Change is Inevitable

Responses to President Bush’s new health initiative have filled newspapers and the airwaves since last week, with commentators and analysts trying to understand this new idea and figure out what it would mean.

While opinion leaders from the left and right have praised Mr. Bush for exposing the fundamental flaws in how the tax code treats health insurance, response has been chilly among some with a vested interest in the status quo, including hospitals, big employers, and some labor groups with expensive health insurance policies.

But unless things change, the number of people without health insurance will continue to increase, and the threat of a government-controlled health care system will grow.

Change is inevitable: The current system of job-based insurance that fit a post-World War II economy isn’t working in the Information Age.

The Labor Department says there was more job churning last year than since it started keeping records in 2000. It found that 55 million Americans, or four out of every 10 workers, left their jobs in 2005, the vast majority voluntarily, and there were more new jobs created than workers to fill them.

Job churn among younger workers – who, not coincidentally, are also most likely to lack health insurance – is highest. They can expect to work for 10 different employers between the ages of 18 and 38. Tying health insurance to the workplace worked for the 20th century, but it’s failing tens of millions of workers now — a fact that states considering an employer mandate should recognize.

Mr. Bush has proposed a 21st century solution. He would give families the opportunity to own health insurance that is portable from job to job, and he would free up some of their tax money to help them buy the coverage. The dynamic changes in the marketplace for health insurance would transform the system to offer health insurance that is more affordable, flexible, and portable.


And then there is the war of numbers: John Sheils and Randy Haught of the respected Lewin Group have produced their own analysis of the president’s plan. They assume it would cost significantly more ($154 billion over 10 years) than the administration’s net-neutral estimates but that three times more uninsured people would get health insurance – about 9.2 million. As budget expert Joe Antos of AEI points out, if more people buy coverage and take the deduction, it will cost more.

The authors also say that those in higher income categories would more likely take advantage of the deduction because the tax break is worth more to them under our progressive income tax system.

Since Mr. Bush proposed a $15,000 standard family tax deduction for health insurance, there has been growing talk that a tax credit would be more helpful for lower-income workers. Great. Throw us into that briar patch! Apparently there was a debate in the administration about the two approaches. Now let’s have the debate in Congress.


The Centers for Medicare and Medicaid Services has produced more evidence that private competition with the new Medicare drug benefit is giving seniors more choices at lower costs. CMS reported this week that beneficiaries enrolled in the drug benefit program are saving an average of $1,200 a year, with premiums this year expected to average $22 a month – 42% lower than originally estimated.

HHS Secretary Mike Leavitt says that results from the year-old program show that seniors do indeed prefer choice. Private drug plans compete not only on price but also on benefit structure, and seniors are more likely to choose plans with no deductibles and coverage in the coverage gap. “About 88.5 percent of all beneficiaries who enrolled in a prescription drug plan for 2007 chose a plan that offers coverage other than the standard benefit,” according to CMS. (You remember the standard benefit that Congress designed in 2003 and which some legislators wanted to offer as the only option? Only one in eight seniors chose it.)

Half of seniors CMS surveyed reviewed their current coverage during the open enrollment period that ended December 31. But only 6 percent of them reported switching plans. Clearly if they were unhappy, they would have moved to a different plan.

Choice, competitive market forces, and flexibility work, and they work not only with Medicare but with private insurance as well.

Grace-Marie Turner


  • State of the Union address: Response from the think tanks
  • Universal health care: Proceed with caution
  • 200,000 may need to get more insurance
  • Hiding health care’s costs
  • Many uninsured will opt to remain so
  • Tax benefits for health insurance and expenses: Overview of current law and legislation
  • Health savings account adoption, contribution and spending behavior


President Bush’s health care proposal, announced during his State of the Union address, elicited largely positive responses from Consensus Group participants. The president proposes a new standard deduction for health insurance that will be available to any taxpayer, employed or not, who buys qualifying health insurance.

