1 Kenneth E. Thorpe, “Estimated Federal Costs and Newly Insured Under Senator Kerry’s Health Insurance Plan, May 16, 2003; and Kenneth E. Thorpe, “Estimated Costs and Savings Associated with Senator Kerry’s Health Care Plan,” July 9, 2004. (Unpublished documents; available on Thorpe’s Emory University Web site.) Although Thorpe has no official relationship with the Kerry campaign, he is generally credited as the author of Sen. Kerry’s health plan.

2 Thorpe, “Estimated Costs and Savings Associated with Senator Kerry’s Health Care Plan.”

3 Thorpe’s projection is included in Appendix A. The assumptions behind the cost estimates as well as Kerry’s plan to pay for the program are discussed more fully below.

4 Thorpe, “Estimated Federal Costs and Newly Insured Under Senator Kerry’s Health Insurance Plan” and Thorpe “Estimated Costs and Savings Associated with Senator Kerry’s Health Care Plan.”

5 However, the loss of private insurance is likely to cause a small, offsetting increase in government revenues as employers substitute taxable wages for previously untaxed health benefits.

6 David M. Cutler and Jonathan Gruber, “Does Public Insurance Crowd Out Private Insurance?” Quarterly Journal of Economics, Vol. 111, No. 2, May 1996, pp. 391-430.

7 Private coverage (both employer and individual) fell a total of 5 percentage points; public coverage rose 5 percentage points; and the uninsured rose 1 percentage point. Coverage rates of the non-poor stayed the same. See Peter J. Cunningham and Michael H. Park, “Recent Trends in Children’s Health Insurance: No Gains for Low-Income Children,” Center for Studying Health System Change, Issue Brief No. 29, April 2000.

8 Devon M. Herrick, “Five Myths about the Uninsured in America,” National Center for Policy Analysis, Brief Analysis No. 339, September 20, 2000.

9 Bradley C. Strunk and James D. Rescholsky, “Trends in U.S. Health Insurance Coverage, 2001-2003,” Center for Studying Health System Change, Tracking Report No. 9, August 2004.

10 E-mail correspondence from Kenneth Thorpe to Devon Herrick, July 28, 2004.

11 Estimates of eligibility for public health care programs vary. The lower estimates are that around 10 million Americans are eligible but unenrolled, while the upper range of estimates is closer to 14 million. One study found that just over half (51.4 percent) of eligible, nonelderly adults were enrolled in Medicaid in 1997. Of the remaining adults who were Medicaid eligible, 21.6 percent had private coverage while 27 percent were uninsured. Another study found that about seven million uninsured children eligible for either SCHIP or Medicaid are not enrolled. See Amy Davidoff, Bowen Garrett and Alshadye Yemane, “Medicaid-Eligible Adults Who Are Not Enrolled: Who Are They and Do They Get the Care They Need?” Urban Institute, Series A, No. A-48, October 2001. Of those children eligible for Medicaid or SCHIP, one-third are eligible for SCHIP while two-thirds are eligible for Medicaid. Eight percent of uninsured, low-income children are illegal aliens and, as such, not eligible for either Medicaid or SCHIP. See Lisa Dubay, Jennifer Haley and Genevieve Kenney, “Children’s Eligibility for Medicaid and SCHIP: A View from 2000,” Urban Institute, Series B, No. B-41, March 2002. Also see “The Uninsured in America,” Blue Cross Blue Shield Association, February 27, 2003.

12 Texas Comptroller of Public Accounts, “ Texas Estimated Health Care Spending on the Uninsured,” State of Texas, December 1999.

13 Jack Hadley and John Holahan, “How Much Medical Care Do The Uninsured Use, And Who Pays For It?” Health Affairs, Web Exclusive W3-66, February 12, 2003.

14 See John C. Goodman, “Minority Report of the Texas Blue Ribbon Task Force on the Uninsured,” in Sen. Chris Harris (Chairman) and the Members of the Texas Blue Ribbon Task Force on the Uninsured, “Texas Blue Ribbon Task Force on The Uninsured,” Report to the 77th Legislature, State of Texas, February 2001, p. 42.

15 At Parkland Hospital, for example, a patient with a migraine might get an MRI scan, whereas this would almost never happen at public hospitals in Toronto or London. For more on the differences in health care systems, see John C. Goodman, Gerald L. Musgrave and Devon M Herrick, Lives at Risk: Single-Payer National Health Insurance Around the World (Lanham, Md.: Rowman & Littlefield, 2004), forthcoming.

