Top Three Issues

After the frenzy of the Medicare debate and then the relative calm of the holiday season, here?s my top three list of what?s next:

1. Health Savings Accounts. The major insurers in the consumer-driven market already are offering the new tax-free health accounts, and media interest in HSAs remains intense. Many agents and brokers are beginning to see the potential to build new business, which in turn will educate employers and employees about the savings potential.

Jesse Patton of Des Moines, Iowa, told me his edge is to get employees to see that the money their employers are spending on health insurance premiums is part of their compensation package, and that they can have more control over the spending through HSAs. He says it is a big selling point. (!)

My colleague Greg Scandlen expects HSAs will take hold in the individual market first. Most mid-sized and big companies already have signed their insurance contracts for this year, so the next big wave among businesses is likely to be in 2005.

A policy initiative likely to gain attention this year: Allowing anyone who sets up an HSA to also deduct the cost of the health insurance. Right now, deposits to HSAs are tax-free, but individuals who want to set up the accounts must be self-employed to deduct the cost of the high-deductible health insurance that must accompany the accounts. (The insurance can still be tax-free to employees if the employer purchases the policy.)

Anyone who sets up an HSA should receive tax preferences for HSA health insurance ? or anyone wanting to buy other forms of health insurance as well. Allowing deductibility of health insurance premiums will make HSAs even more attractive.

2. The uninsured. Providing new types of subsidies is a top priority for President Bush and congressional leaders, and both the State of the Union address and the 2005 budget will preview new proposals.

With most of the Democratic presidential candidates offering plans to achieve near universal coverage, the issue will be in the spotlight. Tax credits and FEHBP-like purchasing arrangements are popular among the Democrats, after years of support among conservatives, providing a base for bi-partisan action. But the devil is in the details, and it?s important that credits go to individuals to purchase private health insurance, not to employers as a step toward an employer mandate. We hope to see legislation passed this year.

3. Medicare. Senator Daschle already has signaled his intent to repeal key provisions of the new Medicare law, and liberals surely will continue to pound away on prescription drug costs, with government ?negotiated? prices and importation of drugs from Canada high on their priority list.

One reason that drugs will continue to touch a nerve: Prescription drugs account for about 10% of all health expenditures in the U.S., on track with historical trends. But drug expenses represent 23% of consumers? out-of-pocket spending on health care, and half of the overall increase in consumers? direct costs. Overall out-of-pocket spending grew by $12 billion last year, with $6 billion attributable to (primarily newer and better) drugs. Drug spending is simply more visible to consumers than other expenses, like hospitalization, that cost more and are rising faster.

It is imperative that those who believe in the market-opportunities in this bill work hard this year to make sure that the regulations are written in such a way that the new programs can work and that consumers are educated about the opportunities.

It?s so hard in a presidential election year to anticipate what issues will catch fire. The cost of health insurance just doesn?t go away as a key issue, and it?s likely to manifest itself in creative new ways.

We?ll maintain our watch for you. Best wishes for 2004.

Grace-Marie Turner

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

? Medicare follow-up?

? Medicare drug coverage and moral hazard

? Health spending rebound continues in 2002

? Vermont?s badly managed care

? Securing good health for the whole population: population health trends

MEDICARE FOLLOW-UP?

Author: Jeff Lemieux

Source: Centrists.org, 01/04/04

?The Medicare Prescription, Drug, Improvement, and Modernization Act of 2003 (DIMA) may be the least understood major piece of health care legislation Congress has ever passed,? writes Jeff Lemieux of Centrists.org. Lemieux cites six key areas of uncertainty: 1) the participation of private health plans in Medicare; 2) the reaction of seniors to the drug benefit; 3) Medicare?s overall budgetary cost and the impact payments to health providers and suppliers; 4) the reaction of employers and states; 5) the impact of ?conceptual? provisions; and 6) the question of implementation. Lemieux writes that a subsequent ?Medicare Follow-Up? bill should ?steer clear of ideological wars, and instead address economic and workability concerns.? He recommends eliminating the asset tests for the low-income benefits and allowing the catastrophic part of the drug benefit to kick in after $5,100 in total drug spending, regardless of whether it is paid by the beneficiary or by employers. (DIMA?s benefit kicks in after $3,600 in beneficiary out-of-pocket spending.) Lemieux also writes that prescription drug plans ?should be encouraged to offer Medigap-like benefits ? or HMO-like preventive or chronic care benefits, in addition to drug coverage.?

