The bombshells started dropping on the health reform front this week:


  • Soaring costs: The Congressional Budget Office told the Senate health committee its bill would cost $1 trillion over the next 10 years and would only provide health insurance for a net 16 million more people. It said 15 million would lose their coverage at work and eight million would lose coverage from other sources, leaving 36 million uninsured. Since the goal is to have virtually everyone covered with no deficit spending, this was a double whammy, especially since there is even more spending in the bill that the CBO hasn't yet scored.


  • Delay: The Senate Finance Committee was forced to delay its work on developing its bill when the CBO offered a preliminary cost estimate of $1.6 trillion over 10 years. Somehow in the hall of budget mirrors in the U.S. Congress, the most they are willing to spend of future generations' money is $1 trillion.


  • No agreement: President Obama traveled to Chicago to speak at the annual meeting of the American Medical Association, hoping to sway them to support his health reform plan. He again faced protest signs outside the hall. Inside, there were boos when he said he wouldn't go along with their proposal to cap malpractice awards.


  • AMA rebuffs: Worse, when a resolution came to the floor of the AMA which would have endorsed Mr. Obama's idea of a new government health plan, the language he had hoped for was stripped out, and it became a mere restatement of the AMA's long-standing goals supporting "pluralism, freedom of choice, freedom of practice, and universal access for patients."


  • More cost-shifting: The CBO also says that congressional plans to rein in federal spending through public plans could end up shifting more of the costs to private insurers, employers, and people with private medical coverage. While there are many efficient providers currently practicing, experts don't yet know how to spread that efficiency throughout the system, and policy makers won't be able to do so "through fiat or good intentions," the CBO said.

    "I think there's definitely risk that a portion of the reduction in hospital payments from Medicare will wind up as increased payments by private insurers," said Paul B. Ginsburg, president of the Center for Studying Health System Change. Hospitals may have the motive and means to "transfer those charges to somebody else," and "we'll see costs increasing on the private side and not necessarily falling everywhere," said Harold S. Luft, director of the Palo Alto Medical Foundation Research Institute.


  • Don't take it to the bank: The CBO also says that it can't give credit for most of the $2 trillion in savings that were announced with great fanfare in May. You will recall the brouhaha between the White House and six industry groups over whether they had or had not pledged to reduce health spending by 1.5% a year over 10 years through disease management, information technology, coordinated care, etc.

    "What was originally offered up as a down payment on healthcare reform simply can't be accurately estimated by the CBO and will result in far less savings than the originally promised $2 trillion," said Republican senator Mike Enzi of Wyoming, the ranking member of the Senate health committee. "The administration will need to come up with far greater savings proposals — savings that Congress can take to the bank — to achieve the massive healthcare bill Democrats are proposing."

The Senate Finance committee still offers the best prospects of a bi-partisan bill. It has gone back to the drawing board and is not expected to release its bill until after the July 4 recess — missing its first deadline of committee action by the end of June. Here is an outline of the bill as of last evening. The goal for final action is now expected to be closer to Christmas. The longer it slips, the more difficult it will be to pass the sweeping reform the White House and congressional liberals envision.



Genuine compromise: The Bipartisan Policy Center did us a favor this week in releasing a health reform plan that shows us what a true compromise bill could look like. Former Senate Majority Leaders Tom Daschle, Howard Baker, and Bob Dole have been working since last year to forge a budget-neutral plan that could gain the support of Democrats and Republicans.

They offer innovative ideas and approach problems with a scalpel rather than a sledge hammer. For example, they offer a system of refundable tax credits for health insurance that are income related and tied to the costs of income-appropriate health plans. While a compromise plan is never anyone's first choice, there are certainly things here that we like, including a cap on the tax exclusion, no public plan, and authority to the states to expand coverage options.

Mark McClellan, who headed the FDA and CMS before creating the new Engelberg Center for Health Care Reform at the Brookings Institution, helped navigate the policy shoals. If Congress is looking for a true compromise bill, they could find it here.



And about the public plan: I am so tired of politicians saying they are in a government health plan. They are in a plan offered by their employer that contracts with a number of private health plans to offer coverage through the Federal Employees Health Benefits Program.

Their employer happens to be the government but their choices are all private plans. The government doesn't run them; it contracts with them. If members of Congers want to see what a real government-run health plan looks like, then they should try Medicaid or Medicare.

Actually running a health plan requires sophisticated skills that federal officials do not have. They know how to set prices, write and interpret regulations, and turn on computers to spew out checks. But managing networks of doctors and negotiating contracts for benefits are not skill sets that the government has. If members of Congress don't even know this, then how on earth can we expect them to have the skills to make good decisions about reorganizing the entire health sector?



