Warren Asks What the Country Can Do for You

Elizabeth Warren’s release Friday of a more specific health-care platform only raised more questions about Medicare for All and its effects on the middle class. Conservatives as well as Ms. Warren’s Democratic opponents questioned the assumptions behind her claim that she can enact a single-payer plan without raising taxes on the middle class. Yet the harshest critic may be Ms. Warren herself. “Ask not what your country can do for you—ask what you can do for your country,” John F. Kennedy, who once held Ms. Warren’s Senate seat, urged. She refuses to ask the middle class to pay a dime for her costly proposal.

Take Ms. Warren’s assumptions at face value, even if doing so requires a knowing suspension of disbelief. Assume she can reduce the 10-year cost of a single-payer system from the $34 trillion in new federal spending estimated by the liberal Urban Institute to a mere $20.5 trillion. Assume her program would reduce administrative costs without encouraging fraud. Assume also that her proposed wealth tax won’t generate massive tax evasion—she claims a Warren administration would generate $2.3 trillion in new revenue by cracking down on tax avoidance—and that not a penny of her $9 trillion in assessments on employers will end up being paid by workers.

Ms. Warren envisions a $20 trillion expansion of government—the largest in American history—paid for by a fraction of the population. She foresees unlimited “free” health care for millions of families, without so much as a $100 copayment, premium, assessment, tax or other fee.

Sure, the earned entitlement always had an element of fiction. Social Security and Medicare pay benefits based on current cash flows, with their respective trust funds containing little more than promises to pay future benefits. Urban Institute estimates show that even wealthy seniors will receive more in Social Security and Medicare benefits than they paid in taxes. But Ms. Warren’s plan would dispense with the pretense of social insurance, instead creating a crass form of political plunder that uses federal largess to buy votes.

In turning government programs into a version of “Oprah’s Favorite Things”—everyone gets a free car, paid for by somebody else—Ms. Warren follows the example of President Obama. He talked of social solidarity, saying “we’re all in this together,” but shied away from asking anyone other than “the rich” to pay for his new government programs. In 2008 candidate Obama made a “firm pledge” not to raise taxes on families making less than $250,000 a year, “not your income tax, not your payroll tax, not your capital-gains taxes, not any of your taxes.”

The “firm pledge” lasted two weeks. In February 2009 Mr. Obama raised tobacco taxes to fund an expansion of children’s health insurance. Then, after ObamaCare took effect in 2013, the law led at least 4.7 million Americans to receive insurance-cancellation notices. In the years since, the health-insurance market has shrunk by four million people, because those who don’t qualify for subsidies can’t afford coverage—what Bill Clinton called “the craziest thing in the world.” Working families ended up bearing the burden of Mr. Obama’s new programs.

Therein lies the true lesson for the American people. Elizabeth Warren may not ask the middle class to fund Medicare for All—at least not until she’s safely in office—but one can rest assured that, should she succeed in enacting her scheme, all American families will pay.

This post was originally published at The Wall Street Journal.

The Sordid History of the FDA’s Menthol Decision

Late last week, The New York Times reported that the Food and Drug Administration (FDA) will issue a regulation proposing a ban on menthol flavoring in cigarettes, potentially this week. This represents merely the latest development in a long and winding history of the mint-flavored additive lasting nearly a decade.

The Times report quoted FDA Commissioner Scott Gottlieb saying “it was a mistake for the agency to back away on menthol” regulation. Depending upon one’s perspective, the “menthol loophole” either represents a reasonable example of legislative compromise, or policymakers in both the legislative and executive branches valuing African-American lives less dearly than the lives of other Americans.

A Troubled Legislative History

Beginning 3 months after the date of enactment of the Family Smoking Prevention and Tobacco Control Act, a cigarette or any of its component parts (including the tobacco, filter, or paper) shall not contain, as a constituent (including a smoke constituent) or additive, an artificial or natural flavor (other than tobacco or menthol) or an herb or spice, including strawberry, grape, orange, clove, cinnamon, pineapple, vanilla, coconut, licorice, cocoa, chocolate, cherry, or coffee, that is a characterizing flavor of the tobacco product or tobacco smoke.

That language created two policy problems. First, as I noted in my summary of the bill at the time, because the bill banned other cigarette flavors manufactured overseas, while permitting menthol-flavored cigarettes manufactured domestically, the law would likely result in World Trade Organization (WTO) complaints for unfair trade practices. Indeed, Indonesia, which manufactures clove cigarettes, filed just such a complaint following the law’s passage—and won its case at the WTO.

The Times alluded to the other complication presented by the “menthol loophole” in its article this week: “According to the N.A.A.C.P.’s Youth Against Menthol campaign, about 85 percent of African-American smokers aged 12 and up smoke menthol cigarettes, compared with 29 percent of white smokers, which the organization calls a result of decades of culturally tailored tobacco company promotion.”

That “decades of culturally tailored tobacco company promotion” also included contributions to organizations like the NAACP and the Congressional Black Caucus Foundation. Industry documents released as part of the 1998 master settlement agreement demonstrated that “the tobacco industry established relationships with virtually every African-American leadership organization”—both to increase tobacco use, and to head off tobacco control efforts.

The FDA Looked the Other Way

Despite the condemnation from the HHS secretaries for its double standards against African-Americans, the bill passed as written in 2009. In an irony of ironies, the first African-American president signed it into law in June that year.

While it did not ban menthol outright, the legislation required a study on its effects, and gave the FDA the authority to ban the additive. Despite occasional rumors that FDA might outlaw menthol—and appeals from the African-American community for a ban—the Obama administration did not take action on the matter.

As a small government conservative, I question the value of establishing and maintaining an FDA bureaucracy to regulate an inherently unhealthful product. I by no means condone the decades of deception the tobacco industry used to sell their products.

This post was originally published at The Federalist.

Weekly Newsletter: February 23, 2009

Orszag, Liberal Groups Support Health Care Rationing

Today President Obama will host a “fiscal responsibility summit” at the White House, followed later this week by a submission to Congress of his outline for the federal budget in Fiscal Year 2010 and beyond.  Press reports indicate that health issues will predominate both events, as entitlement spending in Medicare and Medicaid will serve as a focus of the fiscal summit, and health initiatives will be given a prominent place in the President’s budget proposals.

However, some Members may take a skeptical view of comments by Office of Management and Budget Director Peter Orszag and others that health care can be reformed—and the entitlement crisis resolved—primarily through government rationing of health care goods and services.  While head of the Congressional Budget Office, Orszag prepared a report on comparative effectiveness research that advocated rationing’s beneficial effects—while alluding to its potential downsides for patients.  The December 2007 report asserted that such research “could …yield lower health care spending without having adverse effects on health.”  However, the report also admits that “patients who might benefit from more-expensive treatments might be made worse off” as a result of changes in reimbursement patterns.

Orszag’s view of health reform is shared by the left-leaning Commonwealth Fund, which last week released its own report outlining ways to generate savings within the health sector.  The largest chunk of proposed savings—$634 billion over ten years—would come from comparative effectiveness research and subsequent rationing of care.  The report asserts that “merely making information available” about the relative merits of treatments “is unlikely to produce” outcomes yielding sufficient savings—and therefore recommends that the new comparative effectiveness center help “to create financial incentives for patients and physicians to avoid high-cost treatments.”  The Fund proposes that the comparative effectiveness center—similar to the Council established in economic “stimulus” legislation signed into law last week—“make benefit and pricing recommendations to public insurance plans, including Medicare.”

While supporting the need to slow the growth of health spending, and entitlement spending in particular, some Members may be concerned by the implications of these recommendations, which would place government bureaucrats between doctors and patients, leading to denials of critical care.  Some Members may instead support alternatives that would slow the growth of health care costs through additional competition (both inside and outside Medicare), while preserving and enhancing a culture where patients and doctors—not insurance companies or government bureaucrats—determine the appropriate course of medical care.  Some Members may also support means testing for the Medicare Part D benefit—requiring Warren Buffett and George Soros to pay more for their prescription drugs—as an additional way to bring our entitlement obligations in line with projected future revenues.

