[Mb-civic] Ownership Society Redux - Sebastian Mallaby - Washington Post Op-Ed

[William Swiggard]

Ownership Society Redux
New Name, Same Policy

By Sebastian Mallaby
Monday, February 13, 2006; A21

The president likes to be consistent. Loves Laura; sticks to Laura. 
Kicks drink; keeps kicking it. First inaugural address: blue tie, white 
shirt. Second inaugural address: blue tie, white shirt. Weight in 2001: 
190 pounds. Weight in 2005: 192 pounds. Hair length: same. Mood: same. 
No Clintonian gyrations.

Same deal when it comes to politics. Fights terrorists; keeps fighting 
them. Cuts taxes; keeps cutting them. Trusted Karl in Texas; still 
trusts him. Simple man. Straightforward man. How many policy moods and 
political gurus did Bill Clinton go through?

Same deal with the "ownership society." First used the term in 2002. 
Went big with it at the Republican convention in 2004. Pretty much taped 
the slogan to his head in 2005, when he campaigned for personal Social 
Security accounts all across the country. You think George Bush would 
let go of this stuff just because Social Security reform failed? 
Fuhgedaboutit.

The ownership society is back, though it's got a new label. Bush may not 
be pushing individual Social Security accounts these days. But he is 
pushing things called health savings accounts, which turn out to be similar.

Health savings accounts are ostensibly supposed to fix the health 
system. Right now, tax rules subsidize company-provided health 
insurance, but they're less generous toward out-of-pocket medical 
payments; as a result, company health plans pay most bills and patients 
have no incentive to shop around for the best bargain. Health savings 
accounts end this tax bias. Anyone who buys an insurance policy with a 
deductible of $1,050 or more can open an account and save $5,250 a year 
toward out-of-pocket health costs, tax-free. This will shift control of 
medical spending into the hands of consumers, who will discipline 
overpriced hospitals and clinics.

Or so goes the theory. In practice, probably less than half of all 
health spending outside Medicaid and Medicare would be affected by the 
new consumer-driven discipline. Many hospital stays cost more than any 
deductible, so consumers would have no incentive to bargain; 
emergency-room patients aren't in a fit state to negotiate prices with 
their doctors. But consider an even more basic question: Is the 
ostensible reason for health savings accounts the real one?

If the administration's goal were merely to remove the tax bias against 
out-of-pocket health payments, it could simply make these 
tax-deductible. No need for health savings accounts to accomplish that 
-- just tell people to count out-of-pocket payments against taxable income.

Even if the administration were determined to shelter out-of-pocket 
payments using health savings accounts, why make them so generous? It 
proposes both a tax deduction and a tax credit when money goes into the 
accounts; savings would accumulate tax-free and could be withdrawn 
tax-free also. As Jason Furman points out in a paper for the Center on 
Budget and Policy Priorities, no other savings vehicle enjoys so many 
privileges. And then there's the size of these accounts. If the aim is 
to discipline health spending below the deductible, why subsidize 
savings up to $5,250 a year -- five times more than the deductible?

In sum, health savings accounts are not just about ending the tax bias 
in favor of traditional company health plans. The administration is 
proposing a new kind of 401(k), and using it as an inducement to quit 
low-deductible insurance. Rich people, who gain most from the tax breaks 
on saving, will be first to sign on; healthy people, who subsidize 
sicker people in company health plans, will be right behind them. Their 
exit may force traditional health plans into a death spiral. The loss of 
the subsidy from healthy workers will drive premiums up, which will 
drive more healthy people into health savings accounts, which will drive 
premiums up further.

The State of the Union address (blue tie, white shirt) contained barely 
a mention of health savings accounts, but don't let that fool you. 
Because these accounts are being pushed modestly, with no grand Social 
Security-style talk of remaking the social contract, there's a chance 
that they'll be seen as just one of various bewildering tax tweaks and 
slip quietly through Congress. But the proposal cries out for a debate 
very much like last year's -- a debate about personal saving vs. 
collective insurance.

A rerun of last year's debate would show that health savings accounts 
are harder to defend than personal retirement ones. They are shockingly 
regressive: Furman's study shows how a poor family might get a subsidy 
of $150 while a rich one might get more than $4,000. They have not just 
a transition cost but a real cost: The tax breaks could widen the 
deficit by at least $132 billion over 10 years and a lot more after 
that. And health savings accounts pose a more formidable threat to 
traditional corporate health plans than personal accounts posed to 
Social Security. Market forces are already dislodging company health 
plans; an extra shove could cause an avalanche.

The limited consumer discipline that would come from health savings 
accounts could not justify these disadvantages. But when you talk to 
administration officials, they express remarkably few doubts. They 
believed in the ownership society last year; they still believe in it 
this year. They believe in individual choice; they distrust collective 
programs. They don't worry too much about the risks to the budget. Or to 
distributional justice. Or to existing safety nets.

Simple administration. Straightforward administration. The Clinton team 
would never have proposed such a clunker of a policy.

http://www.washingtonpost.com/wp-dyn/content/article/2006/02/12/AR2006021201151.html?nav=hcmodule
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