Differences among Friends

Several senators were poised to offer an amendment to the SCHIP bill during the Senate debate last week that reflected long hours of work on a free-market, patient-centered alternative. But they ran into a buzz-saw of opposition, not from the Left but from a friend of free markets, Grover Norquist of Americans for Tax Reform.

The Senate amendment, which Sen. Richard Burr (R-NC) was preparing to offer on behalf of a number of his colleagues, would have replaced the seriously-flawed tax preference for job-based health insurance with a universal refundable tax credit for individuals and families to purchase private coverage.

Not so fast, Grover warned, issuing a stern warning that he would consider the amendment to be a violation of ATR’s no-tax-increase pledge, which has been signed by 42 senators and 196 members of the House.

There was outrage all around, reflected in a nationally-syndicated column this Monday by Robert Novak. “The quarrel over the Burr amendment reflects not only a failed Republican reaction to big government but also a weakening of GOP resolve to hold down taxes,” Novak wrote.

Senators were furious that they are being depicted as tax increasers when they were trying to lead the fight against socialized medicine. They (correctly) believe that they were offering a solution to a major distortion in the tax code and wanted to fix it while expanding access to private health insurance for all Americans.

“The ‘Every American Insured Health Act‘ provides every American with a refundable, advanceable flat tax credit of $2,160 per individual and $5,400 per family that gives them the freedom to choose the health care plan that best meets their needs,” Burr said in introducing the bill as free-standing legislation a week earlier with four colleagues. “The plan is budget neutral and puts an end to unfair discrimination in the IRS tax code that only benefits health coverage offered by employers and that disproportionately subsidizes Americans with more costly health plans and with higher incomes.”

But Norquist concluded that the senators’ proposal would result in an $800 billion tax increase over 10 years by eliminating the tax preference for job-based health insurance, which he says would be a tax increase, and replacing it with refundable credits, which he says would be new spending.

The policy community also was angry after advocating for years eliminating or capping the tax exclusion and replacing it with a system of individual credits.

Sen. Jim DeMint (R-SC) had an alternative ready to go that solved Grover’s complaint that the bill was a tax increase by coupling the health insurance amendment with a fix to the Alternative Minimum Tax to make the package “tax neutral.” But Sen. Tom Coburn (R-OK), a leader in developing the senators’ alternative approach, balked, forcefully arguing that the health care alternative is not a tax increase.

So the amendment was pulled from the floor for another day’s battle.

It is essential to fix the tax treatment of health insurance if we are to address the problems in our health sector that shut tens of millions of people out of the system and give open-ended tax breaks to higher-income people to purchase expensive health insurance, exacerbating the problems of the uninsured by driving up costs. The alternative is to continue down the road to further encroachment of government control through expansion of government programs like SCHIP.

You will recall that we put together a white paper two years ago bringing experts from the health and tax policy communities together to point out the flaws with the current tax preferences for employment-based health insurance. Health and tax policy experts alike criticized the current system for allowing an unlimited call on federal resources to subsidize expensive health insurance in an inequitable system.

More than 58 policy experts signed the statement, which we delivered to President Bush’s Tax Reform Commission. Our message was adopted in the commission’s final report and became the foundation for Mr. Bush’s bold tax and health reform proposal earlier this year.

We will work to repair this rift over the tax exclusion for job-based insurance, which even President Reagan tried to fix 25 years ago. It’s vital if we are to create an equitable system for access to private health insurance.


Despite all of this, we are making steady progress in educating the debate about the need to fix the problems with the tax treatment of health insurance. One more group has studied our health sector extensively and has come to our same conclusion. The Federal Bar Association’s Section of Taxation is weighing in on refundable tax credits for health insurance in a forthcoming paper.

The paper argues that “? a supplemental system of refundable tax credits whose benefits are aimed at those with low incomes is the best system for achieving the goal of insuring as many Americans as possible.” It also says that the credits should be offered “in tandem with the current system. It is simply too risky to completely overhaul a system under which 75 percent of all Americans are insured.” Okay. We have to start somewhere.

It’s vital that we focus on getting the policy right on both health and tax policy, and we can do that only if we can get free-market advocates to stop forming a circle with their firing squad.

Grace-Marie Turner


State Issues

Dynamics in Medicaid and SCHIP Eligibility among Children in SCHIP’s Early Years: Implications for Reauthorization
Anna S. Sommers, Lisa Dubay, Linda J. Blumberg, Fredric E. Blavin, and John L. Czajka
Health Affairs Web Exclusive
, 08/07/07

“Two-thirds of children in the United States were income-eligible for Medicaid or the State Children’s Health Insurance Program (SCHIP) at some point from 1996 to 2000,” according to this study. During those four years, about one-fifth (32%) of all eligible children were eligible for both Medicaid and SCHIP. “Another 57 percent were eligible only for Medicaid, and 12 percent were eligible only for SCHIP.”


