Bernie Sanders’ Single Payer Bill Provides Benefits for Billionaires

On Wednesday, socialist Sen. Bernie Sanders plans to introduce the latest version of his single-payer health-care program. If past practice holds, Sanders will call his plan “Medicare for All.” But if he wants to follow Medicare as his model, then the Sanders plan could easily earn another moniker: Benefits for Billionaires.

An analysis released by the Congressional Budget Office (CBO) in August demonstrates how Medicare currently provides significant financial benefits to seniors at all income levels, including the wealthy. Specifically, the CBO paper analyzed lifetime Medicare taxes paid, and lifetime benefits received, by individuals born in the 1950s who live to age 65.

The CBO analysis confirms prior work by the Urban Institute—no right-wing think tank—that Medicare pays out more in benefits than it receives in taxes at virtually all income levels. For instance, according to Urban’s most recent study, a high-earning male turning 65 in 2020 will pay in an average of $123,000 in Medicare taxes, but receive an average of $222,000 in benefits.

Melinda Gates Doesn’t Need Government Health Care

Some may quibble with the work by CBO and Urban Institute for containing an important oversight. In analyzing only Medicare benefits and Medicare taxes paid, the two papers omit the portion of Medicare’s financing that comes from general revenues—including the income taxes paid primarily by the wealthy. While it’s difficult to draw a precise link between Medicare’s general revenue funding and any one person’s income tax payments, it’s possible that—particularly for one-percenters—income taxes paid will offset the net cost of their Medicare benefits.

But regardless of those important details, the larger point still holds. Even if her taxes do outweigh the Medicare benefits received, why does Melinda Gates need the estimated $300,000 in health care benefits paid to the average high-income woman born in the 1950s? Does that government spending serve a useful purpose?

We Don’t Have Money to Subsidize the Rich

Yes, Medicare currently does include some means testing for wealthy beneficiaries, in both the Part B (physician) and Part D (prescription drug) portions of the program. But common sense should dictate first that wealthy individuals not only should be able to opt-out of Medicare if they so choose—because, strange as it sounds, the federal government currently forbids individuals from renouncing their Medicare benefits—wealthy seniors should not receive a taxpayer subsidy at all. Whether in Medicare or Sanders’ socialist utopia, the idea that Warren Buffett or Bill Gates warrant taxpayer subsidies defies credulity.

Despite this common-sense logic, liberals continue to support providing taxpayer-funded benefits for billionaires. In 2011, then-Rep. Henry Waxman (D-CA) said “if [then-Speaker John] Boehner wants to have the wealthy contribute more to deficit reduction, he should look to the tax code.” Perhaps Waxman views keeping wealthy seniors in Medicare as a form of punishment for the rich. After all, nearly nine in ten seniors have some form of supplemental insurance, and a form of “insurance” one must insure against may not be considered an unalloyed pleasure.

Regardless, Medicare faces its own financial reckoning, and sooner rather than later. In 2009—the last trustees’ report before Obamacare introduced fiscal gimmicks and double-counting into Medicare—the program’s actuaries concluded Medicare’s Hospital Insurance Trust Fund would become functionally insolvent this year. Given that bleak outlook, neither Medicare nor the American people can afford Sanders’ ill-conceived scheme to provide taxpayer-funded health benefits to wealthy 1-percenters.

This post was originally published at The Federalist.

Democrats’ Hypocrisy on the Trump Budget

As expected, the Left had a harsh reaction to President Trump’s first budget on its release Tuesday. Bernie Sanders called the proposed Medicaid reductions “just cruel,” the head of one liberal think-tank dubbed the budget as a whole “radical,” and on and on.

But if liberals object to these “draconian cuts,” there’s one potential solution: Look in the mirror.

And exactly who might be to blame for creating that toxic environment?

Democrats Are Using The ‘Mediscare’ Playbook

Democrats have spent the past several political cycles running election campaigns straight out of the “Mediscare” playbook. In case anyone has forgotten, political ads have portrayed Republicans as literally throwing granny off a cliff.

This rhetoric about Republican attempts to “privatize” Medicare came despite several inconvenient truths:

  1. The “voucher” system Democrats attack for Medicare is based upon the same bidding system included in Obamacare;
  2. The Congressional Budget Office concluded one version of premium support would, by utilizing the forces of competition, actually save money for both seniors and the federal government; and
  3. Democrats—in Nancy Pelosi’s own words—“took half a trillion dollars out of Medicare” to pay for Obamacare.

Given the constant attacks from Democrats against entitlement reform, however, Donald Trump made the political decision during last year’s campaign to oppose any changes to Medicare or Social Security. He reiterated that decision in this week’s budget, by proposing no direct reductions either to Medicare or the Social Security retirement program. Office of Management and Budget Director Mick Mulvaney said the president told him, “I promised people on the campaign trail I would not touch their retirement and I would not touch Medicare.”

That’s an incorrect and faulty assumption, of course, as both programs rapidly spiral toward insolvency. The Medicare hospital insurance trust fund has incurred a collective $132.2 billion in deficits the past eight years. Only the double-counting created by Obamacare continues to keep the Medicare trust fund afloat. The idea that President Trump should not “touch” seniors’ retirement or health care is based on the fallacious premise that they exist beyond the coming decade; on the present trajectory, they do not, at least not in their current form.

Should Bill Gates Get Taxpayer-Funded Healthcare?

That said, the president’s reticence to “touch” Social Security and Medicare comes no doubt from Democrats’ reluctance to support any reductions in entitlement spending, even to the wealthiest Americans. When Republicans first proposed additional means testing for Medicare back in 2011, then-Rep. Henry Waxman (D-CA) opposed it, saying that “if [then-House Speaker John] Boehner wants to have the wealthy contribute more to deficit reduction, he should look to the tax code.”

In other words, liberals like Henry Waxman, and others like him, wish to defend “benefits for billionaires”—the right of people like Bill Gates and Warren Buffett to receive taxpayer-funded health and retirement benefits. Admittedly, Congress passed some additional entitlement means testing as part of a Medicare bill two years ago. But the notion that taxpayers should spend any taxpayer funds on health or retirement payments to “one-percenters” would likely strike most as absurd—yet that’s exactly what current law does.

As the old saying goes, to govern is to choose. If Democrats are so violently opposed to the supposedly “cruel” savings proposals in the president’s budget, then why don’t they put alternative entitlement reforms on the table? From eliminating Medicare and Social Security payments to the highest earners, to a premium support proposal that would save seniors money, there are potential opportunities out there—if liberals can stand to tone down the “Mediscare” demagoguery. It just might yield the reforms that our country needs, to prevent future generations from drowning in a sea of debt.

This post was originally published at The Federalist.

King v. Burwell and Congressional Intent on Insurance Subsidies

In the big case to be argued before the Supreme Court on Wednesday, supporters of the health-care law maintain that nonpartisan congressional analyses of Obamacare make clear that lawmakers intended on making subsidies available to individuals in all states, even if the precise language is open to interpretation.