The Outlook Ahead

The President’s address to Congress Tuesday night, coupled with his submission of a budget outline on Thursday, will commence a six-week period leading up to Congress’ Easter recess where health issues will remain prominent.  As indicated above, the budget may include additional provisions regarding comparative effectiveness research and rationing of health care, as well as proposed cuts to Medicare Advantage plans that have proved popular with seniors—particularly those with low incomes—in recent years.  At this time it remains unclear whether the President will use the budget submission to fulfill his statutory obligation to present Congress with Medicare funding reform legislation, as required by the “trigger” provisions inserted into the Medicare Modernization Act at the behest of House Republicans.

Hearings and other legislative activity are also likely to continue regarding comprehensive health reform; Sen. Ron Wyden (D-OR) introduced his comprehensive bill on February 5, and Senate Finance Chairman Baucus—who pledged to introduce legislation early in the 111th Congress—may follow suit in short order.  The House may also consider legislation related to food and drug safety, as well as a bill (H.R. 1108 in the 110th Congress) giving the Food and Drug Administration (FDA) the authority to regulate tobacco products, funded by “user fees” on tobacco companies.  Particularly as many Democrats have harshly criticized the FDA for lax enforcement related to food safety matters, some Members may believe now is precisely the wrong time to distract the FDA from its current mission in order to have the agency regulate the tobacco industry—and the wrong time to burden working families with the second tobacco tax increase this year, on the heels of the 62 cent tax increase used to fund the State Children’s Health Insurance Program (SCHIP) expansion.

Legislative Bulletin: H.R. 1108, Family Smoking Prevention and Tobacco Control Act

Order of Business:  The bill is scheduled to be considered under suspension of the rules on Wednesday, July 30, 2008.

Summary of Changes Made:  The latest draft text would make several substantive changes to the bill.  First, the revised text would require the Secretary of Health and Human Services to contract with states to enforce the FDA-promulgated regulations with respect to tobacco products.  However, the bill would also prohibit the Secretary from contracting with states to enforce the tobacco regulations on Indian tribal lands—or directly engage in enforcement activity on tribal lands—without the express written consent of the tribe involved.  This last change was made to resolve a jurisdictional issue raised by the Natural Resources Committee, which has jurisdiction over Indian tribal matters.

Some conservatives may note that the language discussed above creates a significant loophole in the enforcement mechanism for tobacco products—namely, that Indian tribal areas could represent a “no-man’s land” with respect to tobacco enforcement.  Some conservatives may question whether this loophole could allow unregulated products to be bought and sold on tribal lands, effectively undermining the entire regulatory regime for tobacco products which H.R. 1108 is intended to establish.

The bill includes two new offsets to pay for federal tax revenue lost as a result of the projected 2% reduction in tobacco use, which the Congressional Budget Office (CBO) estimates would cost $114 million over five years, and $446 over ten.  To offset this foregone revenue, the bill would incorporate the text of a measure (H.R. 6500) making changes to the Thrift Savings Plan (TSP) for federal workers.  That bill would require auto-enrollment of workers in the TSP, costing $225 million over five years, and $736 million over ten, due to revenue loss associated with additional employees making pre-tax TSP contributions.  However, H.R. 6500 (as incorporated into H.R. 1108) would result in a net revenue gain, due to an additional provision establishing an after-tax savings component (similar to the Roth IRA or Roth 401(k) options) in the TSP, which CBO estimates would generate $382 million in revenue over five years, and $2.0 billion over ten, resulting from employees substituting pre-tax TSP contributions with after-tax ones.

The second offset for the lost tobacco tax revenue would come from the elimination of unused sick leave in the calculation of survivors’ annuity benefits for participants in the Federal Employees Retirement System (FERS).

Press reports indicate that further language may be added to the bill requiring a study of the so-called “menthol loophole;” however, such language was not available at press time.

Summary:  H.R. 1108 would amend the Federal Food, Drug, and Cosmetic Act to grant new authority to the Food and Drug Administration (FDA) to regulate tobacco products and advertising, and amend the Federal Cigarette Labeling and Advertising Act to impose new restrictions on tobacco product labels and disclosure.  Specific bill provisions include the following:

Findings and Purpose.  The bill contains 13 pages of findings purporting the need to regulate tobacco products to protect the public health, and language designed to ensure that the bill does not affect the authorities of the Secretaries of Agriculture or Treasury.  The bill also includes severability language providing that judicial invalidation of one or more sections of the legislation will not result in the nullification of the entire regulatory regime proposed by the bill.

Regulatory Authority.  H.R. 1108 gives FDA the authority to regulate tobacco products, which are defined as “any product made or derived from tobacco that is intended for human consumption, including any component, part, or accessory of a tobacco product” and establishes a new Center for Tobacco Products within the FDA to exercise regulatory authority.  The bill states that tobacco does not qualify as a drug or medical device for purposes of FDA regulation, and limits the FDA’s regulatory authority to tobacco leaf in the possession of tobacco manufacturers (thus excluding tobacco growers).

Adulterated and Misbranded Products.  The bill defines adulterated and misbranded tobacco products, defining the former to include products that “consists in whole or in part of any filthy, putrid, or decomposed substance,” and defining misbranded products to include those that are “false or misleading,” as well as those which do not adhere to the registration, labeling, and other regulatory regimes established under the bill.  The bill grants the FDA, through the Secretary of Health and Human Services, the right to pre-approve statements made on tobacco product labels.

Information Disclosure.  The bill requires all tobacco manufacturers to disclose to the Secretary the names and descriptions of all ingredients, components, and compounds in tobacco products, including the nicotine content of same.  The bill grants authority to the Secretary to obtain information from tobacco companies on the health effects of smoking and requires the Secretary to publish “a list of harmful and potentially harmful constituents” in tobacco products by brand.

Registration and Inspection.  H.R. 1108 requires all tobacco manufacturers to register their names and places of business with the Secretary and requires the Secretary to make such information public.  The bill also requires inspection of every domestic tobacco manufacturing establishment at least once every two years, and a requirement that overseas tobacco manufacturing establishments have “adequate and effective means” for the Secretary to ensure that tobacco products manufactured overseas should be refused entry into the United States.

General Authority.  The bill would permit the Secretary to restrict by regulation the sale, distribution, and advertising of tobacco products “if the secretary determines that such regulation would be appropriate for the protection of the public health.”  In exercising this authority, the Secretary may not 1) “prohibit the sale of any tobacco product in face-to-face transactions by a specific category of retail outlets;” 2) set an age limit on the sale of tobacco products higher than 18 years of age; or 3) require use of a physician’s prescription in order to obtain tobacco products.  However, the bill does require the Secretary to promulgate regulations addressing the sale, distribution, and marketing of tobacco products remotely so as to discourage the purchase of tobacco products by underage individuals.

Product Standards.  H.R. 1108 would ban all “artificial or natural flavors” except for menthol, and requires all tobacco products to meet domestic standards with respect to pesticide use.  The bill permits the Secretary to impose further restrictions should the regulations be in the interest of the public health.  However, “because of the importance of a decision of the Secretary to issue a regulation” banning all cigarettes or reducing the level of nicotine permitted in tobacco products to zero, the bill explicitly prohibits the Secretary from taking either action.

Notification and Recalls.  The bill grants the Secretary the authority to order notification to the public, through public service announcements or other means, of tobacco products that “present an unreasonable risk of substantial harm to the public health…and no more practicable means is available…to eliminate such risk.”  The bill also authorizes the Secretary to order recalls in the event that “there is a reasonable probability that a tobacco product contains a manufacturing or other defect not ordinarily contained in other tobacco products on the market that would cause serious, adverse health consequences or death.”

Record-Keeping.  H.R. 1108 requires tobacco companies to create and preserve records, as established by regulation, designed to determine that tobacco products are not adulterated or misbranded and to protect the public health, and to provide reports of any corrective action taken by tobacco manufacturers to remove products from the market for health reasons.  The bill language states that identities of any patients discussed in applicable records should remain confidential, unless disclosure is necessary “to determine risks to public health of a tobacco product.”

