Grassroot Perspective – July 18, 2003-Pennsylvania Teachers: A Privileged Class; A Decade of TABOR; Missing the Point of Medicare Reform: Why Drug Reimportation is Bad Policy

article top

“Dick Rowland Image”

”Shoots (News, Views and Quotes)”


– Pennsylvania Teachers: A Privileged Class

By Jake Haulk, Ph.D.

Of late, newspapers have contained a steady diet of reports about school
tax increases in districts all over Southwest Pennsylvania. This news
comes at a particularly bad time for property owners. The economy has
been tough and good jobs are hard to come by. Indeed, the Pittsburgh
metro area lost nearly 15,000 private sector jobs over the last 12
months. Many area residents have lost employment or have had their
compensation reduced and now face huge increases in health insurance

But, there is at least one occupation that has been exempt from the
vicissitudes of the economy — namely, public school teachers. While many
taxpayers are struggling with the weak job market, compensation cuts and
higher health insurance costs, school boards are adding to their
problems by hiking property taxes. In the meantime, teachers will get
planned wage increases, most will have the large jump in their health
insurance premiums covered by the school district and they face no
possibility of being laid off. Moreover, thanks to the generosity of
the legislature and Governor Ridge, the teachers have greatly enhanced
pension benefits, the cost of which is now being passed on to local
taxpayers as well. What a great deal!

Of course, the teachers are protected from the vagaries of the
marketplace because of two things — (1) the teacher union contracts, and
(2) the ill-conceived legislation that grants so much power to teacher
unions and so little power to voters and taxpayers.

The current spate of school tax hikes to meet the increased compensation
cost of teachers provides a clear picture of the benefits of being a
powerful interest group with massive influence over the legislature.
But who speaks for the taxpayers? Very few legislators will place the
broad public interest of taxpayers who do not make hefty campaign
contributions ahead of the interests of large political contributors who
can mobilize significant opposition to them at the polls. This is
especially true for school taxes. Since the power to raise school taxes
officially resides with local authorities, legislators can distance
themselves from responsibility for the higher taxes even though they
have written the laws that give the local school boards little choice
but to raise taxes.

There is only one sure way to stop this gross abuse of taxpayers:
require that all tax hikes or imposition of new taxes be approved
through voter referendum. Unless or until that happens, all government
bodies, including school boards, will have a bias toward ever greater
spending. The unfortunate truth is that if governments can get their
hands on money, they will spend it and need more. And while direct
democracy is, for the most part, not a good way to conduct government
affairs, mandatory referenda for tax hikes are probably the only way to
constrain spending by elected officials. People deserve a better choice
than ” if you don’t like the taxes, you can always move.”

Jake Haulk is president of the Allegheny Institute for Public Policy in

Above article is quoted from Allegheny Institute for Public Policy,
Policy Brief July 14, 2003

– A Decade of TABOR

By Fred Holden

“Its preferred interpretation shall reasonably restrain most the growth
of government.”
– Taxpayer’s Bill of Rights, TABOR Amendment: Colorado Constitution,
Article X-Revenue, Section 20

TABOR (the Taxpayer’s Bill of Rights) is a tax-and-spending limitation,
constitutional amendment. TABOR was passed in 1992 by the voters, and is
contained in Article X, Section 20, of the Colorado Constitution.
TABOR’s stated mission is to “reasonably restrain most the growth of
government.” It allows only those tax rate increases approved by voters;
while fees are not directly restricted, state government spending is
limited to growth of Colorado’s population-plus-inflation in the prior

Colorado has in TABOR the strictest tax-and-spending limitation of the
50 states. This Issue Paper analyzes TABOR’s effect on Colorado,
contrasting taxing and spending before and after enactment of TABOR.

Ten fiscal years have passed since 1992; this Issue Paper compares ten
years of TABOR performance to the preceding ten years. Colorado state
documents-Comprehensive Annual Financial Reports (CAFR) and “Colorado
Economic Perspective” (Office of State Planning and Budgeting)-provide
the data.

In the decade before TABOR, Colorado state revenues and outlays
(spending) grew well over twice the population-plus-inflation growth.
With TABOR, all three were very close, indicating TABOR had
significantly restrained and controlled Colorado government growth.

