Cost, Cost, Cost

The cost of health care is on everyone’s mind, so it’s nice to have good news to report: The Centers for Medicare and Medicaid Services reported yesterday that average beneficiary premiums for the standard Medicare drug benefit will increase by just $3 a month in 2009, to $28. That is 37% lower than the $44 a month that legislators estimated seniors would pay this year when the Medicare Modernization Act was enacted in 2003.

Based upon bids received for the upcoming open season, CMS says 97% of beneficiaries could avoid any premium increase in 2009 by enrolling in a less expensive drug plan in their region.

And the drug benefit, based upon consumer choice and competition, also is costing taxpayers less than expected: CMS says it will cost $46.4 billion in 2009 vs. $74 billion that had been estimated for this year.

Competition works, even inside a public program, to give people more choices and keep costs down.

And choice works as well. Seniors who get their drug coverage through private Medicare Advantage plans pay about $11 less a month than seniors with standard drug coverage and, in many cases, seniors in these plans pay nothing extra for their drug coverage. Despite this, some in Congress want to shut down MA plans that are offering lower costs and more choices to at least eight million beneficiaries. Our fact sheet explains more about Medicare Advantage.

And there are members of Congress who also want to undermine the competitive drug benefit program, despite its success. Peter Pitts of the Center for Medicine in the Public Interest has a great blog refuting Rep. Dennis Kucinich’s misguided attempts to weaken the Part D program and open U.S. borders to dangerous drug importation. Not a good idea.



High health costs are very much on the minds of state legislators as they prepare for next year’s sessions. I traveled to Oklahoma this week for a speech before the House of Representatives’ Health Care Reform Task Force in the beautiful and ornate House chambers.

State Reps. Doug Cox and Kris Steele co-chair the task force, set up by House Speaker Chris Benge to investigate ways to expand access to health insurance for Oklahomans. In my presentation, I warned against adding more mandates and regulations or following the highly-regulatory lead of Massachusetts.

Legislators often believe they are doing the right thing for their constituents by forcing insurers to charge level premiums to all policy holders, mandating comprehensive coverage of dozens of health care services and providers, and requiring companies to sell insurance to all comers.

But these policies backfire and distort the market, discouraging young and healthy people from buying insurance and telling people they can wait until they are sick to buy coverage. For example, New York has both guaranteed issue and community rating laws, and it has health insurance costs that are 3.5 times higher than less-regulated Iowa, according to a Forrester Research study for eHealthInsurance.



Legislators are trying mightily to address problems in the health sector at the state level, but many of the forces driving their problems come from federal policy so they are continually frustrated. In fact, Harvard’s Steffie Woolhandler and David Himmelstein, two policy experts with whom I seldom agree on policy, have an important analysis in the latest International Journal of Health Services that explains how frustrating state-level changes can be.

They cite seven states that have undertaken major health reform initiatives since 1987, from Massachusetts to Tennessee to Washington State, only to see uninsured rates virtually unchanged, if not rising, by 2005, despite their massive and expensive reform efforts. (The authors, of course, are arguing for a government-run, single-payer system, but that’s another story…)

State leaders feel compelled to take action. And the public is watching. Four local TV stations and several major newspapers covered my talk in Oklahoma. Legislators, like many others in the health sector, are watching and waiting for the result of the November presidential election, which will be hugely influential in setting the tone and direction for health reform initiatives next year.

Federal tax policy changes are vitally important as are state efforts to open up their markets and allow more competition and consumer choice in health care and health insurance products. Competition works.



Whenever we can, my husband and I like to take walks after dinner in Old Town Alexandria, often down to the river where, on a clear night, you can look up the river and see the white dome of the Capitol building. A tiny light at the very top is illuminated when Congress is in session.

It is oddly reassuring when it’s dark, reminding us of the famous Mark Twain quote that “No man’s life, liberty, or property are safe when the legislature is in session.”

But lately, on these warm summer nights in August, the light remains on — almost unheard of during the August recess.

That’s because a band of Republican legislators is staging a protest against Congress adjourning before voting on energy legislation to address high gas prices. They are sacrificing vacations and family time to continue to press for a vote.

