Press Briefing by Al Hubbard on the President's Health Care Initiatives for 2006

Via Conference Call

PARTCIPANTS

Allan Hubbard, Assistant to the President for Economic Policy and Director, National Economic Council

Roy Ramthun, Special Assistant to the President, National Economic Council

12:09 P.M. EST

DIRECTOR HUBBARD: Thank you all for giving me this opportunity. Obviously, we were extremely pleased with the President's speech last night and the idea that he laid out. I'm going to focus on health care in this call. I think you all know most of the details of what he laid out, and I'm happy to answer any questions. I do want to just hit on a few things before we open it up to questions.

As you know, the American people are extremely concerned about health care, both access, but, especially, cost. The cost of health care with the average family insurance policy in today's dollars -- that's without inflation -- has literally tripled over the past 18 years. And that's true for both what the employee pays, in terms of his or her premium, as well as what the employer pays, in terms of premium.

And for the employee, not only has his premium tripled, but his deductible has gone up, his co-insurance has gone up. And because the employer is paying a bigger portion -- paying three times more for its premium, it's dampened wage increases, and this has especially affected lower-income people. This is why people are feeling so frustrated with the cost of health care, and this is why the President wants to address it.

As you know, most people receive their health insurance through a third party, either provided by their employer or provided by the government. The result is that most people feel like that their health care is free, and we know they feel that way because they never ask about the price. And as a consequence, there's no pricing or quality information available to people. The President is very concerned about that, as well as other people. And this wasn't mentioned last night, but the President is going in the next couple of weeks to start talking about the importance of providers making information available to their customers about -- in non-emergency situations, about both quality and price, so people can become good consumers.

Now, as you know, the President spent much of last night, when he talked about health care, talking about enhancing and improving health savings accounts. These accounts are working extremely well. We had -- a million people had health savings accounts a year ago; today there are 3 million. This is an opportunity for people to have, as they say, more skin in the game. The better consumers and the frustration that we've heard from the people with HSAs is that they don't have as much -- they don't have the information they need to be good consumers. And that's why the President is going to be talking about this, and working with employers and insurance companies to encourage them to work with us to insist that providers provide this information.

With respect to HSAs, what the President wants to do is level the playing field so people who buy insurance, themselves, have the same tax advantages as people who get the HSAs through employers. Right now if you buy the -- literally, the same insurance policy, the same HSAs, you pay 30 percent to 50 percent more than you would if you got it through your employer. That is not fair, and the President wants to fix that. He also wants to allow people to contribute significantly more to the HSA up to their out-of-pocket max. And, finally, he wants to give employers and insurance companies the options of making HSA's portable.

Now, you know, some people say, well, HSAs are just for the rich and the well. As it turns out, of the 3 million people who have taken up HSAs, 37 percent were previously unemployed -- sorry, not unemployed, uninsured. Excuse me. Forty percent earn less than $50,000 a year. So, obviously, HSAs are very attractive to people in the lower side of income scale -- and for good reason, because HSAs are less expensive. And they also are a better way to control costs. The costs of HSAs went up 2 percent this past year, while the cost of regular insurance went up 7 percent.

And then, finally, people say, well, HSAs are only for the well. That, too, is not true. And just in USA Today on Monday, an article disclosed that Mercer, the human resources company, determined that the average company offering HSAs with a $1,200 deductible puts $700 into the HSA, again making it where people are not exposed to the full deductible amount. In addition, in the President's proposals -- now, he didn't get into this last night, but this will, if you look at the details of the proposal that will be in the budget that comes out next week, the President is going to make it possible, assuming the legislation is passed, for companies to put extra money into the health savings accounts of those folks who are chronically ill. Again, these are the people that have persistently high costs. This will allow them to have HSAs, but, again, have the money in those HSA* accounts to deal with their chronic illnesses.

I think -- and again, let me just finish by saying -- and again, the President didn't talk about it -- the initiatives that he has proposed in the past are going to continue to be important to the President and he will continue to push those, including association health plans and medical liability reform. And, also, he's going to be promoting tax credits at $1,000 and $3,000, but he's going to restrict those to HSAs, because people who use HSAs are the -- it's a much better way to provide health insurance.

So let me open it up for questions, unless -- Roy, did you have anything you wanted to add, or Trent?

