Consumer Power Report #151

Published November 4, 2008

I am very pleased that former House Majority Leader Dick Armey has agreed to keynote our Awards Banquet on November 12. Mr. Armey was a very rare politician in Washington, because he was able to admit when he made a mistake and learn from the experience. He told me once that supporting HIPAA was one of the biggest mistakes he made while in Congress.

He is currently chairman of FreedomWorks, a free-market grassroots organization with 800,000 members and chapters in every state. Mr. Armey spends a great deal of his time traveling around America giving speeches and helping to build the FreedomWorks network. Its Web site (at is a tremendous resource and includes links for every state in the country.

Its position on health care is simple: “We want Americans to be able to use the free market to choose the care that suits their individual needs. We believe that government should not gain more control over health care. Frivolous lawsuits and bureaucratic waste add to the cost of health insurance.”

You won’t want to miss Dick Armey’s unique insights into life in the majority and minority in Washington, the dangers of power, and the importance of liberty in all aspects of our lives.

It is not too late to register for the Awards Banquet. Go to the Heartland Institute Web site.



The elections are almost over, thank God. I will give all the candidates credit for having super-human stamina. They are non-stop on the road and they appear fresh and peppy every time they appear in public. I can’t conceive of how they do it. I travel a bit, and it completely drains me. I wonder if we should start drug testing national political candidates like we do Olympic competitors and football players.

I have no idea who will win. Obama has been masterful at using his skills as a community organizer to build a national machine, right down to the neighborhood level. There is a downside to that approach. I used to be a community organizer in Portland, Maine during the “war on poverty,” but I found the process so corrupt that I quit. All of the scandal about ACORN’s forged registrations and skirting the law was standard operating procedure back then. I fired one fellow who forged the names on a nominating petition, and I was roundly criticized by my colleagues for doing it. They really thought the laws shouldn’t apply to them since they were “fighting for the oppressed.”

But the biggest scandal of this election is not ACORN, but the media’s complete failure to even try to pin down Obama’s positions. Just one example is cited by Maryland’s Insurance and Financial Advisor publication. The publisher, Tony Ondrusek, is appalled that no one has pinned down exactly how Obama plans to enforce his twin mandates–on parents to insure their kids, or on employers to insure their employees or pay a fine. During the last debate, he was even asked (by Senator McCain, not by the moderator) about that and he claimed that “zero” small employers would be fined. Huh?

Mr. Ondrusek reports that an Obama spokesman told The Wall Street Journal there would not be a fine, but a “penalty.” Double huh? The story goes on to say, “Obama officials have said that they won’t even discuss the ‘penalty’ until after the election on Nov. 4.” It is also of interest that he has never defined what “small” is–three employees, 10, 25? One might think our hard-hitting investigative journalists would demand to know, but no, not this time.

The article also says, “Obama has also deftly danced around the fines that would be imposed on parents who do not buy health insurance for their children.” But, again, no questions from the press. Not even a whiff of curiosity.

SOURCE: Insurance and Financial Advisor


The election, of course, is not just about the president. There are a couple of state initiatives on the ballot with a direct impact on the issues we talk about here. One is an effort in Maine to repeal the new tax to subsidize the failed Dirigo Health program in that state. Desperate to keep the program going, the legislature enacted a new tax on beverages to fund it.

Originally, the program was supposed to be funded by reducing uncompensated care for hospitals and saving insurers money from the supposed cost-shift to paying patients. Since the whole premise was based on a political talking point that never had much merit–“caring for the uninsured raises premiums by $800 (or whatever) per insured person”–it is hardly surprising that it failed to pan out when it was put to the test. So the state simply taxed insurers what it needed to subsidize the program.

That obviously raised the price of insurance, making private coverage even less affordable than it was already–hardly the result one wants if one is trying to reduce the number of uninsured. The legislature turned to a new tax on beverages, largely because Maine’s taxes are already so high that it couldn’t raise other taxes much more.

Now a state poll reveals that Question 1, as the ballot initiative is known, leads with 66 percent in favor of repeal and 28 percent opposed. This despite the fact that most of the state’s establishment, including the editorial pages of most of the newspapers, is in favor of keeping the tax.

SOURCE: Maine Today

Proposition 101 in Arizona is also attracting the enmity of the state’s establishment. The measure would amend the state constitution be adding, “Because all people should have the right to make decisions about their health care, no law shall be passed that restricts a person’s freedom of choice of private health care systems or private plans of any type. No law shall interfere with a person’s or entity’s right to pay directly for lawful medical services, nor shall any law impose a penalty or fine, of any type, for choosing to obtain or decline health care coverage or for participation in any particular health care system or plan.”

The implications are profound. Not only would it prevent mandatory coverage like that passed in Massachusetts, it would prevent the state’s Medicaid program from forcing people into HMOs and probably repeal state mandated benefits. Some commentators, including George Will in the Washington Post, argue that it could prevent a federal mandate as well.

We are delighted with this measure because it is largely the work of two CHCC members, doctors Eric Novack and Jeff Singer, both in Phoenix. If this one succeeds it will spread across the country like wildfire.

