Where's the Money?

The New York Times carried a front page story on Sunday that said the Obama administration "is open to taxing health benefits."

Forget the incessant 2008 Obama campaign ads. This is 2009, and they are searching for money to pay for a major overhaul of our health sector.

It is important to modernize the tax treatment of health insurance, and we have long supported reform. But we fear the changes they are considering would turn what should be a gentle nudge into a sledgehammer. There is talk that it could be used to threaten employers who don't follow new government mandates to provide and pay for coverage, or used as yet another way to raise taxes while locking in flaws of the current system.

If the goal truly is to help the uninsured, then let's target resources directly to them: Make sure those eligible for public programs are enrolled and give them more options for coverage, and provide new subsidies for the uninsured to purchase private insurance. This is not rocket science. And it certainly doesn't mean we have to turn our entire health sector inside out.

The first step toward reform should be to set a limit on how much income workers can protect from taxes in the form of health benefits. Set it high so few are affected to give people and companies time to adjust. The revenues collected should go to provide a direct credit to the uninsured.

This policy would have two advantages: It would make the cost of health insurance more visible to workers so they can become partners in managing both their health care and their health spending, reducing inflationary pressures. And it would provide money to the uninsured to help them buy the coverage of their choice.

Tax provisions that tie health insurance only to the workplace are out of date with our highly mobile society and cause people to lose their health insurance when they lose or change jobs.

We need to tie tax breaks to people as people, not as workers, to keep pace with our 21st century economy.

Millions of people are happy with the health insurance they get at work, and nothing should change for them. Employers are increasingly engaged in making health benefits at work a meaningful and valued part of employee compensation. Every dime that is raised by capping the tax exclusion for health insurance — and probably more — should go into direct tax credits to help the uninsured purchase private coverage.

It is indeed hypocritical for the Obama administration now to say it is open to changing the tax treatment of health insurance after spending millions and millions of dollars in ads during the campaign blasting John McCain for his health reform ideas.

The reason they are considering it now is that it's simply the only place the White House and Congress can find enough money to pay for the bigger reform agenda they are planning. The $634 billion that President Obama has set aside as a down payment on reform just isn't enough, according to John Rother of AARP, who estimates the 10-year cost to be about $1.5 trillion.

John Sheils, a senior vice president of the Lewin Group, said about $1.5 trillion to $1.7 trillion would be a credible estimate for a plan that commits the nation to covering all its citizens.

That is more than twice the amount Mr. Obama has set aside in his budget, and there already is fierce criticism of his proposals for raising the $634 billion, including increasing taxes on the home mortgage interest deduction and charitable contributions and limiting payments to Medicare Advantage plans.

But this isn't stopping the Hill from moving forward. Leading House Democratic chairmen have agreed to work together to come up with a health overhaul bill. Three of their key pillars will certainly meet opposition: A mandate that employers provide coverage, a mandate that individuals have insurance, and creation of a new government health insurance plan.

How soon is all of this going to happen? They hope very soon. Democrats want to use a budget process called "reconciliation" to pass both health reform and cap-and-trade (essentially a new tax on carbon emissions). They want to get both passed before the August recess, and House and Senate committees are in overdrive.

There also is a lot of talk about passing the bills without Republican votes, "a move that many lawmakers say would fly in the face of President Obama's pledge to restore bipartisanship to Washington," The Washington Post reports.

"Republicans are howling about the proposal to expand health coverage and tax greenhouse gas emissions without their input, warning that it could irrevocably damage relations with the new president," the Post says. A number of moderate Democrats also have said they oppose the steamroll approach to making such important policy decisions.

The most important question is whether the American people will have time to focus on the details of legislation that could affect every one of us — and our children and grandchildren for generations to come. Shouldn't it be considered absolutely vital to get this right?

Grace-Marie Turner

Recent News Articles and Studies

No Miracle in Massachusetts
Blocking Drug Development
The Supreme Court's Wyeth Blunder
Medicare Drug Benefit Working Well
Canadian Health Care: Coming Soon to a Republic Near You
Socialism and Cancer
14th Annual National Business Group on Health/Watson Wyatt Employer Survey on Purchasing Value in Health Care
Will Obama Go AWOL on VA Health Benefits?


No Miracle in Massachusetts
James C. Capretta, Ethics and Public Policy Center
National Review Online: The Corner, 03/16/09

Having promised lavish subsidies for expansive health insurance, it seems state officials in Massachusetts have finally begun to admit that their health care reform program, passed in 2006, is unaffordable for the state's taxpayers, writes Capretta. There are lessons here for the unfolding debate in Washington, writes Capretta. The Obama team is essentially pursuing the Massachusetts political strategy — cover everybody first with a massive new entitlement program and worry about imposing cost controls later. But make no mistake: If President Obama succeeds, he and the Congress will be back in a year or two or three — when the coverage train has already left the station — to say the financial future of the country depends on agreeing to government-imposed cost constraints, just as Massachusetts officials are doing today.


ocking Drug Development

Gilbert Ross, M.D., American Council on Science and Health
The Washington Times, 03/13/09

If adopted, comparative effectiveness research will lead to major declines in the already-stunted drug pipeline and fewer choices for consumers, writes Ross. The new comparative effectiveness policy is supposedly aimed at discouraging drug makers from wasting money and resources on "me-too" drugs that are similar to older ones that are going off-patent. But some patients respond to one drug and not to others in the same class. Furthermore, having a wide range of options helps keep prices down by fostering competition. And new drugs tend to be more effective than older ones, helping save money in the long run by keeping people out of the hospital. If the Obama administration continues on this anti-pharma path, expect our once-vibrant pharmaceutical industry to go the way of Europe after price controls: major contractions in drug research and the flight of companies to less-restrictive markets, perhaps in Asia.

