04/2002: The Galen Report

Published April 1, 2002

Economists got as exercised as they ever do over whether tax credits or expansion of Medicaid would be the best way to help the uninsured get health coverage. The battle is clearly engaged and, in the arcane world of economics, the ammunition in this battle is over “modeling assumptions.” Arcane, but important.

The Kaiser Family Foundation is funding an analysis by MIT Professor Jonathan Gruber and colleagues, allegedly “comparing” the impact and costs of tax credits or expanding Medicaid. While not actually a comparison, it shows Medicaid expansion for people up to 200 percent of poverty would cost $11.3 billion and cover 3.8 million more people, while tax credits (of their own design, not those in President Bush’s proposal) would cost $4.5 billion and add coverage to 1.6 million Americans. (Treasury says the President’s plan would extend coverage to 6 million people.)

The Medicaid expansion supporters didn’t seem to notice that the nation’s governors were in town this week practically screaming about their soaring Medicaid costs. For example, New Mexico has the highest uninsured rate in the country, yet the state is about $50 million short in being able to finance Medicaid for current recipients next year. Adding millions of working Americans to Medicaid rolls appears neither politically nor financially feasible.

During a seminar sponsored by the Alliance for Health Reform to analyze the study, economists dueled over the Kaiser report’s conclusions, based upon their assumptions of how the world would work if either of these policy changes were implemented, such as how much a policy would cost and how many people would use tax credits.

One economist explained economic assumptions this way: Two economists are stuck in a hole and trying to figure out how to get out. One “assumes” a shovel; the other, a ladder. Unfortunately, in the case of the draft Kaiser study, these economists came closer to assuming a shovel when it came to modeling tax credits and a ladder for their Medicaid expansion idea.

A day after the seminar, one of the Kaiser authors, Dr. Judy Feder of Georgetown University, and I were on the same panel testifying before the House Energy and Commerce Subcommittee on Health. I presented arguments for tax credits, explaining how the current system so badly discriminates against lower-income working Americans and their families and that tax credits are a way to provide some measure of equality to help the uninsured get private health coverage. Links to my oral testimony (the Cliff Notes version) and to the full testimony are provided below.

Dr. Feder presented the findings of the Kaiser study in her testimony. “Thank God for Medicaid,” one Democrat exclaimed, echoed by Dr. Feder. Yet, during the hearing, we also learned that the average Medicaid recipient is on the program for only five months—clearly not stable coverage. And we learned recently that in California, only about half of doctors will even see a Medicaid patient. Nonetheless, several Democrats used their opening statements to pledge allegiance to a single-payer health care system.

During the questioning, I did have a chance to highlight some of the concerns raised at the seminar about the study.

Link to my oral testimony: http://www.galen.org/news/022802.html

Full text of testimony: http://www.galen.org/news/022702.html

— Grace-Marie Turner


Six Questions Everyone Should Ask about Health System Reform: an Application of Basic Economics

Jesse Hixson
Galen Institute

AMA Principal Economist Jesse Hixson offers basic but profound guidelines for achieving effective health system reform in his newest paper, “Six Questions Everyone Should Ask about Health System Reform: An Application of Basic Economics” (Galen Institute, 2002). The essay outlines key questions to guide policymakers in making decisions about reform initiatives:

  • How does the proposed system confront scarcity?
  • Is the system an equilibrium or disequilibrium system?
  • What is the role of prices in the system?
  • Are incentives facing producers and consumers consistent with reform goals?
  • Who determines what health care is produced and who gets it?
  • How will they know if it is working?

In addressing the questions, Hixson explores fundamental and undeniable economic principles that can serve as a guide to create a better and more efficient health care system. Policy makers can choose to ignore the economic truths outlined in the paper, but if they do, distortions, inefficiencies, and high costs will continue to afflict the system.

We have many copies of this nicely printed study, which should be useful for health policy and economics classes, conferences, and seminars. Please contact us for copies.

Full text of study (a pdf file): http://www.galen.org/news/Hixson_insidetext.pdf

Insurers Boost Individual Coverage Plans

Andrea Tortora
Cincinnati Business Courier

Proving that the individual health insurance market is growing, the Cincinnati Business Courier says insurance companies are increasing their individual plan options. A big new market is employees of small businesses: Hit with big cost increases, many are switching from small group plans to assisting employees in getting individual coverage.

John Clark of Cornerstone, which sells Medical Mutual’s SuperMed Plus, says, “Sales are up 400 percent on individual plans. Some employers are endorsing individual plans or increasing salaries to help employees buy their own.” Companies such as Humana are creating their own individual insurance products along with Anthem Blue Cross and Blue Shield of Ohio.

According to Deborah Moessner at Anthem, sales on individual plans increased 44 percent between 2000 and 2001 and 42 percent the previous year.

Full text of article (free, but requires sign-up): http://cincinnati.bizjournals.com/cincinnati/stories/2002/02/25/story3.html

Canadian Provinces Move Toward Privatizing Healthcare

Barry Brown
The Christian Science Monitor

The premiers of Alberta, Ontario, and British Columbia say ballooning costs and long delays for some procedures can be solved only by private initiatives. “Our healthcare system is on life support, and it is fading fast,” said British Columbia Premier Gordon Campbell.

Canada’s universal health care system now eats up as much as 40 percent of provincial budgets. Originally a 50/50 split in financial responsibility between the national and provincial government, the national share has been declining for years, currently around 15 percent.

Provincial premiers, such as Ralph Klein of Alberta, have begun discussing for-profit healthcare and privatized contracting as alternatives. Klein is exploring the possibility of allowing more private hospitals, eliminating unionized employees, and offering profit-based incentives as a way to improve healthcare.

Full text of article: http://www.csmonitor.com/2002/0228/p07s02-woam.htm

Medicare: Communications with Physicians Can Be Improved

General Accounting Office, 02/2002

The House Budget Committee released a GAO study showing that when physicians call Medicare carriers for guidance on billing, they get information that is “often difficult to use, out of date, inaccurate, and incomplete.” Bulletins are “poorly organized and contain dense legal language,” and 85 percent of the answers provided through the toll-free line in a sample were “inaccurate or incomplete.” The Web sites are no better: helpful only 20 percent of the time.

Further, doctors “reported being inundated with large volumes of complicated, unclear, and inconsistent information” that could lead to inadvertent billing errors. This is no small matter since doctors can be fined $10,000 for each billing error.

“It is becoming increasingly difficult for doctors to participate in the Medicare program,” said Budget chairman Jim Nussle. “It is further proof that the Medicare program is too big and too burdensome and is in serious need of fundamental reform.”

Summary of study (with link to full text): http://www.budget.house.gov/022802a.htm

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. This report is produced by Elizabeth Lamirand, who can be reached at 703/299-9550, and edited by Conrad F. Meier, managing editor of Health Care News.