03/2003 The Galen Report

Published March 1, 2003

Nobel laureate Milton Friedman has long been interested in health policy and the importance of reforms that will promote greater individual freedom.

I had written asking to meet him, so as to get his guidance on carrying free-market ideas forward in what should be the best climate for progress in well over a decade.

He reinforced his concern, detailed in an article he wrote in the Winter 2001 issue of The Public Interest, about government expenditures accounting for 45 percent of total health spending in the United States. “We are headed toward completely socialized medicine and are already halfway there, if in addition to direct costs, we include indirect tax subsidies.”

He insists it is important to stay focused on the big picture but admits his policy prescriptions may not be politically feasible. He advocates repealing the tax exemption for employer-provided medical care; terminating the existing Medicare and Medicaid programs; deregulating most insurance; and restricting the role of government, preferably state and local rather than federal, to financing care for the hard cases.

He believes realistic first steps should focus on liberalizing the rules governing medical savings accounts, and allowing Medicare beneficiaries to have access to the funds allocated on their behalf, first to protect against catastrophic medical expenses, then to have freedom in spending for routine care.

A strong advocate of MSAs, Friedman was very interested to learn about the new Health Reimbursement Arrangements (HRAs) authorized by the IRS last summer to essentially give medium-sized and large companies the opportunity to offer MSA-like products to their employees. We discussed the need for either legislation or a new ruling that will allow employee ownership of the money they save in their HRA accounts.

Those of us who slog in the trenches of public policy details every day do well to be reminded of the goal: Individual control over health spending decisions in a free and competitive marketplace that responds to empowered consumers.

— Grace-Marie Turner


Bailing out the States
Editorial Board
Wall Street Journal, 01/08/03

The best way to help states out of their current fiscal crises is to reform the mandates Washington imposes on governors, especially through Medicaid, says the Wall Street Journal. Federal aid, as suggested by Democrats in Congress, would be “a perverse reward for the wildly irresponsible spending of many states during the 1990s boom, and a punishment for the taxpayers of those states–like Colorado–that lived within their means.”

The best solution is a simple block grant states can use as they see fit. States should also try to reform Medicaid themselves by applying for HIFA waivers from the Department of Health and Human Services. “The solution lies in scrapping its ineffective price controls and bureaucracy in favor of a market-driven system,” the Journal says. “Washington can help states make the shift, through legislation or regulatory waivers. The last thing it should help them do now is bail out a broken system.”

Full text (requires subscription): online.wsj.com/article/0,,SB1041986156855220544-email,00.html

The Future of Medicaid: Consumer-directed Care
Jim Frogue
The Heritage Foundation, 1/10/03

“Congress and state officials should embark on an ambitious program of comprehensive Medicaid reform,” says Jim Frogue of the American Legislative Exchange Council. He suggests a good model is the Cash and Counseling program that allows certain Medicaid beneficiaries to purchase their own services, with the help of a consultant, using a defined contribution from the state’s Medicaid program. The beneficiary, not government bureaucrats or politicians, decides where, when, and by whom his or her care will be delivered.

Cash and Counseling programs in Arkansas, New Jersey, and Florida have experienced nearly a 100 percent satisfaction rate because consumers are making their own health care decisions, Frogue writes. “Instead of perpetuating the same old policy discussions, the new Medicaid debate must begin to focus on how the current system can be restructured to accommodate the beneficiaries and the doctors, hospitals, and other health care professionals who serve them in the most effective manner possible.”

Full text: http://www.heritage.org/Research/HealthCare/BG1618.cfm

Single Payer Singularly Unsuccessful
Linda Gorman
The Independence Institute, 01/13/03

A single-payer system is not the answer to Colorado’s health care problems, says Linda Gorman, a senior fellow at the Boulder-based Independence Institute. “The largest single-payer systems in the United States, Medicare and Medicaid, have sabotaged private health care by systematically over promising, over regulating, and underpaying,” says Gorman.

A better solution is market-based reform that reduces cost. According to the RAND health insurance experiment, consumers who used their own money to buy health care reduced spending by 30 percent without any detrimental effects on their health. A medical savings account plan (MSA) in Denver could save a couple with two children and average medical expenses about $500,000 over 40 years.

Gorman concludes, “Fifty years of experience has shown that single-payer systems produce lousy health care at exorbitant cost. Isn’t it high time to try something else?”

Full text: http://www.i2i.org/Publications/Op-Eds/HealthCare/medicalhell.03Jan12.htm

Americans Need a Market for Medical Progress
Robert L. Pollock
Wall Street Journal, 1/22/03

Spending more on health care may not be a bad thing, says Rob Pollack of the Wall Street Journal. “If you attribute even minimal dollar value to an added year of healthy life, and a small portion of increasing life span to better medical care, it’s hard to escape the conclusion that all that money is more than justified by the results,” says Pollock. “If you’d like the survival rates for cancer and other diseases to keep rising, the inescapable conclusion is that we don’t have a cost crisis. If there’s a crisis, it’s a crisis in the way health care is financed.”

Pollock proposes reforming health care financing by explaining to consumers the true cost of health care, “reacquainting them with the real meaning of insurance,” and replacing Medicare with a system in which the government would buy beneficiaries private insurance “rather than handling all the bills itself.”

Full text (requires subscription): http://www.online.wsj.com/article_print/0,,SB1043198505297759864,00.html

Material for this report is provided by The Galen Institute, P.O. Box 19080, Alexandria, VA 22320, http://www.galen.org. Grace-Marie Turner is president. The report was produced by Elizabeth Lamirand, who can be reached at 703/299-9550, and edited by Conrad F. Meier, managing editor of Health Care News.