Friday, July 07, 2006

GOP Solution to Health Care = A Tax Break

In the Journal-Sentinel article on Governor Doyle’s comprehensive health care reform push, Rep. Ann Nischke (R-Waukesha) makes the claim that Health Savings Accounts (HSA) can have the effect of reducing the number of uninsured and decreasing the cost of health care.

Other Republicans, including Mark Green, have made similar arguments over the course of the past week.

To respond bluntly: Huh?

Simply having an HSA doesn’t make someone insured – it simply gives people a tax write-off on their health care expenses.

And, actually, a number of studies have determined HSAs would actually increase the number of uninsured. One such study by prominent MIT economist Jonathan Gruber estimated in February that if HSAs are expanded in the manner suggested by the Bush Administration, the number of Americans without health insurance would increase by about 600,000 people.

Plus, HSAs are most often associated with health care plans that merely shift the cost of care from premiums (typically employer-paid) to deductibles (always employee-paid). This does absolutely nothing to reduce the actual cost of care.

According to a joint study by the nonpartisan Employee Benefit Research Institute and the Commonwealth Fund, “To the extent that the health care cost problem is a problem owned by all of us, early evidence from the consumerism movement suggests that solving it through blunt, demand-side instruments like high deductibles gives disproportionate responsibility for the problem to the most vulnerable among us.”

It’s absolutely ridiculous to think a tax break is going to solve the health care crisis in Wisconsin, but, for some reason, that’s the lone idea the GOP keeps pushing.

Side-Note: I write more about HSAs here and here. And I also write in the comments section of this post how I see HSAs (or something like them) being a useful tool, but only as a part of comprehensive reform, not as a stand alone measure.


Blogger proletariat said...


You got to read through the lines. As the author says he 'projects that business sponsored insurance' will decline and he has the model to prove it.

What in fact is going on is creating an incentive for businesses to drop health insurance. At least these guys are on the side of the common folk, huh.

But, me liking systems models, and how contradictions in those systems foster change, thinks he may be on to something. HSA's as Bush has conceived of it would very likely create a major healthcare crisis. The HSA would no doubt have to be reformed into some form of National Healthcare Insurance.

July 07, 2006  
Anonymous Anonymous said...

Of course, the other side of the coin is that HSA's are a great way to get market forces working in the health care arena.

Now for a different study - the Heartland Institute ( study has these results:

43% of HSA applicants not NOT have prior insurance.

46% have family incomes of less that $50,000.

70% are over 40.

77% are families with children.

HSA's owners made 31% more preventative care visits than those with regular incomes.

Now, they are not a magic bullet for health care - but they can certainly help.

Of course, nothing attached to a tax incentive will every work for the lefties - but Wisconsin is now only one of 6 states that don't allow the deduction on the state level - is everyone else wrong?

July 07, 2006  
Blogger Seth Zlotocha said...


The only one of your stats that points to the benefit of HSAs is the preventive care figure, and that one was provided to Heartland by Assurant Health, which is an insurance company that sells -- you guessed it -- HSAs. Shocking they came up with a stat that puts HSAs in a positive light.

The Heartland Institute is aimed at pushing free market solutions at all costs. The Commonwealth Fund, the Employee Benefit Research Institute, and many other groups that have rejected HSAs as a viable reform measure don't have an ideological agenda. These groups could care less how the health care crisis is solved, they just want it solved -- and they all agree HSAs are not the way.

Just compare the mission statements.

The Heartland Institute: "The mission of The Heartland Institute is to discover and promote free-market solutions to social and economic problems."

The Commonwealth Fund: "The Commonwealth Fund is a private foundation that aims to promote a high performing health care system that achieves better access, improved quality, and greater efficiency, particularly for society's most vulnerable, including low-income people, the uninsured, minority Americans, young children, and elderly adults."

