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February 6, 2006

Washington Health Policy Week in Review Archive 1e2f3882-f66c-48ea-991f-7f832ec04fd0

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Dems Seize on GAO Findings as Proof of HSA Flaws, But…

FEBRUARY 2, 2006 -- House Democrats said a Government Accountability Office study they released Thursday shows that health savings accounts attract healthier and wealthier employees, proving the plans won't work for sicker people and those with lower incomes. But the GAO data stop somewhat short of reaching those conclusions.

Rep. Pete Stark, D-Calif., said the report "verifies" that the accounts and the high-deductible health plans accompanying them "are designed for healthy, wealthy people. Despite this reality, President Bush is pushing them on low-income workers—not to provide them with better health insurance, but to meet his long-term goal of dismantling employer-provided health care."

The study looked specifically at who signed up for HSAs the first year they were offered in the Federal Employees Health Benefits Program (FEHBP). Enrollees were generally younger and earned federal salaries of $75,000 or more, the study found.

Democrats argue that HSAs are a poor fit for low-income and sicker people because the high deductibles involved will cause them to skip care. They add that healthy people will be drawn to them because they figure they don't need care and like the tax advantages and investment returns of HSAs. As healthier people leave traditional coverage, they will leave behind a sicker risk pool whose premiums will then rise to the point of making comprehensive health benefits unaffordable, Democrats add.

Although the GAO report found that HSA enrollees were younger, it did not say they were healthier. Additional data will be needed to determine the health status of HSA enrollees, the report said.

The average age of enrollees was 46, compared with 59 for all enrollees in the federal employees health program. "The age difference was largely due to a smaller share of retirees enrolling in the high-deductible health plans compared to the other plans," GAO added.

Excluding retirees, the average age in the HSA-related high-deductible plans was 44, compared with 47 for all FEHBP enrollees.

The report also raised the possibility that new plans of any kind may attract younger enrollees. In looking at the age makeup of another type of newly introduced plan in FEHBP unrelated to HSAs, the study also found a similarly young group of enrollees. "Thus it is not clear whether younger individuals were uniquely attracted to high deductible health plans, or if younger enrollees are typical of recently introduced health plans in general," GAO found, adding that more years of enrollment data will be needed to settle such questions.

HSA Enrollees Wealthier
Forty-three percent of enrollees in the health plans accompanying HSAs earned federal salaries of $75,000 or more compared with 23 percent of all FEHBP plan enrollees. Although not necessarily predictive of future enrollment trends, the salary difference may suggest that HSAs "uniquely attract higher-income individuals with the means to pay higher deductibles and the desire to accrue tax-free savings," GAO said.

The study also examined other aspects of HSA-related health plans. The range of services they covered, including preventive care, was generally the same as in traditional plans. HSA enrollees faced deductibles almost three times higher.

Cost-sharing for preventive care was "the same or less than [for] traditional plan enrollees and always covered certain preventive care services before the deductible was met." These same services "were not always covered before the deductible by their traditional plan counterparts."

But traditional coverage was much more likely to pay for prescription drugs before the deductible was met. In reviewing three traditional plans, GAO found that two covered all prescription drugs before the deductible and that the third covered generic drugs before payment of the deductible. In comparison, the high deductibles of HSA-related health plans had to be paid before prescription drug coverage began.

Monthly premiums were lower for the HSA-related plans, averaging $91 for individual coverage and $208 for family coverage, compared with $99 and $243 for the traditional plans studied.

The study found that HSAs are a work in progress when it comes to delivering on other promised advantages. The theory is that HSAs will bring down care costs because they will give enrollees an incentive to shop for better value by comparing the cost and quality of doctor and physician care. But the study found that much of that comparative data are not yet available.

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House Sends Budget Savings Package to White House

FEBRUARY 1, 2006 -- House Republicans cleared a $39 billion budget savings package on Wednesday, sending President Bush the first cuts in entitlement programs such as Medicare, Medicaid, and student loans since 1997. The vote was 216–214.

Not a single Democrat voted for the package of cuts (S 1932), which will save $39 billion over five years and $99 billion over a decade. Republicans had to struggle to round up the last few votes. Among the last to vote "yes" were Frank A. LoBiondo, R-N.J., and Nancy L. Johnson, R-Conn.

