Tax Cuts for the Insurance Industry Will Do Little to Help Georgia’s Uninsured

GEORGIA BUDGET & POLICY PRIORITIES INSTITUTE COMMENTARY ON HB 977:
By Timothy Sweeney, Sr. Healthcare Analyst

On the 40th and final day of the 2008 Georgia Legislative session, the state Senate came to an agreement with a House proposal to give a sweeping tax break to insurance companies selling high deductible health plans. Based on the fiscal note for these provisions, House Bill (HB) 977 would extend $146 million in tax breaks to insurance companies over the next 5 years, though if you believe the coverage gains touted by the proponents of the legislation, the benefits to the insurance industry, and the costs to state and local governments, would be far greater.

Unfortunately for all Georgians, however, the bill passed by the Legislature does not meaningfully address the fact that most of Georgia’s 1.6 million individuals without health insurance simply cannot afford it. Rather, HB 977 will do little more than motivate individuals who already have health insurance to switch to a different type of product.

Make no mistake, this bill was not about health coverage. Health insurers are already selling high deductible health plans, and while only a small number of individuals choose these products over traditional, comprehensive coverage, consumers have plenty of access to these products. Instead, this bill provides a significant tax break to insurance companies – a tax break that will increase insurance industry profits on plans that are already in place.

Proponents of HB 977 stated that it would cover 500,000 uninsured Georgians, yet have provided no numbers to support this assertion. Certainly, the experts who calculated the official fiscal note did not forecast such coverage gains. Closer analysis of this fiscal note indicates that coverage gains could be closer to 7,500 – merely 1.5% of the amount claimed by supporters. This is because the bulk of the benefits of this legislation flow directly to insurance companies, while the modest $250 small business tax credit pales in comparison to the actual cost of health insurance, which averages roughly $10,000 for family coverage in Georgia. Regarding the employer tax credit, the fiscal note stated that, “the expected take up in insurance due to this provision is small.”

While debates on the likelihood of significant coverage gains never took place at the capitol, one thing is for certain – should even a portion of the stated coverage gains actually occur, the tax cuts to the insurance companies would far exceed the $146 million estimated in the fiscal note.
While many states across the country continue to pursue meaningful coverage expansions targeted at low-income children, families, and other uninsured populations, Georgia’s answer to all policy troubles continues to be tax cuts. Supporters of HB 977 admitted that it is “no silver bullet” and that high deductible plans “are not for everyone.” On these points they are correct, yet sadly they fail to grasp how meaningless these tax cuts will be for the vast majority of the 1.6 million uninsured Georgians who will still be unable to afford health insurance, and who will continue to watch as health insurers rake in staggering profits.

The current economic slowdown and the resulting effect on state revenues will make it difficult to fund the Medicaid and Peachcare programs even without a tax cut such as is contained in HB 977. What do we say to the low-income pregnant women, children, elderly and disabled who might lose coverage while insurance companies are lining their pockets with tax breaks?

Healthcare reform in Georgia needs more voices at the table than just the big insurance companies and the brokers who sell their policies. For these reasons the Governor should veto HB 977.

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For a more detailed discussion of the provisions of HB 977 and the health policy implications of encouraging high deductible health plans, please see the recently issued GBPI reports titled Analysis of HB 977: High Deductible Tax Incentives and Insurance Law Changes, which can be found here, and Examining the Effects of Legislation Promoting High Deductible Health Plans, which can be found here. Both reports can also be found at www.gbpi.org.

The Georgia Budget and Policy Institute (GBPI) is an independent, nonprofit, non-partisan organization engaged in research and education on the fiscal and economic health of the state of Georgia. The GBPI provides reliable, accessible and timely analyses to promote greater state government fiscal accountability as a way to improve services to Georgians in need and to promote quality of life for all Georgians.

Facts On The Cost Of Health Care

From: The National Coalition on Health Care

Introduction - By several measures, health care spending continues to rise at the fastest rate in our history.