This protest is getting little mainstream media coverage, and the C-SPAN cameras aren’t turned on. But the legislators are continuing to give speeches and hold up charts, with tourists happily filling the galleries for a rare look at floor action in August.

“We’ve had between a dozen and two dozen members there every day,” House Republican Leader John Boehner said during a radio interview Wednesday morning. “The whole floor was packed; the gallery was packed,” he said. “This has never happened before.”

People are using cell phone cameras to film legislators, since no outside cameras are allowed on the House floor, then posting them on YouTube. Blog postings and emails are darting through cyberspace, along with new media constant-communication sites like Twitter.

Which leads us to wonder, what if health insurance or health care prices, like gas prices, were posted on huge signs on virtually every commercial street in the country to advertise rising prices? “MRIs: $600.” “Mammograms: $150.” We already hear radio announcements about bargains on Lasik eye surgery. Would this kind of price visibility give Congress and consumers a new incentive to demand lower prices?

The movement toward price visibility
is beginning. Many major insurance companies make pricing information available to clients. MinuteClinics and RediClinics post prices as do cash-only doctors. Medicare has a website that allows people to see typical prices of inpatient and outpatient procedures across the country. And a number of websites are springing up to provide consumer pricing information. Next, will we see hospital pricing on giant signs? That would be transformative indeed.



And finally, we will skip next week’s newsletter as I will be in California for a speech on Friday to the North Coast Association of Health Underwriters in Santa Rosa. (Whatever happened to those lazy days of August?)

Grace-Marie Turner

Recent News Articles and Studies

Consumer Response to a National Marketplace for Individual Insurance
Cigarette Tax Burnout
Entitlements: Not Just a Health Care Problem
Medical Tourism: Consumers in Search of Value
Medical Tourism: Health Care Free Trade
Government-Sponsored Research Carries High Costs


Consumer Response to a National Marketplace for Individual Insurance
Stephen T. Parente, Ph.D., Roger Feldman, Ph.D., Jean Abraham, Ph.D., Yi Xu, B.A.
Carlson School of Management, University of Minnesota, 06/28/08

Allowing consumers to purchase health insurance across state lines can provide a significant opportunity to reduce the number of uninsured, according to a new paper by Steve Parente, Roger Feldman, et al, released at a recent AEI conference. The authors’ simulation model includes analysis of the impact of several new purchasing scenarios, including allowing competition among health insurers across state lines within four regions of the country. They find that the moderate (most likely) impact would be that 11 million more people who are currently uninsured would obtain coverage. They conclude that opening insurance to competition across state borders would lead to substantial additional health care access and health improvements among the vulnerable populations who currently find health insurance unaffordable. In addition, development of a national market requires no additional federal resources other than support for legislation to permit it.


Cigarette Tax Burnout
The Wall Street Journal, 08/11/08

Maryland is the latest state to prove the folly of trying to finance government with a tax on a shrinking pool of smokers, writes The Wall Street Journal. Last year, the Maryland legislature doubled the cigarette tax to $2 a pack to pay for expanded health-care coverage, but eight months later, cigarette sales have plunged 25% and the state is in fiscal distress again. In New York City and State, tobacco taxes have been raised so many times that the retail cost can exceed $9 a pack — about double the national average. Members of Congress should take note, writes the Journal. Democrats are planning one more pre-election go at a $35 billion children’s health program expansion funded by a 61-cent per pack tobacco tax increase, justifying the new levy as a “sin tax.” OK, but if Americans don’t start sinning a whole lot more, states and Uncle Sam are going to go broke.

Entitlements: Not Just a Health Care Problem
Andrew G. Biggs
American Enterprise Institute, 08/08/08

Some claim that increases in health costs are by far the dominant source of projected increases in overall entitlement program costs, using that claim to justify a far-reaching overhaul of both public and private health care provision, writes Biggs. However, using standard accounting practices and including all major government entitlement programs, population aging will play an equal role with health care cost growth over the next 75 years and will play a significantly larger role over the next few decades. None of this implies an either-or choice: policies to improve health care efficiency and reduce cost growth must be undertaken alongside policies to tackle the challenges of population aging. Further, population aging cannot be stopped, so prompt action to bring Social Security, Medicare, and Medicaid into long-term financial balance is necessary, writes Biggs.


