Fix Health Care by Tackling “the Wedge”

by Arthur Laffer, Donna Arduin, and Wayne Winegarden

PRESIDENT BARACK OBAMA HAS STATED: “Soaring health care costs make our current course unsustainable.” And he’s right. The growth in per capita expenditures on health care has exceeded the growth in overall consumer prices every year for nearly the past 50 years. Such a trend cannot continue forever.

The President’s proposed reforms, however, do exactly the wrong thing. Increasing government subsidies for health insurance will increase what is the primary driver of excessive health care spending: the government health care wedge.

Bad Incentives

The health care wedge is one way of thinking about government involvement in the economy. The health care wedge represents an economic separation of effort from reward, or consumers (patients) from producers (health care providers). When the government or another third party spends money on health care, the patient does not. The patient is then separated from the transaction in the sense that the costs are no longer his or her concern. This health care wedge also separates patients from doctors in determining what type of care should be provided. Instead, health care decisions are made by government, by insurers, or by judges deciding medical malpractice liabilities.

The health care wedge diminishes consumers’ incentives to monitor costs. Consumers bear only a fraction of the costs from any additional health care service. On the supplier side, doctors and other medical providers receive no incentive to provide higher quality services for less cost. No positive benefit accrues to those who do so.

Costs do accrue, nevertheless. One of the most important disincentives for doctors to monitor costs is the tort liability threat. Rising tort liability costs have encouraged doctors to practice “defensive medicine”—ordering extra tests and performing extra procedures not because they are needed but in order to avoid a claim of medical malpractice. This “defensive medicine,” according to the American Medical Association, added between $99 billion and $179 billion in additional costs in 2005 alone.

As a result, Medicare, Medicaid, and tax-favored, employer-based coverage blind both patient and doctor to the cost of care. Meanwhile, litigation risks incentivize doctors to run additional tests to limit their liability exposure. Government regulations and the third-party payer system are also diminishing the market incentives to implement best practices programs that would help eliminate waste, fraud, and abuse. Whether the payer is government or an insurance company, the process removes the competition and the patient feedback that drives innovation.

Take, as an example, programs to implement best practices, or comparative effectiveness research. Comparative effectiveness research evaluates different medical procedures and treatments for the purpose of educating doctors and patients about which treatments are effective and economical and which treatments are not. An oft-cited com-plaint of the current U.S. health care system—a complaint not without merit—concerns the lack of sound comparative effectiveness research.

The President has called for a government agency to provide comparative effectiveness research. He and others believe that comparative effectiveness research is difficult to keep out of the public domain. Thus, according to this theory, an organization’s incentive to invest in this research is diminished by the prospect that a competitor will free ride on their investment. Consequently, organizations will naturally under-invest in comparative effectiveness research, ac-cording to this argument.

But, as Michael Cannon of the Cato Institute points out, prepaid group plans have a large incentive to provide comparative effectiveness research to their members, because the benefits of the research can be effectively captured within their networks of doctors and facilities. However, complex government regulations discourage prepaid group plans. Further, declining out-of-pocket expenditures means that consumers do not bear the costs or reap the benefits of ensuring the most cost-effective practices; thus, their incentives to seek those benefits are accordingly lessened. Taken together, government interventions have deadened the incentives to create comparative effectiveness research.

Health Insurance Distorted

Government policies have also distorted private health insurance, which is another factor in the growth of the health care wedge. Most Americans do not have health insurance as the term is traditionally understood. Insurance is a tool for managing risk. In exchange for periodic payments from a customer, an insurance company provides protection against a large but uncertain potential cost.

Take disability insurance. A potential risk for many families is the possibility that the primary (or one of the dual-income earners) might meet with an accident that prevents him or her from working for a prolonged period of time. In such a case, a family could face potential financial ruin. To protect against this risk, many primary income earners will purchase a disability insurance policy. In return for annual (or quarterly or monthly) payments to the insurance company, the company will pay a pre-determined amount of money to the income earner should an unfortunate accident or disabling illness occur.

Health insurance does not work this way. As opposed to covering only true health risks (the costs associated with broken arms or major surgeries), health insurance pays the costs for routine health events that are not risks in the true sense of the word. An analogous situation would be for disability insurance plans to pay an individual’s disability claims for missing work due to a cold.

Imagine if another form of insurance, such as automobile insurance, worked like health insurance. As opposed to covering the costs from major automobile accidents, costs of routine maintenance such as oil changes and tune-ups would also be covered. Additionally, to ensure that car owners were all treated equally, insurance companies would be prohibited from charging different rates for specific drivers who cause more accidents or from charging different rates to groups with different driving habits—married women in their 50s, for instance, who might qualify for lower rates than single, 18-year-old males.

