You Decide

The steady pace of new health reform plans continues, teeing up for the 2008 presidential debates, with two more proposals released this week. Compare and contrast these two:

  • An unusual partnership including Wal-Mart, labor unions, AT&T, and several policy groups this week announced four principles to create ?a new American health care system by 2012.? They call for universal coverage and say that ?businesses, government, and individuals all should contribute.?

    No talk of individual mandates or employer mandates, and the second principle recognizes the importance of our responsibility to take care of our own health. This is a huge component that is often missed in the health reform debate. Personal choices – sedentary lifestyles, poor diet, overeating, smoking, and alcohol and drug abuse – have a much bigger impact on our health than a doctor’s visit or even insurance coverage.

    The Wal-Mart campaign offers a vision not a plan, but it seems a sensible place to start, especially with their commitment to a health care system more in step with a mobile, 21st century workforce.

  • Democratic presidential candidate John Edwards offered his ?Universal health care through shared responsibility? plan. For businesses, it is the old play-or-pay, i.e., companies must provide ?comprehensive? insurance for workers or pay into a government fund. Edwards also proposes a major expansion of Medicaid and SCHIP, a big dose of insurance regulation including guaranteed issue and community rating, restrictions on drug advertising, and creation of new ?Health Markets? purchasing pools that Edwards says ?may evolve toward a single-payer approach if individuals and businesses prefer the public plan.? Once the new structure is in place, he would then mandate that all individuals get insurance, with tax credits to help with the cost.

We report. You decide.


The White House released a truck-load of budget documents this week, drawing a detailed map for how the administration recommends that the federal government spend nearly $3 trillion of your and my tax dollars next year.

Not to sound like a broken record, but the thing that caught our eye was the #1 most expensive item in the list of ?tax expenditures.?

Most people would guess it would be the deduction for home mortgage interest. Wrong.

The biggest tax break that the American people get is actually the invisible tax exclusion that protects the value of health insurance premiums from their income at work.

  • Value of the tax exclusion for job-based insurance: $160 billion.

  • Value of the deduction of mortgage interest: $89 billion.

That is B as in Billion. Just for 2008. And as Bob Helms and Tom Miller from AEI point out, the new numbers are for federal income taxes only and do not include additional tax savings from payroll taxes, state taxes, etc., which will surely drive the number well over $200 billion.

We are paying A LOT to subsidize job-based insurance. Gene Steuerle, a tax policy guru from the Urban Institute, told the House Ways and Means Committee last week that we may not be getting our money’s worth. ?The subsidy encourages insured people to buy more high-cost insurance, which encourages more use of high-cost health care, which helps drive up health costs, which, in turn, leads to a decline in insurance coverage.?


To set the record straight, we believe there is a healthy place for employment-based health insurance in our country. Many employers see health insurance as an important part of their employee benefits package, and they absolutely should be able to continue their offerings.

But, as I wrote in a message to my friend Neil Trautwein of the National Retail Federation in an on-going debate, the employment-based system just isn’t an option for a growing number of the uninsured.

With our mobile, 21st century workforce, creating new options for people to obtain portable private health insurance is vital, lest we slide into a system where government runs the show – and tells citizens and employers how much they must pay and for what benefits. The president’s health reform plan would move in that direction, as would a system of refundable tax credits or vouchers, which I know Neil also supports.


And Tom Miller of AEI gets the last word, having the gumption to set the record straight with columnist Bob Samuelson in a letter published today in The Washington Post. Tom’s letter is worth a read, and always ends with his characteristic humor, this time about hospital emergency rooms:

?? Or, as Yogi Berra might say regarding a typical emergency room, ‘Nobody goes there anymore; it’s too crowded.'”

Grace-Marie Turner

P.S. The Galen website is down temporarily while it is being migrated to a new web server. We expect it to be up and running soon, but let us know if you need any of our papers or reports, and we will email them to you right away.


  • Value-based insurance design
  • State experiences in implementing SCHIP and considerations for reauthorization
  • The misguided war against medicines: Are drug expenditures making public health insurance financially unsustainable?
  • A national survey of orthopedic surgeons regarding the Food and Drug Administration and the availability of new therapies
  • Terminate this plan: The shortcomings of Schwarzenegger’s health care reform
  • 2007 State legislators’ guide to health insurance solutions

Authors: Michael E. Chernew, Allison B. Rosen, and A. Mark Fendrick
Source: Health Affairs Web Exclusive, 01/30/07

