SCHIP, Again


As expected, the House rushed to pass a bill on Wednesday to continue funding for the State Children's Health Insurance Program. At 285 pages, you can be sure it delivers a lot more than money.

One example: The bill changes the rules of the game, making it much easier for states like New York to put children from families making up to $84,800 a year on this publicly-funded program.

In addition, generous "income disregards" will be allowed, which means that a family can subtract things such as rent or mortgage payments, heating, or food costs from its income in calculating eligibility. That means that children in families making well over $100,000 a year will be eligible for SCHIP.

If your goal were to get as many people on public coverage as possible and to have children grow up thinking they get their health insurance from the government, this would be a good way to start.

Will the nation go as Hawaii has gone? We wrote last year about Gov. Linda Lingle pulling the plug on a state program designed to get to universal coverage. She found out that 85% of the children enrolled previously had private coverage but their parents had dropped it for the virtually free state program.

"People who were already able to afford health care began to stop paying for it so they could get it for free," said Kenny Fink, Hawaii's HHS director.

The same thing will happen across the country with SCHIP. Millions of parents will think it is a better deal to have the taxpayer pay the bill for their children's insurance than to pay for private coverage themselves.

The Senate is expected to vote on its SCHIP bill next week, and President-elect Obama will sign legislation into law soon afterward.

President Bush fought the good fight in vetoing a similar bill in 2007 because he wanted the program to stay focused on covering poor kids first.

The rude awakening will come when parents start searching for a physician who will see their children for SCHIP payment rates that, in some states, pay doctors just $10 or $15 for a visit — not even covering their office overhead. Free insurance will come with a high price.



The year ahead

Gary Ahlquist and his colleagues at Booz & Company publish a forecasting letter every year that leads me to think they must have a crystal ball hidden somewhere in their offices.

While there are many hurdles ahead, they do not see the government centralization on the horizon that many Hill staffers and others in the free-market policy community fear. I can hardly do the report justice in this quick summary, but here is their bottom line:


Even under the best circumstances, "reforms" in healthcare always cost more money in the aggregate. That money will be nearly impossible to find, whether one looks to government, the private sector, or individuals…


The healthcare system should probably take some comfort in concluding that fundamental change is not around the next corner or due before the next presidential election. The bad news, however, is that fundamental change is still looming out there — and getting closer with each year that the nation delays or ignores strategies to improve the existing system.

Other highlights:


  • The age of the entrepreneurial physician is nearly over, and the only truly independent physicians left in the next decade will be plastic surgeons, ophthalmologists, a few large group practices, and a few heart surgeons. (We would add doctors in innovative medical practices to this list.)


  • Large employers and their health plan partners will continue to drive real change.


  • Some insurers may encounter additional, and perhaps more nimble, competition. Technology and new partnerships will drive successful new initiatives.


  • Providers, plans, pharmaceutical firms, and funders (employers and government) can all seek to form partnerships and incentive arrangements — probably on a regional basis — to bring competitively advantaged products to market.


  • The traditional business model of the research-based pharmaceutical companies will be under great stress. By 2012 prescriptions for generics may make up 80 percent of the market.


  • Building consumer participation in the healthcare system is essential for confronting costs in the most significant areas of spending. Case managers, virtual health plans, and health advisors will become critical new players in this evolving market.




And finally, we at the Galen Institute would like to send our thanks and best wishes to President Bush, Secretary Leavitt, and the many people in the administration with whom we have worked over the last eight years on health policy.

You all have cultivated a climate for innovation in both the private and public health sectors which, if allowed to continue, can be transformative in solving many of the problems of cost and access to health care and insurance.

Our latest paper, "The Value of Innovation in Health Care," highlights examples of the significant progress the Bush administration has made in helping to moderate increases in health costs, create new models for care delivery and financing, and support the movement toward patient-centered health care. It is vital to all of us that this continue.

Thank you, and best wishes to all of you in your new ventures.