The Employee Benefit Research Institute: "The EBRI mission is to contribute to, to encourage, and to enhance the development of sound employee benefit programs and public policy through objective research and education." (Just to clarify, the members of EBRI include businesses such as American Express, IBM, Fidelity, JP Morgan, etc. -- not unions, which some people may think by just reading the group's name.)

It's not difficult to see which group has more of an agenda concerning how the health care crisis is solved.

And you're right that most other states allow HSAs as write-offs on state taxes. So does that mean the number of uninsured along with the cost of care has plummeted in all of those states since? Considering the health care crisis is still raging across the country in spite of the tax breaks, I'm guessing not.

July 07, 2006  
Blogger proletariat said...

Funny, all the benefits arn't so such.

1. 43% of HSA applicants not NOT have prior insurance.

Well, duh. The other side is 57% did at some time but they dropped it for economic and job reasons.

2. 46% have family incomes of less that $50,000.

This is really sad, and what I feared. More and more working famlies are having insurance dropped. One can then only afford a savings account. But....

3. 70% are over 40.

This too is sad. At the age when adults may need medical care the most they are dropping health insurance for a savings account. This is called living day to day praying for no major crisis.

4. 77% are families with children.

This is the saddest of all. This is certainly a red light to why universal health care is needed right now. As HSA's increase more employers will drop insurance, and more low income families with children will have nothing but a savings plan.

Hmm, were these suppose to be the benefits or the consequences of HSA's, I forgot.

July 07, 2006  
Anonymous Anonymous said...


You obviously don't understand how an HSA works. An HSA is only a savings account in partnership with a high-deductible insurance plan. The savings account can be contributed up to the amount of the deductible and slightly higher.

In other words, the savings account works a zero-deductible helath insurance plan with all of your standard caastrpohic coverage. In addition, the davings account can be rolled over year to year. The account can also be used for many more health-related expenses than a standard insurance plan.

The opponents are claiming that HSA's are only for young, healthy people and will somehow hurt the insurance pools already established. The Heartland study says otherwise. It shows that many of the people who previousliy did not have insurance gained coverage by going with an HSA. In fact, many smaller companies can save money by switching to an HSA AND contribute the full amount allowable to the savings account.

This means that employees of that company have a zero-deductible plan and they own an account that can build up over time federally tax-free.

Doyle is being led around by WEA Trust and they see HSA's as a threat to their near-monopoly in teacher's health insurance, so he vetoes the state tax deductibility.

You should at least understand the issue prior to commenting.

July 07, 2006  
Blogger GWC shadow said...

These are the same communist that believe that the state should pay for poor peoples car insurance. HSA's is the newest wave of change in the health care to keep business's raising health care costs down. It's either jump on board or watch more companies leave Wisconsin and more jobs lost. Which is what these stupid communist want. More dependants for the People's Republic of Wisconsin under the rule Jim "Mao" Doyle.

July 10, 2006  
Blogger Seth Zlotocha said...

Let's be clear on a couple things:

1) Opposing HSAs is not akin to supporting communism. The thought alone is ludicrous at best and counter-productive for the debate at worst (sort of like insinuating Doyle is a communist).

2) How exactly are HSAs a threat to the health plan offered by WEA Trust? HSAs currently exist in Wisconsin and the rest of the country. The issue is not whether we should have them, but rather whether allowing them as a state tax write-off will serve as a cure for the health care crisis in Wisconsin and across the nation. If it won't, which the research suggests (just to clarify, Heartland didn't complete a study of its own -- most of the info provided on its website is cherry-picked from insurance company figures), then we need to get past them and discuss how we can solve the crisis in a comprehensive manner.

3) Discussing how we can institute comprehensive health care reform that does something to lower the actual cost of care and reduce the number of uninsured is exactly what Doyle is trying to do amid the misleading cries of "HSAs are it!" by the GOP. And that's exactly why the Republican Party fears comprehensive health care reform as a campaign issue -- they've got no ideas for how to do it.

