The president’s tax reform panel did what advisory commissions are supposed to do: Think big and offer bold ideas that force a new conversation over policy changes. And they did just that regarding health insurance.
The panel, in its report issued this week, advised placing limits on the tax break for employment-based health insurance (Pages 78 – 82) as economists and health and tax policy experts have advocated, even though the idea is a hard political sell.
Some of the panel’s findings:
- “Taken together, tax preferences for health care represent the largest tax expenditure” for the federal government: $141 billion in 2006.
- “Employer-provided health insurance now constitutes a substantial proportion of a worker’s total compensation,” reducing the resources available to pay cash wages.
- “Tax benefits related to health care tend to benefit higher-income households” and disadvantage the uninsured.
- Private health spending could fall by 5-20% if people weren’t encouraged by tax law to purchase more expensive health insurance and use more health services.
- “?if the exclusion for employer-provided health insurance were completely eliminated, there would be an across the board tax rate cut of approximately 14 percent.”
The panel offered a creative recommendation to help level the playing field: People should still be able to protect from taxes up to $5000/individual and $11,500/family in health coverage, whether they get their health insurance at work or buy it on their own. This would create a generous new deduction for individually-purchased health insurance.
The panel recommended, wisely, that employers should continue to be able to deduct from their taxes the costs of health insurance as a form of employee compensation.
The panel also appears to limit the favorable tax treatment of Section 125 cafeteria plans and Flexible Spending Accounts, although they don’t spell it out precisely. The reason: “Although these provisions are designed to satisfy a worthwhile goal of encouraging employers to provide employees with benefits, the practical effect is favored treatment for some workers at the expense of higher rates for all taxpayers, including those who do not receive these benefits at work? [And] more of the benefits go to high-income taxpayers, even though they are paid for with higher tax rates for everyone.”
Instead, the panel would create simpler tax-preferred savings plans for health, retirement, education, and housing (page 93).
These recommendations all are part of a new vision that would remove distortions in the current system and equalize tax subsidies. Unfortunately, the panel would apply the tax savings to eliminate the Alternative Minimum Tax instead of using the funds to provide credits for the uninsured, but that is an issue for another day. Let the new conversation begin!
Californians will go to the polls this coming Tuesday facing ballot initiatives which this year are especially bewildering.
Two competing initiatives address pharmaceutical pricing, and polls show most residents can’t figure out either of them:
- Proposition 78 establishes a new state-authorized “gateway” to existing drug discount programs offered by pharmaceutical companies and commits the industry to discounts for uninsured patients earning less than $58,000 a year.
- Proposition 79 would guarantee uninsured patients and others with private insurance earning up to $77,000 a year access to the same prices that the state’s Medicaid program pays for drugs.
Our colleague John Graham of the Pacific Research Institute concludes in his latest paper that Prop. 78 is the lesser of two evils. Graham says Prop 79 casts “far too wide a net?and would jeopardize access to prescription drugs for truly needy Californians.”
More on Wal-Mart: Several of you wrote to me wanting clarification about last week’s newsletter item on Wal-Mart’s new HSAs. I finally found the original plan which clears up the mystery.
- The company is offering a Value plan, which is not an HSA, that allows three doctor’s visits for $20 each and three generic prescriptions for $10 each, up front and under the $1,000 deductible. The cost to Wal-Mart employees for this plan can be as low as $11 a month for an individual.
- There also are two HSA-qualifying plans: One has a $1,250 individual/$2,500 family deductible. The other is $3,000/$6,000. These are real HSAs, where the employee must meet the full deductible before insurance triggers. Cost for the higher catastrophic insurance can be as little as $7.50 a month for an individual/$23 for a family.
Wal-Mart will match an employee’s contribution up to $1,000 for the higher deductible plan for a family, and $500 for families picking the lower HSA plan.
I must say, if I were reading Wal-Mart’s literature for the first time, I would be bewildered about what these new offerings are all about. But the company certainly deserves credit for making these true insurance options as affordable as possible.
By now, you’ve probably seen the Treasury’s new guidance about contribution limits for Health Savings Accounts in 2006. For the record:
- Individuals can contribute up to $2,700 and families, $5,450 to their HSA next year
- Catch up contributions for those 55 or older increase to $700
- Maximum out-of-pocket costs increase to $5,250 for individuals and $10,500 for families
- Individuals must buy an insurance policy with a minimum deductible of $1,050 and families, $2,100, to qualify for an HSA.
Whoever said that health policy isn’t fun?
RECENT NEWS ARTICLES AND STUDIES:
- No-brainer health care is pass?
- The danger of consumer-driven health care: Crash course
- Limited take-up of health coverage tax credits: A challenge to future tax credit design
- For a retainer, lavish care by ’boutique doctors’
- Destroying insurance markets
- Ethics and the pharmaceutical industry
NO-BRAINER HEALTH CARE IS PASS?
Author: Damon Darlin
Source: The New York Times, 10/29/05
The New York Times’ Business Section published a straightforward article describing health savings accounts that shows when the issue is taken out of the political realm, it’s possible to have a reasonable conversation about their value. “The account gives you tax advantages every which way — you put in pretax dollars, it compounds free of taxes, and the accumulation is tax-free when you take it out to pay for medical expenses,” the Times writes. And given various savings options, HSAs appear the most attractive: “You might consider putting money into the health savings account first because it is the most tax advantaged.” The Times also gets past the healthy and wealthy myth: “Though it might seem counter-intuitive, those who are chronically ill may also want a high deductible plan. Their expenses will quickly exceed the deductible. If their health insurance plan picks up nearly all of the costs after the deductible is met, the overall cost because of lower premiums might be less than making a co-pay for every little expense throughout the year.”
