Medical Device Daily Washington Editor

WASHINGTON — The Bush administration is not known for having a heavy hand in the nation’s healthcare game, but the President spelled out a new coverage proposal in last night’s State of the Union message with a plan called the Affordable Choices Initiative.

Reaction to previews of the plan has been mixed among congressional Democrats, and at least one major player in the House says the idea is dead on arrival.

Under the Affordable Choices Initiative, families with health insurance would pay no income tax on the first $15,000 of income ($7,500 for individuals), but healthcare premiums would no longer come out of paychecks before Uncle Sam gets his cut.

Coupled with this rewrite of the tax code would be a pool of federal funding that would go into state coffers to help the uninsured buy private insurance should they not find it affordable, even with the tax break.

The White House says this mechanism will spread healthcare coverage “without creating a new federal entitlement or new federal spending.”

According to White House explanation and analysis of the plan, the effect on four out of five households will be to lower overall taxes. Families that currently pay for insurance would get an average tax break of $3,650 in 2009, and those that currently do not would see their tax bills fall by $3,350 that year.

The plan essentially bypasses federal bureaucracies by putting the money into state coffers and places the onus on each state to provide coverage, continuing a trend that governors from across the nation seem to be embracing. However, Congress would have to authorize the use of funds to provide coverage for those who cannot afford it by means of a “disproportionate share hospital” (DSH) grants mechanism.

Michael Leavitt, secretary of the Department of Health and Human Services, on Monday said that the administration’s intent is to employ its regulatory authority in addition to congressional action to get the DSH grants into play. The funding grants could total as much as $30 billion, and Leavitt said that while competing ideas constitute having “the federal government insure everybody,” the White House suggestion “is to let the states lead” in providing health insurance for all Americans.

The White House estimates that paring back the standard deduction for health insurance would generate enough savings to spur 5 million uninsured Americans to buy into a health plan. The overall effect of the initiative is said to be budget neutral.

Opinions vary widely on the initiative inside and outside Capitol Hill.

Joseph Antos, a policy analyst with the American Enterprise Institute (Washington), in a statement described the plan as a “Nixon-goes-to-China moment” — an acknowledgement that “high income Americans get too much of a particular tax break.”

Paul Ginsberg, the president of the Center for Studying Health System Change (Washington), said that the move puts the administration “back into the health policy debate” and that the idea of reducing the tax-free status of healthcare premiums has the support of “a fairly large majority of policy wonks, although not from across the entire political spectrum.”

Ginsberg said that as currently written, the proposal will go nowhere, but the appeal of putting a cap on tax-deductible healthcare premiums has a lot of appeal if the increase in tax revenue is used to expand coverage.

The chairman of the health subcommittee of the House Ways and Means committee, Pete Stark (D-California), made the case that the “so-called healthcare proposal won’t help the uninsured, most of whom have limited incomes and are already in low tax brackets.”

Stark played the middle class card, insisting that the loss of the tax exemption for healthcare insurance premiums “will hurt middle-income Americans, whose employers will shift even more cost and risk to their employees.”

Stark also lambasted the plan as a “policy designed to destroy the employer-based healthcare system through which 160 million people receive coverage” and will end up excluding those with less than ideal family histories as well as those with existing illnesses or genetic makeup. Despite advocating a Medicare-type system, Stark also decried the possibility that the White House plan will disallow enrollees to “take advantage of the cost savings that currently result from sharing risk company-wide.”

Stark also said, “I do not intend to consider this particular healthcare proposal in the Ways and Means Health Subcommittee.”

Not all Democrats are dead-set against the plan.

The chair of the Senate Finance Committee, Max Baucus (D-Montana), indicated that he is open to “[a]ny serious healthcare proposal [that] will target healthcare savings toward new coverage to Americans who are currently uninsured, and [offer] better coverage to those who don’t have enough.” While Baucus said he “applaud[s] the President for putting healthcare at the fore of his State of the Union address,” he nonetheless will “look closely to see whether his proposal will help to cover the uninsured and help to meet the needs of those with real medical expenses.”

Baucus said he wants to emphasize “extending insurance coverage to children through a renewal and expansion of CHIP,” the children’s health insurance plan that is financed via Medicaid, but is open to “exploring the idea of new and innovative pooling arrangements to expand affordable healthcare coverage.”

Karen Davenport, the director of health policy at the Center for American Progress, a Washington think tank, told Medical Device Daily, “our view is that this will not do much for the uninsured” because many are below the poverty line and do not pay sufficient income taxes, if any, to be able to take advantage of the income tax break.

In reference to comments by Rep. Pete Stark (D-California) and others, Davenport said, “I think that there have been enough grumblings that [the President’s plan] will have a tough row to hoe,” but she cited the flurry of proposals and concomitant interest in Congress that “there is certainly momentum to do something with healthcare.”

As for Stark’s proposal to use Medicare as a model, Davenport said a couple of years ago, “we had proposed a mandatory enrollment with generous subsidies and a national insurance pool and a generous expansion of Medicare” because “we feel that this is the fastest and most efficient way to provide universal coverage.”