July 10, 2006  
Anonymous Anonymous said...

Actually - Jim Doyle has no ideas - he is just creating a panel to look at options which will release its finding in December, after the election. This is similar to the Assembly dems "bill to have a bill" on health care.

The reason you don't hear the details is becasue almost all of the lefty plans include one thing - a universal tax on business to cover the expense of providing coverage. The GOP is looking for ways to bring the cost of care down by having HSA's insert soem market forces on the system.

Those that are looking to extend insurance to all without dealing with actual cost of services are only looking to spend more taxpayer dollars.

July 10, 2006  
Blogger Seth Zlotocha said...

The council is just one facet of Doyle's plan. He's also proposing BadgerCare Plus as a way to expand coverage to uninsured families in the state and lower costs by consolidating administrative procedures (to the tune of $20 million per year).

What is the GOP proposing -- besides, that is, a tax break? The health care system in our country is already full of "market forces," and they have done nothing to hold down costs. We already have HSAs across the country, and in most states -- as you point out -- they can be written off on both federal and state taxes. But, in spite of this, we still have exorbitant health care costs and horribly high levels of working families with no insurance and even more with under-insurance in this country. I don't know how much clearer proof you can get that by themselves HSAs and existing "market forces" don't work to reduce cost and the number of uninsured.

Comprehensive health care reform can lower costs by reducing administrative overhead (which is 1/3 of the total cost for health care in the US -- administrative costs are more than 15% less in other developed countries that offer universal coverage) and increasing the purchasing power of participants in consolidated plans. All three proposals currently before the GOP-controlled state legislature in Wisconsin do just that -- proposals the Republican leadership just sat on all last session.

I write more about comprehensive reform here, here, here, here, and here (among other places).

July 10, 2006  
Anonymous Anonymous said...

"He's also proposing BadgerCare Plus as a way to expand coverage to uninsured families in the state and lower costs by consolidating administrative procedures (to the tune of $20 million per year)."

Is that the same as the ACE initiative that was supposed to save $100 million but saved, well, nobody knows because the program has no accountibility?

This idea is really nothing new, and most likely will not reduce costs at all.

Nobody has claimed that HSA's will transform all of helath care. But they are a step in the right direction and yes, the GOP believes that health care costs should be tax deductible as they are for business.

And there are very few market forces for the individual with regards to health care. Purchasing power is only valuable in large groups - and those still have nothing to do with actual costs of service. WI will now have a database that will provide some transparency on actual health care procedures and related costs.

Once the consumer has an accurate way to assess quality AND cost in their decision, HSA's will be even more effective.

But again, all of your "comprehensive" plans still reveolve around broad tax increases that do nothing to solve the problem.

July 10, 2006  
Blogger Seth Zlotocha said...

As for the details of the Dem plans, they're all online and not difficult at all to find. To save you the trouble of looking, you can find them here, here, and here.

Just to clarify the funding of these plans, two would use employer/employee assessments and one would use public money. The employer/employee assessments would save businesses money -- particularly in the Musser/Decker proposal (the first link) -- by reducing the coverall cost of care through administrative efficiencies and increased bargaining power.

Don't just take my word for it, though -- here's a discussion of how much private employers expect to save under the Decker/Musser plan. Mike Rayome -- who is the regional human resources manager for Wisconsin-based Graphic Packaging International -- estimates the Decker/Musser plan would save his company $2.88 million per year in health care costs -- which is a savings of 60% from what it pays now…and that’s just at the company’s Wausau plant alone.

And the description for Doyle's BadgerCare Plus plan is here. To simply write it off as "nothing new" isn't exactly a strong analysis. And the fact is consolidated payer systems -- which is the essential idea behind BadgerCare Plus -- have resulted in lower health care costs for other countries.

And in case you're the type of conservative who doesn't like evidence from other countries, consolidation of health care payers has also saved the WI state health insurance plan a ton of money -- you can read more about that here.

