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Bush’s Plan Is Not the Answer

President Bush opened his State of the Union address by describing his domestic agenda. Health care was one of the issues he identified as a priority, and he specifically identified the lack of affordable health insurance as an important barrier to health care. Bush has proposed two reforms he believes would help fix this problem: a tax reform plan and an “Affordable Choices” grant program to encourage state health reform initiatives. So far, Bush’s tax plan has generated a great deal of commentary. In fact, it is badly flawed, but it is not as badly flawed as his second proposal, which has not received as much attention. The state grant program poses a danger to health care access across this country.

A Self-Defeating Tax Plan

The tax reform Bush proposed is a new tax deduction for health insurance that Bush claims will encourage more people to purchase health insurance. Taxpayers who purchase “qualifying health insurance” could take a standard deduction of $15,000 for family coverage or $7,500 for single coverage. The deduction would be allowed regardless of the plan’s cost and of whether the plan is purchased in the individual market or through an employer.

Another part of Bush’s tax reform, the part he left out of his speech, would eliminate tax advantages that employees receive on health insurance purchased as part of an employment benefit package. Currently, the law encourages employer-provided health insurance by treating it as a fringe benefit exempt from taxation. Under Bush’s proposal, this benefit would no longer be entirely tax-free and workers could be taxed if their coverage exceeded limits set by the government.

While Bush’s stated desire to increase access to affordable insurance coverage is clearly a laudable one, most commentators have correctly pointed out that his tax reform will not necessarily accomplish this and could actually undermine his goals. First, the tax deduction may be valuable for higher-income groups, but will not help those with lower incomes, especially those without tax liability. The working poor are the least likely to have access to any form of health insurance and are the most in need of help. They are usually too rich to qualify for Medicaid, too young or healthy to qualify for Medicare, and too poor to afford private health insurance. Their employers, often small or medium-sized, usually do not provide insurance, and even if they do, the employees may not qualify for coverage if they are working less than full-time. Thus the people most in need of help getting insurance are the least likely to be able to benefit from the tax deduction Bush proposes.

Second, eliminating the tax benefit for employment-based insurance might actually discourage the availability of affordable insurance. The Tax Policy Center of the Urban Institute and Brookings Institution has predicted that Bush’s “plan would lead some employers, especially small and medium-sized businesses, to stop offering health insurance to their employees, exacerbating a trend that is already well underway.” As noted above, the people most vulnerable to this trend would probably not be able to afford insurance in the individual market, even with the new tax deduction. Thus Bush’s tax plan would likely increase the number of uninsured in the United States. In fact, the Tax Policy Center recommends that in order to minimize the potential bad policy effects of the Bush plan, there would need to be an expansion of public programs for those who will still be unable to purchase insurance under the new structure. Far from accomplishing his goal of relying on private insurance to fix our health care problems, Bush’s plan may increase the demand for a more expansive public financing system.

What’s Missing: Funding for Hospitals

The other part of the “health care reform” agenda Bush introduced in his State of the Union address is to let the federal government use existing public funds to encourage state initiatives in health care reform. In fact, the proposal is to reduce funding currently used to support public hospitals and other institutions, and these funds would be diverted to states for other purposes not yet determined. There are two critical problems with this proposal.

First, it shows utter disregard for one of the most pressing problems facing underserved communities today – the deprivation of hospitals in underserved communities. While access to affordable health insurance is important, it is meaningless without enough qualified hospitals or other community providers willing or able to provide necessary care. Not only does Bush fail to acknowledge this problem, but his proposal will exacerbate this trend by reducing funding currently used to support public hospitals and other institutions – the only institutions with a legal mandate to provide nonemergency medical treatment for those without the ability to pay.

The second problem is in Bush’s overarching concept for health care reform. Bush’s concept of health reform relies on two key players: the private insurance market and the state. Bush expressly disclaims any federal obligation to ensure health care for its citizens. Instead, Bush touts the states’ recent attempts to experiment with various health care reform initiatives, and he even purports to create grants that will facilitate these initiatives. In reality, his plan does not offer meaningful help to the states in their reform efforts. One of the principal barriers to state reform initiatives is federal law, which Bush’s plan does nothing to fix. Essentially, Bush places states at the forefront of the battle to expand insurance coverage and reduce the number of uninsured, but he fails to arm them with the necessary weapons to fight effectively.