Review of New Tobacco Products.  The bill requires pre-market review for all new tobacco products introduced after February 15, 2007, unless the product is “substantially equivalent” to existing products.  The application for pre-market review requires full disclosure of the products’ components, and research of the health effects of same.  The bill would require the Secretary to reject such new tobacco products if “there is a lack of a showing that permitting such tobacco products to be marketed would be appropriate for the protection of the public health,” among other conditions necessary for approval.  The bill also permits the Secretary to withdraw pre-market approval, due to a company’s non-compliance with regulations or new information on the public health effects of a product, effectively removing the product from the marketplace.

Modified Risk Tobacco Products.  H.R. 1108 places restrictions on the introduction or marketing of modified risk tobacco products.  Specifically, the bill requires that any product marketed as modified risk must “significantly reduce harm and the risk of tobacco-related disease to individual tobacco users” and “benefit the health of the population as a whole,” including both tobacco users and non-users.  In the event that the Secretary cannot make such a determination without long-term epidemiological data that is not available, the Secretary may issue a temporary approval of not more than five years for the marketing of modified risk products, provided that “the reasonably likely overall impact of use of the product remains a substantial and measurable reduction in overall morbidity and mortality among individual tobacco users,” and the product is subject to annual post-market surveillance review.  The bill also places additional restrictions on the marketing, advertising, and comparative claims presented by modified risk tobacco products.

Judicial Review.  The bill provides a process for individuals adversely affected by regulations issued pursuant to the bill, or whose application for pre-market approval was denied, to seek judicial review with the U.S. Court of Appeals for the circuit in which the party resides or has a principal place of business, subject to review by the Supreme Court.

Regulatory Requirements.  H.R. 1108 requires the Secretary to issue regulations within three years of enactment regarding tobacco product testing and disclosure of product constituents, and permits the Secretary to require label or advertising disclosure of tobacco product constituents.  The bill provides for delays of regulatory and testing requirements for “small tobacco product manufacturers,” defined as those employing fewer than 350 individuals.  The bill also clarifies that none of its provisions prohibit the Federal Trade Commission (FTC) from regulating tobacco advertising or sales.

Limited Pre-Emption.  H.R. 1108 pre-empts state laws relating to tobacco product standards, mis-labeling, adulteration, labeling, and related product standards; according to the Congressional Budget Office (CBO), this pre-emption language constitutes an intergovernmental mandate as defined in the Unfunded Mandates Reform Act.  However, the bill retains states’ ability to enact more stringent standards with respect to tobacco advertising and promotion.

Scientific Advisory Committee.  The bill establishes the Tobacco Products Scientific Advisory Committee to provide technical expertise and recommendations to the Secretary regarding the regulation of tobacco products.

Smoking Cessation.  The bill requires the Secretary to consider approving the extended use of nicotine replacement products “for the treatment of tobacco dependence.”

User Fee.  The bill assesses user fees on tobacco companies and funds FDA regulation of tobacco activities in the amount of $85 million in Fiscal Year 2008, increasing each year until reaching $712 million in Fiscal Year 2018 and each subsequent year.  The bill assesses user fees by class of tobacco products (e.g. cigarettes, cigars, etc.), and allocates them to companies within a class of tobacco products, based on the percentages outlined in tobacco buyout legislation (P.L. 108-357) passed in October 2004.

Restores 1996 Rule on Tobacco Advertising.  The bill requires the Secretary to publish within 180 days of the bill’s enactment a final rule on regulation of tobacco identical to regulations published on October 28, 1996, with an effective date of one year following the bill’s enactment.  The original regulations would restrict tobacco advertising by, among other things, prohibiting billboards within 1,000 feet of schools and permitting only black-and-white advertising.  The bill would modify the original regulation to permit the free distribution of smokeless tobacco only, and only in quantities of fewer than 15 grams (0.53 ounces) in certain “qualified adult-only facilities.”  The bill exempts the final rule, as modified, from review under the Congressional Review Act.

Nullifies Earlier Documents.  H.R. 1108 would nullify the precedent of certain documents issued by FDA during 1995-96 as they relate to a prior attempt to classify nicotine in tobacco products as a drug for purposes of FDA regulation. (H.R. 1108 would make tobacco subject to FDA regulation, but as a “tobacco product,” not a drug or medical device.)

New Penalties.  The bill would add failure to comply with the bill’s requirements as grounds for imposition of fines and/or criminal penalties, along with other offenses relating to counterfeiting tobacco products or “the charitable distribution of tobacco products.”  The bill also gives the Secretary the authority to impose a “no-tobacco sale order” against retail outlets and establishes a new system of federal fines against retail establishments selling tobacco products improperly, authorizing fines of up to $10,000 for establishments with six or more violations within a four-year period.

Studies.  The bill would require the Government Accountability Office to submit studies regarding youth smoking as well as cross-border trade and counterfeiting in tobacco products, and requires a specific study by HHS on raising the minimum age to purchase tobacco products, as well as an FTC report on concentration within the tobacco industry.

Labeling Requirements.  The bill requires all cigarettes and smokeless tobacco sold in the United States to bear clear warnings about the risks associated with tobacco use and prescribes the wording, typeface, and font size associated with such warnings. (Tobacco products manufactured domestically for international use are exempt from this requirement.)  H.R. 1108 further requires that all advertising, including matchbooks, contain language from the warning labels, and prescribes the proportions by which such labeling warning must relate to the overall size of the advertisement.  The bill gives the Secretary of HHS the authority to alter or increase the size of the labeling requirements, permits states to further regulate the type and manner, but not the content, of cigarette advertising, and extends a prohibition on television and radio advertising to smokeless tobacco products subject to the jurisdiction of the Federal Communications Commission.

Tar and Nicotine Disclosure.  The bill gives the Secretary the authority to conduct a rulemaking process to determine whether to require the disclosure of tar, nicotine, and other constituent levels in tobacco advertising, subject to a memorandum of understanding with the Federal Trade Commission.

Shipping Requirements.  H.R. 1108 requires that all packaging and shipping containers shall bear statements stating “sale only allowed in the United States” and requires the Secretary to issue regulations regarding the maintenance of records by entities manufacturing, transporting, or distributing tobacco products.  The bill also requires tobacco manufacturers and distributors to notify the Attorney General and the Secretary of the Treasury upon obtaining information “which reasonably supports the conclusion” that tobacco products formerly held by the entity have circumvented payment of applicable taxes or “diverted for possible illicit marketing.”

Cost to Taxpayers:  According to the Congressional Budget Office (CBO), H.R. 1108 would result in $2.1 billion in mandatory spending over five years, and $5.3 billion over ten, related to the Food and Drug Administration’s regulation of tobacco.  The bill would offset these costs by imposing a “fee” on tobacco companies to finance the FDA regulation.

CBO also estimates a decline in revenues of $114 million over five years, and $446 million over ten, related to a 2% reduction in overall smoking levels due to tobacco regulation, and loss of commensurate tobacco tax revenue.  In order to pay for this reduced revenue, H.R. 1108 incorporates provisions relating to the federal Thrift Savings Plan (TSP).  The bill would establish a system of auto-enrollment in TSP for all federal employees, causing a minor revenue loss, but would on balance generate additional tax revenue by establishing a new plan to permit after-tax TSP contributions, similar to a Roth IRA or the recently-established Roth 401(k) option.

Finally, CBO estimates a five-year increase in spending subject to appropriation of $3 million as a result of H.R. 1108’s enactment.

Committee Action:  The bill was introduced on February 15, 2007, and referred to the Energy and Commerce, which held a hearing and, on April 2, 2008, reported the bill as amended by a 38-12 vote.

