Consumer Power Report #136

Published July 18, 2008

The Heartland Institute is doing a much better job than I was ever able to do in putting these publications online. If you need to go back to an earlier edition, at least as of June, they will be available at

There has been a ton of good stuff published recently on Health Savings Accounts. I was going to include some of it here, but I ran out of room this week. I will devote the next issue to nothing but positive press on HSAs and other forms of Consumer Driven Health Care.

Instead, this issue is mostly about how government deals with health care — slow, clumsy, inefficient, and so on.



The House and Senate both overrode President George W. Bush’s veto of the Medicare “SGR fix” by overwhelming margins, delaying the planned cut in physician fees for 18 months. But the bill also killed a new approach to the way Medicare pays for medical equipment that would have saved the program billions of dollars at no loss to beneficiaries.

Writing in The Wall Street Journal, HHS Secretary Michael Leavitt explained that traditionally Medicare paid to “rent” medical equipment based on a fixed fee schedule. “An oxygen concentrator,” he writes, “costs about $600 (to buy) on the open market.” But Medicare pays $198.40 per month to rent the same machine. Renting it for 36 months costs $7,142, of which beneficiaries pay 20 percent or $1,428 — more than double the cost of buying the thing.

Mr. Leavitt writes that CMS instituted a competitive bidding process in 10 locations around the country — “Unsurprisingly, the bids came in substantially below what Medicare pays, on average 26 percent below. These new prices took effect on July 1, benefiting taxpayers and patients.” Unfortunately, the suppliers who lost out on the bids engaged in a ferocious lobbying campaign and got the program killed in the new legislation.

SOURCE: Wall Street Journal

An example of the arguments the losing suppliers used appeared in a press release by the industry trade group, the American Association for Homecare, on July 8, exactly one week after the new system went into effect.

The release says, “The new Medicare competitive bidding program for durable medical equipment has created concern and chaos for beneficiaries, physicians, hospital discharge officials, and home medical equipment providers across the country since it was implemented in 10 metropolitan areas on July 1.” All of that in just one week?!?!

SOURCE: NewsBlaze

The Chicago Tribune weighed in with an editorial response noting that “the Medicare trust fund will become insolvent by 2019 (and) the most promising way to fix Medicare is with the same engine that drives the U.S. economy: competition.”

It goes on to say, “But the trade association for medical equipment suppliers and other lobbyists have worked hard to derail this bidding program. The lobbyists argue that the bidding process was flawed and competition will create some job dislocations. Some companies won’t survive.

“That’s probably true: competition creates winners and losers. But Medicare is not going to get a handle on its rising costs by rejiggering its government-controlled pricing. As long as the anti-competitive provisions are in the bill, it will be bad for patients and taxpayers.”

SOURCE: Chicago Tribune

Forbes magazine ran an Associated Press story on the issue. The article points out that beneficiaries would benefit from reduced copays — “In the Miami area, for example, a standard power wheelchair that cost Medicare $4,024 last week will cost an estimated $2,817 under the new system. The cost for someone paying the 20 percent copay would drop from $805 to $563.”

It adds, “The bid process has severely curtailed the number of approved businesses. The number of approved firms for oxygen in Greater Miami, for example, fell from more than 400 to 46. Medicare insists there are enough businesses to meet demand but says it can add more if needed.

“Officials also say fewer firms will mean less potential for fraud. On Wednesday, the U.S. attorney in Miami, R. Alexander Acosta, announced the guilty pleas of three people involved in a $148.5 million fraud scheme related to the type of medical equipment covered by the new system.”

But it goes on to say, “The American Association for Homecare, which represents the businesses that sell the type of equipment the government is slashing prices on, calls the changes ‘a train wreck.'” Why? The article provides an answer — “Rob Brant, owner of City Medical Services in North Miami Beach, Fla., was one of the losers. His seven-person company gets about 80 percent of its business from Medicare patients and didn’t make the cut in the new bidding process. ‘I’m in very big trouble,’ he said.”

SOURCE: Forbes Magazine

And so it goes in Washington these days. If your firm is over-priced and inefficient, hire a lobbyist to keep you in business anyway. In fact, that is far more important than delivering value to your customers.


Now that this endless presidential election is fully engaged, more is coming out about the specifics of the candidate’s positions. First, some reader responses from my summary last week —

I don’t think there is much doubt that Obama wants single payer and he will engineer his pseudo multi pronged approach to do so. He is on the record as saying if he was building it from ground up it would be single payer. He still doesn’t get it — the employer should have nothing to do with it.

I was struck by this: “The Obama plan would reimburse employer health plans for a portion of the catastrophic costs they incur above a threshold if they guarantee such savings are used to reduce the cost of workers’ premiums.” What’s to keep them from lowering the threshold to encourage all employers to be in and backdooring single payer via employer insurance.
Denny Gabos, MD
Pittsburgh, PA

Increasing competition amongst health plans and providers is generally a very good thing.