As for the separate issue of the ACE Initiative, we won't know for awhile exactly how much will be saved (it was announced just over a year ago), but it's clear some savings will result. The GOP is just upset they didn't come up with the idea first, so they turned to muddying the waters by making accusations that the initiative wouldn't save as much as Doyle initially promised.

July 10, 2006  
Anonymous Anonymous said...

"As for the separate issue of the ACE Initiative, we won't know for awhile exactly how much will be saved (it was announced just over a year ago), but it's clear some savings will result."

Really? Based on what?

July 11, 2006  
Blogger Seth Zlotocha said...

According to the ACE website, the initiative has already saved $80 million on seven procurement contracts (the savings will be realized over the lifetime of the contracts, not in one year).

Not even John Gard accuses the ACE initiative of saving no money -- he and the rest of the GOP just doesn't think it'll save as much as Doyle says. Surprise, surprise that the Republicans are skeptical.

Besides, since when is the GOP opposed to the consolidation of state services?

July 11, 2006  
Anonymous Anonymous said...

We are opposed to Doyle taking the veto pen to the requirement that he present the data to JFC. If the program is successful - why not present the facts? Also - consolodating gov't services is fine, but doing so as a DOA power grab and disguising it as the ACE initiative is another.

And I am shocked - I say SHOCKED - that the Ace website lists the savings it has achieved. Does it also list the programs that have actually increased costs???

July 11, 2006  
Blogger Seth Zlotocha said...

And I am shocked -- I say SHOCKED -- that you don't believe the numbers coming from the ACE website.

Doyle publicly agreed to sign a bill providing accountability for the ACE program this past March. I'm not sure what happened to the bill, but it was one proposed by John Gard. Perhaps it was signed, perhaps it didn't pass the legislature. Or perhaps it died behind closed doors along with ethics reform.

And, just out of curiosity, what happened to our discussion of HSAs? Any comment on the state health insurance plan that we know saved the state money by consolidating payers? I suppose it's easier to keep the discussion focused on a tangential topic that there is no definitive answer about.

July 11, 2006  
Anonymous Anonymous said...

The bill was passed by the Assembly and the Senate and Doyle took out his veto pen and killed it. AB 1182 - vetoed. Nice program.

And as for HSA's, there may be a bill that will allow all state employees to opt for HSA's. The state would save money and gov't employees would have better health coverage.

July 11, 2006  
Blogger Seth Zlotocha said...

Here's Doyle's explanation for vetoing AB 1182. I think it would've been nice for him to sign it, but just because he didn't doesn't mean the ACE initiative doesn't save the state money. His explanation -- that forcing the DOA to submit an annual report to the legislature simply creates more bureaucracy -- is sound.

Beyond that, even if the ACE iniative doesn't save as much money as Doyle initially promised (which we don't know for sure) doesn't mean BadgerCare Plus won't save the state money.

And HSAs for state employees? Are you kidding? State employees already have the best health care in...well, the state. HSAs would only make the coverage worse by shifting costs onto the employees and forcing them to "shop around" for care -- care that right now they receive through comprehensive coverage. There isn't a single rationale person out there who would opt for a high-deductible HSA over comprehensive coverage.

And since the state insurance plan consolidated payers a couple of years ago -- which BadgerCare Plus proposes to do for other state health care programs -- it has saved the state millions. Private employers would love to get in on the action, which is exactly what the various comprehenensive health care plans before the GOP-controlled state legislature suggest.

July 11, 2006  
Anonymous Anonymous said...

"There isn't a single rationale person out there who would opt for a high-deductible HSA over comprehensive coverage."

Wow are you wrong. A state employee would have the state contribute the full amount to the savings account- say $5000 a year for easy math. If they only used $1500 a year for medical expenses on average for five years, they would have a medical savings account with $35,000 in it, plus interest.