Possible Conservative Concerns:  Numerous aspects of H.R. 1108 may raise concerns for conservatives, including, but not necessarily limited to, the following:

  • Process.  Some conservatives may be concerned that a 190-page bill seeking to establish new federal authority to regulate a multi-billion dollar industry is being considered under expedited procedures on the suspension calendar.
  • User Fee as Tax Increase.  The bill includes more than $5 billion in assessments on tobacco companies, ostensibly termed “user fees,” to finance the FDA’s work regulating tobacco products.
  • Restricts Free Speech Rights.  In addition to codifying federal restrictions, which tobacco companies agreed to in their 1998 settlement with state Attorneys General, H.R. 1108 places additional federal restrictions on tobacco advertising.  Some of the federal restrictions on advertising content in H.R. 1108 include the following specifications for the size of warning labels on tobacco products:

The text of such label statements shall be in a typeface pro rata to the following requirements: 45-point type for a whole-page broadsheet newspaper advertisement; 39-point type for a half-page broadsheet newspaper advertisement; 39-point type for a whole-page tabloid newspaper advertisement; 27-point type for a half-page tabloid newspaper advertisement; 31.5-point type for a double page spread magazine or whole-page magazine advertisement; 22.5-point type for a 28 centimeter by 3 column advertisement; and 15-point type for a 20 centimeter by 2 column advertisement.

Some conservatives may be concerned that the highly prescriptive restrictions described above, and elsewhere in H.R. 1108, constitute an undue intrusion on companies’ constitutional free speech rights to advertise a product that most Americans already know is unhealthy.

  • Hinders Introduction of Reduced Risk Tobacco Products.  H.R. 1108 places stringent restrictions on the introduction and marketing of new products that would reduce or modify the inherent risks associated with the consumption of tobacco.  The bill states that a reduced risk product may be marketed only if the product will “significantly reduce harm and the risk of tobacco-related disease to individual tobacco users” and also will “benefit the population as a whole,” including persons who do not consume tobacco products.  Some conservatives may be concerned that such onerous restrictions on the introduction of reduced risk tobacco products could have the effect of inhibiting the use of products that could reduce the risks associated with tobacco consumption while potentially serving as a barrier to entry for new market competitors.
  • FDA Improper Agency to Regulate Tobacco.  As FDA Commissioner Andrew von Eschenbach testified before the House Energy and Commerce Committee in October 2007, the FDA has heretofore been structured as an agency to promote and protect the public health.  In the Commissioner’s opinion, requiring FDA to “approve” tobacco products as a result of H.R. 1108 would dramatically change the agency’s focus: “Associating any agency whose mission is to promote public health with the approval of inherently dangerous products would undermine its mission and likely have perverse incentive effects.”

  • Other Important Priorities for FDA.  Energy and Commerce Oversight Subcommittee Chairman Bart Stupak (D-MI), in holding a hearing on FDA’s decision to approve an antibiotic despite receiving false clinical trial data, called the incident “a microcosm of the failure by all FDA stakeholders—FDA, pharmaceutical sponsors, and third-party monitors—to ensure the integrity of clinical trials used to support the safety and approval of new drug applications.”  On top of questions which Democrats themselves have raised regarding FDA’s competence, some conservatives may question whether the food safety concerns that have arisen in recent months make now an appropriate time significantly to expand the agency’s regulatory remit and mission.
  • Multiple Layers of Regulation.  While establishing FDA authority to regulate tobacco products, H.R. 1108 would also retain the FTC’s authority to regulate tobacco advertising and distribution on the federal level, and would provide only limited pre-emption of state laws, allowing more stringent state restrictions on tobacco advertising and promotion.  Some conservatives may be concerned that these multiple layers of regulation will impose undue bureaucratic and logistical difficulties on tobacco manufacturers—even though H.R. 1108 would explicitly retain tobacco as a lawful product.
  • Little Impact on Tobacco Use.  The CBO estimate of H.R. 1108 notes that under its budgetary model, smoking by adults would decline by only 2% after 10 years.  Some conservatives may question whether this marginal reduction in smoking levels warrants the significant intrusion on free speech rights and government-run regulatory bureaucracy that would be created under the legislation.
  • Billions in Unfunded Mandates; UMRA Point of Order.  The Congressional Budget Office, in its score of H.R. 1108, calculates that the fee imposed in the bill would constitute an unfunded mandate on tobacco companies of $249.1 million in Fiscal Year 2009, and more than $2.3 billion over five years, greatly exceeding the threshold established in the Unfunded Mandates Reform Act ($136 million in 2008, adjusted annually for inflation).   CBO also notes that the bill includes several unfunded mandates that would both pre-empt existing state tobacco regulations and require tribal governments manufacturing or distributing tobacco products to comply with the new federal regulatory regime.
  • Violates Trade Agreements.  HHS Secretary Leavitt, writing to Energy and Commerce Committee Ranking Member Barton on H.R. 1108, noted that the legislation could be viewed by foreign governments as a hostile trade action.  Because the bill bans clove and other flavored cigarettes—many of which are manufactured in foreign countries—while expressly permitting production of menthol cigarettes, Indonesia or other foreign governments could file complaints at the World Trade Organization claiming discrimination against their products.  Some conservatives may be concerned that passage of H.R. 1108 could ultimately result in retaliatory measures being taken against American-made products—and could lead to trade disputes with a negative effect on economic growth.
  • Menthol Loophole.  As noted above, H.R. 1108 would prohibit the use of all “artificial or natural” cigarette flavorings—with the exception of menthol, which is permitted under the bill.  Because data from the Centers for Disease Control indicate that 75% of African-American smokers consume menthol cigarettes, seven former Secretaries of Health and Human Services, representing both political parties, wrote to Congress to criticize a menthol “loophole” that “caves to the financial interests of tobacco companies” by “send[ing] a message that African-American youngsters are valued less than white youngsters.”

Because the bill is being considered under suspension of the rules, no amendments addressing the menthol issue can be considered.  Some conservatives may note that the House Democrat leadership would apparently rather retain the support of the major tobacco company (Philip Morris) supporting the legislation than permit a vote on amendments that seven former HHS Secretaries believe are in the best interests of African-Americans.

Administration Position:  Although a formal Statement of Administration Policy (SAP) was unavailable at press time, a letter from Health and Human Services Secretary Leavitt to Energy and Commerce Ranking Member Barton indicated that the Administration “strongly opposes” H.R. 1108.

Does the Bill Expand the Size and Scope of the Federal Government?:  Yes, the bill would grant new authority to the Food and Drug Administration to regulate tobacco products.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?:  Yes, the bill imposes new fees on tobacco companies, which CBO estimates would total $235 million in Fiscal Year 2009, $2.1 billion over five years, and nearly $5.4 billion over ten years, all greatly exceeding the thresholds established in the Unfunded Mandates Reform Act ($136 million in 2008, adjusted annually for inflation).

Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax Benefits/Limited Tariff Benefits?:  The Committee on Energy and Commerce, in House Report 110-762, reports that “H.R. 1108 does not contain any congressional earmarks, limited tax benefits, or limited tariff benefits as defined in clause 9(d), 9(e) or 9(f) of rule XXI.”

Constitutional Authority:  The Committee on Energy and Commerce, in House Report 110-762, cites constitutional authority under Article I, Section 8, Clause 3 (relating to the regulation of interstate commerce) and Article I, Section 8, Clause 1 (relating to legislation promoting the general welfare of the United States).

Weekly Newsletter: July 28, 2008

Tobacco Bill Coming Soon

This week the House could consider legislation (H.R. 1108) granting the Food and Drug Administration (FDA) the authority to regulate tobacco, possibly under suspension of the rules. The bill would establish a new center within FDA to regulate tobacco products and assess tobacco companies more than $5 billion in “user fees” over the next ten years to pay for this regulation.

Some conservatives may be concerned by the regulatory regime the bill would establish, which would require an agency charged with promoting food and drug safety to regulate a product inherently unsafe and unhealthy. Some conservatives may also object to the multiple layers of regulation the bill would create, by leaving intact the Federal Trade Commission’s ability to regulate tobacco advertising and distribution and providing only limited pre-emption against additional state-based regulations and restrictions. Some conservatives may question whether the highly prescriptive restrictions in the bill— including advertising limitations on the use of color advertising and regulation of the font size of tobacco disclaimer warnings, all of which raise significant constitutional questions about their free-speech implications—constitute good public policy, particularly as the Congressional Budget Office estimates that H.R. 1108 will reduce smoking levels by only 2% over 10 years.

