Monday, February 20, 2006

It's Been Weeks Since The Last Healthcare Wonkfest, Hasn't It?

My suggested headline was "An Umbrella That Melts in the Rain" but the editor's choice, while less poetic, gets the point across jut as well. It turns out that the cost estimates and participation rates in the Bush budget are based on, well, implausible scenarios, so the cost numbers and lower-income participation rates are probably worse than in the Gruber study.

East Valley Tribune, Feb. 19, 2006

The Republicans in DC are using a one-step-forward, two-steps-back strategy, hoping that you’ll notice only the one step forward. They split apart this year’s “reconciliation” bill, which normally includes spending and tax proposals together, into separate packages.

With great fanfare, they claimed their first serious effort to reduce the deficit by cutting projected spending of -- drum roll -- $39 billion. Note, however, that the $39 billion occurs over 5 years, and with annual federal spending approximately $2.8 trillion, represents roughly a 0.28 percent cut (focused, of course, on the poor, young, and students, who lack well-connected lobbyists).

But reducing the deficit by $39 billion sure sounds impressive -- until you notice what the other hand did, which was cutting revenues by about $94 billion (and again, disproportionately benefiting those at the top of the heap). So the much-ballyhooed GOP “deficit reduction plan” actually increases the deficit by some $55 billion. By voting “No” on both bills, most Democrats were being $55 billion more responsible. But that requires that voters actually do the math and perhaps politically, that’s a losing proposition.

It turns out that this same sort of legerdemain (Look at the millions who benefit! Pay no attention to the millions who will be hurt!) also guides GOP plans for health care. A new study by Jonathan Gruber, professor of Economics at M.I.T., for the Center on Budget and Policy Priorities ran the numbers on the Bush administration’s 2007 budget health savings account proposals. Guess what? There’s good news and there’s bad news, and there’s more of the bad news -- but they don’t want you to notice.

First, a definition: a Health Savings Account is a tax-preferred account combined with a high-deductible insurance policy. In HSAs, people contribute money to the account for routine medical expenses, but once they spend enough, the insurance policy kicks in. It’s a very good deal if you stay healthy, because you don’t have medical expenses and the HSA money accumulates tax-free. It’s a crummy deal if you’re sick, because not only have you exhausted your HSA account, but having exceeded the deductible on an individually-underwritten policy, your premiums will increase as surely does the night follow the day. As Princeton’s Uwe Reinhardt says, HSAs are the insurance industry’s version of umbrellas that melt in the rain.

Gruber’s analysis (using a computer model very similar to those used by the Congressional Budget Office and U.S. Treasury) showed that 8.3 million people would take advantage of fairly substantial credits and subsidies to switch into HSAs. About 4 million would switch from employer-sponsored plans and 500,000 would come from Medicaid, meaning that about 3.8 million people who lacked insurance would get coverage.

Coverage for 3.8 million previously uninsured -- sounds pretty good, right? Unfortunately, not if you watch what the other hand does. Some 8.9 million people would lose employer-sponsored coverage because the HSA tax breaks will eliminate the tax subsidy for employer plans, leading many existing small or new businesses to drop health insurance benefits to shift employees into HSAs. About 4 million would switch, and about 500,000 would wind up on Medicaid -- meaning that 4.4 million people would become uninsured.

The HSA tax credits aren’t cheap; the 10-year estimate for the tax subsidies is $156 billion. Thus, the Bush administration plans to use $156 billion to increase the number of uninsured Americans by 600,000. The good news isn’t so good when you net out both sides of the equation.

Worse, adverse selection means that people switching into HSAs will be younger and healthier, and the people losing insurance will be older and not so healthy. Using HSAs not only shifts risk from government and employers to individuals, but also from the healthy to the sick. It’s “anti-insurance.”

So it’s more of the same from Bush and the Republicans. When you add it all up, it’s another sweetheart deal for those who already are doing well, at the expense of those that aren’t. And these days, isn’t that what America is all about?

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