Solutions through Tax Reform

Some members of Congress are threatening to use a hatchet to fix a problem in the health sector that requires a scalpel.

Rep. John Dingell (D-MI) has reintroduced the misguided patients’ bill of rights in response to a U.S. Supreme Court decision this week saying that employees don’t have the legal right to sue their health plans in state courts. Dingell’s legislation would layer more crushing regulation on the health sector just as consumer power and market energy are being revived.

The Supreme Court ruled unanimously that states cannot pass their own laws regarding lawsuits because they conflict with Federal ERISA law. But the key reason that employees have limited legal rights over their health coverage is because they don’t own the policies – their employers do.

And that’s because of a half-century old tax law that we write about all the time. It gives employers and employees a tax break for purchasing health insurance as long as the employer picks the plan and writes the check.

But that also means that the employer, not the employee, has most of the legal rights associated with ownership of the policy. Workers lose not only their rights to sue but also their rights to choose a better or more affordable policy and to know how much the coverage is costing them.

Health Savings Accounts are a step toward rectifying the problem: They give Americans under age 65 a chance to put money aside tax free for health expenses. To further level the playing field, Congress should concentrate on giving HSA buyers a tax deduction for the health insurance that must accompany the accounts.

The owners of these policies would have their own contract rights because they would choose and own the policies.

Tax reform is the ultimate patients’ rights legislation.

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And speaking of HSAs, Assurant Health this week released new data showing that 43% of the people who have purchased HSAs since they were created this year were previously uninsured.

The study was released at a news conference in Illinois with House Speaker Dennis Hastert joining Assurant President Don Hamm, small business leaders, and others to convey the good news. Other findings from the Assurant study:

? 77% of those purchasing HSAs are families with children

? 70% of HSA purchasers are over age 40

? 29% of purchasers have family incomes of less than $50,000 per year; and 19% of purchasers have family incomes of less than $40,000 per year.

The study further invalidates criticisms that HSAs are only for the healthy and wealthy. Not only would HSAs give patients legal rights, but they clearly are helping to reduce the ranks of the uninsured.

I’ve written a short paper summarizing early experience on HSAs and other consumer-directed health care products. Here’s the link: www.galen.org/ccbdocs.asp?docID=655.

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Another positive development: Rep. John Shadegg (R-AZ) this week introduced the Health Care Choice Act to give consumers even more rights. If they think that the health insurance in their own states is overregulated and too expensive, they would be able to buy coverage from another state where more attractive policies are offered.

Greg Scandlen of the Galen Institute appeared at a Capitol Hill news conference about the bill on Wednesday with Rep. Shadegg and Speaker Hastert, explaining that it’s important to ?bring competition and innovation to an individual insurance market that has far too little of both.? 

Grace-Marie Turner

(License Plate: TXRFRM)

RECENT NEWS, ARTICLES, AND STUDIES FROM THE HEALTH POLICY WORLD:

? Reducing uninsurance by reforming health insurance in the small-business sector

? New way to curb medical costs: Make employees feel the sting

? Think globally, protect locally: A conversation with Mark McClellan

? Improving the Medicare drug discount cards

? Drug card confusion

REDUCING UNINSURANCE BY REFORMING HEALTH INSURANCE

IN THE SMALL-BUSINESS SECTOR

Author: Stuart M. Butler, Ph.D.

Source: The Heritage Foundation, 06/17/04

More than 30% of workers in small firms are uninsured, a fact that Stuart Butler of The Heritage Foundation attributes to ?the limitations of the employment-based health system.? He says it is administratively costly and inefficient for small businesses to offer health plans, and few are able to offer plan choices and tailor coverage to employees. Butler recommends three policy solutions: ?[E]nact refundable tax credits to enable these workers to afford coverage outside the workplace; create alternative pools for these workers, modeled on Congress?s own FEHBP; and make it easier for small firms to facilitate insurance for workers rather than sponsor plans.? He outlines three goals for policymakers: 1) Financial assistance for health coverage should be based on individual and family need; 2) Choices in health insurance coverage should not depend on the place of employment; and 3) Employers can facilitate coverage without sponsoring it. Butler emphasizes that tax credits should go to individuals, not employers, and he warns that Sen. Kerry?s plan for a federal reinsurance pool for employers would lead to ?command-and-control pricing.?

Full text: http://www.heritage.org/Research/HealthCare/bg1769.cfm

Jeff Lemieux of Centrists.Org agrees with Butler?s recommendations, but writes that Congress? first step should instead be the creation of ?alternative, government-sponsored insurance pools for small firms? followed by ?enrollment and subsidization through small employers ? and adding a tax credit for low-income workers.?