16 Sara Rosenbaum, “Medicaid,” New England Journal of Medicine, Vol. 346, No. 8, February 21, 2002, pp. 635-640.

17 See E. Kathleen Adams, Norma I. Gavin, Arden Handler, Will Manning and Cheryl Raskind-Hood, “Transition in Insurance Coverage from before Pregnancy through Delivery in Nine States, 1996-1999,” Health Affairs, Vol. 20, No. 1, January/February 2003, pp. 219-229.

18 Michael Bond, John C. Goodman, Ronald Lindsey and Richard Teske, “Reforming Medicaid,” National Center for Policy Analysis, NCPA Policy Report No. 257, February 2003.

19 Bonita Brodt, Maurice Possley and Tim Jones, “How Hustlers Milk Medicaid,” part 4 of a series on “Medicaid: System in Chaos,” Chicago Tribune, November 3, 1993.

20 Government Accountability Office, “Medicaid Program Integrity: State and Federal Efforts to Detect and Prevent Improper Payments,” July 9, 2004, GAO-04-707, p. 7.

21 John Sheils and Randall Haught, “The Cost of Tax-Exempt Health Benefits in 2004,” Health Affairs, Web Exclusive W4-106, February 25, 2004.

22 John C. Goodman, “Characteristics of an Ideal Health Care System,” National Center for Policy Analysis, NCPA Policy Report No. 242, April 2001.

23 Thorpe, “Estimated Costs and Savings Associated with Senator Kerry’s Health Care Plan.”

24 The federal poverty guidelines are available at “2004 HHS Poverty Guidelines,” Federal Register, Vol. 69, No. 30, February 13, 2004, pp. 7336-7338.

25 Thorpe, “The Impact of Sen. John Kerry’s Health Care Proposal on Health Care Costs,” June 2004. Also see Sarah Lueck, “Businesses Are Wary of Kerry Health Plan,” Wall Street Journal, July 26, 2004.

26 Authors’ analysis of Thorpe, “The Impact of Sen. John Kerry’s Health Care Proposal on Health Care Costs,” June 2004, Table 1; and Bureau of Labor Statistics, “Employer Costs for Employee Compensation-March 2004,” Bureau of Labor Statistics, U.S. Department of Commerce, USDL: 04-1105, June 24, 2004, Table 8.

27 Authors’ analysis of Thorpe, “The Impact of Sen. John Kerry’s Health Care Proposal on Health Care Costs,” June 2004, Table 1; and Bureau of Labor Statistics, “Employer Costs for Employee Compensation-March 2004,” Bureau of Labor Statistics, U.S. Department of Commerce, USDL: 04-1105, June 24, 2004.

28 Devon M. Herrick, “Bush versus Kerry on Health Care,” National Center for Policy Analysis, Brief Analysis No. 468, March 18, 2004.

29 Devon M. Herrick, “Uninsured by Choice: Update,” National Center For Policy Analysis, Brief Analysis No. 460, October 7, 2003.

30 See Alain C. Enthoven, “The History and Principles of Managed Competition,” Health Affairs, Vol. 12, (Supplement) 1993, pp. 24-48.

31 In 2002, the average cost of family coverage in the FEHBP was $8,051.16. However, for some temporary employees, a FFS Plan with PBP (Health Plan-High) could cost as much as $14,656,98. See FEHB 2002, 2002 Plan Comparison, FFS Plan Profile: PBP Health Plan-High. Available Online at: http://www.opm.gov/insure/02/html/standard/plancomparison.html. Accessed August 10, 2004.

32 If the employer pays 100 percent of the premium, the tax exclusion allows a poverty-level employee and his or her employer to avoid a 15 percent payroll (FICA) tax. On top of that, the government’s small-business subsidy for this worker would be 37.5 percent.

33 Sarah Lueck, “Businesses are Wary of Kerry Health Plan,” Wall Street Journal, July 26, 2004.

34 American Heart Association, “Heart Disease and Stroke Statistics – 2004 Update,” American Heart Association, Section 11.

35 Mark A. Hlatky, et al., “Medical Care Costs and Quality of Life after Randomization to Coronary Angioplasty or Coronary Bypass Surgery,” New England Journal of Medicine, Vol. 336, No. 2, January 9, 1997, pp. 92-99.