Lastly, some conservatives may object to provisions in the bill that could prompt an international trade dispute. Last week, HHS Secretary Leavitt wrote to Energy and Commerce Committee Ranking Member Barton about H.R. 1108, observing that, because the bill prohibits all tobacco flavorings except menthol, foreign countries which manufacture clove or other flavored cigarettes may take action against the United States for providing unfair and disparate treatment for a particular type of manufactured cigarette. As press reports indicate that H.R. 1108 may be considered under suspension of the rules, some conservatives may be concerned by the lack of procedural opportunities available to address this disparity, such that the United States can live up to its obligations under international free-trade agreements.

A Policy Brief on H.R. 1108 (as reported by the Energy and Commerce Committee) can be found here.

Democrats Ignore Medicare Funding Warning

Last week Democrats responded to the Medicare trustees’ finding that the Medicare program faces significant future funding shortfalls—by resolving to ignore the problem. The resolution concerned a provision inserted into the Medicare Modernization Act at the behest of the RSC, which provided for the President to submit, and Congress to consider under expedited procedures, legislation to remedy Medicare’s funding problems when the program is projected to consume more than 45% of its funding from general revenues (as opposed to the Medicare payroll tax and beneficiary premiums). The Democrat majority’s action turned off this funding “trigger” for the balance of the 110th Congress, preventing those who believe in entitlement reform from taking action to force a House floor vote on Medicare reform legislation.

Many conservatives may be disappointed by the actions of Congressional Democrats, which prevented the President’s reasonable and modest proposals for Medicare reform—means testing that would make wealthier individuals like Warren Buffett and George Soros pay $2 per day more in Part D prescription drug premiums and liability reform to reduce the costs associated with defensive medicine practices— from receiving a vote in Congress. Many conservatives may believe that solving Medicare’s $86 trillion in unfunded obligations—and a Hospital Trust Fund scheduled to be exhausted in little more than a decade—will not be helped by Democrats’ apparent eagerness to ignore the problem. However, when Democrats like Florida’s Alcee Hastings note that “the perceived problem with Medicare funding has already been addressed,” many conservatives may be concerned that this lack of awareness will only hasten the day when Medicare’s funding shortfalls jeopardize the viability of the program—and wonder what policy-makers will tell their senior constituents when it does.

There are RSC Policy Briefs related to the Medicare trigger: Legislative Background; Talking Points on Trigger; Questions for House Democrats; Size of Medicare Program; White House Trigger Bill; Medicare Trustees Report

Article of Note: Fuzzy Math

Last Wednesday the New York Times reported on the many financial discrepancies surrounding the health care plan of Sen. Barack Obama (D-IL). While Sen. Obama has been consistent in saying that his health plan would save every American family $2,500 per year, many observers have come to question the factual basis for a “best guess” assertion by his advisers early last year. Independent estimates, including those by the Congressional Budget Office, have questioned whether the savings from such initiatives as health information technology and chronic care management will materialize, particularly in the four-year timeline Sen. Obama has promised—such that even a statement by Obama’s own advisers backtracked from any assertions that the purported savings would materialize by a date certain.

Many conservatives may be skeptical of Sen. Obama’s claims, particularly as the liberal Commonwealth Fund released a report in December with a menu of options for savings that would by their estimates achieve a total reduction in spending of only 6% in 10 years. Some conservatives may also be concerned that, in an attempt to reduce health care costs—whether by 8%, 6%, or some lesser amount— Sen. Obama would rely first and foremost on imposing price controls on physicians, pharmaceutical manufacturers, and insurance companies, along with rationing care through a government-controlled comparative effectiveness institute. Many conservatives may believe that such bureaucratic restrictions would in the long run prove far more effective at growing the size of government than slowing the growth of health care costs.

Read the article here: New York Times: “Health Plan from Obama Sparks Debate

Question and Answer: Tobacco Regulation Bill

The House may soon be faced with a vote on a measure (H.R. 1108) to include tobacco products under the regulatory authority of the Food and Drug Administration (FDA).  The RSC has prepared the following analysis providing background information on the legislation, as passed by the House Energy and Commerce Committee on April 2, 2008.

What is the purpose of the provisions of H.R. 1108 regulating tobacco products? 

Both the stated purpose and expansive scope of the proposed FDA regulation of tobacco under H.R. 1108 can be observed in Title I of the bill: “The Secretary [of Health and Human Services] may by regulation require restrictions on the sale and distribution of a tobacco product, including restrictions on the access to, and the advertising and promotion of, the tobacco product, if the Secretary determines that such regulation would be appropriate for the protection of the public health.”  Under the bill, the definition of the public health is extended to both users and non-users of tobacco products.

Some conservatives may note that this language is a significant modification from the original justification for tobacco regulation—namely, the need to protect children from gaining access to tobacco products.  In fact, while children are mentioned several times in the findings section of H.R. 1108, the word “children” appears only four times in the remaining 176 pages of the bill.  Some conservatives may be concerned that this new focus on a more expansive goal of protecting the public health may divert energy away from efforts to combat underage consumption of tobacco products.

Does H.R. 1108 contain a tax increase?

Many conservatives may be concerned that it does.  The bill includes assessments on tobacco companies, ostensibly termed “user fees,” to finance the FDA’s work regulating tobacco products.  However, the Congressional Budget Office estimates that tobacco regulation will reduce the number of smokers—thus decreasing the amount of revenue derived to the federal government from tobacco taxes.

While the version of H.R. 1108 reported from full Committee attempted to address this matter by including a finding that the bill’s scope was not intended to intrude upon any authority under the Internal Revenue Code, the House Ways and Means Committee has requested a referral on the grounds that the fee ultimately constitutes a tax.  As Ways and Means Chairman Rangel wrote to Speaker Pelosi on April 3, 2008:

The amount of money raised by the assessment of the user fee is more than the amount of money being made available to the Secretary of Health and Human Services (HHS) for the regulation of tobacco….Since the bill forbids the funds from being spent on anything other than tobacco regulation, [the funds] would in fact revert back to the general fund of the U.S. Treasury.  The Committee on Energy and Commerce would then be financing the costs of government generally, which is clearly the jurisdiction of the Committee on Ways and Means.

Therefore, many conservatives may be concerned that, following Chairman Rangel’s own logic, the “user fee” in H.R. 1108 in fact constitutes a tax increase on tobacco companies.

Under what standard would tobacco be regulated under H.R. 1108?

The bill would re-institute standards first proposed in 1996 to regulate tobacco as a medical device.  However, it remains unclear how these standards can be reconciled with the inherent nature of tobacco products.  For instance, Title I of H.R. 1108 deems a tobacco product as “adulterated” if “it consists in whole or in part of any filthy, putrid, or decomposed substance, or is otherwise contaminated by any added poisonous or added deleterious substance that may render the product injurious to health.”  Based on this description, it is unclear how any tobacco product would fail to qualify as “adulterated,” raising questions as to how the standards can be appropriately applied.

Will H.R. 1108 impede the introduction of reduced-risk tobacco products?

H.R. 1108 places stringent restrictions on the introduction and marketing of new products that would reduce or modify the inherent risks associated with the consumption of tobacco.  The bill states that a reduced risk product may be marketed only if the product will “significantly reduce harm and the risk of tobacco-related disease to individual tobacco users” and also will “benefit the population as a whole,” including persons who do not consume tobacco products.  Other reduced risk products may be approved for distribution, but will be subjected to further marketing restrictions, post-market surveillance, and potential revocation of the distribution license after a five-year period.  Some conservatives may be concerned that such onerous restrictions on the introduction of new reduced risk tobacco products could have the effect of inhibiting the introduction of products that could reduce the risks associated with tobacco consumption while potentially serving as a barrier to entry for new market competitors.

