July 12, 2001

Dear Representative:

We are writing to urge you to support the Bipartisan Patient Protection Act of 2001, legislation introduced by Representatives Greg Ganske, John Dingell, and Charles Norwood. The Ganske-Dingell-Norwood bill would provide important protections for every consumer of private health insurance. The safeguards established in the bill would enable consumers to get an independent external review of treatment decisions, and allow consumers to hold managed care plans legally accountable for the decisions they make.

We urge you to oppose including broad expansion of Medical Savings Accounts (MSA's), federally-certified Association Health Plans (AHP's) and tax credits for individual health insurance premiums in the managed care bill. Both MSA's and AHP's are included in H.R. 2315, the "Patients Bill of Rights Act of 2001," introduced by Representative Fletcher. While we strongly support the goal of expanding access to affordable health care coverage to all, we are concerned that broad expansion of MSA's, AHP's, and tax credits could in fact further fragment the health insurance market, making it more difficult for sicker and lower-income consumers to get affordable, quality health insurance coverage. Specifically, we urge you to:

· Vote NO on making Medical Savings Accounts (MSAs) more broadly available. We believe that MSAs will have the effect of siphoning off healthier, wealthier people into high-deductible plans, thereby driving up premiums for less healthy people and eroding traditional low-deductible coverage.

· Vote NO on federally-certified association health plans (AHPs), which we believe would lead to skimpy coverage for some consumers, drive up premiums for the sick, and undermine state efforts to spread health care costs fairly across the population.

· Vote NO on tax credits or deductions for the individual purchase of health insurance. These tax provisions would not make insurance affordable for lower-income families, and would make it more difficult for sick people to get coverage and erode employer-based coverage.

Enclosed are fact sheets providing more detailed analysis of the flaws in each of these three proposals.

Again, we urge you to join Representatives Ganske, Dingell and Norwood in their bipartisan effort to extend meaningful patient protections to all managed care enrollees, and oppose any amendments that would weaken the bill's consumer protection provisions.

Sincerely,

Fact Sheet: Medical Savings Accounts

The House should reject any amendment to the Bipartisan Patient Protection Act of 2001 to further expand MSAs because they will harm consumers by driving premiums up for the less-healthy and eroding traditional low-deductible health coverage.

Over time, the proposed expansion of MSAs (with high deductible coverage) is likely to lead to a health insurance marketplace with ONLY high deductible coverage: traditional low-deductible coverage will disappear.

• Expanded MSAs could mean that family deductibles between $2,000 and $4,000 become the norm.
  
  
• Research indicates that MSAs cannot coexist alongside of traditional coverage: MSAs will lead to premium spirals that could drive traditional coverage out of the marketplace (due to adverse selection). (1)

MSAs divide the healthy from the sick, fragmenting the risk pool, and driving up premiums for those remaining in traditional coverage.

• Before the 1996 MSA demonstration was established, researchers estimated that premiums for traditional (low-deductible) coverage could increase by over 300 %, varying with the percent of healthy that chooses MSAs.(2)
  
  
• Research by Consumers Union (based on estimates of health care spending in 2000), projects similar premium increases for those enrolled in traditional coverage - as large as 312% if all of the healthiest enroll in MSAs.(3)
  
  
• "Self-selection by low-risk families into the MSA [and catastrophic health insurance] leaves high risk families with choosing between paying higher premiums for their comprehensive plans or enrolling in the MSA … In both cases the high risk families are worse off."(4)

Expanded MSAs benefit higher income people at the expense of the poor.

• Higher income people are more likely to be able to afford high deductibles than are low-income people.
  
  
• Higher income people are more likely to benefit from employer-paid premiums and MSA contributions than are lower income people.
  
  
• Higher income people receive larger tax benefits from MSAs than lower income people.
  
