Shaking Things Up

Four Republican members of Congress shook up the health reform debate this week when they were the first to reach the floor of the House and Senate with comprehensive health reform legislation.

The Patients' Choice Act puts the $300-billion tax break for employment-based health insurance front and center in the debate. Reps. Paul Ryan and Devin Nunes and Sens. Tom Coburn and Richard Burr use it to create generous refundable tax credits for Americans to buy health insurance ($2,300 for individuals and $5,700 for families).

They even offer a way out of the Medicaid ghetto for recipients, offering them as much as $5,000 more to pay for health insurance and care — which means up to $10,700 a year for lower-income Americans. States can add more to help those who have disabilities, high health costs, and low incomes through federal grants and programs they can fund with their share of the Medicaid savings.

As Joe Antos of AEI and I reported in the commentary article we wrote for The Wall Street Journal on Wednesday, it provides a clear alternative to the government-centric plan the White House and Democratic leaders in Congress are developing.

The bill even won praise from Grover Norquist of Americans for Tax Reform. Grover has been a skeptic of tax credits, but he said in a letter to the senators that he is reassured there will be no net tax increase and that the legislation could even result in "a net tax cut."



Criticism came quickly, of course. Michael Cannon of the Cato Institute was one of the first to offer a critique that left me wondering if he had even read the bill.

Charlotte Ivancic of the House Budget Committee, who helped draft the legislation for Mr. Ryan, addressed Michael's criticisms point by point and showed that most of the concerns he raised aren't even in the bill.



The Washington Post editorialized on Tuesday that "President Obama is avoiding one of the best options" to pay for reform. Wonder what that might be?

"What if there were a way to pay for expanding health coverage that would also help hold down health-care costs and be fairer to low-income Americans than the current system?" the Post wrote. "You'd think that President Obama would leap at the opportunity."

"Well, there is such a way," the Post said. "Unfortunately, Mr. Obama campaigned against it" — the tax-free treatment of employer-provided health insurance. The editors call the tax break "costly," "unfair," and "counterproductive."



Lobbyists mobilized on Capitol Hill "to head off proposed taxes on employer-provided health benefits, alcoholic beverages, and soft drinks," wrote Robert Pear of The New York Times. (What's next, we wonder? Chocolate, hamburgers, and potato chips? Where does it end?)

Labor unions, including teachers, are attacking Republicans and Democrats alike for supporting changes to the tax treatment of employee benefits. Senate Finance Chairman Max Baucus is standing firm. "It's too regressive," he told the Times. "It just skews the system."



Get involved! Sen. Orrin Hatch, R-UT, wrote a piece in The Washington Times on Sunday actually encouraging businesses — and presumably their lobbyists — to become more vocal in representing their clients' interests.

"Why," he asks, "is the business community supporting a blank check on health care reform? It can, should and will be a major player in the reform debate."

He warns against price controls resulting from a government health plan and a mandate on employers "to provide politically determined health benefit packages." And he particularly warns about new taxes to pay for the expensive plan.



Arguments. After our Journal piece appeared, there was a lot of email traffic about the state exchanges and the size of the tax credit. Here's a sample:


  • How can you support those awful Health Insurance Exchanges? one writer asked. The exchanges in the Patients' Choice bill are simply portals to provide information about the policies that are available. States can set them up or not. They are organized by the states, not the federal government, and are voluntary, not mandatory. Most important, they are not vehicles for the huge regulatory morass that the White House and some Democratic leaders in Congress are planning.

    They are voluntary state-based vehicles to organize information to help people buy insurance in the new tax credit world. Let's call them portals and not exchanges to avoid the confusion.

  • How is someone supposed to afford a $12,000 health insurance policy with a $5,700 credit? I don't know of any proposals being offered that would offer grants to pay for the full cost of a health insurance policy. Among other reasons, this would be prohibitively expensive.

    The Patients' Choice bill replaces the tax break that employees get today (an invisible tax exclusion) with a more sensible and direct tax credit. The tax exclusion is worth anywhere from a few hundred dollars a year for low-income workers to many thousands of dollars for high-income workers with generous coverage. (You might ask what is wrong with this picture. The regressivity of the subsidy is something that clearly needs fixing.)

    For those with job-based insurance, a big part of their pay is going (invisibly) to pay for their health insurance. If they get a health insurance policy at work, they may be paying $3,000 directly toward their premiums but another $9,000 is coming out of their compensation package to pay for the insurance. Health insurance is not a gift from employers; workers pay for all of it. Tax law just keeps them from knowing that.

