Online conversation: State of health care

John Dodds, director of the Philadelphia Unemployment Project, and Mark Pauly, University of Pennsylvania health-policy professor, talked today about the president's health-care proposals.

[Scroll down to see the transcript.]

In his State of the Union speech last night, President Bush outlined a proposal that he said would increase health insurance coverage for the uninsured and make it easier to afford for those who buy it on their own.

It would be partly funded, the president said, by taxing employees who have health coverage through work. If an employee's plan costs more than a federal cap of $7,500 for an individual or $15,000 for a family, then the employee would pay taxes on the difference.

John Dodds, executive director of the Philadelphia Unemployment Project, a Philadelphia advocacy group (http://www.philaup.org/ ), says that access to health care is one of the chief problems facing the unemployed.

University of Pennsylvania professor Mark Pauly has been researching and writing about medical economics, health insurance and the role of the government in health care for 40 years. In 2001, Pauly, (http://www.wharton.upenn.edu/faculty/pauly.html) a Wharton business school faculty member, contributed to a book titled Covering America: Real Remedies for the Uninsured.

This afternoon, they gave their reactions to the president's speech in an online chat with Inquirer staff writer Jane M. Von Bergen.

Jane: I'd like to address this question to either one of you: What do you think is the most interesting part of the president's proposal?
John Dodds: It's interesting that he is finally beginning to pay attention to the issue of the uninsured.
Mark Pauly: The most interesting part is the proposal to change the tax treatment of health insurance by the well-off insured that is intended to reduce their levels of medical insurance and therefore medical-care spending. This addresses what economists think is the easiest distorted incentive to correct.
Jane: Mark, can you explain that a little more?
Mark Pauly: The idea is that, because I can shield all of my insurance premiums from income and payroll taxation, I am motivated to choose more generous insurance than I should
Jane: Does anyone think that way, really? Don't people treat health insurance like electricity? You want it to work but you don't want to think about it
John Dodds: The question is will giving less coverage to the high end of the insured reduce health-care costs.
Mark Pauly: John, the president actually had proposals to reduce the uninsured every year but they never got anywhere. This is not one of the bigger ones as far as the tax changes go, but the other part of the plan -- the Affordable Choices for the states -- may have a big impact.
Mark Pauly: We think that people, especially well-off people, do respond to incentives.
John Dodds: The numbers of uninsured have risen steadily over the past five years.
Jane: And will they really benefit from these tax incentives?
John Dodds: And the plan advanced at the State of the Union appears to be dead on arrival.
John Dodds: There may be some good in the Affordable Choices proposals, though.
Jane: Why is that? Is it a bad idea or is it politics? Or both?
John Dodds: Both...
Jane: I meant the State of the Union plan.
Jane: Why is it a bad idea?
Mark Pauly: Lots of evidence that even the better off spend less when they have less generous insurance coverage. One estimate is that free care boosts spending by 40%+. Less evidence on how sensitive choice of insurance coverage is, but we think the price of insurance makes a difference as to how much you buy. Don't think I would buy dental insurance if the Treasury weren't sharing the cost.
Jane: Don't you need to go to the dentist?
Mark Pauly: The DOA label is nothing new. It was applied to all previous Bush II health proposals.
John Dodds: The Ways and Means Committee Chair Pete Stark has said that he won't give the plan any consideration.
John Dodds: The problem with his plans is they won't insure the uninsured.
Jane: But why won't he, John. Is it a bad plan? What about the incentives and tax credits. Can the poor uninsured, or unemployed uninsured benefit from them in any way?
Mark Pauly: It remains to be seen if any Republicans will take this up.
John Dodds: Most uninsured people cannot afford insurance, and a tax break won't change that.
Mark Pauly: I think McCrery probably will push it, and may be able to push Stark.
Jane: Readers, we are all typing at one time, which is why sometimes it looks like someone is responding to the immediate preceding comment.
John Dodds: They can't afford the monthly premiums and they tend to be in low tax brackets already.
Mark Pauly: The administration thinks their plan will cut the uninsured by 10% because it will give tax breaks for the first time to people whose job does not offer coverage.
John Dodds: So it is unlikely that the Bush plan will get insurance to the uninsured.
John Dodds: That would probably apply mainly to more middle-class people who have chosen to risk being uninsured.
Jane: Won't the people get bigger tax refunds? Can't they use that money?
John Dodds: Yes they can. But they still won't be able to afford insurance.
Mark Pauly: Yes, that's right. If this will do anything, it will affect that 45% of the uninsured who are not low income.
Jane: John and Mark, how does that Affordable States provision relate to what Gov. Rendell is doing?
John Dodds: Those are the healthy uninsured, mostly.
Mark Pauly: Does anyone think if the states were given more control over Medicaid and Medicare funds they would cover more low-income uninsured? I am hopeful.
Jane: What do you mean?
John Dodds: Rendell wants to do a similar thing, I believe.