But  in at least one other case, the law’s supporters took the opposite tack—ignoring a bipartisan congressional analysis that came up with a conclusion they didn’t like.

Here is what’s happening:

King v. Burwell, the case to be heard Wednesday, centers on the legality of insurance subsidies being provided in states that use the federal HealthCare.gov platform. Some congressional sponsors of the health-care law have said that they clearly intended to make subsidies available to individuals in all states, regardless of whether states used their own or the federal insurance exchange.

In op-eds and amicus briefs, several members of Congress have argued that an Internal Revenue Service rule proposed in August 2011 and finalized in May 2012 that extended subsidies to individuals in both state- and federally run insurance exchanges was consistent with their intent at the time the health-care law was passed. The Congressional Budget Office “came to the same conclusion,” five lawmakers wrote in the Washington Post last October. The legislators say that because CBO assumed that subsidies would be available in all 50 states, as expressed by CBO scores for the bill when it passed, Congress’s intent was clear. But on a different issue of interpretation, several of the law’s authors undermined that logic.

The issue that prompted the about-face involves the “family glitch” related to eligibility for insurance subsidies. If one parent is offered health insurance through an employer, the entire family does not qualify for subsidies to purchase coverage through the marketplace. In March 2010, the same week the health-care bill was signed into law, the Joint Committee on Taxation issued an analysis of the legislation that said, in part, that even though “family coverage costs more than 9.5 percent of income, the family does not qualify for a tax credit regardless of whether the employee purchases self-only coverage or does not purchase self-only coverage through the employer.”

The same August 2011 proposed rule that prompted King v. Burwell also included Treasury proposals to codify the “family glitch,” consistent with the March 2010 technical explanation provided by the Joint Committee on Taxation. Yet Reps. Sander Levin and Henry Waxman—who, respectively, chaired the House Ways and Means Committee and the House Energy and Commerce Committee when the ACA was passed—wrote to Treasury in December 2011 complaining about this interpretation of the statute. Their letter argued that the Treasury interpretation of the glitch was “simply incongruent” with congressional intent and a “wrong interpretation of the law.”

When it came to the exchange subsidies, the Congressional Budget Office undertook no textual analysis of the statutory provisions at dispute in King v. Burwell. But the Joint Tax Committee did. It released a contemporaneous analysis of the provisions at issue with respect to the “family glitch.” Although Mr. Levin and Mr. Waxman say CBO’s silence suggests a presumption that subsidies should be available in all 50 states, they disregarded the contemporaneous analysis by the Joint Committee on Taxation.

Now, the former House committee chairmen could have been unaware of the JCT analysis at the time the law was passed. They could wish to argue for the most generous subsidy regime possible, regardless of the law’s technical specifics. There may be some other policy or political explanation.

But this situation highlights the pitfalls of claims regarding a law’s intent. All types of retrospective analyses could turn into self-justifying ones—which may provide little use to courts attempting to discern what a statute actually means.

This post was originally published at the Wall Street Journal Think Tank blog.

Rep. Stearns Op-Ed: Medicaid for Millionaires

“We shouldn’t have to do that, because they should know better.”

So said President Obama in explaining why the Treasury—quite rightly—forced Citigroup to cancel the purchase of a $50 million corporate jet after the banking firm accepted tens of billions in federal bailout dollars. But he could well have been talking about his Democratic colleagues in Congress, who seem perfectly willing to give the former executives of these firms generous federal health benefits—even though they too should know better.

Consider the case of Henry Waxman, a Democrat who has represented Beverly Hills in Congress for over 30 years. Last fall, as Chairman of the Oversight and Government Reform Committee, he led hearings on the financial crisis, and criticized companies for taking “massive risk. When the bottom fell out, senior management walked away with millions of dollars, while shareholders and taxpayers lost billions.”

Fast forward to this year and a new Congress, where Mr. Waxman assumed the Chairmanship of the Energy and Commerce Committee, on which I sit. As Chairman, Waxman wrote major health-related sections of the economic “stimulus” legislation which Congress is currently considering. The proposal Mr. Waxman presented to the Committee spent more than $100 billion on various health spending projects, and created two new federal entitlements—one expanding Medicaid to individuals receiving unemployment compensation, and the second providing subsidies to individuals who choose continuation coverage from their former employers.

But for the new entitlements, there was a massive loophole. Because the bill explicitly prohibited income or asset tests from being applied to people receiving the new health care entitlements, anyone who recently lost their job—including the former CEOs who Mr. Waxman said last fall “walked away with millions”—could receive free or subsidized health care courtesy of federal taxpayers. At a time when all Americans are struggling to make ends meet, I viewed these uncapped subsidies as a poor use of taxpayers’ hard-earned money—and an unnecessary expansion of government to boot.

So when our Committee met to consider the “stimulus” legislation, I offered an amendment to the legislation to make sure that individuals with income over $1 million who elected continuation coverage from their former employers would not receive federal subsidies to pay for that coverage. Chairman Waxman accepted my amendment, and said he would “try to find a way to structure” the subsidies so that wealthy executives wouldn’t be eligible for subsidies they really shouldn’t need.

But several days later, when Democrat leaders introduced the version of the “stimulus” legislation that the House was actually going to vote on, my amendment was stricken from the bill. The omission wasn’t because a cap on the federal health subsidies was unworkable—Congressional tax advisers told a Senate committee an income-based cap was feasible to implement. No one was able to give me a straight answer as to why my amendment wasn’t included in the final bill—Speaker Pelosi actually put out a press release saying my amendment had been accepted as part of the “bipartisan” debate, when in reality my amendment and those of two of my other Republican colleagues had been unceremoniously dumped behind closed doors.

This incident raises a couple of key questions—one procedural, the other political. First, how bipartisan is it to accept an amendment one week, only to remove it without explanation or cause the next? Second, now that they control Congress and the White House, are Democrats so insistent on expanding the federal government’s role in health care that they want to provide subsidized coverage to the same fired executives they have so recently blamed for causing our current economic crisis?

In the end, the final “stimulus” product included an income cap so that taxpayers’ funds won’t be to subsidize the health insurance of Bernie Madoff and other similar characters. But it begs the same point President Obama raised when talking about Citigroup’s desire for a new corporate jet: We shouldn’t have to tell Democrats not to give federal health benefits to millionaires—because they should know better.

This post was originally published at RedState.

Legislative Bulletin: H.R. 1108, Family Smoking Prevention and Tobacco Control Act

Order of Business:  The bill is scheduled to be considered under suspension of the rules on Wednesday, July 30, 2008.

