President Bush outlined a decidedly free-market approach to health reform in his State of the Union address Tuesday, introducing a new initiative to allow full tax deductibility of premiums for insurance linked to Health Savings Accounts (HSAs).
This will supercharge HSAs, my colleague Greg Scandlen predicts, and make them an even more attractive option for millions of Americans, including the uninsured.
Professor Martin Feldstein of Harvard wrote a terrific commentary in The Wall Street Journal this week (see below for a summary and link), saying HSAs “may well be the most important piece of legislation of 2003.” He details the significant cost savings to people who set up these accounts and believes HSAs can begin to get health spending under control.
Middle- and upper-middle income Americans are the fastest growing segment of the uninsured, and they will be the first to see the value of HSAs. The tax deductibility – of both account deposits and insurance premiums – is more valuable to them since they are in higher tax brackets where their tax savings are greater.
But HSAs are not the silver bullet solution for all of the uninsured. We have long advocated refundable tax credits for the uninsured because tax deductibility isn’t worth much to someone in a 15% tax bracket who has little cash to spare to purchase health insurance.
The president Tuesday renewed his commitment to providing refundable tax credits to help lower-income workers purchase health insurance.
The refundable credits are worth up to $1,000 for individuals and $3,000 for families. (Congress could make them more generous.) The credits are targeted at lower-income uninsured for individuals earning $15,000-$30,000 and for families earning $25,000-$60,000.
Millions of Americans are uninsured because they simply can’t afford a policy. Refundable tax credits will provide them with new resources to help purchase insurance that they can own and take with them from job to job.
The New York Times already is joining the throng, criticizing Mr. Bush’s “skimpy menu of warmed-over health care proposals.” The editors blast his tax credits, saying that they don’t begin to cover the cost of a policy. Today’s low-deductible, benefit-rich, job-based policy is out of reach for most uninsured Americans, but a survey of eHealthInsurance.com shows that much more affordable policies are available to the great majority of them. Shouldn’t we start by giving them the option of decent coverage, even if it’s not gold plated?
Senator Ted Kennedy looked very glum listening to the State of the Union in the House chambers this week. In his own health care speech on Thursday, he called for spending $100 billion a year to achieve universal coverage, featuring the favorite liberal (job-killing) mandate that employers must provide health insurance to their workers.
The president’s health care initiatives have a much more modest federal price tag. The cost of refundable tax credits is expected to be about $90 billion over ten years (but it does not attempt to get to universal coverage). Mr. Bush’s other plans do not have big cost estimates: medical malpractice reform, computerized health records, and Association Health Plans. (The new tax deduction is still being scored.)
Association Health Plans are unfortunately divisive. AHPs would allow small businesses to pool together to purchase more affordable group insurance, getting the same protection from expensive state mandates and regulations that big companies have. The insurance industry strongly opposes AHPs, and the business community strongly supports them. The two sides must come together to find the common ground to provide help to small employers desperate for relief from soaring premium costs.
Will the president’s initiatives be enough to withstand the fire of a hard-fought political campaign where health care promises to be a major issue? It’s going to be tough. But one thing is clear: The White House is pushing hard for its ideas:
? The president’s health policy guru, Doug Badger, held a conference call with the policy community the morning after the State of the Union speech to brief us on details of the president’s proposals and to review accomplishments so far.
? In the afternoon, the Treasury Department, under the guidance of HSA expert Roy Ramthun, hosted a meeting about Health Savings Accounts for key players.
? And later in the day, the Department of Labor organized a leadership training session (where Greg was one of the presenters) on Medicare, HSAs, AHPs, and employer-provided insurance.
? Clearly the administration is taking health care seriously and is engaging free-market thinkers in the conversation about how to make their policy initiatives work.
Perhaps the most refreshing line in the speech on health care was this: “A government-run health care system is the wrong prescription.” We couldn’t agree more, and finally there are new tools and new initiatives to begin to strengthen the private health system and put doctors and patients in charge of decisions.
Here’s a link to the Galen Institute’s response to the State of the Union address with an explanation of how the new tax deduction would work.
RECENT NEWS, ARTICLES, AND STUDIES FROM THE HEALTH POLICY WORLD:
? Health and taxes
? Health Savings Accounts Will Revolutionize American Health Care
? More market, less straightjacket
? Compulsory evidence-based medicine: An unproven idea that shouldn?t be law
? The medical malpractice ?crisis?: Recent trends and the impact of state tort reforms
? How to plug Europe?s brain drain
HEALTH AND TAXES
Author: Martin Feldstein
Source: The Wall Street Journal, 1/19/04
Harvard economics professor Martin Feldstein argues in a commentary article that the tax treatment of employment-based health insurance has led to high demand for expensive treatments and increasing health care costs. He praises the new Health Savings Account law ?which eliminates the preferential subsidy for comprehensive insurance by giving the same tax treatment to individuals who set aside income to pay cash for a larger share of their own health care.? He compares a family purchasing a low-deductible health policy with one purchasing high-deductible insurance and concludes HSA families will see significant premium savings and gain new incentives to spend wisely. ?In short, the new HSA tax and insurance rules can be the beginning of successfully controlling medical spending and bringing it in line with what patients and their doctors really think is best,? he concludes.