If indeed automobile insurance worked like health insurance, safe drivers would end up paying more for automobile insurance to subsidize the costs of unsafe drivers. Car consumers would also have no incentive to shop for the best deal when it came to changing the car’s oil, getting a tune-up, or performing any other routine maintenance service. The cost for routine maintenance services would be expected to increase. Additionally, because a car owner would not bear the costs resulting from improper maintenance, the incentive to properly maintain cars would decline. The number of major car repairs, and the cost of these repairs, would all increase as well.

Automobile insurance companies, trying to arrest the rising costs of car repairs and car maintenance, would begin to increase the number of rules and regulations. The result would be significant market distortions in the automobile insurance market, skyrocketing costs of repairs, and an increase in the number of major repairs. In short, both the automobile insurance market and the automobile repair market would become much more inefficient—to the point where people might even begin to wonder whether the automobile repair market is special, needing the government to mandate prices and repair schedules.

The Growing Health Care Wedge

Over the past five decades, the health care wedge has grown as government health care expenditures have been substituted for private health care expenditures and as private health insurance has shifted to plans offering first-dollar coverage.

In 1965, the private sector funded over 75 percent of total U.S. health expenditures. But the creation of Medicare in 1966 started to shift the balance of spending toward the public sector. The private share of national health expenditures fell to 70 percent in 1966, and 63 percent in 1967. Since 1967, the private sector has been slowly funding less and less of total national health expenditures. In 2007, less than 54 percent of total national health care expenditures were paid for by the private sector. Public expenditures (at the federal and state levels) now fund nearly one-half of total U.S. health care expenditures.


Concurrent with these trends, total out-of-pocket spending by patients has plummeted even faster as a share of total health expenditures. (See figure above.) Note that while total out-of-pocket expenditures have been declining as a share of total national health expenditures, they have nevertheless grown in total inflation-adjusted terms. Despite the government covering a growing share of total health care expenditures, individuals continue to pay more than ever before.

Taken together, these trends illustrate a complete reversal of the way health care is purchased in the United States. In 1960, the private sector funded over three-quarters of national health care expenditures, with individuals responsible for nearly one-half of these costs through out-of-pocket expenditures. Today, the private sector funds just a bit more than one-half of these expenditures, with only a little over $1 out of every $10 coming out of the consumer’s pocket.

Reforms Must Address the Health Care Wedge

Rising health care expenditures are limiting income gains and thereby hurting family budgets, raising tax costs, raising individuals’ dollar costs at a rate that is not sustainable, and damaging the U.S. economy. The economic costs from these inefficiencies are large. In a recent paper for the Cato Institute, Michael Cannon notes:

Examining Medicare records, researchers have found that per-beneficiary spending varies widely from one area of the country to the next. In some areas, Medicare spends twice as much per senior as it does in other areas. Researchers have also found that beneficiaries in high-spending areas do not start out sicker, do not end up healthier, and are no happier with the care they receive, than beneficiaries in low-spending areas. That suggests that a significant amount of Medicare spending pro-vides no discernible benefit to the program’s intended beneficiaries. Those researchers estimate that as much as 30 percent of total U.S. medical spending provides no discernible value. If so, then Americans spend more than $700 billion each year, or 5 percent of gross domestic product, on medical services of no discernible value.

On a per capita basis, $700 billion in waste, fraud, and abuse imposes a bill of over $2,300 per le-gal resident in the United States. The possibility that 30 percent of total health care spending is waste underscores the President’s contention that reform is needed. However, successful re-forms will directly address the root causes of the problems outlined above. The root cause is the adverse government policies that have diminished the incentives and ability for either doctors or patients to control costs and experiment with alternative, more effective ways to deliver health care.

The centerpiece of the Obama plan is the creation of a public health insurance option that supposedly would ensure that private insurance companies provide a fair product at a reasonable price. Such a solution assumes that the problem is ineffective pricing and services from health insurance companies. As shown, this diagnosis is wrong.

Creating another government insurance plan would not address the problem of rising health care costs, but it would further diminish consumer incentives to monitor those costs. In an analysis published in August for the Texas Public Policy Institute, we estimate that increasing public subsidies for health insurance by $1 trillion over the next decade would add at least 5 percentage points to health care inflation. Such a plan would also increase government expenditures by more than 5 percent per year by the end of the next decade and reduce gross domestic product by 5 percent cumulatively by 2019.

The guiding principle of beneficial health care reform should be that the current third-party/government-driven health care system needs to be changed, not enhanced. Rather than expanding the role of government in the health care market, Congress should implement patient-centered reforms that include the following features:

● Individual ownership of insurance policies. The tax deduction that allows employers to own employees’ insurance should instead be given to the individual.

● Expanded use of Health Savings Accounts (HSAs). HSAs empower individuals to monitor their health care costs and create incentives for individuals to use only those services that are necessary.

