California Faces Reality

The grand universal health plan of Republican Gov. Arnold Schwarzenegger and Democratic leaders in the California legislature collided with reality this week.

The plan to expand health insurance to five million more people, while wrapping the state's health sector in miles of new red tape and burdening businesses with new mandates and taxes, was resoundingly defeated by a crucial committee. It may have been the lack of a legitimate funding mechanism for the $14 billion plan, or the $14 billion California state budget deficit, or its massive over-reach and central flaws, or all three.

The individual mandate that was the centerpiece of the plan had support from only 16% of Californians, according to a recent opinion poll. A Wall Street Journal column yesterday said: "The most vociferous opponents were not fiscal conservatives, but labor unions that launched a last-minute revolt against its most crucial feature: an individual mandate that would have forced everyone to buy coverage."

These huge state experiments that try to solve problems in our health sector without addressing the root causes of inflationary pressures on health costs are doomed to fail.

On the other side of the country, Massachusetts is struggling mightily with its own universal health plan. The Boston Globe reported that the state is facing $400 million in red ink in trying to cover costs for its plan. Health costs are going up, and as they do, the state is forced to exempt more and more people from the mandate, unraveling the goal of universal coverage.

The lessons for the 2008 presidential campaign are not to be taken lightly. Big, expensive, highly-regulatory health reform plans are not faring well.

For those of us who don't live in California, Los Angeles Times Sacramento columnist George Skelton provides a concise review of the action.

"All last year, Schwarzenegger, Democratic leaders and interest groups tried to negotiate a plan to provide medical insurance for roughly 5 million uncovered Californians. Finally in mid-December, the governor and speaker compromised on a strange deal. The Legislature would pass a plan providing the coverage benefits on a majority vote. But to raise the revenue — hospital and employer fees, a stiff tobacco tax — citizen signatures would be collected and an initiative placed on the November ballot. That was necessary because a two-thirds vote was required to pass a revenue bill. And Schwarzenegger couldn't deliver the needed Republicans.

"Time was crucial to qualify the measure. So the benefits bill was rushed through the Assembly just before Christmas, on a party-line vote, after only a pro forma committee hearing.

"Hold on, proclaimed a leery [Senate President Pro Tem Don] Perata. He called in the 'Budget Nun,' nonpartisan Legislative Analyst Elizabeth G. Hill, whose reports are incorruptible and considered the Capitol bible. Last week, she reported that the healthcare plan could be underfunded by anywhere from $300 million to $3 billion annually within five years.

"But it was too late for amendments. The Senate was told to take the bill or leave it — not a nice sound to a legislator.

"[Health Committee Chairwoman Sheila] Kuehl's committee held a thorough, 11-hour hearing — virtually unheard of in Sacramento these days — and afterward the bill mustered only one vote. 'It doesn't matter if there are these good things in the bill if there isn't the money to pay for them,' Kuehl noted."

What's next? The problems aren't going away. The failure of this state effort will put even more focus on the presidential contest to address health reform. I tried to shed some light on that contest in my Wall Street Journal article on Tuesday, as you saw in our dispatch earlier this week (and thank you for so many positive comments!).


And speaking of state issues, I am in New York for several speeches, including testimony today before the New York State Assembly's Committee on Health. The state legislature is considering an avalanche of bills designed to ratchet down pharmaceutical prices and spending, even though drug spending represents only 4% of New York's total $47 billion Medicaid budget. Assemblyman Richard N. Gottfried, chair of the Health Committee, was holding a hearing on four of these bills.

I suggest in my testimony that the Assembly might want to look at the option of — don't faint — a dose of competition and choice.

Medicare Part D, for example, shows that the forces that work in the private sector to drive down costs and increase choice also can be integrated into public programs.

The Centers for Medicare and Medicaid Services announced yesterday that the costs for the new Medicare prescription drug benefit continue to be far below projections even as enrollment is rising.

The drug benefit now is expected to cost $117 billion less over the next ten years than the government estimated just last summer. And there's more: "Compared to original Medicare Modernization Act (MMA) projections, the net Medicare cost of the new drug benefit is $243.7 billion (or 38.5 percent) lower over the ten-year period (2004-2013) used to score the MMA," CMS acting administrator Kerry Weems said.

To repeat, this program is coming in 38.5% under projections. Where have we ever heard of that happening with a public program before? Secretary Michael Leavitt credits the slowing of drug cost trends, lower estimates of plan spending, and higher rebates from drug manufacturers for the results.

…And competition and consumer choice.

I suggested to New York legislators that rather than trying to balance the state's budget by further squeezing pharmaceutical spending with its traditional torture tools, New York might also want to look at innovative programs to empower physicians to make better decisions about medications for their patients.

A new program called eMPOWERx allows physicians to get real-time information on medications that other physicians have prescribed for Medicaid patients to prevent adverse drug interactions, over-prescribing of the same or similar drug by different physicians, or the improper use of narcotics.

The power of information to solve many of the problems in the health sector has barely been tapped. This is a much more productive path than the futile, dead-end road of price controls and more expensive rules and red tape for physicians, patients, and health sector companies.

We must move forward!