Quote of the week: "Obviously this is not going to go as fast as we thought," Democrat Barbara Mikulski of Maryland said during a Senate health committee session on Thursday where the committee marked up 17 of the 300 or more amendments that have been submitted so far.



Aircraft design: During the Clinton health reform debate in 1993, the White House decided to create the perfect bill and worry later about how much it would cost and how to pay for it. The strategy backfired as cost estimate blew off the roof. Ira Magaziner and his task force had to go back to the drawing board to revise the plan. It never recovered from the reverse engineering.

This reminds me of when I was a Washington correspondent for the Fort Worth Star-Telegram: General Dynamics was a big employer in the city and we covered Pentagon decisions closely. Congress was ready to fund a new fighter airplane, and it was the Air Force's "turn" to have first crack at the design. The Navy was incensed: Aircraft carriers have three or four steel cables stretched across the deck at 20-foot intervals which bring a plane, traveling at 150 miles per hour to a complete stop in about 320 feet. It would pull an ordinary plane apart. The Navy's needs for a high-impact plane clearly should have trumped the Air Force in practical engineering terms. But politics dictated that the Air Force would get the first shot at design.

That's the problem that Congress is running into today. Cost considerations have to come first. That's the stress test of health reform. Congress should start by deciding how we can gain maximum efficiency from the system, where the resources are to pay for reform, and what we can afford.

Grace-Marie Turner

Recent News Articles and Studies

Medicare: A Model Mess
Obama Heads into the AMA Lion's Den
Good Ideas from Private Insurers
The Federal Government Should Have Limited, But Crucial, Role In Comp Effectiveness
Rebuffing Health Care Rationing
Mr. Burd Goes to Washington
When the Government Runs Health Insurance
'Public Option': Son of Medicaid
Public Opinion on Health Care Issues
Reform Measures Should Not Weaken Our Health Care
U.S. Health Costs Out of Control
Emerging Data on Consumer-Driven Health Plans


Medicare: A Model Mess
Grace-Marie Turner, Galen Institute
New York Post, 06/16/09

The government's sorry track record with Medicare just doesn't justify giving it authority to create a multitrillion-dollar public plan, writes Turner. Originally, Congress promised that Medicare wouldn't lead to interference in the doctor-patient relationship and assured seniors they could buy medical services privately. That went out the window in 1997, and a litany of other promises has been broken over the years as well. But despite its monopoly on seniors' health care, the Medicare trustees recently announced that the program is at least $37.8 trillion in the red over coming decades — and will start running out of money in just eight years. Medicare's history shows what's in store under a "public option" for health insurance: Americans will lose their private coverage and come under the government's wing, with soaring costs and ultimately restrictions on access to care, writes Turner.

Obama Heads into the AMA Lion's Den
Grace-Marie Turner, Galen Institute
National Review Online: The Corner, 06/15/09

President Obama tried to build support for his increasingly problematic health reform plan at a speech before the American Medical Association this week, but he did not counteract doctors' fears about the juggernaut of a new government plan that many fear would dramatically cut into their earnings and even their ability to keep their office doors open, writes Turner. Nearly 120 million Americans would lose their private health insurance if the public plan were made available and paid doctors at Medicare rates, which are at least 15% less than their costs of providing care. It's absolutely vital to be careful and deliberate with this legislation because it will have consequences for millions of Americans for decades to come, writes Turner. Hasty action to rush these bills through this summer could lead to catastrophic mistakes.

Good Ideas from Private Insurers
Grace-Marie Turner, Galen Institute
The New York Times: Room for Debate, 06/18/09

Much of the unnecessary spending on health care in the United States could be eliminated if doctors, patients, hospitals, and other providers had more and better information about care management, writes Turner. Payment systems need to be restructured in the public sector, as they increasingly are already in the private sector, to engage patients as partners in managing their health care and health spending. And doctors need more and better information about what works in medical care. The government can contribute to development of a knowledge-based health care system by setting up the infrastructure for comparative effectiveness research in a way that would allow the process of learning and innovation to continue so a patient-centered, information-based health care system can evolve.