Full text (requires subscription): http://online.wsj.com/article/0,,SB107447362821704871,00.html?mod=opinion
John Goodman, president of the National Center for Policy Analysis, also explains the benefits of HSAs in his new paper titled ?Health Savings Accounts Will Revolutionize American Health Care.? ?The concept of HSAs is not conservative or liberal,? writes Goodman. ?It should appeal to everyone who suspects that impersonal bureaucracies care less about us than we care about ourselves.?
Full text: http://www.ncpa.org/pub/ba/ba464/
MORE MARKET, LESS STRAIGHTJACKET
Author: Regina Herzlinger
Source: The Wall Street Journal, 1/22/04
Harvard Professor Regina Herlzlinger praises the free-market principles in the president?s speech, but says, ?Sadly, the president’s plans fall short of a real market-based health-care system. While it liberates demand, with expanded tax-support for consumers’ purchase of health care, the plan imprisons suppliers in the government’s micromanagement straightjacket.? She says that ?the administration intends to subsidize plans that manage care heavily.? That seems a stretch to us. People with HSAs can pick the type of health insurance that suits them best, and the heavily managed care of the past will be forced to evolve and become more consumer-friendly, using carrots rather than sticks to contain costs.
Full text (requires subscription): http://online.wsj.com/article/0,,SB107473353881908413,00.html?mod=opinion
COMPULSORY EVIDENCE-BASED MEDICINE: AN UNPROVEN IDEA THAT SHOULDN?T BE LAW
Author: Linda Gorman
Source: Independence Institute, 1/12/04
Those who seek to collectivize our health care system have a new tool in their arsenal called ?evidence-based medicine? (EBM). Health policy expert Linda Gorman of the Independence Institute in Colorado argues that EBM ?isn?t what you think it is.? EBM is defined as the ?conscientious, explicit and judicious use of current best evidence in making decisions about the care of the individual patient. ? But Gorman points out, ?The people who explicitly and conscientiously decide what is best are typically small committees of academics and bureaucrats.? She argues that the scientific process requires constant experimentation and doesn?t lend itself to being put into bureaucratic boxes. ?Compulsory EBM politicizes medicine by ceding control to small committees, decreases the likelihood that research disagreeing with guidelines will be funded, and increases the likelihood that decisions about treatment will end up in the courts?Physicians who deviate from compulsory evidence-based medicine would be prime targets for trial lawyers,? Gorman warns.
Full text of Gorman?s Health Policy Bulletin: http://www.i2i.org/jan2004hcpc.aspx/
Full text (pdf): http://www.i2i.org/articles/misc/011204legbrief.pdf
THE MEDICAL MALPRACTICE ?CRISIS?: RECENT TRENDS AND THE IMPACT OF STATE TORT REFORMS
Author: Kenneth E. Thorpe
Source: Health Affairs Web Exclusive, 01/21/04
In his State of the Union address earlier this week, President Bush noted that ?wasteful and frivolous medical lawsuits? must be eliminated. Emory Professor Kenneth E. Thorpe examines the U.S. liability system and the medical malpractice crisis in this timely Health Affairs web exclusive and finds that a reduction in the number of firms offering coverage and rising premiums both account for the current crisis. ?Depending on the specialty and state, the median increase in malpractice premiums ranged from 15 to 30 percent ? In several states facing the most acute crises, carriers exiting the market accounted for a substantial (up to 40 percent) share of premiums written,? writes Thorpe. State tort reforms that cap malpractice payments have proven effective in lowering premiums ? states that cap awards have premiums that are 17.1 percent lower than in states that don?t cap. ?Stopgap reforms (caps on awards) of our current liability system would ultimately result in lower premiums (relative to their levels without the caps). On the other hand, it is also important to evaluate any such reforms in the context of their ability to further the dual policy objectives of deterrence and compensation,? Thorpe concludes.
HOW TO PLUG EUROPE?S BRAIN DRAIN
Author: Jeff Chu
Source: Time Europe, 01/19/04
Scientific fragmentation, rigid hierarchies, and bureaucracies have forced some 400,000 European science and technology graduates to pursue careers in the U.S., writes reporter Jeff Chu in Time Europe. This ?brain drain? is a significant problem in Europe?s pharmaceutical, biotech, and IT industries, which rely on science to drive economic growth. But things are improving as ?Europeans [steal] a page from the American playbook, offering researchers better funding, better facilities, better support for entrepreneurship and competition, and an overall better environment for world-class science,? writes Chu.
The Top Ten Things People Believe About Canadian Health Care, But Shouldn?t
The Heritage Foundation Event
Wednesday, February 4, 2004, 12:00 noon – 1:00 p.m.
Featuring Brian Lee Crowley, Founding President of the Atlantic Institute for Market Studies. For additional details and registration information, go to: http://www.heritage.org/Press/Events/ev020404.cfm.
Consumer Choice Health Care: Reports From The Field
Galen Institute Event, moderated by Greg Scandlen
Wednesday, February 11, 2004, 2:00 ? 4:00 pm
562 Dirksen Senate Office Building
Additional details and registration information will soon be available at www.galen.org.
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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