In 2007, total national health expenditures were expected to rise 6.9 percent — two times the rate of inflation.1 Total spending was $2.3 TRILLION in 2007, or $7600 per person.1 Total health care spending represented 16 percent of the gross domestic product (GDP).

U.S. health care spending is expected to increase at similar levels for the next decade reaching $4.2 TRILLION in 2016, or 20 percent of GDP.

In 2007, employer health insurance premiums increased by 6.1 percent - two times the rate of inflation. The annual premium for an employer health plan covering a family of four averaged nearly $12,100. The annual premium for single coverage averaged over $4,400.

Experts agree that our health care system is riddled with inefficiencies, excessive administrative expenses, inflated prices, poor management, and inappropriate care, waste and fraud. These problems significantly increase the cost of medical care and health insurance for employers and workers and affect the security of families.

National Health Care Spending

· In 2007, health care spending in the United States reached $2.3 trillion, and was projected to reach $3 trillion in 2011. Health care spending is projected to reach $4.2 trillion by 2016.

· Health care spending is 4.3 times the amount spent on national defense.

· In 2005, the United States spent 16 percent of its gross domestic product (GDP) on health care. It is projected that the percentage will reach 20 percent by 2016.

· Although nearly 47 million Americans are uninsured, the United States spends more on health care than other industrialized nations, and those countries provide health insurance to all their citizens.

· Health care spending accounted for 10.9 percent of the GDP in Switzerland, 10.7 percent in Germany, 9.7 percent in Canada and 9.5 percent in France, according to the Organization for Economic Cooperation and Development.

Employer and Employee Health Insurance Costs

· Premiums for employer-based health insurance rose by 6.1 percent in 2007. Small employers saw their premiums, on average, increase 5.5 percent. Firms with less than 24 workers, experienced an increase of 6.8 percent.2

· The annual premium that a health insurer charges an employer for a health plan covering a family of four averaged $12,100 in 2007. Workers contributed nearly $3,300, or 10 percent more than they did in 2006.2 The annual premiums for family coverage significantly eclipsed the gross earnings for a full-time, minimum-wage worker ($10,712).

· Workers are now paying $1,400 more in premiums annually for family coverage than they did in 2000.

· Since 2000, employment-based health insurance premiums have increased 100 percent, compared to cumulative inflation of 24 percent and cumulative wage growth of 21 percent during the same period.

· Health insurance expenses are the fastest growing cost component for employers. Unless something changes dramatically, health insurance costs will overtake profits by 2008.

· According to the Kaiser Family Foundation and the Health Research and Educational Trust, premiums for employer-sponsored health insurance in the United States have been rising four times faster on average than workers’ earnings since 2000.

· The average employee contribution to company-provided health insurance has increased more than 143 percent since 2000. Average out-of-pocket costs for deductibles, co-payments for medications, and co-insurance for physician and hospital visits rose 115 percent during the same period.

· The percentage of Americans under age 65 whose family-level, out-of-pocket spending for health care, including health insurance, that exceeds $2,000 a year, rose from 37.3 percent in 1996 to 43.1 percent in 2003 - a 16 percent increase.

The Impact of Rising Health Care Costs

· National surveys show that the primary reason people are uninsured is the high cost of health insurance coverage.

· Economists have found that rising health care costs correlate to drops in health insurance coverage.

· Nearly one-quarter (23 percent) of the uninsured reported changing their way of life significantly in order to pay medical bills.

· In a Wall Street Journal-NBC Survey almost 50 percent of the American public say the cost of health care is their number one economic concern.

· In a USA Today/ABC News survey, 80 percent of Americans said that they were dissatisfied (60 percent were very dissatisfied) with high national health care spending.

· Rising health care costs is the top personal pocketbook concern for Democratic voters (45%) and Republicans (35%), well ahead of higher taxes or retirement security.

· One in four Americans say their family has had a problem paying for medical care during the past year, up 7 percentage points over the past nine years. Nearly 30 percent say someone in their family has delayed medical care in the past year, a new high based on recent polling. Most say the medical condition was at least somewhat serious.

