A Crystal Ball?

House action on changes to government health programs this year foretell more sweeping changes that are likely to come next year if Democrats make expected gains in the November elections.

First example: Rep. Henry Waxman, chairman of the House Oversight and Government Reform Committee, plans to introduce a bill soon that will extend price controls in the Medicaid program to some private Medicare Part D prescription drug plans. The legislation would target the plans that serve the six million people who qualify both for Medicare and Medicaid.

Waxman released a report yesterday saying that U.S. drug manufacturers are reaping "windfall" profits because Medicare's private prescription drug benefit plans pay more for the same drugs than the price-controlled Medicaid program does.

Rep. Thomas M. Davis III of Virginia said that Waxman's plan would be a "short-lived and painful" way to capture savings. He and others warned that such price controls would slash industry spending on research and significantly curtail development of new drugs.

They argue that the Part D benefit is costing seniors and taxpayers much less than expected, largely because of the forces of private competition. According to the Department of Health and Human Services, the average senior is paying $25 a month in Part D premiums this year, 40% below the original estimate of $41, and beneficiaries are saving an average of $1,200 a year in drug spending. Compared to original projections, the cost to the taxpayers of the new drug benefit is $243.7 billion, or 39%, lower over 10 years than original estimates.

A minority report said that moving those dually eligible for Medicare and Medicaid back to Medicaid drug coverage "would likely be opposed by advocates of low-income seniors, dual-eligible seniors, and states" because they have a better drug benefit under Part D. "While the Medicaid program is required to cover a broad array of drugs, states have responded to budgetary concerns by using a number of tools that effectively limit access to certain prescription drugs or quantities of drugs."

But, as Congressional Quarterly reported yesterday, "The change proposed by Waxman would strike at the heart of the 2003 law, which relies on competition between private plans rather than government-mandated discounts, the tool used to keep Medicaid prices down, to control prescription drug spending in Medicare."

Other actions show the lure of Congress to expand government control over the health sector with, in many cases, significant support from Republican members:

  • A House vote on Thursday effectively blocks a vote on a plan proposed by the White House to limit the proportion of general revenue funds going to fund Medicare.

    In response to a requirement in the 2003 Medicare Modernization Act, President Bush has recommended steps to reduce the entitlement program's reliance on general revenues. Bush proposed, for example, having wealthier beneficiaries pay higher monthly premiums for their Medicare prescription drug benefit as well as limiting punitive damages awarded in medical malpractice cases.

    The changes Bush sought were designed to keep general revenues from covering more than 45% of overall Medicare costs through at least 2013. Secretary Leavitt responded: "In my view, this is morally irresponsible and ignores the clear duty to preserve and improve Medicare for our senior citizens. Congress' continued inaction will impose the crushing obligations of a broken system on our children and grandchildren and undermine our country's economic viability in a global economy."

  • Congress passed legislation over President Bush's veto this month that will cut spending for private fee-for-service plans in Medicare Advantage and keep Medicare from negotiating lower prices for medical equipment, such as wheelchairs and oxygen supplies.
  • A House Energy and Commerce subcommittee held hearings this week about a proposal to increase the amount of money the federal government sends to the states to match their spending on Medicaid. You can read summaries and links below to testimonies by Bob Helms of AEI and Jim Frogue of the Center for Health Transformation explaining why it is a very bad idea to broaden this regressive, distorting federal Medicaid matching rate.
  • The House also is leading efforts to overturn several administration rules that would curtail some of the worst abuse of the Medicaid program. I described this at length in my own testimony before the House Energy and Commerce Committee this spring.
  • And of course, a major expansion of the State Children's Health Insurance Program passed both houses of Congress last year but was vetoed by President Bush. An even bigger expansion would likely be first on next year's congressional agenda since the current extension expires on March 31, 2009.

We don't have a crystal ball, but it's clear the direction that a new Congress would go: Expansion of government programs with little regard for the huge bills that taxpayers would have to pay.