Summary of Changes Made:  The latest draft text would make several substantive changes to the bill.  First, the revised text would require the Secretary of Health and Human Services to contract with states to enforce the FDA-promulgated regulations with respect to tobacco products.  However, the bill would also prohibit the Secretary from contracting with states to enforce the tobacco regulations on Indian tribal lands—or directly engage in enforcement activity on tribal lands—without the express written consent of the tribe involved.  This last change was made to resolve a jurisdictional issue raised by the Natural Resources Committee, which has jurisdiction over Indian tribal matters.

Some conservatives may note that the language discussed above creates a significant loophole in the enforcement mechanism for tobacco products—namely, that Indian tribal areas could represent a “no-man’s land” with respect to tobacco enforcement.  Some conservatives may question whether this loophole could allow unregulated products to be bought and sold on tribal lands, effectively undermining the entire regulatory regime for tobacco products which H.R. 1108 is intended to establish.

The bill includes two new offsets to pay for federal tax revenue lost as a result of the projected 2% reduction in tobacco use, which the Congressional Budget Office (CBO) estimates would cost $114 million over five years, and $446 over ten.  To offset this foregone revenue, the bill would incorporate the text of a measure (H.R. 6500) making changes to the Thrift Savings Plan (TSP) for federal workers.  That bill would require auto-enrollment of workers in the TSP, costing $225 million over five years, and $736 million over ten, due to revenue loss associated with additional employees making pre-tax TSP contributions.  However, H.R. 6500 (as incorporated into H.R. 1108) would result in a net revenue gain, due to an additional provision establishing an after-tax savings component (similar to the Roth IRA or Roth 401(k) options) in the TSP, which CBO estimates would generate $382 million in revenue over five years, and $2.0 billion over ten, resulting from employees substituting pre-tax TSP contributions with after-tax ones.

The second offset for the lost tobacco tax revenue would come from the elimination of unused sick leave in the calculation of survivors’ annuity benefits for participants in the Federal Employees Retirement System (FERS).

Press reports indicate that further language may be added to the bill requiring a study of the so-called “menthol loophole;” however, such language was not available at press time.

Summary:  H.R. 1108 would amend the Federal Food, Drug, and Cosmetic Act to grant new authority to the Food and Drug Administration (FDA) to regulate tobacco products and advertising, and amend the Federal Cigarette Labeling and Advertising Act to impose new restrictions on tobacco product labels and disclosure.  Specific bill provisions include the following:

Findings and Purpose.  The bill contains 13 pages of findings purporting the need to regulate tobacco products to protect the public health, and language designed to ensure that the bill does not affect the authorities of the Secretaries of Agriculture or Treasury.  The bill also includes severability language providing that judicial invalidation of one or more sections of the legislation will not result in the nullification of the entire regulatory regime proposed by the bill.

Regulatory Authority.  H.R. 1108 gives FDA the authority to regulate tobacco products, which are defined as “any product made or derived from tobacco that is intended for human consumption, including any component, part, or accessory of a tobacco product” and establishes a new Center for Tobacco Products within the FDA to exercise regulatory authority.  The bill states that tobacco does not qualify as a drug or medical device for purposes of FDA regulation, and limits the FDA’s regulatory authority to tobacco leaf in the possession of tobacco manufacturers (thus excluding tobacco growers).

Adulterated and Misbranded Products.  The bill defines adulterated and misbranded tobacco products, defining the former to include products that “consists in whole or in part of any filthy, putrid, or decomposed substance,” and defining misbranded products to include those that are “false or misleading,” as well as those which do not adhere to the registration, labeling, and other regulatory regimes established under the bill.  The bill grants the FDA, through the Secretary of Health and Human Services, the right to pre-approve statements made on tobacco product labels.

Information Disclosure.  The bill requires all tobacco manufacturers to disclose to the Secretary the names and descriptions of all ingredients, components, and compounds in tobacco products, including the nicotine content of same.  The bill grants authority to the Secretary to obtain information from tobacco companies on the health effects of smoking and requires the Secretary to publish “a list of harmful and potentially harmful constituents” in tobacco products by brand.

Registration and Inspection.  H.R. 1108 requires all tobacco manufacturers to register their names and places of business with the Secretary and requires the Secretary to make such information public.  The bill also requires inspection of every domestic tobacco manufacturing establishment at least once every two years, and a requirement that overseas tobacco manufacturing establishments have “adequate and effective means” for the Secretary to ensure that tobacco products manufactured overseas should be refused entry into the United States.

General Authority.  The bill would permit the Secretary to restrict by regulation the sale, distribution, and advertising of tobacco products “if the secretary determines that such regulation would be appropriate for the protection of the public health.”  In exercising this authority, the Secretary may not 1) “prohibit the sale of any tobacco product in face-to-face transactions by a specific category of retail outlets;” 2) set an age limit on the sale of tobacco products higher than 18 years of age; or 3) require use of a physician’s prescription in order to obtain tobacco products.  However, the bill does require the Secretary to promulgate regulations addressing the sale, distribution, and marketing of tobacco products remotely so as to discourage the purchase of tobacco products by underage individuals.

Product Standards.  H.R. 1108 would ban all “artificial or natural flavors” except for menthol, and requires all tobacco products to meet domestic standards with respect to pesticide use.  The bill permits the Secretary to impose further restrictions should the regulations be in the interest of the public health.  However, “because of the importance of a decision of the Secretary to issue a regulation” banning all cigarettes or reducing the level of nicotine permitted in tobacco products to zero, the bill explicitly prohibits the Secretary from taking either action.

Notification and Recalls.  The bill grants the Secretary the authority to order notification to the public, through public service announcements or other means, of tobacco products that “present an unreasonable risk of substantial harm to the public health…and no more practicable means is available…to eliminate such risk.”  The bill also authorizes the Secretary to order recalls in the event that “there is a reasonable probability that a tobacco product contains a manufacturing or other defect not ordinarily contained in other tobacco products on the market that would cause serious, adverse health consequences or death.”

Record-Keeping.  H.R. 1108 requires tobacco companies to create and preserve records, as established by regulation, designed to determine that tobacco products are not adulterated or misbranded and to protect the public health, and to provide reports of any corrective action taken by tobacco manufacturers to remove products from the market for health reasons.  The bill language states that identities of any patients discussed in applicable records should remain confidential, unless disclosure is necessary “to determine risks to public health of a tobacco product.”

Review of New Tobacco Products.  The bill requires pre-market review for all new tobacco products introduced after February 15, 2007, unless the product is “substantially equivalent” to existing products.  The application for pre-market review requires full disclosure of the products’ components, and research of the health effects of same.  The bill would require the Secretary to reject such new tobacco products if “there is a lack of a showing that permitting such tobacco products to be marketed would be appropriate for the protection of the public health,” among other conditions necessary for approval.  The bill also permits the Secretary to withdraw pre-market approval, due to a company’s non-compliance with regulations or new information on the public health effects of a product, effectively removing the product from the marketplace.

