Health Care Brouhaha


The White House and its allies cheered on Monday when President Obama announced that six health groups had pledged to reduce the growth of health spending by 1.5 percent a year for the next 10 years. The president called it a "watershed event," saying that this could save as much as $2 trillion over a decade.

But when the actual members of the organizations heard the news, all hell broke loose.

"There's been a lot of misunderstanding that has caused a lot of consternation among our members," said Richard J. Umbdenstock, the president of the American Hospital Association. "I've spent the better part of the last three days trying to deal with it."

In a conference call yesterday with the 230-member organization, Umbdenstock said, "There has been a tremendous amount of confusion and frankly a lot of political spin," adding that a deal was "spun way away from the original intent."

Richard J. Pollack, the executive vice president of the hospital association, said: "The AHA did not commit to support the 'Obama health plan' or budget. No such reform plan exists at this time."

Moreover, Mr. Pollack said, "The groups did not support reducing the rate of health spending by 1.5 percentage points annually."

Other health care leaders who attended the meeting said they agreed to slow health spending in a more gradual way and did not pledge specific year-by-year cuts.

Karen M. Ignagni, president of America's Health Insurance Plans, told reporters the savings would "ramp up" gradually as the growth of health spending slowed. David H. Nexon, senior executive vice president of the Advanced Medical Technology Association, said "there was no specific understanding" of when the lower growth rate would be achieved.

And if that wasn't bad enough, the president's own health care czar got caught in the fray: According to The New York Times, "Nancy-Ann DeParle, director of the White House Office of Health Reform, said 'the president misspoke' on Monday and again on Wednesday when he described the industry's commitment in similar terms."


"After providing that account, Ms. DeParle called back about an hour later on Thursday and said: 'I don't think the president misspoke. His remarks correctly and accurately described the industry's commitment,'" the Times reported.

Those invited to meet with the president on Monday said the White House called the meeting before an agreement was set. "It came together more quickly than it should have," one health care insider told Politico.

The paper said participants weren't prepared to go live with the news over the weekend when the news of a deal was announced, especially the $2 trillion savings claim.

This was bound to happen. The lobbyists and Washington representatives who wanted to make sure they had a seat at the table have been getting ahead of their members. Their phone and email lines must have been absolutely burning up this week. "What were you thinking?" would have been a milder form of the questions members were asking. This is one table that many other member organizations now are relieved they were not around.

Those at the White House meeting included the heads of five major health industry associations representing doctors, hospitals, health insurers, medical device makers, and pharmaceutical companies — plus one labor union.

They all signed a letter that said: "As restructuring takes hold and the population's health improves over the coming decade, we will do our part to achieve your Administration's goal of decreasing by 1.5 percentage points the annual health care spending growth rate — saving $2 trillion or more."

Is that ambiguous? You tell me.

But the letter offered few new ideas about how they would achieve the objectives, as I wrote earlier this week in a National Review post called "Where's the beef?"

The tools the groups said they would be using were straight out of the president's playbook: administrative simplification, coordinated care, evidence-based medicine, and use of health information technology, etc. The Congressional Budget Office and most policy experts say these will save little, if any, money.

No one at the White House event or in a subsequent briefing with reporters by HHS Secretary Kathleen Sebelius was able to offer details.

The meeting actually was a watershed of sorts: It is quite clear that the health care terrain shifted this week, from a focus on universal coverage to getting health costs under control.

The White House is obsessed with finding the money to pay for its health reform plan. It is estimated to cost upwards of $1.5 trillion to $1.7 trillion over ten years. At least half of the $634 billion the president has identified has gone up in smoke. Reducing the incentive for charitable deductions and home ownership, as he had proposed, is particularly unpopular in the current economic climate, so the White House is desperately looking for more money to fill the gap.

White House officials are still looking.



Quick takes:


  • A GOP bill: Watch developments on Capitol Hill next week for an announcement from Republican leaders about a bold new health reform plan they will be introducing. Could they be the first ones to the floor with an actual bill?


