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Medicare and HSAs: Ready for Their Close-Ups


Well it’s a heady time to be a health care policy wonk. Not four weeks ago I was telling you all about how health care was going to be the big political issue in 2008 or may be 2010 … and all of a sudden it’s the biggest news of 2006 with almost daily stories about Medicare “Part D” and something called Health Savings Accounts. Both are concoctions of the pay-to-play Bush Administration and both will have a serious impact on politics and the health care system.

So, as ever, for the Spot-on crowd, a bit of a history lesson is in order. Back in the dark days of late 2003, now-disgraced former Majority Leader Rep. Tom DeLay got a quite extraordinary bill past the House of Representatives. The vote was held open for 5 days and included payola, whippings and public beheadings on the floor to get the necessary votes— OK not quite but pretty close.

This was the bill that finally provided Medicare recipients – that’s those of us over 65, and the disabled – with coverage for their prescription drugs. It’s was something that had been wanting for decades but was still contentious. Why? The estimate for the cost of the program was way higher than the few fiscal conservatives in the Republican party wanted. And that was before it was revealed that the actual estimated cost was nearly double what Congress was told, and that the head of Medicare – former for-profit hospital lobbyist Tom Scully who was out the door immediately after the Bill’s passage to return to K street – had threatened the agency’s chief actuary with firing if he told Congress the truth. 

What was really going on here? Well American drug companies have forever been able to charge much higher prices for their drugs here than elsewhere in the world because they didn’t face a monopsony (e.g. the government). So as long as there has been talk of a prescription drug benefit for Medicare, Pharmaceutical companies have been terrified that the Federal government would fix prices the same way it does for the other services it buys for Medicare. That would inevitably lead to lower profit margins.

So, as the pressure grew for Medicare drug coverage over the years, Big Pharma didn’t quite know what to do. But then they hit on a old trick. The shipped a a boatload of money into key Congressional districts in the 2002 election, When Congress convened, Big Pharma got a big win: A bill that would guarantee drug coverage for at least poorer seniors (after a fashion) but in a way that they could handle. That’s why Medicare Part D (the prescription program) is administered by private sector intermediaries called Participating Drug Plans and the government is expressly banned from directly negotiating prices.

But that’s not all that was in the bill, which was a kind of eternal Christmas for Big Pharma and other parts of the health care system. Also included were support for a program pioneened by a small Indianapolis insurance company called Golden Rule. Golden Rule allowed the establishment of tax-free savings accounts similar to IRAs and in the 2003 legislation, these programs were massively extended so that any American can have a Health Savings Account.

Now, HSAs are curious beasts. The are mostly used in conjunction with high-deductible health plans. And those plans are most profitable when sold by insurance companies with small market share who, to keep their expenses down, use extensive underwriting to make sure that they are only insuring healthy people who need less care.

And it’s probably just a mere coincidence that Golden Rule’s head Patrick (looney) Rooney had been paying off a major Delay contributor. Guess what kind of plans Golden Rule sells? High-deductible plans that go with HSAs. Rooney got his reward: insurance giant United HealthGroup bought his company for $900-odd million just a couple of months before the bill was passed when it was evident that HSAs were the wave of the Republican future. Which is why, if you’re self-employed with any kind of decent income and are healthy, you probably have an HSA, recommended not by your doctor but by your accountant.

So here we are in 2006. The Medicare bill is now law, and the drug program is in effect and the headlines are screaming “massive screw-up” and state governors – even Republicans – are stepping into make sure everyone’s covered. It’s not a surprise given this Administration’s all around competence, that the program hasn’t been working well — but the technological implementation has not been helped by the complexity underneath it. Plenty of seniors have not got necessary drugs, and real harm has been caused.

So with another disaster on its hands – and this one’s personal, that’s grandma we’re talking about – and anxious to change the subject from illegal wiretaps et al, the Bush Administration is looking for a new tack on health care. It’s going back to HSAs in the absence of anything more substantive and that pitch – it sounds like free money for folks who pay lots of taxes – will be part of President Bush’s State of the Union address next week.

HSAs are a bad idea in policy terms – they basically dump on the sick who need insurance the most and give money away to the healthy who don’t need it. But there are being sold in such a way that they are accelerating the trend of employers getting out of providing health insurance. The real cause of that trend is the underlying cost increase in health care. And that can only be fixed by some kind of universal system with built in global budgets. And for that we’ll need to wait … for 2008, 2010 or 2012.

Share  Posted by Matt Holt at 12:25 AM | Permalink

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