The Year Ahead

We close the year with encouraging news about passage of the important enhancements to Health Savings Accounts that we described to you last week. It was a small miracle that they were approved as the curtain fell on the last act of the Republican-controlled Congress.

Many of the changes were sought by employers who want to offer HSAs but needed these fixes to make them work better and to make them more attractive to their workers.

But now we turn to a new debate as the Democrat-controlled Congress prepares to convene January 4. Sen. Ron Wyden of Oregon raised the curtain on this new production with a comprehensive plan to achieve universal health coverage. It involves some creative ideas, especially moving to a system with portable, individually-based insurance, state-based purchasing pools, and changing tax law to create fairer subsidies for health insurance than in the current employment-based system.

But his plan may sink under the weight of mandates: It has an individual mandate, an employer mandate, many mandates for insurers, and even mandates for the states. At least he is spreading the pain. We’ll have much more to say later, but expect this plan to start a vibrant debate, which Sen. Wyden acknowledges is a first shot for the 2008 presidential debate.

There are pivot points in the debate over health reform, and one of them is whether legislators focus on universal access to health insurance or changes designed to make private insurance more affordable and accessible in a properly-functioning market. Like the Massachusetts plan, Sen. Wyden focuses on universal health insurance and would try to use the power of the government rather than the market to hold down prices.

Incoming congressional committee chairmen already have announced their intent to focus on creating new government health programs and expanding access to existing ones, especially Medicare and Medicaid. Inevitably, when government expands access to taxpayer-financed programs, they quickly turn to price controls. Incoming Speaker Nancy Pelosi says prescription drugs will be next.

The Chamber of Commerce in Rochester, MN, invited me to speak at a health seminar last week (wind chill, 11 degrees below zero), and we talked about the pressures that doctors and hospitals face with a growing number of their patients on Medicare and Medicaid.

These programs pay at best 80% of costs, one hospital administrator said, which means that he is forced to charge private plans more to make ends meet. While we could argue that these institutions have many opportunities to become more efficient, that won’t happen overnight. New incentives are needed to replace current bureaucratic, procedure-driven, regulation-intensive payment systems.

The danger is that we hit a tipping point where employers, hospitals, doctors and patients give up as government plays a bigger and bigger role in the health sector, suffocating the ability of the private sector to survive.

Too many doctors today tell me that they can’t see how that could be worse than what they’re dealing with today. And too many young doctors – but by no means all – seem to prefer predictable hours and a steady paycheck to the independence and entrepreneurialism of their predecessors.

Already, government controls more than 45% of all health spending in the U.S., more if you count the $200 billion in annual tax subsidies for employment-based health insurance.

Once the government’s share tips much past the 50% point, it could topple us into a government-controlled health system.

The free-market ideas that you and I have been working to advance certainly are threatened.

Sen. Ted Kennedy wants to start right away by expanding existing programs to require that all children have health insurance and will surely be working to make sure that the government is the major player. Senior Democrat staffers say they would like to begin by making the State Children’s Health Insurance Program look more like Medicare (which means defined benefits and price controls rather than a more flexible, state-controlled block-grant program).

And on the House side, Rep. Pete Stark will chair the House Health Subcommittee that controls the purse string for government spending on health care, including Health Savings Accounts. He also said he wants to undo the private sector options and choices that have become so popular with seniors on Medicare.

We will continue to muster every communications tool we can to educate the American people about the risks ahead, working with colleagues to speak with one voice about our vision of a patient-centered health care system.

We are not daunted, but it is something of an understatement to say that the year ahead will be challenging. Health Policy Matters will return in the new year to keep you posted on all of the important developments.

We do live in a wonderful country, and this is a wonderful time of year to cherish our freedom with our families. We at the Galen Institute send you our very best wishes for a joyous Christmas season and a happy and prosperous new year!

Grace-Marie Turner

P.S. The toughest times may be ahead, but I am confident that we will prevail. Our side has the advantage of believing in the free market and the wisdom of the American people. If you can, please consider the Galen Institute in your year-end giving. We welcome your contribution at or by mail to P.O. Box 19080, Alexandria, VA 22320. Best wishes and thank you.


