Institute for SocioEconomic Studies

SocioEconomic e-Bulletin

April 26, 2002

Welcome to the SocioEconomic e-Bulletin, the e-mail newsletter of the Institute for  SocioEconomic Studies, a non-profit, non-partisan operating foundation that examines issues relating to economic development, poverty, health care reform and the quality of life (http://www.socioeconomic.org/).

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IN  THIS ISSUE

1. Legislators Would Outlaw "Concierge Care" for Medicare  Beneficiaries: Five  congressional Democrats are arguing that a new breed of luxury medical practices violates the law if those practices see any Medicare patients...

2. Medicare Spending Expected to Soar in Coming Decade: Medicare spending,  expected to increase at an annual rate of 7.2 % over the next decade, will exceed $498 billion by 2012, according to figures recently released by the Congressional Budget Office...

3. Medical Savings Accounts Extended; Tax Credits Languish: An economic stimulus bill just signed into law- The Job Creation and Worker Assistance Act of 2002- extends Medical Savings Accounts (MSAs) for another year, through 2003, but tax credits for the uninsured failed to gain sufficient political support...

4. Falling Medicare Reimbursement Rates May Limit Beneficiary Access to Physicians: The diminished ability of physicians to meet the mounting demands of all patients, together with deep Medicare payment cuts, threatens to impinge upon the quality of health care available to the nation's elderly...

5. President Proposes Health Care Initiatives: In order to expand health care coverage, President Bush proposed a number of health care incentives in his Fiscal Year 2003 federal budget...

6. Freedom Makes a Difference in the Middle  East: Data indicates that economic freedom and not the presence or absence of oil is crucial to the well-being of the Middle East's residents... 

7.  Outline for Health Care Reforms Becoming Clearer: A look at what health care reform initiatives may lie ahead...

1. Legislators  Would Outlaw "Concierge Care" for Medicare Beneficiaries

Five congressional Democrats (Representatives Waxman, Brown, Stark, and Cardin, and Senator Durbin) are arguing that a new breed of luxury medical practices violates the law if those practices see any Medicare patients.

At issue are emerging high-end physician outfits like MDVIP of Boca Raton, FL. In  exchange for an annual charge of $1,500, MDVIP offers enrollees preventive care and other medical services not covered by Medicare, as well as amenities like 24-hour, seven-days-a-week, direct access to physicians, and assistance with insurance matters.

The five have written to Health and Human Services Secretary Tommy Thompson  requesting a speedy determination that such arrangements are violations of Medicare's payment and anti-fraud rules.

In  order to enforce uniformity under Medicare, these lawmakers would deny patients  the right to spend their own money on services that their doctors would be happy to provide. Such an approach makes seniors prisoners of the Medicare program.

Medicare was never intended to deny individuals the right to spend their own money on the health care of their choice. At a time of intense financial pressure on both individual physicians and the Medicare program itself, such paternalism on the part of our leaders is sheer folly.

Sources:

Kaiser Daily Health Policy Report, Tuesday. March 5, 2002: http://www.kaisernetwork.org/daily_reports/print_report.cfm?DR_ID=9831&dr_cat=3

For additional information on health care reform:http://www.socioeconomic.org/Healthcare__/healthcare__.HTM
 

2. Medicare Spending Expected to Soar in Coming Decade 

Medicare spending, expected to increase at an annual rate of 7.2 % over the next decade, will exceed $498 billion by 2012, according to figures recently released by the  Congressional Budget Office. It is anticipated that the program, which accounts for approximately 2.4% of the nation's gross domestic product in 2002, will hold a 2.9% share of the economy in ten years.

Projections link nearly 45% of the growth in spending to the automatic increases in payments to hospitals, physicians, and other healthcare providers established by 1997  legislation, and 23% to the anticipated rise in caseloads as growing numbers of baby boomers become eligible for benefits. Finally, projected increases in Medicare reflect both the escalating costs of the program per participant as individuals use more healthcare services, and the increased utilization of costly procedures.

By 2030, the combined cost of Social Security and Medicare will approach 15% of the nation's GDP. Counting the Social Security surplus, the federal government will amass a $2.5 trillion surplus between 2003 and 2012. If Social Security revenues already  earmarked for support of future retirees are subtracted from this equation, however, the picture changes dramatically, showing a cumulative $242 billion deficit.

Possible ways to stem the flow of red ink in the Medicare system would be to impose increased deductibles for higher-earning retirees and to allow patients to contract  privately with physicians for additional services. This would both shore up the system's finances and increase the freedom of doctors to practice high quality medicine as they see fit.

Sources:

The Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years  2003-2012: http://www.cbo.gov/showdoc.cfm?index=3277&sequence=5
 

3.  Medical Savings Accounts Extended; Tax Credits Languish

An economic stimulus bill just signed into law by President Bush - The Job Creation  and Worker Assistance Act of 2002 - extends Medical Savings Accounts (MSAs) for  another year, through 2003.