Grace-Marie Turner


The GOP's Prescription for Health Care
Grace-Marie Turner, Galen Institute
The Wall Street Journal, 01/29/08

The leading Republican presidential candidates have big and transformative ideas designed to energize the free market to target many of the problems that plague our health sector, writes Grace-Marie Turner. All have announced plans that would give more power and control to individuals over their health care and health insurance, breaking the employment-based coverage lock. The GOP candidates want to boost options for individually-owned health insurance, and they would change federal tax policy to create new deductions and/or tax credits for health insurance. The candidates would also allow people to purchase health insurance across state lines, and they would give states new incentives to fix problems, especially regulations and mandates, that have helped make health insurance so expensive in the first place.

To Mandate, or Not?
Grace-Marie Turner, Galen Institute
The Oklahoman, 01/27/08

The Democratic presidential candidates are rightly concerned about families who cannot afford health care. But forcing every American to purchase insurance isn't the solution, writes Grace-Marie Turner. An individual mandate for health insurance leads to a slippery slope in which the government gradually takes over the insurance market — controlling which policies are acceptable, how much they cost, who must pay and what it costs taxpayers. Instead, a rational system of deductions and credits should be developed to expand access to private health insurance. Meanwhile, regulations that impede competition should be lifted to make the coverage more affordable.

Minority Report
Linda Gorman, Independence Institute, and R. Allan Jensen, Independent Life and Health Insurance Broker
Colorado Blue Ribbon Commission for Healthcare Reform, 01/26/08

Linda Gorman and Allan Jensen, members of Colorado's health reform commission that has been laboring for more than a year to develop a plan for the state, have written a dissenting report that explains why the Commission has produced inadequate policy recommendations and offers alternative suggestions for real reform. They describe three main areas in which the commission's recommendations fall short:

  • The first is that a vibrant free market for private health care and health insurance should be the central part of any serious health care reform plan. Though some commission recommendations mention consumer choice and market reform, other recommendations make such reforms impossible, and too many of its recommendations would destroy or severely damage private health plans, private health insurance, and private medical care.
  • The commission neglects promising developments in account-based consumer-directed health care initiatives and instead favors various mandated insurance programs directed or controlled by government.
  • The commission recommendations substantially extend government control of medical practice without addressing compelling evidence that this has the potential to degrade care and increase costs.

A Progress Report on State Health Access Reform
John E. McDonough, Michael Miller, and Christine Barber
Health Affairs Web Exclusive, 01/29/08

States have initiated the most far-reaching and expansive wave of state health coverage reforms since an earlier surge between 1988 and 1993. This study provides a snapshot and discussion of recent state actions on health reform. Lawmakers in at least 39 states and the District of Columbia have enacted laws to address shortcomings in health insurance access, quality, and costs. At least 13 states have begun processes to enact comprehensive reforms to cover at least half of their uninsured residents. The study also identifies six new ideas in reforms enacted thus far: individual mandates; new employer responsibilities; insurance connectors/exchanges; small-group and individual market merger; allowing all employers to buy into state coverage pools; and combining coverage expansions with quality and cost initiatives.

Technological Change and the Growth of Health Care Spending
Congressional Budget Office, 01/08

CBO Director Peter Orszag in testimony before the Senate Budget Committee summarized a new report on the historical growth in U.S. health spending, which has more than tripled over the past 40 years. Highlights:

  • Most analysts agree that the most important factor driving the long-term growth of health care costs has been the emergence, adoption, and widespread diffusion of new medical technologies and services by the U.S. health care system.
  • Other factors, including rising personal income, a growing share of health care costs by third-party payers, and the aging population, contributed to historical spending growth by increasing the demand for medical services.
  • Technological advances are likely to yield new, desired medical services in the future, fueling further spending growth and imposing difficult choices between health care and other priorities.

Saying No to CoerciveCare
Shikha Dalmia
The Wall Street Journal, 01/31/08

The Massachusetts health plan, which imposes an individual mandate for health insurance, deserves a lot more scrutiny than it has been getting, writes The Wall Street Journal. Massachusetts uses a sliding income scale to subsidize coverage for everyone up to 300% of the poverty level, and everyone over that is required to pay for coverage if their employers don't provide it. This has inflated demand, which, combined with onerous regulations on insurance suppliers, has triggered premium increases of 12% for this year — double last year's national average. Further, the state health-care bill for fiscal 2008-2009 is expected to reach $400 million — 85% more than originally projected. In response, the Commonwealth Health Insurance Connector Authority is considering prohibiting underwriters from raising premiums more than 5% for unsubsidized plans, meanwhile requiring them to cover more than 40 mandated benefits from hair prostheses to chiropractic services.



2008 Capitol Conference
National Association of Health Underwriters Event
February 3-6, 2008
Washington, DC
Grace-Marie will speak about the presidential candidates’ health care proposals on Tuesday, February 5.

The Right Rx for Florida: A Health C
are Innovation Forum

The James Madison Institute Event
Thursday, February 7, 2008, 8:30 a.m. – 4:00 p.m.
Tallahassee, FL
For more information, contact The James Madison Institute at 866-340-3131 or

Forward for Freedom: The Power of Principle
Conservative Political Action Conference
February 7-9, 2008
Washington, DC
Grace-Marie will speak about "A Conservative Approach to Health Care Reform" on Friday, February 8.

The Good News About OHP: Lessons From Managed Care
Oregon Health Forum Event
Tuesday, February 12, 2008, 11:30 a.m. – 1:30 p.m.
Salem, OR

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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