  • European-style health care? Time for a reality check.
  • Health Coverage Tax Credit
  • Inequality and health care
  • Hospitals and physicians: Relations
  • The price is wrong: Most Americans significantly underestimate health care costs, survey shows
  • Designing a premium support system for Medicare

Authors: Grace-Marie Turner and Robert E. Moffit
Source: Galen Institute, 12/13/06

“Is there any good reason why we should follow the Europeans and have government officials run our health care system?” ask Grace-Marie Turner of the Galen Institute and Bob Moffit of The Heritage Foundation. Many states, including Maine and Vermont, are imposing much more centralized control over their health care. But “European tax and spending policies, particularly to sustain European health and welfare programs,” show the high costs of such an approach, write Turner and Moffit. “Americans should pursue an American solution.” For starters: “Creative state legislators ? could reverse current trends towards centralization and inject a healthy dose of market competition and consumer choice into state arrangements that are too often governed by outdated and counterproductive laws and regulations.”
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Source: Urban Institute, 12/11/06

The Urban Institute has published two papers about the Health Coverage Tax Credit (HCTC) program. The first, written by Stan Dorn and Fouad Pervez, analyzes state-qualified health plans provided to HCTC beneficiaries as of March 2006 and finds that the “vast majority of potential beneficiaries have access to state-qualified plans, which typically include multiple health insurance choices.”
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In the second paper, Stan Dorn examines Health Coverage Tax Credit enrollment rates. National take-up remains low, but some unions and state officials, including early retirees from Bethlehem Steel and the states of West Virginia and Virginia, have enrolled a relatively high number of eligible workers. Dorn writes that future enrollment can be increased through a modified HCTC program or tax credits that serve larger numbers of uninsured.
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Source: The Washington Post, 12/13/06

The Washington Post describes in a long and thoughtful editorial the growing problems with employment-based health insurance in the U.S. which it says distort the health insurance market and lead to rising inequality in health care. “Workers’ total compensation may be rising, but health benefits gobble up an increasing share of that, so wages lag?Struggles with medical bills and fears of losing coverage are at the root of middle-class anxiety, and that anxiety creates pressure for misguided populist policies that would spread the dysfunction of the health system to the broader economy,” writes the Post. While not offering solutions in this piece, the Post explains why this issue will be central in the next presidential debate.
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Source: Health Affairs Web Exclusive, 12/05/06

A Health Affairs Web Exclusive package provides several perspectives on the growing rift between hospitals and physicians. Among those responding are Denis Cortese and Robert Smoldt, President, CEO and CAO of the Mayo Clinic, who recommend an integrated delivery system, such as physician-led multi-specialty group practices or physician-hospital organizations. Gail Wilensky, former administrator of what is now the Centers for Medicare and Medicaid Services, and her coauthors promote the use of “gain sharing” arrangements, where savings generated by more efficient care delivery are shared by both physicians and hospitals, as a way to transition to an integrated delivery system.
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Source: HealthMarkets, 12/14/06

“More than 70 percent of U.S. consumers say they know little or nothing about how much their doctors charge compared to other doctors,” according to a new survey sponsored by HealthMarkets, a health and life insurance provider. “Most adults (65 percent) think that, in general, a high-priced doctor in the U.S. charges two or three times as much for the same procedure as a low-priced doctor,” according to the survey. But the survey’s data shows that charges may be 10 times higher. The survey also “found strong demand for tools that provide greater transparency for health care services.” Lack of price transparency is one reason health care costs increase faster than inflation year after year, according to Roy Ramthun, former senior health policy advisor at the White House and now president of HSA Consulting.
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Source: Congressional Budget Office, 12/06

The Congressional Budget Office examines key issues in designing a “premium support” system for Medicare, which would give beneficiaries a federal allotment that they could use to purchase health coverage, either through a private plan or traditional Medicare. The study reviews other health care systems that use premium support models, such as the Federal Employees Health Benefits Program. CBO uses a simulation analysis to determine the potential effects of selected approaches to premium support and finds that “setting benchmarks equal to the minimum bid in each county would generate the greatest federal savings and lead to the highest increase in premiums in certain geographic areas for beneficiaries who wanted to remain in the fee-for-service program.” Additionally, “benchmarks would be lower than the statutory benchmarks for the Medicare Advantage program, which would reduce the Medicare program’s per capita payments for enrollees in private plans.” As a result, “the premium rebates and additional benefits that are currently offered by private plans would probably be reduced and, in some cases, replaced by premium surcharges.”
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Evidence, Economics, and Politics: Australia’s Experiment in Evidence-Based Medicine
Pacific Research Institute Event
Friday, December 15, 2006, 7:30 a.m. – 10:30 a.m.
San Francisco, CA

For additional details and registration information, go to:

The Practice and Potential of Medicine: How to Close the Gap
The Brookings Institution Conference
Friday, December 15, 2006, 9:30 a.m. – 5:00 p.m.
Washington, DC

For additional details and registration information, go to:

Trusted Third Parties for Personal Health Records & Patient Privacy Briefing
Progressive Policy Institute Event
Friday, December 15, 2006, Noon – 1:30 p.m.
Washington, DC

For additional details and registration information, go to:

Remembering Milton Friedman
Cato Institute Briefing
Monday, December 18, 2006, 12:00 p.m. (Lunch Included)
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

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