36 Howard H. Wayne, Living Longer With Heart Disease: The Noninvasive Approach That Will Save Your Life (Los Angeles, Calif.: Practice Mgt Information Corp, 1998).

37 From John Kerry’s remarks as prepared for delivery to the Democratic National Convention. See Associated Press, “Text of Kerry’s Acceptance Speech,” MSNBC.com, July 29, 2004.

38 Thorpe, “Estimated Federal Costs and Newly Insured Under Senator Kerry’s Health Insurance Plan.”

39 Thorpe, “Estimated Costs and Savings Associated with Senator Kerry’s Health Plan.”

40 John Merline, “Medicare’s Blown Projections,” Investor’s Business Daily, February 4, 1998.

41 For a discussion of how medical spending could increase when medical care is free at the point of service or highly subsidized, see John C. Goodman, Gerald L. Musgrave and Devon M. Herrick, Lives at Risk: Single-Payer National Health Insurance Around the World (Rowman & Littlefield, 2004),Chapter 24, forthcoming.

42 Kenneth E. Thorpe and Adam Atherly, “Reforming Medicare: Impacts on Federal Spending And Choice of Health Plans,” Spending & Plan Choice: Medicare Reform, Health Affairs Web Exclusive, October 10, 2001.

43 This section is largely based on John C. Goodman and Gerald L. Musgrave, “A Primer on Managed Competition,” National Center for Policy Analysis, NCPA Policy Report No. 183, April 1994.

44 The case for managed competition was forcefully argued in Alain Enthoven, Health Plan: The Only Practical Solution to the Soaring Cost of Medical Care (Reading, Mass.: AddisonWesley, 1980). For an update on Enthoven’s views on the advantages and disadvantages of the FEHBP, see Enthoven, “Effective Management of Competition in the FEHBP,” Health Affairs, Vol. 8, No. 3, Fall 1989, pp. 33-50.

45 See Walter A. Zelman, “The Rationale behind the Clinton Health Care Reform Plan,” Health Affairs, Vol. 13, No. 1, Spring 1994, pp. 9-29.

46 The Federal Employees Health Benefits Program (FEHBP) has four main features: 1) federal employees in most places can choose among 8 to 12 competing health insurance plans, including Blue Cross and a number of HMOs; 2) the government contributes a fixed amount that can be as much as 75 percent of each employee’s premium; 3) the extra cost of more expensive plans must be paid by the employee with aftertax dollars; and 4) the plans are forced to community rate, charging the same premium for every enrollee. A similar choice system is in place for employees of many state and local governments. Public employee health benefit options in the state of Minnesota are similarly organized, as is the California Public Employees’ Retirement System (CalPERS). See Bryan Dowd and Roger D. Feldman, “Employer Premium Contributions and Health Insurance Costs,” in Michael Morrisey, ed., Managed Care and Changing Health Care Markets (Washington, D.C.: American Enterprise Institute, 1998), pp. 24-54. Many private employers also give employees a choice of health plans, and where these plans are independent organizations they effectively compete against each other to enroll members. See James Maxwell et al., “Managed Competition in Practice: ‘Value Purchasing’ by Fourteen Employers,” Health Affairs, Vol. 17, No. 3, May/June 1998, pp. 216-27.

47 Congress initially exempted itself and other government employees from Medicare coverage. The policy was changed for new employees in the early 1980s so that today 80 to 85 percent of federal employees have Medicare coverage — and Medicare is the payer of first resort.

48 The HMO would receive premiums only from people who were about to undergo expensive medical procedures. Thus the average premium would have to equal the average cost of the procedures. It is precisely because most people cannot easily bear such a financial burden that health insurance is desirable in the first place.

49 Alain Enthoven, “The History and Principles of Managed Competition,” Health Affairs, 1993 Supplement, p. 35. On the practice of encouraging high-cost patients to “disenroll,” see Jonathan E. Fielding and Thomas Rice, “Can Managed Competition Solve the Problems of Market Failure?” Health Affairs, 1993 Supplement, p. 222; and Joseph Newhouse, “Is Competition the Answer?” Journal of Health Economics, Vol. 1, No. 1, January 1982, pp. 109-16.

50 Reported in Natalie Hopkinson, “Study Finds Medicare HMOs Target Active Seniors but Not Disabled in Ads,” Wall Street Journal, July 14, 1998.

