By Reed Cooley, CQ Staff

June 25, 2008 -- While an economic adviser to presidential candidate Sen. John McCain, R-Ariz., asserted Wednesday that the candidate's health care proposals would not spur drastic changes in the employer-based system, others said it's simply not yet possible to predict an outcome.

"We don't know exactly what the employers would do," said Karen Ignagni, president and CEO of America's Health Insurance Plans, during a forum on the health overhaul proposals of the presidential candidates.

Ron Pollack, executive director of Families USA, and Kavita Patel, health policy adviser to Democratic presidential candidate Sen. Barack Obama of Illinois, agreed, but also said the outcome would likely be unfavorable.

"Senator McCain's vision of change is far more radical [than Obama's], but not necessarily in a way that the American public is going," Pollack said during the event hosted by the National Journal Group.

McCain adviser Dan Crippen, former director of the Congressional Budget Office, tried to dispel the idea that the plan would spur drastic changes in the employer-based system. He explained that under the proposal, employers would be treated no differently for supplying health insurance to their employees than they are now, but that the insurance package would become a part of the individual's taxable income.

"It doesn't change incentives for employers at all," he said.

The universality of McCain's tax credit—$2,500 for individuals and $5,000 for families—would "allow people who transition a lot to have a policy that belongs to them and not to their employers," he added.

Patel cautioned that "when a $2,500 tax credit is not enough" to cover the cost of a premium, employers might begin to drop coverage. McCain's plan would "shift more people into the individual market," she said.

Pollack agreed: "It would encourage a significant number of employers to drop coverage because this would no longer be such a big benefit for their employees."

He added that eliminating the tax exemption would be a drastic change at a policy level and advocated putting a ceiling on the tax exemption and providing tax credits on a sliding scale to lower-income individuals, both provisions of Obama's proposal. "We don't have to go from 100 to zero all at once," he said.

Crippen and Ignagni both urged the discussion away from insurance coverage and premium levels. The question "who should pay" has dominated the debate so far, but "we really should ask 'what is it we're buying,'" Crippen said.

"The cost discussion has been seen almost exclusively through the prism of premium costs . . . [but] our premiums follow underlying costs," Ignagni said.

Pollack agreed that premium-levels are not the only cause for concern but emphasized that policy makers need to examine all the costs that affect consumers. "From a consumer perspective you look at all the ways that you pay: you look at premiums and deductibles and co-pays," he said.

By Drew Armstrong, CQ Staff

June 26, 2008 -- It now looks certain that doctors will take a deep cut to their Medicare payment rates next week, after the Senate failed to move forward on a take-it-or-leave-it Medicare bill offered up by Democrats.

A cloture vote that would have led to passage of the bill (HR 6331) failed, 58–40, falling short of the 60 votes required. Not voting were Sens. John McCain, R-Ariz., and Edward M. Kennedy, D-Mass.

Feelings were raw following the vote, and predictions dire.

"The doctors are going to survive with a 10 percent pay cut, but they're going to drop out of the system," said Majority Leader Harry Reid, D-Nev.

But it's likely the issue will be revisited shortly after the July Fourth recess. The vote had been 59–39, but Reid changed his vote from "aye" to be on the winning side so that, under procedural rules, the bill could be brought back up later.

"We'll be back, and you'll have another opportunity to vote for this," Reid said.

The bill would have stopped a 10.6 percent cut to Medicare's physician payment rates, scheduled to take effect July 1.

After the bill's failure, Senate Minority Leader Mitch McConnell, R Ky., offered a motion to extend Medicare's current physician payment rates for 30 days. Reid objected.

With the House going into recess for the Fourth of July, Senate Finance Chairman Max Baucus, D-Mont., who had shepherded the Medicare effort there, made clear that the bill was the only shot the Senate would get. With the House gone, there is no way lawmakers can stop the cuts.

"There is no alternative," Baucus said. "This is the only train in the station."

Republicans were upset at having only one option to vote on the legislation—in the form of a bill passed by the House—instead of getting a chance to support a tentative compromise between Baucus and Sen. Charles E. Grassley, R-Iowa, worked out earlier in the week.

