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May 5, 2008

Washington Health Policy Week in Review Archive 8fbcbcde-d751-4cac-b576-0475e8df519b

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HSAs Find Growing Favor, But Dems Say as Tax Shelters

By John Reichard, CQ HealthBeat Editor

April 30, 2008 -- Insurers reported Wednesday that enrollment in health plans sold in conjunction with health savings accounts (HSAs), promoted by Republicans as an affordable option for a significant number of uninsured Americans, has risen by 35 percent since early last year, reaching a total of some 6.1 million Americans.

House Democrats Pete Stark and Henry A. Waxman of California countered with Government Accountability Office data they characterized as showing that the accounts are more often used a tax shelter for the wealthy than as a mechanism to help working families obtain needed care.

Enrollment in health plans sold in conjunction with HSAs has grown steadily since they were authorized starting in January 2004, according to an analysis by America's Health Insurance Plans (AHIP). It stood at about one million a little over a year later, and by January of 2007 had risen to 4.5 million. Penetration of the private health insurance market was highest in Minnesota (9.2 percent), followed by Louisiana (9 percent), Washington, D.C. (8.7 percent) , Vermont (7.5 percent), and Colorado (7.1 percent).

"Employers and individuals across the country and across the age spectrum are choosing HSA plans, which are now an important part of the portfolio of coverage options offered by health plans," said AHIP President Karen Ignagni. Thirty percent of those covered by HSA plans were in the small group market, 45 percent were employees of large companies or other large groups, and 25 percent were in the individual market, according to the latest AHIP tally.

HSAs are a type of account in which contributions grow tax free and are withdrawn without taxation or penalties if used for health care purposes. They are sold in conjunction with high-deductible health plans. Backers say the tax breaks associated with HSAs give holders an incentive to save for health care while the high deductibles spur them to shop wisely for health care services.

The combination of affordable premiums and incentives to shop for good values are a good policy prescription for a U.S. health system facing rising rates of uninsurance and growing costs, many Republicans say.

But Democrats blast HSAs as a magnet for the healthy and wealthy, warning that their deductibles are a poor fit for lower-income Americans who cannot pay out-of-pocket for health care services. Critics also charge that the plans threaten to make traditional coverage prohibitively expensive by drawing away younger customers whose premium dollars would otherwise help keep the costs of traditional insurance down because the young use relatively few health care services.

Stark and Waxman released a GAO report Wednesday they said buttressed their argument that HSA affiliated health plans aren't a good match for the health care needs of average Americans. Citing 2005 data, the report found that among tax filers between the ages of 19 and 64, the average adjusted gross income was about $139,000 compared with about $57,000 for all other tax filers.

GAO also reported that the total value of all HSA contributions reported to the Internal Revenue Service in 2005 was about twice that of withdrawals—$754 million compared with $366 million.

Stark and Waxman said that the report shows that instead of being used by low- and middle-income Americans most likely to be without health insurance, "HSAs are increasingly a popular tax shelter option for wealthy taxpayers."

"The GAO confirms that HSAs are not the way to meet the health care needs of most Americans," said Stark. "Instead, they are an effective tax shelter for people whose average incomes are nearly triple that of average tax filers."

"This report provides further evidence that we need to re-examine whether this is the right way to use the government's resources to address our health care needs," added Waxman.

But AHIP President Karen Ignagni, citing GAO's own data, said the report hardly shows that the accounts are being used as tax shelters. Subtracting withdrawals from contributions, the report found that about $1,100 on average remained in the accounts of those tax filers reporting HSA activity. More recent AHIP from 2007 shows even smaller remaining average balances of about $300, she said in an interview.

Ignagni added that the data on income levels was from 2005 only, a year in which relatively few HSAs had been opened. "I think the later data will show a different picture," she said.

In many instances, people sign up for HSA-eligible health plans but don't open HSAs. According to the GAO report, somewhat more than half of enrollees in HSA-eligible health plans do not open HSAs.

Asked about assertions by the House Democrats that HSAs aren't for average Americans, Ignagni said that about one-third of enrollees in HSA-eligible health plans lacked health insurance beforehand. HSAs are part of a portfolio of products offered to Americans, she said, adding that it's up to individuals and employers to decide which plans best meet their needs and that the industry has never asserted that HSAs are the only product for the uninsured. HSAs are being chosen because they "meet a pricing point" attractive to a significant number of buyers without coverage, she said.