· A recent study by Harvard University researchers found that the average out-of-pocket medical debt for those who filed for bankruptcy was $12,000. The study noted that 68 percent of those who filed for bankruptcy had health insurance. In addition, the study found that 50 percent of all bankruptcy filings were partly the result of medical expenses. Every 30 seconds in the United States someone files for bankruptcy in the aftermath of a serious health problem.

· One half of workers in the lowest-compensation jobs and one-half of workers in mid range-compensation jobs either had problems with medical bills in a 12-month period or were paying off accrued debt. One-quarter of workers in higher-compensated positions also reported problems with medical bills or were paying off accrued debt.

NOTES:

· If one member of a family is uninsured and has an accident, a hospital stay, or a costly medical treatment, the resulting medical bills can affect the economic stability of the whole family.15

· A new survey shows that more than 25 percent said that housing problems resulted from medical debt, including the inability to make rent or mortgage payments and the development of bad credit ratings.16

· A survey of Iowa consumers found that in order to cope with rising health insurance costs, 86 percent said they had cut back on how much they could save, and 44 percent said that they have cut back on food and heating expenses.17

· Retiring elderly couples will need $200,000 in savings just to pay for the most basic medical coverage.18 Many experts believe that this figure is conservative and that $300,000 may be a more realistic number.

· According to a recent report, the United States has $480 billion in excess spending each year in comparison to Western European nations that have universal health insurance coverage. The costs are mainly associated with excess administrative costs and poorer quality of care.19

· The United States spends six times more per capita on the administration of the health care system than its peer Western European nations.19

Time for Action on Reining in Health Care Costs -Policymakers and government officials agree that health care costs must be controlled. But they disagree on the best ways to address rapidly escalating health spending and health insurance premiums. Some favor price controls and imposing strict budgets on health care spending. Others believe free market competition is the best way to solve the problems. Public health advocates believe that if all Americans adopted healthy lifestyles, health care costs would decrease as people required less medical care.

There appears to be no agreement on a single solution to health care’s high price tag. Many approaches may be used to control costs. What we do know is if the rate of escalation in health care spending and health insurance premiums continues at current trends, the cost of inaction will severely affect employer’s bottom lines and consumer’s pocketbooks.

What's Behind the Budget Battles Between the President and Congress?

A Policy point presentation from The Center on Budget and Policy Priorities

In his conflicts with Congress over issues from taxes to children’s health insurance to appropriations bills, the President is casting himself as the defender of fiscal responsibility. His actions, however, tell a different story.

In fighting congressional efforts to pay for tax-cut legislation, rather than to let the deficit rise, the President is insisting that tax loopholes for extremely affluent equity-fund and hedge-fund managers remain untouched. Similarly, in threatening to veto Medicare legislation being developed in Congress, he is insisting that billions of dollars in government overpayments to private health insurance companies remain untouched. He is also demanding that Congress cut billions of dollars from domestic programs ranging from education to medical research to help for poor families and elderly people with soaring winter heating bills.

The obvious conclusion is this: the President’s stance is not about fiscal responsibility, but rather that Congress must bow to his priorities.

AMT Relief: Rejecting the House’s plan to pay for it.

The Administration has said it would veto a House-approved bill to offset the cost of extending relief from the Alternative Minimum Tax (AMT) for upper-middle-income taxpayers by closing lucrative tax loopholes used by managers of private equity firms and hedge funds, many of whom make millions of dollars a year. The Senate has now fallen in line with the President’s wishes.

Extending AMT relief without paying for it, as the Administration favors and as the Senate has approved, would add $51 billion in deficits this year alone — and up to $1.3 trillion over the coming decade if Congress keeps doing that.

There are no free lunches. If the nation doesn’t pay for extending AMT relief now, it will have to later, through tax increases, spending cuts, or both, that are likely to affect millions of ordinary working families.

Medicare: Protecting billions in overpayments to private insurance companies.