  • “The new tax deduction would eliminate one of the major hidden forces driving up health cost – the unlimited tax break for job-based health insurance – and level the playing field so that everyone would have an equal opportunity to get a tax break for buying insurance.” Grace-Marie Turner of the Galen Institute.

  • “Limiting the tax subsidy for employer-sponsored insurance is an idea long promoted by policy wonks, and long ignored by everyone else. What has changed is the realization that a well-tuned policy to reduce the tax incentives for over-insurance does not have to mandate how individuals buy their health coverage.” Joseph Antos of the American Enterprise Institute.

  • “President Bush’s proposal to reform the tax treatment of health care takes a bold step toward fixing America’s health care system by widening the availability of affordable and ‘portable’ health plans available to Americans and by defusing some of the pressure that currently leads to higher health costs.” Stuart Butler and Nina Owcharenko of The Heritage Foundation.

  • The president’s proposal “is on target in many ways?Among working-age people, it creates more consumer awareness of the marginal cost of richer insurance and the marginal cost of additional medical treatment.” Stephen Entin of the Institute for Research on the Economics of Taxation.

  • “The president’s plan would encourage responsibility by limiting the amount of health insurance we can deduct from our taxes each year?The changes would dramatically reduce the number of uninsured, allowing tens of millions of Americans to save thousands of dollars a year on insurance.” Michael Cannon of the Cato Institute.

  • “By giving individually purchased and employer-purchased health care identical tax breaks, insurance will be more affordable for millions of Americans who are self-employed, or who can’t afford or are not offered insurance through their employer. This tax change supports the transformation of our health care system to a market-oriented system where patients and doctors are in charge, not government, employers, and insurance companies.” Sean Parnell of the Heartland Institute.

  • “We live in a 21st century information economy with a dynamic and mobile workforce. But health insurance has been trapped in a 20th century industrial economy model. This step will help health insurance and the economy grow to meet their potential.” Merrill Matthews of the Council for Affordable Health Insurance.

  • “President Bush’s health care proposals would help remove some of the distortions that have plagued the health insurance market for nearly 60 years. As a result, more people would be insured, the insurance they have would better suit their needs, and fewer people would rely on the social safety net.” John Goodman of the National Center for Policy Analysis.

Author: Grace-Marie Turner
Source: National Review Online, 01/31/07

“The race to provide universal health care has begun,” writes Grace-Marie Turner of the Galen Institute, with many governors looking to Massachusetts as a model. “Gov. Romney had a vision of creating a competitive marketplace for affordable health insurance and reallocating subsidies to provide health insurance for uninsured citizens?but the compromises demanded by the heavily Democratic state legislature are jeopardizing its success,” writes Turner. “Legislators in the Bay State created a plethora of mandates and enforcement provisions that many Americans would find not only unaffordable but onerous,” she writes. “It may become so expensive that it will face the same fate as the employer mandate enacted under the administration of Gov. Michael Dukakis nearly twenty years ago, which was repealed because it was unworkable and unaffordable.” She concludes that “others may want to go back to the drawing board. The details show Massachusetts may not have a miracle, but rather a muddle, on its hands.”
Full text:

Author: Robert J. Samuelson
Source: The Washington Post, 01/31/07

“We are awash in health-care proposals,” writes Washington Post columnist Robert Samuelson about recent plans from President Bush, Governor Schwarzenegger, Families USA, and America’s Health Insurance Plans. “But the Bush proposal does have one huge virtue: It exposes health-care costs to the broad public,” writes Samuelson. “To some extent, all these plans and others aim to provide insurance to the estimated 47 million Americans who lack it?But the real significance of all these proposals?.lies elsewhere,” he writes. “For decades, Americans have treated health care as if it exists in a separate economic and political world,” writes Samuelson. “It is this segregation of health care from everything else that is now crumbling – and the various health proposals are just one sign.”
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Author: John R. Graham
Source: Orange County Register, 01/30/07

