Markets Are Vital

Health policy guru Mark McClellan was the keynote speaker at our major conference yesterday at the National Press Club, answering with a resounding ?Yes!? the question we had posed in the title of our event, ?Is there a role for markets in health care??

Mark, together with three international and two other U.S. health policy experts, concluded that markets and consumerism must work together, here and in other countries, to solve the problems all developing nations are facing.

?Fundamental trends in health care are the same in the U.S. and Europe,? Mark said, especially cost pressures. He says the quantities of health care consumption are rising everywhere, but ?too often it’s the wrong treatment at the wrong time, the overuse or underuse of effective technologies, and a failure to emphasize prevention.?

Mark used the experience of Medicare reform to show that even government programs can be transformed by market forces — a transformation he led as head of the Centers for Medicare and Medicaid Services.

Flexibility in benefits, less government micromanagement, useful information for beneficiaries, and incentives to seek value are all key, as is government’s role in getting payment policies right, including risk adjusted payments.

The Galen Institute co-sponsored the sell-out luncheon with the International Policy Network, and a podcast of the full event is available as are summaries of the remarks by our three international speakers.

There is so much good information here it is hard to summarize, but here are a few highlights:

  • Dr. Helen Evans, director of Nurses for Reform in London: After ?nearly six decades of epic Soviet-style failure, the NHS currently finds itself in a perilous state. As Britain enters the twenty-first century it has around one million people on its waiting lists and another 200,000 people trying to get onto them?

    “As a result of this situation, recent years have seen the re-birth of Britain’s private healthcare sector. Today, more than 6.5 million people have private medical insurance, 6 million have private cash benefits, 8 million pay privately for a range of complimentary therapies and 250,000 self-fund each year for private acute surgery. Millions more opt for private dentistry, ophthalmics and long term care?

    “As I look to the debate in the United States of America, I would urge you to use the market and not more state intervention to reform your healthcare system.?

  • Johnny Munkhammar, program director of the Swedish think tank Timbro: ?In much of Western Europe, the free market is considered incompatible with the provision of welfare services?Today, this model has severe problems, not least in health care. In a number of countries, there are waiting lists, where seriously ill people cannot access care for months or even years. There is inefficiency: A recent European Central Bank working paper showed that the bigger the public sector, the more inefficient it tends to be?

    “The US health care system is commonly perceived in Europe to be a complete free market, in which the poor are left to die on the streets if they cannot afford coverage?Increased trade in services combined with new technology could do wonders for the health care of tomorrow. But the way to achieve this cannot be through greater state intervention and control… For anyone interested in improving health care, the market should be embraced, not demonised.?

  • Brett Skinner, Director of Health and Pharmaceutical Policy Research at The Fraser Institute in Canada: ?Canada has the only single-payer health system in the world among developed nations. No other country has tried to copy the Canadian system because it is a failure. Even Canadians are beginning to reject it. Americans would be making a huge mistake if they adopted Canadian-style health policies for the United States?

    “In 2003, 45 in-patient surgical procedures per 1000 population were performed in Canada, compared to 88 — or twice as many in the United States. In 2004, 25.5 MRI exams per 1000 population were performed in Canada, compared to 83.2 — or three times as many in the United States?Canadian patients waited on average 17.8 weeks?between the time they saw their family physician and the time they actually received specialist treatment.

    “The Canadian experience shows that a government-run single-payer monopoly is the worst way to achieve universal health insurance coverage. There are better international examples for achieving universal health insurance coverage if that is what Americans want.?

  • Gene Steuerle, Ph.D., senior fellow at the Urban Institute in Washington: Gene said that the average American family spent more than $19,000 on health care last year, $11,000 of it through government expenditures and tax subsidies. And what do we get for all of this money? More and more uninsured people who can’t afford the cost of insurance.

    He said that it is basically too late to move to a single-payer health care system in the United States because we can’t afford the 40% payroll taxes it would take to finance the system.

    Instead, he said, we must move toward a balanced approach to health reform. ?We can use market-based approaches to reform that make use of regulation or regulated approaches that make use of the market,? he said. But the crucial thing is to get moving and put ideology aside. Here is more about his plan for reform.

  • Len Nichols, Ph.D., director of health policy program at the New America Foundation in Washington: ?I have come not to bury markets but to praise them,? he began. ?But sometimes interventions help markets to work better.? A mandate for the purchase of insurance, for example, could eliminate the problem of adverse selection, and limits on premium variance may make insurance more affordable, he said.

    Like Mark, Len concludes that we must have better knowledge about what treatments work so people can ?buy smarter and use resources better.? He believes ?we need an objective body to decide? what is effective.

It was a wonderful program, and it really is worth your time to download the podcast to hear for yourself.


It’s hard to know where to start in answering the week’s news reports:

  • Democratic presidential candidate John Edwards yesterday announced more details about his plan to guarantee universal health coverage. What he had already announced is bad enough: An employer mandate AND an individual mandate, expanding Medicaid and SCHIP to put more people into government-run health programs, and micromanaging private health insurance.