● Interstate purchasing of health insurance. Policies in some states are more affordable because they include fewer bells and whistles; consumers should be empowered to decide which benefits they need and what prices they are willing to pay.

● Fewer mandates on insurers to cover specific benefits. Empowering consumers to choose which benefits they need is effective only if insurers are able to fill these needs.

● Simple vouchers for low-income individuals instead of Medicaid block grants to the states. An income-based, sliding scale voucher program would eliminate much of the massive bureaucracy needed to implement today’s complex and burdensome Medicaid system. It would also produce considerable cost savings.

● Elimination of unnecessary scope-of-practice laws. Non-physician health care professionals should be allowed to practice to the extent of their education and training. Retail clinics have shown that increasing the provider pool safely increases competition and access to care—empowering patients to decide from whom they receive their care.

● Reform of tort liability laws. Defensive medicine needlessly drives up medical costs and creates an adversarial relationship between doctors and patients.

By empowering patients and doctors to manage health care decisions, a patient-centered health care reform would directly address the distortions weakening our current health care system and would simultaneously control costs, increase health outcomes, and improve the overall efficiency of the health care system.

Dr. Laffer is chairman of Laffer Associates and co-author of The End of Prosperity: How Higher Taxes Will Doom the Economy—If We Let It Happen (2008). Widely known as the “Father of Supply-Side Economics,” Laffer served as a member of President Ronald Reagan’s Economic Policy Advisory Board from 1981 to 1989. Ms. Arduin is a managing director at Arduin, Laffer & Moore Econometrics, which provides economic, fiscal, and policy advice to governors, legislatures, think tanks, and corporate clients throughout the country. She was a top budget advisor to then-governors John Engler (Mich.), George Pataki (N.Y.), and Jeb Bush (Fla.), and current governor Arnold Schwarzenegger (Calif.). Dr. Winegarden is a managing director at Arduin, Laffer & Moore Econometrics. This article is adapted from their longer paper, “The Prognosis for National Health Insurance,” published by the Texas Public Policy Foundation, August 2009.

The Government’s Health Care Fraud Problem: Why a Public Option Is Hazardous to Your Health and Pocketbook

by Merrill Matthews and Meredith R. Matthews

The following article is excerpted from the Center for Health Transformation’s excellent new book Stop Paying the Crooks: Solutions to End the Fraud that Threatens Your Healthcare As the book reveals—and as Merrill Matthews and Meredith Matthews note in our excerpt below—fighting health care fraud is an enormous opportunity to lower health care costs for health insurance consumers. Yet most of the health care reform plans proposed so far do not make fighting fraud a priority. In fact, the central element of the plans touted by President Barack Obama runs the risk of increasing health care fraud. President Obama wants to create yet another government-funded health insurance program. The so-called “public option,” he says, will keep the private sector in check and find new efficiencies. Yet government programs such as Medicare and Medicaid are more vulnerable to fraud than is private health insurance. The President has the issue backwards: Before government health insurance is expanded, the government needs to take cues from the private sector on how to fight fraud. —Editor


THE NATIONAL DEBATE OVER HEALTH CARE REFORM has, once again, focused the country’s attention on efficiency. How can we create a more efficient—which means both less expensive and of higher quality—health care system?

One group of reformers thinks the answer is easy: Expand Medicare—the federal health insurance program for seniors—or create a program similar to Medicare to cover most or all Americans. This group of reformers believes Medicare is the most efficient health insurance program in the country, maybe even the world, and they think it makes sense to provide a Medicare-like option for everyone (though others think the “option” part would be temporary because the government would soon require people to join).

The problem with this argument is that it simply is not true. Medicare looks efficient only because it hides most of its administrative costs. Perhaps more important, because Medicare does not engage in the due diligence that private sector insurers do, it is rife with fraud, costing taxpayers billions of dollars every year.

Before Medicare becomes a model for anything—except how not to run a health care system—policymakers should look at how the private sector manages claims and limits fraud. In short, before the government starts dumping more Americans into the financially collapsing Medicare system, it needs to demonstrate that Medicare has learned how to control costs and improve both quality and efficiency in the same way the market does—by satisfying both buyers and sellers.

Medicare’s Hidden Administrative Costs

One of the most common and least challenged assertions in the health reform debate is that Medicare’s administrative costs are about 2 percent to 3 percent of claims costs, while private insurance companies’ administrative costs fall in the range of 20 percent to 25 percent.

It is very difficult to do a real apples-to-apples comparison between Medicare’s true costs and those of the private insurance industry. The primary problem is that private sector insurers must track and divulge all their administrative costs, including rent, taxes, management, start-up costs, claims processing, profit, and so on. Not Medicare. What the government considers Medicare’s administrative costs are simply what it costs to process the reimbursement checks.