They would have more things covered under the HSA with regards to vision and dental than is currently covered under the state plan. They can use the money with virtually any doctor they want are not tied to aparticular plan for preventative care.

Now, when that person retires, that savings account can be used for just about anything.

So - you can have an employee that gets very good coverage under the state, but if they are healthy basically leaves tens of thousands of dollars on the table. But if that same employee has an HSA, they are creating a tax-free interest bearing account to be used for just about any medical expense they want, of their choice, on an account that they own even if they switch jobs.

No rationale person would take that? Are you nuts? Even if they get sick, they are at no greater rsik than the current plan. The state actually saves money because the HSA plna is less costly, and it doesn't create an extra burden on other insurance members.

Take a twenty year career for a healthy individual who only spends $1000 a year on average. Take that $4000 a year plus a modest 5% interest and that employeee now has $132,000. But then again, nobody would give up comprehensive coverage.

By the way, when that employee is speniding their own money - they will shop around to get the best combination of quality and price. That is a what HSA's will do.

July 11, 2006  
Blogger Seth Zlotocha said...

What you’re suggesting here are health care vouchers, not traditional HSAs. The big difference between the two is funding: HSAs are funded by the patient, health care vouchers are funded by the government.

A few on the left are pushing for health care vouchers (see this article in the Washington Monthly for one example), and I think there’s some logic to the argument – certainly in terms of political viability on a national scale.

But my concern with a voucher system is similar to one of the concerns I have with HSAs, which is that encouraging people to “shop around” for health care will reduce preventative care and increase the use of “quick fixes” for health care ailments.

And, what's more, what lowers health care costs is not "shopping around," but rather shopping together. If you approach a health care provider as an individual, you'll pay far more than someone who comes as part of an insurance plan because its participants will have received a group discount. Those discounts run -- according to the Wisconsin Hospital Association (see here, page 8) -- around 23% for most private insurance companies (although the bigger plans, like the ones run through the state, get significantly higher discounts). You're not seeing any of that savings as an individual. And to assume providers will pass savings on to you simply because you could go somewhere else for care is unwise -- there aren't enough providers for that type of system to work, especially considering the geographic disbursement of most hospitals. If most people refuse care at their area hospital, they're S.O.L.

If you don't believe me that increasing group purchasing power is a key to lowering health care costs, just check out this recent report by the nonpartisan Greater Milwaukee Business Foundation on Health.

A voucher program may be ok for a healthy single adult, but it makes much less sense for a family or anyone with a chronic illness of any kind. Sickness can come on quickly and without warning, and putting people in a position to save-up for the costs is not desirable. Even pregnancy, for instance, costs thousands of dollars. If a family already has high medical bills for something as common as one child’s diabetes, let’s say, do we want to put them in a position to feel like they need to sacrifice financially in order to afford medical expenses for carrying and delivering another child?

And these choices aren’t statistical anomalies either – there are hundreds of scenarios that could force people to make undesirable decisions in terms of their health care if given only a pre-set amount of money to fund it.

State employees in Wisconsin currently enjoy comprehensive coverage that doesn’t force them to make choices like that – and it’s coverage that’s realized millions of dollars in savings over a relatively short time span by consolidating the number of payers in the system. I still say you couldn’t find a single state employee who’d be willing to pass this up for the uncertainty of a voucher system – and I know there isn’t anyone who’d pass up comprehensive coverage for a high-deductible HSA that is funded from their own pocket.

We have the ability to give everyone comprehensive coverage that lowers the cost of the system as a whole by eliminating administrative waste and increasing the bargaining power of payers. Why should we opt instead for a system that forces people to make undesirable choices about something as important as health care?

July 11, 2006  
Anonymous Anonymous said...

You are mistaken about HSA's. What I have describe is a HSA - and not vouchers. The HSA has a savings account paired with a high-deductible plan. Either the employer or the indivudal can contribute to the savings account. In fact, most companies who offer a HSA and make the full contribution to the savings account on behalf of the employee still realize savings over a traditional plan.

