WASHINGTON—President Bush is expected to use his State of the Union address Tuesday to propose using the tax code to create incentives for more Americans to seek health care coverage.
The president calls it "consumer-driven" health care, and it's part of his vision for an ownership society, where individuals, not the government, take greater responsibility for their health, wealth and retirement income.
Critics call it a fig leaf that will allow employers to further push the rising cost of health care onto employees.
Few topics are more controversial, and more resplendent with conflicting interest groups, than health care. It's sure to be a top issue in this year's congressional elections and during the next presidential race.
The White House has signaled that it would propose that all, or at least more, of out-of-pocket health-care spending be tax deductible. Currently, only medical spending exceeding 7.5 percent of income can be deducted.
Bush sees this as a fairness issue because employers get tax deductions for providing health plans—a break that was worth $188.5 billion in 2004, according to a study by the Lewin Group, a Virginia-based consultancy.
Meanwhile, covered employees aren't taxed on the value of their health plans and often can set aside pretax dollars for flexible spending programs. But the working poor and uninsured must often pay out of pocket for insurance and they get little tax relief.
The centerpiece of the president's proposal will be expanding the use of tax-free Health Savings Accounts, which are growing in number.
HSAs are patterned after the flexible-spending accounts allowed in many employer-sponsored health plans. An HSA allows an enrollee to put pretax dollars in interest-bearing accounts that, unlike flexible-spending accounts, can be rolled over each year and used for future medical, vision and dental care needs. If a contributor stays healthy, the account keeps growing.
Americans' spending on health care increased 7.9 percent to almost $1.9 trillion in 2004, the latest full-year figures available. That easily outpaced inflation and wage growth, and it accounted for a record 16 percent of the nation's gross domestic product—the broadest measure of the nation's economic activity.
An estimated 45.5 million Americans were uninsured in 2004, up 6 million since 2000, according to the Kaiser Family Foundation, a nonpartisan research organization. And the number of employers providing health plans to their workers fell from 69 percent to 60 percent since 2000. For a family of four with employer-sponsored health plans, premiums have risen to an average of $10,800, or 73 percent, since 2000.
Against that backdrop, Bush is also expected to push anew for proposals that he failed to get through Congress, such as "association health plans" which would allow small businesses to join together and leverage the cost of providing health plans to employees.
He'll also call again for caps on medical malpractice lawsuits. Bush wants to cut down on "defensive medicine"—the practice of doctors ordering excessive medical tests to minimize the chance of being sued later for negligence.
"I don't think any seasoned health economist believes that if you lower malpractice (settlements), it's going to cut down on defensive medicine," said Uwe Reinhardt, a Princeton University economist.
But debate is likely to center on Bush's push to expand HSAs, which can be set up in banks, credit unions and with Wall Street brokerage firms.
HSAs are already open to adults under 65, and they're required to work in tandem with high-deductible insurance plans. Participants accept deductibles of at least $1,000 for individuals and $2,000 for families, compared with average deductibles of $300 and $600, respectively, for conventional employer-provided health plans. In exchange, they pay lower monthly premiums, which is appealing to younger, healthy workers.
For 2006, pretax HSA contributions by an individual or an employer on his behalf are capped at $2,700. Contributions for families are equal to the medical plan's family deductible, or $5,450, whichever is less.
HSAs were introduced in 2004. By March 2005, 1 million were established. America's Health Insurance Plans, a trade group, said Thursday that at least 3 million consumers are enrolled in HSAs.
"I think everyone is surprised by the robustness of this number. We had a sense, but we had no data," said Karen Ignagni, the group's president.
It will be another month before details are offered on age, income, demographics and how many participants in HSAs were previously uninsured. Research last year suggested that 38 percent of those enrolled were previously uninsured.
That's something the White House is touting.
"Forty-five million Americans are uninsured, and that's too high," said Trent Duffy, a White House spokesman.
Critics such as the National Coalition on Health Care argue that HSAs won't do much to significantly reduce the number of uninsured. Instead, they say, HSAs offer employers a chance to pass on to employees the rising cost of health care. Higher-deductible plans are now offered in a menu of choices, but over time they could be one of fewer options given workers.
"I think employers are going to be looking for cover, and by expanding the use of HSAs, it may provide some incentive to switch employees into high-deductible programs," said Joel Miller, a senior vice president for the coalition.
The White House rejects that charge.
"This has nothing to do with trying to undermine the employer-provided health care system. This is to build on it, to complement it," Duffy said.
No one disputes employers' interest in HSAs.
Philadelphia-based consultant Mercer Health and Benefits found in its annual survey of large companies last year that 35 percent offered HSAs.
UnitedHealth Group, one of the nation's largest health insurers, reports 1.5 million enrollments of individuals or employer groups in its high-deductible plans. About 654,000 of those were tied to HSAs at the start of 2006. Some 11,526 employers now offer HSAs through UnitedHealth Group, more than 10,000 of them smaller companies.
Large employers with 5,000 or more employees are interested, too.
"Entering 2006, fully one-third of our large employer clients are offering a (high-deductible plan) ... and we're hearing a lot more interest in total replacement strategies," said UnitedHealth Group spokesman Daryl Richard.
DiamondCluster International, a Chicago-based management consultancy, estimated that 15 million Americans will enroll in HSAs and high-deductible health plans before the decade's out.
"We see in this phase of the market's evolution the growth of HSAs is driven by small businesses, the uninsured and large employers that are just testing the waters," said Aamer Baig, a partner. "In the future, we see high-deductible plans and HSAs becoming quite mainstream" because employers are seeking ways "of reducing the health care burden themselves."
(c) 2006, Knight Ridder/Tribune Information Services.
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