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As we feared, the House Ways and Means Committee did indeed approve legislation on Wednesday that would require every expenditure from Health Savings Accounts to be approved, injecting new complexities, driving up costs, and discouraging HSA enrollment.

Wisconsin Rep. Paul Ryan was the hero to HSA-advocates in leading the battle to strike the provision, but his amendment was defeated on a largely party-line vote. The measure was a tempting target for Democratic leaders in Congress who generally dislike HSAs and are always looking for new ways to raise money to pay for other spending.

The Joint Tax Committee said the provision would save more than $300 million because the IRS will be collecting more penalties on HSAs and because contributions to HSAs will go down. They admitted that the HSA "substantiation" provision would have a significant impact on the HSA market.

It's not clear that the Democratic leadership would have realized the damage they could do with this one seemingly small change, and there is a lot of anger at the Republican lobbyist who offered the idea on behalf of a self-interested benefits management company.

And the legislation is totally unnecessary. Under current law, if people with HSAs use the money in their accounts for non-medical purposes, they have to pay taxes on the money, plus a 10% penalty — the same as if they had withdrawn the money directly.

When people take a deduction for other kinds of medical expenses on their tax returns, they can claim anything they want, but if they are audited and can't validate the expense, they are subject to penalties.

Chairman Rangel offered an amendment that would delay implementation by two years (until 2011) so there is still time to bring sense to this debate as it moves to a less-certain fate in the Senate.

Clearly this was not a good week on Capitol Hill: The House Energy and Commerce Health Subcommittee approved legislation to block for a year the Bush Administration's rules to curb some of the fraud and abuse in the Medicaid program. You will recall that I testified on this last week, offering examples about Medicaid money being used to pay for transportation to bingo games and other non-medical expenses.

The special interests won. The taxpayers lost. The measure passed on a voice vote, and Ranking Member Joe Barton signaled that it would be very difficult to override if the president were to veto to the bill.

If nothing else, this shows how difficult it is to curb even documented abuse once a government health spending program is established. The only solution is to avoid expanding these programs that take on a life and constituency of their own.

And I returned at 2 a.m. today from a six-day speaking trip that started last Saturday in Chicago, with a talk on transparency to the American Board of Quality Assurance and Utilization Review Physicians.

Then on to Las Vegas to speak at the beautiful new Red Rock Resort to a Public Affairs conference of the National Association of Manufacturers on Monday.

Then back to Harrah's on the Strip in Las Vegas for a talk on Medicare hosted by former Medicare Trustee Tom Saving at the Association of Private Enterprise Education conference on Tuesday.

And finally, yesterday, a talk on "Can We Repair What's Wrong with Our Health Care System through Christian Principles?" at the Acton Institute's Lecture Series in Grand Rapids, Michigan, right after a quick visit to the beautiful President Ford Museum and Library there.

These speeches and visits outside Washington are always encouraging to show, despite our problems with legislators in Washington, the wisdom and clear-headedness of the American people about the importance of keeping our health sector free and giving people new choices in a competitive economy.

Grace-Marie Turner

Recent News Articles and Studies

In Massachusetts, Universal Coverage Strains Care
Universal Coverage One Head at a Time — The Risks and Benefits of Individual Health Insurance Mandates
Medicare Coverage and Strategies: Impact of the MMA and PBMs
Dutch and German Health Ministers Talk With Leading U.S. Analysts In Health Affairs Web Exclusive Interviews
The Misguided War Against Medicines
Covering Uninsured Children in the State Children's Health Insurance Program

In Massachusetts, Universal Coverage Strains Care
Kevin Sack
The New York Times, 04/05/08

Massachusetts' law requiring everyone to have health insurance is putting added pressure on primary care physicians and lengthening the wait for appointments — an unintended consequence of universal coverage, reports The New York Times. Physician Patricia A. Sereno said an influx of the newly insured to her practice just north of Boston has stretched her daily caseload to as many as 22 to 25 patients, up from 18 to 20 a year ago. To fit them in, she limits the number of 45-minute physicals she schedules each day, thereby doubling the wait for an exam to three months. "It's a recipe for disaster," Dr. Sereno said. "It's great that people have access to health care, but now we've got to find a way to give them access to preventive services. The point of the legislation was not to get people episodic care."

Universal Coverage One Head at a Time — The Risks and Benefits of Individual Health Insurance Mandates
Sherry A. Glied, Ph.D., Columbia University
New England Journal of Medicine, 04/10/08

The risks associated with individual mandates suggest that they are no panacea, writes Glied. One important concern is that the government will provide insufficient funds for the subsidies int
ended to accompany the mandate. In that case, the mandate will act as a very regressive tax, penalizing uninsured people who genuinely cannot afford to buy coverage. This concern has led Massachusetts to create a hardship exemption for its mandate — an escape clause that effectively undoes the mandate if subsidies are inefficient. The ease with which it is possible to lift the mandate if the legislature fails to appropriate funds may make the individual mandate a rather rickety form of universal coverage. Further, if subsidies are insufficient or benefits inappropriate, the mandate will be very difficult to enforce and draconian in effect. To be effective, an insurance mandate should be in place at the beginning of an insurance term, ensuring that people have coverage when an adverse event occurs. Developing a system to promptly identify and penalize scofflaws will take effort and ingenuity, particularly in our diverse and mobile country and may require a degree of intrusiveness and bureaucracy that some will find unpalatable.

