Health Insurance Proposal Announced By President Bush In State Of The Union Address Would Expand Coverage, HHS Secretary Says

The health care proposals promoted by President Bush in his State of the Union address on Tuesday would make it easier for states to expand health insurance coverage by redistributing federal funding and make it more affordable for the uninsured to purchase private health insurance, HHS Secretary Mike Leavitt said Wednesday, CQ HealthBeat reports. "The president made clear in the State of the Union last night that he intends to pursue a policy that would work with the states in partnership with the medical community to develop plans for access for every citizen in those states," Leavitt said. He said the two health care proposals Bush announced are part of a strategy to expand health insurance coverage. Leavitt said the first step is reauthorization of SCHIP, which will expire this year. The second part of the administration's strategy is ensuring that a "basic insurance plan" is available in every state, Leavitt said (Armstrong, CQ HealthBeat, 1/24). Bush in the State of the Union proposed redirecting portions of existing federal funding to create "Affordable Choices" grants that would give states more flexibility to expand health insurance (Kaiser Daily Health Policy Report, 1/24). CQ HealthBeat reports that the proposal would potentially redirect about $30 billion in federal Medicare and Medicaid funding currently designated for disproportionate share hospitals -- facilities that treat a large number of uninsured and indigent patients -- and capital funds. Leavitt said that no final decisions have been made on which portions of funding would be affected or what amounts. "We're not making any specific proposal on a number," he said, adding, "You won't see any specific fund mentioned. You won't see any specific amount."

Tax Proposal
Another component of Bush's health care proposal, also announced in recent days, would offer a federal tax deduction of $7,500 for individuals and $15,000 for families who obtain health insurance on their own or through an employer, regardless of the cost of the coverage (CQ HealthBeat, 1/24). The proposal would for the first time levy a tax on the value of employer-sponsored health insurance in some cases. Currently, most employees are not taxed on the value of their employer-sponsored health insurance. Under the proposal, individuals and families with employer-sponsored health insurance plans worth more than the proposed allowable deductions would pay taxes on the difference. The deduction would be available to all individuals and families who purchase health insurance, regardless of the value of their policies or whether they itemize deductions on their tax returns. For U.S. residents who receive employer-based health insurance, the deduction would be offset by the cost of their coverage. The proposal would pose no net cost to the government over 10 years, according to the administration (Kaiser Daily Health Policy Report, 1/24). Leavitt said, "The goal here is to make certain that every person has access to an affordable basic insurance policy, and there are some very significant roadblocks right now," adding, "The states can solve most of them, but they can't solve the tax problem." Leavitt said that administration officials also have considered a proposal that would offer a tax credit rather than a tax deduction for purchasing health insurance. Department of the Treasury officials also said they had considered a tax credit proposal (CQ HealthBeat, 1/24).

Impact on Employer-Sponsored Coverage
Some analysts and critics have raised concerns that Bush's tax proposal could "create an incentive for employers to get out of the business of offering health care to workers, further eroding employment-based coverage," Dow Jones reports (Gerencher, Dow Jones, 1/24). Leavitt said on Wednesday that the proposal will "absolutely not" have a negative effect on employer-sponsored health insurance, adding, "I do not see employers leaving the employment-based system." Joel Kaplan, White House deputy chief of staff for policy, on Tuesday said the tax proposal potentially could lead more employers to stop offering health insurance benefits but that the tax deductions would give employees new means to "buy insurance in the individual market that they can't now" (Zhang/Lueck, Wall Street Journal, 1/25). Currently, about 175 million U.S. residents have employer-sponsored health insurance and more than 17 million purchase health insurance on their own, according to Karen Ignagni, president of America's Health Insurance Plans (Salt Lake Tribune, 1/24). Sixty-one percent of employers offered health insurance to employees in 2006, compared with 69% in 2000, according to a survey by the Kaiser Family Foundation and Health Research and Educational Trust. Fewer than 50% of companies with three to nine employees offer health insurance.

Comments on Employer-Sponsored Coverage
Steve Wojcik, vice president of public policy for the National Business Group on Health, said, "We would be very cautious about this approach, but we still want to see more details," adding, "Outside of the Medicare program, [employer-sponsored health insurance] is the second most popular way people have coverage, and we don't want to do anything that would damage that" (Dow Jones, 1/24). Neil Trautwein, vice president of the National Retail Federation, said, "The fear is that if it becomes more attractive for people to decline employer coverage and buy on the open market, then you could get great spirals in the employer plans." He added, "I'm not convinced we should take away one of the pillars that has been supporting the health care system." Nina Owcharenko, a senior policy analyst for health care at the Heritage Foundation, said, "It's not removing the employer system. It's not keeping the individual market as it is," adding, "The overall impact is combining the tax code with state innovations. The end goal will be to increase the number of people who have private insurance" (Wall Street Journal, 1/25). Tom Billet, a senior consultant at Watson Wyatt, said employers would continue to offer health insurance benefits, adding, "I think they're interested in giving their people quality, affordable health care coverage" (Dow Jones, 1/24). Larry Glasscock, chair and CEO of WellPoint, said, "We need to be very cautious if we change the deductibility of the benefits that are offered" (Lee, Indianapolis Star, 1/25).