Perhaps a national health purchasing venue might help, but the issue will be a tendency for excessive government intervention such as more mandated benefits (“comprehensive coverage” and guaranteed issue). A very significant government subsidy will then be required for that kind of robust coverage and this will likely suck dry any free-market elsewhere. In the end, I fear we will have helped build a means to slowly grow this entity into a single payer lite. Like the substantiation legislation for HSA, there will no doubt be persistent political efforts to convert something originally intended to level the free market playing field into a government–run health care program.

Personally I’d like to see the current CDHC market place mature and see what’s left over to fix. The solutions could then be much smaller in scale and focused on the remaining exceptions rather than creating a massive solution for the many.
James G. Knight, MD
San Diego, CA

James Capretta writes in National Review Online that Senator McCain is right to emphasize Senator Obama’s “pay or play health mandate on small business (that) adds $12,000 to the cost of employing anyone with a family.”

Mr. Capretta notes that Democrats have been pushing this idea “for more than two decades,” especially since Governor Dukakis made it a centerpiece of his campaign for president in 1988. Mr. Capretta says, “The concept hasn’t gotten any better with time.”

He writes, “‘Pay or play’ advocates argue that it is the most direct way to cover the uninsured, most of whom work or are in households with those who do. But the real issue for these workers is affordability. Health-insurance premiums are paid by households, not businesses, even if the company is sponsoring the insurance plan. In a competitive labor market, employers only pay workers what they are worth to the firm. The more they are required to pay in benefits, the less there is to pay cash wages.”

SOURCE: National Review

And writing in the Manchester Union Leader, the Cato Institute’s Michael Tanner praises Mr. McCain’s approach as, “the most radical overhaul of American health care policy in a decade and a half.” He especially likes moving to individual coverage with a flat refundable tax credit and interstate purchase. He notes, for instance, that a “standard health insurance policy” for a 25-year-old costs $5,580 in New Jersey, but only $960 a year in Kentucky, due almost entirely to the difference in regulations in the two states.

Mr. Tanner also likes Mr. McCain’s desire to move away from paying separately for each service to packaging services into a single bundle. He cites Steve Parente of the University of Minnesota as estimating that McCain’s approach would not only cut the numbers of uninsured by half, but would lower costs for everybody.

SOURCE: Union Leader

In The Wall Street Journal, former Clinton Administration official Matt Miller advises Mr. Obama not to run as a liberal. He writes, “For all the talk about reaching out to Republicans and independents, Mr. Obama’s proposals have been far less challenging to conventional liberal thinking than were Bill Clinton’s in 1992.”

Mr. Miller goes on to detail three areas where Mr. Obama should depart from liberal orthodoxy — merit pay for teachers, lowering corporate taxes, and supporting Health Savings Accounts.

He writes, “Liberals sensibly reject ‘consumer-directed health plans’ loved by Republicans when these plans’ high co-pays and deductibles put undue burdens on the sick and the poor. But there’s a simple way to structure such plans to address these concerns while still bringing consumer incentives to bear on runaway health costs. The answer is to require such plans to limit the total medical costs a person can incur in a year to a reasonable percentage of income. By calling for annual out-of-pocket maximums to be tied explicitly to earnings, Mr. Obama would forge a new ‘third way’ on health care, and cast himself as an innovator not beholden to the far left view that market forces should play no role in health care at all.”

His point is well made. As I mentioned last week liberals are foolish to reject HSAs. It has been obvious for a long time that even a single payer program would be enhanced by including a health savings account for the small stuff. That would be a way of providing the choice and flexibility that people demand even in a government-controlled system. David Gratzer also made this point when he wrote the award-winning book Code Blue while he was still a medical student in Canada in 1999.

SOURCE: Wall Street Journal


Here’s a news flash for you — UNIVERSAL HEALTH CARE COSTS MORE THAN PROPONENTS CLAIM! Yes, indeedy! Folks get these sweeping bills enacted by promising they won’t cost the taxpayers much. And a year or two later they ALWAYS come back for a tax increase to “complete the job.”

The Maine legislature enacted a raft of new taxes to pay for its Dirigo program — a first-ever tax on soft drinks, a doubling of the tax on beer and wine, and a 1.8 percent tax on all health care claims paid by insurers and TPAs — all to pay for a teensy 13,000 people now enrolled in the Dirigo program.

But a new business coalition was formed to put an initiative on the ballot to repeal these taxes. Business Insurance reports that the “Fed Up With Taxes” coalition has succeeded in gathering 90,000 signatures to put the measure on the ballot in November.

SOURCE: Business Insurance

And in Massachusetts, the business community is finally getting some backbone and resisting a proposal by Gov. Deval Patrick to raise another $100 million in taxes on business, insurers, and hospitals to pay for the Commonwealth program. The governor, of course, describes the tax increase as “modest,” a hint that there is more to come.

In fact, people in Massachusetts tell me off the record that the business community is talking about preparing an ERISA challenge to the pay-or-play assessment in that state. They haven’t bothered to do so until now because the assessment was modest and they wanted to be cooperative to have the old “seat at the table.” But now they expect the bite to sink deeper and start to hurt. Well, duh! What in the world did they expect?

By the way, if they do bring an ERISA challenge, it will succeed and the program will be killed unless the state finds another source of subsidy.

SOURCE: Boston Globe