AHIP's latest analysis does not address the income levels of buyers. But an AHIP spokesman pointed to other studies suggesting that large or significant numbers of HSA buyers have lower or moderate incomes. One 2006 study cited was by an online insurance broker, Ehealthinsurance, that found 45 percent of those in HSA-eligible plans had incomes below $50,000. Another study cited, a 2005 Internet survey by the Employee Benefit Research Institute, found that 31 percent of HSA-eligible plan enrollees had incomes less than $50,000.

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McCain Relying on Tax Credits to Fuel Wider Coverage, Competition

By John Reichard and Leah Nylen

April 29, 2008 -- The health plan laid out Tuesday by presumed GOP presidential candidate John McCain takes a distinctive Republican approach to overhauling health care while throwing in a few elements that are somewhat at odds with party orthodoxy, although not dramatically so.

The biggest talking point McCain apparently will use to differentiate his approach from the Democratic candidate is that he would put "families" rather than "government" in charge of health care.

The way government handles insurance would change markedly under the McCain approach. In effect, the plan would overturn decades of tax policy that fosters employer-based coverage by allowing companies and their workers to deduct premiums they pay for health insurance from taxable income.

The linchpin of the plan is that McCain would create the option of bowing out of employer-sponsored coverage and instead taking a $5,000 tax credit in the case of families or a $2,500 tax credit in the case of individuals to buy the coverage of one's choice.

That approach would spur competition among insurance companies and at the same time allow a long-term relationship with a doctor by letting people keep their same coverage as they move from job to job, McCain said in Tuesday's speech in Tampa.

McCain's remarks were his most detailed description to date of what he would do as president to overhaul health care. Democrats responded that the plan would—in many cases—lead employers to drop coverage using the rationale that employees would still have the credits available to find coverage.

They said McCain in effect would tax remaining employer-sponsored coverage to pay for the credits, and those using the credits would have difficulty finding affordable options on the individual market, which they say is often either very costly or, if not, has high out-of-pocket costs or benefit exclusions.

People could stick with employer coverage or use the credit to "choose the insurance provider that suits you best," McCain said in his prepared remarks at the Lee Moffitt Cancer Center. "By mail or online, you would then inform the government of your selection," he said. "And the money to help pay for your health care would be sent straight to that insurance provider.

"Millions of Americans would be making their own health care choices again. The health plan you chose would be as good as any that an employer could choose for you. It would be yours and your family's health care plan, and yours to keep."

Changing the Dynamic
With the credit, "millions of Americans would be making their own health care choices again," McCain said. "Insurance companies could no longer take your business for granted, offering narrow plans with escalating costs. It would help change the whole dynamic of the current system, putting individuals and families back in charge, and forcing companies to respond with better service at lower cost."

"When Americans speak of 'our doctor,' it will mean something again, because they won't have to change from one doctor or one network to the next every time they change employers. They'll have a medical 'home' again, dealing with doctors who know and care about them."

McCain acknowledged criticism that when the tax credit became available it would encourage people to buy coverage on the individual market while "significant weaknesses in the market remain." Critics "worry that Americans with pre-existing conditions could still be denied insurance," as they are on the individual market, McCain noted.

He responded that the Health Insurance Portability and Accountability Act (PL 104-191) provided "some" protection against such exclusions in 1996. "Even so, those without prior group coverage and those with pre-existing conditions do have the most difficulty on the individual market, and they need to get the high-quality coverage they deserve" he said. McCain said he would address the problem through a "Guaranteed Access Plan" (GAP) that states would offer coverage to those denied coverage on the individual market.

McCain suggested the plan would be based on state experiences with offering "high-risk" pools to people who are otherwise uninsurable.

"The details of a Guaranteed Access Plan will be worked out with the collaboration and consent of the states," he said. "But conceptually, federal assistance could be provided to a nonprofit GAP that operated under the direction of a board that included all stakeholder groups—legislators, insurers, business and medical community representatives, and most importantly, patients.

"The board would contract with insurers to cover patients who have been denied insurance and could join with other state plans to enlarge pools and lower overhead costs. There would be reasonable limits on premiums, and assistance would be available for Americans below a certain income level."