Medicare Coverage and Strategies: Impact of the MMA and PBMs
Interview with Joseph Antos, Ph.D., American Enterprise Institute
American Health & Drug Benefits, 02/08

AEI's Joe Antos describes ways in which the Centers for Medicare and Medicaid Services exerts its influence over the health sector in the wake of the Medicare Modernization Act and in the face of evidence-based medicine standards. Medicare's outpatient prescription drug benefit has ratcheted up CMS's direct involvement and influence on every aspect of the pharmaceutical industry, from research and development of new products to pricing and distribution to the end-user. The immediate impact of Part D has largely been beneficial to manufacturers, distributors, health plans, employers, and Medicare beneficiaries, he says. However, the substantial shift in pharmaceutical spending from private payors and Medicaid to Medicare will focus intense political pressure on every part of the supply chain. A CMS veteran, Antos also provides a chronology of CMS's role, from the agency's inception to today, and offers insight into CMS's strategy and tactical effects on the American health care system.

To begin to address Medicare's looming insolvency, the federal government should allow Medicare beneficiaries to take full advantage of consumer-driven reforms that exist in the private sector, such as health savings accounts, writes John R. Graham of the Pacific Research Institute.

Dutch and German Health Ministers Talk With Leading U.S. Analysts In Health Affairs Web Exclusive Interviews
Health Affairs Web Exclusive, 04/08/08

As the United States debates health reform, the Dutch and German health systems have been increasingly put forward as potential models. These nations have achieved universal coverage through competition among non-governmental insurers within a governing regulatory framework, along with government subsidies for those with low incomes. In interviews with Prof. Uwe Reinhardt and Tsung-Mei Cheng of Princeton and Prof. Alain Enthoven of Stanford, German Health Minister Ulla Schmidt and Dutch Health Minister Ab Klink discuss their health systems, including efforts their countries are making to increase competition. For example, Klink says: "Competition now is especially at the level of the insurance companies. Still, many of the prices for care are fixed by the Dutch government. What we are trying to do in the coming years is to free prices, on the one hand, and to make insurance policies transparent, so that these two issues form pillars of the competition that we want to achieve."

The Misguided War Against Medicines
Brett J. Skinner and Mark Rovere
The Fraser Institute, 04/10/08

Government spending on prescription drugs is not to blame for the Canadian health system's lack of financial sustainability, according to the Fraser Institute. This study shows that prescription drugs accounted for only 9.3% of total government spending on health in 2006, down from 9.6% in 2005. Patented prescription drugs accounted for only 6.3% of total government health spending in 2006, down from 6.8% in 2005. After spending on drugs is subtracted, all other areas of health care accounted for 91.4% to 90.7% of total government health spending between 2002 and 2006. The study also found no statistical link between annual growth rates in total government health spending and increased spending on drugs. Additionally, the study found that Canadian government data showed average prices for existing patented prescription drugs in Canada have grown at a slower annual pace than the general rate of inflation for 17 of the last 19 years.

Covering Uninsured Children in the State Children's Health Insurance Program
Peter R. Orszag, Congressional Budget Office
Testimony before the Subcommittee on Health Care, Committee on Finance, 04/09/08

Orszag's testimony on the State Children's Health Insurance Program (SCHIP) focuses on its impact on the number of uninsured low-income children and the extent to which it displaces private coverage. According to CBO's estimates, the portion of children in families with income between 100% and 200% of the poverty level who were uninsured fell by about 25% between 1996 (the year before SCHIP was enacted) and 2006. In contrast, the uninsurance rate among higher-income children remained relatively stable during that period. CBO has concluded that for every 100 children who gain public coverage as a result of SCHIP, there is a corresponding reduction in private coverage of between 25 and 50 children. Orszag also discusses the Administration's August 17, 2007 directive to state health officials that imposes certain minimum requirements on states seeking to enroll children in SCHIP whose families have income above 250% of the poverty level. CBO's analysis suggests that the directive's impact on enrollment is likely to be modest.

Upcoming Events

Cracking Down on Killer Drugs: Dora Akunyili and the Nigerian Success Story
American Enterprise Institute Event
Monday, April 14, 2008, 9:30 a.m. – 11:00 a.m.
Washington, DC

The Impact of Health Insurance in Developing Countries: Experiences from China and Colombia
The Brookings Institution Event
Tuesday, April 15, 2008, 10:00 a.m. – 12:45 p.m.
Washington, DC

Health Care in Crisis: What's Driving Health Reform in Canada and the
United States?
Woodrow Wilson International Center for Scholars Event
Wednesday, April 16 2008, 9:00 a.m. – 11:00 a.m.
Washington, DC

Election Year 2008: Health Care Reform Debate
George Washington University Event
Thursday, April 17, 2008, 6:30 p.m. – 8:30 p.m.
Washington, DC

Nudge: Improving Decisions about Health, Wealth, and Happiness
American Enterprise Institute Book Forum
Friday, April 18, 2008, 12:15 p.m. – 2:00 p.m.
Washington, DC

Hospital CEO Roundtable: Balancing Cooperation and Competition
Oregon Health Forum Event
Tuesday, April 22, 2008, 7:00 a.m. – 9:00 a.m.
Portland, OR

2008 Leadership Development Breakfast
State Policy Network Event
Thursday, April 24, 2008, 8:00 a.m. – 10:00 a.m.
Atlanta, GA

Innovations in Health Care Delivery
Federal Trade Commission Public Workshop
Thursday, April 24, 2008, 9:00 a.m. – 5:30 p.m.
Washington, DC

SAVE THE DATE!
An address by Health and Human Services Secretary Michael Leavitt
Jointly sponsored by the Galen Institute, The Heritage Foundation and the American Enterprise Institute
Tuesday, April 29, 2008, 9:45 a.m.
Washington, DC

SAVE THE DATE!
Consumer Health World Conference
May 4-7, 2008
Las Vegas, NV
Email galen@galen.org for a registration discount code.

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 www.galen.org.

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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.