Most of Medicare’s other administrative costs are hidden in other parts of the federal budget or are completely ignored by the complex and bureaucratic reporting and tracking systems used by the government. For example, the Department of Health and Human Services Office of Inspector General claims that 80 percent of its resources and 1,500 employees are dedicated to protecting Medicare, Medicaid, and their beneficiaries from fraud and abuse. Those costs are not captured in Medicare’s administrative costs, while private sector claims adjudication and anti-fraud efforts are.

In an effort to identify and estimate Medicare’s true administrative costs, the Council for Affordable Health Insurance contracted with actuarial firm Milliman to publish “Medicare’s Hidden Administrative Costs: A Comparison of Medicare and the Private Sector.” After going through the federal budget and identifying those hidden costs in Medicare, the study found that actual administrative costs are 5.2 percent. But that is not all. Because this estimate is a ratio—i.e., total claims paid divided by the cost to pay them—and because of its higher cost per beneficiary, Medicare administrative costs appear lower than they really are. If the numbers were adequately “handicapped” for comparison with the private sector, they would be in the 6 percent to 8 percent range.

So what does the private sector pay in administrative costs? About 8.9 percent, with large companies that reach economies of scale falling at around 8 percent. While it appears that Medicare may have slightly lower administrative costs than the private sector, those additional costs are not “wasted money” that could go toward insuring the uninsured, as private sector critics like to claim. Those additional dollars keep premiums lower by more closely scrutinizing claims. It would be hard to make the same case for Medicare.

Medicare’s Rampant Fraud

You know there is a problem when the Russian mob finds scamming a U.S. federal health insurance program easier and more lucrative than, say, running drugs or owning casinos.

According to a 2006 article in the Los Angeles Daily News, court documents in one Medicare fraud case said: “The case is connected to Russian-Armenian organized crime that gutted Medicare of more than $20 million using a network of clinics, paid kickbacks to marketers for patient referrals and billed Medicare for tests that were unnecessary or went undelivered.”

And the Philadelphia Daily News reported that the FBI’s organized crime squad’s investigation of a different Russian group operating a hospice scam, a growing area of fraudulent activities, involved some $8.5 million.

In 2007, several Nigerians were sentenced to prison terms, along with extensive fines, for their part in swindling Medicare. The federal judge in the case said of one culprit: “After being welcomed as a guest in this country, the defendant plundered the Medicare program in an outrageously bold and rapacious health care fraud scheme.”

The scammer had apparently billed for 423 wheelchairs, for which he received about $4,000 each from Medicare. He then either did not provide seniors with the wheelchairs or gave them chairs of lesser quality. It would be nice to say that these are isolated incidents, but they are not. Those who follow such stories will find accounts of new arrests, stings, and convictions an almost daily occurrence in the newspapers. How extensive is the fraud? No one knows for sure. But there are estimates.

Attorney General Eric Holder announced recently that the government would be ramping up its efforts to fight Medicare and Medicaid fraud, estimated at $60 billion a year at least. That is out of a program that costs $460 billion per year. Ponzi schemer Bernard Madoff defrauded people out of some $50 billion, and the public and media went (justifiably) berserk. Medicare has $60 billion of waste and fraud each year, and the president and the Democratic leadership in Congress want to make it a health insurance model for the country.

Fortunately, both the federal government and the states have stepped up their anti-fraud efforts in the past several years. Government officials have exposed widespread and rampant fraud and have moved to shut the criminals down, prosecute them, and recoup some of the money lost. Yet government assessments of those anti-fraud efforts have discovered some internal problems, exposing just how easy it is to commit Medicare and Medicaid fraud.

For example, in 2006, Medicare officials claimed they had dramatically reduced fraud in the program. But a subsequent 2008 analysis by the federal inspector general’s office found that Medicare had missed more than a third of the fraudulent spending on durable medical equipment (DME) such as wheelchairs and oxygen supplies—about $2.8 billion in improper spending. In addition, Government Accountability Office investigators set up fictitious companies and were able to get the Centers for Medicare & Medicaid Services (CMS), with some effort, to give the fake companies billing privileges.

While the government has successfully recovered some of the billions of dollars in Medicare and Medicaid fraud, this represents only a fraction. Like the Madoff investment scandal, much of the money is gone by the time arrests are made. The criminals can be fined, jailed, and forced to pay restitution, but if they have spent most of the money, it will never be recovered.

Who Is Better at Catching Fraud?

Those pushing for a bigger government role in health care often criticize private sector insurers for their efforts to manage and adjudicate claims. As a presidential candidate, Hillary Clinton complained that insurers spend billions of dollars a year denying claims. She argued that they should use that money instead to just pay the claims. It was a breathtakingly naive statement from one who should know better. Medicare does “just pay the claims,” but the resulting fraud costs taxpayers billions of dollars a year.

