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Health Freedom Watch
September 2007


Executive Order Paves the Road to “Interoperable” Medical-Records Tracking of 100 Million Americans

With the stroke of the presidential pen, health policy has been changed for more than a third of all Americans. A recent press release from the U.S. Department of Health and Human Services (HHS) acknowledges what the Institute for Health Freedom reported a year ago: President Bush’s Executive Order (#13410) simplifies the sharing and tracking of electronic medical records for all health-care providers who receive federal funds.    

Last September IHF noted that “…President Bush is moving forward with promoting ‘interoperable’ electronic medical records. In August he signed an executive order, ‘Promoting Quality and Efficient Health Care in Federal Government Administered or Sponsored Health Care Programs,’ requiring agencies and their contractors to meet ‘interoperability’ standards for health data.”

Interoperability is defined as “the ability to communicate and exchange data…with different information technology systems, software applications, and networks in various settings…”

HHS states, “In its first year, the President’s Executive Order has begun to have a culture-changing effect in the health care sector….By mandating action for federal agencies, the order applied to a substantial portion of the U.S. health care market.”

According to HHS, the four goals of the Executive Order are to:

(1) Connect the nation’s health-care “system” by employing interoperable health information technology;
(2) Measure and make available data on the quality of health-care services;
(3) Measure and make available price information on the costs of health-care products and services; and
(4) Arrange incentives so that payers, providers, and patients “benefit” when health-care services are “focused on achieving the best value of health care at the lowest cost.”

Regarding the first goal, HHS notes that its “Office of the National Coordinator for Health Information Technology (ONC)…has successfully piloted models for a Nationwide Health Information Network (NHIN). Using the internet, the NHIN will be a network of networks that will connect health information exchanges in different markets to enable the secure and confidential sharing of health information across the health care system. In fiscal year 2008, ONC will begin trial implementations of competing prototypes that have been demonstrated as viable models for the NHIN.”

HHS further states, “Federal departments and agencies are coordinating and adopting consistent contract language that will require the use of newly developed and soon-to-be recognized interoperability standards. Beginning in their next contracting cycle, agency contracts will include this language, requiring the use, where available, of health IT that meets recognized interoperability standards….More than 800 employers and over 20 states have recognized this Executive Order through signed public declarations supporting the four cornerstones. As a result, more than 100 million insured American lives are now impacted by the goals laid out in the Executive Order.”

Threat to Privacy

As IHF has reported previously, creating a nationwide interoperable (linkable) network of health-information databases would serve to establish a de facto centralized, national database.  Individuals’ personal health information could be accessed by many people for many purposes without their consent.  That is because the HIPAA-mandated federal medical-privacy rule eliminated patient consent in the sharing of personal information.  Thus, once individuals provide information to a regional health-information network, they will have no say in how it is used for many purposes (including treatment, payment, and health-care operations).

Federal Government Controls Large Sector of $2 Trillion Health-Care Industry

While striving to make prices transparent is a beneficial goal for free-market reform, the fact that the federal government controls health-care payments, and therefore services, for millions of Americans shows that the United States has a long way to go before it can claim to have a free market for health care.  In fact, economist and actuary Gerry Smedinghoff points out that economist and Nobel laureate Milton Friedman stated we have a socialist-communist system of distributing medical care in the United States (see health policy Q&A below). 

Given the federal government’s control over much of the $2 trillion U.S. health-care industry, IHF’s concern about interoperable, regional health-information networks (reported in May 2005) is worth repeating:

Imagine the following scenario: In 2008 you visit your general practitioner. You want to pay cash for your visit and maintain truly private paper medical records. Your physician, whom you’ve been seeing for more than 20 years and with whom you’ve built a trusting relationship, says she would very much like to honor your wishes, but she can’t. The reason is that in order to continue treating Medicare patients (which constitute 50 percent of her practice), she is required to maintain electronic medical records and submit claims to the federal government—for all her patients.