51 David Hilzenrath, “Showing the Sickest Patients the Door,” Washington Post, National Weekly Edition, February 2, 1998.

52 Ibid.

53 Note that the premium does not have to be the same for all plans, but it must be the same for all members of a given plan.

54 More formally, an equilibrium is said to exist when no participant in the market — including all buyers and sellers — can improve his or her position by any unilateral move.

55 Other analysts have recognized this problem, noting that the tendency is one of “the free market pitfalls of managed competition” (p. 118), that “one of managed competition’s greatest challenges is to safeguard quality of care without robbing the system of free-market efficiencies” (p. 110) and that “managed competition carries an inherent risk of discrimination against enrollees who incur high health care costs” (p. 120). See Alan L. Hillman, William R. Greer and Neil Goldfarb, “Safeguarding Quality in Managed Competition,” Health Affairs, 1993 Supplement, pp. 110-22.

56 See William Tucker, The Excluded Americans: Homelessness and Housing Policies (Washington, D.C.: Regnery Gateway, 1990).

57 Robert D. Reischauer (Brookings Institution), Testimony before the Senate Committee on Finance, May 21, 1997. Also see FedWeek.com, March 31, 2004, Section 9.

58 Mike Causey, “Be Wary of Expanding Health Plan to Uninsured,” Washington Times, August 3, 2004 and Mike Causey, “Strangers in Your Health Plan?” Mike Causey’s Federal Report, FederalNewsRadio.com, July 28, 2004.

59 “Guide to Federal Employees Health Benefits Plans For Federal Civilian Employees,” FEHB 2004 Guide, publication RI 70-1, Center for Retirement and Insurance Services, U.S. Office of Personnel Management, November 2003.

60 Goodman, et al, Lives at Risk.

61 Laura Trueman, “Health Savings Accounts: Myth vs. Fact,” National Center for Policy Analysis, Brief Analysis No. 479, July 19, 2004.

62 Jagadeesh Gokhale, Laurence J. Kotlikoff and Alexi Sluchynsky, “Does It Pay to Work?” National Center For Policy Analysis, NCPA Policy Report No. 258, March 2003, and Jagadeesh Gokhale and Laurence J. Kotlikoff, “Does It Pay Both Spouses to Work?” National Center For Policy Analysis, NCPA Policy Report No. 260, May 14, 2003.

63 This tax rate assumes that the employer pays 100 percent of health plan costs. Employer receives a 50 percent tax credit for first half of expenditure and a 25 percent credit for spending above half the cost for employee coverage. In 2002, the average cost of family coverage in the FEHBP was $8,051.16. Under the Kerry plan, using the 2004 poverty level, a family of four moving from 150 percent of poverty ($28,275) to 300 percent ($56,550) would lose approximately $3,020 in subsidies on an average policy.

64 In 2002, the average cost of family coverage in the FEHBP was $8,051.16. However, some FFS family plans cost as much as $14,656.98 per year. See FEHB 2002, Plan Comparison, FFS Plan Profile: PBP Health Plan-High. Available Online at: http://www.opm.gov/insure/02/html/standard/plancomparison.html. Accessed August 10, 2004.

65 John C. Goodman and Merrill Matthews, “Reforming the U.S. Health Care System,” National Center for Policy Analysis, Policy Backgrounder No. 149, April 26, 1999.

66 The Health Care Financing Administration (now the Center for Medicare and Medicaid Services) estimated that between 1960 and 1988, 57 percent of the growth in personal health expenditures was due to price, 10 percent to population and 34 percent to the use of medical services and supplies. See National Center for Health Statistics, Health, United States,1990 (Hyattsville, Md.: Public Health Services, 1991), Table 106.

67 See John D. McKinnon, “Kerry’s Deficit Cutting Math May Not Add Up,” Wall Street Journal, July 30, 2004.

68 Gail A. Jensen and Michael A. Morrisey, “Mandated Benefit Laws and Employer-Sponsored Health Insurance,” Health Insurance Association of America, January 1999. This estimate is consistent with early estimates by John C. Goodman and Gerald L. Musgrave, “Freedom of Choice in Health Insurance,” National Center for Policy Analysis, NCPA Policy Report No. 134, November 1988.

69 See Victor G. Rodwin, “Physician Payment Reform: Lessons from Abroad,” Health Affairs, Vol. 8, No. 4, winter 1989, pp. 76-83.