Private sector companies, by contrast, aggressively monitor claims. While that is true for any type of insurance, it is also true in other sectors of the financial industry. In recent testimony before the Senate, health policy expert James Frogue of the Center for Health Transformation noted: “The American credit card industry involves over $2 trillion in transactions per year, which is nearly the size of the health care sector. There are more than 700 million credit cards in circulation, millions of vendors, and countless items that can be purchased with a credit card. Yet total card fraud is a fraction of 1 percent.”

Actually, that figure is not far from the private health insurance sector’s record. Estimates say that claims fraud in private health insurance falls at around 1.5 percent or less. Of course, there is a cost for monitoring those claims, which represent roughly 3.3 percent of claims paid. But claims processing will not go away under government-run health insurance. That is the 2 percent to 3 percent figure now used for Medicare’s administrative cost. The private sector does spend more money than Medicare adjudicating claims. Indeed, the scrutiny is so close that health care providers frequently complain about the difficultly they have in getting legitimate claims approved and paid. But properly adjudicating claims is money well spent on the front end because it saves billions of dollars in fraudulent claims on the back end. The National Health Care Anti-Fraud Association says that every $2 million invested in fighting fraud produces returns of $17.3 million in recoveries and court-ordered judgments; plus there are the claims that were not paid.

As mentioned earlier, both the federal government and the states have ramped up their much-needed anti-fraud efforts. But these would be much more cost-effective if Medicare and Medicaid were to identify and adopt practices to monitor claims proactively on the front end. Such efforts could dramatically reduce fraudulent claims in the first place. In other words, instead of making the Medicare claims-paying structure the model for private insurers, Medicare should be learning from the private sector.

Private Insurers Check the Claims

When an insurer receives a claim from a doctor or a hospital, the claim is first entered into the computer system. The system performs several routine checks to prevent ineligible claims from being paid, including:

  • Has the insurer received the same claim from the same medical provider?
  • Do the diagnosis and treatment match?
  • Is the medical provider being investigated for other suspicious claims?
  • Is the insured person being investigated for submitting suspicious claims?

If the answer to any of these questions is yes, the insurer will investigate the claim more thoroughly. For example, if the diagnosis and treatment do not match, the insurer may contact the doctor’s office to see if there was a coding error. Or if the insurer has been notified of a pattern of suspicious claims from a provider, the insurer may hold any claims received from the provider and verify that the services were received by the patient.

Unlike with Medicare, the insurer’s investigation unit will investigate claims before they are paid. Claims are held until a determination can be made whether, in the insurer’s opinion, the claims are legitimate. In the case of a treatment and diagnosis mismatch not determined to be a coding or data-entry error, the insurer will request a review by the company’s medical director. If the claims are determined to be illegitimate and potentially fraudulent, they will be thoroughly investigated before they are denied. In most cases, the fraud unit will look outside the initial claims at all the claims submitted by the insured person and/or medical provider to determine if there is a pattern of fraud. A provider who has submitted fraudulent claims will be flagged in the system in order to ensure future claims are subjected to additional scrutiny.

Any decision can be appealed by the provider or insured person and is subject to the appeal provisions of the Employee Retirement Income Security Act (ERISA). In other words, federal law establishes specific appeal rules. If the claim is denied because the diagnosis and treatment do not match (which is not fraud), the insured person may have an additional level of external review by a doctor who is not affiliated with the insurer, doctor, or insured person.

Currently, the private sector health insurance industry spends about $616 billion a year paying traditional health care claims for those under age 65. According to a major actuarial firm, the industry spends roughly 3.3 percent, or $20 billion, a year adjudicating those claims—not “denying” them but evaluating and processing them. There does not seem to be a solid number for the amount of claim money actually denied, but several health actuaries estimate that amount to be around $3 billion—about one-half of 1 percent of total claims paid.

Scrutinizing claims closely is simply a matter of fiscal prudence. That is what consumers do every day. When we get our credit card bills, for example, most of us go down the list of items to ensure that we recognize the expenses and the amount charged. Anomalies call for closer scrutiny and even challenging an item if we think it is inappropriate. And most of us would consider foolish anyone who said he or she just paid a credit card bill without ever examining it. Well, that is Medicare’s policy.

While it is difficult to separate fraud and abuse from waste, if CMS thinks that the cost of improper Medicaid payments is around 10 percent, it is reasonable to think Medicare’s are also—roughly $45 billion a year. Add in the $33 billion from Medicaid and we are talking maybe $80 billion a year—real money even in these big-spending times.

The downturn in the economy has hurt government payroll tax revenues. That means Medicare is even more financially troubled than it was just a year ago. Helping Medicare reduce fraud on the front end would reduce the need for costly after-the-fact stings, investigations, prosecutions, and imprisonments. While efforts by the Office of Inspector General to capture criminals who commit Medicare fraud are critical to maintaining the integrity of the system—if we can use the word integrity under the current fraud-ridden program—finding ways to stop the fraud before it occurs will save taxpayers billions of dollars.

