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Another Shot at the Safety Net

Amy Goldstein writes in today's Washington Post: "President Bush will propose that Americans be allowed to take tax deductions on more of their out-of pocket medical expenses, as part of an initiative the White House believes will rein in soaring health costs by shifting responsibility toward individuals, according to congressional and other sources familiar with the administration's thinking."

But: "Even before most people on Capitol Hill learn of the proposals, several senior congressional aides and health policy experts predicted yesterday that Bush may have a difficult time winning support. They said that fiscal conservatives may balk at the expense, and that many Democrats will argue the changes are inadequate for poor people, who are most likely to be uninsured."

Goldstein writes: "The idea of tax breaks for out-of-pocket medical expenses is borrowed from a recent book by three academics, including two with whom [White House National Economic Council Director Allan B.] Hubbard has close ties: R. Glenn Hubbard, a former chairman under Bush of the White House Council of Economic Advisers, and John F. Cogan, a White House economic adviser when Ronald Reagan was president. Their book, Healthy, Wealthy & Wise , calls for all such spending to become tax-deductible. The authors estimate that the revision in tax law would cost $28 billion a year when phased in completely, although they predict much of that lost revenue would be regained through ripple effects the change would create in the health care system."

David Jackson writes in USA Today about Allan Hubbard's visit to the newspaper's offices.

"People are very, very frustrated about the cost of health care," Hubbard said.

But Jackson writes: "Hubbard said Bush will also devote part of Tuesday's speech to higher energy prices and the rising costs of entitlement programs such as Medicare and Social Security.

" 'Tax reform is not off the table,' Hubbard said. 'At the same time, it doesn't have the priority that health care does right now.' "

More about HSAs

On NiemanWatchdog.org, Harvard Medical School professor emeritus Rashi Fein writes: "One of the strengths of large employer-provided health insurance (and of Medicare) is the sharing of risk across large numbers of individuals. If the pool is fragmented and each of us has his or her individual insurance and savings account, premiums will increase for those who are sicker or older as they fall for those who are healthier or younger. This cannot be justified as a matter of social policy. For instance, it would exacerbate the present situation in which almost 20 percent of African Americans and one-third of Hispanics are uninsured.

"Furthermore, the tax-free characteristics of the savings account provide an incentive to postpone preventive care services and early diagnoses -- if I wait perhaps it will go away and I get to keep the money in the savings account. Yet in some cases such postponements lead to bad health outcomes and even higher long run costs. Thus the savings account approach is not only bad social policy, but -- because it negates the current emphasis on health promotion and disease prevention -- it represents bad medical policy."

Columbia University researchers Sherry Glied and Dahlia Remler recently found that HSAs are not likely to be an important contributor to expanding coverage among uninsured people because most of them do not face high-enough marginal tax rates to benefit substantially from the tax deductibility of HSA contributions.

Leonard E. Burman and Linda J. Blumberg of the Urban Institute call HSAs a "tax cut for rich people."

Ezra Klein writes in the American Prospect that "what HSA's really do is separate the young from the old, the well from the sick. Currently, insurance operates off of the concept of risk pooling. Since health costs tend to be unpredictable and illness isn't thought a moral failing, we all pay a bit more than we expect to use in order to subsidize those who end up needing much more than they ever thought possible. The well subsidize the sick, the young subsidize the old, and we all accept the arrangement because one day we will be old, and one day we will be sick, and no one wants to shoulder that alone.


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