Modified Risk Tobacco Products.  H.R. 1108 places restrictions on the introduction or marketing of modified risk tobacco products.  Specifically, the bill requires that any product marketed as modified risk must “significantly reduce harm and the risk of tobacco-related disease to individual tobacco users” and “benefit the health of the population as a whole,” including both tobacco users and non-users.  In the event that the Secretary cannot make such a determination without long-term epidemiological data that is not available, the Secretary may issue a temporary approval of not more than five years for the marketing of modified risk products, provided that “the reasonably likely overall impact of use of the product remains a substantial and measurable reduction in overall morbidity and mortality among individual tobacco users,” and the product is subject to annual post-market surveillance review.  The bill also places additional restrictions on the marketing, advertising, and comparative claims presented by modified risk tobacco products.

Judicial Review.  The bill provides a process for individuals adversely affected by regulations issued pursuant to the bill, or whose application for pre-market approval was denied, to seek judicial review with the U.S. Court of Appeals for the circuit in which the party resides or has a principal place of business, subject to review by the Supreme Court.

Regulatory Requirements.  H.R. 1108 requires the Secretary to issue regulations within three years of enactment regarding tobacco product testing and disclosure of product constituents, and permits the Secretary to require label or advertising disclosure of tobacco product constituents.  The bill provides for delays of regulatory and testing requirements for “small tobacco product manufacturers,” defined as those employing fewer than 350 individuals.  The bill also clarifies that none of its provisions prohibit the Federal Trade Commission (FTC) from regulating tobacco advertising or sales.

Limited Pre-Emption.  H.R. 1108 pre-empts state laws relating to tobacco product standards, mis-labeling, adulteration, labeling, and related product standards; according to the Congressional Budget Office (CBO), this pre-emption language constitutes an intergovernmental mandate as defined in the Unfunded Mandates Reform Act.  However, the bill retains states’ ability to enact more stringent standards with respect to tobacco advertising and promotion.

Scientific Advisory Committee.  The bill establishes the Tobacco Products Scientific Advisory Committee to provide technical expertise and recommendations to the Secretary regarding the regulation of tobacco products.

Smoking Cessation.  The bill requires the Secretary to consider approving the extended use of nicotine replacement products “for the treatment of tobacco dependence.”

User Fee.  The bill assesses user fees on tobacco companies and funds FDA regulation of tobacco activities in the amount of $85 million in Fiscal Year 2008, increasing each year until reaching $712 million in Fiscal Year 2018 and each subsequent year.  The bill assesses user fees by class of tobacco products (e.g. cigarettes, cigars, etc.), and allocates them to companies within a class of tobacco products, based on the percentages outlined in tobacco buyout legislation (P.L. 108-357) passed in October 2004.

Restores 1996 Rule on Tobacco Advertising.  The bill requires the Secretary to publish within 180 days of the bill’s enactment a final rule on regulation of tobacco identical to regulations published on October 28, 1996, with an effective date of one year following the bill’s enactment.  The original regulations would restrict tobacco advertising by, among other things, prohibiting billboards within 1,000 feet of schools and permitting only black-and-white advertising.  The bill would modify the original regulation to permit the free distribution of smokeless tobacco only, and only in quantities of fewer than 15 grams (0.53 ounces) in certain “qualified adult-only facilities.”  The bill exempts the final rule, as modified, from review under the Congressional Review Act.

Nullifies Earlier Documents.  H.R. 1108 would nullify the precedent of certain documents issued by FDA during 1995-96 as they relate to a prior attempt to classify nicotine in tobacco products as a drug for purposes of FDA regulation. (H.R. 1108 would make tobacco subject to FDA regulation, but as a “tobacco product,” not a drug or medical device.)

New Penalties.  The bill would add failure to comply with the bill’s requirements as grounds for imposition of fines and/or criminal penalties, along with other offenses relating to counterfeiting tobacco products or “the charitable distribution of tobacco products.”  The bill also gives the Secretary the authority to impose a “no-tobacco sale order” against retail outlets and establishes a new system of federal fines against retail establishments selling tobacco products improperly, authorizing fines of up to $10,000 for establishments with six or more violations within a four-year period.

Studies.  The bill would require the Government Accountability Office to submit studies regarding youth smoking as well as cross-border trade and counterfeiting in tobacco products, and requires a specific study by HHS on raising the minimum age to purchase tobacco products, as well as an FTC report on concentration within the tobacco industry.

Labeling Requirements.  The bill requires all cigarettes and smokeless tobacco sold in the United States to bear clear warnings about the risks associated with tobacco use and prescribes the wording, typeface, and font size associated with such warnings. (Tobacco products manufactured domestically for international use are exempt from this requirement.)  H.R. 1108 further requires that all advertising, including matchbooks, contain language from the warning labels, and prescribes the proportions by which such labeling warning must relate to the overall size of the advertisement.  The bill gives the Secretary of HHS the authority to alter or increase the size of the labeling requirements, permits states to further regulate the type and manner, but not the content, of cigarette advertising, and extends a prohibition on television and radio advertising to smokeless tobacco products subject to the jurisdiction of the Federal Communications Commission.

Tar and Nicotine Disclosure.  The bill gives the Secretary the authority to conduct a rulemaking process to determine whether to require the disclosure of tar, nicotine, and other constituent levels in tobacco advertising, subject to a memorandum of understanding with the Federal Trade Commission.

Shipping Requirements.  H.R. 1108 requires that all packaging and shipping containers shall bear statements stating “sale only allowed in the United States” and requires the Secretary to issue regulations regarding the maintenance of records by entities manufacturing, transporting, or distributing tobacco products.  The bill also requires tobacco manufacturers and distributors to notify the Attorney General and the Secretary of the Treasury upon obtaining information “which reasonably supports the conclusion” that tobacco products formerly held by the entity have circumvented payment of applicable taxes or “diverted for possible illicit marketing.”

Cost to Taxpayers:  According to the Congressional Budget Office (CBO), H.R. 1108 would result in $2.1 billion in mandatory spending over five years, and $5.3 billion over ten, related to the Food and Drug Administration’s regulation of tobacco.  The bill would offset these costs by imposing a “fee” on tobacco companies to finance the FDA regulation.

CBO also estimates a decline in revenues of $114 million over five years, and $446 million over ten, related to a 2% reduction in overall smoking levels due to tobacco regulation, and loss of commensurate tobacco tax revenue.  In order to pay for this reduced revenue, H.R. 1108 incorporates provisions relating to the federal Thrift Savings Plan (TSP).  The bill would establish a system of auto-enrollment in TSP for all federal employees, causing a minor revenue loss, but would on balance generate additional tax revenue by establishing a new plan to permit after-tax TSP contributions, similar to a Roth IRA or the recently-established Roth 401(k) option.

Finally, CBO estimates a five-year increase in spending subject to appropriation of $3 million as a result of H.R. 1108’s enactment.

Committee Action:  The bill was introduced on February 15, 2007, and referred to the Energy and Commerce, which held a hearing and, on April 2, 2008, reported the bill as amended by a 38-12 vote.

