04/2002: The Pulse

Published April 1, 2002

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Oxymoron Reviewer Illustrates Gullibility

J.D. Kleinke’s new book, Oxymorons, is an important book reviewed on Medscape by Medscape founder Peter Frishauf. The book is the story of one who went from a gullible embrace of managed care to total disenchantment in three short years.

Unfortunately, the review itself shows we have not yet reached the limits of gullibility. Both the book and the review of the book titter about the absurd run-up in WebMD stock, to $20 billion in valuation—ridiculous for a company with no real business plan and only a few million in sales.

But then the reviewer discusses the role of brokers in our system, and says he was “astounded to learn” brokers get commissions of 3 percent to 20 percent of premiums. He decides these commissions represent “a ‘shadow tax’ of some $300 billion per year on premiums, more than twice what the nation spends on all prescription drugs!” Huh?!?!

With a health care system totaling about $1.5 trillion in annual spending, Frishauf actually thinks insurance brokers pocket one-fifth of that? The only way he could have arrived at that conclusion is by multiplying the total of $1.5 trillion by 20 percent—which could be justified only if all commissions were set at 20 percent and all health care spending was in the form of insurance premiums.

Frishauf acknowledges he is “not a health policy analyst or economist,” but common sense should warn him insurance brokers are not making double the cost of all the prescription drugs sold in the country. The gullibility that enabled WebMD to be worth $20 billion is still alive and well on Medscape.

Source: http://www.medscape.com/viewarticle/423369

KFF Nervous about HIFA Waivers

One of the tools the Bush administration has developed to encourage innovation and experimentation in health care financing is the HIFA (Health Insurance Flexibility and Accountability) waiver for state Medicaid and SCHIP programs. Everyone in the administration insists they really want some new ideas developed in this program, and approval will be expedited.

But of course, anything short of expansion and new spending sets off alarm bells in some quarters. For instance, the Kaiser Family Foundation has released a new report on these waivers that stresses its nervousness … because the states might actually use the waiver program to reduce their costs.

In the same language they use for every new idea, the report’s introduction says, “people with very limited incomes, including many with significant medical problems, may be left with fewer benefits and higher costs. Some people could lose their coverage and their access to needed services.”

Source: http://www.kff.org/content/2002/4028/

TennCare Pays Harold Ford $1.6 Million

Just when you thought TennCare could not have been a bigger disaster, along comes a story from Memphis about how management firm MIM was able to secure lucrative prescription drug management contracts with TennCare by paying former Congressman Harold Ford $1.6 million in consulting fees over a three-year period.

At $549,000 a year, Ford’s consulting contract exceeded the salary of MIM’s CEO. Ford’s work included lobbying HCFA, the U.S. House of Representatives, and members of the Clinton administration. Ford also received more than $1 million to work as a registered lobbyist for seven firms—including one that went bankrupt, leaving tens of millions of dollars of provider payments unpaid, according to the article.

Ford’s family is very influential in Tennessee politics. One son succeeded him in the House, and another is a state senator who sits on the TennCare Oversight Committee. Ford’s firm has hired the governor’s former chief of staff.

Source: http://www.gomemphis.com/cr/cda/article_print/1,1250,MCA_437_1006192,00.html

: Health Care Issues Haven’t Hit Washington …Yet

In a major article in Time magazine, Karen Tumulty cites TennCare as one example of the trouble the health care system is in. She says it was “hailed only a few years ago as a national model for covering the working poor.” But now it costs the state $6 billion a year and is likely to drop 500,000 people from the rolls.

TennCare is only one of many examples she provides of a system in trouble. Many states are cutting back on Medicaid and SCHIP, costs are soaring, the number of uninsured is growing. But all Washington is talking about is the Patient Bill of Rights, which RWJ president Steve Schroeder calls a “version of the Maginot Line.”

Tumulty goes back to the election in 1990 of Harris Wofford and subsequent election of Bill Clinton to wonder if a similar political realignment may come out of the current health care quandary.

Source: http://time.com/time/nation/article/0,8599,214063,00.html

LA Times
: State Medicaid Train Wreck

The Los Angeles Times also writes about the problems states are having in funding Medicaid. The article by Stephanie Simon is excellent on listing the problems, but falls short on suggesting solutions.

She points out Medicaid is a close second to education in state spending. It now covers 40 million people, but two-thirds of its costs are devoted to optional programs not required by the feds. In fact, during the 1990s the states went on a spending spree that included major expansions of their Medicaid programs, in part to access federal matching money.

Now they have discovered they can’t even afford their share of the costs. The one example she gives of a state taking positive action is Utah, where the state is dropping some benefits and adding co-payments to others. It also is allowing some low-income workers to buy-in to the program. Of course, the changes are criticized by the Left.

According to the article, Leighton Ku of the Center for Budget and Policy Priorities says, “adding enrollment fees and co-payments ignores ‘decades of research that show that co-payments make a big difference in utilization rates.'” Huh?

No, the move to add co-payments it doesn’t “ignore” that fact. Such changes are based precisely on the idea that co-payments will change utilization rates. That’s the whole point.

Sheeeesh! Thanks to Grace-Marie Turner at The Galen Institute for bringing this article to my attention.

Source: http://www.latimes.com/news/nationworld/nation/la-030502medicaid.story

Price Controls Don’t Work …

While we’re on Medicaid, I wrote an op-ed for Knight-Ridder arguing that state efforts to control prescription drug prices are misguided and counter-productive. Even their attempts to require the purchase of generics has often backfired because of conflicting federal laws that make generics sometimes more expensive than name-brand products.

Source: http://www.showmenews.com/2002/Feb/20020226Comm006.asp

… But Risk Pools do

One positive step many states have taken and others are considering is creation of a high-risk pool. North Carolina could soon join the list, according to an article in the Business Journal. The article reports the idea is being advanced by the local health underwriters, but the local Blue Cross plan and HMO association are squeamish about it.

Legislators from both sides of the aisle seem to be supportive of the idea and are proposing a report during the coming session, which begins on May 28. The article looks at a similar successful pool established up in 1990 in neighboring South Carolina. Supporters argue a high-risk pool can lower costs for the remaining population, stabilize the small group and individual insurance markets, and encourage more competition within the state.

Source: http://triad.bizjournals.com/triad/stories/2002/03/04/story2.html

Greg Scandlen is senior fellow in health policy at the National Center for Policy Analysis in Dallas, Texas and assistant editor of Health Care News. To sign up for his free weekly e-newsletter, Scandlen’s Health policy Comments, log on to www.ncpa.org/sub. Email Scandlen at [email protected].