"This is a terrible way for Congress to do business," said Sen. John Cornyn, R-Texas. He called the bill "a partisan proposal here that we're being asked to take or leave."

Grassley, often a close partner with Baucus on Medicare legislation, agreed and urged Republicans to vote against the bill.

"For years, the Finance Committee has been the model for how a committee can work on a bipartisan ... basis," Grassley said. "For some reason this year, that doesn't seem to be the case," he continued, but he made a point of not blaming Baucus.

McConnell said that Grassley would lead negotiations to produce a new Senate bill that more Republicans would support.

With the cuts to physician rates now scheduled to go through, Congress will have the option of returning after the recess and passing a retroactive bill that will restore payment rates and make up for the cuts. That will likely create an administrative headache, however, and had long been seen as an undesirable outcome.

The White House reiterated its veto threat against the bill on Thursday, likely making moot the narrow victory that seemed possible for Democrats. The administration opposes a provision that would partially offset the cost of the bill by cutting some bonus payments to private Medicare Advantage plans in areas with teaching hospitals. It also disagreed with a provision to limit a subset of the plans known as "private fee for service," saying the bill would "reduce access, benefits, and choices for many of the approximately 2.25 million beneficiaries who have chosen to enroll in" those plans.

The administration's demands have put Grassley in an uncomfortable position. "The White House has drawn lines in the sand that I think are unreasonable," Grassley said.

The Medicare Advantage plans are paid at a higher rate than traditional Medicare, and Democrats have long argued that the private plans' rates should be cut.

The Bush administration and many Republicans argue that the plans inject private competition into the market and will eventually lower costs.

The House passed the measure two days ago, 355–59, in a vote comfortably more than the two-thirds majority that would be needed to override a presidential veto.

The Senate on June 12 fell six votes short of the 60 votes needed to limit debate on a similar measure (S 3101). But Democrats were emboldened by the huge, bipartisan House vote on the new version and thus thought victory Thursday night might be within their grasp.

By Whitney Blair Wyckoff, CQ Staff

June 24, 2008 -- Consumer-driven health plans and wellness programs may not be the solution to the health care crisis, said panelists from consulting firm Milliman Inc. at a briefing Tuesday.

Sponsored by The Heritage Foundation, a conservative think tank, and the nonpartisan Employee Benefits Research Institute (EBRI), the panel considered health insurance overhaul elements.

"I don't know if health reform is inevitable," said event co-host Paul Fronstin, director of the Health Research and Education Program at EBRI. He added that there have been more failed attempts at overhauling health care than there have been successes. "Some would even argue that some of our current laws are failed attempts at health reform."

Fronstin recalled hearing one lawmaker say during the Senate Finance Committee's recent bipartisan health summit that he was surprised that 20 percent of the population accounts for 80 percent of health care costs. "I'm thinking to myself, we've got a long ways to go with just some basic education of members of Congress before we can have sound public policy," Fronstin said.

Employers using consumer-driven health plans have reported a 50-percent savings in paid claims, said panelist Catherine Murphy-Barron, a principal and consulting actuary for Milliman. However, that figure only shows part of the equation, she said. After taking plan design, favorable selection, and benefit richness into consideration, the savings are actually much lower, she said, citing a Milliman study that looked into whether consumer-driven health care plans are the solution to the health care cost crisis.

"What we found in our study was that the real savings from the consumer-driven part of the plans was 1.5 percent," she said.

Murphy-Barron added that the 1.5 percent did not necessarily mean that consumer-driven plans are more cost effective. It could mean, for example, that induced utilization as a result of a higher deductible might be higher than the study assumed.

Consumer-driven health plans are "not yet" the solution to the health care crisis, she said. For such plans to be more effective, more price and quality information needs to be available.

Panelist Kathryn Fitch, principal and health care consultant for Milliman, said that while wellness and care management initiatives, like smoking cessation and flu shots, are "the right thing to do," people should be cautious about the expectations. Fitch said 85 percent of employers have implemented some sort of wellness program.

"The verdict is out on whether or not these really work and whether they save money," Fitch said. "I think we're all pretty well convinced now that disease management does not save money."

