Dire Warnings

The week began with Medicare trustee Tom Saving warning that the future debt of this program for seniors is five times the size of the outstanding debt of the entire federal government today.

Without change, Saving warns that Medicare would devour nearly half of all federal income taxes by 2030 and almost two-thirds by 2040, and that beneficiary premiums would rise to $3,700 a month by 2080. ?The Medicare premium will consume seniors’ entire Social Security check, and they still will get a bill for the balance from Washington,? he warned.

How bad is it? ?Without change, rising costs will drive government spending to unprecedented levels, consume nearly all projected federal revenues and threaten America’s future prosperity,? said Treasury Secretary Henry Paulson, also a ?trust fund? trustee. (There is no trust fund. Government spends the taxes that you and I pay as fast as the money comes in. The trust fund simply contains a mountain of IOUs.)

Ignoring this program threatens inter-generational battles, crushing tax rates, and a government so big that it will cripple the economy.

But the mood after an AEI briefing the morning after the release of the Medicare Trustees Report was ?nothing new here.? Congress will not act until there is a crisis, and then it will be too late.


In a luncheon address at AEI on Tuesday, Health and Human Services Secretary Michael Leavitt offered one note of optimism: Expenditures for the Part D prescription drug benefit were lower than expected and hospitalizations were down last year. He said he believes there is a correlation: ?Access to the right medicines can lead to fewer hospitalizations.?

Sec. Leavitt said the same forces of competition that have brought prices down in the Part D program could also work for Medicare as a whole.

He described a vision for a 21st century health care system with government as the ?organizer? rather than the ?proprietor? of our health care system. You can hear his speech in which he offered warnings against expanding the role of government, especially through Medicaid and SCHIP.

?In nations where government dominates the health care system, budgets are set, medical care is rationed, and the system takes care of institutions more than people.? Without change, Medicare and Medicaid face the same fate, with long lines, lower quality, and higher taxes, he said.

Sec. Leavitt has been traveling the country, meeting so far with governors and legislators in 40 states to help them shape their own reform plans. He described a vision of a system in which everyone has access to ?basic? insurance, with subsidies for those who need help in purchasing policies.

Roll Call Editor Mort Kondracke said after the speech that it was the first time he had heard a conservative vision of universal coverage so well articulated on an issue that he says has been owned by the Democrats.

Thanks to AEI for hosting the Leavitt address, which was jointly sponsored by the Galen Institute and The Heritage Foundation.


The goal of universal coverage was very much on the minds of the Health Subcommittee of the House Energy and Commerce committee on Wednesday, where I was invited to testify before a hearing on ?Living without health insurance: Why every American needs coverage.?

The debate is not, of course, about the goal, but rather how to get there. Here is the five-minute version of my testimony and the full version. I described the warnings that I have been telling you about in this space — that expanding public programs not only crowds out private coverage but drives up the cost of private insurance because of cost shifting.

And I offered this prescription:

America can lead the way in creating a health care system that fits with our 21st century economy by putting in place new policies that respond to consumer demands for more affordable, portable health insurance.

  • The first step would be giving favorable tax treatment of health insurance to people whether they buy coverage on their own or get it at work, as President Bush and legislators on both sides of the aisle have proposed.

  • Congress also could offer refundable tax credits for those in lower-income categories who need additional help in purchasing policies.

  • Further, Congress could allow those eligible for public programs to apply the value of the subsidies for which they are eligible toward the purchase of private health insurance. This would mean that citizens could take the value of their Medicaid benefit and apply it toward employer-offered coverage. Or they could take the value of their SCHIP subsidy to add their children to their policies at work.

  • And legislators could create new opportunities for people to purchase group health insurance through organizations that may be more stable forces in their lives than their jobs, such as churches, labor unions, and professional and trade associations.

This combination of a general tax deduction or credit, with additional financial assistance for lower-income people, and flexibility to turn SCHIP and Medicaid benefits into defined contributions would retarget existing funds to increase access to private health insurance.


Today I’m in Philadelphia to attend the Heritage Resource Bank conference where 700 think tank leaders from more than 50 countries have gathered to network and exchange ideas.