Grace-Marie Turner

Recent News Articles and Studies

State Fiscal Relief: Protecting Health Coverage in an Economic Downturn
American Cancer Care Beats the Rest
Little Bang for the Buck: Is the Tax Code to Blame for the Paltry ROI on U.S. Healthcare Spending?
Health Plan From Obama Spurs Debate
You Get What You Pay For: A Global Look at Balancing Demand, Quality, and Efficiency in Healthcare Payment Reform
2008 Health Care Cost Survey

State Fiscal Relief: Protecting Health Coverage in an Economic Downturn

Robert B. Helms, American Enterprise Institute
House Energy and Commerce Committee, Subcommittee on Health, 07/22/08

The congressional proposal to temporarily boost the Federal Medical Assistance Percentage (FMAP) to the states is misguided, writes AEI's Robert Helms in his testimony before the House Energy and Commerce Subcommittee on Health. The open-ended nature of the FMAP formula creates a set of perverse incentives that encourages states to engage in accounting and taxing schemes to increase federal funding rather than trying harder to improve the efficiency and medical effectiveness of their programs, writes Helms. The proposed temporary increase in the FMAP does nothing to reform these perverse incentives and, in fact, makes them worse by rewarding this kind of behavior with an even higher matching rate, he writes. If additional assistance to the states is needed, it should be made available in the form of a fixed grant, concludes Helms. Further, if the funds could be allocated to the states on the basis of their economic performance and their populations of the poor and the disabled, the chances of improving the health and well-being of our most vulnerable populations would be greatly improved.

Legislation should be put forward that would require states to post their Medicaid patient encounter data on the Internet for all to see, writes
Jim Frogue of the Center for Health Transformation. This is administratively simple, cheap, and would have a profoundly positive impact on the quality of care delivered via Medicaid. In addition, it would dramatically increase accountability for how Medicaid dollars are spent thereby decreasing the likelihood that state leaders would return to seek still more money from Congress, writes Frogue.

American Cancer Care Beats the Rest

David Gratzer, Manhattan Institute
The Wall Street Journal, 07/22/08

A study to be published in the August issue of Lancet Oncology finds that U.S. medicine bests the cancer treatment available to people in 30 other countries, writes Gratzer. The Concord study compares five-year cancer survival rates for several malignancies and finds that the U.S. leads in the field of breast and prostate cancer. The results are in line with a study published in the Lancet last August, which compared American and European care and found that the U.S. fared better in 13 of the 16 cancers studied. Five-year survival rates for cancer care in men, for example, are 45% in England but 60% in the U.S. The British lag behind American survival rates because screening standards are different, writes Gratzer. In the U.S., internists recommend that men 50 and older get screened for colon cancer; in the U.K.'s National Health Service, screening begins at 75. British patients also wait much longer to see specialists. Further, novel drugs offered here often aren't available there, writes Gratzer. For instance, Avastin, a drug for advanced colon cancer, is prescribed more often in the U.S. than in the U.K., by some estimates as much as ten-fold more.

Little Bang for the Buck: Is the Tax Code to Blame for the Paltry ROI on U.S. Healthcare Spending?

Economic Research Initiative on the Uninsured, 07/08

Harvard Economics Professor Katherine Baicker, who served as a member of President Bush's Council of Economic Advisers, discusses the reasons for the disappointing return the United States gets on its health care spending, the need for tax code reforms and other changes that might boost that return, as well as the need for policymakers to look at health care spending and universal coverage together. "We need to address the problem of rising costs and the problem of the uninsured together. Proposals that focus exclusively on getting people covered by insurance run the risk of not being able to afford that coverage tomorrow if costs rise. Similarly, policies that focus just on containing costs will miss opportunities to promote much better health and more efficient use of health resources by getting people insured," said Baicker. "We should focus on policies that get higher value health care, which might then end up spending more on some people, spending less on other people…There will be fundamentally hard choices that have to be made, and policy makers have to think about who is going to make those choices. Somebody — individuals, the government, employers, insurers — has to decide how to allocate scarce resources. We want to set up a system where we're devoting resources to producing as much health as we can."