As for buying power, if you choose to stay in the network of the high-deductible plan, you can still realize all of the savings of the traditional plan, in most cases, by confining yourself to the doctors in that plan.

However, if you choose to function as an individual, you are open to all the market forces out there. The transparency law jsut passed will at least give consumers the objective information as to cost so they can actually compare prices. Will that result in an immediate dramatic drop in prices? Probably not. But the progression will certainly be towrds streamlining the actual process of delivering services which is where the reform is most needed.

Increasing buying power and creating insurance and bureaucratic efficiencies will reduce some costs, but unless you get to the core problem of too much cost associated with delivering the services, your goals are severly limited.

An HSA for a state employee is a great opportunity to save the state money and create a growing fund with zero liability risk to the individual.

And as for making undesirable choices in health care. At some point libs are going to have to trust those in society that actually want control of their own lives. I know you would prefer that decisions be made for everyone - but John Q Public actually has the ability to make decisions in his best interest.

If he decides a HSA is not for him - fine. But for those that do - it will help bring actual market forces to the providing of health care sevices.

July 11, 2006  
Blogger Seth Zlotocha said...

In fact, most companies who offer a HSA and make the full contribution to the savings account on behalf of the employee still realize savings over a traditional plan.

Care to provide any evidence to back that up?

The transparency law jsut passed will at least give consumers the objective information as to cost so they can actually compare prices. Will that result in an immediate dramatic drop in prices? Probably not. But the progression will certainly be towrds streamlining the actual process of delivering services which is where the reform is most needed.

Transparency is meaningless when you're in need of care. You think people are going to travel from hospital to hospital looking for a deal when they're in need of care? I do agree that transparency is useful because it allows the public to put concerted pressure on high cost providers (note as a public, not as an individual), but negotiating prices in advance as a group is still the best way to go if you want costs lowered across the board -- and the more people in a plan, the more purchasing power (hence the beauty of a consolidated payer system).

I know you would prefer that decisions be made for everyone - but John Q Public actually has the ability to make decisions in his best interest.

We're talking about health care here, not what people need to eat (or, for that matter, who they should be able to marry). I do happen to think that everyone deserves solid comprehensive health coverage. If that makes me a proponent of the nanny state, then so be it.

Again, we already have HSAs and, yet, we still have high costs and high numbers of uninsured. We need comprehensive reform to rid the system of administrative waste, plain and simple. That's the only way to lower the actual cost of care.

And "shopping around" for care with pre-set funds creates uncertainty and encourages people to skimp on preventative care -- that's bad any way you slice it.

In the end, there is no evidence that simply shifting costs from premiums to deductibles and then making those deductibles tax free lowers the actual cost of care. There is evidence, on the other hand, that consolidating payers in the system lowers costs. We've seen it abroad (the research on HSAs abroad isn't so hot -- here's one such study completed by a researcher from the Harvard School of Public Health on the use of HSAs in Singapore) and we've seen in right here in Wisconsin.

July 11, 2006  
Anonymous Anonymous said...

Seth, I enjoy reading your website, how do you find time to do all this during school year I wonder? Please throw some more info on HSA's and the plan failed county exec candidate David Riemer is pushing which a lotta Democrats, especially Labor folks, have serious trouble with.

July 14, 2006  
Blogger Seth Zlotocha said...

I'm glad you enjoy the blog.

I discuss the Riemer plan in detail here -- the issues I take with it may or may not be the same as the labor community, I'm really not sure. The official website for the plan can be found here.

As for HSAs, I've written about those quite a bit in this post and others that can be found through links in the "Side-Note" of this post.

In terms of how I find the time to blog, most of the work gets done during the evening and the early morning. Thankfully the JS puts some of its stories up on the web the night before they appear in the print version, which helps me to get a jump-start on my commentary.

July 14, 2006  
Blogger proletariat said...

July 23, 2006  

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