Final action on the savings package sets the stage for a House–Senate conference on a $70 billion package of tax cuts (HR 4297) that will be shielded from filibusters in the Senate under the budget reconciliation process.

The House was forced into a second floor vote on the final version of the savings package after Senate Democrats used budget rules Dec. 22 to strip out three minor provisions. The House had adopted the conference report 212–206 Dec. 19 in a pre-dawn vote and then left for the holiday recess.

The budget savings package will cut about 0.3 percent of federal spending over five years, and will put only a small dent in the budget deficit. But it nonetheless sparked spirited debate, with Republican leaders arguing for overhauling entitlement programs to cut the growth in mandatory spending in advance of the retirement of the baby boom generation. Democrats charged that Republicans were carving needed dollars from programs that help the poor and the middle class to partially offset tax cuts for the wealthy.

Democrats, who are sure to use the vote as fodder for the fall elections, noted that millions of poor Medicaid recipients will be asked to shoulder higher costs for medical care and prescription drugs, and college students and parents will pay higher interest rates on loans. They also highlighted conference deals that spared insurance companies and drug manufacturers from tens of billions of dollars in cuts proposed by the Senate, terming those deals part of a "culture of corruption."

The package also trims agriculture subsidies and child support enforcement aid to states.

The measure includes provisions requiring a conversion to digital television by 2009, $1 billion to continue an expired milk subsidy program for two years, and $1 billion for heating subsidies for low-income Americans in fiscal 2007. It also requires companies with defined benefit pension plans to pay higher premiums for their federal insurance, an effort to shore up the Pension Benefit Guaranty Corporation.

Second Round Ahead?
It remains unclear how hard GOP leaders will push for a fiscal 2007 budget savings package, given the difficulty they had guiding this year's legislation through Congress. President Bush is expected to urge more cuts in mandatory spending when he sends his next budget to Capitol Hill on Feb. 6.

GOP budget leaders have called for such a package, but many rank-and-file members are not so eager in an election year.

Bush, meanwhile, shied away from specifics in his State of the Union address Jan. 31, proposing instead a bipartisan commission to examine Medicare, Medicaid, and Social Security costs. Bush said he will propose cutting 140 government programs, saving $14 billion next year, but gave no specifics.

Opponents of the fiscal 2006 budget bill hope that their efforts—which included lobbying for months in the districts of moderate GOP lawmakers—will make the majority more reluctant to seek a reprise. But fiscal conservatives, noting projections of trillions of dollars in red ink to come, have termed the $39 billion package a warmup for what will be needed in the future.

The House vote was viewed as important to the chances of Roy Blunt, R-Mo., to be elected majority leader in Republican Conference elections Thursday. A defeat on the budget bill would have given ammunition to his rivals, John A. Boehner of Ohio and John Shadegg of Arizona, although Blunt and Boehner denied any connection between the leadership race and the budget vote.

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McClellan Gets an Earful in First Hearing on Medicare Drug Benefit

FEBRUARY 2, 2006 -- For the first time since the Medicare prescription drug benefit started Jan. 1, administration officials appeared at a hearing on Capitol Hill to defend their handling of the drug benefit rollout. And they got an earful from senators who are angry about the problems some beneficiaries have had.

At a hearing before the Senate Special Committee on Aging, Centers for Medicare and Medicaid Services Administrator Mark B. McClellan vigorously argued that legislation would not be necessary to smooth the transition for many of the "dual eligible" seniors who are being transferred from Medicaid to Medicare drug coverage. Some beneficiaries have had higher co-payments because of incomplete or inaccurate information in databases used to determine who is eligible for the drug benefits.

McClellan also said his agency saw no need to extend the May 15 deadline for general enrollment. Democrats plan to offer an amendment to the tax reconciliation bill that would extend the enrollment deadline.

McClellan said CMS had decided to extend from 30 days to 90 days the period during which plans must cover a patient's prescription if the drug isn't on the new plan formulary. That move would give seniors more time to check with their doctors and determine proper treatment if their drug plan does not offer the medication they had been taking, McClellan said.

Committee Chairman Gordon H. Smith, R-Ore., asked McClellan why the agency hadn't stepped in earlier. "Many of these problems are problems we foresaw," he said, asking McClellan why the warnings were not heeded. McClellan responded that Medicare had made some adjustments before the drug plan started and they were "watching very closely" to see whether any other problems arise.

