The President’s proposals from the SOTU kind of got lost in the shuffle, but this is one idea that I am definitely behind (as opposed to the Medicare prescription drug benefit). I especially like the idea of attacking the state regulations that create 50 different marketplaces for health-care, and vastly different minimum coverage requirements - hopefully this will turn state-level health-care law into a mirror of state-level corporate law (and if the winner is a Delaware-corporate-style law, even better…).
Here are two articles that are pro the President’s proposals. I’m interested to see what people think.
Big Health-Care Ideas
February 21, 2006; Page A18
Washington denizens who say the Bush Administration is out of domestic ideas haven’t been paying attention. The more we look at the fine print in the health-care reforms President Bush is now stumping for, the more we see the potential for the most sweeping and beneficial changes in half a century.
One way to think about the Bush reforms is as HillaryCare in reverse. The former first lady sought to mandate employer-based coverage and then hold down costs by brute government force (“managed care”). Mr. Bush is instead attempting to revitalize the private market for individual health insurance, so employees are ultimately less dependent on their bosses’ coverage and can ultimately buy the kind of insurance that makes better sense for them. Along the way, Americans would also become wiser consumers of health-care services.
The reason most Americans get their health insurance from their employers is an artifact of history and the tax code. Companies subject to wage and price controls during World War II used health insurance to attract workers, and Congress later made employer-provided insurance tax deductible. Employers also have another huge advantage if they are large enough to create their own risk pool (or “self-insure”), since they are then allowed to evade expensive state insurance regulations and abide instead by a more rational federal scheme known by the acronym Erisa.
These tax and regulatory advantages have worked well for those lucky enough to be inside the employer system, but they have also made it cheaper for employers to offer gold-plated health plans. That means consumers, in turn, have had little incentive to pay attention to prices, contributing to double-digit annual increases in health-care inflation. That burden is now starting to affect the bottom line of employers, who are passing along more of those costs to workers in the form of higher premiums, or less overtly in smaller wage increases.
For those who don’t work for large employers, meanwhile, the current system is simply unfair. Individuals and small businesses wanting to buy insurance must comply with expensive state regulations. And individuals must do it with after-tax dollars. This is what Mr. Bush, to his credit, wants to correct.
The centerpiece of his strategy is the Health Savings Account, which combines an insurance policy with a deductible of $1,050 or more with a tax-free savings account to help people pay pre-deductible expenses. Critics say the relatively high deductible makes HSAs work only for the “healthy and wealthy.”
But in fact HSAs are what health insurance would have looked like all along if the employer-insurance tax exemption never existed. That is, insurance for catastrophic illness to prevent destitution but not for routine care. (Think of it this way: What’s the deductible on your car insurance?) And with more than three million HSA policies already in existence, there is plenty of data showing high customer satisfaction among policy holders of all ages and incomes.
Mr. Bush is proposing to supercharge HSAs in several important ways. He’d allow HSA premiums to be paid from the tax-free savings account, which have the potential to rise in value every year. And he’d give individual purchasers a credit for the 15% Social Security and Medicare payroll taxes that they and their employers have already paid on those dollars. That creative idea would fully equalize the tax treatment for all insurance purchases.
The Bush proposals would also make HSA policies fully portable and easier to buy. For individuals, this means breaking down the current barrier to purchasing insurance across state lines, an archaic system that makes no sense in an age where interstate banking is commonplace. And if the purchaser is an employer, Mr. Bush wants to change the current self-insurance rules to allow companies to buy portable policies that could follow employees much like their 401(k) retirement accounts.
The economic benefits could be profound. No longer would individuals have “job lock,” meaning that they fear leaving a job they otherwise dislike because they’re afraid to lose their insurance. Especially for someone with an illness in the family, this would be liberating and provide more health-care security. Genuine insurance portability would also help the overall economy, by freeing employees to move to jobs where they would both be happier and better utilized. Those who dismiss HSAs as another “tax shelter for the rich” are ignoring the benefits to moderately paid workers.
On HSAs, finally, Mr. Bush also wants to increase the allowable contribution limits. Thus contributions up to the out-of-pocket maximum (including all co-pays), not just the deductible, would be allowed for most people. This could be as much as $10,500 a year for families, half that for individuals. The White House proposals would also allow employers to make larger deposits to the HSA accounts of individuals with chronic conditions such as diabetes, in order to make the accounts attractive for them as well.
Another proposal goes by the name of Association Health Plans, which were originally proposed as a way of allowing small businesses to band together for greater purchasing power when they buy insurance. It’s a good idea, and the President wants to make it better by allowing not just businesses but voluntary associations like churches to participate too. He’s also still pushing to rein in outrageous malpractice insurance costs. And he wants to facilitate the consumer-driven system he’s touting by encouraging doctors and insurers to be more transparent about prices.
We might quibble with some other details, especially the “refundable” tax credit. But all things considered, Mr. Bush has assembled an ambitious and mutually reinforcing set of health reforms. The key principles are equal tax treatment and portability. These ideas give Republicans in Congress a chance to pass reforms that address genuine problems and are consistent with their free-market principles. Let’s hope they understand their historic opportunity.
The National Review
The answer to ClintonCare, and a very good one
JOHN C. GOODMAN
In his State of the Union address, President Bush devoted only a few sentences to health policy. But, to coincide with the speech, the Bush administration released a five-page document proposing health-policy reforms so sweeping and bold as to merit comparison to the scope ? though certainly not the content ? of Hillary Clinton?s plan of a decade ago. If the White House is able to see its proposals through, it will leave a lasting and positive mark on American social policy.