Although they remain subject to limits and restrictions imposed in the original  authorizing legislation, MSAs are still an effective way for Americans to regain control over their health care. By reducing the interference of third-party payers, MSAs can help restore the patient-doctor relationship. MSAs give individuals (rather than employers or the government) the power to decide which health care services are most important to them. At the same time, MSAs encourage judicious use of resources and cut down on administrative costs, both of which help control the growth of health care spending.

Unfortunately, the price of passage of the stimulus bill was abandonment of some much-needed health care reform. Tax credits for the uninsured-favored by the President, a number of legislators, and many health policy experts-failed to gain sufficient political support. Opponents of tax credits doubt the market can provide  affordable and reliable health insurance for individuals, and fear weakening our  employer-based system.

In fact, tax credits would be an efficient way to quickly bring coverage to the uninsured. Like MSAs, tax credits are empowering, and would free patients from the dictates of company-selected health plans (though credits could also be used to help workers pay for job-based benefits). While affordable non-group policies already exist, equipping millions of uninsured with tax credits would rejuvenate the individual health insurance marketplace. Increased consumer choice and better insurance value are the likely results.

Sources:

"Techical Explanation of the 'Job Creation and Worker Assistance  Act of 2002'," prepared by the Staff of the Joint Committee on Taxation, March  6, 2002:http://www.house.gov/jct/x-12-02.pdf 

For more information on health care reform:http://www.socioeconomic.org/Healthcare__/healthcare__.HTM
 

4. Falling Medicare  Reimbursement Rates May Limit Beneficiary Access to Physicians

The diminished ability of physicians to meet the mounting demands of all patients,  together with deep Medicare payment cuts, threatens to impinge upon the quality of health care available to the nation's elderly. Already, an increase in the number of hours that physicians must work per week, a drop in the number of doctors accepting new Medicare patients, and lengthy waits for appointments signal a potential decline in access for program beneficiaries.

Between 1999 and 2002, the average time that doctors spent caring for patients climbed from 44 to 46 hours per week, according to preliminary data reported by the  Center for Studying Health System Change (HSC). Rapidly declining Medicare  reimbursement rates and tightened managed care formulas now force many doctors to work more hours to compensate for lower fees. The Medicare Payment Advisory  Commission reports that under the current reimbursement formula, physicians may  face further fee reductions, including a 5.4% cut in Medicare payments this year and a cumulative 17% cut in payments between 2002 and 2005. As a result, reimbursement rates are expected to fall below those posted in 1993.

HSC also reports a drop in the percentage of physicians willing to accept all new  Medicare patients-down 4 percentage points (from 72% to 68%) since 1997. Figures  show that a larger number of Medicare beneficiaries are having trouble seeing their doctor, with 24% of beneficiaries reporting delaying or not receiving care due to lengthy waits for appointments. This percentage is up sharply from the 14% reporting similar difficulties just five years ago.

Furthermore, the difference between Medicare physician payment rates and private insurer payment rates varies widely by locale. While private rates may range from 80% to 108% of Medicare physician payments in one area, they may range from 120% to  180% of Medicare physician payments in others. It is in regions where Medicare  payments fall most dramatically below private ones that Medicare beneficiaries may find their access to quality health care services most severely affected.

Sources:

Center for Studying Health System Change, "Ginsburg Cautions Medicare Beneficiary  Access to Physicians Slipping," News Release, February 28, 2002: http://www.hschange.org/CONTENT/416/

Center for Studying Health System Change, "Written Testimony before the Subcommittee on Health of the House Committee on Ways and Means: Hearing on Medicare Physician Payment," Testimony, February 28, 2002: http://www.hschange.org/CONTENT/415/?

Report to the Congress: Medicare Payment Policy, March 2002: http://www.medpac.gov/


5. President Proposes Health Care Initiatives

In order to expand health care coverage, President Bush proposed a number of health care incentives in his Fiscal Year 2003 federal budget including:

1) A refundable health care tax credit for low- and moderate-income persons who are not covered by an employer plan or enrolled in a public program such as Medicaid

2) Improved and permanent Medical Savings Accounts (MSAs)

3) A tax deduction for long-term care insurance premiums.

4) Enhanced Flexible Savings Accounts (FSAs) where up to $500 in unused benefits would no longer be considered taxable income when they are rolled into an MSA, invested in a 401K or similar plan.

Assessment

This approach may yield some progress in reducing the nation's number of uninsured persons. Approximately 60% of uninsured persons have incomes that fall below 200 percent of the poverty level according to the Health Insurance Association of America (HIAA). In addition, although employer-provided health coverage accounts for 2/3 of all insurance for non-elderly Americans and 92% of all privately covered Americans, it has not proved able to bring about near universal coverage. In fact, according to projections made by the HIAA, "Assuming continued economic growth and moderate health care cost inflation, the number of uninsured Americans will rise slowly over the next 10 years, exceeding 48 million in 2009."

