Galen Institute

Moving Forward

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All of the attention over President Bush's health care proposals this week has focused on his proposed "cuts" in Medicare spending. But what the media defines as cuts are in fact reductions in the increase in spending. Medicare spending would still grow by 5%, which is faster than inflation but slower than the projections that are rapidly propelling the program toward insolvency.

"Americans must wake up to the fact that Medicare outlays constitute an 'emergency' that must be acted upon," Health and Human Services Secretary Michael Leavitt said in defending the administration's proposal to lower Medicare spending by $183 billion over five years.

We have to start somewhere, and the consternation over slowing spending increases shows how incredibly difficult that is.

What's not getting a lot of attention is the president's proposal for a dramatic modernization of the tax treatment of health insurance, first introduced in last year's budget. Mr. Bush again proposes exchanging the current tax exclusion for employment-based health insurance for a direct deduction. While it is failing to get any traction in Congress, the idea has been incorporated into the health reform proposals of the major Republican presidential candidates and will get a hearing in the public domain this year.

And the president also is proposing six changes to make Health Savings Accounts more flexible and give individuals and employers more options in structuring coverage:

  • Health plans with 50% coinsurance would qualify as a high-deductible health plan and would be HSA-eligible.
  • People would have more time to set up their HSAs since funds could be used to pay for medical expenses incurred on or after the first day of HSA eligibility in a year, even if the account hasn't actually been set up yet.
  • Employers would be able to make larger HSA contributions for employees with chronic illnesses.
  • Deductibles would be adjusted to make them more family-friendly.
  • If both spouses are eligible as individuals for HSAs, they both could make catch-up contributions to one of their HSAs.
  • Employees would be able to contribute to an HSA, even if they are covered by a Health Reimbursement Arrangement and Flexible Spending Account.

All of these proposals are responding to requests to make HSAs more attractive to employers and individuals. The administration's Fiscal 2009 Budget outlines these proposals and rationale on pages 19-26.

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I had a terrific opportunity to speak to 700 health insurance agents and brokers on Tuesday morning, here for the Capitol Conference of the National Association of Health Underwriters, most ably led by CEO Janet Trautwein.

These people are entrepreneurs who are on the front lines of saving the private market for health insurance in this country, and they are my heroes. My job initially was to present an overview of the platforms of the Republican presidential candidates, with another speaker slated to review the Democratic candidates' proposals.

But there wasn't another speaker, so I gave an overview of both, doing my best to call on my journalistic skills of objectivity. I talked about the fact that both parties' candidates propose expanding choice and individual control. But just describing Sens. Clinton and Obama's plans seems to me critical — employer play or pay, restructuring and strictly regulating the prices and benefits of private insurance, allowing buy-in to public plans, expanding Medicaid, SCHIP and Medicare, and mandates on purchasing coverage that would lead down a slippery slope of government controlling the market and actually limiting choices.

I asked them for their thoughts about proposals that would allow people to buy in to a plan like the Federal Employees Health Benefits Program. The bottom line: This is a very bad idea, as is allowing buy-in to Medicare. Here are a few of the reasons that they explained:

  • Government plans don't compete with private plans on a level playing field, and they suffocate competition, especially from smaller companies that help to keep the health insurance market competitive in states that haven't already regulated them out of business.
  • A government plan invites adverse selection as those with the highest expected costs will be most likely to enroll in the plan, driving up the costs for other enrollees.
  • It also would invite the government to be very prescriptive about what would be covered, who must be enrolled, how much the coverage would cost, how much health plans and doctors could charge, etc., leading to a plan that looks much more like a government-run health program than the competitive purchasing pool that is envisioned.

I got two standing ovations and told them how important it is for their voices to be heard as the debate over health reform proceeds.

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Yesterday, I was in Tallahassee to speak at a day-long health conference for state legislators sponsored by the James Madison Institute, the preeminent state-based think tank in Florida. And today, I will speak at the Conservative Political Action Committee conference back here in Washington, where Sen. McCain and former Gov. Romney made headlines yesterday.

Now, it gets interesting.

Grace-Marie Turner

RECENT NEWS ARTICLES AND STUDIES:

How Not to Win the Fight Against AIDS
Grace-Marie Turner, Galen Institute
The American, 02/06/08

Many global activists are demanding that developing countries be allowed to revoke the patents on AIDS medications by imposing "compulsory licensing," a World Trade Organization-sanctioned practice which allows governments to break patents during public health emergencies and produce copies of branded drugs. This may sound like an effective way to get antiretroviral drugs to the world's poorest people, but it isn't, writes Grace-Marie Turner. The immediate danger would come from the proliferation of low-quality counterfeits, with patients suffering and even dying from untested and even fake chemicals. Over the long term, patent violations can lead to a decline in the number of new medicines. Market incentives have brought around 90 HIV/AIDS drugs to patients in the past two decades; even more are under development. An artificial market managed by bureaucrats and one-dimensional activists will retard this trend, if not bring it to a complete halt.

Equity and Health Care
The Wall Street Journal, 02/04/08

If Democrats and Republicans really want the tax code to be more "progressive," they should address the way the government subsidizes health insurance, writes The Wall Street Journal. The core problem is that people who get insurance through their employers pay no income or payroll taxes on the value of the benefit. President Bush has suggested severing the link between insurance and employment and shiftin
g the deduction to individuals and capping it at $15,000 a year for a typical family. Not only would this be a relatively cost-effective way to increase coverage, it would also address the major market distortions that the employer-exclusive deduction causes. If Republican candidates came to their senses, they'd recognize an opportunity to address middle-class anxiety. But the big questions are for Democrats, who claim to believe that health-care reform is as much a moral as an economic issue. Whatever their other ambitions, how can they stand by a system that offers the least assistance to the working class and nothing at all to the uninsured?