  • The $5,700 credit for families is designed to replace the current invisible tax exclusion with a new, direct, and more generous refundable tax credit. Combine this money with the money employees are spending directly and indirectly on health insurance, and almost all workers would come out ahead.
  • For those without employer-provided insurance, the credit provides $5,700 toward health insurance — real money they aren't getting today. eHealthInsurance data show that this would cover the full price of the policies that most families buy on their own.

Grace-Marie Turner

Recent News Articles and Studies< /p>

Can the United States Provide Health Care for All?
Forging a New Plan for Health Care: Principles and Priorities for Sustainable Reform
Obamacare to Come: Seven Bad Ideas for Health Care Reform
How Washington Rations
What 'Patient-Centered' Should Mean: Confessions of an Extremist
Senators Offer Options to Finance Health Reform
Medicaid Provisions in Senate Finance Policy Options Open Backdoor to Federal Regulation of Private Health Insurance and to Waste, Fraud, and Abuse
Should We Abandon Risk Assessment in Health Insurance?


Can the United States Provide Health Care for All?
Regina Herzlinger, Manhattan Institute and Harvard Business School
McKinsey & Company: What Matters, 05/18/09

To achieve universal care, we need to impose the discipline of the marketplace so that patients can spend wisely, providers can price services correctly, and we can cut down on waste and inefficiency, writes Herzlinger. The income tax system should be reformed so that employed enrollees understand that their income funds the purchase of health benefits. The most direct way would be to make the money spent on health insurance available as cash, tax free, to employees. Many would opt to take this money and buy their own insurance, creating a genuine consumer-driven market. Insurers would then compete for customers with policies that offer better value for the money. The combination of invigorated supply and demand is the only health care reform plan that will avert the economic disaster that otherwise awaits us, and simultaneously, make health care available for all, concludes Herzlinger.

Forging a New Plan for Health Care: Principles and Priorities for Sustainable Reform
Douglas Holtz-Eakin, DHE Consulting LLC
Manhattan Institute, 05/09

The U.S. is in need of deep reforms to the health care sector of its economy: it spends too much, covers too few people, and gets too little for the money, writes Holtz-Eakin, former director of the Congressional Budget Office. The foundation of the system — the tax exemption for employer insurance, the quality of state health insurance markets, and the fragmentation supported by federal payment policies — encourages low value and poor performance. Reform of our dysfunctional health care delivery system — particularly, the byzantine payment system for Medicare providers — must be the first priority. Bipartisan reforms that stress a reformed delivery system, better value in care, respect for state-level reform efforts, more efficient insurance markets, and better tools can address the deep problems of our health care system in a fiscally responsible way, concludes Holtz-Eakin.

Obamacare to Come: Seven Bad Ideas for Health Care Reform
Michael Tanner
Cato Institute, 05/21/09

Tanner examines the key components of health reform that Congress is considering — an employer mandate, an individual mandate, the public plan option, and federal regulation of health insurance — and concludes they would dramatically transform the American health care system in a way that would harm taxpayers, health care providers, and — most importantly — the quality and range of care given to patients. For the economy, Tanner says Obamacare could mean trillions of dollars in new taxes and the loss of hundreds of thousands of jobs. Health care providers could find their ability to practice medicine constrained and directed by far away government bureaucracies. But for individual health care consumers the consequences could be far worse: they would face far fewer choices and the possibility of far poorer care. The net result would be an unprecedented level of government control over one-sixth of the U.S. economy and over some of the most important, personal, and private decisions that Americans make, while setting the stage for the eventual evolution into a single-payer system.

In a separate paper, Nina Owcharenko of The Heritage Foundation describes three critical elements that could bring about a workable solution for lasting health care reform: tax equity, state-based reform, and sound financing.

How Washington Rations
The Wall Street Journal, 05/19/09

Desperate to prevent medical costs from engulfing the federal budget, Medicare's central planners decided last week to deny payment for a new version of one of life's most unpleasant routine procedures, the colonoscopy, writes The Wall Street Journal. This is a preview of how health care would be rationed. At issue are "virtual colonoscopies," which are quicker, more comfortable and significantly cheaper than the standard "optical" procedure. The problem for Medicare is that if cancerous lesions are found using a scan, then patients must follow up with a traditional colonoscopy anyway. While not painless or risk free, virtual colonoscopy might be better for some patients. Ideally, doctors would make this decision with their patients. But Medicare made the hard-and-fast choice that it was cheaper to cut it off for all beneficiaries. All this is merely a preview of the life-and-death decisions that will be determined by politics once government finances substantially more health care than the 46% it already does, writes the Journal.