I am moderating a session this afternoon on ?Faith-Based Health Care Reform.? We expect a big attendance at our session from people who don’t normally focus on health policy issues but who understand the importance of freedom of choice so they can select health plans that suit their conscience and their values.

And I head to Las Vegas tomorrow to co-host the Consumer Directed Health Care Conference there.

Both the Heritage and the CDHC conference help to energize our free-market public policy spirits.

Grace-Marie Turner


  • Medicare’s fiscal future: Getting worse? Getting better?
  • HillaryCare installment plan
  • Facing reality on follow-on biologics
  • Wal-Mart expands in-store clinics
  • Tailoring the approach: Employer attitudes and healthcare strategies address distinct issues
  • UnitedHealth Group analysis confirms chronically ill continue receiving needed care when enrolled in a consumer-driven health plan

Source: American Enterprise Institute, 04/24/07

The American Enterprise Institute examined Medicare’s fiscal outlook following release of the annual Medicare Trustees Report, with an opening presentation by Rick Foster, chief actuary for the Centers for Medicare and Medicaid Services. While highlighting the dire insolvency warnings for the program as a whole, Foster said that costs for the drug program were lower than 2005 estimates because drug costs increased much slower than the historical average; plan bids for 2006 showed greater price discounts and rebates; plan bids for 2007 decreased by 10%, reflecting more generic use and competition; and actual enrollment was lower, with many waiting until May 15, 2006, to enroll. Thomas Saving and John Palmer, public trustees for Medicare and Social Security, offered both warnings and remedies, as did AEI’s Joe Antos, a former official with CBO and CMS. Robert Reischauer, former director of the Congressional Budget Office, and Jeanne Lambrew, former budget official in the Clinton administration, focused on policy challenges facing Medicare. Speakers’ materials, audio, and video of the event are all available on the AEI website.
Full text: www.aei.org

Source: The Wall Street Journal, 04/24/07

The Wall Street Journal warns that congressional proposals to expand the State Children’s Health Insurance Program are part of an incremental approach toward government-run health care. What ?began as a hard-cap grant to cover the working poor is evolving into an open-ended entitlement to cover whatever promises states make.? The editorial says that ?states have grossly exceeded Schip’s mandate?[and] are using the program to expand government-subsidized coverage well beyond poor kids — to children from wealthier families and even to adults. And they’re doing so even as some 8.3 million poor children continue to go uninsured.? The Journal recommends that Congress ?work to return Schip to its original, more modest purpose? of covering near-poor children.
Full text: www.opinionjournal.com

Author: John E. Calfee
Source: American Enterprise Institute, 04/23/07

According to AEI’s John E. Calfee, proposed legislation creating an approval process for generic versions of biological drugs is unlikely to result in reductions in health costs. Physicians and patients ?will not easily be persuaded to switch from the drugs they trust to follow-on? versions of the biologic medicines. Calfee argues that biologics are so unique that a ?generic? version could operate as a completely new drug rather than a generic duplicate of the drug it is modeled after, a risk physicians will not easily take. In a separate article for Investor’s Business Daily, the Manhattan Institute’s Paul Howard assesses ?whether companies developing copycat biologics should be required to conduct clinical trials testing the safety and efficacy of their medicines.?
Full text: www.aei.org
Full text of IBD article:www.ibdeditorials.com

Authors: John Schmeltzer and Bruce Japsen
Source: Chicago Tribune, 04/25/07

?Wal-Mart, the world’s largest retailer, said Tuesday it has plans to dramatically expand the number of health clinics it operates, opening as many as 400 in U.S. stores in the next three years and possibly 2,000 of them within five to seven years,? reports the Chicago Tribune. Wal-Mart currently operates 76 clinics in 12 states, and this expansion ?could put pressure on other big retailers to follow suit, which in turn could force primary-care physicians to become more competitive on pricing,? reports the Tribune. More than half the patients visiting existing Wal-Mart clinics are uninsured, said Lee Scott, Wal-Mart’s president and chief executive. The clinics ?are going to provide something our customers and communities desperately need — affordable access at the local level to quality health care.?
Full text: www.chicagotribune.com