But Democratic senators blasted the administration's handling of the new benefit. "We should scrap this and start over," said New York Democrat Hillary Rodham Clinton. "It is an absolute embarrassment, outrage, heartbreaking disappointment."

But Rick Santorum, R-Pa., said such calls are premature. "We should not be so flippant in casting out babies with bath waters," he said. "With compromise, you don't get the optimal solution. But it was the best we could accomplish given the deep divisions in Washington."

Senators also complained about the complexity of the new drug benefit in which seniors can be faced with scores of drug plans to choose from.

"We're going to see competition lead to more simplicity," McClellan said. "We do want to make it even easier" for seniors to sign up, he said.

That remark prompted an outraged Sen. Ron Wyden, D-Ore., to shout over McClellan: "Even easier? Even easier? It is bedlam out there."

But McClellan said "looking at simplifying it is the next step," once the enrollment problems are ironed out. He said market pressures would lead to greater simplicity, adding that more plans are already using standard forms instead of making providers fill out lengthy paperwork.

McClellan presented a Department of Health and Human Services report that the federal government will spend about 20 percent less per person in 2006 and 10 percent over the next five years. Payments are projected to be more than 10 percent lower than first estimated. He also noted that average premiums were now at $25 a month.

The Centers for Medicare and Medicaid Services announced on Thursday that the net cost to the federal government for the drug coverage in 2006 is expected to be $30.5 billion. That's down from a previously estimated $38.1 billion.

The actual costs to the federal government, accounting for Medicaid savings, are also significantly lower over 10 years, dropping from last year's estimated $737 billion to $678 billion, according to CMS.

CMS estimates that the cost of the Medicare drug benefit without accounting for Medicaid savings from 2006–15 is about $130 billion less—$797 billion—compared with an estimated $926 billion last year.

States will save $37 billion over 10 years because of the revised estimates of the drug benefit's cost, according to CMS. States are on the hook for part of the cost of the Medicare drug benefit under the Medicare overhaul law (PL 108-178).

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State of the Union Address: The Rest of the Health Care Story

FEBRUARY 1, 2006 -- Although tax breaks dominated health care coverage of President Bush's State of the Union address, the speech wove in other health-related issues that allow GOP candidates in the midterm congressional elections to talk the talk on health care this fall regardless of whether they can walk the walk.

Bush, for example, called for the creation of a new bipartisan congressional commission on Social Security, Medicare, and Medicaid. Military and other spending priorities and Bush's goal of cutting the federal deficit in half by 2009 put pressure on the president to cut Medicare and Medicaid entitlement spending again this year.

A new commission could give him some cover and reduce the political fallout, according to Daniel Mendelson, who was in charge of federal health care budgeting in the White House Office of Management and Budget under President Bill Clinton.

Elevating the entitlement issue now also gives Republicans a shot at turning Medicare cuts into a political virtue when the cuts are normally seen as a political liability. With the enormously expensive era of baby boomer Medicare looming, the need for painful changes in entitlement programs must be confronted, they can argue.

"We need to put aside partisan politics and work together to get this problem solved," Bush said in his speech Tuesday night.

Any moves to trim Medicare and Medicaid spending exposes Bush to attacks that he is undermining health coverage at a time of rising uninsurance. But Bush can counter by saying health savings accounts are proving to be a popular and affordable health care option, and that his tax breaks will make them even more affordable, Mendelson added. Mendelson now heads Avalere Health, a Washington-based consulting firm.

Bush also can argue that the accounts have the potential to tame another big health care problem bedeviling Americans, that of rising costs.

On that front, Bush called attention to two other proposals Republicans say will restrain rising health care costs: overhauling the nation's medical malpractice laws and spurring adoption of health care information technology.

Bush appealed to social conservatives with a call to pass legislation that would "prohibit the most egregious abuses of medical research." Bush specifically called for an end to "human cloning in all its forms; creating or implanting embryos for experiments; creating human-animal hybrids; and buying, selling or patenting human embryos."

Bush tied his appeal on medical research to religious morals. "Human life is a gift from our creator, and that gift should never be discarded, devalued, or put up for sale," he said.