What 'Patient-Centered' Should Mean: Confessions of an Extremist
Donald M. Berwick, Institute for Healthcare Improvement
Health Affairs Web Exclusive, 05/19/09

Patient-centered care should be seen as a dimension of health care quality in its own right, not just because of its connection with other desired aims such as safety and effectiveness, writes Dr. Berwick. This approach would necessitate a number of striking departures from normal medical routine. For example, hospitals would have no restrictions on visiting hours except those chosen by individual patients; medical records would belong to patients, and clinicians rather than patients would need permission to access them; and technologies to facilitate shared decision making by clinicians and patients would be used universally. "Call it patient-centeredness, but, I suggest, this is the core: it is that property of care that welcomes me to assert my humanity and my individuality. If we be healers, then I suggest that this is not a route to the point; it is the point," concludes Dr. Berwick.

Senators Offer Options to Finance Health Reform
Jeffrey Young
The Hill, 05/18/09

The Senate Finance Committee released a third paper this week detailing the policy options on the table for financing health care reform, reports The Hill. By far the most controversial area is the tax exclusion for health insurance premiums. The committee is considering several options to tap into this rich vein of fundin
g, such as capping the exclusion at a certain amount based on the value of the insurance plan, the worker's wages or both. The report also details ways to raise revenue by reducing the tax advantages of health savings accounts, flexible spending accounts and itemized deductions of medical expenses. The committee also is considering changes to health savings accounts, including altering deposit amounts, increasing tax penalties on non-medical withdrawals, and requiring substantiation of all expenses.


Medicaid Provisions in Senate Finance Policy Options Open Backdoor to Federal Regulation of Private Health Insurance and to Waste, Fraud, and Abuse
Dennis G. Smith
The Heritage Foundation, 05/14/09

While most if not all of the focus of the health care reform discussion has centered on the role of a government health plan, individual and employer mandates, and the unprecedented cooperation of special-interest groups, the sleeper issue is the expansion of Medicaid. Rather than strengthening Medicaid program integrity, the Finance Committee has put options on the table that would weaken it, writes Smith. These include:

  • Changing current law to prohibit states from conducting face-to-face eligibility interviews.
  • Changing current law to prohibit review of eligibility on a periodic basis.
  • Extending eligibility to non-citizens.
  • Requiring all health plans to contract with certain types of "community" providers that are protected from competitive pricing.

In a separate paper, Smith argues that President Obama's proposal for a Medicaid expansion and a public program expansion would be a step backward. Congress and state policymakers should reverse course and open up opportunities for poor families to get better care, getting them out of Medicaid and into private health insurance of their choice.



Should We Abandon Risk Assessment in Health Insurance?
Merrill Mathews, Ph.D.
Council for Affordable Health Insurance, 05/09

The Council for Affordable Health Insurance (CAHI) released a paper this week which analyzes the impact of political proposals that would interfere with insurance underwriting. The report, which is based on an analysis from Mark Litow with the actuarial firm Milliman, shows that regulations such as guaranteed issue and community rating would more than double the cost of premiums for those buying their own health insurance policies. "The actuarial profession developed underwriting for a reason," said Dr. Merrill Matthews, CAHI Executive Director. "It's the best way to assess how much to charge a person or company applying for insurance coverage. If we really want to get health care costs under control, we should get back to real risk assessment, along with a strong safety net program to provide coverage for those who can't get it."

Upcoming Events

7th Annual Health Care Conference
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Wednesday, June 3, 2009, 7:30 a.m. – 1:30 p.m.
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Wednesday, June 3, 2009, 7:00 a.m. – 1:30 p.m.
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The Dollars and Sense of Prevention: A Primer for Health Policy Makers
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Monday, June 8, 2009, 9:00 a.m. – 12:00 p.m.
Washington, DC

Comparative Effectiveness Research around the World
The Commonwealth Fund and Alliance for Health Reform Roundtable
Tuesday, June 9, 2009, 12:30 p.m. – 3:30 p.m.
Washington, DC
For more information, please contact Deanna Okrent at or 202-789-2300.

The Convergence of Health and Wealth: The Next Frontier
Metavante Corporation Webinar
Tuesday, June 9, 2009, 1:00 p.m. EDT



Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features a commentary by Grace-Marie Turner on the major developments and issues of the week as well as summaries of writings by participants in the Health Policy Consensus Group and other articles of interest from the health policy world, plus 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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