Source: Health Research Institute of PricewaterhouseCoopers and Management Barometer, 04/07

PricewaterhouseCoopers finds that employers are implementing changes to their health benefits plans to provide new tools and incentives for employees to be more engaged in managing their medical costs and health. Although support for the employer-based model remains strong, the report finds that ?80% of employers surveyed this year believe that employees must take more of their own responsibility for their health and healthcare costs.? Additionally, nearly two-thirds of employers ?said employees with unhealthy lifestyle behaviors?should pay a larger portion of their health benefits costs.? Employers continue to give employees more information about healthcare prices and quality, but realize that information alone is not enough. ?Employers are beginning to realize that the real challenge remains in motivating employees to act upon the information provided,? concludes the report. ?Employers agree that a shared responsibility exists between employer and employee; employers commit to provide tools, incentives and support, while employees must commit themselves to working towards wellness.? In a separate report, America’s Health Insurance Plans released a set of recommendations to improve health care quality and patient safety.
Full text: www.pwc.com
Full text of AHIP report: www.ahip.org

Source: UnitedHealth Group, 04/23/07

A new study from UnitedHealth Group’s Definity Health business finds that members of a consumer directed health plan (CDH) receive evidence-based care and preventive care at the same or better rate as members of traditional plans. When compared to the benchmark population:

  • CDH adult members were 16% more likely to have a cervical cancer screening, 10% more likely to receive a cholesterol screening, and 16% more likely to receive a prostate cancer screening.
  • 73% of CDH members with diabetes are much more likely to see a doctor for diabetes and 16% are more likely to receive testing to control the disease.
  • 22% of CDH members with coronary artery disease are more likely to receive lipid tests and are as likely to visit a physician.
  • 41% of CDH members with congestive heart failure are more likely to receive creatinine tests, 26% are more likely to receive potassium tests, and 6% are more likely to use ACE inhibitor medications.

Full text: www.unitedhealthgroup.com


Is there a role for markets in health care?

Galen Institute and International Policy Network Event
Thursday, June 14, 2007
Washington, DC

Faith-Based Health Care Reform
The Heritage Foundation Resource Bank
Friday, April 27, 2007, 2:00 p.m. – 4:00 p.m.
Philadelphia, PA

Grace-Marie Turner will act as moderator for this panel discussion. For additional detail and registration information, go to: www.heritage.org.

Which Treatment Works Better? A Look at Ways to Improve the Quality of Medical Decisions
Alliance for Health Reform Briefing
Friday, April 27, 2007, 12:15 p.m. – 2:00 p.m. (Lunch available at noon)
Washington, DC

For additional detail and registration information, go to: www.allhealth.org.

Consumer Directed Health Care Conference
Co-hosted by the Galen Institute
April 30 – May 2, 2007
Las Vegas, NV
For additional detail and registration information, go to: www.consumerhealthworld.com.

Health IT: Unlocking the Potential
Kaiser Permanente Summit
Wednesday, May 2, 2007, 8:00 a.m. – 4:00 p.m.
Washington, DC

For additional detail and registration information, go to: www.signup4.net.

How Recent Legislative Changes Makes HSAs Even More Attractive
The Principal Financial Group Webinar
Wednesday, May 2, 2007, 1:00 p.m. – 2:00 p.m. ET
For additional detail and registration information, go to: www.healthwebsummit.com.

Financing Mechanisms and Benefit Packages in Coverage Expansions
Kaiser Family Foundation Webcast
Thursday, May 3, 2007, 2:00 p.m. ET

For additional detail and registration information, go to: www.kaisernetwork.org.

TABD Innovation Conference Healthcare
Transatlantic Business Dialogue Event
Tuesday, May 8, 2007, 8:00 a.m. – 5:30 p.m.
Berlin, Germany

For additional detail and registration information, go to: www.jem-gmbh.de.

The Myth of Government Health Care
The Heritage Foundation Event
Tuesday, May 8, 2007, 12:00 p.m.
Washington, DC

For additional detail and registration information, go to: author.heritage.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 www.galen.org.

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