Reducing Services to Underserved Communities

Bush’s plan fails to address the deprivation of hospital services in underserved communities. The removal of hospital resources is a nationwide problem for underserved communities in urban and rural areas, but one that is largely neglected in the debate about national health care reform. Indeed public closures are so pervasive that public hospitals are becoming known as “endangered species.” One of the most obvious concerns raised by hospital closures in underserved communities is access to timely emergency care. However, the problem is much broader than this. To understand how truly damaging hospital closures are to underserved communities, one has to understand that these communities have much greater interaction with and rely more heavily on hospitals for all care than do more affluent communities. Hospital visits are not rare or unexpected; rather, hospitals serve as the primary care provider. They provide most outpatient medical care and therapy and most treatment for chronic conditions.

Public hospitals, in particular, have served as the lifeline for most of these communities. Historically, public hospitals have been the safety net for groups that have been excluded from private hospitals because of race or poverty. Many private providers refuse to treat the uninsured or Medicaid patients. In some cases, this takes the form of providers literally hanging a sign outside their window that reads “Will Not Accept Medicaid Patients.” In others, the discrimination may be more subtle or limited, such as hospital administrators discouraging patients from coming in for service. The removal of hospital services from underserved communities is just a more subtle and insidious form of health care discrimination against communities primarily composed of Medicaid beneficiaries and the uninsured.

Minority communities, which have been disproportionately harmed by these closures, have tried looking to the federal government for help. Technically, local regulatory bodies oversee private and public closures, but federal administrative agencies have the authority to intervene as a result of their spending power. Because both private and public hospitals receive significant state and federal funding, they must agree to certain conditions. In particular, they must agree not to discriminate on the basis of race or ethnicity, and they are prohibited from allocating resources in ways that have discriminatory effects. As a result, hospital closures that have significant discriminatory effects should trigger scrutiny by the federal agencies responsible for ensuring equal access to hospital resources, the Department of Health and Human Services and the Office of Civil Rights. In theory, DHHS, through the OCR, has the legal obligation and power to investigate and prevent hospital closures that have discriminatory effects in order to ensure a fair distribution of hospital resources.

In reality, though, the OCR simply defers to local decision-makers. For example, when local agencies approve decisions by private hospitals to relocate from poor urban or rural areas to more affluent neighborhoods, the OCR almost never bars the move, even when the discriminatory effects and disruption to health care access are clear and the private hospital cannot prove that the move was a financial necessity. Similarly, the OCR rarely reviews state and local decisions to close public hospitals. As long as state governments give nondiscriminatory reasons for the closure, such as financial reasons, the OCR will not interfere, even though there may be no proof that closing the hospital would save money, and even in the face of evidence that closing hospitals in already underserved, high-need areas actually increases health care costs. The OCR almost never steps in to require that the hospital or local official investigate other alternatives that will be less disruptive to patient care.

Bush’s proposal will likely encourage this trend of hospital closures in already vulnerable communities. This is most obvious in his proposal to reduce public funds for such hospitals, as this threatens the survival of hospitals that are vital to the uninsured and underinsured. The few hospitals remaining in these communities are already strained, in large part because of an inadequate health care financing system. Reducing their funding would create further financial strain that would jeopardize their survival, thus impairing health care access for those most in need.

However, Bush’s proposal is also problematic because of what it fails to do. Bush doesn’t offer any plan to ensure that federal agencies charged with making sure that public funding of hospital resources are being allocated fairly will carry out their legal obligations. Some reasons for the OCR’s inaction are that it has consistently been understaffed and underfunded by Congress. The OCR lacks real enforcement power because it does not control the distributing of public funding and therefore does not have anything with which to threaten compliance. At a minimum, the funding and staffing of the Office of Civil Rights must be brought up to adequate levels, and the OCR must be given real enforcement power in the policing of hospital closure decisions.