How would tobacco advertising be regulated under H.R. 1108?

In addition to codifying federal restrictions, which tobacco companies agreed to in their 1998 settlement with state Attorneys General, H.R. 1108 places additional federal restrictions on tobacco advertising, while simultaneously eliminating federal pre-emption by allowing states to enact legislation “imposing specific bans or restrictions on the time, place, and manner, but not content, of the advertising or promotion” of tobacco products.  Some of the federal restrictions on advertising content in H.R. 1108 include the following specifications for the size of warning labels on tobacco products:

The text of such label statements shall be in a typeface pro rata to the following requirements: 45-point type for a whole-page broadsheet newspaper advertisement; 39-point type for a half-page broadsheet newspaper advertisement; 39-point type for a whole-page tabloid newspaper advertisement; 27-point type for a half-page tabloid newspaper advertisement; 31.5-point type for a double page spread magazine or whole-page magazine advertisement; 22.5-point type for a 28 centimeter by 3 column advertisement; and 15-point type for a 20 centimeter by 2 column advertisement.

Some conservatives may be concerned that the highly prescriptive restrictions described above, and elsewhere in H.R. 1108, constitute an undue intrusion on companies’ constitutional free speech rights to advertise a product that most Americans already know is unhealthy.

What implications might consumers draw from FDA’s proposed role in regulating tobacco?

As FDA Commissioner Andrew von Eschenbach testified before the House Energy and Commerce Committee in October 2007, the FDA has heretofore been structured as an agency to promote and protect the public health.  In the Commissioner’s opinion, requiring FDA to “approve” tobacco products as a result of H.R. 1108 would dramatically change the agency’s focus: “Associating any agency whose mission is to promote public health with the approval of inherently dangerous products would undermine its mission and likely have perverse incentive effects.”

Is FDA competent to regulate tobacco products?

The statements of several Congressional Democrats—who have criticized the agency’s handling of food and drug safety, particularly with regard to imported products—raise questions as to why they would support granting new and broad authority to FDA with regard to tobacco regulation.  For instance, Energy and Commerce Oversight Subcommittee Chairman Bart Stupak (D-MI), in holding a hearing on FDA’s decision to approve an antibiotic despite receiving false clinical trial data, called the incident “a microcosm of the failure by all FDA stakeholders—FDA, pharmaceutical sponsors, and third-party monitors—to ensure the integrity of clinical trials used to support the safety and approval of new drug applications.”  On top of questions which Democrats themselves have raised regarding FDA’s competence, some conservatives may question whether the food safety concerns that have arisen in recent months make now an appropriate time significantly to expand the agency’s regulatory remit and mission.

Weekly Newsletter: June 9, 2008

Committees Continue to Spar over Tobacco Tax Legislation

Congress’ return last week brought no end to a simmering jurisdictional dispute that has delayed consideration of legislation (H.R. 1108) designed to regulate tobacco products under the auspices of the Food and Drug Administration (FDA). In April, House Ways and Means Committee Chairman Rangel wrote to Speaker Pelosi requesting a sequential referral of the bill, on the grounds that the “user fee” assessed on tobacco companies in the legislation exceeds the funds directed from that fee to tobacco enforcement activities at FDA, making the legislation a general revenue raising (i.e. tax) bill under Ways and Means’ jurisdiction.

Many conservatives will view Chairman Rangel’s letter as confirmation that, notwithstanding the statements of Energy and Commerce Committee Democrats and a finding within the bill text of H.R. 1108, the proposed “user fee” is in fact an excise tax on tobacco companies to offset the expected loss of revenue resulting from FDA regulation. Some conservatives may view this tax increase as one of several concerns associated with H.R. 1108, which would impose onerous regulatory restrictions—including those on tobacco companies’ free speech rights to market and advertise their products—in the interest of protecting the public health. Some conservatives may question the wisdom of legislation requiring the FDA to regulate tobacco, particularly given the concerns raised by Congressional Democrats themselves about the FDA’s inability properly to regulate products currently within the agency’s remit.

The RSC will weigh in with conservative concerns on the tax and other issues as the legislation moves forward.

Revised Wyden Bill a Perpetual Tax-Raising Machine

Last month, the Congressional Budget Office (CBO) released a letter that could have a significant impact on any potential discussion of health care reform in the 111th Congress. In it, CBO gave a preliminary opinion that comprehensive health legislation introduced by Sen. Ron Wyden (D-OR), the Healthy Americans Act (S. 334), could be scored as budget-neutral, subject to certain conditions. In general, the bill would replace the current system of employer-provided health insurance with a “managed competition” model, whereby insurance coverage meeting a series of regulatory standards is provided through state-based pools, with a mandate on all individuals to purchase coverage and subsidies for low-income individuals and families.

Many of the bill’s potential funding sources—including a tax on all employers to pay for their employees’ insurance costs—have been well-publicized. Less advertised however were the revised bill specifications which CBO took into account when scoring the Wyden proposals. Specifically, the bill proposed to mandate coverage at least as good as that currently provided in the Blue Cross Blue Shield Standard option in the Federal Employee Health Benefits Program (FEHBP)—a generous benefit package 15% higher than the average cost of all employer-sponsored plans—with the amount of the mandate rising in future years to reflect economic growth in the gross domestic product (GDP). However, the revised specifications also note that the tax subsidy for purchasing health insurance will be indexed in future years to growth in the Consumer Price Index (CPI). Thus, under the Wyden plan, if future economic growth exceeds inflation—as it has in every year since 1992—Americans would be forced to buy more insurance but would not receive an equivalent tax subsidy to purchase that richer benefit package, leading to tax increases that would spiral over time.

On top of the many existing problems with the Wyden bill—a mandatory tax on employers, an individual mandate to purchase coverage that could prove problematic to enforce, increased regulation on insurers, and the requirement that all carriers provide coverage for abortion procedures—some conservatives may find this new perpetual tax increase most objectionable of all. While many conservatives support measures designed to control the currently uncapped tax expenditure for employer-sponsored health care as a way to slow the growth of health care costs, many of these same conservatives may have concerns about the implications of an individual mandate to purchase insurance—particularly one that could lead to automatic tax increases in future years for millions of Americans.

An RSC Policy Brief on the implications of an individual mandate can be found here.

Articles of Note: Health Insurance in Massachusetts a Fine Thing

A study on the influential Massachusetts health plan released last week indicated that beneath the political harmony that yielded a statewide “universal coverage” law two years ago, fissures loom. While health insurance coverage has increased significantly, the biggest growth in new coverage has come from low-income individuals accepting free or heavily subsidized plans provided by the Commonwealth. On the other hand, nearly 100,000 individuals paid a fine on their 2007 taxes for lacking health insurance in spite of the new mandate to purchase coverage.

Many conservatives may not be surprised by the study’s findings, particularly given the unnecessarily high cost of health insurance premiums in Massachusetts due to over-regulation. Faced with a penalty for non-compliance of $219 in 2007 and an average monthly premiums in excess of that amount, some individuals may make a rational choice to pay a fine of several hundred dollars per year rather than purchase coverage costing several thousand dollars—particularly because Massachusetts state regulations allow individuals applying for insurance after contracting an illness to receive the same premiums as those who applied when healthy. Conservatives would view the Massachusetts data as symptomatic of the problems associated with both enforcing an individual mandate and the high cost of health insurance derived from over-regulating insurance markets.

In addition, some conservatives may be concerned by a quote in The Washington Post from the head of a group that advocated for passage of the Massachusetts law: “Nobody knew what this was going to cost in the beginning.” At a time when the federal government faces unfunded obligations of nearly $86 trillion associated with the Medicare program alone, many conservatives may consider it unwise for the federal government to follow Massachusetts’ lead in enacting another expansive government entitlement without solving the underlying problems associated with the growth of health care spending.

Read the articles here.