MR. DUFFY: Nope, I think we can go to questions.

DIRECTOR HUBBARD: Okay.

Q: Hi, thanks for doing this. I was curious if you could go through some of these HSA-related ideas and talk about the tax implications from a revenue-loss standpoint, just go through and estimate maybe how much the impact would be.

DIRECTOR HUBBARD: I'm going to leave that until the budget comes out next week, but I can assure you that this President is very concerned about the budget deficit. And you'll see that discretionary spending -- non-security discretionary spending is very much kept under control in the budget proposals next week.

Q: Could you then maybe talk a little bit more about on the portability question -- what types of rule changes might need to be made, or legislative changes would need to be made to achieve this kind of portability you're talking about?

DIRECTOR HUBBARD: Absolutely. And, again, what we're talking about is making this optional for insurance companies and for employers. But the way it would work would be for a portable HSA insurance policy to be ERISA-based, so it would not be tied to any particular state, which would allow someone to leave his or her employer, take that policy with him or her, and know that it would not be underwritten for health reasons. So you can keep that policy with you as long as you want it. And you can take it anywhere in the country.

So, again, it would make it where people would not have job lock, they would not -- if they have illness in their family, they would not have to worry about leaving their job, losing their insurance and not be able to find affordable insurance. And this is good for those individuals, and it's also good for the economy. Because what makes our economy so strong is the ability of people to move from job to job to find the best situation for them.

Q: So would that require legislative change, then?

DIRECTOR HUBBARD: That definitely would require --

Q: And it would be a change to the HIPAA law or the ERISA law?

DIRECTOR HUBBARD: It would be a change to -- I'm going to let Roy answer that.

MR. RAMTHUN: Well, the ERISA law, which was amended by HIPAA, and there's all kinds of things that we're going to have to figure out those details.

Q: We've heard a lot about leveling the playing field in terms of tax breaks, and I'm wondering if we're giving new tax preferences to HSAs and not to other forms of insurance? Aren't we, in effect, giving HSAs preference, and doesn't that keep the insurance industry from sort of doing its market thing and working things out and giving consumers choice?

DIRECTOR HUBBARD: Well, we are giving the preference to HSAs. We think -- but, by the way, there's a lot of flexibility with HSAs in terms of the size of the deductible, the co-insurance provisions and other provisions. But we think HSAs are the prudent way for people to insure themselves in America, because you have catastrophic insurance and then you put into your health savings account money to deal with lower cost health care needs. So you're absolutely right, this is a bias towards health savings accounts because it's going to make it where individuals who buy health savings account get the tax advantage that employers get when they provide insurance.

Q: I was wondering about this proposal to let the chronically ill -- to let employers contribute more to HSAs for chronically ill workers. Can you say a little bit more about how that would work, how much more they can contribute, and how you would determine what definition you would apply for chronically ill?

DIRECTOR HUBBARD: Yes, it's really up to employer. We're going to provide that flexibility. Right now employers can only give -- they have to give the same amount to every single employee. But this would give them the flexibility for those employees with persistently high medical costs. They could put additional money into their health savings account to help them with their chronic conditions.

Q: And is the idea that this gets at one of the criticisms of HSAs, that the chronically ill people, this is a bad deal for them?

DIRECTOR HUBBARD: No, to be perfectly honest, what we did in developing these proposals, is we talked to people who were using HSAs and others and asked for ideas of how we could improve HSAs. And the suggestion we got from a number of employers was they would like to have this flexibility where they could help out their chronically ill.

By the way, you know, in conventional insurance they can't be biased towards the chronically ill. And many employers want to be biased toward the chronically ill because those people have special challenges, you know, both in terms of their illness and in terms of financing the health care for that illness.

Q: I have two questions. First, with regard to expanding HSAs. In the fact sheet you issued last night, you said the new proposal will allow patients to cover all their out-of-pocket expenses tax-free to their HSAs. Now, I take it, this doesn't mean that if I have $10,000 of out-of-pocket, or $12,000 of out-of-pocket expenses I basically can deduct those from the taxes. I take it the limit on that is the limit in the 2003 law of $5,254 for individuals, and $10,500 for families?