  • Medicare: The Medicare Trustees reported this week there is a $38-trillion gap between the benefits Medicare is promising over the next 75 years and the revenue it expects to collect to pay the bills. Just for perspective, $38 trillion is two-and-a-half times the size of the entire U.S. economy.


    So please explain how it is that the federal government should remotely be considering creating another program like Medicare — a government health insurance plan available to all Americans — and plunging taxpayers and the economy even deeper into debt? I just don't get it.


  • A Democratic plan: On Thursday, House Democrats leaked the outline of a health plan they are developing, likely to cause more heartburn in the health sector. It includes:
    • Mandates on employers to provide or pay for health insurance
    • Mandates on individuals to obtain coverage, with subsidies for families with incomes under $88,200
    • A National Health Insurance
      Exchange that would be a vehicle for federal regulation of the health insurance market, including dictating what coverage must be provided, how much insurers can charge, etc.
    • A government health insurance plan to compete with private plans, with payments based upon Medicare rates (119 million people would say goodbye to their private insurance, according to the Lewin Group)


  • Senate Finance Action: The Senate Finance Committee released another paper this week, describing options to expand coverage. And the committee also met this week for another in its series of round-table discussions to consider financing of health reform. Here is a link to all of the testimonies. Please take particular note of the presentations by Joe Antos of AEI and Gail Wilensky of Project HOPE for their clear and astute analyses.


  • Free drugs: Pfizer announced on Thursday that it will give away more than 70 of its most widely prescribed drugs for up to a year to people who have lost jobs this year and have been taking the drug for three months or more.


    The 70-plus drugs covered in the program include several diabetes drugs and some of Pfizer's top drugs, from cholesterol fighter Lipitor and painkiller Celebrex to fibromyalgia treatment Lyrica and Viagra for impotence. Also included are some antibiotics, antidepressants, heart medications, and smoking-cessation products.


  • Gold star: And finally, kudos to Princeton Professor Uwe Reinhardt for his excellent opinion piece in today's New York Times, summarized below. He says it is crucially important that we address the tax treatment of health insurance in the current reform debate. Music to our ears.

Grace-Marie Turner

Recent News Articles and Studies

The Public Plan
Should Health Benefits Be Taxed?
The Level Playing Field Myth: Comparing Administrative Costs for Public, Private Health Insurance
Health-Care Reform and the 'Innovation Test'
This Health Care 'Reform' Will Kill Thousands
January 2009 Census Shows 8 Million People Covered by HSA/High-Deductible Health Plans
Despite Recession, Personalized Health Care Remains in Demand


A number of commentaries and papers continue to weigh in on the public plan:


  • This health care debate isn't like the "stimulus" bill, which was largely about short-term spending and deficits, writes The Wall Street Journal. This one is about whether to turn 17% of the U.S. economy entirely and permanently into the arms of government. This new entitlement — like Medicare but open to all ages and all incomes — would quickly crowd out private insurance as people gravitated to heavily subsidized policies, eventually leading to a single-payer system.
  • The coming debate is not just about the freedom to make one's own medical decisions, writes Michael Cannon of the Cato Institute. It is about life and death. If we insist on a dynamic and competitive market, health care will be better, cheaper, safer, and more secure. If we go in the direction of new government programs, mandates, and price controls, we will see higher costs, more medical errors, more uncoordinated care, and more lives lost.
  • Mr. Obama's plan for a centrally managed government insurance program exacerbates Medicare's problems by redistributing even more income away from lower-paid primary care providers and misaligning doctors' financial incentives, writes AEI's Scott Gottlieb. Physician income declines will be accompanied by regulations that will make practicing medicine more costly, creating a double whammy of lower revenue and higher practice costs, especially for primary-care doctors who generally operate busy practices and work on thinner margins.
  • The selling point for health reform is supposed to be that it will make people more secure, according to an editorial in National Review. But there are better ways to make health insurance more secure, affordable, and accessible: Offering tax credits to individuals for whom employer-provided health insurance is not available is a way to offer immediate relief to people locked out of the current system, and to move slowly toward a better one.



