Health Care Under Fire

[Guest guest]

http://www.motherjones.com/news/dailymojo/2004/08/08_530.html

 

August 24, 2004

Health Care Under Fire

 

(Note: this is the second in a series of critical

looks at George W. Bush's second-term agenda. Read

Part One here.)

 

Everyone's talking about it, no one seems to have seen

it. What is it? Why, President Bush's mythical,

much-hyped, second-term agenda! On Tuesday the

Washington Post reported that more than a few

Republican strategists are antsy over the lack of any

specific policy proposals from the Bush camp. His

reelection website's " Agenda " page is devoid of

detail, and his vague hand motions about an " ownership

society " remain just that -- vague hand motions.

 

There is, of course, one big exception: health care.

With over 43 million Americans lacking insurance, with

health care costs shooting through the roof, and with

38 percent of Americans dissatisfied with the

president's response, Bush apparently thought he had

to say something. The only problem: his health care

proposals, as stated, will do little to cover the

uninsured, and run the very real risk of throwing our

national insurance system into utter chaos. While the

media obsesses over the all-important question of

whether John Kerry spent Christmas in Cambodia or not,

no one seems to notice that the president is planning

a full-fledged assault on health care.

 

Essentially, the Bush plan breaks down into three

major components. First, Bush plans to offer tax

credits to those low- and moderate- income individuals

who do not receive health coverage from their

employers. Second, he wants to use Health Savings

Accounts (HSA) to create a national " catastrophic

insurance " program. Third, he plans to set up

Association Health Plans (AHP) that would allow small

businesses to pool their resources together and

negotiate better prices from insurance companies. Each

sounds good in theory, but as with any policy, the

devil is in the details, and our policy-averse

president has no intention of struggling with the

details.

 

Tax credits. The Bush campaign has estimated that its

plan to spend $70 billion over 10 years on health tax

credits will cover anywhere from 4 to 5 million

people. The credits -- $1,000 for individuals, $3,000

for families -- would go to those families slightly

above the poverty line who do not qualify for Medicaid

or other state programs. (John Kerry, by contrast,

would simply expand state programs.)

 

Seems like a lot of bang for your buck, doesn't it?

Unfortunately, the tax credits are much too small to

help most families. The National Coalition on Health

Care has calculated that the average family premium

will rise to $14,500 by 2006 (and that's if none of

Bush's other policies, which will likely raise

premiums for low-income families, are enacted). How,

exactly, does the president expect those families to

come up with the remaining $10,000? Not even the

sunniest of conservatives believe that malpractice

reform and other gimmicks will ratchet down premiums

by that much. It's no wonder, then, that the

independent Center for Budget and Policy Priorities

(CBPP) figures that Bush's tax credits will cover, at

best, 10 percent of the uninsured. CBPP also pointed

out that Bush expects to pay for the tax credits

through cuts in other programs -- the sort of

budgeting chicanery that usually doesn't add up.

 

More importantly -- and this is a common theme in all

of Bush's health proposals -- the credits offer

incentive for businesses to drop their current

employees. Jonathan Gruber, an economist at the

Massachusetts Institute of Technology, predicts that

many firms will simply drop coverage for employees,

letting workers take advantage of the tax credit

instead.

 

Two problems will then emerge. First, less-healthy

individuals usually get better premium rates when they

can pool together with other employees. When left to

fend for themselves in the open market, these

individuals will only be able to get rates far in

excess of what the tax credit can cover. Hence, Gruber

estimates that 1.2 million of these dropped employees

won't get any insurance at all. Second, since many

young and healthy workers will simply leave their

company plan to get the tax credit, premium rates

would rise for all of the remaining workers in the

company (since they would become, as a group, less

healthy). That, in turn, would provoke the next batch

of healthy workers to leave the company plan, leading

to a vicious cycle of rising rates and declining

coverage. In the best case scenario, then, after

everything shakes out, Gruber estimates that Bush's

plan would only cover a net 1.8 million new workers.

That's it. 82 percent of the tax credits would go

towards workers who are already insured, while raising

rates for everyone else.

 

Health Savings Accounts. Health Savings Accounts

(HSAs) were included in the 2003 Medicare Reform Bill,

but Bush is planning to expand their scope in his

second term. Basically, the government would provide

high-deductible insurance to individuals -- in which a

family has to pay the first $2,000 in health care

costs before coverage kicks in. But, they can take

money out of their tax payments and put it in a Health

Saving Account, where they can withdraw the money

tax-free to pay for those initial costs. Furthermore,

in his State of the Union address, Bush proposed that

individuals who choose this " catastrophic health care

coverage, " along with HSAs are allowed to deduct 100

percent of the health plan's premium from their taxes.

 

Again, in theory, this isn't a terrible idea. As the

Los Angeles Times reported, many consumers like having

control over how that first $2,000 is spent. Plus,

when individuals are responsible for initial costs,

they tend to think twice before getting unnecessary

treatment, which can keep health costs down.

