President Proposes ‘Impressive’ Health Reforms in State of Union Address

Published March 1, 2006

President George W. Bush spent only a few minutes addressing health care during the State of the Union address on January 31, but health policy experts are hailing his proposals as a major step forward for consumer-driven health care.

Bush said he sought to expand health savings accounts (HSAs), make health insurance portable, improve price and quality information for better transparency, increase use of information technology, reform medical liability, and help small businesses and the disabled afford insurance.

The White House released a report fleshing out the president’s plan. Greg Scandlen, president of Consumers for Health Care Choices, described the Bush plan as “very impressive. It moves the ball forward far beyond what most of us expected.”

Scandlen added, “These initiatives will have a profound effect on reducing the cost of health care, increasing the number of insured Americans, and making health insurance more accountable to the average consumer.”

Expanding HSAs

Established by the Medicare bill signed into law by Bush in December 2003, HSAs allow Americans to save tax-free dollars in accounts to pay for their health care expenses. The accounts are accompanied by high-deductible, comprehensive insurance policies that cover preventive care and larger medical bills.

Since January 2004, more than 3 million Americans have enrolled in HSAs, which are helping make health insurance more affordable for individuals and companies while providing greater choices and flexibility in how workers and employers spend their health care dollars.

“Perhaps the most important new idea in this package of proposals is a recognition that a mere tax deduction isn’t enough to level the playing field with employer-sponsored coverage,” noted Scandlen. “Tax deductions are of greatest benefit to higher-income workers, but of little help to people whose main tax liability is the payroll tax. The president addresses this by proposing a tax credit to offset the payroll taxes paid on premiums and on HSA contributions made by individuals.”

Scandlen pointed out the president’s plan also gives individuals who purchase HSAs on their own the same tax advantages as those with employer-sponsored insurance. “This could have a major impact on the uninsured. And he allows HSA contributions to cover all the out-of- pocket costs not covered by an insurance plan, not just the deductible,” Scandlen noted.

The president also would allow employers to provide higher HSA contributions to the accounts of people with chronic conditions and greater health care needs. “These are all important new ideas that should be embraced by Congress,” said Scandlen.

American Enterprise Institute scholar Robert Helms also was encouraged by the president’s HSA proposals. “If enacted into legislation, [the president’s plan] could greatly expand the use of health savings accounts and the movement toward consumer-driven health care,” Helms said.

The expansion has the potential to change the basic behavior of consumers and providers in ways that would improve the quality and cost-effectiveness of health care, Helms suggested. “HSAs are not the only way to change basic incentives, but they are the only realistic market alternative that we have going at this time,” he said.

Helms expressed a preference for limiting the current open-ended tax treatment of employer-based health insurance, a policy he believes has little chance of being adopted. Nevertheless, he noted, “getting more consumers involved in seeking value in the purchase of both health care and health insurance would be a movement in the right direction.”

Portability, Transparency

Portable HSA insurance, as detailed in the Bush plan, would involve a policy provided by an employer but owned by the worker. The worker could take it from job to job and keep it during times of unemployment. If the worker moves to a new job, the new employer could contribute to the cost of the coverage. The president’s plan also would allow individuals to purchase coverage across state lines; if their own state has a noncompetitive market, they could shop for coverage in other states with more competition.

Bush also has proposed allowing civic and religious organizations to form their own association health plans (AHPs), giving people who may not be affiliated with an employer an opportunity to purchase coverage with others in their community.

The president urged medical providers and insurance companies to make information about prices and quality readily available to all Americans prior to the time of service or treatment.

Helping Small Business

Small businesses are often at a real disadvantage in providing health benefits for workers. Because they buy coverage for only a handful of workers at a time, small businesses pay much higher costs than large employers or labor unions for similar health benefits. In part because costs increase over time and one sick worker can cause a large premium increase, small employers are less than half as likely to offer health benefits to their workers as are large employers.

To remedy this situation, the president asked Congress to allow small businesses to form AHPs, giving them the same advantages, administrative efficiencies, and negotiating clout enjoyed by big businesses and labor unions. By purchasing coverage for thousands of employees at a time, association members can pay lower premiums for better coverage.

Medical Liability Reform

The president called on Congress to make the medical liability system fairer and more predictable while reducing wasteful costs. Frivolous lawsuits and excessive jury awards limit access to health care by driving providers out of many communities, and they increase costs by forcing doctors to practice defensive medicine. The president pointed out that because lawsuits are driving many good doctors out of practice, women in nearly 1,500 American counties are left without a single OB-GYN working in their communities.

The president’s plan proposes to “reserve punitive damages for egregious cases where they are justified, limit non-economic damages to reasonable amounts, ensure that old cases cannot be brought to court years after an event, and provide that defendants pay judgments in proportion to their fault,” according to the January 31 White House press secretary’s release.

“While the medical liability system certainly needs reform, it needs real reform and not just caps on damages,” Scandlen said. “The entire system should be removed from the courts and provide for making injured patients whole regardless of their willingness to litigate.”

Special Needs, Technology

The president also proposed providing seed money to states to develop innovative ways to cover the chronically ill, and providing federal tax credits or vouchers for low-income families to purchase health insurance coverage.

The president addressed expanding the use of electronic health records for more efficient, timely, and secure ways to share important medical information. Supporters of consumer-driven health care look to the private sector to enact these new technologies without a government mandate forcing a difficult-to-achieve, single records system.

“While information technology is important in bringing greater efficiency to the health care system,” said Scandlen, “we would hope he would encourage grassroots initiative and innovation before locking into a single approach.”

Noting the consumer-driven health care community hoped to see cooperation and refinement of the president’s ideas in Congress, Scandlen added, “There is some real meat and potatoes in these proposals. This is the kind of fresh thinking that may be able to break the gridlock around health care reform in Washington.”

Susan Konig ([email protected]) is managing editor of Health Care News.

For more information …

The president’s State of the Union health plan is available online at