Should Health Benefits Be Taxed?
Uwe E. Reinhardt, Princeton University
The New York Times: Economix, 05/15/09

There are many third rails in the politics of health reform, but probably none with quite the high voltage of one proposal: the idea of taxing part, or all, of the health insurance premiums paid by employers on behalf of their employees, writes Reinhardt. Under current law, employers can treat the contributions they make to the premiums for their employees' health insurance as a tax-deductible business expense. On the other hand, employees do not pay income taxes or payroll taxes on this contribution, though it clearly is part of the employees' total compensation. In 2007, this tax preference reduced federal tax revenues by an estimated $250 billion or so. That form of public subsidy has two effects that economists find problematic: first, the price reduction drives up the demand for the subsidized commodity; secondly, and much more problematic, in dollar terms the price reduction is larger for high-income employees in high marginal tax brackets than for lower-income workers. In other words, the benefits of such "tax expenditures" accrue disproportionately to higher income groups. Very low-wage workers hardly benefit at all from the tax exclusion. . .

In a separate article, Jim Capretta and Yuval Levin of the Ethics and Public Policy Center suggest replacing the current tax exemption for employer-based health coverage with a new federal tax credit for everyone. Such an initiative would demonstrate that we can build on what is best (and well liked) about the current system — high-quality care and doctor and patient control — while adding options onto the existing employer-based structure that encourage gradual and sensible moves toward a genuine individual insurance market.

he Level Playing Field Myth: Comparing Administrative Costs for Public, Private Health Insurance

William G. Schiffbauer, Esq.
BNA's Health Plan & Provider Report, 04/29/09
Reproduced with permission from Health Plan & Provider Report, 15 HPPR 509 (Apr. 29, 2009).
Copyright 2009 by The Bureau of National Affairs, Inc. (800-372-1033)

The renewed public debate over the need for universal health insurance has rekindled the argument that Medicare purportedly spends no more than 3% of each premium dollar collected on "overhead" of "administrative expenses," writes Schiffbauer, a health care attorney. Single-payer and "public plan" option advocates erroneously cite a much higher figure of up to 13% of premium for the private insurance market. What advocates are doing is wrongly comparing what is in fact only one part of Medicare's "administrative" costs to the whole of private insurance "administration" costs. The 3% figure attributed to Medicare administrative expenses is only the amount of funds spent for "claims administration" by Part A and Part B contractors. In general, Medicare's "overhead" cost for claims administration, as a percentage of the program's "premium income," are really about the same as claims administration costs in the private large group health plan market. A credible comparison of Medicare and private group health plan "overhead" or administrative costs requires an analysis of comparable administrative functions and a true accounting of all related expenses to accurately assess the efficacy of a "public plan" option, concludes Schiffbauer.

Health-Care Reform and the 'Innovation Test'
John C. Lechleiter, Eli Lilly & Co.
The Wall Street Journal, 05/14/09

Biomedical innovation is not incompatible with the health care reform goals of universal access, quality improvement and cost control, writes Lechleiter, chairman and CEO of Eli Lilly & Co. On the contrary, without new, more effective medicines — along with new devices and diagnostic tools, and better treatments and surgical techniques — it will be impossible for larger numbers of Americans to obtain better health care at a manageable cost. It is vital to all of us that we insist health reform proposals pass the "innovation test." Providing insurance to millions of Americans through a government-run plan would fail the test. Similar efforts around the world have led to rationing of health care and created hurdles between patients and the most advanced treatments. On the other hand, innovation would remain reasonably secure if universal access were achieved through tax credits and government subsidies that allow patients to choose from a variety of private health-financing options. Our legislators in Washington still have the power to keep innovation in the health care reform script. Not doing so would be a true American tragedy.


