Bush: Expand Health Accounts

Some Question the Value of Tax-Free Accounts for Insurance

From the WebMD Archives

Feb. 1, 2006 -- President Bush used his State of the Union address Tuesday night to propose new expansions to tax-free health care savings accounts that supporters say could spread access to health insurance.

The president did not announce any broad new health initiatives, despite strong speculation that he would.

Instead, he called on Congress to expand existing tax breaks for health savings accounts, which are already carried by nearly 3 million people. The accounts are often paired with high-deductible insurance plans that offer bare-bones coverage in exchange for cheaper premiums.

Existing accounts let individuals save income in a tax-free account that they can later spend on out-of-pocket costs like insurance deductibles. Bush proposed Tuesday to extend tax breaks to other out-of-pocket costs, including premiums.

The proposal remains popular with many Republicans, who see it as a way to control rising health costs by forcing consumers to spend more of their personal money on medical care. Democrats tend to see the accounts as a stop-gap measure that can control some costs but may discourage people from receiving needed care.

"Keeping America competitive requires affordable health care," Bush told a joint session of Congress and a national TV audience. The remark was met with sarcastic laughter from many Democrats, who later pointed out that insurance premiums have gone up 30% since the start of Bush's first term in 2001.

"We will strengthen health savings accounts by making sure individuals and small-business employees can buy insurance with the same advantages that people working for big business now get," Bush said.

Bush also called for a new bipartisan commission to recommend long-term fixes to rising Medicare, Medicaid, and Social Security costs.

But he avoided calling for any new programs or sweeping changes to the American health care system, which ate 16% of the gross domestic product last year. At the same time, 46 million Americans now lack health insurance.

Lawmakers React

Sen. Charles E. Grassley (R-Iowa), who leads the Finance Committee, tells WebMD that health savings accounts are "a needed policy because of the high cost of health care." But Grassley, whose committee has jurisdiction over taxes and many health issues, was not enthusiastic about enacting the expansions to the accounts.

Continued

"The question is the capability of getting it done," he says. The tax cuts required for the accounts would require cuts in other programs to pay for them. Finding those cuts "is another question," Grassley said.

Democrats remain opposed to the health savings accounts (HSAs), saying that they will do little to expand access to health insurance for millions of Americans. Rep. Jim McDermott (D-Wash.), a member of the House Ways and Means health subcommittee, tells WebMD that the accounts would only help richer consumers who can afford to put extra cash aside to pay high deductibles. Those people also tend tobe healthier, which could make insurance more expensive by leaving sicker patients in traditional insurance plans, he warns.

"An HSA is only good for somebody who is very wealthy. That is a proposal aimed at somebody who is at the very top," says McDermott, who is also a doctor.

Researchers on HSAs

Joseph Newhouse, PhD, a health economist at Harvard University, says health savings accounts control costs mainly by cutting back consumers' use of health services. The accounts force patients to spend more of their own money, in theory making them more price-sensitive.

That causes many patients to cut back on unneeded health care that would ordinarily be paid for by insurers. But Newhouse says it will also cause patients to forgo needed care. And no one has yet figured out where the line lies between wasteful and necessary health care.

"For the moment you have to assume that if you go up or down in controlling use of health care, you'll affect both good and bad utilization," he tells WebMD.

Paul Ginsburg, PhD, head of the nonprofit Center for Studying Health System Change, says HSAs have "some ability" to control costs. But he characterized Bush's proposed expansion of the accounts as "only nibbling around the edges" of a much larger crisis in health costs.

The bulk of U.S. health costs are generated by chronically ill persons with several medical disorders. Such patients are unlikely to opt for HSAs, Ginsburg says.

Continued

The president also renewed his support to allow groups of small businesses to band together to buy insurance through entities known as association health plans. Congress has so far resisted the plans because they circumvent state-regulated consumer protections.

Bush repeated previous calls to expand the use of electronic medical records and called for a ban on all forms of human cloning. The latter issue could put Bush at odds with Congress this year. The House last May passed a bill aimed at repealing Bush's limits on federally funded embryonic stem cell research, and many lawmakers have also backed calls to ban cloning aimed at producing new humans while legalizing cloning for the purpose of making new stem cells for research.

WebMD Health News

Sources

SOURCES:

President George W. Bush, State of the Union Address, Jan. 31, 2006. Sen. Charles E. Grassley (R-Iowa.). Rep. Jim McDermott (D-Wash.). Joseph Newhouse, PhD, professor of health policy and management, Harvard University. Paul Ginsburg, PhD, Center for Studying Health System Change.

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