  
• Concern about the poor losing out under MSAs is supported by research that shows that families that face higher out-of-pocket costs because of MSAs tend to be poorer.(5)

H.R. 526 (Ganske-Dingell-Norwood bill) proposes a modest expansion of MSAs. It would (1) extend the MSA demonstration through 2004; (2) increase the ceiling on the number of MSA's allowed; (3) increase the number of employees an employer offering MSAs can have from 50 to 100; and (4) require GAO study of adverse selection.

In contrast H.R. 2315 (Fletcher bill) would greatly expand MSAs. It would: (1) make MSAs broadly available, removing the limitations to the self-employed and employers with under 50 employees; (2) increase tax-deductible contributions to MSAs; (3) allow both employers and employees to contribute to MSAs; (4) reduce the minimum deductible for high deductible health plans to $1,000 for individuals and $2,000 for families and (5) allow MSAs to be offered under cafeteria plans.

July 12, 2001 For more information contact: Gail Shearer, at Consumers Union, (202) 462-6262

Fact Sheet: Association Health Plans

The House should reject any amendment to the Bipartisan Patient Protection Act of 2001 that would create federally-certified association health plans (AHPs) because these would harm the health care system by creating skimpy coverage for some, driving up premiums for the sick, and undermining state efforts to spread health care costs fairly across the population.

Federally-certified association health plans would allow small firms to band together to purchase health insurance while escaping certain state regulations such as benefit mandates and solvency requirements. Expanded AHPs would harm consumers and the health care system because:

AHPs could offer skimpy benefits.

• A key reason that premiums would be lowered by AHPs is that they would be exempt from state benefit mandates.
  
  
• Health insurance policies would be less likely to cover potentially life-saving benefits such as mammography screening, cervical cancer screening, check-ups for children, bone marrow transplants, and diabetic supplies.

AHPs are likely to split the healthy from the sick, fragmenting the risk pool.

• Relatively skimpy benefits are more likely to appeal more to healthy people than sick people, hence healthy people will be pulled out of the existing insurance pool.
  
  
• The cherry-picking of the healthy will undermine state insurance reform efforts that are designed to spread costs broadly and make coverage more affordable to high risk people.
  
  
• The most serious disruptions will occur in states that have done the most to protect vulnerable consumers - those states that have community rating (i.e., broad risk-pooling). (6)

AHPs unfairly harm vulnerable, high risk consumers.

• According to a Congressional Budget Office report, if federally certified AHPs are created,20 million employees and dependents will face premium increases and 10,000 of the sickest will lose coverage altogether. (7)

Creating loopholes in regulations can harm consumers.

• In the 1970's and 1980's, multiple employer welfare associations (MEWAs) exploited regulatory loopholes in ERISA, leaving thousands of consumers with unreimbursed medical bills.(8)
  
  
• Federally-certified AHPs open the door to a new round of fraudulent activity that could result in health plan insolvency and more unreimbursed medical expenses for consumers.

July 12, 2001 For more information contact: Gail Shearer, at Consumers Union, (202) 462-6262

Fact Sheet: Tax Credits for Health Insurance

The House should reject any amendment to the Bipartisan Patient Protection Act of 2001 that would establish a tax credit for individuals who purchase health insurance because it will not enable those most in need to afford coverage, it could make coverage less affordable and available to the sick, and it could erode employer-based coverage.

A tax credit for individuals purchasing health insurance would not make coverage affordable for those most in need of premium subsidies: families with low income who do not qualify for Medicaid or CHIP coverage.

· The Center on Budget and Policy Priorities estimates that if a tax credit worth $2,000 to $2,500 were enacted, a family with income of $30,000 would have to spend 10 to 15 percent of its gross income to buy health insurance, (assuming that a family premium is $6,000 to $7,000). (9)

Most people get health insurance coverage through their employers. A tax credit for individuals would undermine the employer-based system and lead employers to stop providing coverage.