The Supreme Court's Wyeth Blunder
John E. Calfee
American Enterprise Institute, 03/16/09

The Supreme Court's Wyeth decision will hurt new drug development and limit physicians' willingness to use certain drugs, writes Calfee. With so little apparent restraint on jury decisions about what manufacturers should have done, and with massive punitive damages to be gained from juries far more sympathetic to plaintiffs than to defendants, the scale and success of litigation are likely to mount. The prospect of increased litigation raises R&D costs and reduces take-up for new drugs, which is likely to have its greatest force in connection with innovative drugs that offer hope for conditions that are exceptionally difficult to treat but necessarily involve some risks.

Medicare Drug Benefit Working Well
Peter Pitts, Center for Medicine in the Public Interest
The Sun, 03/11/09

As Washington policymakers and pundits debate over whether government or the free market can provide the best solution to our current financial crisis, the Medicare Part D program has harnessed the best of both worlds to become one of the feds' greatest success stories, writes Pitts. A Harris Interactive Poll found an astonishing 87% of seniors were satisfied with their prescription drug plans last year — up from an already impressive 75% the year before. More than 25 million seniors were enrolled in Part D as of last year and the program is expected to cost nearly 40% less than originally projected. Further, CMS recently announced that 97% of those enrolled in stand-alone drug plans won't see their premiums rise in 2009. When you take a look at the numbers, it becomes very clear why Part D has an approval rating every politician should envy, writes Pitts. Let's hope they notice those numbers as they set out to reform our ailing health care system.


Canadian Health Care: Coming Soon to a Republic Near You
Brian Lee Crowley
Atlantic Institute for Market Studies, 03/12/09

Crowley uses a mix of in-depth research and personal experience to show the faults within Canadian health care and the lessons Americans should draw from the Canadian experience. Crowley also explains that the Canadian system essentially operates as an unregulated, tax-financed, pay-as-you-go monopoly. This commentary is based upon remarks that Crowley gave at last week's conference on "Lessons from Abroad for Health Reform in the U.S." As the U.S. government grows more interested in public health care and more Americans laud its benefits, Crowley warns, "Be very, very careful of what you wish for."

Socialism and Cancer
David Gratzer, M.D., Manhattan Institute
The New Atlantis, Winter 2009

American health care is by some important measures the best in the world, writes Gratzer. A study published in September 2007 of The Lancet Oncology finds that, for the sixteen types of cancer examined in that paper, American men have a five-year survival rate of more than 66%, compared with only 47% for European men. American women have a 63% chance of living at least five years after a cancer diagnosis, compared with 56% for European women. Government-run health care systems control costs by rationing care. In contrast, for all its flaws, the American health care system is eager to embrace new technologies and treatments. But reforms being proposed that would rely on greater government involvement in the U.S. health sector do not bode well: Value in health care — as in the other five-sixths of the economy — will come from competition and choice, not a government committee.


14th Annual National Business Group on Health/Watson Wyatt Employer Survey on Purchasing Value in Health Care
National Business Group on Health and Watson Wyatt, 03/12/09

This survey of 489 large U.S. employers, conducted in January 2009, details current trends and best practices in employer-sponsored health care benefit programs. Key findings:

  • Annual median cost increases for health care including plan changes have reached a plateau at 6% in 2007 and are expected to remain at this level through 2009. Without plan changes, average trends would have been 8%.
  • Today, 51% of companies have a consumer-driven plan in place — nearly a 9% increase over last year. Enrollment in these plans is also increasing at a pace of two percentage points per year, rising to 12% in 2008.
  • More than two-thirds (68%) of those surveyed are very or somewhat supportive of reforms that emphasize greater individual responsibility.
  • The survey also finds that employers do not support most of the commonly prescribed solutions to the issues that plague the health care system: 64% are not very or not at all supportive of an individual mandate and 64% are also not very or not at all supportive of a pay-or-play mandate.

Will Obama Go AWOL on VA Health Benefits?
David K. Rehbein, American Legion
The Wall Street Journal, 03/18/09

President Obama intends to force private insurance companies to pay for the treatment of military veterans with service-connected disabilities, writes Rehbein, national commander of the American Legion, the nation's largest wartime veterans organization. The proposed requirement would not only be unfair, but would have an adverse impact on service-connected disabled veterans and their families. The most severely wounded veterans could easily exceed their maximum insurance benefit, leaving their family without any additional
coverage. Perhaps nobody would be hit harder by the Obama administration's proposal than the thousands of veterans who own small businesses. Not only will their private insurance premiums be drastically elevated to cover service-connected disabilities, but many will be forced to cut staff as a result. The unemployment rate for veterans may climb even higher, as businesses avoid hiring these heroes for fear of the impact they would have on insurance rates.

Upcoming Events

Pathways to Universal Coverage: Payment Reform Strategies for Containing Costs
Alliance for Health Reform Briefing
Friday, March 20, 2009, 12:15 p.m. – 2:00 p.m.
Washington, DC

Can health reform fix care for the chronically ill?
AARP Solutions Forum
Monday, March 23, 2009, 9:00 a.m. – 11:00 a.m.
Washington, DC
For more information please contact Caroline Okumu at 703-717-6243 or aarp@smithfairfield.com.

White House Regional Forum on Health Reform
Monday, March 23, 2009
Des Moines, IA

Can the Market Provide Choice and Secure Health Coverage- Even for High-Cost Illnesses?
Cato Institute Policy Forum
Tuesday, March 31, 2009, 12:00 p.m.
Washington, DC

California Regional Conference on Health Care Reform
Mayo Clinic Health Policy Center Event
Saturday, April 4, 2009
Berkeley, CA



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 www.galen.org.

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