Breaking Down Barriers
McCain also spoke of breaking down the current system in which each state is a separate insurance market with its own regulations. "Each one has its own rules and restrictions, and often guarantees inadequate competition among insurance companies," he said. "We need to break down these barriers to competition, innovation and excellence, with the goal of establishing a national market to make the best practices and lowest prices available to every person in every state."

He also criticized what he called a skewed payment policy. "Too much of the system is built on getting paid just for providing services, regardless of whether those services are necessary or produce quality care and outcomes," he said. "American families should only pay for getting the right care: care that is intended to improve and safeguard their health."

McCain also spoke in favor of a "bundled" payment in which providers share a single payment for treating a particular illness rather than receive reimbursement separately for all the elements that go into treatment. A single payment encourages efficient coordination, he said.

"We should pay a single bill for high-quality disease care, not an endless series of bills for pre-surgical tests and visits, hospitalization and surgery, and follow-up tests, drugs and office visits. Paying for coordinated care means that every single provider is now united on being responsive to the needs of a single person: the patient." Health information technology would flourish under such a scheme of coordination, he said, suggesting that the incentives of a bundled payment to improve efficiency would create demand for the technology.

Familiar Territory
McCain's plan also includes a number of elements central to and consistent with GOP health policy in recent years.

"When families are informed about medical choices, they are more capable of making their own decisions, less likely to choose the most expensive and often unnecessary options, and are more satisfied with their choices," he said.

"We took an important step in this direction with the creation of Health Savings Accounts, tax-preferred accounts that are used to pay insurance premiums and other health costs. These accounts put the family in charge of what they pay for. And, as president, I would seek to encourage and expand the benefits of these accounts to more American families."

Americans should be able to find out what prices doctors charge and how they rate on quality and safety, he said. "Families also place a high value on quickly getting simple care, and have shown a willingness to pay cash to get it. If walk-in clinics in retail outlets are the most convenient, cost-effective way for families to safely meet simple needs, then no policies of government should stand in their way."

McCain added that Congress must pass medical liability changes to eliminate the cost of frivolous lawsuits. "Those reforms should eliminate lawsuits directed at doctors who follow clinical guidelines and adhere to patient safety protocols," he said.

Early testing and screening could lower the nation's cost of chronic care, he said, and in this arena, he favors eliminating co-payments and deductibles for such services in order to promote their use.

"We need to adopt new treatment programs and financial incentives to adopt healthy habits for those with the most common conditions such as diabetes and obesity," he said. "Watch your diet, walk 30 or so minutes a day, and take a few other simple precautions, and you won't have to worry about these afflictions. But many of us never quite get around to it."

McCain has at times criticized the health care industry and some of that emerged in his comments. "Pharmaceutical companies must worry less about squeezing additional profits from old medicines by copying the last successful drug and insisting on additional patent protections and focus more on new and innovative medicine," he said. "Insurance companies should spend more on medical care and less on 'administration.' "

He also is calling for the importation of low-cost pharmaceuticals from abroad as a way to ease access to more affordable medications, a position that puts him at odds with the drug industry.

Critiques Come In
While his stance on tax credits aligns with President Bush, funding those credits involves taxing more generous health care benefits provided by employers, not the usual GOP approach to policy.

AFL-CIO President John J. Sweeney said Tuesday that McCain "even goes so far as to tax people's employer-provided health care benefits. Under McCain, quality health care would become like limousines and mansions—something available only to the very rich."

Roger Hickey, co-director of the left-leaning Campaign for America's Future, said under McCain's plan, "Companies will stop providing health care as a benefit . . .. He does provide us a tax credit—$2,500 for individuals and $5,000 for families—but that is completely inadequate to cover the $11,000 that it costs the average family to buy a plan."

Jacob Hacker, a political science professor of political science at Yale University, said the McCain plan would widen health care disparities among minorities and would not lead to reduced costs. "It threatens to shift costs around . . . [and] doesn't have anything in it that will bring down costs overall," he said. "The really important thing is that everyone has access to high quality care. McCain's proposal doesn't deliver on it."