Sound farfetched? It shouldn’t. Medicare is the largest single payer of health care in the United States and the world. Given the government’s large purchasing power, it can essentially mandate the practice of most physicians [and other providers]. And with the forthcoming retirement of the baby boomers, tomorrow’s physicians will find that an ever-greater share of their practices are Medicare patients.  All Americans should consider carefully the unintended consequences of establishing taxpayer-financed regional health-information networks…


  • “Executive Order Is Helping ‘Change the Culture’ in Health Care to Achieve Better Quality, Value, and Affordability, HHS Secretary Leavitt Reports,” HHS press release, August 23, 2007.
  • “Progress Report on Implementation of Executive Order 13410 ‘Promoting Quality and Efficient Health Care in Federal Government Administered or Sponsored Health Care Programs,’” HHS report, 2007.
  • “Health Privacy Roundup: President Bush Signs Executive Order Simplifying the Transfer of Electronic Medical Records,” Health Freedom Watch, September 2006.
  • “Prisoner’s Dilemma: Economic Lessons from the Failures of North American Health Care Systems,” by Gerry Smedinghoff, August 3, 2007:
  • “What All Americans Should Consider Regarding H.R. 2234,” Health Freedom Watch, May 2005.

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National Health-Policy Q&A

Q: Do Americans have a free-market health-care system?

A:  No, not according to the late Milton Friedman, economist and Nobel laureate.  In May 2006 Friedman explained to Larry Arnn, president of Hillsdale College: “We have a socialist-communist system of distributing medical care. Instead of letting people hire their own physicians and pay them, no one pays his or her own medical bills. Instead, there’s a third party payment system. It is a communist system and it has a communist result.... Nobody is happy: physicians don’t like it, patients don’t like it. Why? Because none of them are responsible for themselves. You no longer have a situation in which a patient chooses a physician, receives a service, gets charged, and pays for it. There is no direct relation between the patient and the physician.  The physician is an employee of an insurance company or an employee of the government. Today, a third party pays the bills. As a result, no one who visits the doctor asks what the charge is going to be—somebody else is going to take care of that. The end result is third party payment and, worst of all, third party treatment.” (Emphasis added.)

Shifting greater responsibility to the federal government and private insurance companies would only worsen matters, not improve the deteriorating doctor-patient relationship in the United States. 

Source:  “Free to Choose: A Conversation with Milton Friedman,” Imprimis, July 2006.

Q:  The media report that life expectancy is rising.  Is this something new for Americans, or has it been rising for many years?  

A:  Life expectancy has been rising for many years in the United States; this is not a new trend.  In fact, life expectancy increased significantly between 1940 and 1950—before compulsory hospital insurance for seniors (Medicare) was established in 1965, as seen in the chart below.


Life Expectancy at Birth: All Races; Both Sexes

Increase in No. of Years Since Previous Decade






1.6 (1990 - 2000)



1.7 (1980 - 1990)



2.9 (1970 - 1980)



1.1 (1960 - 1970)



1.5 (1950 - 1960)



5.3 (1940 - 1950)




Source: “Life Expectancy at Birth by Race and Sex: United States, 1940, 1950, 1960, 1970, and 1975–2004,” National Vital Statistics Reports, Vol. 55, No. 19, August 21, 2007 (see Table 8, page 26).

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Tobacco Taxes to Fuel Expansion of Children’s Federal Health Program
By Steve Stanek

The big question over reauthorization of the federal government’s State Children’s Health Insurance Program (SCHIP) appears to be this: $35 billion, $50 billion, or something in between?

On August 1, the U.S. House of Representatives passed a bill that would expand the program by $50 billion over five years. The Senate followed a short time later with approval of a $35 billion increase. A conference committee is expected to reach a final figure before the program expires September 30. Funding would come from a 61 cents increase in the 39 cents per pack federal cigarette tax, putting the federal tax at $1 a pack. Federal taxes on other tobacco products also would climb. President George W. Bush has vowed to veto the legislation.

Middle-Income Families Subsidized

The legislation would provide health insurance subsidies to families earning up to four times the poverty level—$83,000 a year for a family of four. The bill also makes major changes to the Medicare Advantage program, physician payment schedules, the Medicare prescription drug benefit, and Medicaid.