While dramatically reducing or eliminating fraud will not “save” Medicare—future costs, even legitimate ones, will still overwhelm the system—it would postpone the day of reckoning for years. Medicare costs would still increase, but from a lower number and at a slower rate. The government owes it to taxpayers to ensure that Medicare and Medicaid fraud are at an absolute minimum.

What Should Be Done?

There are no easy answers, but there are five actions Congress and CMS could take that might have a significant impact.

1. Stop the cover-up. Congress and CMS should be honest about Medicare’s true administrative costs. And fraud should be included in those costs. Private sector insurers have to include their claims-monitoring costs in their administrative totals, which, along with other expenses, increase their overall costs in relation to Medicare. Medicare should at a minimum include the Office of Inspector General’s costs, minus money recovered, and the government’s best guess at the total amount of fraud. When that is done, adding some expenses on the front end to adjudicate Medicare claims will seem reasonable.

2. Sit down with the private sector and learn what it does. Several health insurers and other specialty companies have turned claims monitoring into a science—not so they can deny claims but so they can ensure that only appropriate claims are paid. Insurance is just a pass-through mechanism; premiums have to meet health care claims, plus administrative costs and profit. If inappropriate claims are paid in the private sector, it essentially robs the pool of premium dollars and everyone has to pay more. If Medicare pays inappropriate claims, it robs taxpayers.

3. Sit down with other financial institutions. As former House Speaker Newt Gingrich regularly points out, people who have traveled to the opposite side of the world can stop at an ATM, put their bank cards in, and within 30 seconds get their money. It is fast, efficient, consumer-friendly, and nearly foolproof. Surely Medicare can learn from these private sector efficiencies.

4. Stop the attack on Medicare Advantage plans. Medicare Advantage (MA) relies on the private sector to provide comprehensive care for Medicare beneficiaries for a defined contribution. Democrats have been very critical of the program because the enabling legislation gives MA plans a roughly 13 percent increase over the amount spent on those in traditional Medicare. Regardless of what the defined contribution should be, MA plans do provide additional services for that increase, but not enough to please many members of Congress. Even so, MA plans bring the private sector’s claims scrutiny to Medicare, and Congress could learn from them.

5. Bring the consumer into Medicare. Currently, seniors on Medicare have little or no reason to be value-conscious shoppers in the health care marketplace because they are so insulated from their health care costs. The consumer-driven health care system is taking the under-65 health care sector by storm because it gives people a reason to seek value for their health care dollars. Seniors on Medicare need to be part of that movement. If we want to stop fraud on the front end, give health care consumers, including seniors, the power to control more of their health care dollars.

Dr. Matthews is the director of the Council for Affordable Health Insurance and a resident scholar with the Institute for Policy Innovation. Ms. Matthews is currently pursuing a doctorate in criminology at the University of Texas at Dallas. This article is adapted from their chapter in the book Stop Paying the Crooks: Solutions to End the Fraud that Threatens Your Healthcare, edited by James Frogue, © 2009 by the Center for Health Transformation.

Challenging the Sensitivity Gestapo

by Frederick Fico

THE TRAJECTORY OF MY CAREER changed in late 2006, although I could never have recognized it at the time. A tenured full professor of journalism at Michigan State University, I was sitting in my office when a student dropped by and identified himself as the chairman of the MSU College Republicans. They needed a faculty advisor.

I had no problem giving the young man an enthusiastic “yes” to his request. And all I had to do was sign a paper.

By the fall of 2007, I was being investigated by the campus Office for Inclusion, charged with harassment and discrimination against students because of their race, religion, sexual orientation, gender, national origin, political persuasion, and weight.

What happened?

In April 2007, the College Republicans and the campus chapter of the Young Americans for Freedom sponsored a speech on illegal immigration by the founder of the Minutemen. Left-wing students disrupted the speech and some of them were arrested by campus police. Some of those protesting students then went to the MSU Office for Inclusion and charged the students who organized the speech—and their faculty advisors—with violating the campus anti-discrimination policy.

Anti-discrimination policies are perfect for helping left-wing students and administrators to silence conservative speech. Such polices assume that “protected classes” are victims and that those accused of harassment or discrimination must demonstrate their innocence. Such policies make speakers responsible for any feelings of harassment or discrimination felt by those who choose to listen.

Sometimes these kinds of campus assaults against free speech and conservative ideas are litigated, usually with courts upholding protected First Amendment speech. Many more times, the Gestapos of political correctness on campus have their own way. University bureaucracies easily intimidate undergraduates accused of “hate speech” and subject them to “diversity training,” the campus equivalent of a re-education camp.

