The Terrible Secret About The Wyden-Bennett Healthy Americans Act

Senator Wyden continues to promote his Healthy Americans Act. His biggest selling point is that the CBO claims the plan will save the government money. The problem is that the Healthy Americans Act saves money by quickly becoming useless.

It is Cinderella's pumpkin carriage of health care reform. At first it seems great, but after a few years it turns into a useless gourd. Its massive cost savings are nothing more than accounting illusions.

The Wyden-Bennett bill would eliminate the tax exempt status of employer-provided health insurance benefits. It would replace this with a standard tax deduction to help buy insurance and additional subsidies for low income wage earners. This all sounds good, but here comes the rub.

Neither the tax deduction nor the subsidies to make buying health insurance affordable are indexed to the cost of health insurance. According to the CBO:
First, the amount of the new health insurance deduction would grow at the rate of general price inflation and thus would increase more slowly than the value of the current tax exclusion. Second, the minimum value of covered benefits that all participating health plans had to provide would initially be set at the level of the Blue Cross/Blue Shield standard option offered to Federal workers in 2011 (we assume that the system’s inaugural year would be 2012); but under your proposal that average value would from that point forward be indexed to growth in gross domestic product per capita rather than growth in health care costs. Because Federal premium subsidies would be based on the cost of providing that level of coverage, the cost of those subsidies would grow more slowly over time.
There are several incredibly troubling problems with the bill. First, what qualifies as minimum health insurance is not based on a set of benefit requirements, it is based on a dollar amount which is indexed to the growth in the gross domestic product per capita.

Second, the government provided financial help for people to afford insurance will quickly become worthless. From 2000-2008 employer-provided health insurance “premium increases have been between 5 and 14 percent per year.” During that same time period the Consumer Price Index (CPI) increases by only between 1.6 and 3.8 percent per year. The cost of health insurance premiums is growing at twice the rate of CPI. The tax deduction to help people buy health insurance will therefore grow at half the rate of the cost of the insurance.

The subsidies to help low income Americans buy insurance would grow only at the rate of the gross domestic product per capita. From 1997-2007 the average annual growth rate was only 1.8 percent. So the subsidies would grow at a rate of only about 1/5 the rate of increase for health insurance.

At first the Healthy Americans Act would probably work well, but it would quickly fall apart moving forward. The cost of buying insurance would rapidly outpace the tax credits and subsidies provided by the government. Within a decade health insurance would quickly become unaffordable for millions of Americans. And within several years the minimum qualifications for health insurance benefits would cover almost nothing.

I don't believe that Congress would allow the tax deduction and subsidies to buy insurance to grow at a rate so much slower than the cost of insurance. Congress would probably eventually index them to the growth rate in health insurance (either permanently or on an annual basis). Of course if they do that, it will erase almost all of the Healthy Americans Act's much celebrated cost savings for the government. The Wyden-Bennett bill looks fiscally responsible but only by using accounting tricks that would eventually make health insurance prohibitively expensive to many Americans. The bill is only cheap because it does a terrible job of providing affordable health insurance in the long term.


Anonymous said...

Thanks for the posting and very important points.
But what about these points regarding future/predicted insurance premium cost (granted -I don't like assumptions either)
(1)Improved Competition at the Insurance Company Level: with Wyden Bennett all moved to individual purchase of health insurance and insurance companies now have to compete for 300 million Americans and not 2000 jumbo or large employers. What are there... about 50-75million american who are "completely healthy?" Now they want the well controlled diabetic/asthma patient and the breat cancer survior 15 years out.
(2)Personal Responsibility: Unfortunately Americans have become very unhealthy and some may suggest because "they don't know the true cost of living poorly." If each of us had to purchase our own policy we have a "vested interest in living well." Many of us did not care to change our driving habits until gas moved to over $3 and "hit us in the pocket book" Now we care about the environment and dependence on Middle East oil
Could we expect with the two changes above the premium pricing would stablize and lower?

red slider said...

Sent this To Campaign for America's Future, figured it might be useful here:

I sent you folks the only real "Public Option" a month ago and you ignored it. Restated it for the Sacramento Bee ( and they ignored it, too). Is nobody going to wake up? Here's the version I sent to the Bee:

subject: Health Care Consumer Unions

Whether the insurance industry or the nation’s health wins, there is someone missing from the debate on health care - you, the consumer; the one who gets sick, needs care, lives or dies as a result of what kind of health care this country chooses to provide. Whether the resulting bill favors our health or seeks to line the pockets of a few, there remains something that must be done in either case. That is, the organizing, in our cities and towns, of Health Care Consumer Unions (HCCU) that will serve our own interests and guard the quality of care we receive, regardless of who wins in Washington.. Organized around existing constellations of health-organization services, (hospitals, doctors, insurance companies and ancillary services), the HCCUs would serve to monitor these ‘clusters’ (several in some cities, requiring several HCCUs); to act on consumer complaints, to educate, establish dialogs between providers and consumers on health care quality, services, access, economics and other issues on behalf of their members (the health care consumer, the patient). Above all, a well-organized HCCU would have the power to take our business elsewhere, en masse, when nothing else gets us the care we require. Government plans may decide to limit care and support for a variety of reasons; the insurance industry already limits care for profit-driven economic reasons. It seems clear, the consumer should not permit either of these entities sole say in determining how our local care is defined and distributed to ourselves. Get busy. Plan and organize an HCCU in your own community.

Red Slider, steward
California Advocates for the 21st Century

Wish somebody would get the message - progressive changes need to be progressive. Use what you have (in this case the local voices of consumers and the vulnerabilities of the Capitalism to build a real line of defense.) After that, you'll be able to tackle the real issues of back-room deals and the balance of power directly. Till then you're just tilting windmills. - red

ps. And what on earth is a "Major Gifts Officer" (sig of Campaign for America's Future) doing sending out stuff like this? You should have a "Major Ideas Officer" dealing with this stuff. You do have one of those on staff, don't you? You don't? you don't?


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