Though TABOR was part of the “go-go nineties,” its measured effects on
government and non-government employment and distribution were quite
impressive. Pre-TABOR, government jobs grew slightly more than business
or total employment. After TABOR, business job growth nearly doubled
that of government job growth.

The TABOR surplus rebate mechanism returned to taxpayers some $3.25
billion over five years, fiscal 1997 to 2001, amounting to about $800
per capita-$3,200 for an average family of four.

TABOR is a success. It passed its own test to reasonably contain growth
of Colorado government, taxing and spending.

Above article is quoted from The Independence Institute II Weekly E-mail
June 6, 2003

”Roots (Food for Thought)”

– Missing the Point of Medicare Reform: Why Drug Reimportation is Bad

By Nina Owcharenko

Web Memo #304

June 26, 2003

An updated version of Web Memo #128 (June 18, 2002) on reimportation.

As part of the fierce congressional debate on Medicare prescription drug
legislation, some Members of Congress want to establish a policy to
guarantee Americans “cheap” prescription drugs by allowing them to
import drugs subject to the price controls of Canada and other foreign
countries. This is bad health care policy.

Reimportation of drugs from Canada, or any other country, does not
address the real problems of the relatively small population of seniors
who are without drug coverage.[1] It does not provide those seniors with
a reliable source of coverage, and it avoids the fundamental problem
facing all seniors: that Medicare is unable to adjust to the changing
needs of its beneficiaries. Therefore, Congress must reform the Medicare
program and, in the interim, should consider targeting assistance to
seniors who currently do not have prescription drug coverage in a way
that does not jeopardize reform.[2]

Besides the fact that reimportation is a distraction from the real task
before Congress-comprehensive reform of the Medicare program-there are
many other compelling reasons why reimportation is bad health care

Why Drug Reimportation is Not a Free Trade Issue

Some congressional advocates of drug reimportation argue that it is a
“free trade” issue. They say this because it would allow individuals to
purchase their prescription drugs at the best available price. However,
one of the fundamental tenets of free trade is that there is a level
playing field and a free market upon which suppliers of goods and
services are able to compete. Prescription drugs priced in Canada
clearly are not based on fair market value; they do not reflect an
equilibrium price between supply and demand. Therefore, the proposed
policy does not create a truly competitive and level market for

When government is the single or major purchaser of pharmaceuticals and
other health care services, as it is in Canada, prices are fundamentally
distorted. The government leverages its bulk purchasing power to
“negotiate” prices with pharmaceutical manufacturers. However, since
there is only one major purchaser of these goods and services and no
real consumer-based market for these products, the government retains
the ability to dictate a fixed price with little or no regard for real
market prices.

Legislating Perverse Incentives

Reimportation is likely to engender some perverse incentives. Consider
the following two scenarios in reference to Canada:

Pharmaceutical manufacturers would limit or cease to sell their products
to Canada. Pharmaceutical manufacturers sometimes choose to sell their
products at less than market value because their loss ratio is minimal
in smaller markets, like Canada. However, under reimportation, if the
U.S. begins to import more drugs from Canada, the existing loss ratio in
Canada would increase and earnings in the U.S. market would decrease. To
protect against this increased loss, pharmaceutical manufacturers would
have a direct economic incentive either to limit any surplus sold to
Canada or to stop selling their products to Canada altogether. As John
Calfee, resident scholar at the American Enterprise Institute, neatly
describes the possible affects:

Suppose Canadian drug prices are two-thirds the level of U.S. prices.
Drug companies would face two choices: They could ship the U.S. supply
of their drugs to Canada, reducing their revenue by one-third. Or they
could tell Canadian authorities they will no longer sell at discounted
Canadian prices, reducing their revenue by less than a tenth-reflecting
the smaller market size and lower Canadian prices.[3]

Many pharmaceutical manufacturers may be more likely to forgo the
smaller Canadian market for the larger market in the U.S. However,
manufacturers would be faced with an additional penalty. If a
pharmaceutical manufacturer were unwilling to sell its products at the
government-determined price, the country could, in some cases, allow a
generic manufacturer to produce and sell a copy without the approval of
the patent holder.[4] This would undermine intellectual property
rights-a serious unintended consequence.

