Press Release October 9, 1998	Contact: Gene Kimmelman, kimmge@consumer.org Kathleen McShea, mcshka@consumer.org, 202/462-6262 Consumers Union's Washington, DC Office

Provisions

Analysis of "Access" Provision

S.1344 · Lifts restrictions (that currently limit MSAs to small employers and self-employed). · Increases tax deduction for contributions to MSAs (to amount of insurance policy deductible) · Reduces (minimum) deductible for high deductible (MSA plan) insurance policy to $1000 (from $1500) for individual and $2000 (from $3000) for family. · Requires the Federal Employee Health Benefit Program to establish catastrophic plans and MSA accounts, with contributions from the government. · [Retains maximum deductible for high deductible policy of $2250 for individuals and $4500 for families]

(Same effects at H.R. 2990)| · S. 1344(unlike H.R. 2990) explicitly provides for adding MSA plans to FEHBP health insurance options.

Provisions

Analysis of "Access" Provision

Association Health Plans H.R.2990 · Allows small employers and the self-employed to band together to purchase health insurance, escaping certain state regulation · Allows AHP to determine benefits (preempting state benefit mandates) S. 1334 · No provision

· AHP's could escape from state benefit mandates, and offer less-than-comprehensive benefits. · By escaping state benefit mandates, AHP's could cherry-pick the healthy, by NOT offering benefits that are needed by (and attract) sick people. · AHP's could attract relatively healthy people (who already have coverage) and undermine state efforts to spread risks broadly. (Letter, American Academy of Actuaries) · "This [AHP] proposal continues to prevent states from enforcing the laws and regulations they have created to protect consumers and assure access to reasonably priced coverage for small firms. (Letter, National Governors' Association, et. al.) · By fragmenting the market, and destabilizing it, AHP's could lead to small firms dropping coverage and increase the number of uninsured. (Len Nichols, Urban Institute) · The following benefits are examples of state-mandated benefits that are at risk of being left out of health plans offered by AHP's. (The number in parentheses is the number of states that now have these mandates): · Mammography screening (49) · Cervical cancer screening (20) · Drug abuse treatment (31) · Alcoholism treatment (43) · Well-child care (29) · Mental health benefits (33) · Breast reconstruction (51) · Cleft palate (8) · Bone marrow transplants (9) · Diabetic supplies (32) · In vitro fertilization (8) · Maternity (10) · Minimum mastectomy stays (18) · Orthotics/prosthetics (6) · Prostate cancer screening (16) · Bone mass measurement (7) · Hospice care (6)

Provision

Analysis of "Access" Provision

HealthMarts H.R. 2990 · Voluntary purchasing alliances for negotiating and purchasing health insurance. · Employers, health plans and providers join together.   S. 1334 · No provision

· Many states have created purchasing alliances with comprehensive regulations that would not apply to HealthMarts. · Untried and untested mechanism. · Voluntary nature could lead to risk fragmentation. · Preempts state benefit mandates. Same state benefit mandates that are listed in the AHP section would be in jeopardy. · HealthMarts rely on skimpy benefits as key means of saving money. · Builds conflicts of interest into boards, by including representatives of insurance companies on the boards: will the welfare of enrollees be their number one priority?

Provision

Analysis of "Access" Provision

Tax Deductions for Health Insurance Premiums Paid by Individuals H.R. 2990 · Individuals can deduct premiums they pay for health insurance (for those who pay at least 50% of premium) · % begins at 25% in 2002 and increases to 100% in 2007   S. 1334 · No provision