Grace-Marie Turner

Recent News Articles and Studies

A Dubious 'Fix' for U.S. Health Care
Three Roadblocks on the Road to Health Reform
A High Court of Health
When Altruism Isn't Enough: The Case for Compensating Kidney Donors
Communicating Medical News — Pitfalls of Health Care Journalism
Drug Importation: Without Tort Reform, Effort Won't Lower Costs Much
Should the Government Force You to Buy Health Insurance?
Obama's Health-Care Headache
How Medicare's Drug Pricing Can Hurt R&D


A Dubious 'Fix' for U.S. Health Care
Grace-Marie Turner
New York Post, 01/12/09

President-elect Obama argued on the campaign trail that the U.S. status quo in health care is untenable and that the government should play a larger role. But there are
other options besides turning more of our health sector over to government, writes Turner. If health insurance were portable, people could take it with them from job to job and have greater continuity and security in their health coverage. To do that, we need to level the playing field so people get the same tax break whether they get health insurance on their own or through their jobs. And Americans should be able to buy insurance across state lines to find the coverage that best suits them, their families and their pocketbooks. Real solutions require a new way of thinking. Just putting more money into the taxpayer-financed health sector is looking backward, not forward. Instead, we should build a system that offers choice, competition and innovation — and puts doctors and patients, not bureaucrats, in charge.


Three Roadblocks on the Road to Health Reform
Robert B. Helms
American Enterprise Institute, 01/09

If we want to get to real reform, we have to change the open-ended payment policies of private insurance, Medicare, and Medicaid — the three principal financing sources that now funnel money to physicians, hospitals, and other providers, writes Helms. What we all seem to want from health reform is a better system that will provide us with higher quality care and greater economic value. To achieve this kind of reform will require us to end the open-ended payment systems we now have and replace them with systems that reward quality and value. The longer we wait to start, the more difficult this kind of change will be.

A High Court of Health
Robert Moffit, The Heritage Foundation
The Washington Times, 01/12/09

HHS Secretary Designate Tom Daschle's prescription for health care reform is centralized government control over our health care decisions by a powerful elite that will decide what's good for us and what isn't, writes Moffit. Mr. Daschle's Federal Health Board would act like a "Supreme Court of Health" and would make recommendations on the kinds of medical technologies, treatments, drugs and procedures Americans should have. Of course, the health care sector of our economy is blessed with a treasure trove of professional expertise, from our finest universities to our world-class medical centers. But those men and women — regardless of how innovative their recommendations are, and no matter how impressive their achievements in medical science, biomedical research, technology or clinical experience may be — wouldn't count. It would not only limit insurers in offering health benefits; it would further alter the already weakened doctor-patient relationship.

Mr. Daschle's Federal Health Board will also stifle medical innovation, writes Sally Pipes of the Pacific Research Institute. Why should a pharmaceutical or medical device company spend hundreds of millions of dollars to discover, test, and bring a new product to market if there is a chance the FHB will decide the cost to the government is not worth the gain for the patient?

When Altruism Isn't Enough: The Case for Compensating Kidney Donors
Sally Satel, M.D.
American Enterprise Institute, 01/09

Altruism is a beautiful virtue, but relying on it as the sole motivation for organ donation ensures there will never be enough of them. Today, more than 78,000 people are waiting for a kidney transplant; only one in four will receive one this year, while 12 die each day waiting for help. This book, edited by Dr. Satel, argues for a government-regulated system in which prospective donors are offered economic incentives to donate a kidney and explores how such a system could be designed. Compensating people who donate to a desperate stranger will motivate others do to the same, increase the national supply of kidneys, and reduce needless death and suffering.

Communicating Medical News — Pitfalls of Health Care Journalism
Susan Dentzer
The New England Journal of Medicine, 01/01/09

Whether they realize it or not, journalists reporting on health care developments deliver public health messages that can influence the behavior of clinicians and patients, writes Dentzer, editor-in-chief of Health Affairs. The news media need to become more knowledgeable and to embrace more fully their role in delivering to the public accurate, complete, and balanced messages about health. Although the primary responsibility for improving health-related journalism must lie with journalists, clinicians and researchers can help. When interviewed by journalists about a news development, such as a new study, they should offer to discuss the broader context, point reporters to any similar or contradictory studies, refer journalists to credible colleagues with different perspectives, and mention any study limitations or caveats about the results, as well as any potential or real conflicts of interest among the study authors. It will take many expert hands to ensure that the health news the public reads really is fit to print.