Canada would stop selling to U.S. citizens. If reimportation was
implemented and pharmaceutical manufacturers continued to sell their
products to Canada, the Canadian government might choose to stop
allowing U.S. citizens to “free ride” off their health care system,
especially if supplies were limited by the manufacturers. If fewer drugs
were available to Canadians, and it is possible that none would be
available to American consumers. This would defeat the entire intent of
the policy.

In the end, regardless of the scenario, the effect of reimportation in
all probability would be the opposite of that intended by its
proponents: Prices would be more likely to increase in Canada than they
would be to decrease in the United States.

Government Manipulation of the Pharmaceutical Marketplace
Some congressional champions of drug reimportation no doubt envision
their policy as the first crucial step in adopting similar price control
measures in the U.S. market. Based on roughly 4,000 years of economic
history, the passion for price controls on goods and services routinely
emerges as a short-term economic policy and, at least, in the short run,
a politically attractive proposal. Politicians invariably point to
opinion polls in which a majority of respondents favor government caps
on prices for various goods and services, including drug prices.

The inescapable problem, of course, is that it is no easier to repeal
the economic laws of supply and demand than it is to repeal the physical
laws of gravity and motion. There has never been a system of price
controls enacted that did not lead directly to a shortage of the quality
or quantity of goods and services, including medical goods and services.
Price control strategy is really a supply reduction strategy. The chief
attractiveness of the price control strategy is that it does indeed
achieve less spending on such goods and services simply by ensuring that
there is going to be, as a matter of public policy, fewer of them

In the area of health policy, a price control regime could have a
devastating affect on the quality of health care that U.S. citizens
receive. In the case of drugs, it would guarantee delayed and limited
access to pharmaceuticals. In countries where government market
involvement is high, there is less access to lifesaving drugs and
treatments than in those countries without government interference.[5]

Even in the U.S., several states, through their ever tighter
administration of the Medicaid program, have begun to adopt similar
approaches either through complicated “cost containment” mechanisms
(formularies, pre-authorization, etc.) or by forcing additional
discounts from manufacturers (supplemental rebates).[6] Although these
policies do “control cost,” it is still true that the greater the
government’s control over the financing and delivery of these drugs, the
greater the risk to an individual’s access to life-enhancing, or even
lifesaving, pharmaceuticals.

Government interference, particularly price regulation, in the
pharmaceutical marketplace has further side effects. Like all such
policies, it results in massive cost shifting. In other words, it
imposes additional costs on those countries, like the United States,
that champion free markets nationally and internationally. The U.S., in
effect, is forced to compensate for other countries’ distortions of the
market. In the case of prescription drugs, the United States is on the
receiving end of government-engineered cost shifting. Thus, the U.S. is
almost always paying a greater share of the research and development
costs that go into creating a new pharmaceutical product. A recent study
by the Tufts Center for the Study of Drug Development found that
pharmaceutical manufacturers spend $897 million to develop a new drug
and that only an estimated 21.5 percent of drugs that reach human trials
(Phase 1) will be approved for marketing.[7] It is this crucial
investment in research and development that brings the lifesaving drugs
and treatments to the market, and that is supported by market-oriented

The Case For Safety First

In the end, there still remain significant safety concerns surrounding
reimportation. In several recent testimonies, officials of the Food and
Drug Administration, as well as representatives of other government
agencies, have noted the potential dangers associated with
reimportation, including individual importation, the purchase of drugs
from foreign sources over the Internet, and counterfeit drugs entering
the United States. In testimony on this subject last year, William
Hubbard, Senior Associate Commissioner for Policy, Planning, and
Legislation at the U.S. Food and Drug Administration, stated:

Currently, new drugs marketed in the United States must be approved by
FDA based on demonstrated safety and efficacy.. This “closed” regulatory
system has been very successful in preventing unapproved, adulterated or
misbranded drug products from entering the U.S. stream of commerce.
Legislation that would establish other distribution routes for drug
products, particularly where those routes routinely transverse a U.S.
border, creates a wide inlet for counterfeit drugs and other dangerous
products that can be injurious to the public health and a threat to the
security of our nation’s drug supply.[8]

Similar concerns have been echoed by current Health and Human Services
(HHS) Secretary Tommy Thompson and former Clinton Administration HHS
Secretary Donna Shalala.[9] Even the representatives of the Canadian
government have recently clarified their position by stating that they
could not guarantee the safety and effectiveness of drugs exported from
their country.[10] This is especially troublesome as counterfeit drugs
entering the U.S. pose genuine risks.


