The Nexus

We have sent you two reports about government programs — my commentary in The Wall Street Journal on SCHIP and an important Fact Sheet on Medicare Advantage, which I co-wrote with 16 of our colleagues.

Why this focus on government programs? Because they are the nexus of important decisions being made about the future of our health care system — decisions that are setting the stage for the pivotal 2008 presidential debate.

The new leadership in Congress is setting a clear agenda that involves expanding government health care programs and cutting back the initiatives begun over the last several years to bring more competition and patient choice into public programs.

We must answer with a strong message about the urgent need to bring more private sector energy, efficiency, creativity, and competition into our health sector.

The State Children’s Health Insurance Program is on the cusp. Congress wants to expand the program dramatically: Sen. Hillary Clinton and Rep. John Dingell this week introduced a bill to expand SCHIP to “children” up to age 25 and in families earning up to $83,000 a year. (That, along with Sen. Kennedy’s Medicare-for-All and planned expansion of Medicaid to more middle-income Americans, would mean a dramatic shift of tens of millions of Americans into government health care.)

If Congress doesn’t begin to set boundaries on SCHIP and inject some discipline, it could become yet another uncontrolled entitlement program that lures the middle class into the false security of politically-controlled, taxpayer-financed medical coverage.

SCHIP is not meeting its goal of covering lower-income kids, especially with 87% of those in Minnesota’s SCHIP program and 66% in Wisconsin being adults, and with kids eligible in New Jersey whose families make $72,000 a year. Our paper provides more of the details on how states are abusing this program.

And where is Congress looking for the money to expand SCHIP? To the private sector programs in Medicare. Health and Human Services Secretary Mike Leavitt said yesterday that the Bush administration will strongly oppose efforts to cut Medicare Advantage payments and use the savings to expand SCHIP.

Our joint Fact Sheet on Medicare Advantage — many weeks in development — makes a strong statement about the need to continue to give seniors the option of joining competing private health plans.

“We want much more competition in Medicare, including private plans competing with traditional Medicare. And we need it sooner, not later,” our statement says. “The vibrant private plan sector that Medicare Advantage has created is an essential step toward that goal and lays out an initial pathway to the future which should include premium support for Medicare beneficiaries.

“Even more competition will promote greater efficiency, which over time can slow the growth of Medicare spending and improve the value that seniors and taxpayers receive from the program.”

Competing Medicare Advantage plans are offering more choices, more generous benefits, and lower cost-sharing to beneficiaries than Medicare fee-for-service.

It is a heroic feat to get 17 policy wonks to sign on to one statement. As I said in my note to you earlier about our MA Fact Sheet paper, special thanks to Joe Antos and Tom Miller at AEI for wrestling with many crucial details to get this right, to Doug Badger of CMPI for his careful wisdom, and to Gail Wilensky of Project Hope for keeping us focused on the vision.

But I heard from several of our physician friends yesterday saying, “Physicians are NOT able to survive on the paltry amounts being paid by Medicare and the managed care industry?Physicians are being paid at less than the cost of overhead?They can’t survive.”

They warn that “we are either going to see a return to the free market, or we’re going to see some kind of a central system that mandates everything” — and fear the latter.

The third-party payment system has stripped physicians of their authority and forced them into a kind of paperwork slavery, demoralizing the whole profession. It’s just awful. But I wrote back that we cannot switch overnight to a true market-based system. Health care has become far too political, with too much government money in the system.

We are beginning to make the changes that can take us in a very different direction over the long term that puts patients and doctors back in charge.

One of the main reasons I supported the changes in the Medicare Modernization Act in 2003 was that it gave us our first chance ever to establish a new set of rules for a public program. And it has been remarkably successful, with the prescription drug benefit proving that patient control and competition can work to expand choices, improve benefits, and reduce costs.

There still are vibrant businesses in the American health sector: physicians’ practices, pharmaceutical research companies, health plans, health insurers, medical device inventors, specialty hospitals and clinics, etc. Just imagine trying to create this private health sector in a culture where government has taken over all or most of these roles.

Yes, there is still way too much government involvement in setting the prices and rules. And yes, many congressional leaders believe these private enterprises should be significantly constrained — that private enterprise and profit are evil in the health sector. But we must value the fact that a private health sector still exists in this country, with 200 million people having some kind of private heath coverage. We must continue to build on that strength and build in new incentives to focus on patient needs.

That’s why the battles over SCHIP and MA are important.

Grace-Marie Turner


  • Medicare Advantage

  • Thai-ing up innovation

  • Innovations in chronic care

  • Patient cost-sharing, hospitalization offsets, and the design of optimal health insurance for the elderly

  • More Medicaid means less quality health care

  • Health insurance mandates in the states 2007


Medicare Advantage is very much in the news. Here are other important materials:

  • The Subcommittee on Health of the Ways & Means Committee held a hearing on Wednesday on Medicare Advantage featuring testimony from Leslie Norwalk, acting administrator of the Centers for Medicare and Medicaid Services; Peter Orszag, director of the Congressional Budget Office; and Mark Miller, executive director of MedPAC.