Full text: www.nytimes.com
THE DANGER OF CONSUMER-DRIVEN HEALTH CARE: CRASH COURSE
Author: Jonathan Cohn
Source: The New Republic, 10/31/05
And for the other side of the story: “The trouble with HSAs is that they change the equation, dramatically, allowing people in relatively good health to keep much more of their own money,” writes Jonathan Cohn, a senior editor at The New Republic. Cohn describes the evolution of health savings accounts, questions whether HSAs will make people healthier, and charges that they are already disproportionately luring away the healthiest workers. Cohn concludes that “…we need to go back to the guiding principle of group health care–that the way to both lower costs and serve as many Americans as possible is to broaden, rather than shrink, the patient pool. One way to do this is through the plan we’ve been flirting with since the Progressive era–universal health coverage.”
Full text: www.tnr.com
LIMITED TAKE-UP OF HEALTH COVERAGE TAX CREDITS: A CHALLENGE TO FUTURE TAX CREDIT DESIGN
Authors: Stan Dorn, J.D., Janet Varon, J.D., and Fouad Pervez, M.P.H.
Source: The Commonwealth Fund, October 2005
This new Commonwealth Fund report “analyzes a well-known problem with the Health Coverage Tax Credits program-namely, that many eligible individuals have not participated-and explores how future tax credits could be designed to overcome this problem,” write Stan Dorn and Fouad Pervez of the Economic and Social Research Institute, and Janet Varon of Northwest Health Law Advocates. The authors write that these tax credits would more effectively reach their intended population if they: “1) limit premium costs for the low income uninsured and do not require full premium payments while applications are pending; 2) provide access to coverage that beneficiaries value, including care for preexisting conditions; 3) are combined with outreach that uses easily understandable, multilingual materials and proactive enrollment efforts; and 4) feature a simple application process involving one form filed with one agency.”
Full text: www.cmwf.org
FOR A RETAINER, LAVISH CARE BY ‘BOUTIQUE DOCTORS’
Author: Abigail Zuger
Source: The New York Times, 10/30/05
The New York Times also this week featured an article about Dr. Bernard Kaminetsky, “one of a new breed of ‘concierge’ or ’boutique’ doctors who, in exchange for a yearly cash retainer, lavish time, phone calls and attention on patients, using the latest in electronic communications to streamline their care.” The retainer fee allows Dr. Kaminetsky to see fewer patients and also to see about 10 percent of his patients free of charge. According to the article, approximately 100,000 patients have signed up with MDVIP and other concierge medicine corporations to date. To patients like Dorothy Lipson, who became seriously ill on an overseas vacation, Dr. Kaminetsky’s services are invaluable. “Mrs. Lipson’s long convalescence was seamless, with none of the snags that can magnify the misery of serious illness: no long hours in strange waiting rooms, no lost X-ray or culture reports, no contradictory pronouncements by specialists confused by missing information,” writes the Times. (It’s important for these models to get established to pave the way for much broader participation in the future.)
Full text: www.nytimes.com
DESTROYING INSURANCE MARKETS
Author: Conrad F. Meier
Source: The Heartland Institute and the Council for Affordable Health Insurance, October 2005
The Heartland Institute and the Council for Affordable Health Insurance have published a book containing a series of case studies examining the effects of health insurance regulations in eight states, written by Conrad Meier before he passed away unexpectedly in March, 2005. Meier investigated the impact of community rating and guaranteed issue laws in Kentucky, Maine, Massachusetts, New Hampshire, New Jersey, New York, Vermont, and Washington. “Imposing guaranteed issue and community rating laws on the individual health insurance market causes premiums to rise, not fall, and makes it more difficult, not easier, for the uninsured to find affordable coverage,” Meier concluded.
More information: www.heartland.org
ETHICS AND THE PHARMACEUTICAL INDUSTRY
Authors: Michael A. Santoro and Thomas M. Gorrie
Source: Cambridge University Press, October 2005
This new book by Michael Santoro, Associate Professor at Rutgers Business School, and Thomas Gorrie, Corporate Vice President of Government Affairs and Policy at Johnson & Johnson, features leaders in industry, government, medicine, and academia discussing many of the ethical dilemmas that the pharmaceutical industry faces today. Topics covered include: the ethical demands and economic constraints of drug research; emerging international norms for clinical testing; racial and ethnic inclusiveness in clinical trials; direct-to-consumer advertising of prescription drugs; the need for better health information; and the application of cost-effectiveness and cost-benefit analysis to pharmaceuticals.
More information: www.cambridge.org
Making Sense of Medicare’s Drug Benefit: Information and Resources to Help Beneficiaries
Alliance for Health Reform and Kaiser Family Foundation Briefing
Monday, November 7, 12:15 p.m. to 2:00 p.m.
Registration is closed, but this briefing can be viewed via webcast. For additional details, go to: www.allhealth.org.
The Bush Tax Panel Proposals: Tinkering or Major Reform?
Cato Institute Capitol Hill Briefing
Wednesday, November 9, 2005, 12:00 PM (Lunch Included)
For additional details and registration information, go to: www.cato.org.
What Do Seniors Think About The New Medicare Drug Benefit?
Kaiser Family Foundation Event
Thursday, November 10, 2005, 9:30 to 10:30 a.m.
To attend the event in person, please RSVP to Tiffany Ford at firstname.lastname@example.org or (202) 347-5270.
Curbing Health Costs: What Will It Take?
Health Affairs Briefing
Thursday, November 10, 2005, 9:30 A.M. – 11:00 A.M.
RSVP to Monica Fuentes at email@example.com or 301-652-1558.
Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features research and writings by participants in the Health Policy Consensus Group, articles of interest from the health policy world, and announcements of coming events. 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 the newsletter and our organization, please visit our website at http://www.galen.org/.
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