    These are all ideas from the liberal recycle bin, but the new idea is even worse. Get this: Edwards would take away patent rights for companies that develop breakthrough drugs and instead, reward them with ?prizes? from the government.

    This is a shocking misunderstanding of how business operates. What investor would put hundreds of millions of dollars into already risky research projects only to be told that the government will throw a few dollars to you at the end for all of your trouble? Intellectual property is everything in research and development — which is the business that pharmaceutical companies are in. We could all say goodbye to any new drugs if this nutty idea were to gain traction.

  • The Wall Street Journal this week carried a big headline story, ?Health Savings Plans Start to Falter,? that was incredibly one-sided. Yes, there are ?speed bumps? as people figure out how to better manage their spending on health care, but millions of people and tens of thousands of companies find that these plans help them get and keep health insurance that might otherwise be unaffordable.

    But the Journal reports that only 19% of employees choose the ?newfangled plans,? and the reporter managed to find mostly unhappy workers to interview. A little more balance, please. Only one paragraph offered clarity: ?In cases where employers spend months informing workers about how the plans work and offer them more financial incentives than just cheap premiums, workers report higher satisfaction.?

    The unfortunate thing is that HR directors read articles like this and make decisions about whether or not to add HSAs to their health benefit offering and are discouraged. This is not the full story, as study after study proves.

  • And another new study from the Kaiser Family Foundation and the Georgetown University Health Policy Institute reports that people with higher-deductible health insurance pay more when they have a baby.

    According to the report, the cost for an uncomplicated pregnancy and delivery would be about $9,660. Under a traditional plan, a family would pay about $1,455 in out-of-pocket costs, while OOP costs under consumer-driven health plans would be between $3,000 and $7,884.

    It’s essential that people look at the full cost of their health care and coverage. One family with traditional insurance may pay $12,000 a year for insurance, plus $1,455 in out-of-pocket costs. Another with an HSA may pay $5,000 for the insurance with $7,884 in out-of-pocket costs. The HSA holder still comes out $571 ahead.

    And since most people don’t have a baby every year, their overall savings over the longer term can be much greater with the HSA than with traditional insurance.


And to show you what an erudite readership we have at Health Policy Matters, I received several responses from my challenge in the last newsletter to ?What’s Latin for, ‘There’s no free lunch’?? The answer, by consensus: ?Nulla mensa sine impensa?. You all are so smart!

Grace-Marie Turner


  • Coalition’s plan would harm scores of low-income seniors
  • Debunking a few myths about drug importation
  • Medicare: Past, present and future
  • Balancing the budget on the backs of cancer patients?
  • Health IT
  • 2006 State snapshots

Author: Grace-Marie Turner
Source: The Hill, 06/15/07

?Americans United for Change would disproportionately harm millions of low-income seniors in its campaign to eliminate subsidies to Medicare Advantage,? writes Grace-Marie Turner today in a letter to the editor of The Hill. ?MA plans offer more comprehensive benefits than traditional Medicare, and studies show these plans are an especially important option for low-income and minority seniors,? writes Turner. Additionally, ?Medicare Advantage plans often cover a host of benefits that regular Medicare doesn’t cover, such as vision and dental care, added preventive services, protection against catastrophic medical costs, and prescription drug coverage at no added cost,? she writes. ?Far from being a giveaway to insurance companies, the subsidies to Medicare Advantage create a valuable option for America’s struggling low-income seniors.?
Full text:

Author: Grace-Marie Turner
Source: The Colorado Springs Business Journal, 06/08/07

Washington lawmakers in both the House and the Senate continue to debate the issue of prescription drug importation. Grace-Marie Turner’s op-ed sorts through the myths and realities of drug importation and provides evidence to disprove five of the biggest myths about this issue. She uses study data to refute charges about counterfeit drugs, cost, and safety. ?Importation will do little more than import foreign price controls while exposing American consumers to unnecessary and dangerous risks,? concludes Turner.
Full text:

Jurgen Reinhoudt of the American Enterprise Institute cautions that Europe’s pharmaceutical industry lags significantly behind its American counterpart and ?is in the midst of a long and steady decline.? Europeans could regain their innovative and competitive edge by removing stringent price controls and adopting certain aspects of America’s thriving pharmaceutical sector, like a system of free pricing drugs, direct-to-consumer advertising of prescription drugs, a pool of active venture capital, and a limited role of government in the R&D process.
Full text:

Authors: Andrew J. Rettenmaier and Thomas R. Saving
Source: National Center for Policy Analysis, 06/07