But at MSU, the advisors to the two student groups in question were actual conservatives. I’m both an economic and a social conservative. William Allen, my faculty colleague who was also under investigation, had equally conservative credentials.

A professor in the Department of Political Science, Allen was at that time the advisor to the Young Americans for Freedom. Earlier in his career, he headed the Commission on Civil Rights during the administrations of President Ronald Reagan and then President George Herbert Walker Bush. While at MSU, he helped organize Toward A Fair Michigan, which played the major role in the success of the 2006 Michigan ballot initiative that outlawed affirmative action in government hiring.

The relevance of Dr. Allen’s Civil Rights experience was lost, at first, on the university administration. Following the accusations, we did not break down in tears or go begging on our knees for forgiveness, offering endless apologies. More to the point, we did not stand aside so the Office for Inclusion could do whatever it wanted to the conservative students involved.

It was clear to Allen and me that the anti-discrimination policy could and would be used against those who publicly articulated conservative positions on controversial issues. It was equally clear that the administration’s ability to do so rested on the secrecy of the proceedings and on the faculty’s fear of being dirtied with the taint of “racism.”

So we responded with boldness and openness in every public venue we could.

We publicized the investigation thoroughly through opinion columns and letters to the editor. We proposed and began to work through university governance on an amendment to the anti-discrimination policy to better protect free speech. We brought the movie Indoctrinate U to campus and leafleted students on the campus Library Bridge urging them to attend. We also began meetings with representatives in the state legislature who were becoming interested in the problem.

The defiance and vigor of our response was almost certainly a shock to the Office for Inclusion and to the university administration generally. And worse still for them was our outreach to the state legislature. In fact, the investigation (which lasted nearly six months) ended the day after Allen and I met with one of the leaders of the majority Senate Republicans in Michigan. The investigation report released in March 2008 concluded that no discrimination had taken place at a “level” that called for any action against the student groups or the advisors.

Despite this outcome, what was clear was the vulnerability of students on campus and the passivity of faculty in the face of assaults on fundamental democratic rights. To put a point to this, it was clear to us that American college campuses emulate third-world style oppression more than American democracy.

So we formed Conservative Faculty and Staff in September 2008 to respond to threats against conservative students and to take the initiative to articulate and protect core American values. We wrote a document based on the principles articulated in the second paragraph of the Declaration of Independence: that God is the author of our freedom; that individuals, not groups, have rights; and that the right to life enables all other rights.

More than a dozen faculty and staff met in September to approve these principles and the group’s bylaws. Since then, we have advertised our presence on campus and begun inviting speakers who embrace and articulate conservative viewpoints. But the group’s main focus will be to counter the intellectual damage done in classrooms by the “multiculturalism” on campus that views freedom as simply a Western peculiarity and not an especially valuable one at that.

In essence, the mission of Conservative Faculty and Staff at MSU is to protect and defend freedom. Only on our nation’s campuses can this truthfully be seen as a counter-revolution. Those of us at MSU don’t imagine that we can do it all. But we’ve made a start.

Dr. Fico is a professor in the College of Communication Arts and Sciences at Michigan State University. This article is reprinted with permission from the Web site Minding the Campus (, produced by the Manhattan Institute.

Followers & Friends: You Can Build a Social Media Presence

by Mark Kelly

I AM NOT UNDER THE AGE OF 30. I cannot write enough code to create a single page of a Web site. And two years ago when I was hired by The Heritage Foundation, social media was nowhere in my job description.

Today I have over 630 friends on Facebook and nearly 3,000 followers on Twitter. Both of these social media platforms have been immensely helpful to me in my job as Heritage’s Strategic Policy Outreach Manager.

If I can build a social media presence, you can too. All you need is a computer and an Internet connection.

What’s All the Excitement About?

According to research by The Conference Board, 43 percent of Internet users now use a social network, up from 27 percent just one year ago.

If you do a Google search for “social media” you will get nearly 200 million results. In those results, you will find hundreds of thousands of pieces of advice for how to adapt your business to social media.

In fact, according to Facebook, over 8 million users join a fan page every day. Every day nearly 2 million tweets are posted on Twitter. And Pew research reports that 43 percent of adults who use a social networking site do so to organize with others for an event, an issue, or a cause.

Facebook has become the most used social media platform in the world. As of June 2009, Facebook had over 122 million unique visitors. According to the Consumer Internet Barometer, 78 percent of all households have a Facebook user. It started as a pastime for college kids and then moved into high schools, but today those over 35 are the fastest growing group of Facebook users. Facebook is truly a medium that reaches across the demographic spectrum.

Twitter is a “microblog” with posts—called “tweets”—of 140 characters or less. It is like a group blog made up of text message-length posts between friends.