In addition, both presidential candidates John McCain, R-Ariz., and Barack Obama, D-Ill., have a wellness program in their plans, she said. Any wellness initiatives that are proposed should have a strong evidence base and should consider how to get people involved in the programs, she said.

"Wellness is really in its infancy and there's a lot of naivete out there in terms of what we should be expecting from wellness and prevention," Fitch said.

By Whitney Blair Wyckoff, CQ Staff

June 27, 2008 -- None of the options to finance an overhaul of the nation's health care system will please Americans, analysts said at a recent forum on ways to control rising health care costs.

"You look at Americans' willingness to raise revenues and, to put it mildly, they aren't eager to do this," said panelist Robert D. Reischauer, president of the Urban Institute, at the forum sponsored by the Better Health Care Together labor and business coalition.

Panelists discussed evaluations conducted by a trio of health care experts on several proposals to finance health care change that have been suggested by presidential candidates and politicians.

Reischauer added during Wednesday's forum, "Virtually anything we put on the table doesn't seem to be very realistic."

The evaluations appear in a paper issued by The Bipartisan Policy Center titled "Financing the U.S. Health System: Issues and Options for Change." It focuses on the implications of five health financing options: continuing current financing and redirecting health spending, rolling back high-income tax cuts, limiting the exclusion of employer-paid health benefits in employee taxable income, "play or pay" mandates, and a value-added tax. All three of the paper's authors were present the discussion.

"A huge amount of the work needs to be done involving specific details," said Congressional Budget Office Director Peter R. Orszag of the proposals. For example, he said if the government gets rid of the employer exclusion, it matters what its replacement would be.

The paper does not draw any conclusions about which financing plan is best.

"We don't answer these questions because the reality is that the job of the next president—that is the job of the next Congress," said co-author Jeanne Lambrew, senior fellow at Center for American Progress.

While panelists said the paper "clearly" lays out the plans and implications of proposed changes in health care financing, they criticized some of the proposals considered.

"Many of the proposals that are discussed here are shams, quite frankly," Reischauer said. He said the reworking of existing programs to make them more cost efficient will not provide the short-term resources to get a revamped health care strategy off the launching pad.

He added, "I think we should move forward with those, but not expect much."

However, Reischauer said that the 2010 expiration of the 2001–03 tax cuts is "a very significant opportunity."

"It's a tremendous opportunity to think creatively, as the authors of this paper have suggested, about transformations that could both raise revenue and incentivize some of the other reforms that we want to be part of this overall effort," he said, adding that it will force politicians to confront some tough issues.

Stuart M. Butler, vice president of domestic and economic policy studies at the conservative Heritage Foundation, said value-added tax options would be a more honest initiative because it would be overt about what a new financing plan would cost. And he said it would be valuable to rearrange current health care expenditures.

Reischauer cautioned that with next year's agenda crowded with issues like Iraq, climate change and the economy, health care could fall to the bottom of the list.

By Whitney Blair Wyckoff, CQ Staff

June 20, 2008 -- Allowing individuals to set aside money for health care expenses now that can be used when enrolled in Medicare later can help solve the impending Medicare crisis, said researchers at a Hudson Institute briefing.

"When we wrote up this proposal, we called it a medical reform everyone can love," said Andrew J. Rettenmaier, a senior fellow at the National Center for Policy Analysis who presented the plan at Tuesday's briefing. The proposal recommends a system in which workers would contribute a fixed percentage of their wages to a health insurance retirement account, or HIRA.

Both the National Center for Policy Analysis and the Hudson Institute are conservative think tanks.

Once workers reach retirement age, workers would receive annual annuities based on how much they contributed during their lives. The base deductible would grow at the same rate as per capital Medicare costs, meaning it would rise over time. Contributors who are low-income and therefore have contributed less to their accounts would receive money from the government to add to their deductible.

Accounts could not be accessed until age 65, and they could not be inherited, said Rettenmaier, who also serves as executive associate director of the Private Enterprise Research Center at Texas A&M University. Beneficiaries will use their HIRA annuities to pay for a share of their Medicare costs and any funds remaining at the end of the year can be withdrawn tax free and spent on anything.

