Squeezing Out Private Coverage – Health Policy Matters

The media will be filled next week with articles and ads about the uninsured, including a TV spot featuring nine-year-old ?Susie Flynn? who is running for president on the platform of bringing attention to the nine million American children who don’t have health insurance.

The big push during ?Cover the Uninsured Week? will be to build the case for expanding the State Children’s Health Insurance Program. No one is arguing that children shouldn’t have health insurance, but it is vital to look at the consequences of a massive expansion of a taxpayer-financed, government-run program:

  • First, if Washington pours $75 billion into SCHIP over the next five years, as congressional leaders propose, it will be well on its way to creating a generation of children who think that the place you get health insurance is through the government.

  • This expansion means that taxpayers will be paying for coverage that could have been bought with private dollars. Jonathan Gruber of MIT found that at least 60 percent of children enrolled in SCHIP previously had private coverage, strongly suggesting that public programs are crowding-out private insurance.

  • And expansion of government health programs has an impact in driving up the cost of private health insurance. Here’s why: Actuary Mark Litow of Milliman Consultants and Actuaries argues that expanding government programs puts added pressure on private health spending.

    He estimates that private health plans pay about 64% of the full charges of doctors, hospitals, labs, etc. Medicare pays about 37% of these ?undiscounted? charges. And Medicaid pays only about 30%.

    So it’s only logical that the more of the market that is taken up by programs paying only 30% of a provider’s charges, it’s going to put more pressure on others to make up at least some of the difference.

    Pricing of hospital and doctor rates is something of a shell game, with the rates set artificially high so they can give deeper discounts. But doctors also say that they are told what they will be paid by both public and private payers, with little opportunity to negotiate or even know in advance what they will be paid.

    Everyone is getting squeezed. Unless we have more price transparency and engagement by consumers, this game of cost shifting will continue, forcing up the cost of private coverage, making it harder and harder to find affordable private insurance, thereby driving up the number of uninsured and also wringing quality out of the system.

    Private plans can’t continue to take up the slack indefinitely. The expansion of government programs could suffocate them. And we are at risk of reaching a tipping point where private health insurance seems so expensive that we default into government control, with the inevitable price fixing, restrictions, and rationing.

    That’s what this debate is all about.


Remarkably, reason prevailed in the Senate this week: The New York Times reported that ?A pillar of the Democrats’ program tumbled on Wednesday when the Senate blocked a proposal to let Medicare negotiate lower drug prices for millions of older Americans.?

Democrats needed 60 votes to bring the measure to the floor, but got only 55, including six Republicans who defected: Sens. Norm Coleman (MN), Susan Collins (ME), Chuck Hagel (NE), Gordon Smith (OR), Olympia Snowe (ME), and Arlen Specter (PA).

I had a piece published in The Hill newspaper on Tuesday that outlined some of our objections to this misguided proposal.

The prevailing Republicans said it was a choice between a centralized government dictating prices and real price negotiation taking place now in the private sector where the Medicare prescription drug benefit is delivered and administered by private plans.

Senator John Cornyn, a Republican of Texas, said the Senate bill would be ?a step down the road to a single-payer government-run health care system.?

The House already has passed its version of a bill to allow government interference in Medicare drug price negotiations. Senate leadership has vowed to try again. But President Bush has again vowed to veto the bill if it reaches his desk.

The battles over control of our health care system continue.


There are still a few seats left for Tuesday’s luncheon address featuring Health and Human Services Secretary Michael Leavitt. Jointly sponsored by the Galen Institute, the American Enterprise Institute, and The Heritage Foundation, Secretary Leavitt will be giving his major address of Uninsured Week to describe the administration’s policy on ?Promoting Health Insurance for Children and All Americans.? It’s Tuesday, April 24, at noon at AEI in Washington, D.C. Please register with AEI, and do plan to join us.


Words fail in trying to understand the horror this week at Virginia Tech. Beautiful young lives full of hope and promise extinguished in one senseless instant, and lives of devoted and accomplished faculty members cut heartbreakingly short. Prayers and support are all we can offer to their families who will suffer a lifetime of grief over the joys that are lost forever. May they find some peace in knowing that these 32 innocent people are now safe with their Creator. Rest in peace.

Grace-Marie Turner


  • Drug safety reform at the FDA – Pendulum swing or systematic improvement?
  • Competence man
  • Drug danger
  • AOL founder hopes to build new giant among a bevy of health care web sites
  • Universal health scare
  • Transparency in health care: What consumers need to know
  • Healthcare reform proposals to expand health coverage for the uninsured

Author: Mark B. McClellan, M.D.
Source: The New England Journal of Medicine, 04/13/07

Mark McClellan, former commissioner of the Food and Drug Administration, outlines steps for congressional action on drug safety in a New England Journal of Medicine article. ?First, the FDA needs more resources, and the only feasible way to provide them this year is a combination of greater user fees and the maximum possible increases in federal appropriations,? he writes. ?Second, new regulatory authority or organizational changes may help, but the promise of such reforms should be weighed against their potential deleterious effects on access to treatments,? writes McClellan. ?Finally, it is possible to implement a much more systematic approach?by augmenting FDA resources with the rapidly growing array of electronic resources related to drug use,? he concludes.
Full text: www.aei.org

Author: Kimberley A. Strassel
Source: The Wall Street Journal, 04/20/07

A column in today’s Wall Street Journal praises Dr. McClellan, who also is the former administrator of the Centers for Medicare and Medicaid Services. Kimberley Strassel says Mark is ?the big brain? who ?wrung every last ounce? of authority out of the Medicare Modernization Act ?to create a striking new model for Medicare competition that is today not only performing beyond expectations, but is changing the political health-care debate.? The success of the program ?emboldened Republicans? this week to defeat a bill that would have allowed the government to interfere in private drug price negotiations in the Medicare program.
Full text: www.opinionjournal.com