Even though the program’s intent is to provide health insurance coverage to children, adults would be allowed to enroll as well. Some states already have more adults than children enrolled in SCHIP.

SCHIP was created in 1997 to provide financial assistance to families who need help paying for children’s health insurance but earn too much money to qualify for Medicaid. Since then the federal government has spent nearly $40 billion on the program, according to the Congressional Budget Office (CBO). About 6.6 million children and 670,000 adults are currently enrolled.

‘A Welfare Program’

“Let’s be clear. SCHIP is a welfare program,” said Michael Tanner, director of health and welfare studies at the Cato Institute. “How far up the middle class do we want welfare to go?”

The CBO estimates 50 percent of new SCHIP funds would go to children in families who would otherwise have private insurance coverage, and some economists say that estimate is low. Tanner said this would crowd out private insurance and shift costs onto taxpayers.

Support Is Wide

Though most Republican lawmakers oppose the legislation, SCHIP expansion does have a wide range of support, from liberal Sen. Ted Kennedy (D-MA) to conservative Sen. Orrin Hatch (R-UT). Kennedy and Hatch were the original SCHIP sponsors in 1997.

Critics say the expansion is a backdoor move to establish a national health system. They also say the tax scheme is especially harmful to lower- and middle-income families, who tend to use tobacco products more than higher-income families. And, ironically, government budget forecasters say states could see billions of dollars less in tobacco revenue as a result of the federal tax hike. The CBO and U.S. Treasury Department have estimated a revenue loss to the states of $1.07 billion to $1.2 billion a year, as the higher price for cigarettes cuts consumption and prompts smokers to choose low-cost off-brands or turn to black markets.

Revenue Losses

The predicted cut in tobacco consumption would result in lower payments to states by the major tobacco companies under the 1998 Master Settlement Agreement, which ended state lawsuits against the tobacco companies. It also would cause state cigarette excise tax revenues to fall.

Supporters say the tax hike would have benefits. “The public health benefits resulting from higher tobacco costs are well documented,” said the American Academy of Family Physicians in a June letter to members of Congress. The letter added, “By discouraging smoking through an increase in the tobacco tax and using the resulting revenues to improve enrollment in children’s health insurance programs, we are creating a win-win proposition in support of our children’s health.”

Ohio Gov. Ted Strickland (D) acknowledged states probably would lose tobacco revenue as the CBO and Treasury Department predict, but said he nonetheless supports SCHIP expansion and higher tobacco taxes. “We certainly wouldn’t want lack of revenue from cigarette taxes to keep us from providing health care for our kids,” Strickland said during an August 8 appearance at Columbus Children’s Hospital to urge support for the SCHIP legislation.

Heavily Regressive Tax

A study released in July by the National Center for Policy Analysis said the SCHIP tax hikes would be heavily regressive because rates of tobacco use are highest among lower- and middle-income citizens. “[P]olicymakers should also be concerned with the economic well-being of their lower-income constituents. One must question the fairness of hiking taxes that are known to disproportionately burden poor families,” the NCPA report states.

Other economists also question the fairness of taxing a narrow segment of the population—tobacco users—to fund a broadly available program such as SCHIP.

Steve Stanek is managing editor of Budget & Tax News and a research fellow at The Heartland Institute. This article was originally published in the October 2007 issue of Budget & Tax News, published by The Heartland Institute ( Reprinted with permission. 

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Compulsory Universal Health Insurance: Neither a New Idea nor a Good One
By Diana M. Ernst

 In 1912, Theodore Roosevelt considered “mandatory universal health insurance” a high domestic priority. Critics at the time, including physicians, pharmacists, insurers and businesses, deemed mandatory health insurance authoritarian—and even un-American. Even in those days of low-cost, low-tech medicine, Americans feared the consequences of a government requirement to buy government-designed health insurance: loss of choice, rising costs, and a resulting burden on economic activity.