SOURCE: Robert Robb Op Ed; Wall Street Journal Blog; Jeff Singer’s Letter; George Will’s Op Ed


One of the issues that came up at the CD Health Summit was selection. Sander Domaszewicz of Mercer made an excellent presentation on Mercer’s research and the success of consumer-driven health with its own clients. One of his key arguments was that these plans cannot be merely “cost driven” but must be “consumer driven” in the sense of working to ensure consumer engagement. He also had some figures on the selection effects for the plans. I asked him if they were able to control for education, since the indications I’ve seen suggest that educational levels are a bigger determinant of selection than either health or income, and in fact if education were held constant it could turn out that CD health plans actually attract a sicker and poorer population.

He did not have that information, but Ashley Foster of the Blue Cross Blue Shield Association told me they had some of that and would send it to me. I have since received the BCBS study and sure enough, it helps confirm my suspicion.

According to the BCBS 2007 study, people in HSAs were indeed somewhat healthier and had somewhat better incomes, but were also much better educated than non-HSA enrollees.

Specifically, for health status the distribution was

Good Health: 42 percent non-HSAs — 49 percent of HSA
Fair Health: 40 percent non-HSAs — 38 percent HSA
Poor Health: 17 percent non-HSA — 12 percent HSA

The income distribution was

Less than $25k: 11 percent non-HSA — 8 percent HSA
$25k to $50k: 31 percent non-HSA — 25 percent HSA
$50k to $75k: 27 percent non-HSA — 26 percent HSA
$75k to $100k: 12 percent non-HSA — 20 percent HSA
Over $100k: 19 percent non-HSA — 21 percent HSA

The education distribution was

High school or less: 34 percent non-HSA — 24 percent HSA
College: 51 percent non-HSA — 59 percent HSA
Masters or higher: 15 percent non-HSA — 17 percent HSA

So the enrollment spread between the groups for the two highest educational levels and the two highest income levels is identical–10 percent greater for HSA enrollees. But the spread between the groups for “good health” is smaller–7 percent. That is not definitive, but it suggests that if education were held constant HSA enrollees would be no wealthier than non, and in significantly poorer health. Perhaps researchers would be intrigued enough by the possibility to build this into their studies.

SOURCE: “Consumer-Directed Health Plans: Consumer Perspectives,” Blue Cross Blue Shield Association, December 2007. I don’t know if this report is on-line anywhere, but drop me an e-mail and I will send it to you.


The New York Times has opened a new chapter in the insurance wars. In a recent article Robert Pear reported that insurers charge women more than men for the same coverage. Well, duh!

I won’t go into detail about the article other than to say Mr. Pear uses all the usual tricks to demagogue the issue. He notes, for instance, “Some insurance [company officials] expressed surprise at the size and prevalence of the disparities,” without supporting the statement anywhere in the article. In fact all of the quotes from insurance people in the article support and explain why the differences in premium make sense. Mr. Pear goes on to say, “The new findings, which are not easily explained away, come amid anxiety about the declining economy.” But all of the insurance people quoted do indeed explain the differences (maybe “explain” is different than “explain away.”) And I’m not sure what any of this has to do with a declining economy.

In any case, ABC News was looking for reaction and this is what I sent them:

This is neither new nor surprising. It has been around for as long as there has been insurance. Gender-based rating is not confined to health insurance, but applies as well to auto insurance, where men pay far more than women. Yet unlike health insurance, nearly every state mandates the purchase of auto insurance.

Despite these premium differences, women are far more likely to be covered than men are. According to the most recent analysis of the uninsured by the Employee Benefit Research Institute (EBRI), among people age 21 to 24, 35 percent of men and 28.8 percent of women were uninsured in 2007. For ages 45 to 54, it was 14.2 percent of women and 18.8 percent of men. So, apparently women share the perspective of insurance companies that they are more likely to use and value health insurance benefits than are men.

If we equalized the premiums for the two groups, men would find the coverage even less valuable than they do today, resulting in a significant increase of the numbers of uninsured.

SOURCE: New York Times


There is a principle in economics called “opportunity costs.” It means that a new expenditure cannot be measured solely on the cost of the purchase, but that spending money on one thing means money is not spent on something else that may deliver greater value. It is a critically important principle in health care. If I am required to spend $200/month on health insurance, I will not be able to use that $200 to buy the gas I need to take me to a job that would improve the well being of my family.

The principle works the other way as well. Sometimes spending money on one thing lowers the cost of something else for a net gain–regardless of how much the first thing cost. We see this often in the use of prescription drugs. Yes, the drug may be very expensive, but if it enables us to avoid hospitalization for the condition, it may be well worth it.

Now a new study by Frank Lichtenberg of Columbia University finds a benefit of drugs that goes well beyond those within the health system. He looks at variations in the adoption rate of new drugs within state Medicaid programs and compare that to the increase in disability rates, and find that states that quickly adopted new drugs had significantly lower increases in disability than those that were slow to adopt them. He estimates the states that adopted new drugs slowly had an increase of 1,400 per 100,000 people, while the faster-moving states had an increase of 800 per 100,000. If all states had moved at the slower rate, he estimates the numbers of disabled would have been 30 percent higher, with 418,000 more people receiving disability payments under Social Security at an added cost of $4.5 billion.

Lichtenberg concludes, “Access to medical innovations such as newer prescription drugs can help ensure that even patients with chronic illnesses remain wage earners and taxpayers. Disability funding would then be reserved for those suffering from intractable conditions.”

SOURCE: Manhattan Institute