· Most tax credit proposals result in a modest net increase in the number of insured, but this results from a combination of an increase in the number of people with nongroup insurance, and a decrease in the number of people with employer-based insurance. (10)

· A tax credit of $2,000 for individuals and $4,000 for families (for those not covered otherwise) is estimated to result in a 10 percent reduction in employer based coverage.(11)

An individual tax credit for health insurance will split the healthy from the sick, and create substantial harm for people with high health risks who may find that the individual health insurance market is unwilling to offer them insurance at an affordable price.

· While some states protect high risk consumers of individual health insurance policies by community rating (e.g., New York, New Jersey), in most states people with high-risks are unable to buy health insurance at an affordable price.

· Some studies assume that the individual marketplace will be regulated much more aggressively than is likely to be the case. For example, one analysis "assumes that policies in the individual market are universally available (at health risk-adjusted prices)." (12)

In order to be equitable, a tax credit would have to be available to both previously uninsured as well as previously insured people, greatly increasing the cost of insuring each "newly insured person."

· Because of the range of tax credit proposals, the cost per newly insured ranges from about $2,200 to about $10,500. (13)

· If expanding coverage of the uninsured is the primary objective, then alternatives such as Medicaid/SCHIP expansion are likely to be far more cost-effective.

· To extend Medicaid coverage (in 1998) to an additional child cost on average $1,225 and to an additional adult cost on average $1,312. (14)

A small tax credit could result in skimpy health coverage.

· An estimated 31 million adults (in 1998) were underinsured and at risk of spending more than 10 percent of their income on out-of-pocket expenses if they faced a catastrophic illness. (15)

· If tax credits are skimpy (e.g., $500 per individual) at a level less than half of the average cost of coverage, the marketplace may respond by designing skimpy benefit packages.

July 12, 2001 For more information contact: Gail Shearer, at Consumers Union, (202) 462-6262

Footnotes:
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(1) Daniel Zabinski, Thomas M. Selden, John F. Moeller, Jessica S. Banthin, "Medical Savings Accounts: Micro-simulation Results from a Model with Adverse Selection," Journal of Health Economics, Vol. 18 (2), April 1999.

(2) Len M. Nichols, Marilyn Moon & Susan Wall, "Tax-Preferred Medical Savings Accounts and Catastrophic Health Insurance Plans: A Numerical Analysis of Winners and Losers," The Urban Institute, Washington DC, April 1996.

(3) Gail Shearer, "The Health Care Divide: Unfair Financial Burdens," Consumers Union, August 20, 2000.

(4) Zabinski et al. p. 215.

(5) Zabinski et al.

(6) See Mark A. Hall, Elliot K. Wicks and Janice Lawlor, Health Affairs, January/February 2001, (vol. 20, no. 1), p. 149. States such as New York, New Jersey, and Maine have community-rating (or partial community rating) to spread risks broadly.

(7) Congressional Budget Office, "Increasing Small-Firm Health Insurance Coverage Through Association Health Plans and HealthMarts," January 2000.

(8) General Accounting Office, 1991.

(9) Iris J. Lav and Joel Friedman, "Tax Credits for Individuals to Buy Health Insurance Won't Help Many Uninsured Families," Center for Budget and Policy Priorities, February 15, 2001.

(10) Jonathan Gruber and Larry Levitt, "Tax Subsidies for Health Insurance: Costs and Benefits," Health Affairs, Vol. 19, January/February 2000, p. 79.

(11) Gruber and Levitt, p. 79.

(12) Gruber and Levitt, p. 84.

(13) Gruber and Levitt, p. 79; John Sheils, Paul Hogan, and Randall Haught, The Lewin Group, Prepared for The National Coalition on Health Care, "Health Insurance and Taxes: The Impact of Proposed Changes in Current Federal Policy," October 1999.

(14) "Medicaid Enrollment and Spending Trends, Kaiser Commission on Medicaid and the Uninsured, February 2001, www.kff.org.

(15) Consumers Union, "The Health Care Divide," August 2000, p. 13. See also Pamela Farley Short and Jessica S. Banthin, "New Estimates of the Underinsured Younger than 65," JAMA, 274: 1302-1306.