President to Propose Shifting Health Funds to States

By Christopher Lee and Lori Montgomery
Washington Post Staff Writers
Monday, January 22, 2007 11:58 PM

The best solutions to the problem of nearly 47 million Americans lacking health insurance are to be found in states across the country, Health and Human Services Secretary Mike Leavitt said Monday.

President Bush will propose in his State of the Union address tonight, Leavitt said, that the federal government redirect some money from programs such as Medicaid and Medicare into a new grant program to help states devise and implement plans ensuring access to affordable health insurance.

Leavitt, who did not specify a funding amount, said the new Affordable Choices Initiative would help fuel efforts already underway in states such as Massachusetts and California to guarantee access to basic health coverage for everyone.

"The aspiration for all Americans to have access to a basic insurance policy at an affordable price is a widely held sentiment," Leavitt said. "There will be two diverging philosophies on how to solve this problem. One will be to have the federal government ensure everybody, and the other will be, 'Let the states lead.' "

Meanwhile, another Bush health care proposal drew a chilly reception from some Democrats. Bush will urge the creation of new tax breaks for the purchase of health insurance, especially by those who do not get coverage through work. Bush advisers acknowledged Monday that the plan initially would cost the federal government millions of dollars in lost revenue, but said that would be offset by more revenue in later years and the plan would pay for itself within the first decade.

Rep. Pete Stark (D-Calif.), chairman of the House Ways and Means subcommittee on health, said he would not consider changing the tax code the way Bush wants to.

"The president's so-called health care proposal won't help the uninsured, most of whom have limited incomes and are already in low tax brackets," Stark said. Later he added, "Under the guise of tax breaks, the president is pursuing a policy designed to destroy the employer-based health care system, through which 160 million people receive coverage."

The new grant program, like the proposed changes in the tax code, would require congressional approval. States would be eligible for money if they defined what an affordable plan would be, established basic benefit requirements and devised a way (through state subsidies, for instance) to ensure that anyone could afford to enroll, Leavitt said.

Details of where the money would come from have not been worked out, he said, but generally federal officials want to redirect payments that now go to hospitals with disproportionately large numbers of low-income and uninsured patients.

"Rather than perpetually pay the bills of uninsured people, it's better to use part of the money to help them get a basic insurance policy," Leavitt said. "They get better care and the money ultimately goes further."

Bush's proposals follow a wave of policy experiments at the state level to deal with the uninsured, most notably a decision last year by Massachusetts to require all residents to obtain health coverage. The Massachusetts plan would provide subsidies to people who could not afford basic insurance and would impose a fee on businesses with more than 10 employees who do not sponsor insurance for their workers. California Gov. Arnold Schwarzenegger (R) proposed a similar plan this month to cover the 6.5 million uninsured people in his state, funding its $12 billion cost partly through fees on employers, hospitals and doctors.

Other states that are expanding coverage or considering doing so include Maine, Vermont, Pennsylvania, Connecticut, Indiana, Iowa, Louisiana, Minnesota, Missouri, New Hampshire, New Jersey, New Mexico, North Carolina and Wisconsin, according to the National Conference of State Legislatures.

Democrats and some business, labor and consumer groups, however, have called for the federal government to play a more active role in expanding coverage to the uninsured, through increased spending on the federal-state Children's Health Insurance Program.

Some Democrats favor expanding Medicare to allow people under 65 to enroll. Sen. Ron Wyden (D-Ore.) has proposed doing away with employer-sponsored care and replacing it with a centrally financed system of health insurance for everyone.

The plan calls for employer-provided health care benefits to be counted as taxable income for the first time. To offset the impact on taxpayers, the White House proposes to create a standard health-care deduction -- set at $15,000 for families and $7,500 for individuals.

Families who receive employer-provided benefits worth more than that amount when the program would begin in 2009 -- approximately 30 million people, according to White House officials -- would see their tax bills go up. But the vast majority of families with employer-provided coverage -- more than 100 million families -- would see a reduction in their tax bills.

Meanwhile, the plan would give a tax break for the first time to the approximately 17 million families who purchase health care on their own. And it would induce an estimated 3 million families who currently are uninsured to purchase a health plan, said Katherine Baicker, a member of the president's Council of Economic Advisers.

Giving millions of families a large new tax deduction, even while raising taxes on employees with so-called "gold-plated" health care plans, would initially cost the government million in lost taxes, Baicker said, though she declined to provide the cost of the plan.

However, those revenues would be recovered within the first decade, Baicker said, because the deduction would grow at the same rate as inflation, instead of growing at the much faster pace of the cost of health care.

Some groups, such as America's Health Insurance Plans, the health insurance industry association, praised Bush for making health care a priority but reserved judgment on his proposals until more details are available.

"It's so new, and we're just getting our hands around it," said Karen Ignagni, the group's president.

Jay Timmons, senior vice president of the National Association of Manufacturers, expressed similar sentiments.

"The specific details of the plan are key," said Timmons, whose member companies employ more than 14 million workers and provide health insurance for many of them. "The ambitious plan. . . . will impact employers and employees alike."