 

But in practice, Bush's program would devastate health

care as we know it, offering massive benefits to " the

wealthy and the healthy " , while leaving everyone else

in the dust. For starters, notice that HSAs are only

attractive to a small subset of the population. A

person making $25,000 a year usually can't afford to

spend $2,000 on initial health care costs, let alone

save up enough to put money in a HSA. So they'll

probably opt instead for a plan with a much-higher

premium. On the other hand, someone making $100,000 a

year can easily afford those initial costs, and can

also save up enough money to create a sizable,

tax-free health care kitty in the HSA. Oh, and notice

that the second, wealthier person basically pays no

insurance premium (since it's tax-deductible). It's

quite the deal. Notice also that younger, healthier

individuals will take the HSAs, since they can likely

avoid paying that initial $2,000, and thus get free

catastrophic insurance -- along with a nice little tax

shelter to pay for future medical costs!

 

Would this actually happen? It has in the past;

consider that only 80,000 people nationwide have

bought into Archer Medical Savings Accounts, a close

cousin of Bush's HSAs. Furthermore, Health Services

Research, a medical journal, recently published two

studies showing that such " defined contribution plans "

attract primarily the wealthy and healthy -- everyone

else stays away.

 

We then get the same vicious cycle that we saw with

the tax credits. Employers start purging their

employees from the ranks -- sending them into

individual HSA plans -- and premiums go up, provoking

a new round of purges. Meanwhile, the premiums for

traditional plans go up -- since the healthy folks are

no longer around to subsidize the sick. That means

insurance companies try to find ways to avoid covering

the sickest and most expensive individuals. Note also

that wealthier seniors would likely opt in to the

accounts, so as to save on out-of-pocket expenses,

meaning that Medicare coverage for the elderly would

be adversely affected.

 

In essence, Bush's proposal aims for the exact

opposite of what John Kerry is trying to do. By

getting the government to cover the priciest medical

bills, Kerry's health care plan would give insurance

companies incentive to cover more people, and hence

let everyone share the risk. Bush's health care plan

would shatter the very concept of community pooling --

a surefire way to drive up insurance costs.

 

Most distressingly, the savings accounts would further

bankrupt the federal government by diverting away a

large share of tax revenue, leaving Washington unable

to respond if and when the private insurance system

implodes. In an April study, the Center for Budget and

Policy Priorities noted that the savings accounts

" breached a longstanding bright-yellow line " by making

both deposits and withdrawals tax-free. While the Bush

campaign has estimated that the HSA proposal would

only cost $150 billion over the next ten years, in the

long term the program would divert " some hundreds of

billions or even trillions of dollars of what

otherwise would have been taxable income. "

 

Oh, and this fiscal crisis will get us -- even by the

Bush campaign's most over-bloated calculations --

would cover a mere 1.9 million of the 44 million

uninsured. (The actual number, according to MIT

economist Jonathan Gruber, is probably closer to

350,000).

 

Association Health Plans. Bush's final proposal would

create Association Health Plans (AHPs) for small

businesses, allowing those companies to pool their

insurance risk on a national level in order to

negotiate better premium rates. Again: laudable in

theory, disastrous in practice. Studies have shown

time and again that AHPs do little to cover the

unemployed. The nonpartisan Congressional Budget

Office (CBO) estimated in 2003 that the plan would

only cover an additional 600,000 workers, at a price

of $245 million. Meanwhile, a study by Mercer Risk,

Finance, and Insurance Consulting found that AHPs

could increase the number of uninsured by over a

million -- in part because the plan would spur (yet

again!) a vicious " adverse selection " cycle among

employers.

 

Indeed, the CBO estimated that the vicious cycle would

raise premiums for 80 percent of businesses, mainly

because those companies that joined an AHP would

likely band together with healthier groups and

individuals. Everyone else gets left out. Meanwhile,

the Center for American Progress observed that those

workers who stay in an AHP will no longer be protected

by state regulations, meaning that businesses could

craft insurance policies to weed out the less healthy.

Indeed, because businesses would no longer operate

under state oversight, consumers would find themselves

at greater risk for fraud. (This sort of thing

happened in the 1970s, when Congress experimented with

a similar program -- the " multiple employer welfare

arrangements.)

 

All of Bush's major health care proposals have a few

characteristics in common. They would give large

businesses a chance to cast their workers out into the

open market. The proposals would eradicate the

practice of community pooling, instead creating a

two-layered system of healthy individuals with low

premiums and sick individuals with unaffordable

premiums. And they would allow insurance companies to

jack up premiums for those who need medical coverage

the most. And together the proposals would cover only

a tiny fraction of the 44 million uninsured Americans.

Tell us again why Swift Boat Veterans are dominating

the news cycle?

 

-Bradford Plumer