DIRECTOR HUBBARD: Well, the fact is, the prior law -- the law as passed in '03 allows you to contribute each year to your health savings account, up to the deductible. So let's assume you have a $1,200 deductible and a co-pay above that, that makes your total exposure $3,000. Under the current law, you could put in $1,200 a year. Under the proposal that the President discussed last night, you would be allowed to put in up to $3,000 a year. So your total out-of-pocket max could be covered by what you are contributing --

Q: What if I had an out-of-network expense, you know, I have to go to a chiropractor or I have some -- I mean, this is not a co-pay inside the system. Does that get deductible, too?

DIRECTOR HUBBARD: No. Only the out-of-pocket max within your insurance.

Q: So is there an upper limit or upper bound on this?

DIRECTOR HUBBARD: It's whatever your out-of-packet max is, according to your insurance, whatever the insurance --

Q: And the original law does set a maximum in-network, out-of-pocket cost, doesn't it?

DIRECTOR HUBBARD: I'm going to let Roy --

MR. RAMTHUN: The statute sets a limit on what policies that qualify for HSAs can have as an out-of-pocket maximum.

Q: Were the two numbers I gave the correct ones?

MR. RAMTHUN: I don't remember what numbers you gave --

Q: Five thousand, two hundred and fifty dollars, individuals, $10,500 --

MR. RAMTHUN: Five thousand, two hundred fifty dollars, and $10,500 for families, yes, to '06.

Q: Okay. Could I just very quickly follow along with a second question? The next sentence confused me, too: "The new proposal would also provide a credit for payroll taxes paid on HSA contributions made by individuals." What's that about?

DIRECTOR HUBBARD: Well, what we're trying to do is level the playing field between health care bought by insurance versus health care bought by your health savings account dollar. And when health care is bought by insurance, it's done on a pre-income tax, pre-payroll tax basis. We want to level the playing field and make it the same for health care bought with your health savings account. So not only do you get an income tax deduction, but you also get a credit on your income taxes for the payroll taxes associated with that contribution to your health savings account.

And by the way, that payroll tax credit would also apply to the cost of the -- if you bought the HSA yourself, you would get not only an income tax deduction for that, but you would get a credit on your income taxes for the payroll taxes associated with that premium. Again, to level the playing field so people who pay for it themselves have the same tax advantages as people who get the policy through their employer.

Q: Could I just have one other quick one? When you talk about portable HSA insurance, that -- so we're now creating two classes of HSAs? Or would essentially all employer-offered HSAs be of this sort?

DIRECTOR HUBBARD: No, I wouldn't call it two classes, but this is just another option. Insurance companies and employers could decide to offer portable HSAs. And we believe that the marketplace will move that way because employers provide the kind of benefits that the marketplace requires, and to be competitive, if the American people, the American worker want portable health savings accounts, then I think the marketplace will eventually offer that, but it won't be compulsory.

Q: Hi, thank you. I have a couple questions. Many economists that I've spoken with and read articles about have said that they don't think that this is going to save a lot of money in terms of national health spending, that we're talking about the margins here; we're talking about people playing with the first thousand or two thousand dollars or so of their medical costs each year, and that that doesn't really get at the growing cost of health care in this country. Could you tell me how HSAs are going to help control spending in the United States?

DIRECTOR HUBBARD: Well, number one, as people spend more money over which they have discretion, they're going to be more concerned about spending it wisely. We've got to add to that the information that allows them to spend it wisely. And that's why we need transparency when it comes to prices and quality, where people know in advance what procedures cost, what services cost, and where they also know the quality history of the provider.

There's no question that when you get into large medical expenditures, they will get above their out-of-pocket max and so the insurance company will be picking up the total cost. And so it's certainly a legitimate argument to say that there will not be the consumer pressure to keep those costs down. Studies actually show that when people are more engaged in -- with lower cost services in evaluating pricing and quality and being wise consumers, that also translates -- even when they don't have money at stake -- the become much better consumers.

And by the way, people are going to realize that when they're better consumers, that's going to result in lower cost to their insurance companies, and so eventually that will be reflected in insurance premiums. But McKinsey has done a study that showed that even as you get above your out-of-pocket max, if you've been a wise consumer, you continue to be a wise consumer.

MR. DUFFY: And, Al, it's just not HSAs alone that we believe will help control costs. It's the whole -- it's all of the things the President talked about, medical liability. Do you want to go into that little bit.