Author: Scott Gottlieb, M.D.
Source: The Wall Street Journal, 04/17/07

“Last week’s recommendation by a FDA advisory panel against approving the Merck painkiller Arcoxia — already in use in 63 countries around the world — has dramatic implications for the future of drug research in this country,” writes AEI’s Scott Gottlieb. “In voting 20-1 to reject Arcoxia, FDA’s advisers said that for certain ailments, we have enough medicines.” This decision “will ultimately deny patients needed choices and it reflects a dangerous way of looking at drug development, safety, and, more importantly, the practice of medicine,” writes Gottlieb. “All drugs have risks that patients must weigh against the benefits,” he concludes. “But patients would be better off if the FDA focused on unearthing information to help doctors determine which pills will perform the best for each individual patient.”
Full text: www.aei.org

Author: Milt Freudenheim
Source: The New York Times, 04/16/07

After three months in preview mode, Revolution Health Group, founded by former American Online CEO Steve Case, yesterday launched RevolutionHealth.com, its free health and medical information Web site. ?The revamped version of the site will be primarily aimed at women, who tend to be the bigger portion of the Web health audience,? writes The New York Times. This includes a Mom Central page intended for a busy mother who is ?trying to juggle her health, her children’s health and perhaps her elderly parents’ health, all at the same time,? said Ron Klain, Revolution Health’s executive vice president. The Web site will also feature ?1,500 medical conditions that can be sorted by the ailment or treatment, with related comments from experts and from other users of the site? and ?a directory of doctors by specialty and location, along with short reviews by patients,? the Times reports. It will also promote the use of electronic health records by allowing users to create their own pages for collecting personal and general medical information.
Full text: www.nytimes.com

Authors: Jonathan Cohn and David Gratzer
Source: The New Republic, 04/16-04/19/07

The New Republic features a four-part online debate about universal health care between TNR Senior Editor Jonathan Cohn and physician David Gratzer of the Manhattan Institute. In an earlier article, Cohn ?compared the U.S. health care system unfavorably to those of other Western nations who provide universal coverage.? Gratzer counters: ?Don’t measure a country’s health care system by how well it promotes socialist goals or social engineering; judge a system by how well it serves people when they’re ill. And, in this area, America is the best.?
Full text (requires free registration): www.tnr.com

Author: Thomas P. Miller
Source: American Enterprise Institute, 04/18/07

AEI’s Tom Miller argues that consumers need better ?point-of-service decision information? about treatment options; more diverse alternatives for insurance coverage, including bundled pricing; and information about value that is specific to individual doctors. ?Just giving folks more cost-sharing with some money funded into an account doesn’t tell them how they’re going to make better choices and end up better for it as a result of being more engaged in their health care.? Miller argues that better, but not necessarily more, information is crucial to a functional health care market. “An early assessment is that price alone draws attention, but it’s not enough. We need the all-in cost by diagnosis or episode of treatment. We need to know a lot more about effectiveness,? he argues. He recommends a look at legislation introduced by Senator Judd Gregg that would “provide a way to open up the vault for the CMS physician-identifiable claims data” to provide a platform for development of better information for consumers. This lecture, which was originally given last fall, was posted this week by the American Enterprise Institute.
Full text: www.aei.org

Source: Center for Health Transformation, 04/07

The Center for Health Transformation, founded by former House Speaker Newt Gingrich, has created a new online resource that offers one-stop shopping for proposals about expanding coverage for the uninsured. It summarizes the health policy platforms of all of the 2008 presidential candidates who have offered them, lists and links to reform bills offered in the Congress and the 50 states, and provides links to bi-partisan commentary, news, and analyses.
Full text: www.healthtransformation.net


Promoting Health Insurance for Children and All Americans with HHS Secretary Michael Leavitt
Galen Institute, American Enterprise Institute, and The Heritage Foundation Event
Tuesday, April 24, 2007, 12:00 p.m. – 1:30 p.m.
Washington, DC

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

Medicare’s Fiscal Future: Getting Worse? Getting Better?
American Enterprise Institute Event
Tuesday, April 24, 2007, 9:30 a.m. – 11:45 a.m.
Washington, DC

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

Curing the Trust Crisis in Health Care
Cato Institute Policy Forum
Friday, April 20, 2007, 12:00 p.m. (Luncheon to Follow)
Washington, DC

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

Medicare 101: What You Really Need to Know
Alliance for Health Reform Briefing
Friday, April 20, 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.

A Healthier US Starts Here!
Centers for Medicare and Medicaid Services Event
Friday, April 20, 2007, 1:00 p.m.
Washington, DC

For additional detail and registration information, contact Barbara Cebuhar at 202-260-1020 or barbara.cebuhar@cms.hhs.gov.

Examining the 2007 Social Security and Medicare Trustees Reports
National Center for Policy Analysis Congressional Briefing
Monday, April 23, 2007, 4:00 p.m.
Washington, DC

For additional detail and registration information, contact Brian Williams at 202-220-3082 or brian.williams@ncpa.org.

Intellectual Property: Driving Global Growth
Institute for Policy Innovation Policy Forum
Thursday, April 26, 2007, 9:00 a.m. – 2:00 p.m.
Washington, DC

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

Consumer Directed Health Care Conference
April 30 – May 2, 2007
Las Vegas, NV

For additional detail and registration information, go to: www.consumerhealthworld.com.

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.

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 galen@galen.org.

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.