However, this is just a start. These financing and structural defects reflect a deeper choice about the federal government’s limited role in ensuring health care access for everyone, a choice that may be consistent with Bush’s recent approach to health care reform but is not consistent with the OCR’s current legal mandate. There needs to be a clear political and legal mandate for DHHS and the OCR to embrace the responsibility to monitor and ensure that recipients of public funds are allocating hospital resources fairly and equitably to all communities.

Undermining the States

While much attention has been paid to the details of the Bush agenda, the most telling part of his agenda was in his introductory statement in the State of the Union: “To keep this economy strong we must take on the challenge of entitlements. . . . When it comes to healthcare, government has an obligation to care for the elderly, the disabled, and poor children and we will meet those responsibilities. For all other Americans, private health insurance is the best way to meet their needs.”

In those first seconds, Bush made clear that he does not perceive any federal obligation to care of the health care needs of everyone else. Rather, he expects the rest of society to rely on the private insurance market to access necessary medical treatment, a model that has already failed the 47 million people in this country who are currently uninsured. In fact, Bush’s proposal doesn’t look like a health care reform agenda at all; his very limited tax reform and state grant proposals rely on the private insurance and hospital markets to regulate health care access, something that has clearly failed our most vulnerable communities.

While Bush does acknowledge that there is a problem with this approach, he puts the burden of solving this problem on the states. Although his second proposal is supposed to provide federal help to states in this matter, in fact, there are two key defects in this proposal which will undermine, not facilitate, states’ efforts. First, the plan does not provide any new funding support for states. As noted above, it simply takes existing funding from public institutions on which states and local governments rely heavily to help deliver care. This could cripple one of the key means that state and local governments have for caring for their citizens.

More importantly, however, Bush fails to identify and remove one of the principal barriers to state reform initiatives. The Employee Retirement Income Security Act is a federal law designed to provide uniform federal regulation of employer pension and benefit plans to prevent fraud in the administration of benefits. It contains a provision that makes clear that ERISA preempts state laws relating to such plans in order to protect companies from duplicative and inconsistent state regulation. The law has been interpreted very broadly, however, and courts have found that ERISA preempts certain state regulations aimed at employers that are designed to increase access to affordable health care coverage. A recent decision by the Fourth Circuit suggests that ERISA might also prevent state attempts to compel employers to provide a minimum level of health benefits or to otherwise participate in a state insurance pool. Many people have already predicted that such a broad interpretation of this preemption clause could prevent certain kinds of state reform initiatives, such as the recent Massachusetts plan and California Governor Schwarzenegger’s current health care reform, both cited by Bush as models for other states.

Such a broad interpretation of ERISA’s preemption provision is widely viewed by lawyers and health advocates as inconsistent with the legislative intent of ERISA and as bad policy. Courts have even called upon Congress to amend ERISA to make clear that it does not preempt valid state efforts to regulate health care access and quality of employer-provided insurance. If Bush wants to encourage state experimentation in health care reform, removing this barrier is critical and should be neither very difficult nor controversial.

A Health Care Mandate for Congress

While Bush may not envision a government obligation to take care of the health care needs of all of its citizens, he is clearly out of step with the rest of the country. As more people encounter barriers to getting affordable health insurance or accessing quality physicians or hospitals in their community, they are looking to the government for help. Voters consistently rank health care as one of the top priorities they want political leaders to address. Community organizations, provider groups, and even business organizations believe that comprehensive health care reform is inevitable, and they are working to develop their own proposals for reform. A growing number of states have even begun experimenting with their own creative approaches to expand health care coverage for the uninsured, but as noted above, the effects are limited without federal help.

Congress should realize that it has both an ethical and legal mandate to address the gaps in our existing health care delivery system. President Bush’s proposal fails both of these mandates and will further jeopardize health care access for both the insured and the uninsured, both the middle class and the most economically disadvantaged among us. Allowing the private insurance and hospital markets to determine our access to health care has helped create the health care crisis that exists today. Meaningful health care reform must address the problems in both the financing and delivery aspects of our health care system and will require a joint federal-state effort. Congress should reject Bush’s proposals and heed the public’s demand for true health care reform.

– Brietta Clark

Published on: February 8, 2007
Published in: Health Care Reform & Policy

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