Possible Conservative Concerns:  Numerous aspects of H.R. 1108 may raise concerns for conservatives, including, but not necessarily limited to, the following:

  • Process.  Some conservatives may be concerned that a 190-page bill seeking to establish new federal authority to regulate a multi-billion dollar industry is being considered under expedited procedures on the suspension calendar.
  • User Fee as Tax Increase.  The bill includes more than $5 billion in assessments on tobacco companies, ostensibly termed “user fees,” to finance the FDA’s work regulating tobacco products.
  • Restricts Free Speech Rights.  In addition to codifying federal restrictions, which tobacco companies agreed to in their 1998 settlement with state Attorneys General, H.R. 1108 places additional federal restrictions on tobacco advertising.  Some of the federal restrictions on advertising content in H.R. 1108 include the following specifications for the size of warning labels on tobacco products:

The text of such label statements shall be in a typeface pro rata to the following requirements: 45-point type for a whole-page broadsheet newspaper advertisement; 39-point type for a half-page broadsheet newspaper advertisement; 39-point type for a whole-page tabloid newspaper advertisement; 27-point type for a half-page tabloid newspaper advertisement; 31.5-point type for a double page spread magazine or whole-page magazine advertisement; 22.5-point type for a 28 centimeter by 3 column advertisement; and 15-point type for a 20 centimeter by 2 column advertisement.

Some conservatives may be concerned that the highly prescriptive restrictions described above, and elsewhere in H.R. 1108, constitute an undue intrusion on companies’ constitutional free speech rights to advertise a product that most Americans already know is unhealthy.

  • Hinders Introduction of Reduced Risk Tobacco Products.  H.R. 1108 places stringent restrictions on the introduction and marketing of new products that would reduce or modify the inherent risks associated with the consumption of tobacco.  The bill states that a reduced risk product may be marketed only if the product will “significantly reduce harm and the risk of tobacco-related disease to individual tobacco users” and also will “benefit the population as a whole,” including persons who do not consume tobacco products.  Some conservatives may be concerned that such onerous restrictions on the introduction of reduced risk tobacco products could have the effect of inhibiting the use of products that could reduce the risks associated with tobacco consumption while potentially serving as a barrier to entry for new market competitors.
  • FDA Improper Agency to Regulate Tobacco.  As FDA Commissioner Andrew von Eschenbach testified before the House Energy and Commerce Committee in October 2007, the FDA has heretofore been structured as an agency to promote and protect the public health.  In the Commissioner’s opinion, requiring FDA to “approve” tobacco products as a result of H.R. 1108 would dramatically change the agency’s focus: “Associating any agency whose mission is to promote public health with the approval of inherently dangerous products would undermine its mission and likely have perverse incentive effects.”

  • Other Important Priorities for FDA.  Energy and Commerce Oversight Subcommittee Chairman Bart Stupak (D-MI), in holding a hearing on FDA’s decision to approve an antibiotic despite receiving false clinical trial data, called the incident “a microcosm of the failure by all FDA stakeholders—FDA, pharmaceutical sponsors, and third-party monitors—to ensure the integrity of clinical trials used to support the safety and approval of new drug applications.”  On top of questions which Democrats themselves have raised regarding FDA’s competence, some conservatives may question whether the food safety concerns that have arisen in recent months make now an appropriate time significantly to expand the agency’s regulatory remit and mission.
  • Multiple Layers of Regulation.  While establishing FDA authority to regulate tobacco products, H.R. 1108 would also retain the FTC’s authority to regulate tobacco advertising and distribution on the federal level, and would provide only limited pre-emption of state laws, allowing more stringent state restrictions on tobacco advertising and promotion.  Some conservatives may be concerned that these multiple layers of regulation will impose undue bureaucratic and logistical difficulties on tobacco manufacturers—even though H.R. 1108 would explicitly retain tobacco as a lawful product.
  • Little Impact on Tobacco Use.  The CBO estimate of H.R. 1108 notes that under its budgetary model, smoking by adults would decline by only 2% after 10 years.  Some conservatives may question whether this marginal reduction in smoking levels warrants the significant intrusion on free speech rights and government-run regulatory bureaucracy that would be created under the legislation.
  • Billions in Unfunded Mandates; UMRA Point of Order.  The Congressional Budget Office, in its score of H.R. 1108, calculates that the fee imposed in the bill would constitute an unfunded mandate on tobacco companies of $249.1 million in Fiscal Year 2009, and more than $2.3 billion over five years, greatly exceeding the threshold established in the Unfunded Mandates Reform Act ($136 million in 2008, adjusted annually for inflation).   CBO also notes that the bill includes several unfunded mandates that would both pre-empt existing state tobacco regulations and require tribal governments manufacturing or distributing tobacco products to comply with the new federal regulatory regime.
  • Violates Trade Agreements.  HHS Secretary Leavitt, writing to Energy and Commerce Committee Ranking Member Barton on H.R. 1108, noted that the legislation could be viewed by foreign governments as a hostile trade action.  Because the bill bans clove and other flavored cigarettes—many of which are manufactured in foreign countries—while expressly permitting production of menthol cigarettes, Indonesia or other foreign governments could file complaints at the World Trade Organization claiming discrimination against their products.  Some conservatives may be concerned that passage of H.R. 1108 could ultimately result in retaliatory measures being taken against American-made products—and could lead to trade disputes with a negative effect on economic growth.
  • Menthol Loophole.  As noted above, H.R. 1108 would prohibit the use of all “artificial or natural” cigarette flavorings—with the exception of menthol, which is permitted under the bill.  Because data from the Centers for Disease Control indicate that 75% of African-American smokers consume menthol cigarettes, seven former Secretaries of Health and Human Services, representing both political parties, wrote to Congress to criticize a menthol “loophole” that “caves to the financial interests of tobacco companies” by “send[ing] a message that African-American youngsters are valued less than white youngsters.”

Because the bill is being considered under suspension of the rules, no amendments addressing the menthol issue can be considered.  Some conservatives may note that the House Democrat leadership would apparently rather retain the support of the major tobacco company (Philip Morris) supporting the legislation than permit a vote on amendments that seven former HHS Secretaries believe are in the best interests of African-Americans.

Administration Position:  Although a formal Statement of Administration Policy (SAP) was unavailable at press time, a letter from Health and Human Services Secretary Leavitt to Energy and Commerce Ranking Member Barton indicated that the Administration “strongly opposes” H.R. 1108.

Does the Bill Expand the Size and Scope of the Federal Government?:  Yes, the bill would grant new authority to the Food and Drug Administration to regulate tobacco products.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?:  Yes, the bill imposes new fees on tobacco companies, which CBO estimates would total $235 million in Fiscal Year 2009, $2.1 billion over five years, and nearly $5.4 billion over ten years, all greatly exceeding the thresholds established in the Unfunded Mandates Reform Act ($136 million in 2008, adjusted annually for inflation).

Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax Benefits/Limited Tariff Benefits?:  The Committee on Energy and Commerce, in House Report 110-762, reports that “H.R. 1108 does not contain any congressional earmarks, limited tax benefits, or limited tariff benefits as defined in clause 9(d), 9(e) or 9(f) of rule XXI.”

Constitutional Authority:  The Committee on Energy and Commerce, in House Report 110-762, cites constitutional authority under Article I, Section 8, Clause 3 (relating to the regulation of interstate commerce) and Article I, Section 8, Clause 1 (relating to legislation promoting the general welfare of the United States).

Certificate of Need Programs

History and Background:  In the 1960s, some health care policy makers began to believe that an excess supply of providers was having an inflationary impact on the price of health care.  As a result, several states, beginning with New York in 1964, enacted “certificate of need” (CON) laws giving state agencies the power to evaluate whether a new hospital or nursing home facility was needed prior to its construction.  Prompted in part by support from the American Hospital Association, 20 states enacted certificate of need laws by 1975.[1]

In January 1975, President Ford signed into law the National Health Planning and Resources Development Act (P.L. 93-641), originally sponsored by Sen. Ted Kennedy (D-MA).  The Act provided incentives for states to enact approval mechanisms prior to the construction of major facilities. As a result, by 1980 all states but Louisiana had established CON programs.[2]  However, Congress enacted legislation (P.L. 99-660) repealing the federal law in November 1986, which in time led 14 states to abolish their certificate of need programs.  Nevertheless, 36 states and the District of Columbia maintain some form of restriction on the construction of new medical facilities absent a determination of necessity.

Changes within the Hospital Industry:  In the more than four decades since the first certificate of need program was established, the hospital industry has undergone numerous changes and consolidations that may be seen as undermining the original rationale for the certificate of need mechanism.  At the time certificate of need laws were enacted, most hospitals received cost-based reimbursement for services from both the federal government and private insurers.  This payment mechanism, when coupled with a perceived lack of incentives for consumers to become cost-conscious about their health care expenditures, led policy-makers to impose external restrictions on providers’ growth (in an attempt to slow the growth of health expenditures) due to a belief that they would fail to compete on price grounds.[3]  However, the intervening decades have seen a move away from cost-based reimbursement and toward prospective payment for procedures, along with greater incentives—higher deductibles, Health Savings Accounts, co-insurance, etc.—for consumers to demonstrate price sensitivity in health care.  Thus the economic conditions which led regulators to impose certificate of need restrictions have changed appreciably for both consumers and providers, which may prompt a re-evaluation of their usefulness and efficacy.

In addition, a wave of consolidation within the hospital sector has attracted the attention of antitrust regulators, who have examined the impact of hospital mergers on health care.  As of 2001, nearly 54% of hospitals nationwide had joined a larger hospital system, with a further 12.7% working in looser affiliations.  Combined, two-thirds of hospitals nationwide (66.7%) participated in some form of network or system affiliation—more than double the 31% two decades previously, in 1979.[4]

In 2004, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) conducted a series of fact-finding hearings that culminated in a joint study analyzing the antitrust implications of health care policy, which featured several chapters specifically devoted to the changes within the hospital industry.[5]  Reports submitted to the panel cited the “extensive consolidation” within the health care industry, “at times creating virtual monopolies in geographic submarkets” that allowed hospitals to “exert greater leverage in managed care contract negotiations” while pressuring physicians to join a particular system.[6]  Other witnesses noted the way in which hospital systems attempt to include at least one “must have” hospital in each geographic market, which will allow the system to demand price increases.[7]

Both the FTC-DOJ report and other independent studies have noted the link between high levels of consolidation within the hospital industry and higher prices.  Best estimates indicate that hospital mergers tend to increase prices from 5-40%—while also resulting in decreases in quality.[8]  A National Bureau of Economic Research working paper found that, by resulting in a loss of consumer surplus of $42.2 billion over a decade (most of which went to providers), hospital mergers had the net effect of raising insurance premiums 3-5%, thus increasing the number of uninsured by almost 5.5 million life-years from 1990 through 2003.[9]

Effect of CON on Competition, Price, and Quality:  Conservatives who believe in free markets may not object to consolidation within the hospital industry, or any other industry, provided that no other external factor interferes with the operation of the economic market.  However, if the market has been distorted through public policy actions by legislators—as in the case of the 36 states and the District of Columbia with certificate of need laws—some conservatives may view such laws with caution, due to the potential negative implications which a state-granted oligopoly for existing providers may have on the ability of new entrants to improve the health care marketplace through innovative practices and techniques.

The same FTC-DOJ report that noted the correlation between hospital consolidation and rising prices also criticized the state certificate of need model as anticompetitive and not in consumers’ best interest.  Witnesses testified that the barriers to entry presented by certificate of need requirements impeded rapid implementation of new health care technologies, with significant adverse effects on overall health care spending—rising prices due to more limited access to care, and/or re-directing spending to other areas of health care (i.e. a restriction on development of new beds leading to increased investment in radiological or other equipment).[10]  The report concluded:

The Agencies believe that CON programs are generally not successful in containing health care costs and that they can pose anticompetitive risks….CON programs risk entrenching oligopolists and eroding consumer welfare.  The aim of controlling costs is laudable, but there appear to be other, more effective means of achieving this goal that do not pose anticompetitive risks.[11]

Because of the “serious competitive concerns” that outweighed the purported benefits, the agencies advised states to re-evaluate whether their certificate of need programs in fact serve the public good.

In addition to the impact of certificate of need programs on price and market penetration, the stubbornly high rates of medical errors and hospital-acquired infections may be symptomatic of quality control difficulties rooted in a lack of competition.  The 1999 Institute of Medicine study To Err Is Human estimated that between 44,000 and 98,000 Americans die annually in hospitals due to preventable medical errors, creating a total economic cost of as much as $29 billion, and a November 2006 report utilizing data from a new infection-reporting regime in Pennsylvania found 19,154 cases of hospital-acquired infections in 2005 alone, representing an infection incident rate of more than 1 in 100 hospitalizations.[12]  With consolidation having eroded the breadth of competing hospitals in some markets, and state certificate of need programs presenting a significant barrier for potential new entrants, the prime driver of quality improvement within the hospital sector may be fear of litigation—a process which some conservatives may find economically inefficient and poor public policy.