Full text: http://www.centristpolicynetwork.org/archives/000047.html

MEDICARE DRUG COVERAGE AND MORAL HAZARD

Author: Mark V. Pauly

Source: Health Affairs, January/February 2004

Wharton professor Mark Pauly examines how the newly enacted Medicare drug benefit will impact prescription drug use and spending. ?Reasonable estimates of the effect on spending strongly suggest that the spending increase will be small and that some of it will go to beneficiaries who do not face high financial barriers at present,? writes Pauly. He concludes that improvements in health, national prescription drug spending, and revenues for pharmaceutical firms will be small as a result of the drug benefit, but the effects of the new benefit on Medicare?s fiscal future ?are much more important.?

Full text (requires subscription or purchase): http://content.healthaffairs.org/cgi/content/abstract/23/1/113

HEALTH SPENDING REBOUND CONTINUES IN 2002

Authors: Katharine Levit, Cynthia Smith, Cathy Cowan, Art Sensenig, Aaron Catlin and the Health Accounts Team

Source: Health Affairs, January/February 2004

Health care spending in the United States rose to $1.6 trillion (or $5,440 per person) in 2002, according to Katharine Levit and colleagues in the National Health Statistics group at the Centers for Medicare and Medicaid Services. Growth in health spending increased from 8.5 percent in 2001 to 9.3 percent in 2002, with hospital spending accounting for 32 percent of the increase. ?Private sources accounted for more than half of the $132.3 billion growth in health spending in 2002, as private health insurance payments rose $54.0 billion and direct payments from consumers rose $12.0 billion,? write the authors. ?In the public sector, growth in the Medicaid program accounted for 20 percent of the overall increase as more people became eligible for enrollment. Other public funding accounted for 26 percent of overall health spending growth.?

Full text (requires subscription or purchase): http://content.healthaffairs.org/cgi/content/abstract/23/1/147

VERMONT?S BADLY MANAGED CARE

Author: David Gratzer

Source: The Weekly Standard, 01/12/04

Howard Dean?s campaign touts his commitment to health care and his former occupation as a physician, but ?a look at his 11-year gubernatorial record shows the doctor administered some pretty bad medicine to the people of Vermont,? says physician David Gratzer of the Manhattan Institute. During his term, Dean repeatedly sought to expand public insurance coverage, particularly Medicaid, while limiting the growth of private insurance. In particular, Dean championed legislation that expanded community rating and guaranteed issue of private health insurance. As a result, premiums skyrocketed, the young and healthy dropped their coverage, insurance carriers left the state, and the number of uninsured Vermonters approached 14 percent. Dean?s solution was to expand Medicaid, even allowing children in families with incomes up to $51,000 to be enrolled in the program. And Dean?s presidential campaign promises further expansion of government programs. In the 2004 campaign, Gratzer advises, the Bush administration ?should champion a competitive free market for health insurance, allowing citizens more choice and lower premiums? which can be accomplished by giving Americans the ability to buy health insurance from other states.

Full text: http://www.weeklystandard.com/Content/Public/Articles/000/000/003/565ovukj.asp

SECURING GOOD HEALTH FOR THE WHOLE POPULATION: POPULATION HEALTH TRENDS

Author: Derek Wanless

Source: United Kingdom Department of Health, 12/9/03

In a series of reports, former UK banker Derek Wanless describes recent health trends in England and finds that it performed poorly compared to eight other countries in terms of morbidity and mortality from heart disease, cancer, and respiratory diseases. Mr. Wanless compared England with France, Germany, Sweden, Denmark, Finland, the Netherlands, Australia, and Canada. He found that England has the highest infant mortality and that it compared unfavorably on other key measures of health outcomes. ?While England is achieving steady increases in life expectancy and reducing premature deaths, it performs less well than comparator countries, particularly on those outcome measures most affected by healthcare expenditure,? says Wanless. The final report on implementation of cost-effective measures is due early in 2004.

Full text: http://www.doh.gov.uk/wanless/index.htm

UPCOMING EVENTS:

Key Principles for Covering the Uninsured

Alliance for Health Reform

Friday, January 16, 12:15pm to 2pm

Room G-50, Dirksen Senate Office Bldg.

Washington, DC

For additional details and registration information, go to: www.allhealth.org/event_reg.asp.

Border Wars: The Prescription Drug Battle with Canada

Pacific Research Institute Event

Tuesday, January 27, 2004, 10:30 am ? 12:00 pm

San Francisco, CA

This panel debate will feature Dr. Milton Friedman, Congressman Gil Gutknecht, Sally C. Pipes, and Don McCanne, M.D. For additional details and registration information, go to: www.pacificresearch.org/events/index.html.

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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Elizabeth Lamirand

Editor, Health Policy Matters

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