Medicare’s Obesity Policy Flawed
Grace-Marie Turner of the Galen Institute
The Oklahoman, 08/10/07

Medicare?s decision to limit access to the full range of obesity treatments is bad public health policy, writes Turner. Obesity is associated with a number of health problems, including heart disease and diabetes. Obesity’s prevalence in Medicare “has doubled in the last 20 years, and the share of spending by Medicare on obese patients has almost tripled, from 9.4 percent to nearly 25 percent.? This proposal ?is inconsistent with Medicare?s new focus on care management and disease prevention,? writes Turner. ?As the obesity problem grows, Medicare needs to make sure that physicians and patients have all available treatment options.?

Medicare’s Financial Challenges: Actuaries Speak Out on Medicare’s Future
Medicare Outreach Working Group
Council for Affordable Health Insurance, 07/27/07

An analysis of Medicare from eight independent actuaries “leads to the clear conclusion that the system in its current form is unsustainable. Without substantial and fundamental changes, Medicare’s financial requirements will increasingly strain the U.S. economy to the point of consuming a substantial, if not staggering, percent of the federal budget.”

    Medicare Part D: The First Year
    IMS Health, 08/07

    This study by an independent consulting firm examines the impact of Medicare’s prescription drug program on issues such as out-of-pocket spending, generic drug usage, access to therapy, and rates of compliance. Key findings:

    • Previously uninsured seniors benefited the most from the program, decreasing their out-of-pocket costs by 60% and increasing their use of pharmaceuticals by 26%.
    • Beneficiaries who switched from other third-party coverage to Medicare’s prescription drug program decreased their out-of-pocket costs by 17% and increased their prescription use by 10%.
    • After reaching the initial coverage limit, only 6% of beneficiaries entered the “donut hole,” nearly half (45%) of whom did not enter until the last quarter of 2006.

    Prescription Drugs

    Drug Pricing and Its Discontents: At Home and Abroad
    Roger Bate and Kathryn Boateng
    American Enterprise Institute, 08/09/07

    An assessment of the market for chronic disease medications finds that an ideal differential pricing structure “yields prices affordable to both low- and middle-income countries and maintains incentives for research and development.” Ending differential pricing “could increase access for some patients in the short run, but would pose a severe threat to global drug innovation in the long run, and probably lower access for some patients.”

    Canada’s Drug Price Paradox 2007
    Brett J. Skinner and Mark Rovere
    Fraser Institute, 07/07

    An example of price distortion is found in Canada where prices for generic prescription drugs were about 115 percent higher than in the United States. The Fraser Institute finds that “Canadian government policies insulate generic drug companies and pharmacy retailers from normal market forces that would put downward pressure on prices for generic drugs.” In 2006, 44% of prescriptions dispensed in Canada were generic, and 56% were brand name; in the United States 63% were generic and 37% were brand name. “If Canada repealed policies that distort the market for prescription drugs, net savings for Canadians could reach between $2.5 billion and $6.6 billion (2006) annually for total retail pharmacy sales of generic and brand-name drugs.”

    Phoning It In
    Peter Pitts of the Center for Medicine in the Public Interest
    The Journal of Life Sciences
    , 08/01/07

    Pitts discusses the need for a communications revolution at the Food and Drug Administration in the wake of growing consumer empowerment. “All the science in the world — precise and important as it may be — is not going to help the average consumer understand why a new drug is important, why it was approved, or even what it does,” he writes. “With so many new drugs on the market and so many more people needing them, the FDA must step up to the plate and realize that doing a better job in risk communications is not only a top priority for the agency’s political survival — but a marvelous opportunity to promote the public health.”

    The Balitmore Sun writes that better information in published research, especially in widely read, peer-reviewed journals, should also be made available to help consumers make informed decisions about courses of treatment. Pharmaceutical firms, for example, are making study results available on their websites and federally funded clinical trials are now listed on a government website.

    Publix Offers 7 Prescription Antibiotics for Free
    Bob LaMendola
    South Florida Sun-Sentinel, 08/07/07

    The supermarket chain Publix announced this week that it will offer seven commonly prescribed generic antibiotics, including amoxicillin and cephalexin, for free. The plan is available in five states: Florida, Georgia, South Carolina, Alabama, and Tennessee. Publix says it “will fill as many 14-day supplies as the doctor prescribes, with no annual limit” at no charge to the customer, even if they have health insurance with drug coverage. The trade off: Publix also announced that it will no longer match rivals’ discounts on generic drugs, such as Wal-Mart’s popular $4 generic drug program, choosing instead to focus on its new antibiotic plan.


    Legislative Rewind: How did Health Care Fare in 2007?
    Oregon Health Forum Event
    Wednesday, August 15, 2007, 7:00 a.m. – 9:00 a.m.
    Portland, OR

    Call for Entries: Best Practices in Consumer Empowerment and Protection
    URAC Awards Program
    Deadline is Wednesday, August 15, 2007

    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 www.galen.org.

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