DIRECTOR HUBBARD: Oh, yes. That's an excellent point. Well, Trent just mentioned medical liability insurance, obviously, that is a huge burden on the medical economy. And the President has been promoting the reform of medical liability laws ever since he's been in office.

Other proposals that the President has that will help deal the cost of health care -- association health plans, so small employers, small non-profits can come together and create a buying group that will obviously be able to put more pressure on insurance companies and buy lower-priced services like larger companies can. Health information technology -- again, it's just remarkable in this day and age that we don't have sophisticated information in the health care industry. And that's why Secretary Leavitt, at the President's direction, has his commission that's developing the systems for us to have uniform health information technology for our health care industry.

And then the other thing I should mention is the ability to buy insurance across state lines. Again, that will encourage more competition, so if you can buy insurance not just in your own state, but from any state, then you will -- again, that will put more competition, more options in the marketplace. And when there's more competition and more options, we all know that leads to lower prices and higher quality.

Q: And one other question. The idea of this individual responsibility, that we're all going to go out and buy our own health plan someday, that we'll all have HSAs -- what happens to the folks who have cancer, or have heart disease, or have some other kind of preexisting condition, and they just can't get this coverage? What kind of proposal is out there for them at this point?

DIRECTOR HUBBARD: I'm glad your raised that, because there's another part of the plan that I actually forgot to mention. Let me first say that we -- the President is certainly not -- I mean, he's very supportive of employers continuing to offer health insurance. There's no reason why they wouldn't continue to offer it. This is just is going to give them more flexibility. And, again, with certain minimum-sized employers, there's no preexisting condition that exists, or any underwriting that exists.

At the same time, there is the problem of people with chronic illnesses who do not get their insurance through their employer finding cost-effective and affordable insurance. That's one of the big problems facing this country. Another one of the President's proposals which you'll be able to read about in the budget next week is a pilot program of $500 million a year that will give the Secretary of HHS the opportunity for up to 10 states to offer a pilot grant as they develop new approaches to dealing with the chronically ill who are buying insurance at the individual level. We looked at this challenge and we concluded the best way to address it is to encourage the 50 states that we have to be laboratories, and encourage them to develop ideas about how to address this very significant problem in America.

Q: Can you address the issue of how you'd make more unreimbursed expenses tax deductible? Would you do that by either removing or reducing the 7.5 percent floor currently in place, or with some new kind of tax credit?

DIRECTOR HUBBARD: Well, again, all the proposals the President talked about last night had to do with enhancing the HSAs. And with HSAs, as we've talked earlier, the way you get the tax benefit for your out-of-pocket expenses is you pay for it through your health savings account. And by making the health savings account contribution up to your out-of-pocket max, you will be able to pay for all of your out-of-pocket expenses on a tax deductible basis. But there's no proposal to change the 7.5 percent for non-HSA insurance.

Q: Again, thank you for doing this. I wanted to ask why the President did not mention the prescription drug benefit last night?

DIRECTOR HUBBARD: There were a number of things he didn't mention that are very important --

Q: This is the most important change in Medicare in the last 40 years, and it just got unveiled. And many people on the Hill have taken notice that the President didn't mention it. Why?

DIRECTOR HUBBARD: Well, again, there are a number of -- there are numerous things the President didn't mention. It was a 38-minute speech without applause; with applause -- I guess I haven't seen the numbers -- probably 55 minutes. Again, the President is very proud of the '03 Medicare reform bill. He's very proud of Part D and what the new drug benefit is going to do for retired Americans.

I'm sure you're fishing for me to deal with the fact that it hasn't been a perfect and seamless conversion, but we're making an enormous amount of progress. A million prescriptions are being filled every day, and 50,000 new Americans are signing up for Part D every day. And we're going to work out any of the existing problems in a very fair way so everyone is taken care of.

MR. DUFFY: And, Kevin -- this is Trent -- as you know, the President has done several Medicare prescription drug-focused events. He has dedicated entire speeches and events about the drug benefit. So he's been talking about it before and after some of the rough spots associated with the enrollment.

But as you also know, for the vast majority of Medicare recipients, the program is working and it's working well. So that should help with your answer.

Q: Thank you.

Q: Yu mentioned that one of the proposals with be a health care credit, but only to those who actually participate in HSAs. And I just wondered, in the past four years, the President has been proposing a refundable health insurance tax credit for low-income families, but as you also know, it hasn't been adopted by Congress. So is that one of the reasons you are limiting it now to only those who participate in HSAs?