Governor Schwarzenegger’s proposed taxes “will immediately increase California’s health spending by 6 percent in a futile quest to ‘cover the uninsured’,” writes John Graham of the San Francisco-based Pacific Research Institute. Graham dispels “the myth that uninsured Californians drive up health costs by delaying primary care and showing up at emergency rooms once their ailments have become unnecessarily expensive to treat.” He calls the governor’s plan “unhealthy, unwise, and expensive.”
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Republican leaders in the California state Senate announced this week “that they do not support Gov. Arnold Schwarzenegger’s plan to impose new fees and taxes for expanding health care coverage to the uninsured,” reports the San Francisco Chronicle. “Instead, GOP senators released their own ideas for fixing the state health care system; it includes expanding the role of clinics in caring for the uninsured as well as providing tax breaks and other incentives to get more workers and employers to voluntarily buy coverage.”
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Author: Bob Lyke
Source: Congressional Research Service, 01/24/07

The Congressional Research Service has issued a timely report providing an overview of tax benefits in current law and legislation. The report examines the effect of tax benefits on employer-paid insurance, self-employed individuals, cafeteria plans, Health Savings Accounts, and Medicare. The report also discusses the consequences of the tax benefits, including increases in coverage and increases in health care use and cost. A summary of current legislative proposals is also included.
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Source: UnitedHealth Group, 01/29/07

A new study from UnitedHealth Group’s Definity Health business provides new data on who is opening HSA accounts, who is funding the accounts, and who is saving vs. spending with HSAs. Some highlights based upon Definity’s employer-sponsored HSA plans for 2005:

  • 84% of employees who were eligible opened an HSA, compared to an industry average of 60 – 70%.
  • Whether employers contribute to an account has a significant impact. On average, 91% of eligible employees open an account when their employer contributes funding, compared to just 45% when their employer does not contribute.
  • About 70% of UnitedHealth employer clients fund employee HSAs, with an average contribution of $895.
  • The majority (86%) of individuals used the accounts as a savings tool and carried a balance into 2006.
  • 80% of eligible low-income individuals earning less than $25,000 a year opened an HSA.

Full text (pdf):


Grace-Marie Turner speaking on Jerry Johnson Live
KCBI 90.9 FM Radio Broadcast
Friday, February 2, 2007, 6:00 p.m.
Dallas, TX

For additional details, go to:

Haas Business of Health Care Conference
University of California Event
Saturday, February 3, 2007, 8:00 a.m. – 6:30 p.m.
Berkeley, CA

For additional details and registration information, go to:

Grace-Marie Turner speaking on Health Beat of America
WIBQ 1220 AM Radio Broadcast
Monday, February 5, 2007, 9:00 a.m.
Sarasota, FL

For additional details, go to:

Assessing the Value of New Drugs, Devices and Biologicals: Is There a Better Way?
Health Industry Forum, Kaiser Permanente, and America’s Health Insurance Plans Briefing
Monday, February 5, 2007, 12:00 p.m. – 2:00 p.m.
Washington, DC

For additional details and registration information, please contact Lynda Stovall at

The Belgian Health Care System: Balancing Costs, Choice, Quality and Coverage – Lessons for the United States?
Brookings Institution Event
Monday, February 5, 2007, Noon – 2:00 p.m.
Washington, DC

For additional details and registration information, go to:

Grace-Marie Turner speaking on the Business for Breakfast Show
KFNN 1510 AM Radio Broadcast
Wednesday, February 7, 2007, 9:10 a.m.
Phoenix, AZ

For additional details, go to:

New Directions in Health Policy: A Discussion of the President’s Tax-Based Health Insurance Proposals
The Brookings Institution and the Urban Institute Tax Policy Center Event
Friday, February 9, 2007, 1:00 p.m. – 3:00 p.m.
Washington, DC

For additional details and registration information, go to:

The Media and Medical Science: Redefining Roles and Responsibilities
Center for Medicine in the Public Interest Conference
Wednesday, February 21, 2007, 9:00 a.m. – 5:00 p.m.
Washington, DC

For additional details and registration information, go to:

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

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