09/2002: The Galen Report

Published August 30, 2002

The country dodged a bullet when the Senate rejected the latest compromise bill for a Medicare prescription drug benefit. The final bill was one of the worst the Senate considered—a plan that would have threatened health care and even Medicare’s very existence.

It was the last of four major Medicare prescription drug bills the Senate rejected during nearly two weeks of debate. The final proposal, sponsored by Democrat Bob Graham of Florida and Republican Gordon Smith of Oregon, offered a government-run drug benefit for people with incomes under 200 percent of poverty ($17,720 a year for an individual and $23,880 for a couple).

Medicare already requires increasing amounts of taxpayer money to meet its obligations. Adding this $400 billion new entitlement without any reform of the Medicare program would put even more strain on a program that millions of baby boomers are counting on when they retire. Worse, it would accelerate Medicare’s bankruptcy.

This Senate bill was only a beginning. Sen. Ted Kennedy of Massachusetts said the Graham-Smith compromise was “an important down payment on the kind of program senior citizens need and deserve.”

Unfortunately for seniors, an earlier version of Graham’s bill signaled what kind of a program that down payment would buy.

It would have limited the number of drugs available to two per “therapeutic class.” That means the government would have picked two preferred drugs for ulcers, two for arthritis, two for hypertension, and so forth. Other drugs that millions of seniors want and need would not have been on the list.

Pharmaceutical companies would be reluctant to gamble the $800 million it costs them to develop a new drug for fear they wouldn’t get on the government’s list. This would crimp the pipeline for new drugs to cure cancer, diabetes, Alzheimer’s, and other killer diseases.

Most observers believe the prescription drug issue is dead for this session of Congress. But if senators facing reelection this fall get enough heat when they are home for the August recess, they may pressure Majority Leader Tom Daschle to revive the issue.

If they start the debate again, they would be well-advised to consider a plan that would build on what they learned during their pre-recess debate.

For example, Democrats agreed, for the first time, that Medicare could target more help to lower-income seniors, rather than giving a little something to everyone.

They could try a fresh new approach that provides assistance for lower-income seniors and good catastrophic coverage—which Democrats want—in a privately managed benefit that engages market competition—which Republicans believe is essential.

— Grace-Marie Turner and Joseph R. Antos


The Medicare Drug Benefit War
Tom Miller
Fox News, 07/17/02

The Cato Institute’s Tom Miller says the Senate’s Medicare prescription drug benefit legislation “sets the stage for a new runaway entitlement program, unsustainable stress on an already-shaky Medicare program, and serious threats to future medical progress.”

Miller says the proposals should focus on expanding private competitive insurance choices to provide affordable prescription drug coverage within integrated benefits packages. Congress also should encourage higher deductibles and catastrophic loss protection, targeted assistance to lower-income seniors, reformed individual Medigap coverage, and a deregulated Medicare+Choice program. Miller warns ineffective legislation will result in “waves of drug coverage rollbacks, regulatory restrictions, tighter drug formularies, and price controls …”
Full text: http://www.foxnews.com/story/0,2933,57985,00.html

Crafting a Health Care Tax Credit in the Trade Bill
Nina Owcharenko
The Heritage Foundation, 07/16/02

“With House and Senate adoption of tax credits as part of the Trade Adjustment Assistance (TAA) program, Members have a unique opportunity to implement effective health care policy,” says Nina Owcharenko of The Heritage Foundation. Members should work in the conference committee to allow tax credit recipients to apply the credit to the plan of their choice, including policies purchased in the individual market, private options offered through the state, and coverage previously provided by a former employer.
Full text: http://www.heritage.org/library/execmemo/em824.html

Our Own Worst Enemies: Explaining Premium Increases in the Individual Health Insurance Market
Mark Litow, F.S.A.
Council for Affordable Health Insurance, 07/02

Employers, consumers, and legislators are responsible for the rising cost of health insurance, says Mark Litow, an actuary for Milliman USA.

He attributes premium increases of as much as 225 percent to four key factors:

1) cost shifting, which has increased the cost of premiums between 15 and 50 percent;

2) mandated benefits, which encourage people to increase their utilization beyond what they might otherwise use;

3) underwriting and rating restrictions, such as guaranteed issue and community rating; and

4) comprehensive benefit packages that result in high utilization and little focus on costs.

“The upward trend could be moderated or even reversed if consumers, employers, and legislators embraced lower-cost basic coverage or high-deductible policies and stopped trying to micromanage the system,” concludes Litow.
Full text (pdf): http://www.cahi.org/Issues&Answers/IndMarketPremIncreasesPDF.pdf

English Health Care: Not Your Cup of Tea
Conrad F. Meier
Health Care News, 05/02

Evidence shows Britain’s National Health Service (NHS) “is plagued by political bureaucracy, endless delay, low-quality care, and poor medical outcomes,” says Conrad Meier of The Heartland Institute. Meier traveled to England to study the NHS first-hand and wrote about his experiences in a four-part series. The series offers an overview of the NHS, explains how British policy experts wish to add greater freedom of choice to their health care system, examines efforts to fix the NHS, and provides some of his own conclusions.
Full text: http://www.heartland.org/health/may02/tea4.htm

Attack of the (Medicine) Clones
Anthony E. Daniels
The Washington Times, 7/16/02

An FBI agent of 27 years, Anthony Daniels believes re-importing prescription drugs from other countries would be a mistake.

“Legislation allowing re-importation of U.S.-made drugs from abroad could open the floodgates to adulterated and often dangerous counterfeit drugs from unscrupulous profiteers, deranged individuals, and even terrorists,” said Daniels. “I am aware of operations in which counterfeit prescription drugs were seized. Some of the drugs confiscated were formulated to come close to the genuine prescription of the American-made ones they copied, but few were exact copies. It’s likely they were not manufactured under squeaky-clean sterile conditions.”
Full text: http://www.washingtontimes.com/op-ed/20020716-70606946.htm

Premium Pain Relief
Thomas J. Bray
The Wall Street Journal, 7/23/02

Columnist Thomas Bray and his wife recently made a trip to a Costco in Windsor, Ontario and made some surprising discoveries about Canadian drug prices.

Over-the-counter drugs such as aspirin are up to 30 percent more expensive in Canada than in the United States. Government price controls on patented drugs have caused companies to make up profits by raising the prices on generic and over-the-counter drugs.

Bray also argues patented drug prices in Canada are cheaper partly because legal costs are lower due to more restrictive liability law.
Full text: http://www.opinionjournal.com/columnists/tbray/?id=110002025

Cutting Taxes for Insuring: Options and Effects of Tax Credits for Health Insurance
Mark V. Pauly and Bradley Herring
The AEI Press

Tax credits for health insurance do not have to provide a full subsidy to be effective in helping low-income workers, find Mark Pauly of The Wharton School and Bradley Herring of Yale University.

Pauly and Herring examine the impact of specific tax credit options on the uninsured and find a modest credit paying 50 percent of the premium would reduce the number of uninsured workers and family members with low incomes by as much at 52 percent. The authors also find most high-income workers would keep their group coverage even if offered a modest credit for individual health insurance.
Full text (pdf): http://www.aei.org/shop1/shops/1/7160-0.pdf

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 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.