DIRECTOR HUBBARD: Well, as I mentioned earlier, the President is very much a believer in HSAs and thinks that the best way of offering these tax credits is with HSAs. There's going to be a renewed commitment on the part of this administration to get that tax credit passed, along with all these other proposals. Health care is a very, very big concern to the American people. These proposals are not Republican, not Democrat proposals; they're proposals for the American people. And we're going to try to get all of this legislation passed this year.

Q: And one other issue that's been raised, as far as preventive care, is that because these are such high deductibles for people of limited means that they might be hesitant about going in for such care. And I just wondered how you can assure people, or what way is that being addressed?

DIRECTOR HUBBARD: Well, again, every situation is different, as I mentioned. For the average employer-provided HSA, according to Mercer, in a $1,200 deductible policy, $700 is contributed by the employer. So in that situation, the employee has $700 in his or her account to use for preventive care.

Q: But what about individuals that are not getting it through their employer?

DIRECTOR HUBBARD: Well, obviously, individuals have a choice of buying a high-deductible HSA at a lower price, which would leave them with money left over to apply to -- which they can then put in their HSA and use -- in their HSA account and then use for preventive care, or they can pay a higher amount for traditional health care and not have that money left over for preventive care.

But our studies show that in most situations, the individual is going to come out much better financially while taking care of his or her preventive needs through an HSA, as opposed to going the traditional insurance route.

Q: Hi. I also have two questions, the first regarding this year's version of the health care tax credits. You say that the President has revised the policy because he's a believer in HSAs. And I'm wondering if you have any estimates as to how many people might be able to take advantage of this reconfigured tax credit? And also whether there was a fiscal component to the decision to not pursue the broader tax credit the administration has been interested in, in prior years?

DIRECTOR HUBBARD: I'm sure we have those numbers available. I don't have the numbers at my fingertips, in terms of what the Treasury estimates in terms of the take-up. Will that be in the budget that -- I don't know what's actually in the budget. But, again, the President is a big believer in HSAs, and that's why he made the decision to make these tax credits apply to HSAs.

Q: Okay, is the take-up rate something that you could check on today?

DIRECTOR HUBBARD: Roy, can we -- I don't know where we stand on that.

MR. RAMTHUN: We can check.

DIRECTOR HUBBARD: Yes, we can check.

Q: That would be helpful. And, secondly, with respect to the out-of-pocket tax deductions, again, in the context of HSAs, there were a number of people who have been in touch with members of the administration in the last month or two about health policy, who seem to have had the impression that there was some consideration being given to a broader out-of-pocket deduction policy that would transcend HSAs. Was that something that you were at one point considering? Or did people simply misconstrue what you had in mind?

DIRECTOR HUBBARD: To be honest, when we started out, we started with a blank sheet of paper to figure out what is the best way to approach the. And we ultimately decided that the proposal that we presented to the President -- he decided that the proposal that was presented was a correct proposal.

Not to get into the weeds, but I think some people thought the Hubbard-Cogan book was going to be adopted as the President's package. But as I told you a week or so ago, we certainly studied that -- what Cogan and Hubbard and Kessler proposed. But we considered a number of other approaches. And in the end, the President decided on what we're describing -- what he described last night and what we're describing today.

Q: Thank you. One of the attractivenesses of the HSAs is that people can invest the money -- banks and brokerages firms are already interested in having these accounts. But as we've seen for 401(k)s, people don't really know how to manage money for the future. How are they going to be able to manage their HSA accounts to be able to pay for future expenses?

DIRECTOR HUBBARD: Well, again -- I shouldn't say "again" -- the people will be given options. And health savings account insurance companies will work with people to make sure that they are prudent in the way they invest the money to make sure that that money is going to be there for future emergencies and future needs.

Q: And HSAs, while their numbers have been tripling, that's because it's starting from a low base, they have not really caught on, because people are concerned as they are to some extent with retirement about saving -- you know, about making these health care decisions and possibly making these investment decisions. So how are you going to be able to overcome that concern among people, which was similar to the concern about the Social Security private accounts?