The impact of certificate of need programs on quality improvements was illustrated in data from an October 2003 Government Accountability Office (GAO) study examining physician-owned specialty hospitals.  According to GAO, 83% of all specialty hospitals—and all specialty hospitals then under development—were located in states without certificate of need requirements.[13]  The FTC-DOJ study also cited the example of a Florida law enacted in 2003, which barred single-practice specialty hospitals while simultaneously eliminating certificate of need requirements for various cardiac programs at general hospitals.[14]  Some conservatives may therefore be concerned first that the innovation and quality improvements which physician-owned specialty hospitals have introduced are being denied to residents in many states due to certificate of need restrictions, and second that this archaic and bureaucratic mechanism has become a political football that existing facilities attempt to manipulate in order to maintain existing oligopolies.[15]

Security Impact:  The September 11 attacks and subsequent concerns regarding incidents of mass terrorism, bioterrorism, or pandemic outbreaks have raised the prominence of the need for “surge capacity” in the event of a major public health disaster.  Although such surge capacity need not be located within the confines of a hospital, specialized medical centers may play a significant role in any response to a large-scale incident.

On May 5 and 7, 2008, the House Committee on Oversight and Government Reform held hearings regarding a potential lack of hospital surge capacity.[16]  Chairman Henry Waxman (D-CA) attempted to assert that the implementation of several proposed Medicaid anti-fraud regulations would compel hospitals to reduce or eliminate trauma centers whose services would be needed in the event of a major terror incident.  In response, Secretary of Health and Human Services Mike Leavitt noted that the need for proper public health capacity to respond to terrorist incidents should not impede the Administration from enacting reasonable controls to ensure that the Medicaid program meets its statutory goal of providing health care to low-income individuals, as opposed to serving as a bioterror response agency.

In addition to agreeing with the Secretary’s assertion that the distinction between public health preparedness and implementation of Medicaid anti-fraud regulations saving $42 billion over a decade is a false dichotomy, some conservatives may also believe that a better way to increase “surge capacity” in 36 states and the District of Columbia would involve a repeal of certificate of need restrictions.  Rather than maintaining bureaucratic regulations that prevent construction of health care facilities of critical importance in a mass-casualty incident—or jeopardizing existing physician-owned trauma centers by enacting new restrictions on physician ownership, as House Democrats have proposed—conservatives may believe that a better alternative would allow free markets to innovate and create new medical centers should capacity for trauma units or other segments of care be lacking in a particular market.

Conclusion:  Proposals to expand the government’s role in health care have frequently been criticized by conservatives as the first step towards rationed care.  However, some conservatives may use the certificate of need model to argue that 36 states and the District of Columbia already ration health care, by limiting the ability of new entrants to provide medical services to their citizens.  For instance, the recent decision of the Michigan Certificate of Need Commission to limit the number of new radiation facilities in the state may have an adverse impact on cancer patients seeking access to a novel form of treatment.[17]

With a McKinsey group study noting that hospitals account for 50% of the excess spending in American health care relative to other countries, some conservatives may argue that the hospital industry in particular warrants the additional innovation and reduced costs which new entrants can provide.[18]  Congress itself recognized this fact in 1980 by passing legislation (P.L. 96-499) making ambulatory surgery centers (ASCs) eligible for Medicare reimbursement, believing that new ASCs could perform certain medical procedures more cost-effectively than general hospitals.[19]  Yet the exhaustive FTC-DOJ study, as well as related literature, have documented the ways in which state-based certificate of need laws have undermined market-based efforts at cost control—by resulting in less competition, higher prices, and a diminished emphasis on quality that new market entrants can elicit.  In addition, the changed environment of a post-9/11 world raises questions as to whether states with certificate of need programs are denying to their citizens facilities that could be of critical importance in a public health crisis.  Viewed from these perspectives, the certificate of need model may look less like an effective mechanism to contain the growth of health care costs than an outdated shibboleth that ultimately harms the citizens whom it was designed to protect.

Some conservatives may believe that the nearly 100,000 deaths annually due to preventable medical errors constitute proof positive that the certificate of need model should be permanently dismantled, and that the billions of dollars in hospital expenditures made by the federal government may warrant a federal role in persuading recalcitrant states to do so.  This fiscal year alone, the federal government will spend at least $27.1 billion on payments to hospitals not directly attributable to patient care—including Medicare and Medicaid disproportionate share hospital payments, and graduate and indirect medical education costs.[20]  Some conservatives may therefore support policies intended to link some or all of these payments to states’ repeal of certificate of need laws, in the belief that the abolition of such measures will improve competition, drive down prices, and enhance the quality of health care nationwide.

 

[1] “Certificate of Need State Laws 2008,” (Washington, DC, National Council of State Legislatures, updated May 8, 2008), available online at http://www.ncsl.org/programs/health/cert-need.htm (accessed May 11, 2008).

[2] Cited in Improving Health Care: A Dose of Competition (Washington, DC, Department of Justice and Federal Trade Commission Joint Report, July 2004), available online at http://www.ftc.gov/reports/healthcare/040723healthcarerpt.pdf (accessed May 11, 2008), p. 301.

[3] Ibid., pp. 302-303.

[4] Ibid., pp. 133-134.

[5] Background information, agendas, and transcripts for the hearings can be found online at http://www.ftc.gov/bc/healthcare/research/healthcarehearing.htm (accessed May 12, 2008).

[6] Cara Lesser and Paul Ginsburg, “Back to the Future?: New Cost and Access Challenges Emerge,” (Washington, DC, Center for Studying Health System Change Issue Brief No. 35, February 2001), available online at http://www.hschange.com/CONTENT/295/ (accessed May 11, 2008).

[7] Cited in Dose of Competition, p. 138.

[8] William Vogt and Robert Town, “How Has Hospital Consolidation Affected the Price and Quality of Hospital  Care?” (Princeton, NJ, Robert Wood Johnson Foundation Research Synthesis Project No. 9, February 2006), available online at http://www.rwjf.org/pr/synthesis/reports_and_briefs/pdf/no9_researchreport.pdf (accessed May 12, 2008), pp. 8-10.

[9] Robert Town et al., “The Welfare Consequences of Hospital Mergers,” (Cambridge, MA, National Bureau of Economic Research Working Paper 12244), available online at http://www.nber.org/papers/w12244.pdf?new_window=1 (accessed May 13, 2008), Tables 8-10, pp. 48-50.

[10] See ibid., pp. 301-306.

[11] Ibid., p. 306.

[12] Institute of Medicine, To Err Is Human: Building a Safer Health System, summary available online at http://www.iom.edu/Object.File/Master/4/117/ToErr-8pager.pdf (accessed March 1, 2008); Pennsylvania Health Care Cost Containment Council, Hospital Acquired Infections in Pennsylvania, available online at http://www.phc4.org/reports/hai/05/docs/hai2005report.pdf (accessed March 1, 2008).

[13] “Specialty Hospitals: Geographic Location, Services Provided, and Financial Performance,” (Washington, Government Accountability Office, Report GAO-04-167), available online at http://www.gao.gov/new.items/d04167.pdf (accessed May 11, 2008), pp. 20-21.

[14] Cited in Dose of Competition, p. 146, note 116.

[15] The Center for Responsive Politics notes that from 1998 through March 2008, the hospital and nursing home industry spent more than $610 million on federal lobbying alone, placing it ninth among 121 industry categories.  Data available online at http://www.opensecrets.org/lobby/top.php?indexType=i (accessed May 12, 2008).