Bush also sought to build on the good will he has built up among African Americans with his record of increased spending to counter HIV/AIDS. While his increases have focused more on global HIV/AIDS, his emphasis Tuesday evening was on domestic spending.

"A hopeful society acts boldly to fight diseases like HIV/AIDS, which can be prevented and treated and defeated," he said. "More than a million Americans live with HIV, and half of all AIDS cases occur among African Americans," he said.

"I ask Congress to reform and reauthorize the Ryan White Act and provide new funding to states so we end the waiting lists for AIDS medicines in America," Bush said. "We will also lead a nationwide effort, working closely with African American churches and faith-based groups, to deliver rapid HIV tests to millions, end the stigma of AIDS, and come closer to the day when there are no new infections in America."

Missing from the speech was any reference to specific dollar amounts Bush plans to spend on any of the initiatives. Health care lobbyists aren't holding their breath.

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White House Makes Its Strongest Push Yet for HSAs

FEBRUARY 1, 2006 -- The ambitious proposal advanced by President Bush to expand health savings accounts represents the administration's strongest push yet to convince employers and workers to embrace "HSAs" as a way to get more for their health care dollar.

Unveiled Tuesday in the State of the Union Address, the proposal would improve the tax treatment of HSAs and make them portable, allowing workers to keep them when they change jobs or leave the work force. More details on the proposal will be released when the administration releases its budget Feb. 6.

Bush's HSA plan would allow premiums to be paid from the tax-free accounts. Also, the plan would permit an employer to put more cash in the accounts for a chronically ill employee, with the employer determining who those workers are and how much extra they would receive.

Other elements include making premiums for HSA-compatible insurance policies deductible from income taxes for individuals who purchase them on their own—rather than through an employer—and eliminating all taxes on out-of-pocket spending through HSAs.

National Economic Council Director Allan Hubbard said Wednesday that HSAs give consumers "more skin in the game" when it comes to determining how to spend their money on health care. Proponents of HSAs believe that traditional insurance, which requires monthly premiums, deductibles, and co-payments, rarely gets consumers as close to the cost of health care as an HSA does.

Democrats said Wednesday they were confident they could defeat the Bush plan.

At a Capitol Hill rally, Sen. Ted Kennedy, D-Mass., called the accounts a "fraud" that would do little to help sicker individuals get the health care they need, nor would they help the 45 million Americans without health insurance get coverage.

"Like his Social Security privatization fiasco, President Bush's health savings accounts are a gimmick that will only make a bad situation worse," Kennedy said.

Senate Minority Leader Harry Reid, D-Nev., emphasized Bush's lack of progress in overhauling the nation's health care system. He criticized Bush for not being "credible" when he spoke about controlling health care expenses in his speech Tuesday night.

"He keeps talking about how he wants to improve health care but it's been five years and we've seen no improvements," Reid said of Bush.

The Democrats also said they were surprised that Bush's talk made no mention of the new Medicare drug benefit or the problems some beneficiaries have experienced since it began Jan. 1.

"This is month two. What's going to happen this month to the people?" said Sen. Debbie Stabenow, D-Mich. Reid added that "ignoring the problem won't make it go away. We need to fix Medicare and we can do it now."

Hubbard said there were "a number" of things the president did not mention in his speech, adding that "an enormous amount of progress" had been made in smoothing out difficulties and that the benefit was working well. "A million prescriptions are being filled every day, and 50,000 new Americans are signing up for Part D every day," he said.

In addition to expanding HSAs to improve coverage, Hubbard said Bush plans to focus on ways to give consumers more information about the price of health care to help patients more carefully spend their health care dollars.

"This wasn't mentioned last night, but the president is going in the next couple of weeks to start taking about the importance of providers making information available to their customers ... about both quality and price, so people can become good consumers," Hubbard said in a conference call with reporters.

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Wonks Warn Bush: HSA Plan Is Big Threat to Traditional Insurance, Federal Budget

FEBRUARY 3, 2006 -- The White House plan to spur sales of health savings accounts is more "radical" than advertised, posing a major threat to comprehensive health care for most Americans and to the federal budget, liberal analysts said Friday.

The health savings account (HSA) proposal is "almost designed to undermine traditional [employer-sponsored] insurance," said Len Burman, a senior fellow at the Urban Institute.