Twitter is the fastest growing social media platform in the world. When I joined in July of 2008, there were just over 2 million unique visitors per month. In June of 2009, there were nearly 23 million.

Twitter has even crossed over into mainstream news. Television newsrooms today monitor tweets for breaking news stories. About 1.5 million people followed Lance Armstrong’s return to the Tour de France on Twitter. Actor Ashton Kutcher even challenged CNN to see who could get 1 million Twitter followers first. Kutcher is now number one on Twitter with over 3.1 million followers. By comparison, President Obama has 1.9 million. Seventy-four Twitter accounts have more than 1 million followers.

You do not need 1 million Twitter followers, but investing time in building a social media presence can pay big dividends in helping you get your message out to new audiences.

How to Build from Scratch

A guiding principle for both Twitter and Facebook is that it is not enough to simply have an account or fan page: You have to join the conversation. Here are a few tips:

1. Regularly post content. When promoting your research or commentary, make sure to use catchy phrases that will draw people in. Think Drudge Report-style headlines, not scientific journal titles.

2. Promote upcoming events. When promoting an event, create an event page on your Facebook account even if you have a page on your Web site. You can even create a Facebook ad for an event—or for your organization generally—that can be targeted very narrowly for an event at a relatively low cost.

3. Tweet good quotes from every event your organization hosts. Assign at least one person to this task.

4. Share photos and videos after an event. For photos, tag your fans or friends on Facebook if they attended. The tagging will show up on their Facebook pages, as well as your own, so their friends will see it.

5. Do not be afraid to post multiple messages about a single item—particularly an event or an original work—as long as these are not your only messages.

6. Actively work for new friends and followers. On Twitter, look at who is following you. There is a good chance the people following them will also be interested in what you have to say. Dedicating 15 minutes per day to following new people will build your reach slowly and steadily over time. The same holds true for Facebook. A fan of The Heritage Foundation who lives in your state is a likely candidate to be a fan of a state-based conservative organization. Some people may not respond to your requests, but many will.

7. Answer your e-mails and direct messages and follow people who follow you. Yes, this takes a little time, but by building these relationships you are likely to find people who will forward your information to others.

8. Highlight good content from others. If you find something good while researching online, tweet the link. If someone else sends out something that you like, you can do something called re-tweeting. And thank others when they share your work in a tweet.

9. Make it personal. People engaged in social networking sites want to have a personal connection with you. Yes, your organization should have its own Twitter page with its own name on it, but employees should also be encouraged to have individual Twitter pages on which they post both personal and professional tweets. Don’t tweet every mundane moment of your day (the world already knows that trash duty isn’t fun). But do not be afraid to recommend a movie you saw or to tweet that you spotted someone famous at the airport.

10. Cross-promote your social media content in your e-mails, on your Web site, and in any other communications your organization produces.

11. Make sure you tweet when your organization’s principals are giving public speeches or presentations.

12. Use hashtags to call attention to an event, issue, or coalition. A hashtag is the hash sign (#)—also known as the pound sign or the number sign—followed by a short code phrase (with no spaces) designated for a particular topic. By identifying posts with a hashtag, someone can quickly search Twitter to follow the conversation. Right now, a popular issue hashtag is “#handsoff” which is being used in the health care debate. A coalition-building hashtag is “#tcot” which stands for “top conservatives on Twitter.” This hashtag and a Web site by the same name has helped link thousands of conservative activists together.


You may find the idea of maintaining two or more networks online to be a bit overwhelming. The good news is that there are many free online tools to help you.

For example, you can update your Facebook page with your Twitter posts by setting up a Twitter application within Facebook. Ping and FriendFeed are just two of many multi-posting, third-party tools that are worth checking out.

If you are in charge of the social media for your organization and also maintain a personal Twitter account, you might want to consider a tool such as HootSuite, which allows you to manage multiple accounts from the same program. HootSuite also features a URL shortener that can measure how many clicks your links are getting when you tweet them. And HootSuite allows you to identify others on Twitter whose work you want to track more closely by following them in a separate column.

Twitterfeed posts automatically to Twitter from the RSS feed generated by your blog or Web site. Twitterfeed also tells you how many times someone clicked on the link in your post.

If you have an item to post that is longer than 140 characters but is not something your organization would necessarily blog about or publish, you might want to use Posterous. Posterous is a blogging service that allows you to create a post by simply sending an e-mail. The subject line becomes the title as well as what appears in your tweet along with a link to the full content. This post can automatically go to Twitter, Facebook, flickr, or to the popular free blogging platforms. Or it can go to a combination of those, or to all of them at once. And it allows you to track the number of page views you get.

Whatever tools you use, effective communication in social media is critically important for increasing the reach of your message to more members of your target audience and for identifying partners with whom to build coalitions.

Mr. Kelly is strategic policy outreach manager for The Heritage Foundation. He can be followed at