Health Plan's Impact Debated
Saturday, January 27, 2007
President Bush likes to say that his health-care proposal would "level the playing field" between people who get health coverage through their job and those who buy it on their own.
But experts said yesterday that it would tilt that field toward a kind of health insurance that Bush has long favored -- a high-deductible plan paired with a special tax-exempt health savings account, or HSA.
"I think it would be a big push for HSAs," said Mark B. McClellan, a health economist and former top health-policy adviser to Bush.
While McClellan thinks that would be a good thing, other experts said it would benefit the wealthy and undercut Bush's goal of bringing fairness to the private health insurance system.
In contrast with traditional health plans that typically charge $20 co-payments for visits to the doctor, high-deductible plans require consumers to pay hundreds or thousands of dollars out of pocket for medications, physicians' services and hospital care before most insurance coverage kicks in. The deductibles are steep, at least $2,200 for family coverage, compared with about $220 in a traditional plan. But the special savings accounts enable people to accumulate a tax-free pool of their own money to pay the deductibles and other uncovered health bills, rolling over any unused funds to the following year. And premiums for high-deductible plans tend to be lower.
The theory is that the plans, by making consumers feel the costs of their health care, give them an incentive to shop for the best prices for health services and to forgo procedures that they do not need. That is also one of the goals behind the proposal the president rolled out this week.
Bush's proposal seeks to eliminate the long-standing tax break for job-based medical insurance, requiring that a worker's taxable income include any money his employer contributes to help pay the premiums. A new tax deduction -- $15,000 a year for families and $7,500 for individuals -- would help people pay the premiums, either through their job or on their own. The plan faces opposition from Democrats in Congress.
The president contends that the current tax code favors employer-sponsored insurance and encourages covered workers to get more expensive plans, while his proposal would put all insurance buyers on an even tax footing and encourage them to shop for plans that cost less than $15,000.
Average annual premiums for employer-sponsored health insurance were $11,480 for family coverage and $4,242 for individual coverage in 2006, according to the nonprofit Henry J. Kaiser Family Foundation.
Congress cleared a legal path for high-deductible plans to be paired with HSAs in 2003, and so far the new plans account for about 3 percent of the insurance market, according to a study by economists at the Rand Corp. But because they tend to have lower premiums and to allow consumers to accumulate money tax-free, more people would sign up for them as a cost-containment strategy if Bush's proposal were enacted, experts said. The plans would also benefit from shifts from employer-sponsored insurance to the private market, where high-deductible plans are more common.
"It would reinforce HSAs," said McClellan, formerly chief of Medicare. "That's what a lot of people who don't get insurance through their jobs are buying now."
The White House says the proposal would motivate people to seek only the amount of insurance that they really need, helping to control spiraling health-care costs.
"HSAs are a great step in this direction, and this is an even bigger step towards leveling the playing field and removing some of the weird disincentives to getting basic insurance and paying for routine care out of pocket," said Katherine Baicker, a member of the president's Council of Economic Advisers.
Len Burman, director of the nonpartisan Tax Policy Center, said that, in leveling the field, the White House should also seek to scrap the HSA tax break, whose purpose is to counter the tax code's current bias toward comprehensive and expensive employer-provided coverage. Under Bush's plan, it would be the only extra tax break for health insurance -- one that would most benefit wealthy people, who can best afford the financial risk of a high-deductible plan and to sock away a lot of money in an HSA.
"It's a really generous tax break," said Burman, whose center is a joint project of the Urban Institute and the Brookings Institution. "If the goal is to try to get people to spend less on health care, why subsidize high-deductible health plans over aggressively managed care? People who believe that the market is the solution ought not to be prescribing one particular approach. Just create the right incentives for people to economize . . . and let them pick the option that works best."
Burman said eliminating the HSA tax break would bring in billions of dollars that Bush could put toward the other initiative he proposed this week -- giving states special grants to fund innovative ways of covering the nation's 47 million uninsured.
"This is not just free money just sitting there," he said. "There really is a big opportunity cost."