Medicare Trustee Tom Saving and Andrew Rettenmaier, both of Texas A&M University, outline the effects that potential avenues for reform would have on the Medicare trust fund. While they say no vehicle for reform is attractive, they do ?illustrate the need for fundamental rethinking of how Medicare is delivered to retirees.? The authors considered types of rationing where retirees would receive a defined benefit, bringing with it a defined rate of Medicare program growth. And they consider reform that would call on beneficiaries to ration their own consumption by moving Medicare towards a high-deductible policy with spending below the deductible paid through a personal spending account. The authors place the highest importance on reforms that would move to a Medicare program where workers prepay part of their retirement health care.
Full text:

Author: Joseph Antos
Source: The American, 06/12/07

A recent proposal issued by the Centers for Medicare and Medicaid Services (CMS) would cut back sharply on Medicare’s coverage of drugs that treat anemia, called erythropoiesis stimulating agents (ESAs), for cancer patients undergoing chemotherapy. ?If the proposed decision is implemented, Medicare would no longer pay for highly effective drugs for every cancer patient who would benefit from them,? writes Joe Antos of the American Enterprise Institute. ?ESAs are, financially, the biggest category of physician-administered drugs paid for by Medicare?it is sensible for CMS to monitor the use of those products,? writes Antos. ?But CMS has jumped past science and the Food and Drug Administration (FDA), which is responsible for ensuring the safety of our medicines, in its recent proposal,? he writes. ?Precipitous action by CMS before all the facts are evaluated would raise serious questions about the government’s objectivity in making scientific judgments about the effectiveness of medical treatments,? writes Antos. ?The CMS action is breathtaking for its speed and its incursion into the practice of medicine,? he concludes. ?A more nuanced and flexible coverage policy is called for, one that does not take away an option for severely ill patients fighting cancer.?
Full text:


The Pacific Research Institute (PRI), Progressive Policy Institute (PPI), and Center for American Progress each released papers discussing the onset of Health Information Technology. Personal and electronic health records are discussed as opening avenues to more effectively coordinate care, provide quality reporting, and establish a more patient-focused system of healthcare delivery. PPI cautions, however, that enhanced portability of medical records must be accompanied with amendments to the Health Insurance Portability and Accountability Act, giving patients the right to limit the health information that providers disclose to fully protect patients’ privacy.
PRI text:
Center for American Progress text:
PPI text:

Source: Agency for Healthcare Research and Quality, 06/11/07

State Snapshots is a web-based tool that was launched in 2005 by HHS’ Agency for Healthcare Research and Quality to provide information on health care quality measures for all of the states. Using data from the 2006 National Healthcare Quality and Disparities Reports, the Snapshots are based on 129 quality measures ranging from preventing bed sores to providing antibiotics quickly to hospitalized pneumonia patients. For example, ?Utah ranks first for its low colorectal cancer death rate?[and] Montana ranks first for pneumonia vaccinations for seniors.? The statistics ?also underscore the reality that some shortcomings in health care quality are widespread.? On average, ?States reported that only about 59 percent of adult surgery patients insured by Medicare receive appropriate timing of antibiotics?[and] about 54 percent of men over 50 reported they ever had a flexible sigmoidoscopy or colonoscopy.?
Full text:

A state scorecard from the Commonwealth Fund finds that there ?are large gaps in quality of care, access to care, avoidable hospitalizations and costs, equity and healthy lives among states.? The report finds that Northeast and Upper Midwest states ?often rank high in multiple areas? but states concentrated in the South tend to have lower rankings. For instance, states with the highest rate of insurance coverage include Vermont, Maine, and Iowa, while the lowest ranked states include Arkansas, Texas, and Mississippi.
Full text:


Aiming Higher: Results from a State Scorecard on Health System Performance
Alliance for Health Reform Briefing
Friday, June 15, 2007, 12:15 p.m. – 2:00 p.m. (Lunch available at noon)
Washington, DC

For additional details and registration information, go to:

The Medical Arms Race Syndrome: The Role of Purchaser and Payer with Special Guest Leonard Schaeffer
National Institute of Health Policy Event
Tuesday, June 19, 2007, Noon – 2:00 p.m. (Lunch Included)
Minneapolis, MN

For additional details and registration information, go to:

Elements of State Health Reform: Covering Kids
Kaiser Family Foundation Webcast
Tuesday, June 19, 2007, 2:00 p.m. ET

For additional details and registration information, go to:

Who Killed HealthCare? America’s $2 Trillion Medical Problem-and the Consumer-Driven Cure
National Center for Policy Analysis Economic Policy Forum and Author Luncheon
Wednesday, June 20, 2007, 12:00 p.m. – 1:30 p.m.
Dallas, TX

For additional details and registration information, go to:

Health Care on Film: Clips from SiCKO and Its Competitors
Cato Institute Capitol Hill Briefing
Thursday, June 21, 2007, 8:30 a.m. (Breakfast Included)
Washington, DC

For additional details and registration information, go to:

Who Owns Your Health Care?
Cato Institute Capitol Hill Briefing
Friday, June 22, 2007, 8:30 a.m. (Breakfast 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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