Health Plan From Obama Spurs Debate

Kevin Sack
The New York Times, 07/23/08

The dollar values that Sen. Barack Obama has attached to individual components of his health plan are beginning to attract scrutiny from health analysts and economists, writes The New York Times. His words about lowering "premiums" by $2,500 for the average family of four have been fairly consistent, but the health policy advisers who formulated the figure say it actually represents the average family's share of savings not only in premiums paid by individuals, but also in premiums paid by employers and in tax-supported health programs like Medicare and Medicaid. A number of health policy experts have also questioned whether the $2,500 projection is either fiscally or politically realistic, writes the Times. "There is no easy money because, as the saying goes, one person's fraud and abuse is another person's income," said AEI's Joe Antos. "I wouldn't think that four years or eight years or probably 10 years will be enough to see numbers of that sort."

You Get What You Pay For: A Global Look at Balancing Demand, Quality, and Efficiency in Healthcare Payment Reform

PricewaterhouseCoopers' Health Research Institute, 07/08

As the pressure to control health spending increases, payers and governments face the difficult challenge of balancing quality, efficiency, and demand through payment reform, according to a report from PricewaterhouseCoopers' Health Research Institute. Key findings:

  • Almost two-thirds of 200 health executives surveyed in 20 countries said their health systems were performing well. However, less than 40% said their payment systems were performing well.
  • Cost control was ranked as the most important factor in the development of payment systems in the future. It ranked more important than quality, efficiency, or demand in the survey.
  • A number of countries that have historically had tax-funded or social systems are adding market-based competition to spread the burden of payment and to encourage efficiencies. But multiple funding systems and payers operating together in the same market creates conflicting incentives and causes confusion if incentives are not coordinated and properly aligned.
  • Traditional gatekeeping systems, such as general practitioners and co-payments, are breaking down. In the survey, "better-informed patients" ranked highest as a way to better manage demand. "Increasing out-of-pocket payments" ranked lowest.
  • As more data from claims, diagnostic test results, patient surveys, and electronic medical records becomes available, providers and payers need to use those results to evaluate their reimbursement system.
  • Patients are paying more money out of pocket for care, and they're shopping for care at nontraditional venues and locations. Countries need to prepare to develop rational pricing for competing in the global market for healthcare services.

2008 Health Care Cost Survey

Towers Perrin, 01/08

Health care costs for U.S. employers will increase by 6% in 2007, according to Towers Perrin, a global consulting firm. The survey also finds that employers are continuing to explore account-based health plans, such as HSAs, as an attractive solution to control rising costs. Approximately half (46%) of survey respondents had account-based health plans in place in 2007 and a further 7% plan to implement them in 2008. The survey also finds that the majority of employers (84%) surveyed disagreed that the U.S. should have an exclusively government-run system and more than 60% anticipate major federal health care reforms will become law during the next two presidential terms. Roughly three-quarters of respondents view the states as drivers of change and expect that over half of the state legislatures will enact significant reforms within the next decade.

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Monday, July 28, 2008, 6:30 p.m. ET
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Can Consumers Save Medicare?
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Wednesday, July 30, 2008, 10:00 a.m. – 2:00 p.m. (Lunch included)
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Rising Rates of Chronic Health Conditions: What Can Be Done?
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For more information, please contact Tom Miller at TMiller@aei.org or 202-862-5800. More details on the event will soon be available on the AEI website.

Reforming the U.S. Health Care System: Supporting the Role of Individuals
Bipartisan Policy Center Forum
Monday, August 4, 2008, 11:00 a.m. – 5:00 p.m.
Lawrence, KS
For more information, please contact Matt Canedy at mcanedy@bipartisanpolicy.org.


Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features a commentary by Grace-Marie Turner on the major developments and issues of the week as well as summaries of writings by participants in the Health Policy Consensus Group and other articles of interest from the health policy world, plus 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 http://rs6.net/tn.jsp?t=bpphnpcab.0.0.xkzt75bab.0&ts=S0351&p=http%3A%2F%2Fwww.galen.org.

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