· 43% of the uninsured non-elderly (18 million uninsured) owe no income tax and will not benefit from deduction. (Center on Budget and Policy Priorities). · 15% subsidy for the 20 million uninsured in the 15% tax bracket will not be sufficient to make health insurance affordable. (CBPP) · Joint Committee on Taxation estimates annual cost of $8 billion once fully in effect, in 2008. (JCT letter) · JCT estimates addition of 320,000 (of the 44 million uninsured) would gain coverage. · Most of the funds will give a tax break to those individuals in high tax brackets who already buy individual health insurance. (Lewin estimates that tax deduction for individuals would cost $6.3 billion per year; would reduce the uninsured by about 4 million; for a cost per newly insured person of about $1,600. About 61 percent of the new tax expenditure would benefit people with income of $50,000 or more.) · Families with income of about $25,000 or less often owe no income tax, so will not benefit from deduction. It is these families who are most likely to be uninsured: 25% of households in this income range (below $25,000) are uninsured, compared with national average of 16%. (U.S. Census Bureau)

Provision

Analysis of "Access" Provision

Tax Deduction for Long-Term Care Insurance H.R. 2990 · Individuals can deduct premiums they pay for long-term care insurance · % begins at 25% in 2002 and increases to 100% in 2007 · Only if LTC policy is "qualified" S. 1334 · 100% of LTC insurance premium would be fully deductible (if not attained through employer) beginning in 2000. · LTC policy must be "qualified" · DHHS study of LTC needs in the 21st century

· As under HIPAA tax deduction for LTC insurance, policies must be "qualified." "Qualified" LTC policies tend to be less comprehensive than "non-qualified" LTC policies. Consumers are left with a tradeoff: buy a policy that offers a tax break OR buy a more comprehensive LTC policy. · The legislation provides a tax break without improving the standards for LTC policies (e.g., inflation, nonforfeiture, and protection against premium increases). · The tax deduction provides a bigger tax break for taxpayers in higher tax brackets than those in lower tax brackets (e.g., 39.6 % for the highest bracket, and 15% for the lowest). · JCT estimates cost of $2 billion per year when fully phased in, and $7.3 billion over 8 years. · Subsidy not sufficient to make LTC insurance affordable for people with low-incomes. · People most-in-need likely to be turned down for coverage.

Provision

Analysis of "Access" Provision

Tax Deduction for Self-Employed H.R. 2990 Accelerates to 100% the deduction for health insurance premiums paid by the self-employed, beginning 2001.   S.1334 Accelerates to 100% the deduction for health insurance premiums paid by the self-employed, beginning 2000.

· Both the House and the Senate bills lead to full deductibility more rapidly than current law. · Relatively small impact, both in terms of budget and decreasing the ranks of the uninsured. · A large percent of the cost will provide relief to people who are already insured. · JCT estimates that 3.3 million taxpayers would claim 100% deduction in 2000, of which 60,000 taxpayers (120,000 individuals) would be newly insured. · JCT estimates revenue loss of $2.9 billion (5 years); no cost in out-years, because phase-in under current law would have come into effect.

References

Campbell, Jennifer A., "Health Insurance Coverage, 1998 Current Population Reports," U.S. Census Bureau, October 1998.

Lav, Iris, "Tax Provisions in 'Quality Care for the Uninsured Act' largely Benefit high-Income Taxpayers and Don Not Help Most Uninsured," Center on Budget and Policy Priorities, October 6, 1999.

National Governors' Association, National Conference of State Legislatures, and National Association of Insurance Commissioners, letter to The Honorable Dennis Hastert and The Honorable Richard Gephardt, June 22, 1999.

Nichols, Len, Urban Institute, Testimony before the House Commerce Health Subcommittee, June 15, 1999.

Schubert, John, American Academy of Actuaries, letter to The Honorable Harris W. Fawell, October 5, 1998.

Sheils, John, Hogan, Paul and Haught, Randall, The Lewin Group, Inc., "Health Insurance and Taxes; The Impact of Proposed changes in Current Federal Policy," Prepared for The National Coalition on Health Care, October 1999.

Gail Shearer
Director, Health Policy Analysis
Washington Office
Consumers Union
202-462-6262
sheaga@consumer.org

October 26, 1999