Weekly Newsletter: April 21, 2008

Full House to Vote on Overriding Medicaid Fiscal Integrity Regulations

This Tuesday, the full House is scheduled to vote on legislation (H.R. 5613) that would impose moratoria on several proposed regulations issued by the Centers for Medicare and Medicaid Services (CMS) to restore fiscal integrity to the Medicaid program. The bill will be considered under suspension of the rules, which limits debate and requires a 2/3 vote for passage. Some conservatives may be concerned that a bill costing more than $1.5 billion is scheduled to be considered under such an expedited process normally reserved for naming of post offices and other smaller pieces of legislation.

In addition, some conservatives may remain concerned by congressional actions to block regulations that respond to more than a dozen Government Accountability Office (GAO) reports released since 1994 highlighting the various ways states have attempted to “game” the Medicaid program and increase the amount of federal matching funds received. The history of these abuses has prompted the Administration to threaten a veto of any measure attempting to block CMS’ attempts to restore the fiscal integrity of the Medicaid program.

Because HR 5613 only places a moratorium on further administrative action until April 2009, the stated cost of the legislation is $1.65 billion. However, some conservatives may be skeptical that Congress would ever let this moratorium be lifted, and thus may be concerned that passage of the legislation ultimately could result in the nullification of approximately $16-18 billion in proposed savings—which, though significant, will lower federal Medicaid spending by just over 1% over the next five years.

In December 2005, 212 Members of Congress—all Republicans—voted to reduce Medicaid spending by less than $4.8 billion as part of the Deficit Reduction Act. If these moratoria remain intact, some conservatives may be concerned that Congress will have more than undone the modest savings which a Republican-led Congress enacted over sharp Democrat protests.

RSC Policy Briefs on the federal-state Medicaid relationship can be found here and here.

Democrats Pass Restrictions on Health Savings Accounts

The full House last week passed legislation that would enact new restrictions on Health Savings Accounts (HSAs) as part of broader tax legislation (HR 5719). The legislation requires all HSA account holders to independently verify the qualified nature of medical expenses for all withdrawals, subjecting those transactions not substantiated to income taxes. This language prompted the White House to threaten a Presidential veto of the bill, which the Office of Management and Budget argued “would impose new administrative burdens on the trustees of HSAs…[that] could undermine efforts by employers, individuals, and insurers to reduce health care costs and improve health outcomes by empowering consumers to take greater control of health care decision-making.”

The bill passed by a 239-178 vote, but only after the Republican motion to recommit failed on a 210-210 tie. This vote on the motion to recommit was extended after the motion’s proponents had received a majority of votes cast after the allotted 15-minute vote time.

The outlook for action in the Senate is unclear, and the threat of a Presidential veto on these HSA restrictions looms as well. However, the RSC will continue to weigh in on the need to protect the important consumer-driven health programs which Republicans have succeeded in establishing in recent years.

An RSC Policy Brief discussing this issue can be found here.

Specialty Hospital Provisions Possible Farm Bill Offset

As conferees attempt to reach agreement on a farm bill reauthorization, some Democrats have introduced a potential new offset: Restrictions on physician-owned specialty hospitals. This particular offset has already been proposed twice by House Democrats to pay for expansions of the government’s role in health care—the first as part of legislation (HR 3162) placing millions of children on government-funded health insurance rolls, the second in legislation (HR 1424) that would increase health insurance premiums by forcing employers and insurance carriers to cover such mental health disorders as caffeine addiction and jet lag.

Some conservatives may be concerned that this provision—which, because it was included in neither the House nor Senate versions of farm bill legislation, is outside the scope of the conference—would undermine and stifle the innovative practices developed at physician-owned hospitals in order to pay for additional farm subsidies. Some conservatives may also be concerned that the Congressional Budget Office (CBO) scoring assumptions regarding these provisions remain in dispute, yet the Democrat majority is considering using “savings” that may or may not exist in order to finance additional government aid to the agricultural sector.

An RSC Policy Brief discussing specialty hospitals can be found here.

Article of Note: Free Health Care Isn’t Cheap

This week, Gov. Deval Patrick (D-MA) delivered the budgetary verdict on Massachusetts’ novel health reform act passed in 2006—and the statistics raised into question whether and how long the lauded Massachusetts experiment can be sustained. Only about half of the state’s estimated 600,000 uninsured have gained access to coverage since the Massachusetts law imposed an individual mandate to purchase health insurance. Moreover, many more individuals than expected claimed free or reduced-cost plans available through the state’s Commonwealth Care program, creating a $153 million budget gap for the program’s first year of operation—and aides admit that future years face similar funding difficulties.

Gov. Patrick has proposed a $1-per-pack increase in cigarette taxes in order to finance the shortfall created by rising enrollment in government-funded health insurance. This comes on the heels of reports that 748 employers have already been taxed a total of $6.6 million in “assessments” for failing to provide health insurance to their employees.

Some conservatives may not be surprised by the rising health care costs associated with Massachusetts’ plan, and may be concerned by the increasing reliance on additional taxes to finance the program. The state’s many benefit mandates and insurance regulations have consistently resulted in insurance premiums amongst the highest in the nation, and higher taxes on businesses and individuals will do nothing to control skyrocketing health care costs. Instead, many conservatives may support additional reforms to decrease costly regulations and reform the state’s health care market, reducing the growth of health care costs by empowering consumers to make wise choices about their health options.

Read the article here: “Universal Health Care to Cost Massachusetts More than Was Budgeted

Weekly Newsletter: April 7, 2008

Democrats Plot Restrictions on Health Savings Accounts

Reports surfaced this week that the Democratic majority may be attempting to enact new restrictions on Health Savings Accounts (HSAs) as part of upcoming health legislation. The proposal being discussed would require that all HSA account holders submit information showing what portion of their HSA expenditures in a given year have been independently verified as constituting qualified medical expenses.

Available data suggest that the percentage of HSA funds being used for non-medical expenses is comparatively low—particularly upon close examination. For instance, purchases in a grocery store may at first blush appear irrelevant to HSA use—but in reality many of these transactions could involve permissible medical items (over-the-counter pharmaceuticals, prescriptions, medical supplies, etc.). And in those instances when individuals do use their HSA funds to make major non-health expenditures, the Internal Revenue Service has audit procedures in place to ensure that account-holders pay income taxes on non-qualified distributions—plus a 10% penalty to discourage such behavior.

When drafting the regulations implementing Health Savings Accounts in 2004, the Treasury Department attempted to create a framework that would ensure that HSA funds would be used for bona fide medical expenses, while avoiding burdensome regulations that would inhibit the growth of this innovative consumer-driven health product. The proposal under discussion places an additional burden on account holders to document their purchases—even the $3 bottle of cough syrup an individual might choose to buy at a grocery store like Safeway rather than at a CVS or other pharmacy—and may have a similarly chilling effect on insurance carriers and banks currently offering account-based products to individuals and employers.

Some conservatives may be concerned that this proposal represents the first of many impending attempts by the Democrat majority to enact burdensome and bureaucratic regulations undermining HSAs, which in a few short years have proven successful at slowing the growth of health costs and insurance premiums for millions of individuals and small businesses. Some conservatives may also be concerned that this particular provision, brought to the attention of the Democratic Ways and Means Committee staff by a former Republican staffer-turned-lobbyist, may constitute a legislative “earmark” drafted specifically to benefit one company (Evolution Benefits) seeking to market its substantiation technology to HSA administrators.

The attached policy brief explains the issue in further detail. The RSC will continue to monitor this or any similar attempts to enact burdensome restrictions on HSAs, and will weigh in to protect the important consumer-driven health programs which Republicans have succeeded in establishing in recent years.

House Committee Attempts to Override Medicaid Regulations Restoring Fiscal Integrity…

This past Thursday, the House Energy and Commerce Committee held a Subcommittee hearing on legislation (H.R. 5613) that would impose moratoria on several proposed regulations issued by the Centers for Medicare and Medicaid Services (CMS) to restore fiscal integrity to the Medicaid program. The regulations come as a response to more than a dozen Government Accountability Office (GAO) reports released since 1994 highlighting the various ways states have attempted to “game” the Medicaid program, reducing their share of program spending through various mechanisms designed primarily to increase the amount of federal matching funds received. The Energy and Commerce Committee may mark up legislation overriding the regulations as soon as this week.