This Health Care 'Reform' Will Kill Thousands
Karol Sikora, Imperial College School of Medicine
Union Leader, 05/12/09

As the government takes increasing control of the health sector with schemes such as Medicare and SCHIP, some American health policy experts have looked favorably at Britain, which uses its National Institute for Clinical Excellence (NICE) to appraise the cost-benefit of new treatments before they can be used in the public system. But NICE has proven highly effective at keeping expensive new medicines out of the state formulary, costing lives and keeping Britain in a kind of medical time warp, writes Dr. Sikora, a practicing oncologist and professor of cancer medicine at London's Imperial College School of Medicine. Recent research by Sweden's Karolinska Institute shows that Britain uses far fewer innovative cancer drugs than its European neighbors. Partly as a result of these restrictions on new medicines, British patients die earlier. In Britain, the reality is that life-and-death decisions are driven by electoral politics rather than clinical need, writes Dr. Sikora. The risks of America's move toward British-style drug evaluation are clear: In Britain it has harmed patients. This is one British import Americans should refuse.


January 2009 Census Shows 8 Million People Covered by HSA/High-Deductible Health Plans
America's Health Insurance Plans, 05/09

The number of people covered by health savings accounts/high-deductible health plans (HSA/HDHPs) rose to 8 million in January 2009, up from 3.2 million in January 2006, according to an annual census by America's Health Insurance Plans. Highlights of the census:

  • Between January 2008 and January 2009, the fastest growing market for HSA/HDHP products was large-group coverage, which rose by approximately 35%, followed by small-group coverage, which similarly rose at 34%.
  • 53% of all individual market enrollees — including dependents covered under family plans — were aged 40 or older.
  • Monthly average premiums ranged from a high of $361 for single coverage and $925 for family coverage in Massachusetts, to a low of $210 for single coverage and $461 for family coverage in North Dakota.

AHIP has also released a separate study with valuable information on income characteristics of HSA accountholders.

Despite Recession, Personalized Health Care Remains in Demand
Kevin Sack
The New York Times, 05/10/09

Thanks to patients who still value their health in hard times, the recession has barely slowed the growth of concierge medical practices, reports The New York Times. Doctors give patients their cell phone numbers and schedule leisurely same-day appointments with no waiting. Some make house calls, though patients still need health insurance to pay for hospitalizations and specialists. MDVIP, which started in Boca Raton, Florida in 2000, expects to add more than 80 doctors to its network of 300 this year and says its renewal rates among its 100,000 patients had remained at its usual level of 93% a year during the recession. Each MDVIP doctor is limited to 600 patients, who pay $1,500 to $1,800 a year. Dr. Thomas W. LaGrelius, of the Society for Innovative Medical Practice Design, a professional association of concierge physicians, estimated that there were 5,000 such doctors in the U.S.

Upcoming Events

Improving Quality
Congressional Health Care Caucus Policy Forum
Monday, May 18, 2009, 11:30 a.m. – 12:30 p.m.
Washington, DC
For more information, please contact Eric Wilson at or 202-225-7772.

The Welfare State We're In
Cato Institute Book Forum
May 18, 2009, 12:00 p.m.
Washington, DC

The Public Option
Coalition for Affordable Health Coverage Briefing
Monday, May 18, 2009, 2:00 p.m. – 3:45 p.m.
Washington, DC
For more information, contact Rick Dudley at

Second Annual Hospital CEO Roundtable
Oregon Health Forum Event
Tuesday, May 19, 2009, 7:00 a.m. – 9:00 a.m.
Portland, OR

The Healthcare Imperative: Lowering Costs and Improving Outcomes
Institute of Medicine Workshop Series
May 21-22, 2009
Washington, DC

Building a Federal Health Board: Impact on Texas
Texas Health Institute Event
Friday, May 22, 2009, 8:00 a.m. – 12:00 p.m.
Houston, TX

Will Cost Containment Derail Health Care Reform?
Cato Institute Capitol Hill Briefing
Tuesday, June 2, 2009, 12:00 p.m.
Washington, DC

7th Annual Health Care Conference
Washington Policy Center Event
Wednesday, June 3, 2009, 7:30 a.m. – 1:30 p.m.
Seattle, WA

CQ HealthBeat Policy Preview Conference
Congressional Quarterly Event
Wednesday, June 3, 2009, 8:00 a.m. – 1:30 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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