums increase by a total of only 3% since then!

    Even those who offered HRAs as an option to their employees saw premium increases of only 6.7% over the last three years.

    The study also showed greater use of preventive services for those with HSAs, and that people with chronic conditions in HSAs and HRAs maintained or improved their level of care compared to similar people with traditional coverage.

  • And Medicare beneficiaries will find their drug benefit premiums holding steady next year.

    The average Medicare drug benefit premium will be $24 next year, the same as this year, and the average number of drugs covered by insurers will increase by 13%. Seniors also will have more plans to choose from, including more that offer coverage in the doughnut hole. On Sunday, Medicare drug plans began marketing their new offerings for 2007, and seniors can switch plans or sign up starting November 15.

    This might be a good time to remind our friends who wanted a government-run benefit that this coverage is being offered by private, competing plans. Average premium increases for the drug benefit from last year: 0%.

    Competition works, and all of Medicare would be better served by more of it.

  • Premiums for job-based health insurance increased by 7.7% last year, down from the double-digit inflation of a few years ago. Among the reasons, according to a new Health Affairs study:
    • Prescription drug expenditures slowed for the sixth year in a row, rising at only half the rate of the year before, but virtually all of the slow down is due to less use of drugs. The authors of the Health Affairs study speculate that news stories about drug safety, particularly Vioxx and Bextra, caused people to stop using them and similar drugs.

    • BTW: The biggest increase in health costs last year was in inpatient hospital costs.

Finally, I made a field trip to our local MinuteClinic in Bethesda, MD, this week. The nurse in charge was exactly the kind of person you would like to take your child to see about his sore throat or earache. She has been a critical care nurse, has worked in West Africa for the State Department taking care of ?every imaginable health issue,? and now she is back in Maryland with a job that lets her be near her grandchildren.

And to top it off, most of the services there were $40 to $50. The nurse didn’t want me to use her name, but if I get sick, that’s where I’m going.

The U.S. health care system is moving into the 21st century. And savvy consumers are leading the way.

Grace-Marie Turner


  • Markets and Medicare
  • The cure: How capitalism can save American health care
  • The business of health: The role of competition, markets, and regulation
  • Overdose: How excessive government regulation stifles pharmaceutical innovation
  • Research and development in the pharmaceutical industry
  • Are bad drugs coming to a pharmacy near you?

Source: The Wall Street Journal, 10/04/06

?The Medicare prescription drug benefit is so far costing less than anticipated, while seniors are getting more insurance options at lower prices,? according to a Wall Street Journal editorial. The editorial stresses that market competition is important to the future of Medicare but says, ?For the moment, the bulk of such Medicare services as doctor and hospital visits are covered by a price-fixing bureaucracy no more efficient than any other system of socialized medicine.? It says the drug benefit plants the seed for a truly competitive Medicare program. ?Ideally, a future Medicare program would offer premium support so retirees can take the private insurance they have during their working years into retirement and through old age.?
Full text:

Author: Dr. David Gratzer
Source: Manhattan Institute, October 2006

David Gratzer offers the perspective of a physician licensed both in the U.S. and Canada to analyze problems in the U.S. health sector. He argues that ?the crisis in American health care stems largely from its addiction to outmoded and discredited economic ideas,? and he prescribes a strong dose of capitalism to reduce health care expenses, expand health insurance to millions, and improve the quality of care. The cure involves less, not more, government intervention, he argues. Nobel Laureate Milton Friedman writes the forward saying, David ?combines firsthand knowledge of medical practice?with a rare capacity for lucid exposition of complex technical material.?
More information:
To register for the Manhattan Institute’s book event on Oct. 12:

Authors: Robert L. Ohsfeldt and John E. Schneider
Source: American Enterprise Institute, October 2006

Professors Robert Ohsfeldt and John Schneider, both health policy researchers, challenge well-publicized international studies that claim the U.S. healthcare system is the one of the worst in the developed world – on par with Cuba in the latest World Health Organization survey. In their new book, The Business of Health: The Role of Competition, Markets, and Regulation, they argue that the “U.S. health system performance is at least as good as those of other developed countries, including those with national single-payer systems.” They argue that the U.S. could do even better with a big dose of competition “that takes full advantage of market forces” and that purging the profit motive with a government-run system is not the answer.
More information:
To register for AEI’s book event on Oct. 17:

On the same topic, George Mason Professor Tyler Cowen says in a New York Times commentary that U.S. researchers have developed many of the most important medical innovations of the last 25 years, and the U.S. ?is driving innovation for the entire world.? The U.S. “could use its size, or use the law, to bargain down health care prices, as many European governments have done?In the short run, this would save money but in the longer run it would cost lives.”
For more:

Author: Richard A. Epstein
Source: Institute for Policy Innovation, September 2006

A new book by Richard Epstein, professor of law and senior fellow at the Hoover Institution, is the ?first to offer a comprehensive examination of the pharmaceutical industry by following the tortuous course of a new drug as it progresses from early development to final delivery.? Epstein looks at the many challenges the industry faces, including intellectual property rights, FDA regulation, and pricing disputes. He concludes that the continued success of the pharmaceutical industry relies on ?strong property rights and clearly enforceable contracts, with minimal regulatory and judicial interference.?
More information:

Source: Congressional Budget Office, October 2006

CBO also has done a comprehensive analysis of drug development in the U.S., looking at the current state of pharmaceutical R&D and assessing the relative value of government vs. private research. ?Total spending on health-related research and development by the drug industry and the federal government has tripled since 1990 in real terms,? the study says. ?However, the number of innovative new drugs approved by the Food and Drug Administration each year has not shown a comparable upward trend.? CBO speculates on several reasons, including, ?Companies may not yet have fully mastered the complex new research technologies in which they work; the pool of relatively inexpensive research discoveries may be temporarily depleted?[and] the frequency with which leading drug companies have merged with one another over the past decade?has sparked concerns about the industry’s R&D productivity.?
Full text (pdf):

Author: Dr. Henry I. Miller
Source:, 10/04/06

?The miracles of modern medicines do us no good if we’re getting the wrong drugs, the wrong dosages, or inactive sugar pills,? writes Henry I. Miller, a physician and fellow at the Hoover Institution. Dr. Miller cites a recent report on counterfeit drugs published by the American Council on Science and Health as evidence of the growing problem. He says about ?ten percent of the world’s drug supply is counterfeit, encompassing not only products that are completely fake, but also those that have been tampered with, contaminated, diluted, repackaged, or mislabeled.? He recommends several ways that Congress, companies, and consumers can combat fraud, including increased penalties for counterfeiters, applying new track-and-trace technologies, developing new authentication technologies, and only purchasing drugs online from pharmacies on the National Board of Pharmacy’s approved list.
Full text:


State Health Care Policy Reform Summit
State Policy Network Annual Meeting
Saturday, October 7, 2006, 8:00 a.m. – 3:00 p.m.
Milwaukee, WI

Grace-Marie Turner will serve as moderator during SPN’s Health Care Policy Reform Summit. For additional details and registration information, go to:

Ceasefire on Health Care
Center for Congressional and Presidential Studies Lunch Forum
Wednesday, October 11, 2006, 12:00 p.m. – 1:30 p.m.
Washington, DC

For additional details and registration information, email the Center for Congressional and Presidential Studies at

Measuring up: A Comprehensive Scorecard for America’s Health System
Alliance for Health Reform Briefing
Wednesday, October 11, 2006, 12:15 p.m. – 2:00 p.m. (Lunch available at noon)
Washington, DC

For additional details and registration information, go to:

Industry Panel Discussion about Medicare Part D
Women Business Leaders of the U.S. Health Care Industry Foundation Event
Thursday, October 12, 2006, 8:00 a.m. – 11:00 a.m.
Washington, DC
For additional details and registration information, go to:

The Cure: How Capitalism Can Save American Health Care
Manhattan Institute Luncheon Forum
Thursday, October 12, 2006, 12:00 p.m. – 2:00 p.m.
New York, NY

For additional details and registration information, contact the Manhattan Institute at 646-839-3374 or

The Business of Health: How Does the U.S. Health-Care System Compare to Systems in Other Countries?
American Enterprise Institute Health Policy Discussion
Tuesday, October 17, 2006, 9:15 a.m. – 11:30 a.m.
Washington, DC

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

If you wish to subscribe to this free weekly newsletter, update your address, or be removed from our list, please send an e-mail message to

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.