While several state officials testified about the impact that the proposed regulations would have on their Medicaid programs in the current economic downturn, many conservatives may be concerned about the ways in which various questionable financing schemes—some of which have been used by states for more than a decade—have left Medicaid paying for non-health-related activities, such as trips to grocery stores and bingo games. With the proposed regulations reducing the federal share of Medicaid spending by only 1% over the next five years, some conservatives may have concerns should Congress attempt to override CMS’ modest attempts to restore fiscal integrity to Medicaid. However, some conservatives may embrace the opportunity presented by this discussion to advance concepts for more comprehensive reform of Medicaid program financing, to control health care costs and set clear fiscal priorities for the use of scarce federal dollars.

RSC Policy Briefs on the federal-state Medicaid relationship can be found here and here.

…While Marking Up New Regulations on Tobacco

Thursday’s hearing in the Health Subcommittee followed Wednesday’s full Energy and Commerce Committee markup of legislation (H.R. 1108) that would impose authority on the Food and Drug Administration (FDA) to regulate tobacco. While the bill as modified in Committee altered proposed “user fee” language, some conservatives may remain concerned that the bill would impose additional free speech and marketing restrictions on tobacco companies, and could increase black market activity of tobacco products. Some conservatives may also echo the statements of FDA Commissioner Andrew von Eschenbach, who has stated that tobacco regulation is not in line with FDA’s core mission—and question why Congressional Democrats who have criticized the FDA’s handling of various matters related to food and drug safety now consider the agency competent to regulate tobacco products.

The RSC will be monitoring this legislation as it makes its way to the House floor, and will be weighing in during the process to express conservatives’ concerns.

Interview of Note: “Crisis? What Crisis?”

This past week, Chairman of the House Ways and Means Health Subcommittee Pete Stark (D-CA) appeared on C-SPAN’s Washington Journal to discuss the Medicare trustees’ report released during the congressional recess. When asked about the impact of the trustees’ projection that the Medicare Hospital Insurance Trust Fund would become insolvent in 2019—just over one decade from now—Stark answered: “I don’t think it makes any difference what they say.” This followed on the heels of his statement at Tuesday’s Health Subcommittee hearing that “Medicare is not in crisis.”

Many conservatives may be concerned by Chairman Stark’s insouciance at a time when the federal government faces spiraling costs for Medicaid, Medicare, and Social Security that both the Medicare trustees and most independent observers agree are unsustainable. Many conservatives believe that the time has long since arrived for the federal government to place its own fiscal house in order, because, as countless homeowners have observed in recent months, further delay will do nothing to prevent the problem—and will only make the ultimate solution harder on all parties.

Weekly Newsletter: March 31, 2008

Medicare Trustees’ Report Highlights Program’s Fiscal Woes…

While Congress was in recess last week, the trustees of the Medicare Trust Funds released their annual report, which quantified the size of the fiscal obstacles facing the entitlement program. According to the trustees, the Hospital Insurance Trust Fund is scheduled to be exhausted in early 2019—just over one decade from now. In addition, the trustees for the third straight year projected that Medicare is scheduled to consume a growing share of general federal revenues, “triggering” another funding warning that requires the next President to submit legislation to Congress with his (or her) budget remedying Medicare’s funding.

Of particular note in the report was the fact that while projections of future spending on hospitals (Medicare Part A) remained constant, and future estimates of physician payment levels (Medicare Part B) increased, estimated future costs for the Medicare Part D prescription drug benefit provided by private insurance companies decreased. As health costs continue to rise both inside and outside the Medicare program, some conservatives may believe that the benefits of competition and consumer empowerment seen in Part D could yield measurable savings if extended to the other parts of Medicare.

Here are RSC Policy Briefs on the Medicare trustees’ report and on health care cost growth. More information on the Medicare trigger—and the President’s proposals for reform—can be found here.

…While Democrats Minimize Need for Entitlement Reform

The trustees’ report also notes that in the past twelve months, the anticipated size of Medicare’s unfunded obligations has grown from $74 trillion to nearly $86 trillion. As Joe Antos of the American Enterprise Institute noted at an AEI briefing last week, the one-year increase in Medicare’s unfunded obligations is itself nearly ten times the size of the total losses anticipated from the losses in sub-prime lending markets.

Estimates of $1.2 trillion in worldwide losses due to the current credit crunch, less than half of which will hit American institutions, have sparked numerous “relief” proposals from the Democrat majority. Yet when it comes to the $86 trillion in losses on the horizon for Medicare, Democrats like Rep. Pete Stark (D-CA)—Chair of the House Ways and Means Health Subcommittee, with prime jurisdiction over entitlement reform—refrained from demands for swift action, calling Medicare “solvent and sustainable” and claiming that “the trigger has been pulled by Republican ideologues,” when in reality the report was written by the non-partisan actuaries at the Centers for Medicare and Medicaid Services.

By contrast, many conservatives believe that the ominous statistics in the trustees’ report provide further impetus for Congress to utilize the Medicare “trigger” to enact comprehensive entitlement reform this year. Every year that Congress does not address the unfunded obligations associated with Social Security and Medicare, their size grows by trillions of dollars. Some conservatives would argue that with the Hospital Insurance Trust Fund scheduled to be exhausted in just over a decade, Congress must act now to preserve the promise of Medicare for the neediest of American seniors.

Clinton Proposes Cap on Insurance Premiums, Additional Taxes

In an interview with the New York Times last week, Sen. Hillary Clinton offered additional details about the formulation of her health care plan. Clinton expressed a desire to cap insurance premiums for individuals at between 5-10% of individuals’ income. She also indicated her support for restrictions requiring health insurance companies to pay out a defined percentage of premium costs on health benefits (as opposed to administrative costs or profits). And she advocated an increase in the tobacco tax to finance health care reform, despite the dwindling base of smokers left to pay such taxes: “At some point, there’s going to be diminishing returns. But, sure, why not? I don’t have any objection to that.”

However, some conservatives may have objections to the Clinton approach, starting with a tobacco tax that may encourage counterfeiting and result in a long-term fiscal imbalance leading to more taxes once tobacco revenues dwindle. Both capping premiums on individuals and mandating that insurers pay a high percentage of premiums in health benefits would constitute significant government price controls on an industry that spends more than one in six dollars consumed in the United States. And some conservatives may share the concerns of MIT professor Jonathan Gruber, who generally supports Clinton’s approach but conceded that a cap on insurance premiums at 5% of income would not be “realistic” because of the heavy government subsidies necessary to finance the difference.

Instead of a heavy-handed approach that relies on additional government regulation and taxation, many conservatives support principles that rely on consumer empowerment. Unleashing the forces of competition, and providing financial incentives for individuals to curb marginal spending on health care, represents the best way to bring down costs and ensure access to care.

Article of Note: A Cry on the Left for Freedom

Just before the recess, former Senator and Presidential candidate George McGovern (D-SD) published an op-ed article in the Wall Street Journal advocating a greater role for consumers in several segments of the economy, including health care. Noting the growing array of state benefit mandates on health insurance plans while premium costs continue to rise, McGovern criticizes the “health-care paternalism” whereby “states dictate that you [have] to buy a Mercedes or no car at all.” McGovern also notes support for the idea of buying health insurance across state lines, where plan premiums may be more reasonable—a principle supported by many conservatives and introduced by RSC Member John Shadegg (R-AZ) in H.R. 4460, the Health Care Choice Act.

The fact that an icon of the Left such as Sen. McGovern can decry the growth of government regulation as a development consistent with paternalism demonstrates the incapacity of the public sector to respond to challenges such as the rapid growth in health care costs. Many conservatives believe that only through a freer market—and common-sense solutions like buying health insurance across state lines— will America finally come to take control of its skyrocketing expenditures on health care.

Read the article here: The Wall Street Journal: “Freedom Means Responsibility” (subscription required)