Statement on the President’s State of the Union Address

Published January 31, 2003

In his State of the Union Address on January 28, President Bush called for a prescription drug benefit for seniors and discussed the need to get affordable drugs to AIDS patients in developing countries. Both are important matters, and the President addressed them with his usual candor and common sense.

However, the President implied that a prescription drug benefit has to be enormously expensive (though less expensive than Democrats want). And his comments on the AIDS problem seemed to assume the price system isn’t working to give AIDS patients access to needed drugs, therefore justifying drug pirating by countries such as India. Neither of these assumptions is correct.

The President made it clear he supports a private and flexible drug benefit for senior citizens on Medicare, not one that is delivered by a new government bureaucracy. He has made it clear that any new benefit must be part of Medicare reform. This is good. Reforming Medicare will probably be the biggest battle over health care of this decade. Bush is courageously addressing the need to reform a program that has been failing seniors for years, but was too politically sensitive for other politicians to address.

Medicare has to move in the direction of markets, prices, respecting property rights, personal responsibility, and choice. It must move in this direction because that is the direction the whole world is moving: domestically, we have seen it in deregulation, welfare reform, and privatization of many goods and services. Internationally, we see it in the fall of the Berlin Wall, collapse of the Soviet Union, and spread of free trade and free markets to countries such as China.

Medicare is increasingly an anachronism in the U.S., an island of socialism and government monopoly surrounded by a sea of free enterprise, innovation, and consumer choice. That cannot continue.

The President’s comments are encouraging, but there is also a risk. His pilot program for Medicare reform, which allows Medicare beneficiaries to enroll in preferred provider organizations (PPOs) that offer a drug benefit, avoids government controls, open-ended entitlements, and price controls . . . but takes the muddy middle of the road in advocating more reliance on managed care rather than genuine markets.

Managed care may not be the right model for Medicare reform. Managed care programs helped bring health care spending under control for awhile in the mid-1990s, but it produced a fierce and often justified whiplash from patients upset over their loss of control over important medical decisions. It also led to the growth of expensive bureaucracy, and prompted hospitals and doctors to organize to resist price competition, allowing them to undo much of the early savings.

By advocating a prescription drug benefit delivered by PPOs and other types of managed care, the President may play into the hands of Sen. Clinton, Sen. Kennedy, and other advocates of single-payer health care. They will attack and seek to demonize anything short of open-ended government-guaranteed entitlements. Once prominent advocates of HMOs, they will now attack Bush for “forcing people into HMOs” in order to get prescription drug coverage. They will call for price controls and more subsidies, regardless of what the President offers.

The kind of big-government programs sought by Clinton, Kennedy, and the like are backwards looking, out of sync with the national and world movement toward markets, innovation, and consumer choice. The Clinton administration’s proposal for universal health insurance was dead on arrival in Congress because it was a big-government solution being proposed at “the end of the era of big government.”We don’t need to go back and beat that dead horse anymore.

Regarding the AIDS problem, the President needs to take a firm stand for patent protection and against pirating, even in the tough case of AIDS drugs. There is good evidence that undermining patent protection has already slowed the development and commercialization of new drugs to treat AIDS. Moreover, the cost of drugs is not the principal reason why the impoverished people of Africa lack treatments. More important is the absence of hospitals, care givers, and the rest of the public health infrastructure needed to deliver treatment.

Many more lives would be saved if funds were invested in these essential services and facilities, than in buying expensive AIDS medications. It’s a tough choice, and one that rock stars don’t seem to believe has to be made. But Presidents know otherwise, and President Bush should say so.

The President should focus his attention, both of these health care arenas, on allowing people to choose and private companies to innovate and compete. Solutions usually lay in lower taxes, less regulation, and protection of property rights (including patent protection), not in new bureaucracies, new entitlements, or more regulations. So long as the President keeps this in mind, he and his political party will be on the right track on health care issues.

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Joseph L. Bast is president of The Heartland Institute, a nonprofit research organization based in Chicago. He can be reached at [email protected]

For further information or to set up an interview with Mr. Bast, contact Heartland Public Affairs Director Greg Lackner at 312/377-4000, 773/489-6477, email [email protected]