DIRECTOR HUBBARD: So you've gone out and surveyed everyone and that's what everyone thinks? I mean, I happen to think that HSAs have grown dramatically, given what little time they've been out there -- to have gone from 1 million to 3 million is dramatic. I wish you would survey employers, because the number of employers that are offering HSAs, again, have grown dramatically over the last two years. And our reports are very positive, in terms of the take-up rate for HSAs, and we're very enthusiastic about it.

Q: Okay. Thank you.

DIRECTOR HUBBARD: Thank you.

Q: Let me ask, in terms of your comment that you're going to try and get all the legislation passed this year, is there anything that you really have a priority on? Like, if there's one piece you can get done, which piece would it be?

DIRECTOR HUBBARD: We would like to get, obviously, all of it done, and as much as possible done. And you know how the legislative process is. But the President believes all of these proposals are very -- (drop in audio feed) -- health care, in making health care more affordable and more accessible to the American people.

Q: So there's no piece of it, though, that you feel if you couldn't get the whole thing done --

DIRECTOR HUBBARD: Again, we are going to work with Congress, and obviously, Congress is going to have their own ideas, and we'll be open-minded and listen to them. And what's important is to get health care reform through Congress so the American people can start enjoying lower-cost, more accessible health care.

Q: Just this last thing -- so any odds you can give on your likelihood of getting that done?

DIRECTOR HUBBARD: I'm sure -- (laughter.) I'm not a betting man when it comes to Congress.

Q: Okay, thank you.

Q: Hi. Sorry if you guys already answered this question, I had to jump off the line for a second. But I wanted to know a little bit more about the elimination of taxes on out-of-pocket spending through HSAs. Now, the idea there is that consumers would be allowed to use their HSA dollars for any expenses, whether it's deductible, co-pays, et cetera, as long as it's within the insurance plan?

DIRECTOR HUBBARD: No, they can use those dollars for any legitimate health care expense. Their contributions to their health savings account will be limited by the out-of-pocket max of their insurance plan.

Q: I see. Okay. So now, as the rules currently, you can either contribute your deductible or some other amount, whichever is less, depending on whether you have an individual or family plan. So would -- I'm guessing that amount would be your -- you can contribute your out-of-pocket max or the same amount? Or is that amount going to rise, the contribution amount going to rise?

DIRECTOR HUBBARD: Well, let me just give you a possible policy that would have a -- say it's for an individual, it's a $1,200 deductible with a -- and a 80/20 co-pay above that, where you're paying 20 percent above that, with an out-of-pocket max up to $3,000, and then above that, the insurance company pays 100 percent of the cost. In that situation, you would be allowed, under the President's proposal, to contribute $3,000 every year to your health savings account. And of course, the great thing about this is, most people don't spend their out-of-pocket max every year. I mean, it's a very unusual person that spends the out-of-pocket max every year. So you're going to accumulate, over time, a real nest-egg there that will be available for future emergencies and future needs.

Q: But what about these dollars -- I can't remember what they are, but the guidelines say "your deductible, or" -- and it offers some dollar amount, whichever is less. How is that going to --

DIRECTOR HUBBARD: This would supercede all of that.

Q: So there would be no dollar amount, whichever is less.

DIRECTOR HUBBARD: No, no.

Q: It would just whatever your out-of-pocket.

DIRECTOR HUBBARD: It would just be out-of-pocket, right.

Q: Okay.

MR. RAMTHUN: The law puts limits on how big your out-of-pocket maximum could be. It's $5,250 for singles, $10,500 for families in 2006. That does increase every year for inflation, but Congress did not say that any out-of-pocket limit is possible. So you can't have a policy with an out-of-pocket limit of $50,000, and, therefore, be able to put $50,000 into an HSA.

Q: Oh, actually, yes, so what I was referring to when I said, how is it going to change, was exactly what you mentioned, those sort of -- those maximums. Are the maximums going to change?

MR. RAMTHUN: No, it's not going to be the lesser of, like it is with a deductible. It's going to be your policy out-of-pocket maximum, whatever policy you choose, but knowing that your out-of-pocket maximum could never be bigger than the statutory limits in the law.

Q: Okay.

DIRECTOR HUBBARD: Well, thank you all for giving us this opportunity to talk some more about the President's health care plan.

MR. DUFFY: And if there's any further questions, you can reach me through the White House Press Office, 202-456-2580. Thank you very much.

END 12:50 P.M. EST