Healthcare Overhaul Is Quietly Underway

WASHINGTON —  Emboldened by their success at the polls, the Bush administration and Republican leaders in Congress believe they have a new opportunity to move the nation away from the system of employer-provided health insurance that has covered most working Americans for the last half-century.

In its place, they want to erect a system in which workers -- instead of looking to employers for health insurance -- would take personal responsibility for protecting themselves and their families: They would buy high-deductible “catastrophic” insurance policies to cover major medical needs, then pay routine costs with money set aside in tax-sheltered health savings accounts.

Elements of that approach have been on the conservative agenda for years, but what has suddenly put it on the fast track is GOP confidence that the political balance of power has changed.

With Democratic strength reduced, President Bush, Senate Majority Leader Bill Frist (R-Tenn.) and House Ways and Means Committee Chairman Bill Thomas (R-Bakersfield) are pushing for action.

Supporters of the new approach, who see it as part of Bush’s “ownership society,” say workers and their families would become more careful users of healthcare if they had to pay the bills. Also, they say, the lower premiums on high-deductible plans would make coverage affordable for the uninsured and for small businesses.

“My view is that this is absolutely the next big thing,” said former House Speaker Newt Gingrich, whose consulting firm focuses on healthcare. “You are going to see a continued move to trying to get people involved in the process by owning their own health accounts.”

Critics say the Republican approach is really an attempt to shift the risks, massive costs and knotty problems of healthcare from employers to individuals. And they say the GOP is moving forward with far less public attention or debate than have surrounded Bush’s plans to overhaul Social Security.

Indeed, Bush’s health insurance agenda is far more developed than his Social Security plans and is advancing at a rapid clip through a combination of actions by government, insurers, employers and individuals.

Health savings accounts, known as HSAs, have already been approved. They were created as a little-noticed appendage to the 2003 Medicare prescription drug bill.

HSAs have had a strong start in the marketplace. Although regulations spelling out how they would work were not issued until mid-2004, as of Sept. 30, about 440,000 people had signed up. And more than one-quarter of employers say they are likely to offer them as an option.

The accounts are available only to people who buy high-deductible health insurance, either through an employer or individually. Consumers can set aside tax-free an amount equal to their deductible. Employers can contribute to workers’ HSAs but do not have to. Unused balances can be rolled over from year to year, and employees take their HSAs with them when they switch jobs.

The idea that losing one’s job would not automatically mean losing protection for medical costs has bipartisan appeal. “Portability” was a key feature of President Clinton’s ill-fated healthcare reform plan. But the GOP approach is significantly different: Whereas Clinton would have required all employers to chip in for universal health insurance, Bush wants to leave responsibility primarily to individuals.

“This is certainly getting a lot of attention from employers,” said Jack Rodgers, a healthcare analyst for PricewaterhouseCoopers LLP.

One reason is potential cost savings to employers.

A typical catastrophic health insurance plan carries an annual deductible of about $1,600 for an individual when purchased through a large employer. That means the worker pays the first $1,600 of healthcare expenses each year. By contrast, under the more comprehensive, employer-provided health insurance programs common today, the company begins to pay after about $300 in expenses have been incurred. Deductibles for families are considerably higher under both types of plans.

“There’s an issue about whether these things will work,” Rodgers said. “[But] we could end up coming back 10 years from now and everybody will have high-deductible plans and [health savings accounts].”

Sen. Ron Wyden (D-Ore.), who agrees with Bush that individuals should take more responsibility for controlling health costs, is nonetheless skeptical that HSAs, coupled with high-deductible insurance, will prove workable as a substitute for the present system.

“I think the American people are going to want more of a safety net than the administration has been willing to commit to this far,” Wyden said.

Still, catastrophic health insurance is gaining credibility as a policy option.

The California Medical Assn. supports a plan that would require all residents of the most populous state to carry at least high-deductible coverage -- just as automobile liability insurance is often mandatory. White House spokesman Trent Duffy said Bush was not contemplating such a requirement at the federal level.

But the existence of health savings accounts may make it easier to enact state mandates such as the California proposal.

Despite the record federal budget deficit, Bush on Wednesday proposed additional tax breaks and subsidies for HSAs, particularly for low-income families. He also called for a tax credit to help small businesses offer the plans to their employees. The low-income aid would be worth a maximum of $3,000 per family.

“Health savings accounts all aim at empowering people to make decisions for themselves, owning their own healthcare plan,” the president said. Consumer-driven decision-making is more likely to control costs than having bills paid by a third party, such as an employer, he added.

“If a third party makes that payment, [the consumer] never gets to ask the question [about cost],” Bush said. “He just accepts the decision. And all of a sudden, when you have consumers starting to ask questions about cost, it is a governor on cost, at the very minimum.”

During his confirmation hearings, incoming Health and Human Services Secretary Michael Leavitt called for renewing the national debate over the future of the healthcare system and spoke of “the transformational need of detaching healthcare and employment.”

Critics say that Bush’s vision represents wishful thinking at best, and at worst, a perilous new direction in national health policy.

“One danger with this is that people will not get needed care because they want to save a few thousand bucks,” said Rep. Pete Stark (D-Hayward), a leading lawmaker on healthcare.

“Healthcare isn’t like buying a Chevrolet,” Stark added, disputing Bush’s assertion that individual patients can be empowered to control costs. “You can go to Consumer Reports and read about the new Malibu, but if I asked you to describe a regimen of chemotherapy for someone who has colon cancer, you’d be out of gas.

“We are talking about highly technical services that 99% of the public doesn’t even know how to spell the names of,” he said. “Secondly, there is no uniformity within the medical community as to what services ought to be used. It’s a ‘by guess and by gosh’ sort of practice.”

The combination of HSAs and catastrophic insurance is too new for any definitive data on how consumers are faring.

A study released Thursday by the Commonwealth Fund, a private foundation that supports research on healthcare policy, found that people with high-deductible policies were more likely to have trouble paying medical bills than those in traditional insurance plans. They were also more likely to skip care because of cost.

The study did not look at the combination of high-deductible plans with HSAs, but the report cautioned that the savings accounts might not solve all the problems.

Many experts believe HSAs could quickly become one of the main ways to obtain health insurance for people working in small companies or buying coverage on their own.

Workers at large companies with standard health plans may be less likely to experiment with HSAs, although many large employers are already requiring their workers to shoulder a bigger share of health insurance costs. The existence of a government-sanctioned alternative to the traditional system might accelerate that trend.

“We are not trying to do one big change for the whole country, all at once -- like what sunk Hillary-care,” said Grace-Marie Turner, president of the Galen Institute, a research organization that promotes conservative, market-based health reform.

“We want to let people choose this if it meets their needs, and not rip out the underpinnings of the current system.”

But even the most ardent backers of HSAs concede that the country is not fully ready for them. They say critics such as Stark are correct to point out that there is little information available to consumers for comparing the costs of various medical options.

In a recent article in the New England Journal of Medicine, Frist called for what would amount to a healthcare information revolution. Within the next decade, he said, patients should be able to gain online access to performance rankings and prices for doctors and hospitals.

“Increased access to more accurate information about care and pricing will make possible ... the transformation of the healthcare system,” Frist wrote. “Whether selecting their physician, hospital or health plan, consumers must be able to choose what best meets their needs.”

A comprehensive system of healthcare information would be costly to create, and perhaps challenging for patients to navigate. On Thursday, Bush proposed some initial steps, such as computerized medical records and standardized information technology for medical offices.

His vision of an empowered patient calling the shots may stand little chance without a new information infrastructure.

Gingrich acknowledged: “You can’t have an informed marketplace in a setting where you don’t have any information.”