06/2002: The Galen Report

Published June 1, 2002

Tax credits are on the front burner again with two new bills.

The first, by Rep. Ernie Fletcher (R-Kentucky), offers $1,000 to individuals and $2,000 to families with incomes up to $35,000 to buy their own health policies or to use toward their costs of a job-based plan.

The Fletcher bill (HR 4170), supported by the Employment Roundtable, provides a 100 percent tax deduction for health insurance for those who don’t qualify for the credit and allows rollover of money employees have saved in their flexible spending accounts. A unique feature: It would allow any qualified insurance company offering policies under any one state to sell those policies in every state. This provision is somewhat controversial, but it is designed to set up competition among the states over health insurance mandates and regulation.

Separately, Reps. Kay Granger (R-Texas) and Albert Wynn (D-Maryland) introduced their own tax credit bill (HR 4604) with a refundable tax credit for health insurance, also usable in the workplace. A $1,000 credit is available to individuals earning $65,000 a year, and up to $3,000 for families earning up to $105,000. Associations representing business interests, including the Coalition for Affordable Health Coverage, heartily endorsed this bill, saying the tax credit proposal is good for employers and workers.

Tax credits also are at the center of the debate over the trade bill, which the Senate began debating recently. Both sides are trying to wedge as much of their own agendas as they can into the bill.

Leaders are cutting a deal that would allow some COBRA expansion for health coverage, with federal subsidies of up to 75 percent of the cost, in exchange for some limited tax credits for displaced workers. However, workers could use the credits only to buy into existing group plans, like union health plans or state government health programs … not to shop in the competitive private market.

Labor strongly supports the COBRA subsidies, but management believes (rightly) they could be a camel’s-nose-under-the-tent for employer mandates on health insurance.

Ways and Means ranking member Charles Rangel (D-New York) and others proclaimed in a letter that, “Health care is as important as food and shelter,” but another Democrat told CongressDaily tax credits “are a non-starter.”

Tax credits are the best idea to expand health coverage that free-market advocates have proposed in recent memory. The real danger is that supporters will cave in and over-compromise on the issue, condemning it to the same fate as the over-regulated Medical Savings Accounts. Free-market ideas don’t work under the constraints of micro-management. It would be better to wait to do it right.

—Grace-Marie Turner


Competitive Alternatives to Medicare
Tom Miller
Reason Public Policy Institute
Privatization 2002

The Cato Institute’s Tom Miller chronicles recent attempts to expand choice and competition in Medicare through Medicare+Choice and BBA reforms in a new Reason Public Policy Institute report, Privatization 2002.

While most of these efforts have hit the shoals of politics, Miller is optimistic that greater privatization can be achieved by moving from a defined benefit structure to a defined contribution/premium-supported model.

“Healthy competition would encourage the [fee-for-service] Medicare program to improve and fight for market share on a level playing field,” Miller writes. “Seniors seeking additional supplemental benefits would pay additional premiums reflecting their marginal costs, and their value.”

Full text: http://www.rppi.org/apr2002.pdf (pages 13-15 of the pdf document)

A British Warning for American Health Care
Amity Shlaes
The Financial Times, 4/23/02

The announcement that Britain plans to increase taxes to fund health care went largely unnoticed by the U.S. due to our “cultural ambivalence” over health care, reports columnist Amity Shlaes in The Financial Times. Britain acknowledges its health care system is in serious trouble, but “America has not yet reached a crisis.”

“The difference between ‘them’ and ‘us’ is not as great as Americans believe,” Shlaes writes. Americans demand more entitlements, which result in more political control over the health care system, increasing to 45 percent the portion of the U.S. health care system financed by government.

Americans face a “budgetary time-bomb [in Medicare and Medicaid] similar to Britain’s.” Without reform, the two systems will consume the budget, guaranteeing an increase in taxes. The U.S. should recognize the limits of these public programs and offer stronger incentives to the private sector, with ideas like those offered by the Galen Institute.

Full text: http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3ONWG3E0D&live=true&useoverridetemplate=FTD1OUN2DNC&tagid=FTDNE3BOBNC&SectionTag=na/column&PageTag=2coamsh&imgID=FT32WHWP87C

Do as I Say, Not as I Do:
Big Corporations’ Quest to Limit Drug Advertising

Dr. Merrill Matthews Jr.
Institute for Policy Innovation, 4/2/02

The proliferation of direct-to-consumer (DTC) drug advertising is beneficial because it serves patient demand for information about their medical conditions, says Merrill Matthews of the Institute for Policy Innovation. “The U.S. health care system is transitioning from a physician-directed system to a patient-directed one. … It’s the demand for information that is driving this transition.” Matthews writes.

Nonetheless, several major corporations have formed a coalition called Business for Affordable Medicine to fight DTC advertising. Matthews points out that General Motors and Wal-Mart, two members of the coalition, spend billions of dollars a year on their companies’ advertising campaigns. He argues these companies would never stand for limits on the advertising of their products, but they are more than happy to restrict drug industry ads because they have a financial incentive to do so through savings in employer-paid health care.

Full text of the article: http://www.ipi.org/ipi/IPIPublications.nsf/PublicationLookupFull%20Text/F8F22940A449F71086256BA0007287F1

Ex-FDA Chief Recants on Drug Advertising
Raja Mishra
Boston Globe, 4/17/02

Former FDA Commissioner David Kessler recently told a convention of drug and advertising executives he was wrong in leading a seven-year effort to prevent the pharmaceutical industry from promoting drugs directly to consumers, reports the Boston Globe.

Kessler, now dean of the Yale University School of Medicine, said, “On the whole, I think there is a lot of educational benefit,” citing a 2001 Kaiser Family Foundation study showing direct advertising has increased consumer understanding about drugs, their side effects, and the conditions they treat.

Kessler’s admission comes on the heels of AARP announcing a $10 million advertising campaign, partly to counteract direct-to-consumer pharmaceutical advertising. What are the AARP leaders thinking? They will be spending their members’ money on a campaign designed to provide seniors with less information about new therapies that could enhance and even save their lives. Doesn’t sound like a very good plan, especially in light of Kessler’s remarks.

Full text available for a fee at: http://www.boston.com

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.