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Medicare Bill May Be on Senate's Back Burner Awhile

By Mary Agnes Carey, CQ HealthBeat Associate Editor

May 2, 2008 -- Senate action on Medicare legislation is likely to slip until late May or early June due to current work on a bill that would place a moratorium on new Medicaid regulations and the Iraq war supplemental spending bill, an AARP official said today.

Kirsten Sloan, the group's lead health care lobbyist, outlined a number of priorities AARP hopes to include in the package, such as minimizing the financial impact of any Medicare physician pay increase on beneficiaries' Part B premiums and raising the amount of assets beneficiaries may have and still qualify for low-income premium assistance as part of the Medicare drug benefit. The current asset level, not including an individual's home, car, or $1,500 for burial services, is $11,990.

A spokesman for Senate Finance Committee Chairman Max Baucus, D-Mont., had no immediate comment Friday on the timing of Senate floor action on the Medicare bill. A Senate Democratic leadership aide said Friday that the delay in floor action was due to ongoing negotiations on the Medicare bill. "This isn't because of Medicaid or Iraq or anything else," the aide said. "And we don't know enough yet to be so specific to say May or June."

In a letter sent to Capitol Hill April 24, AARP Chief Executive Officer William D. Novelli urged lawmakers to include electronic prescribing in the Medicare bill, as well as establish a comparative effectiveness commission to evaluate treatments based on cost and quality and improve Medicare's coverage of preventive services. Starting Sunday, the group is also launching a television advertising campaign through mid-May to highlight AARP's goals for the Medicare package. AARP members are also contacting members' offices via e-mail, online petitions, and direct mail.

Baucus said last month that he intended to have Medicare legislation on the Senate floor in mid-May, and that payment reductions to Medicare Advantage (MA) plans were a possible financing mechanism. Baucus, along with the panel's ranking Republican, Charles E. Grassley of Iowa, and Senate leaders are now developing the Medicare package that would prevent a scheduled 10.6 percent cut in Medicare physician payments scheduled for July 1. Baucus has said he favors an 18-month fix for physicians.

Sloan said potential pay-fors in the Medicare package are reductions in a Medicare "stabilization" fund created by the 2003 Medicare drug law (PL 108-173) to entice preferred provider organizations to offer coverage in underserved regions. Others include reducing indirect medical education (IME) payments to MA plans, tapping into funding for a Medicare program that provides bonus payments for physicians who participate in a voluntary data reporting program, and reducing Medicare payments to other providers.

"This is the time this year" to address beneficiary issues in a Medicare package, Sloan said, adding the June 30 deadline for Medicare physician payment issue has created "more momentum than usual to get something done."

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Poll: Many Americans Struggling to Pay for Health Care

By Miriam Straus, CQ Staff

May 1, 2008 -- Health care costs caused many people to postpone or go without treatment in the last year, according to a new Kaiser Family Foundation poll.

The survey examined the effects of health expenses. Forty-two percent of respondents said that because of costs, they or a member of their household had delayed or skipped medical care or tests, not filled a prescription or reduced dosage, or had difficulty obtaining mental health care. Two-thirds of those people said that their medical condition had worsened as a result.

Seventy-five percent of respondents without health insurance reported these problems, compared with 40 percent of those with insurance. Lower-income respondents were more likely than middle class or higher-income respondents to report such consequences.

Health costs also affected employment and personal decisions. Twenty-three percent of respondents said that they or a member of their household made a job decision based primarily on health benefits in the last year, and 7 percent said that they or someone in their household had gotten married because of access to health benefits.

Nearly one-third of respondents said that paying for health care and health insurance was a serious problem for them, and many said that health care expenses had caused them financial troubles. One of five respondents reported that they had been contacted by a collection agency because of medical bills, and 17 percent said they had used up all or most of their savings.

People without insurance were more likely to report difficulties. One-quarter of uninsured respondents aged 18–64 said that they had been unable to pay for basic necessities because of medical bills, while 11 percent of those with insurance reported this. Lower-income people were more likely to experience financial troubles as a consequence of medical bills, the survey found.

"Paying for health care has become a key dimension of the public's economic concerns," Kaiser President Drew E. Altman said in a statement.

A nationally representative random sample of 2,003 adults was interviewed by telephone between April 3 and 13, 2008 for the poll, which was released Tuesday. The margin of sampling error for the survey is plus or minus 3 percentage points.