The plan would create powerful new tax incentives and thereby pull healthy people out of the risk pool, said Burman and other analysts in a telephone press briefing sponsored by the liberal Center on Budget and Policy Priorities (CBPP). That mixing of risks historically has kept traditional comprehensive benefits affordable for sicker people and those with lower incomes.

White House officials deny they are aiming to unravel traditional employer-based coverage, saying they aim to give employers more "flexibility."

Jason Furman, a New York University economist, said HSAs also would be so loaded up with tax breaks they'd become a highly attractive way to invest, not just for health care but for retirement. But the 10-year price tag for the HSA proposal would be well above $30 billion over 10 years, the analysts said, and warned that the amount doesn't begin to measure the deficit hit.

The impact on federal revenues can't be measured by five- and 10-year budget forecasts because the large volume of untaxed HSA withdrawals wouldn't occur until well beyond those timeframes, according to the CBPP.

The Bush Plan
Initial descriptions of the HSA plan prior to the State of the Union address focused on new deductions for HSA premiums—regardless of whether one itemized deductions. But the plan also would allow far greater contributions into HSAs than currently permitted. And it would provide for a new tax credit for HSA contributions.

Now, contributions into HSAs can match the deductible in the accompanying high-deductible health plans sold with the accounts. But even if deductibles are higher, individual contributions into an HSA can't exceed $2,700 and family contributions can't top $5,450.

Under the president's plan, contributions matching the amount of the deductible can be much greater. So if individuals pay a deductible up to $5,250, they or their employer can contribute that sum into the HSA. The corresponding maximum for families is $10,500.

Contributions also would be permitted for the first time for matching all out-of-pocket spending under their HSA health plan, not just deductibles.

President Bush also would spur HSA sales by allowing a tax credit for payroll taxes paid on HSA contributions by individuals. The rationale is that employers use pre-tax money to fund traditional health coverage, so it's only fair that individuals who enroll in HSAs can do that too.

Way Better Than 401(k)s?
Furman said the result is that HSAs would be a great way to have a tax-free investment vehicle. Earnings on sums invested in HSAs accumulate tax free, and aren't taxed if withdrawn for health care expenses.

In fact, because of the tax advantages over 401(k)s, they'd be a much better way to invest for retirement, he said. Unlike 401(k)s, money contributed into HSAs can be deducted from taxable income. Donations into 401(k)s don't earn tax credits, the way they would under the Bush HSA plan. And money coming out of 401(k)s is taxed, while it isn't if withdrawn from HSAs for health care reasons.

If $10,500 were invested today in an 401(k), it would be worth $16,190 by 2036 assuming a 3 percent rate of return on investment, he said. The same sum in an HSA would be worth much more—$19,115 if withdrawn for non-medical uses and therefore subjected to taxation, or $25,486 if withdrawn for medical expenses.

"You can end up 50 percent better with this as you would with a 401(k)," Furman said.

Wealthier and healthier people less worried about health costs would drift away from traditional employer-sponsored health plans, he said. But sicker and lower-income people who rely on the broader benefits of low-deductible plans would face rising premiums because of the loss of healthy enrollees.

"This will eliminate entirely a key incentive to pull people together," he predicted. The tax credit in particular exacerbates the effect, but the premium deductions by themselves also would drive up the costs of traditional comprehensive coverage for middle and low-income Americans, the analysts said.

White House Defends Plan
White House officials earlier this week denied the plan would erode the protections vulnerable Americans have in the employer-based system.

Bush "is very supportive of employers continuing to offer health insurance," White House economic adviser Allan Hubbard told reporters Feb. 1. "There's no reason why they wouldn't continue to offer it. This is just going to give them more flexibility."

Hubbard said workers in many companies still could get coverage despite costly medical conditions that might preclude them from coverage outside the workplace.

At the same time, Bush aims to help chronically ill people who don't get coverage at work with a new $500 million program, Hubbard added. The money would be used for grants to 10 states "to develop new approaches to dealing with the chronically ill who are buying insurance at the individual level."

And employers would have the option of donating even more money into HSAs in the case of chronically ill workers, he said.

With more of their own money at stake in buying health care, HSA enrollees will restrain rising health costs, even though much of health spending is covered by insurers even with high-deductible plans, Hubbard said. When people are actively engaged in pricing health care and assessing its quality as they would be with HSAs, "that also translates even when they don't have money at stake."

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