Co-presenter Thomas R. Saving, a senior fellow at the National Center for Policy Analysis and director of the Private Enterprise Research Center at Texas A&M University, said that when people are in control of their health care, it encourages them to look for the best deal. This, in turn, would encourage providers to make prices more competitive.

"Every dollar I take out of my pocket I care about," Rettenmaier said.

Rettenmaier pointed to the cosmetic and lasik surgery fields, which are often paid out of pocket, as proof that this shift would occur.

"We're looking for people to shop," Rettenmaier added.

The authors' proposal is part of last year's book, "The Diagnosis and Treatment of Medicare," in which Rettenmaier and Saving suggest rethinking how to finance the program. In a 2007 review of the book, Prentiss Taylor of Rush University in Chicago contends that the actual solution to the Medicare problem also would need more than just economics. It would require an "evidence-based medical management model." Taylor's review, which appeared in the Journal of the American Medical Association, criticized the book for not considering, as a way to lower costs, improving the management of chronic disease, which he said generates 50–70 percent of health care costs while affecting 10 percent of the population.

"The idea with our proposal is to bring market forces to bear on the allocation of health resources," Rettenmaier said later in a phone interview. He added that it was important to look into incentivizing people to manage and prevent chronic diseases. "We're relying on them to make those choices," he said.

The authors said that prepaid retirement accounts would lead to stability in the long term. Saving said the plan would appeal to liberals and conservatives alike because it encourages competitive markets while redistributing wealth.

Rettenmaier said that the issue "can be put off" for a few years—"Up till 2011, we're about where we are now, so it isn't going to matter much," he said. "It's only going to matter the next decade after 2011."

By Danielle Parnass, CQ Staff

June 26, 2008 -- The gap is narrowing between the insured and uninsured as more people with health insurance reported access barriers to health care in 2007, according to a study released Thursday.

The study by the Center for Studying Health System Change (HSC) found a 62 percent increase in the number of insured people with unmet medical needs from 2003 to 2007, compared with a 33 percent increase for the uninsured.

This reflects eight percent of the overall U.S. population without access to health care, up from 5.2 percent in 2003, the study found. Still, uninsured people were almost three times as likely to go without medical care—17.5 percent versus 6.3 percent of the insured.

"It's not a pretty picture, especially for insured people, who increasingly are finding that the access to care once guaranteed by insurance is declining," Peter Cunningham, co-author of the study and a HSC senior fellow, said in a release.

Health status also played a factor in people seeking access to medical care. While those without insurance in poor or fair health reported the most problems in getting needed care—25 percent in 2007—those with insurance and in poor or fair health saw the sharpest decrease in access to care—14.2 percent in 2007, up from nine percent in 2003. This is compared with 14.5 percent of the uninsured in good health accessing medical care and five percent of the insured in good health.

Of all those who had trouble with access, 69 percent cited cost as the main reason for delayed or unmet care, a 3.8 point increase from 2003. Other factors included problems with health plans and the health system in general, the report found. While cost was the number one concern for the uninsured at 91.3 percent, 64.7 percent of people with insurance cited problems with the health system and 60.8 percent cited costs.

Cost concerns can be attributed to out-of-pocket expenses that have been increasing with regard to family income, as well as a weakening economy, Cunningham said, and the report highlights the link between cost and access in medical care. "It's really two sides of the same coin," he said at a press conference Thursday.

Growing medical work force shortages in primary care are a major factor contributing to the rise in health system barriers, said Rick Kellerman, chairman of the board of the American Academy of Family Physicians (AAFP). "A robust and healthy primary care system works," he said, to provide the right care to the right patient at the right time.

He said a nearly 40 percent increase is necessary in family physicians by 2020 to deal with an aging population and more people with chronic disease. AAFP reports show that around 7 percent of American medical students who graduated in the past year will go into family medicine. Coupled with the baby boomer population that is expected to retire in the next three to five years, "we cannot keep up with workforce need," Kellerman said.

David Colby, vice president for research and evaluation for the Robert Wood Johnson Foundation, which funded the HSC study, said the report is a "warning about seismic change in our health care system." He said access surveys conducted by the foundation in the past 18 years indicated access neither improved nor deteriorated, whereas now it is declining for both the insured and the uninsured.