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Purchasing Pools No Oasis, Groups Claim

By John Reichard, CQ HealthBeat Editor

April 28, 2008 -- Purchasing pools play a part in the health overhaul plans of all three of the remaining major presidential candidates, but expectations for the organizations should be kept realistic, representatives of an insurance agents' group and an employer group told congressional aides Monday.

"None have been very successful in lowering cost although they do provide choices for individual employees in small group plans," the representatives said in a summary of their presentation.

The briefing was led by Janet Trautwein, chief executive officer of the National Association of Health Underwriters, and Neil Trautwein, vice president of the National Retail Federation.

The pools are entities that amass buyers and sellers of insurance to create a marketplace of coverage options. Backers say they can offer workers in small enterprises a better deal on health care because expenses associated with "bad risks"—enrollees with high-cost medical conditions—can be absorbed across a larger group of enrollees and because they cut administrative costs to plans, notably marketing expenses, by making it easier for them to reach prospective customers.

But the Trautweins, who are married, said that the pools have not proven to be a good permanent solution because the plans they offer are hit by adverse selection—in other words, they disproportionately attract high-cost patients—and have to drop out.

Defenders of the pools have argued, however that it's too easy for insurers and agents to refer bad risks who have difficulty finding coverage to the pool and to leave good risks out who could help offset their costs.

"Risk adjustment"—technical payment adjustments meant to pay plans more for high-cost enrollees and less for those with low costs—is meant to protect plans from adverse selection but pools haven't really figured out how to do risk adjustment, Janet Trautwein said. More work needs to be done to improve these adjustments, she said.

She added that pools should not be created as the sole place to go for coverage. "I would hate to see the outside market go away and then people have nothing to return to" when the pools disband, she said, adding that it's important to have "good healthy competition" between pools and the outside market.

In their presentations, the Trautweins said that at least 10 state-run purchasing pools have sprung up and then faded away in recent years. They did note recent successes, however, with the "Massachusetts Connector," created under the three-year old Massachusetts law to ensure coverage of virtually all state residents by requiring that they carry health insurance. The Connector offers a source of coverage for the uninsured, including for those who receive state subsidies to help them gain coverage.

Massachusetts state officials credit the Connector with lowering the number of uninsured residents by 300,000, the Trautweins said in their presentation. They noted that the entity was the result of "something rare: broad political collaboration to pass legislation."

In addition, hospitals now have lower costs associated with bad debt and charity care as state residents gain coverage. And the mandate that individuals carry coverage has increased private coverage in the state, the Trautweins noted.

But health care costs associated with the Connector rose 10 to 14 percent last year, and one of its programs, Commonwealth Care, is exceeding its budget by well over $100 million, they said, adding that "the current trend is unsustainable."

Insurance agents played a key role in marshalling opposition to the health insurance purchasing cooperatives proposed by then-President Bill Clinton in his unsuccessful health overhaul plan, popularly known as the Health Security Act of 1993. Agents viewed the cooperatives as a threat to their livelihoods but Janet Trautwein said Monday that later pools had a role for agents. "I don't think it's as much of an issue as it used to be," she said. "I don't think they're making the same mistakes of doing that," she said of more recent pooling proposals.

Defenders of state-run pools say they've been harmed by the power of the insurance industry and many employers to maintain existing marketing arrangements. Critics say it's been too easy because of uneven or non-existent regulation for insurers and their representatives to steer bad risks to purchasing pools and keep good risks for themselves.

With proper and consistent regulation inside and outside the pools, proponents say the pools could do a better job of delivering savings.

Richard Curtis, president of the Washington, D.C.–based Institute for Health Policy Solutions, said that the average premium hike for the four plans offered by Commonwealth Care for fiscal 2009 is 9.9 percent, quoting an estimate by a state official. Those plans originally came in with premiums that were relatively low and their sponsors didn't know how costly their enrollees would be, he said.

Meanwhile, premiums for unsubsidized plans available to small groups and individuals through a Connector program called Commonwealth Choice will only rise about 5 percent in fiscal 2009—and then only after rates for individual coverage came in much lower than before the program was started, Curtis added.

"This is only a 5 percent increase over a pretty dramatic drop," Curtis said.