The Federal Government Should Have Limited, But Crucial, Role In Comp Effectiveness
Grace-Marie Turner, Galen Institute
Kaiser Health News, 06/18/09

Federal officials are expected to offer recommendations this month on one of the first installments of health reform — a new initiative to compare the value and merits of competing medical treatments. While getting better information is needed to achieve better value, patients, especially those with rare diseases and multiple chronic illnesses, are worried that their unique needs may be disregarded in mega-studies, writes Turner. Doctors fear their clinical expertise will be replaced by formulas. Medical device and pharmaceutical companies are concerned that they may face another layer of government approval that would stifle innovation. Rather than serve as an arbiter that makes final decisions on the value of one treatment over another, the federal government can play a crucial role in aggregating information about the effectiveness of various medicines and treatments and disseminating that information to researchers, clinicians, and patients.

Rebuffing Health Care Rationing
Grace-Marie Turner, Galen Institute
The Athens Banner-Herald, 06/06/09

If public insurance programs like Medicare and Medicaid begin using comparative effectiveness research (CER) to deny patients access to new treatments because of cost, CER would have a disastrous impact on patient health, writes Turner. Restrictions and rationing already are a reality in many countries that have similar agencies. For example, New Zealand's CER agency took nearly five years to approve the use of the anti-cancer drug Herceptin even though the breakthrough drug was shown to increase the survival rate of certain early-stage breast cancer patients by up to 95%. And Britain's CER agency has denied approval for three kidney cancer drugs widely available in other countries, claiming the medicines are too cos
tly. Lawmakers must not repeat the mistakes of other countries by misusing comparative effectiveness research to systematically deny patients access to top-flight treatments and ultimately diminish the incentive for researchers to develop new drugs in the future, concludes Turner.


Mr. Burd Goes to Washington
Kimberley A. Strassel
The Wall Street Journal, 06/19/09

As most of corporate America sits on the health care sidelines, Safeway CEO Steve Burd has charged into the political debate, writes Strassel. "I'm genuinely concerned someone might try to solve this by nationalizing health care, at the moment we at Safeway have proven that it is the market that reins in costs," said Burd. The Safeway plan has two main parts that work in tandem. The company today fully pays for an array of primary and preventive visits and tests and deposits $1,000 each year into a "health reimbursement account." Safeway is alive with stories of people who no longer visit the emergency room for routine care but instead call around to doctors to ask prices, and swap information with colleagues. The second part of Safeway's plan is its voluntary "Healthy Measures" program. Employees are tested for smoking, weight, blood pressure and cholesterol. Every area they "pass" results in a reduction of their premium of as much as $1,560 for a family, a year. When asked what Mr. Burd hopes to accomplish on this trip to Capitol Hill, he is blunt that one goal is to prevent a "public option" that would only "piggyback on the experience of Medicare." It's a "Trojan Horse" that will steer people to government and ultimately squeeze out innovative programs like his.

When the Government Runs Health Insurance
James C. Capretta, Ethics and Public Policy Center
National Review Online: The Corner, 06/16/09

The Obama plan to cut Medicare's reimbursement rates should be exhibit A in the case against ObamaCare, writes Capretta. This is what governments do when they run health insurance plans. They promise targeted "reforms" to root out waste and inefficiency, but what they actually deliver is indiscriminate, across-the-board price controls that do nothing to change the underlying cost structure of health care. These cuts won't "bend the cost-curve," they will simply further widen the gap between public and private payment rates, thus shifting more of the costs to private premium payers. The idea that the government could hire a bunch of analysts to run the U.S. health care system from Washington with precise and painless efficiency was always a fiction, writes Capretta. The only reliable and lasting way to drive greater efficiency in health care is with cost-conscious consumers in a reformed marketplace. Absent that, the government will always resort to arbitrary cost-cutting to meet budget targets, with no distinction made between high-value and low-value care. And with price cuts come waiting lists and queues. Call it ObamaCare.

'Public Option': Son of Medicaid
Daniel Henninger
The Wall Street Journal, 06/18/09

The reform known as Medicaid is worth our attention now because Mr. Obama is more or less demanding that the nation accept another reform, his "optional" federalized health insurance program, writes Henninger. After 45 years, Medicaid has crushed state budgets. Since the program's inception, Congress has loaded it up every few years with more notions of what to cover, shifting about 43% of the ever-upward cost onto someone else's tab, mainly the states. A study by the National Governors Association said a decade ago that because of "new requirements" imposed by federal law — meaning Congress — "Medicaid has evolved into a program whose size, cost and significance are far beyond the original vision of its creators." The list of add-ons is endless, and there's little about it that's thoughtful. Why shouldn't one think that, as with Medicare and Medicaid, the Obama Public Option in time will become an impossible fog for patients to navigate?