Medical Tourism: Consumers in Search of Value
Deloitte Center for Health Solutions, 07/30/08

More than 750,000 Americans left the country last year for less expensive medical treatments, a number projected to grow to six million by 2010, according to a study from the Deloitte Center for Health Solutions. Other key findings:

  • Outbound medical tourism currently represents $2.1 billion spent by Americans overseas for care and $15.9 billion in lost revenue for U.S. health care providers. Americans primarily seek this sort of care for elective surgical procedures.
  • The number of outbound medical tourists is projected to rise to 15.75 million in 2017, representing a potential $30.3 billion to $79.5 billion spent abroad by Americans. As a result, the potential lost revenue for U.S. health care providers could top $228.5 billion to $599.5 billion.
  • Medical care in countries like India, Thailand and Singapore can cost as little as 10 percent of the cost of comparable U.S. care, often including airfare and a stay at a resort.
  • In 2008, more than 400,000 non-U.S. residents will seek care in the United States, known as inbound medical tourism, and spend almost $5 billion for health services.

A separate study from Deloitte finds that the number of retail clinics in operation has soared by 220 percent from just 250 clinics in 2006 to more than 800 serving patients by the end of 2007. Consumers are flocking to retail clinics not only for convenience, but also for the relatively low prices compared with visiting their primary care physicians for the same treatments. The cost of services provided by retail clinics ranges from $50 to $75, with the majority priced at $59, compared to a physician’s office visit, which can cost from $55 to $250. Additionally, the cost for a retail clinic physical, at $25 to $49, can also result in savings compared to a physical at a physician’s office that can cost anywhere from $50 to $200.

Medical Tourism: Health Care Free Trade
Devon Herrick
National Center for Policy Analysis, 08/12/08

Fees for medical treatment abroad range can range from one-half to as little as one-fifth the price in the United States, depending on the destination country and the type of procedure performed, writes Herrick. For example, Apollo Hospital in New Delhi, India, charges $4,000 for cardiac surgery, compared to about $30,000 in the U.S. Medical
licensing laws should be brought into the information age, where distance (or country) is irrelevant in procuring many medical services, writes Herrick. Further, insurers and employer-sponsored health plans should be able to offer financial incentives for seeking care abroad, much as they do currently for medical services within their network, without facing increased liability risks. Federal and state government should lead by example, by allowing Medicare and Medicaid programs to send willing patients abroad. Medicare would particularly benefit from cost savings since it pays for a large volume of orthopedic and cardiac procedures.


Government-Sponsored Research Carries High Costs
Robert Goldberg, Center for Medicine in the Public Interest
The Oklahoman, 08/02/08

Many political leaders have called on governments to evaluate the relative impact of various drugs and medical treatments in an effort to control health costs, writes Goldberg. But history has shown just how dangerous this approach to medicine can be. Based on state-run comparative-effectiveness trials, Britain’s National Health Service has been pushing patients onto a less expensive cholesterol-lowering drug called simvastatin in favor of Lipitor. While the British government has probably saved some money, it comes at a cost, writes Goldberg. An eight-year study found that “major cardiovascular events” had increased by more than a third among patients forced to make the switch. As politicians grope for ways to control health care spending, they should be sure that their policies don’t do more harm than good. Comparative-effectiveness research has a role to play in fostering more cost-effective use of health resources — but not at the expense of patient care.


Upcoming Events

Town Hall Meeting: Access to Health Care
Wayne State University School of Medicine Event
Monday, August 18, 2008, 11:30 a.m. – 1:30 p.m.
Detroit, MI

Differing Approaches to a National Crisis: Presidential Candidates’ Health Care Plans Debated
Oregon Health Forum Event
Tuesday, August 19, 2008, 7:00 a.m – 9:00 a.m.
Portland, OR

2008 Educational Symposium
North Coast Association of Health Underwriters Event
Friday, August 22, 2008, 7:30 a.m. – 4:00 p.m.
Santa Rosa, CA
Grace-Marie will speak at the North Coast Association of Health Underwriters 2008 Educational Symposium.

Third National Consumer Driven Healthcare Summit
October 19 – 21, 2008
Washington, DC


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

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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.