Congress is crafting Medicare legislation to avert a large cut (taking effect in January) in Medicare payments to physicians. To help offset the cost, Senate Finance Committee Democrats and Republicans were negotiating a very modest scaling back of the large overpayments to private “Medicare Advantage” plans, which serve some Medicare patients. (The House has passed legislation to largely eliminate these overpayments, avert the cut in doctors’ fees, and make other improvements in Medicare, especially for low-income beneficiaries.) But in a letter to Congress this week, HHS Secretary Leavitt signaled the Administration will veto the bill if it contains any Medicare Advantage savings.

Although private insurance companies were brought into Medicare to lower costs, both CBO and the Medicare Payment Advisory Commission (MedPAC) — Congress’ own expert advisory body on Medicare payment policy — have found that they receive 12 percent more, on average, than it would cost traditional Medicare to cover the same people. MedPAC has unanimously recommended that Congress curb these overpayments, and has warned that failure to do so threatens the financial stability of Medicare.

CBO has reported that these overpayments will total $54 billion over the next five years and $149 billion over ten years. That will accelerate Medicare’s insolvency and ultimately necessitate much larger benefit cuts, tax increases, or both than would otherwise be needed to restore financial stability to the program.

Children’s Health: Rejecting a tobacco tax increase to pay for expanded coverage.

The President says he vetoed bipartisan legislation to provide nearly 4 million uninsured children with health coverage under the State Children’s Health Insurance (SCHIP) program because, among other things, it was financed through an increase in tobacco taxes. The Administration says it would veto any children’s health compromise that is financed by increased tobacco taxes.

Domestic Appropriations: Demanding domestic cuts.

The President insists that Congress cut overall funding for domestic appropriated programs to the level in his 2008 budget — which is $16 billion below the 2007 level, after adjusting for inflation.

The President has vetoed the Labor-HHS-Education appropriations bill as excessive. Cutting that bill down to the President’s level would require significant cuts in medical research ($1.4 billion), K-12 education ($1.3 billion), home heating assistance for the poor ($630 million), Head Start ($254 million, enough to serve nearly 34,000 children), and other programs.

Similarly, if funding for the nutrition program for low-income pregnant women, infants, and young children, known as WIC, is cut to the President’s level, the number of women, infants, and children receiving this assistance next year will be cut by more than 500,000.

These policy points have been brought to us from:
The Center on Budget and Policy Priorities820 First Street, NE, Suite 510Washington, DC 20002Shannon Spillane / Senior Communications Associate http://www.cbpp.org / spillane@cbpp.org

Congressional Budget Office's New Long-Term Budget Forecast

A Commentary by Robert Greenstein, Executive Director of CBPP

The new Congressional Budget Office report shows that rising health care costs are the largest driver of the nation’s long-term budget problems. But CBO’s projections also indicate that the costs of making expiring tax cuts — such as those enacted in 2001 and 2003 — permanent without paying for them would be the second largest factor, if policymakers follow that course.
In fact, assuming relief from the Alternative Minimum Tax is extended, making the tax cuts permanent without paying for them would account for one-third of the “fiscal gap” (the imbalance between spending and revenues) over the next 50 years.

Moreover, enforcing Pay-As-You-Go rules — and paying for any tax cuts Congress elects to extend (and any entitlement increases) — is within policymakers’ power. In contrast, as CBO explains, we probably won’t be able to secure the needed reductions in projected Medicare and Medicaid costs without causing serious harm to low-income and elderly patients unless we can slow cost growth throughout the entire U.S. health care system. And while this is the nation’s most important fiscal challenge, there is currently no consensus among health care experts about how to accomplish it; achieving such a consensus and fully implementing the appropriate policies could take years or decades.

The bottom line is this: because we currently lack an appropriate solution to rising health care costs, that makes it all the more important to avoid actions that would make the long-term budget outlook worse, such as extending the tax cuts without paying for them.



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The Center on Budget and Policy Priorities is a nonprofit, nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs. It is supported primarily by foundation grants.