[16] Information about the hearings can be found at http://oversight.house.gov/story.asp?ID=1929 (accessed May 10, 2008).

[17] Andrew Pollack, “States Limit Costly Sites for Cancer Radiation,” New York Times May 1, 2008, available online at http://www.nytimes.com/2008/05/01/technology/01proton.html?_r=2&adxnnl=1&8br=&oref=slogin&adxnnlx=1210543656-RJG4oNSF434Dh4b52KfeFA&pagewanted=print (accessed May 11, 2008).

[18] Cited in Regina Herzlinger, Who Killed Health Care? America’s $2 Trillion Medical Problem—and the Consumer Driven Cure (New York, McGraw-Hill, 2007), p. 62.

[19] Cited in Dose of Competition, p. 148.

[20] Congressional Budget Office March 2008 baselines for Medicare and Medicaid, available online at http://www.cbo.gov/budget/factsheets/2008b/medicare.pdf and http://www.cbo.gov/budget/factsheets/2008b/medicaidBaseline.pdf, respectively  (accessed May 12, 2008).

Health Savings Account Plan Enrollment

This week, the Government Accountability Office (GAO) released a study requested by Reps. Henry Waxman and Pete Stark with additional data on take-up and enrollment in Health Savings Accounts (HSAs).  In addition, America’s Health Insurance Plans (AHIP) released a new report reflecting enrollment in HSAs as of January 2008.  In response to these two reports, the RSC has prepared the following document rebutting criticisms propounded by the Democrats who requested the GAO study, and summarizing the news released by AHIP about HSAs’ growing popularity.

Democrat Criticisms Based on GAO Report

Criticism:  Because contributions to HSAs are significantly exceeding withdrawals from the accounts, Health Savings Accounts can therefore be considered a “tax shelter.”

Response:

  • The GAO report found that in 2005, tax filers contributed $754 million to HSAs, while withdrawing $366 million, or about half the total contribution figure, to pay various expenses.
  • The point of HSAs is to allow individuals to save money tax-free for health care expenses. Therefore, many conservatives would view the net $388 million in savings as positive news—because that money is being saved to pay for long-term and catastrophic health care expenses, rather than being used on high-cost, first-dollar insurance coverage with benefits that individuals may never use.
  • GAO also cited various employer surveys noting that employers are placing $600-800 annually in their workers’ HSAs to pay for health expenses.
  • Some conservatives may believe that, had total withdrawals nearly equaled total contributions, Democrats would instead be objecting that individuals are not saving enough funds in their HSAs to cover unexpected health expenses under a high-deductible health insurance plan.

Criticism:  Because HSA account holders reported higher incomes than other tax filers, HSAs are being used primarily by wealthy individuals and families.

Response:

  • The data in the GAO study leading to this conclusion reflect information from tax year 2005—when there were just over one million covered lives in HSAs.
  • Since the point in time captured by GAO, Health Savings Accounts have grown nearly six-fold, and now encompass more than six million covered lives.
  • The small sample size available in 2005 may have incorporated a disproportionate number of holders of Medical Savings Accounts (MSAs), who converted their accounts into HSAs upon their creation in early 2004. Because MSAs were only available to self-employed individuals and small business owners—who would have higher incomes than the general population—it is perhaps unsurprising that the incomes of these “early adopters” would be higher than all tax filers.
  • However, eHealthInsurance, an online broker of health insurance policies nationwide, has released a report based on its sales of HSA policies in 2005, which found that 45% of HSA-eligible plan purchasers earned less than $50,000 annually—and 41% of HSA purchasers had not previously had health insurance coverage in the prior six months.
  • Because the data on “all tax filers” included both Medicare and Medicaid recipients—many of whom have significantly lower incomes than the average tax filer, and none of whom are eligible to make HSA contributions—the GAO report did not provide an “apples-to-apples” comparison of the incomes of those individuals who purchase HSAs and those who choose other forms of private insurance.
  • The GAO report did not provide context on the relative incomes for individuals who use other tax-favored accounts, such as those for college savings. Without that contextual data, it is difficult to determine whether and how HSAs are being improperly used when compared to similar tax-favored savings vehicles.

Criticism:  Many individuals who take out HSA-eligible plans are never opening Health Savings Accounts—leaving them vulnerable to high expenses in the event of a health care emergency.

Response:

  • The GAO study quoted various studies stating that 42-49% of HSA-eligible plan enrollees had not opened an HSA.
  • However, the study confuses the difference between covered lives in an HSA-eligible plan and the number of accounts opened. For many reasons, the two numbers will never be equal, or even nearly equal—dependent children covered on their parents’ HSA-eligible plan cannot open their own account, and some spouses may choose to operate a shared account rather than two distinct ones.

Growth of Health Savings Accounts

Both the GAO study and the report released by AHIP this week confirm that Health Savings Accounts have appreciably grown in popularity since their introduction in 2004.  Relevant points include the following:

  • The number of HSA covered lives has grown from 438,000 in September 2004 to more than 4.5 million in January 2007—and 6.1 million in January 2008.
  • The growth in enrollment from January 2007 to January 2008 represents a 35% increase in the number of HSA covered lives in a single year.
  • Of the nearly 1.6 million newly covered lives, almost half were in the small group market—a particularly compelling statistic, given the difficulties many small businesses have in offering health insurance to their employees.
  • States such as Louisiana and Minnesota, along with the District of Columbia, are seeing HSA-eligible policies approaching 10% of all enrollment in private health insurance.
  • HSAs provide quality health insurance above the high deductible—the average lifetime maximum benefit exceeds $3 million for many policies, and anywhere from one-fifth to one-third of policies have unlimited lifetime maximum benefits.
  • The average HSA account balance is $1,382—significant savings that can be used to pay for health expenses.

Conclusion:  Despite the comments released by the Democrats who requested the GAO study, many conservatives will be pleased by much of the data in the report.  The study demonstrates that individuals and families are compiling real savings in their Health Savings Accounts—money that may otherwise have been sent to an insurance company to pay higher premiums for benefits that they may never have used.  Instead, consumers are creating savings to pay for catastrophic health care expenses, and becoming wiser shoppers when purchasing incidental medical goods and services, which will help to slow the growth of health care spending.

The dramatic and continued increase in HSA adoption over the past four years demonstrates the resonance which this new concept has had on individuals and families alike.  The significant growth in HSA adoption among small businesses—where many of the “working uninsured” are employed—and the contributions made to HSAs by a strong percentage of employers indicate their widespread popularity as a means for businesses to control the growth of health care spending while empowering their workers to make better health decisions.  For these reasons, many conservatives will continue to support actions that allow HSAs to grow and thrive, while opposing actions by Democrats—either through legislative fiat or unnecessary regulatory burdens—to undo this critical health care innovation.