The limited approach of offering refundable tax credits to assist Americans in purchasing health insurance represents a lowering of the current reliance on employer-based coverage. It is also consistent with a broader catastrophic care-based plan being studied by the Institute for SocioEconomic Studies.

Sources:

For more details on the proposal: http://www.whitehouse.gov/omb/budget/fy2003/bud15.html

William S. Custer, Ph.D. and Pat Ketsche, Ph.D., M.H.A., The Changing Sources of Health Insurance, Health Insurance Association of American, 2000.
 

6. Freedom Makes a Difference in the Middle East

With Freedomhouse.org's just released "Freedom in the World: 2001-2002" reporting that its "most revealing and relevant finding...is the democracy deficit in the Islamic world, especially in its Arabic core," an  examination of this finding is in order.

Today, there is a host of data available pertaining to freedom and well-being. With regard to the well-being of the Middle East's residents, economic freedom and not presence or absence of oil is crucial.

A look at the Middle East's states finds the following annual per capita GDP:

Economically  and politically free: $18,723 Economically  free regardless of political freedom: $14,341 Economically  free without oil: $11,945 Economically  unfree with oil: $5,358 Economically  and politically unfree: $4,552

In addition, a statistical z-test on a worldwide basis found the relationship between economic freedom and overall well-being to be statistically significant. In general, with a 95% level of confidence, the presence of economic freedom added $2,021 to $15,458 to a nation's annual per capita GDP.

Sources:

The Heritage Foundation's "Index of Economic Freedom": http://www.heritage.org/index/

The UN Development Programme's "Human Development Report: 2001": http://www.undp.org/hdr2001/

Freedomhouse.org's "Freedom in the World 2001-2002": http://www.freedomhouse.org/research/survey2002.htm

Oxfam America's "Extractive Sectors and the Poor": http://www.oxfamamerica.org/pdfs/eireport.pdf

The World Factbook 2001: http://www.odci.gov/cia/publications/factbook/index.html
 

7. Outlines for Health Care Reforms Becoming Clearer

What is happening outside Washington, DC, is often a barometer of what is likely in  terms of federal policy changes. The 1996 welfare reforms formalized many of the  changes that had been occurring at the state level through waivers that had been  granted to a number of states. A look at the health care landscape outside the nation's capital reveals possible outlines for the next generation of health care proposals. The President's Fiscal Year 2003 Budget offers additional confirmation of what health care reform initiatives may lie ahead.

Look for several aspects to form the building blocks of near- and medium-term health  care reform:

A refundable tax credit:  An increasing amount of literature suggests that the current employer-based health care system cannot maximize coverage. The chronically high number of uninsured Americans is indicative of the limitations of the existing system.

Increased patient choice: Existing flexible savings accounts (FSAs) and Medical Savings Accounts (MSAs) offer patients some opportunity for purchasing health services on their own.To date, the MSA experience has generally been a positive one.

More differentiated care: A more flexible system, e.g., through expanded use of MSAs, will accelerate the trend toward differentiated care, currently in its early stages with what has been referred to as "boutique medicine," where patients can choose to pay more in return for expanded value from their physicians.

In his Fiscal Year 2003 Budget, President Bush calls for, among other things,  refundable tax credits directed at those who lack access to an employer-based health policy or do not have public health assistance. At the same time, he calls for making MSAs permanent and for improving FSAs to allow people to avoid including in their taxable income up to $500 in unused funds by rolling this money into an MSA, 401K Plan, or some other tax-deferred or tax-free vehicle.

Sources:

Pam Belluck, "Doctors' New Practices Offer Deluxe Service for Deluxe Fee," The New York Times, January 15, 2002.

Amitai Etzioni, "Critics of "boutique" doctor care miss the point," USA Today, January 24, 2002.

National Center for Policy Analysis, Research Answers Critical Questions on MSAs: http://www.ncpa.org/pi/health/pd070700a.html and Greg Scandlen, Four Years of MSAs: The Lessons So Far, National Center for Policy Analysis, July 6, 2000: http://www.ncpa.org/ba/ba327/ba327.html

NCPA Health Reform Plan: http://www.ncpa.org/w/w16.html

Lynn  Etheredge, "A Flexible Benefits Tax Credit for Health Insurance and More," Health Affairs, March 2001: http://130.94.25.113/1130_abstract_c.php?ID=http://130.94.25.113/Library/v20n3/s2.pdf

Lynn Etheredge, "How to Administer Health Insurance Tax Credits for Working Families," The Heritage Foundation Backgrounder, January 31, 2002: http://www.heritage.org/library/backgrounder/bg1516.html

Nina Owcharenko, "How Congress Can Help the Uninsured Gain Health Coverage," The Heritage Foundation Backgrounder, September 21, 2001: http://www.heritage.org/library/backgrounder/bg1475es.html