Public Opinion on Health Care Issues
Kaiser Family Foundation, 06/09

A solid majority of the American people (61%) continue to believe that health reform is more important than ever given the country's economic problems, according to this Kaiser poll. Although sizeable majorities support key elements of reform currently being debated such as employer mandates and the public plan option, less than half of the public (41%) say they are willing to pay more for health reform, with a similar number supporting changing the tax treatment of employer-based health insurance (40%), one of the major revenue raisers being discussed. Overall opinion remains highly moveable, with support for many elements of reform susceptible to arguments pro and con and often moving by as much as 40 percentage points when arguments are tested.

Reform Measures Should Not Weaken Our Health Care
Donald J. Palmisano, Coalition to Protect Patients' Rights
Chicago Tribune, 06/15/09

The public plan option would seriously weaken the health care system we enjoy today, writes Palmisano, former president of the American Medical Association. We must find ways to expand access to affordable health care to the uninsured. America can solve the current problems with a system that expands insurance coverage through tax credits, consumer choice and market enhancements. However, in the process of expanding care, we cannot create a weaker system for the 80% of Americans who are happy with their coverage. It would be a serious mistake to have a government-controlled micromanaged medical system that would result in diminished quality of care, long waiting lines for doctors' visits and surgical care, a lack of access to emerging technologies and the virtual end to new and hopeful medical discovery, concludes Palmisano.


U.S. Health Costs Out of Control
Jeffrey A. Miron, Harvard University, 06/15/09

To restrain government health spending, policy must reduce existing subsidies, not introduce new government insurance, writes Miron, a senior lecturer in economics at Harvard University. Inefficiencies in health care are a problem but they persist because existing subsidies mean health care providers face limited incentives to control costs. A new government insurance program for the uninsured just makes things worse. In addition, this program will undoubtedly cost far more than initial estimates, as has occurred with Medicare and Medicaid. One way to reduce health insurance subsidies is to eliminate the tax-exemption for employer-paid health insurance premiums, while simultaneously lowering other taxes to hold revenue constant, writes Miron. This change in the structure of taxation would cause those now covered by employer plans to choose less generous packages and therefore make more efficient choices about health care.


Emerging Data on Consumer-Driven Health Plans
American Academy of Actuaries, 05/09

Properly designed consumer-driven health plans can produce significant (even substantial) savings without adversely affecting member health status, according to a study from the American Academy of Actuaries Consumer-Driven Health Plans Work Group. This monograph summarizes the findings of several studies published about consumer-driven health plans. With regard to first year cost savings, all studies showed a favorable effect on cost in the first year of a CDH plan, generating savings as much as 12% to 20%. Generally, all of the studies indicated that cost savings did not result from avoidance of inappropriate care and that necessary care was received in equal or greater degrees relative to traditional plans. All of the studies reviewed reported a significant increase in preventive services for CDH participants. Three of the studies found that CDH plan participants received recommended care for chronic conditions at the same or higher level than traditional (non-CDH) plan participants. Finally, the studies indicated that while the possibility for employer cost-shifting exists with CDH plans (as it does with traditional plans), most employers are not doing so, and might even be reducing employee cost-sharing under certain circumstances.

Upcoming Events

Massachusetts — Three Years Later
Cato Institute Capitol Hill Briefing
Monday, June 22, 2009, 12:00 p.m.
Washington, DC

Arlington/Falls Church Young Republicans Meeting
Monday, June 22, 2009, 7:30 p.m.
Arlington, VA
Grace-Marie Turner will discuss health care reform at a meeting of the Arlington/Falls Church Young Republicans.

In Search of a Silver Lining: Health Care in the Recession
Oregon Health Forum Event
Tuesday, June 23, 2009, 7:00 a.m. – 9:00 a.m.
Portland, OR

The Scouting Report: Reforming the Health Care System
The Brookings Institution Live Web Chat
Wednesday, June 24, 2009, 12:30 p.m. – 1:30 p.m. ET

Questions for the President: Prescription for America
ABC News "Primetime" Special
Wednesday, June 24, 2009, 10:00 p.m. ET
Check your local listings for channel information.

Is This Socialized Medicine?
Cato Institute Policy Forum
Thursday, June 25, 2009, 12:00 p.m.
Washington, DC

Grace-Marie Turner speaking on Diocese Live
WMJR-AM Radio Broadcast
Thursday, June 25, 2009, 3:05 p.m.
Lexington, KY

Patient-Centered Care versus Political Medicine
American Enterprise Institute Event
Friday, June 26, 2009, 12:00 p.m. – 1:30 p.m.
Washington, DC

Center for Studying Health System Change Event
Wednesday, July 8, 2009, 9:00 a.m. – 12:00 p.m.
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.