This Health Affairs Web Exclusive introduces the idea of Value-Based Insurance Design to better align incentives with the value of various treatments. The authors are concerned with ?the underuse of valuable clinical services when a person is faced with even modest copayments? as well as with overuse of services of marginal value because patients face only a fraction of the cost of care. Challenging the traditional insurance principle that ?all services must cost the same for all patients,? their model instead argues that cost-sharing should vary by individual and that co-payment rates should be set based upon the value of clinical services (benefits and costs) – not exclusively the costs. One successful example of the value-based model is the pharmacist-led Asheville Project, a disease management program for patients with diabetes that provides insulin at no charge as long as patients comply with treatment regimens.
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A separate Health Affairs Web Exclusive describes LASIK, including some data on how self-pay procedures have declined in price and increased in value.
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Source: Government Accountability Office, 02/01/07

The State Children’s Health Insurance Program is up for reauthorization this year, and the GAO has issued a report examining states’ experience with the 10-year-old program. Approximately six million people were enrolled in the program as of fiscal year 2005, the latest year that data were available. States’ aggregate annual spending began to exceed annual allotments by fiscal year 2002, and the program “now threatens to exceed available funding.” The GAO writes that Congress should consider three issues when addressing SCHIP reauthorization: “(1) maintaining flexibility within the program without compromising the primary goal to cover children, (2) considering the program’s financing strategy, including the financial sustainability of public commitments, and (3) assessing issues associated with equity, including better targeting SCHIP funds to achieve certain policy goals more consistently nationwide.”
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Authors: Brett J. Skinner and Mark Rovere
Source: Fraser Institute, 02/07

Brett Skinner and Mark Rovere of the Vancouver-based Fraser Institute refute the claim that patented prescription drugs are the primary cause of unsustainable health care costs in Canada. The drugs accounted for only 6.8% of government health spending in 2005, ?too small a percentage of government health spending to be blamed for [the system’s] lack of financial sustainability,? the authors conclude. While use of drugs has increased, ?[a]fter-market prices for patented drugs have been stable for the last 18 years.? The authors conclude that ?the real driving force behind rising health care costs is the flawed design of Canada’s single-payer health care system? that blocks market forces from ?the rational allocation of health technology [to] optimize overall efficiency gains.?
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Source: Competitive Enterprise Institute, 01/30/07

The majority of orthopedic surgeons believe the U.S. Food and Drug Administration’s (FDA) approval process ?compromises patient care and quality of life? and needs an overhaul, according to a survey released by the Competitive Enterprise Institute. Eighty percent of the physicians surveyed believe that Vioxx, which was voluntarily withdrawn from the market in 2004, should be available again. ?The drug’s continued absence from the market, despite an FDA panel’s recommendation that it be returned, illustrates how needed therapies can be blocked not only by FDA regulations but by liability concerns,? according to Sam Kazman of CEI. Additionally, 76% of the physicians surveyed believe that FDA’s approval process is too slow, 60% believe FDA hinders their use of new therapies, and 73% believe that FDA delays in approving new drugs ?hurt patients.? The majority (70%) also ?favor changing the law to give physicians access to unapproved therapies if they carry a warning about their unapproved status.?
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Author: John C. Goodman
Source: Weekly Standard, 02/12/07

Governor Schwarzenegger’s proposed health plan “would generate more perverse incentives than it would eliminate,” writes John Goodman of the National Center for Policy Analysis. “Californians will pay more for their health care; low-income families will pay a lot more for their care; [and] federal taxpayers will get taken to the cleaners,? Goodman observes. ?Like the Massachusetts plan (but much worse), the California plan encourages people with unsubsidized insurance to get subsidized insurance instead.? And he says the 4% fine for employers who don’t provide health insurance will hit wage earners instead.
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Source: Council for Affordable Health Insurance, 02/07

The Council for Affordable Health Insurance has published a guide explaining the variety of health care issues facing state policymakers. CAHI summarizes each issue, highlights actions taken by the states and offers possible solutions.
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Making Social Programs Work Better
AEI-Brookings Joint Center Book Forum
Thursday, February 15, 2007, 11:45 a.m. – 2:00 p.m.
Washington, DC

For additional details and registration information, go to:

Alternative Medicine: The Savvy Consumer’s Guide to Healthcare
Greenwood Press Book Launch
Saturday, February 17, 2007, 7:00 p.m.
Lexington, KY

For additional details, go to:

The Media and Medical Science: Redefining Roles and Responsibilities
Center for Medicine in the Public Interest Conference
Wednesday, February 21, 2007, 9:00 a.m. – 5:00 p.m.
Washington, DC

For additional details and registration information, go to:

How Will the President’s Tax Deduction for Health Insurance Work?
American Enterprise Institute Event
Monday, February 26, 2007, 9:00 a.m. – 1:30 p.m.
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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