Market-based Reforms Get Post-Election Boost

Published March 1, 2001

As the Clinton administration departed Washington and George W. Bush moved in, health care reform measures attracted some much-needed public policy attention.

In the waning days of Clinton’s tenure, Congress approved on December 31 a two-year extension of the pilot Medical Savings Account program originally adopted as part of the Health Insurance Portability and Accountability Act (HIPAA). That move paves the way for further market-based reform of the nation’s health care system, and President Bush wasted no time in proposing new efforts in that direction.

Bush made Medicare reform a part of his central campaign theme and has made Congress aware of his support for private-sector remedies and market pricing in all manner of health care legislation.

While acknowledging that a major overhaul of Medicare is a long-term effort, Bush has proposed “The Immediate Helping Hand ” program for the nation’s senior citizens. The $48 billion proposal would allow states to help seniors who are not eligible for Medicaid and do not have prescription drug benefits from employer retirement plans or from Medigap supplemental insurance.

The interim drug plan is structured to provide immediate relief to seniors with incomes at or below 135 percent of the federal poverty level. It would also cover some of the drug costs for seniors with incomes between 135 and 175 percent of the poverty level, and would cover 100 percent of all drug costs over $6,000 for all seniors.

Congress has not reacted warmly to the Immediate Helping Hand proposal, and objections to the plan are not confined to rank-and-file liberal Democrats. Under pressure from fellow Republicans, the Bush White House said it would be willing to see the drug plan folded into broader Medicare reform. Bush appears to support a market-based Medicare overhaul based on the plan initially put forward by Senator John Breaux (D-Louisiana) and Rep. Bill Thomas (R-California).

Mixed Signals from Congress

While President Bush makes his move on health care reform, Congress, too, is getting into gear. Its direction, however, is less than clear.

Human Events reported on February 12 that House Ways and Means Committee Chairman Bill Thomas (R-California) told a January meeting of the Council for Affordable Health Insurance (CAHI) “that he is an enthusiast for Medical Savings Accounts” and favors “‘taking the restrictions off’ MSAs and making them available for widespread use, adding that if removing the limits ‘doesn’t work, we can put them back on.'” Human Events says this is the first time Thomas has been identified as supporting MSAs.

There is also good news on the Medicare reform front. Robert Pear writes in The New York Times that Senators John Breaux (D-Louisiana) and Bill Frist (R-Tennessee), “fearing that Congress may take only baby steps on Medicare this year,” will introduce legislation to “overhaul the entire program.” The Bulletin’s Frontrunner, in a February 14 story, says “their proposal would replace the defined benefits Medicare now provides to all seniors with a defined contribution toward the purchase of private health plans.”

But there is also bad news. The Times’ Pear also reports that new Finance Committee Chairman Charles Grassley (R-Iowa) has told Bush to give up on his Medicare reform and stop-gap drug plans. Rather, Grassley wants to add prescription drug benefits to the core Medicare program by August. According to the Times, “Mr. Grassley and his aides made clear that he had no plans this year to take up the other half of Mr. Bush’s campaign proposal, which would force Medicare’s traditional fee-for-service program to compete with private health insurance plans.”

Pear reports that Grassley joined Senator Max Baucus (D-Montana), the ranking Democrat on Senate Finance, to call for “modernizing” rather than “reforming” Medicare with a new prescription drug benefit and “shoring up” Medicare’s finances.

Paul Dennett of the American Benefits Council doesn’t expect Congress to do much of anything on health care this year. Speaking to a business conference in Dallas/Fort Worth, Dennett said, “issues such as restructuring the Medicare system . . . can probably only be tackled by a president whose party controls a substantial majority in Congress,” according to the Fort Worth Star Telegram.

Dennett expects Congressional action to be limited to the Patients Bill of Rights, modest expansion of benefits for the uninsured, MSA expansion, and a limited prescription drug program for low-income seniors.

Investors Business Daily in early February weighed in with an editorial on the “Kennedy-McCain Bill of Wrongs.” IBD argues that the problems with HMOs stem from the original federal HMO Act, which required community rating and price controls. It says the Kennedy-McCain proposal would “force HMOs to provide even more coverage while still limiting their pricing power.” It concludes that Congress should expand MSAs if it is serious about giving consumers more control over their health care.

MSAs withstand last-minute attack

Though the pilot medical savings account was ultimately approved by Congress, that victory did not come easily for MSA proponents.

Amid election-season wrangling over tax issues, and not long before the nation’s modest experiment with Medical Savings Accounts was due to expire, then-Treasury Secretary Lawrence Summers launched an attack on the program. Summers dismissed MSAs as “tax shelters” for high-income taxpayers and said the pilot program has been “a big flop, with low sales.”

Defenders of MSAs were quick to rise to the challenge. In an opinion-editorial published in the November 15 issue of the Wall Street Journal, Nona Wegner, president of the Council for Affordable Health Insurance (CAHI), wrote, “There are no data on existing MSA accounts that validate this assertion.”

“What we do know,” Wegner continued, “is that according to the most recent Internal Revenue Service report on MSAs, nearly one in three were opened by previously uninsured Americans. Moreover, there are numerous studies that prove that the majority of uninsured Americans are not high-income taxpayers. In fact, our anecdotal information shows that their average estimated household incomes are between $25,000 – $50,000 per year.”

Hardly a Tax Shelter

MSAs combine a high-deductible health insurance plan with a tax-free savings account. Before MSAs, individuals buying health insurance for themselves and their families had to pay for those policies with after-tax income. Persons with employer-provided insurance received that benefit tax-free. MSAs thus help individual insurance-buyers achieve parity with those who have employer-provided coverage.

Under current law, individual MSA policy holders can contribute only up to 65 percent of their insurance plan’s deductible on a tax-preferred basis; families can contribute up to 75 percent. Individuals can contribute a maximum of $1,527 to the MSA; families can contribute up to $3,487.

“This is hardly a ‘significant tax shelter’,” observed Wegner.

Doing Well Despite Restrictions

“MSAs have not been a flop,” observed Wegner. “Sales have been encouraging given the restrictions that were placed upon their availability to the public.”

Even the General Accounting Office (GAO), said Wegner, “argued strongly for changes in the MSA demonstration project to expand the availability of MSAs beyond small businesses and the self-employed, and to reduce the complexity of MSA eligibility.”

Nearly 86 percent of respondents to a Zogby America survey conducted in July 2000, agreed with the statement “all Americans should have the option of choosing to purchase a medical savings account.” Just 5.1 percent disagreed.

“Congress needs to listen to the will of the American people,” said Wegner, “and stick with the evidence rather than MSA innuendo.”

Greg Scandlen and Joseph Bast contributed to this article.

For more information . . .

on the Council for Affordable Health Insurance, visit its Web site at Additional details on the July 2000 Zogby America poll can be found on the Internet at