  • The Kaiser Family Foundation released four papers on the role of private plans in Medicare.

  • America’s Health Insurance Plans released a paper on minority and low-income beneficiaries in Medicare Advantage plans.

Author: Paul Howard
Source: National Review Online, 03/20/07

The military-appointed government of Thailand has set a dangerous precedent by refusing to honor the patent for Kaletra, Abbott Laboratories’ AIDS drug, writes Paul Howard of the Manhattan Institute. “Drug patents give companies a powerful financial incentive to invest in the risky and expensive process of drug development; without patent protection, the pipeline of new medicines would be severely reduced,” writes Howard. “If every time a country decided that it wanted to reduce public-health spending it broke patents on medicines ?pharmaceutical investors would seek out a less risky industry in which to invest their hard-earned capital,” concludes Howard. “Rather than punishing companies that produce life-saving medicines, developing countries like Thailand should make a special effort to ensure that they respect intellectual-property rights, limit compulsory licensing to true public health emergencies, and work with companies to determine a fair price for their products relative to the local economy.”
Full text:

Source: America’s Health Insurance Plans, 03/21/07

This compendium from America’s Health Insurance Plans describes the innovative chronic care programs used by health insurance plans to address major health issues like cancer, obesity, and diabetes. The book features fifty-five initiatives developed by more than 40 AHIP members. The results show that chronic care programs “have been successful in improving individuals’ health, increasing use of recommended treatments, and reducing unnecessary emergencies and hospital stays.” For example, “A study of nearly 5,000 health plan members with asthma found statistically significant improvements in the percent of individuals who took recommended controller medications and who received care from allergists or pulmonologists.” Plan members also decreased their emergency room visits by 32% and the number of hospital admissions for asthma by nearly 33%.
Full text (pdf):

Authors: Amitabh Chandra, Jonathan Gruber, Robin McKnight
Source: National Bureau of Economic Research, 03/07

In this study of retired California public employees, the authors find “that physician office visits and prescription drug utilization are very price sensitive” to the point that this sensitivity exceeds “that of the famous RAND Health Insurance Experiment (HIE).” The study’s results show “that higher copayments for office visits and prescription drugs can have a real effect in reducing medical spending by the elderly,” and further “find a rather modest offsetting rise in hospital care when (such copayments) are raised.” The authors say their findings suggest “that optimal insurance would be tied to underlying health status, with chronically ill patients facing lower cost-sharing.”
Full text:

Author: John O’Shea, M.D., MPA
Source: The Heritage Foundation, 03/21/07

Expanding Medicaid to cover more of the uninsured “would be an ideologically driven mistake because Medicaid does not provide high-quality health care,” writes John O’Shea, M.D., of The Heritage Foundation. “Medicaid patients are more likely to face difficulties accessing care, often receive inferior treatment, and are more likely to receive inadequate follow up care than those with private health plans,” writes O’Shea. “Congress needs to restructure the way tax dollars are used to finance health care for low-income individuals, and states need to develop innovative programs appropriate to their needs and allow patients to enroll in the health plans of their choice?and receive better value for health care dollars.”
Full text:

Authors: Victoria Craig Bunce, JP Wieske, Vlasta Prikazsky
Source: Council for Affordable Health Insurance, 03/07

The Council for Affordable Health Insurance has released the latest version of its annual list of health insurance mandates in each state. The number increased from 1,843 in March 2006 to more than 1,900 this year. CAHI reports that “in the past two legislative sessions we saw an increase in extending coverage ? to unmarried dependents or students up to the age of 30,” as well as the addition of new categories for mandated coverage for illegal aliens and dependent grandchildren. Conversely, a “trend over the past several years is that at least 30 states require that a mandate’s cost must be assessed before a mandate is implemented.”
Full text (pdf):


New Leadership on Health Care: A Presidential Forum
Center for American Progress Action Fund and Service Employees International Union Event
Saturday, March 24, 2007, 9:00 a.m. – 2:00 p.m.
Las Vegas, NV

For additional detail and registration information, go to:

Elements of State Health Reform: Creating a Marketplace for Expanding Coverage
Kaiser Family Foundation Webcast
Wednesday, March 28, 2007, 2:00 p.m. ET
For additional detail and registration information, go to:

Improving Healthcare Quality and Value: The Role of Comparative Effectiveness Research
Center for Medicine in the Public Interest and Old Dominion University Event
Thursday, March 29, 2007, 8:30 a.m. – 2:00 p.m.
Washington, DC

For additional detail and registration information, contact Connie Davis at

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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