The Wages of HillaryCare
The Wall Street Journal, 02/07/08

Sen. Hillary Clinton's individual mandate for the purchase of health insurance is an attempt to force everyone to buy into a highly regulated and price-controlled system where government redistributes income and dictates coverage, writes The Wall Street Journal. In other words, HillaryCare II isn't all about "choice," but would require financial penalties, including garnishing wages. To put it more accurately, the individual mandate is really a government mandate that requires brute force plus huge subsidies to get anywhere near its goal of universal coverage. The news here is that all of this is being exposed now by a fellow Democrat, Sen. Obama. Many Americans are uncomfortable with the coercion of the mandate. The California health-care overhaul was recently done in by liberals concerned about its consequences for the working poor.

Aetna Research Identifies Four Keys to Success for Consumer-Directed Health Plans
Aetna, 01/31/08

Aetna continues to follow the health care claims and utilization of 1.6 million members of its Aetna HealthFund consumer-directed plans, and four years of evidence continues to show sustained savings, more patient engagement in managing health, and greater utilization of preventive services. Employers who offered an Aetna HealthFund plan lowered their health care spending trend and saved money through all four years with the plan, across all Aetna products they offered. In addition, 52% of HRA members and 95% of HSA members carried over some or all of their fund savings into the next year.

Aetna also studied six employers that experienced extraordinary results and whose health care cost trends were 50% lower than the HealthFund average. The combined employer and employee savings was $15 million per 10,000 employees enrolled. These employers were actively engaged in educating their employees and offering wellness programs and incentives for healthy behaviors.

Florida Medicaid Reform Under Seige
Jim Frogue, Center for Health Transformation
Florida Times-Union, 02/06/08

Former Florida Gov. Jeb Bush led the most ambitious and significant reform to Medicaid in the country, writes Jim Frogue. Today, there are more than 200,000 people enrolled in 16 private sector plans in Broward County, seven in Duval, and two each in Clay, Nassau, and Baker counties. There were zero formal grievances reported by HMOs in the most recent reporting quarter, but a confluence of unscientific studies and sclerotic state bureaucracies is combining to overwhelm the reform. Officials in Florida's new administration have announced that they will not be recommending expansion of the pilot and have not indicated any plan to meet the statutory requirement to expand statewide by 2011. Sadly, the consequences may be that the great strides made during Bush's tenure will disappear, along with the promise of better health at lower cost for the people of Florida.

Health Insurance Mandates in the States 2008
Victoria Craig Bunce and JP Wieske
Council for Affordable Health Insurance, 01/31/08

The number of state mandated health benefits continues to grow — to 1,961 nationwide, up from 1,901 last year, according to CAHI's annual list of health insurance mandates in each state. The report contains a chart of the mandates with information broken down by state into three categories: types of mandated benefits, providers, and covered populations. Mandated benefits currently increase the cost of coverage from a little less than 20% to more than 50%, depending on the state and the specific legislative language. Minnesota leads the states with 64 mandates, while Idaho has the lowest at 15. Fortunately, there is evidence that some legislators are getting CAHI's message. At least 30 states now require that a mandate's costs be assessed before it is implemented, and at least 10 states provide for mandate-light policies, which allow some individuals to purchase a policy with fewer mandates more tailored to their needs and financial situation. Bunce and Wieske further describe the study in a commentary in today's Wall Street Journal.

Reform Lessons for the United States
Johnny Munkhammar, Centre for European Policy Studies
TCS Daily, 02/01/08

Successful reform lessons in other countries could encourage U.S. politicians to provide solutions to hot issues like taxes, health care, immigration, schools and social security, writes Johnny Munkhammar from his base in Stockholm. Every industrialized country in the world has launched free-market reforms during the past two to three decades, and the economic and social results from the reforms have often far exceeded expectations. Some 16 countries have introduced flat tax systems, making taxation simple and education beneficial. The Netherlands launched a thorough health care reform, providing all citizens with private health care insurance — and care from providers in free competition. Other countries have also opened up health care for competition, noticing increases in productivity.

UPCOMING EVENTS:

Forward for Freedom: The Power of Principle
Conservative Political Action Conference
February 7-9, 2008
Washington, DC
Grace-Marie will speak about "A Conservative Approach to Health Care Reform" on Friday, February 8.

The Good News About OHP: Lessons From Managed Care
Oregon Health Forum Event
Tuesday, February 12, 2008, 11:30 a.m. – 1:30 p.m.
Salem, OR

Human Organs for Sale?
Cato Institute Policy Forum
Thursday, February 21, 2008, 12:00 p.m. (Lunch included)
Washington, DC

Third National Pay for Performance Summit
Integrated Healthcare Association Event
February 27-29, 2008
Los Angeles, CA

Health Policy Matters is a weekly newsletter containing summaries of timely an
d 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://rs6.net/tn.jsp?t=64ummjcab.0.0.xkzt75bab.0&ts=S0317&p=http%3A%2F%2Fwww.galen.org%2F.

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