Drug Importation: Without Tort Reform, Effort Won't Lower Costs Much
Brian Lee Crowley, Atlantic Institute for Market Studies
Buffalo News, 12/23/08

There is an effective way to lower drug costs in the United States. Introduce tort reform, writes Crowley, a senior fellow at the Galen Institute. The U.S. system imposes a huge tort tax on health care that Canadians don't pay, which is especially visible with prescription drugs. A recent study looked at the role played by American liability rulings on the difference in pharmaceutical prices between Canada and the U.S. and found that "liability risk roughly doubles the average price differential." If America allows importation from Canada, trial lawyers will target this cross-border trade. Companies importing from Canada would have to have a presence in the U.S. — creating lawsuit opportunities. So even if importation exploded under President-elect Obama's administration, costs are unlikely to come down.


Should the Government Force You to Buy Health Insurance?
JP Wieske
Council for Affordable Health Insurance, 01/09

Mandating health insurance coverage is a reactive, government solution to problems that are often caused by government policies in the first place, writes Wieske. Mandating health insurance treats a symptom — the uninsured — and not the problem of high health insurance premiums. Rather than mandating coverage, states could dramatically reduce the number of uninsured by enacting policies that encourage innovative plan designs, subsidize low-income families, create tax fairness for all policies and establish a well-functioning safety


Obama's Health-Care Headache
Robert J. Samuelson
The Washington Post, 01/12/09

To get the federal budget under control, President-elect Obama will have to confront the rapid growth of health spending, writes Samuelson. A recent study from the McKinsey Global Institute finds that what really drives health spending is that Americans receive more costly medical services and they pay more for them. Our health care system is highly individualistic, entrepreneurial, and suspicious of centralized supervision, writes Samuelson. Patients understandably desire the most advanced surgeries, diagnostic tests and drugs. Doctors want the freedom to prescribe. On paper, there are various ways to control health spending, but all have foundered because they cannot be used aggressively. We need mass constituencies that favor cost control. But our consistent policy has been to conceal the burden of health spending by burying it in untaxed corporate fringe benefits or government budgets. Unless we rectify this political imbalance, efforts to control health spending may fail.


How Medicare's Drug Pricing Can Hurt R&D
Cheryl S. Smith and Laura L. Summers
The Heritage Foundation, 01/12/09

Allowing the federal government to set drug prices for Medicare Part D is bad health policy, write Smith and Summers. New drug therapies — including those intended to delay onset of disease — hold great promise for treating patients faced with chronic diseases and disability. If the government forces down the price of drugs below market levels, firms will have less revenue and less incentive to invest in R&D, stifling the development of new health-enhancing, life-saving drugs. The potential for numerous and varied residual effects on the treatment of disease, progress in reducing costly morbidity, and reductions of the quality of care for the next generation of retirees is — or should be — of even greater concern. For Medicare, the right policy is to preserve the market-based pricing that ensures not only the continued availability of drugs to treat diseases of aging, but also encourages critical research and development that could reduce these costs in the future.

Upcoming Events

Memo to the President: Reform Health Care
The Brookings Institution Event
Friday, January 16, 2009, 10:00 a.m. – 11:30 a.m.
Washington, DC

Grace-Marie Turner speaking on the Small Business Advocate Show
Nationally Syndicated Radio Broadcast
Monday, January 19, 2009, 7:30 a.m. ET

Grace-Marie Turner speaking on the Sean and Frank Show
WCBM-AM Radio Broadcast
Wednesday, January 21, 2009, 8:35 a.m.
Baltimore, MD

Avoiding a Health Care Disaster
Cato Institute Capitol Hill Briefing
Thursday, January 22, 2009, 1:00 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.