One component of Bush?s reforms is Health Savings Accounts (HSAs). The idea behind HSAs is quite simple. Individuals should be allowed to manage some of their own health-care dollars through accounts they own and control. They should be able to use these funds to pay the costs of out-of-network doctors, diagnostic tests, and other procedures not covered by third-party, catastrophic insurance. The accounts should be tax-free, and should eventually be available for non-medical purposes, letting individuals profit from wise decisions that allow them to reduce their health-care costs.
The logic of such accounts is that they bring health incentives in line with market incentives. Right now, because consumers of health care don?t control the dollars with which that care is purchased, they have little incentive to keep expenses down. HSAs provide such an incentive. Some people will respond by seeking information about treatments and health-care providers over the Internet, choosing the options that are most cost-effective. Some may bypass primary-care physicians altogether and directly order their own diagnostic tests or seek online specialist consultations. Others may forgo name-brand drugs in favor of less expensive generic medications, therapeutic substitutes, and over-the-counter drugs. Studies show that, with a modest amount of training, diabetics, asthma patients, and others can manage their own health care and achieve results at least as good as, and at lower cost than, traditional care. The general principle is that people will not choose to spend a dollar on health care unless they get a dollar?s worth of benefit ? and this will place downward pressure on both medical costs and insurance premiums.
HSAs were first created along with the prescription-drug entitlement signed into law in 2003. But their scope was much smaller than what many reformers had hoped for. The president?s proposal would address this deficiency by increasing the amount people can contribute to their HSAs, making HSAs easier to obtain, and giving people incentives to obtain them (by creating additional benefits that apply only to HSA plans).
Bush?s reforms also address the question of tax fairness. The main reason companies provide their workers with health insurance ? rather than higher wages with which they could buy their own insurance ? is that, under current tax law, every dollar an employer pays for employee health-insurance premiums avoids federal income and payroll taxes, as well as state and local income taxes. For a middle-income employee, this tax subsidy means that the government is effectively paying almost half the cost of his insurance ? even as people who buy their own insurance must do so with after-tax dollars.
The White House proposal corrects this inequity by allowing individuals who buy their own health plans to deduct insurance premiums from their income taxes. In addition, a tax credit would offset the payroll taxes on income that goes toward premiums. These reforms would mean that employers had no reason to compensate their employees in insurance rather than wages, aside from economies-of-scale or other advantages associated with large purchases.
Bush?s reforms would also allow employers to buy individually owned, personal, and portable insurance for their employees. Initially, the employers would pay most of the premiums (as they do today). But, because the insurance would be owned by the employees, it would move with them as they traveled from job to job and home to home. They would get portable insurance, but at group-insurance prices.
This portability is not simply a matter of convenience; it would also improve the quality of health care. One disadvantage of the current system is that most of us are vulnerable to losing our coverage if we become unemployed. Moreover, virtually all employer health-insurance contracts last only twelve months. At the end of the year, an employer searching for ways to reduce costs might choose a different health plan or stop providing insurance altogether. A switch in health plans or a job change often means switching doctors as well, since plans tend to provide coverage only for doctors within their own networks. Additionally, different employer plans come with different benefit packages. So coverage for some services, like mental-health care, are included in some plans but not in others.
For people who are healthy, these disruptions may be only minor inconveniences. But for the chronically ill, breaks in the continuity of care can present major challenges. Not surprisingly, one study of chronically ill workers found that those who rely on their employers for coverage have an average job-mobility rate 40 percent lower than that of those who obtain their health insurance through other means.
Chronically ill workers would also benefit from another of the proposed reforms: allowing employers to make special deposits into employees? HSAs. Employers currently make different premium payments on behalf of different employees, depending on the employees? expected health-care costs. Similarly, the president proposes that employers be permitted to make deposits of varying amounts to different HSAs, allowing them to respond to the individual needs of their employees.
Finally, Bush?s reforms would let consumers buy insurance from a national marketplace instead of being restricted to providers in the states where they happen to live. Many cities and towns are served by only one insurer. The coverage available may be overpriced, with benefits that do not fit the needs of many individuals and families; but, with few or no alternatives, buyers must either purchase an unsuitable policy or forgo insurance altogether. Furthermore, state governments regulate health insurance excessively ? and they do so in 50 different ways. Beyond collecting taxes, imposing price controls, and regulating access to insurance, states also require buyers of insurance to pay for extra benefits they may not want. Studies estimate that as many as one in four uninsured Americans has been priced out of the health-insurance market by these regulations and mandated benefits.
The president would allow insurers to sell insurance in all states under the rules and regulations of their home state. This is a major step in the direction of replacing 50 overregulated markets with one large, relatively free, and less costly market. Thanks to the Supreme Court, you can buy wine across state lines ? and that has led to a big drop in wine prices. National competition in the insurance industry would cause premiums to plummet in a similar fashion.
If passed, all of these reforms will make health insurance more affordable and more accessible. They will reshape the health-care marketplace by empowering patients to make their own choices about the care they receive. They will strengthen the doctor-patient relationship and allow doctors to be agents of their patients rather than of third-party payers. They will, in short, be a vast improvement over our current system.
Mr. Goodman is president of the National Center for Policy Analysis.