Full text: http://www.centrists.org/pages/2004/06/21_lemieux_health.html

NEW WAY TO CURB MEDICAL COSTS:

MAKE EMPLOYEES FEEL THE STING

Author: Ron Lieber

Source: The Wall Street Journal, 06/23/04

Whole Foods Market, a 159-store grocery chain with about 30,000 workers, has had ?dramatic? results with its new consumer driven health plan, writes Ron Lieber, staff reporter for The Wall Street Journal. About 95% of eligible workers are enrolled in the new plan, which has a $1,500 deductible and a savings account to which Whole Foods contributes between $300 and $1,800 each year for employees, depending upon length of service. Most workers do not pay an insurance premium under the plan, and they can rollover any unspent money in their health account at the end of the year. ?In 2003, only 10% of Whole Foods employees spent all of the money in their savings accounts. A total of $14 million rolled over to 2004, or about $560 per account,? writes Lieber. And while national health insurance premiums increased an average of 13.9% from 2002 to 2003, Whole Foods? ?overall medical-claims costs fell 13% from the year before and hospital admissions per 1,000 employees fell 22%.?

Full text (subscription required): http://online.wsj.com/article/0,,SB108793995630244509,00.html

THINK GLOBALLY, PROTECT LOCALLY:

A CONVERSATION WITH MARK MCCLELLAN

Author: J.D. Kleinke

Source: Health Affairs, May/June 2004

Before assuming his new job as Medicare and Medicaid administrator, Mark McClellan described in an interview with Health Affairs the major initiatives during his 16-month tenure as commissioner of the Food and Drug Administration. Among them: An expanded role for economic analysis in FDA policy, promoting better use of information technologies, greater use of outside experts to assist the FDA in decision-making, emphasizing the dangers of drug importation, and encouraging the huge potential for ?truly individualized, highly effective medicines.? Public policy must continue to encourage innovation in medical research, he says, or the big losers will be patients with diseases that cannot now be treated or cured.

Full text (subscription required): http://content.healthaffairs.org/cgi/content/abstract/23/3/177

IMPROVING THE MEDICARE DRUG DISCOUNT CARDS

Author: Jeff Lemieux

Source: Centrists.Org, 06/22/04

?With a few technical fixes and one big attitude adjustment, the Medicare-approved drug discount cards will be a successful new model of a public-private partnership,? writes Jeff Lemieux of Centrists.Org. The ?government program? mentality towards the Medicare drug discount cards has two problematic effects: 1) It leads to unrealistic expectations and demands, especially from critics; and 2) It has caused Medicare officials to create an intimidating, user-unfriendly enrollment system. Lemieux provides a step-by-step commentary on the drug card enrollment process and suggests several improvements ?so that people can learn about the cards first, and answer questions about their eligibility criteria later.?

Full text: http://www.centrists.org/pages/2004/06/22_lemieux_health.html

DRUG CARD CONFUSION

Source: The Washington Post, 06/22/04

The Washington Post editorializes that enrollment has been low in Medicare?s new temporary drug card program, ?largely because too many people are unaware of the cards or uncertain how to evaluate them.? (Editorials like this one that spread more confusion and misinformation don?t help, nor do critics who discourage seniors from enrolling, thereby missing out on thousands of dollars in savings and benefits.) The Post complains that ?it isn?t clear why a program as complicated as this one had to be implemented in six months.? (But the drug card program was intended to answer critics who said that low-income seniors needed help right away before the full drug benefit begins in 2006. You just can?t win?)

Full text: http://www.washingtonpost.com/wp-dyn/articles/A59153-2004Jun21.html

UPCOMING EVENTS:

Who Should Pay for Medicare?

American Enterprise Institute Book Forum

Monday, June 28, 2004, 9:30 ? 11:00 a.m.

For additional details and registration information, go to: http://www.aei.org/events/eventID.837,filter.all,type.upcoming/event_detail.asp.

National Center for Policy Analysis Breakfast Presentation

Tuesday, June 29, 2004, 9:00 a.m.

Washington, DC

NCPA will host a presentation of consumer directed health care products being introduced by the UnitedHealth Group?s iPlan. For additional details and registration information, contact Wess Mitchell at 202-628-6671 or wmitchell@ncpa.org.

Private Discounts, Public Subsidies: How the Medicare Prescription Drug Discount Card Really Works

American Enterprise Institute Health Policy Discussion

Wednesday, June 30, 2004, 9:15 – 11 a.m.

Washington, DC

Additional details and registration information will be available early next week at: http://www.aei.org/events/filter.all/events.asp.

Health Policy Matters is a weekly newsletter containing commentary on health policy developments, summaries of timely and informative studies and articles on free-market health reform, and notices of upcoming events. It features research and writings by participants in the Health Policy Consensus Group. Health Policy Matters is published by the Galen Institute, a not-for-profit public policy organization specializing in information and education on health policy. For more information about this newsletter and our organization, please visit our website at http://www.galen.org/.

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The views expressed in this newsletter are the opinions of the authors and do not necessarily reflect the views of the Galen Institute or its directors.

Elizabeth Lamirand

Editor, Health Policy Matters

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