Comments on the Individual Insurance Market
Another concern raised by critics and analysts is that the non-group insurance market "needs an overhaul if it's expected to work for people who need coverage the most -- the uninsured, low-income families and those who are older and sicker," according to Dow Jones. Dow Jones reports that families and individuals who purchase health insurance on their own generally pay higher premiums and face more restrictions on coverage for pre-existing medical conditions. Billet said, "The major drawback here is that the individual insurance market is badly broken and this proposal doesn't deal with it at all," adding, "Does it put more money into the system? Yes. But it doesn't address the problem" (Dow Jones, 1/24). Karen Davis, president of the Commonwealth Fund, said of the proposal, "What it does is favor individual insurance," adding, "The question is, should you try to undermine employer coverage? Employer coverage has lower administrative costs and it covers everybody in a firm, not just those who are healthy enough to pass a medical exam." Robert Reischauer, president of the Urban Institute, said, "We're tilting the playing field toward this very flawed market" (Lee/Montgomery, Washington Post, 1/25). Owcharenko said, "This is trying to find a way to make sure there's a market for an individual so they can buy health insurance. Both can co-exist" (Wall Street Journal, 1/25). Ignagni said, "We strongly support a level playing field in which individuals can purchase health care coverage with pretax dollars" (Fox, Reuters, 1/24).

Additional Comments
Former CMS Administrator Mark McClellan said Bush's tax proposal "gives everyone a strong incentive to search for less costly health care." Former CMS Administrator Thomas Scully said, "It's breaking the ice to where the real source of revenue is and redistributing it from overinsured people to poor people. ... The concept is a huge step in the right direction" (Washington Post, 1/25). Diane Rowland, executive vice president of the Kaiser Family Foundation and executive director of the Kaiser Commission on Medicaid and the Uninsured, said, "Our 46 million uninsured predominantly have low incomes. Forty-three percent are below level where they have any tax liability." Rowland added, "The question is really who among the uninsured benefits from this program" (Fox, Reuters, 1/24).

Auto Industry
In related news, Kaplan and other White House officials said they hope Bush's recent domestic proposals, including his health care plan, "will boost the ailing American auto industry," the Wall Street Journal reports. David Cole, head of the Center for Automotive Research, said, "In general, anything that can reduce the cost of health care is positive for the industry." However, Bush's tax proposal "could hurt some employees -- like auto workers -- who get especially generous health benefits from their employers," according to the Journal. Alan Reuther, legislative director for the United Auto Workers, said the proposal could encourage younger, healthier workers to opt out of employer-sponsored health insurance, creating an older, sicker membership (McKinnon/Spector, Wall Street Journal, 1/25). UAW and other unions could raise "tough opposition" to the proposal, the Detroit Free Press reports. AFL-CIO President John Sweeney said the proposal "only pretends to address our nation's health care crisis, and actually would make it worse" (Collier, Detroit Free Press, 1/25).

Employer Movement
In other coverage, the New York Times on Thursday examined how some employers -- "straining under runaway costs for providing health insurance" -- now "see the time as ripe for starting to overhaul the system." According to the Times, some employers and health care industry executives would support expansion of SCHIP as a "starting point." Supporters of this approach would "work up from there" with expansion of health insurance for uninsured college students, followed by uninsured families with annual incomes that are high enough to purchase insurance if coverage "became mandatory and if a market for affordable personal policies was created," the Times reports (Freudenheim, New York Times, 1/25).

Additional Coverage
Newspapers on Thursday published the following articles on President Bush's State of the Union address and proposed health plan:"Bush's Gambit on Health Insurance" (Trumbull/Lamb, Christian Science Monitor, 1/25).














"Reaction to Bush's Health Plan Is Mixed" (Karash/Stafford, Kansas City Star, 1/25).

"Health Proposal Gives and Takes" (Hennessy-Fiske/Alonso-Zaldivar, Los Angeles Times, 1/25).

"Attention to Health Benefits Is Welcome" (Von Bergen, Philadelphia Inquirer, 1/25).

"Parsing Bush's Words" (Beckel/Thomas, USA Today, 1/25).

Broadcast Coverage
Al Hubbard, Director of the National Economic Council, is scheduled to discuss Bush's health care proposals in an "Ask the White House" chat on Friday at 4:30 p.m. ET. Questions can be submitted online. A transcript will be available online after the chat. In addition, several broadcast programs reported on Bush's proposals:APM's "Marketplace": The segment includes comments from Kai Ryssdal, "Marketplace" host, and Helen Palmer, "Marketplace" health correspondent (Ryssdal, "Marketplace," APM, 1/24). In addition, "Marketplace" included a commentary by Robert Reich, a professor of public policy at the University of California-Berkeley and former secretary of labor. Audio and a transcript of the first segment are available online. Audio and a transcript of the commentary also are available online.

CSPAN's "Washington Journal": Guests on the program included Rep. Nathan Deal (R-Ga.), ranking member of the Health Subcommittee ("Washington Journal," CSPAN, 1/24). The segment is available online.

NPR's "Morning Edition": The segment includes comments from Peter Orszag, chief of the Congressional Budget Office; Senate Budget Committee Chair Kent Conrad (D-N.D.); and Mario Diaz-Balart (R-Fla.) (Seabrook, "Morning Edition," NPR, 1/25). The segment is available online.

WBUR's "Here and Now": The segment includes comments from Gail Chaddock, a reporter for the Christian Science Monitor, and Julian Zelizer, a professor of history at Boston University ("Here and Now," WBUR, 1/24). The segment is available online.

"Reprinted with permission from kaisernetwork. You can view the entire Kaiser Daily Health Policy Report, search the archives, or sign up for email delivery at kaisernetwork/dailyreports/healthpolicy. The Kaiser Daily Health Policy Report is published for kaisernetwork, a free service of The Henry J. Kaiser Family Foundation . © 2005 Advisory Board Company and Kaiser Family Foundation. All rights reserved.


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