Nevertheless, history repeats itself: FDR, Truman, and Nixon had similar health care dreams. Forcing health insurance on Americans, however, doesn’t fix health insurance.

We can truly narrow the chasm between failed dreams and a real future of improved American health care if we allow free markets to work where government has failed.

Unique in the developed world, our idiosyncratic health care system is centered on job-based health insurance, which came about with wage controls at the onset of WWII. The practice was solidified in 1945 when the War Labor Board ruled that employers could not change or cancel group insurance plans during a contract period, and finally when Congress amended the Internal Revenue Code in 1954 to exempt job-based health coverage from taxable income. Most Americans are effectively tied to employer health insurance today, and recent polling shows that seventy-four percent of Americans would support a law requiring employers to offer it.

But this method of providing health insurance does not provide security: job-based health insurance is now crumbling under the weight of rising costs.

Supporters of a health insurance mandate lament the number of uninsured, but many more Americans are overinsured beneficiaries of employer-provided care. Research shows that since employees don’t directly pay anywhere near the full cost of their health care, they use more health services than they need.

Meanwhile, all uninsured, including the self-employed, the unemployed, and the employees of small businesses who can’t afford health insurance must still pay the taxes that subsidize insurance for the employed, worth an estimated $200 billion today. President Bush’s proposed tax deduction for all Americans with health plans will likely eliminate this tax bias and stimulate the individual health insurance market. U.S. Senator Ron Wyden’s proposal would eliminate job-based health insurance, and simply give employees a bigger paycheck to choose their own health care.

The tax bias in favor of employer-sponsored health care is not all that needs to change. Individual health insurance plans are still loaded with 14 to 63 benefits dictated by governments. A total of 1,900 benefit mandates nationwide increase the cost of health coverage from 20 to 50 percent, depending on the state….Today’s health insurance has evolved from protection against risk to pre-paying most health services, parting ways with “insurance” traditionally defined.

First, medical technology became more advanced, making health insurance increasingly essential to pay for more costly medical care. After WWII, Blue Cross and Blue Shield were the first to create an insurance model where insurance covered all medical care, some effects of which are evident in today’s health insurance proposals. It also excluded deductibles and co-payments, and all patients were charged the same price, no matter what age, sex, or health status. A very small percentage of Americans actually enrolled—it wasn’t until the introduction of Medicare almost twenty years later that the use of health care went up significantly; out-of-pocket payments decreased from 50 percent in 1960 to 13 percent by 2005.

But insurance cannot pool risk unless insurers are allowed to price the risk through underwriting. The law allows this for car insurance, property insurance, and life insurance—all of which have become more competitive and lower cost than in the past. When the law forbids this for health insurance, it becomes much more expensive.

Critics allege that the consumer-directed health care (CDH) effort treats health care as a price-based commodity like a television or shoes, but this greatly undervalues the importance of cost. Health care costs are at the heart of our problem, and as costs continue to soar, health care becomes less available, not universal. Americans need CDH to free them from our antiquated employer-provided system, create price transparency, incentivize providers to compete for their specific health needs, and thus, lower costs.

Definity Health, a UnitedHealth Group company, studied the impact of consumer-directed health care plans on its own members. Results were impressive: enrollees experienced 25 percent fewer hospitalizations and 12 percent fewer emergency room visits over two years, but they also sought more preventive care than beneficiaries with traditional health care plans. CDH plans reduced costs over all during the first year by 5 to 12 percent.

We deserve a broader spectrum of price-transparent, affordable health insurance plans, with subsidies for the poor and the chronically ill. Then, today’s hand-me-down motto, “mandatory universal health insurance” won’t be necessary. Health is important enough to embrace the real challenge, not of mandating health insurance, but really fixing it for all Americans.

Diana Ernst is a public policy fellow in health care studies at the Pacific Research Institute ( Reprinted with permission.

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Health Freedom Watch is published by the Insitute for Health Freedom. Editor: Sue Blevins; Assistant Editor: Deborah Grady. Copyright 2007 Institute for Health Freedom.