Pools can offer a better than average track record in controlling costs, he said, pointing to the Wisconsin state employees health insurance program that offers both choice and better than average performance on costs, he said.

If plans have to come to a pool to offer coverage to a large group of people—in Wisconsin, for example, they can't offer state employees coverage outside the state's program—they have to offer a relatively good price to attract enrollees, he suggested.

But in voluntary state-run pools for small groups insurers will not offer pools better prices than they themselves offer to the market directly—"they're not going to do that," Curtis said. Many states have required pools to offer relatively favorable rates and eased access to insurance, making them a magnet for bad risks. Curtis added that market rules must be the same inside and outside pools if they are to foster competition that prods insurers to offer better value.

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Wyden's Health Care Bill Would Be 'Budget Neutral,' Analysis Says

By Alex Wayne, CQ Staff

May 1, 2008 -- An expansive health care overhaul backed by more than a dozen senators from both parties got a major lift on Thursday, when congressional auditors said that the plan would eventually produce budget surpluses if it became law.

In a joint analysis, the Congressional Budget Office and Joint Tax Committee said that the plan—devised by Sen. Ron Wyden, D-Ore.—would be "budget-neutral" when it was fully implemented and would begin to produce surpluses in future years, thanks to changes the plan would make in the tax code. While the analysis was not a formal budget score for Wyden's bill (HR 334), it suggests that cost issues could be less of a problem for Wyden's plan than for other health overhaul proposals.

"Today, the government's 'go-to' offices for budgeting and taxes have thrown decades of conventional wisdom in the trash can," Wyden said at a news conference. "They have told us that all Americans can have quality, affordable health care without breaking the bank."

An overhaul of the health care system is expected to be a major priority for both the 111th Congress and the next president. The two Democratic candidates, Sens. Barack Obama of Illinois and Hillary Rodham Clinton of New York, have each offered health care plans focused on extending government and private insurance to cover all, or nearly all, of the estimated 47 million Americans that lack health insurance.

Obama's plan would cost an estimated $50–65 billion per year, according to his campaign. Clinton's plan would cost about $110 billion per year, spokesman Phil Singer said. Both Obama and Clinton propose financing their plans in part by allowing tax cuts for people making more than $250,000 to expire.

The presumptive Republican nominee, Sen. John McCain of Arizona, on Wednesday detailed a plan that focuses on reducing health care costs and expanding tax incentives so that more Americans can afford health insurance.

But Wyden's plan, thanks to its broad and growing bipartisan support and now, its potential financial benefits, could eventually have considerable influence on any overhaul that emerges from Congress.

The plan would replace the current employer-based health insurance system, as well as Medicaid and the State Children's Health Insurance Program, with a system in which people would buy coverage directly from insurers through new state-run "purchasing pools." Premiums would be paid through the tax system, with a fixed deduction for the costs of insurance. The government would further subsidize premiums for low-income people.

Wyden, said one of his measure's cosponsors, Sen. Bob Corker, R-Tenn., has "laid up health care on a silver platter for the next president." Sen. Thomas R. Carper, D-Del., another cosponsor, called Wyden's bill a "roadmap" for the next president to follow in pursuit of a health care overhaul.

Cosponsors for Wyden's plan range from conservatives such as Corker and Robert F. Bennett of Utah—the first Republican to sign on—to liberals such as Democrat Debbie Stabenow of Michigan. He has won some support from businesses, which would be relieved of the responsibility to provide health insurance to their employees, but would have to either increase their employees' pay or make cash contributions to the new system.

The CBO and JTC analysis found that when Wyden's plan was fully implemented—not before 2014, they estimated—the government would be paying $1.3 trillion to $1.4 trillion in health insurance premiums each year. But that cost would be "approximately offset" by new revenues and savings, premiums from taxpayers, tax changes, savings from eliminating Medicaid and SCHIP, and state payments to the new system.

After 2014, the analysis found, the plan would begin producing a budget surplus because of two tax changes. First, the new health insurance deduction would increase in value more slowly than the current system, in which health insurance premiums are not taxed. Second, the minimum value of insurance benefits under the plan would grow at the pace of gross domestic product, rather than at the pace of health care costs. Health care costs have grown much faster than GDP in recent years.

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