Consumer Power Report #232

Published July 30, 2010

Welcome to the Consumer Power Report – Greg Scandlen is off this week.

We all knew it was coming. Assuming it was dead was never really an option. It was always simmering below the surface, but I don’t think many people thought the simmer would turn to a boil so quickly. I’m talking, of course, about the so-called “public option” health insurance plan.

On July 21, Rep. Lynn Woolsey of California and 128 of her friends in the House answered liberal prayers and introduced a bill “to amend the Patient Protection and Affordable Care Act to establish a public health insurance option.” A recent Rasmussen poll indicated 58 percent of voters favor outright repeal of the new health care law, which means Rep. Woolsey and her colleagues have a long way to go.

It’s no secret that liberals and progressives felt deflated when President Barack Obama did not insist a public option plan be a part of the new health care law. So it should come as no surprise that Rep. Woolsey has taken the initial steps to bring the debate back full circle. This time, though, she is armed with a score from the Congressional Budget Office (CBO) that her bill will reduce budget deficits through 2019 by $53 billion. The logical question is: How can this be?

In the CBO analysis, we find the net impact of differences in premium costs would depend on payment rates to providers, administrative costs, the level of benefit management, and the characteristics of enrollees. Of these, payment rates to providers and benefit management should be put under a microscope. This means savings to the government can be achieved only if doctors and other providers are paid less than private insurance rates and if health benefits for patients are reduced.

A colleague of mine once pointed out that when health policy experts talk about high-value, low-cost insurance plans, they typically never mention Medicare and Medicaid. That is because the payment system set up for both programs discourages efficient and effective care, whereas competition in the private health insurance market forces an insurance provider to be better than the other guy. Medicare and Medicaid have no such mechanism to force improvement and efficiency.

Rep. Woolsey’s legislation specifically says premiums would have to fully cover public option plan costs for benefit payments and administrative expenses. I would argue Medicare has a comparative advantage here since Part A is funded for the most part by payroll taxes and Part B is funded through premiums paid by the beneficiary. However, even with the benefit of payroll taxes from all working Americans being applied, Medicare’s unfunded liability still stands at $38 trillion. If the federal government cannot contain costs in the Medicare program, how does it expect to contain costs in the public option?

Dr. Mark McClellan said it best in July 2009: “You can’t have it both ways. Either the government plan can get substantially lower costs by exerting power that other [private] health plans don’t have. Or, if you go the other way, and you don’t give the public plan any special advantages, and you make sure it doesn’t get too big — in that case it’s not going to be any less costly. So what’s the point?” (Ricardo Alonso-Zaldivar, Associated Press, “Gov’t Plan Would Offer Cut-Rate Medical Premiums,” July 2, 2009).

— Peter J. Fotos
Government Relations Director
The Heartland Institute



Our new CMS Administrator, Dr. Donald Berwick, has never been shy about praising Great Britain’s National Health Service (NHS). He has been quoted as saying, “I fell in love with the NHS … [T]o an American observer, the NHS is such a seductress.”

In an almost comical rejection of Dr. Berwick’s professed love, Great Britain is working to reduce the bureaucracy at the NHS by giving more control over health care decisions to patients and doctors due to a massive budget crunch. Like two ship passing in the night, the United States and Britain seem to be trading places when it comes to the delivery of health care.

Ben Domenech, managing editor of Health Care News, has done great work covering the nomination and controversial recess appointment of Dr. Berwick as head of CMS. I encourage all of you to visit the Health Care News Web site to read Ben’s commentary and watch videos of Dr. Berwick and his outrageous comments about the U.S. health care system.

SOURCE: New York Times; Health Policy News on Berwick


The Associated Press shows good intentions by big government tend to fall short. It seems the new regulations for child-only health care policies have created new hurdles. Tens of thousands of children could go without health insurance as a result.

SOURCE: Yahoo News


The Left’s obsession with restricting gun owners’ rights has led them to argue that owning a gun is dangerous to your health. Now, I would argue it mostly poses a threat to the person breaking into your home, but the National Center for Policy Analysis goes one step farther, doing a fantastic job of showing that having a firearm in your home poses no greater health risk than riding a bicycle.

SOURCE: John Goodman Blog


Laura Landro at The Wall Street Journal gives us a great piece on the enhancement of the doctor-patient relationship through electronic medical records (EMRs). The article, while acknowledging some pitfalls of EMRs, shows how health care needs better management tools in order to provide more effective care to patients.

The article finishes by discussing the need for primary care physicians. Reports indicate by 2020 we will need 45,000 more primary care physicians than we currently, but the number of students entering medical school fell by more than a quarter between 2002 and 2007.

Allowing patients to see their medical records more often could be a very good thing, but what will it matter if they do not have a doctor to explain things to them?

SOURCE: Wall Street Journal


At the top of the list of questions regarding the health care overhaul is how seniors will be affected. There are two primary issues: collection of benefits under the law’s new long-term-care program and closing the Medicare gap on prescription drug coverage.

Under the Community Living Assistance Services and Supports (CLASS) program, seniors would begin collecting benefits as early as 2017. It is a voluntary insurance program intended to offset long-term-care costs. Employers would automatically enroll participating employees, and premiums would automatically be deducted from paychecks.

There’s a catch, of course. “In order to receive benefits, you must pay monthly premiums for at least five years. And the program is open only to people who have been employed for at least three of the five years that they’ve been paying premiums.” Enrollment isn’t expected to open until October 2012.

The second issue facing seniors is more roundabout. Closing the Medicare gap on prescription drug coverage doesn’t benefit seniors as much as one might think. “Here’s how the gap works in a standard Medicare Part D drug plan in 2010: After a $310 deductible, seniors pay 25 percent of the first $2,830 in total drug costs. Then they enter the doughnut hole and must pay the next $3,610 completely on their own. After that, the plan kicks in again and the enrollee pays 5 percent of the costs.” Long story short, the cost for which seniors are responsible will decrease over time.

SOURCE: Washington Post