Health Plan to Revive Debate

Times Staff Writer

President Bush is preparing to unveil a series of proposals intended to make the nation's healthcare system more efficient, but he is likely to revive a bitter debate -- begun last year over Social Security -- about how much of life's biggest risks Americans should bear on their own.

Although many of the proposals, such as limits on medical malpractice lawsuits, are ones the president has failed to get through Congress, he plans to unveil new initiatives as part of his vision for reshaping U.S. healthcare policy, aides and advisors said.

Among the possible initiatives: offering additional tax breaks for the use of Health Savings Accounts, and making most out-of-pocket medical spending by individuals tax-deductible. Currently, individuals must spend 7.5% of their annual incomes on healthcare before they qualify for an income tax deduction.

Bush's supporters say that the changes would help tame rocketing medical costs by encouraging people to buy their own healthcare insurance and become smarter shoppers, rather than relying on employers or government programs such as Medicare and Medicaid to cover their health costs.

Critics argue that Bush's expected proposals would undermine the employer-provided health insurance system that covers most working Americans. And, they say, it would encourage them to switch to the Bush-authored Health Savings Accounts, established in 2003, under which they would bear more of the financial risks of illness and injury.

Just as with Bush's Social Security personal accounts proposal, the president would be seeking to persuade Americans to rely less on government-provided or employer-provided safety nets and more on themselves.

He would also exhibit the kind of combativeness that has become a trademark of his time in Washington. Despite the political drubbing that the administration sustained on Social Security and over the flawed rollout of its Medicare prescription drug benefit, Bush appears eager to return to the fray.

"We may be looking at the start of a fundamental shift in what we mean by health insurance, from a system where we share risks to one where it's up to individuals to make their own deals and bear their own risks," said Drew E. Altman, president of the nonpartisan California-based Kaiser Family Foundation.

"The danger," Altman said, "is that this new arrangement could work out very well for some people, especially the young, the healthy and the affluent, but be very bad for the health system as a whole."

The Health Savings Accounts, known as HSAs, are designed to encourage people to cover a substantial portion of their healthcare costs by opening tax-advantaged accounts from which they can pay routine medical expenses. The account must be paired with a high-deductible insurance policy to cover catastrophic medical costs.

The theory behind the accounts is that people who pay more of their own costs become better consumers and less likely to demand unnecessary care. Proponents say the accounts would encourage people who have no insurance to buy at least some coverage.

Detractors fear that the accounts will attract only the healthiest Americans, leaving traditional employer-provided plans with people who have the highest health costs.

Bush signaled his readiness to act on healthcare in a campaign-style speech in Virginia last week, saying that government must ensure "healthcare is available and affordable." He explicitly linked the proposals he will make in this year's State of the Union address later this month and new budget plan to last year's Social Security fight by discussing healthcare in the same "ownership society" terms that he used in touting Social Security personal accounts.

"I think people ought to be allowed to own their own healthcare account and make decisions for what's best for them," Bush told his audience.

Last year, Bush made a considerable effort trying to convince Americans that younger workers should be allowed to divert a portion of their Social Security taxes into stock and bond accounts that they would own and control. In return, their traditional Social Security benefit would be reduced. But the plan failed to gain popularity with the public or in Congress amid a debate over whether it would undermine the finances of the overall program and would leave workers too exposed to stock market risk.

Much of the president's recent thinking about healthcare appears to be influenced by former Reagan administration economist John F. Cogan, now at Stanford University, and former Bush chief economic advisor R. Glenn Hubbard, now dean of Columbia University business school.

The two, together with Stanford economist Daniel P. Kessler, have just unveiled a plan for overhauling the nation's healthcare system.

The proposals include new tax breaks for individual health spending, an expanded system of "report cards" on doctors and hospitals, stricter enforcement of antimonopoly laws against health providers and insurers, and a limit on malpractice suits.

Hubbard briefed congressional leaders on the proposals last week, and according to congressional staff members, has been asked by the White House to begin a nationwide speaking tour aimed at drumming up public support for the measures.

In recent interviews and in a new book, "Healthy, Wealthy and Wise," the economists portrayed their ideas as modest first steps that would not drastically alter the current employer-based healthcare system in the next few years and would shave a comparatively small $60 billion from the nation's $1.9 trillion annual healthcare tab.

But the three also say that their proposals could eventually result in HSAs replacing the entire system, including Medicare and Medicaid. "There's no reason to have a separate Medicare and Medicaid arrangement if you had these souped-up HSAs," Hubbard said.

Many analysts believe that the two big government programs or something like them are needed because the elderly, poor and disabled who are covered by them have the most costly care -- and, especially in the case of Medicaid, are the least able to afford it. Hubbard said such problems can be handled by government subsidies.

The measures are attracting criticism from a variety of political quarters even before Bush's formal embrace of them.

From the left, Sen. Edward M. Kennedy (D-Mass.) blasted administration calls for more tax breaks and additional deregulation, saying the president "continues to do the wrong thing on healthcare."

"On top of the Medicare mess, Bush's savings accounts are a tax giveaway to the wealthy and healthy that will drive costs up even further," Kennedy said.

From the moderate right, Douglas Holtz-Eakin, a former Bush economic advisor and Republican-appointed director of the Congressional Budget Office, described the idea of tax deductions for people's out-of-pocket medical expenditures as "really bad tax policy."

Holtz-Eakin, who is a fellow with the Council on Foreign Relations, warned that the deduction would tempt people to treat almost all of their spending as health-related and wreak havoc at the Internal Revenue Service.

"I could make an argument that my running shoes are a health expense," he said. "They're preventive medicine."

However, the problems that Bush would be likely to face in making the case for substantial healthcare change run far deeper than what kind of tax deductions people would claim.

Most conservatives -- including those in the administration -- believe that the root cause of most problems with the nation's healthcare system is that most Americans are over-insured.

They argue that insurance keeps people from feeling the sting of prices and therefore from being wise consumers. Hence, conservatives' interest in making individuals take more risk and bear more responsibility for healthcare, retirement savings and other social safety nets.

But a wide array of polls reveal that, if anything, people feel underinsured, and have little interest in adding to the financial risks they face.

"The average American isn't interested in having more of his or her skin in the game," said Robert D. Reischauer, president of the Urban Institute, a centrist Washington think tank. "They already think they are paying plenty for healthcare and bearing enough of the risk as it is."

The conservative critique of what's wrong with American healthcare may create a vexing problem for the president.

In the past, Bush has scored crucial political points with swing voters for tackling the nation's tough problems, even if they did not agree with him. This was true in the case of the dividend tax cut and has been especially true of the Iraq war.

It seems unlikely, however, that the president would be able to pull off a similar political maneuver with healthcare.

That is because many conservatives believe that the reason most Americans have too much employer-provided health insurance is that Washington lavishes too many tax breaks on companies to provide it. But instead of cutting back on the breaks offered employers, Bush proposes giving new breaks to individuals. In effect, he is leveling the tax playing field by raising the latter up, rather than cutting the former down.

In an era of giant federal budget deficits, offering one set of tax breaks to counteract another might prove a hard sell.

Cogan and Hubbard acknowledged the problem but argued that proposals such as theirs were the only ones that could win congressional passage.

"There's no question that the right answer is to repeal the tax exclusion for employer-provided health insurance," Hubbard said. "But there's no chance politically that that will happen."

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