The problem of prescription drugs for senior citizens is invariably a
problem of access. It is not price. Indeed, through insurance
mechanisms, it is clear that seniors can get significant discounts on
the prices of both brand name and generic drugs.

Furthermore, the problem of access to prescription drugs, as virtually
every major study has shown, is confined to a minority of senior
citizens. Reimportation is not a substitute or fallback for
comprehensive and serious Medicare reform: the kind of Medicare reform
that would fully integrate prescription drug coverage into a normal
system of health insurance in which plans offer a variety of benefit
packages to satisfy the needs of consumers.

Members of Congress should not ask seniors to rely on another country’s
flawed health care system for their health and safety. Members should
resist the temptations of a snappy “quick fix” that does not address the
root problems, but only creates others. The complex Medicare legislation
now being considered by the House and Senate has enough “unintended
consequences” already.

[1]Analysis by the Joint Economic Committee found that 78 percent of
Medicare beneficiaries already have prescription drug coverage.
“Medicare Beneficiaries Links to Drug Coverage,” Joint Economic
Committee, Economic Policy Research, April 10, 2003.

[2]Experts from the Galen Institute and the American Enterprise
Institute developed such a targeted assistance proposal. For more
information, see Joseph Antos and Grace-Marie Turner, “Executive
Summary: Prescription Drug Security Plan,” at

[3]John E. Calfee, “Legislation to Allow Reimporting Drugs from Canada
Would Raise Prices There Rather Than Lowering Them in the U.S.,” Saint
Paul Pioneer Press, September 22, 2002, at,filter./news_detail.asp.

[4]This is referred to as “compulsory licensing.” For more information,
see Merrill Matthews, Jr., “The Ethical Dilemmas of Prescription Drug
Reimportation,” Institute for Policy Innovation, IPI Ideas No. 19, April
2003, p. 2, at

[5]”Ensuring Cost-Effective Access to Innovative Pharmaceuticals: Do
Market Interventions Work?” Boston Consulting Group, April 1999, p. 24.

[6]For more information on state activity, see “Medicaid: Fiscal
Challenges to Coverage,” Kaiser Commission on Medicaid and the
Uninsured, May 2003, at,
and Merrill Matthews, Jr., “Prescription Drug Payola,” Institute for
Policy Innovation, IPI Ideas, March 12, 2002, at

[7]Press release, “Total Cost to Develop a Prescription Drug, Including
Cost of Post-Approval Research, Is $897 Million,” Tufts Center for the
Study of Drug Development, May 13, 2003, at

[8]Testimony by William K. Hubbard in hearing, Buyer Beware: Public
Health Concerns of Counterfeit Medicine, Special Committee on Aging,
U.S. Senate, July 9, 2001, at

[9]See letter from Health and Human Services Secretary Tommy Thompson to
Senator James Jeffords regarding Medicine Equity and Drug Safety Act of
2000, July 9, 2001, at

[10]Marc Kaufman, “FDA: Canadian Drug Position Misinterpreted,” The
Washington Post, May 26, 2003, Section A

Above article is quoted from The Heritage Foundation

”Evergreen (Today’s Quote)”

“Freedom to differ is not limited to things that do not matter much.
That would be a more shadow of freedom. The test of [freedom’s]
substance is the right to differ as to things that touch the heart of
the existing order. If there is any fixed star in our constitutional
constelletion, it is that no official, high or petty, can prescribe what
shall be orthodox in politics, nationalism, religion or other matters of
opinion, or force citizens to confess by word or act their faith
therein.” — U.S. Supreme Court Justice Robert Jackson

”’Edited by Richard O. Rowland, president of Grassroot Institute of Hawaii. He can be reached at (808) 487-4959 or by email at:”’ ”’For more information, see its Web site at:”’