Mark Pauly: States could use their money for high-risk pools or risk-adjusted vouchers to pick up the minority of uninsured who are high risk.
Jane: What I worry about is that people who have health insurance at work will gradually lose it as a benefit -- which is rough when wages have really not been increasing, or not much. Do you have a comment?
Jane: Do you think employers will just use this as an excuse to stop paying health insurance?
Mark Pauly: Well, you could praise the new plan because at least they will still get a tax break if they buy coverage as individuals -- which now they cannot.
John Dodds: That is the overall concern about the plan -- that it will undermine workplace insurance coverage and the ability to get preexisting conditions covered. Individual plans often won't cover them.
Jane: I have a question from a reader, Roger Basile.
Mark Pauly: I think large employers will not change, but small employers who are not doing a good job anyway may turn things over to workers.
Mark Pauly: Go ahead.
Jane: A perfect storm is brewing with both the president and governor signaling an interest in addressing the issue of health care. But this is a big issue with many sides to it. I think most Americans would say that the cost of their health-care insurance premiums are their greatest concern. Accepting that premise, what are your priorities to control health-care costs and the reflected insurance premiums?
John Dodds: There is a worry that employers will jettison their health plans.
Jane: Mark, what do you think? Will employers jettison health plans?
Mark Pauly: Expecting government to do much to lower the cost of health care without also hurting quality is too optimistic. I know government can help with the uninsured if it wants to. So I would bet more there.
John Dodds: Well, ideally, we would go to a single-payer system, which would eliminate a tremendous amount of bureaucracy and waste.
Jane: I'm sorry. I just realized we didn't answer Roger's question. Let's stick with that.
John Dodds: I realize that single payer is still down the road and I agree with Mark about helping the uninsured
Mark Pauly: Any heavily subsidized health plan, public or private, will have low administrative cost. And the reason costs are growing is because of new technology much more than new bureaucracy.
Jane: OK, now back to my question -- what do you think the odds are of employers using a proposal like this to get out of covering health care, which is increasingly burdensome to them?
John Dodds: The problem with Bush's proposal is that it counts on the private insurance market and the individual to increase coverage.
John Dodds: But the individual will be hard pressed to get good coverage or any coverage in many cases.
John Dodds: I think that some employers will do that.
Jane: Because???
John Dodds: But it remains to be seen.
Mark Pauly: As I said, I do not see big employers who can offer big price advantages for insurance dropping coverage. But small firms can't get the same low prices, often pay more than you could get as an individual, so maybe they should drop coverage and let the workers spend their money rather than have the boss spend it for them as now.
John Dodds: Because they can give the employees more salary and tell them to buy insurance. It cuts some headaches out.
John Dodds: Mark don't you see the problem of pre-existing conditions as vital to the change from workplace insurance?
Mark Pauly: Yes, that's the idea. Plus, if you have an individual policy, your boss can't get up on the wrong side of the bed and cancel your coverage, as now.
Mark Pauly: I think it is not a big economic problem but it is a big political problem, which is why you need high-risk pools.
Jane: What is a high-risk pool?
John Dodds: Bush does nothing to deal with that problem in his proposal.
Mark Pauly: States set up insurance pools that cover high risks at affordable premiums and subsidize those premiums either from general taxes or from (ugh!) taxes on insurance.
Jane: And John, from your perspective, many of your folks have had substandard health care for years and have become high-risk as they've aged, right?
John Dodds: He remains a free market man ... without thought of the realities of lower-income people and the insurance market.
John Dodds: Yes, that's true.
John Dodds: Diabetes, high blood pressure
John Dodds: These are common for many today.
Mark Pauly: Such pools are mentioned as something states can get federal money for under the Affordable Choices part -- and some states already have.
John Dodds: Insurance companies should be required to take them at a reasonable rate.
Jane: Please explain the realities of lower-income people and the insurance market, John.
John Dodds: One, people cant begin to afford insurance.
John Dodds: They are living paycheck to paycheck.
John Dodds: Individual policies can be denied due to pre-existing conditions that we spoke of.
Mark Pauly: If you force companies to take them, they will raise premiums to others -- like a head tax. I would prefer to subsidize out of income taxes and be explicit about it.
Jane: Transparency.
John Dodds: A tax break at the end of the year won't help with monthly payments.
John Dodds: I agree.
Mark Pauly: Anyway, the largest share of the uninsured are 25-35 year olds, not exactly high risks.
John Dodds: But this plan will encourage people out of risk pools and into individual plans.
Jane: Mark, you had an idea about coupons? How did that work?
John Dodds: 24% of people with incomes under $25,000 were uninsured in 2005.
Mark Pauly: You do not have to wait until the end of the year. You reduce your taxable wages on the W4 form if you claim the exclusion. So you get less withheld every paycheck.
John Dodds: People still won't be able to afford it.
John Dodds: Although that is a good feature.
Jane: Mark and John, thank you so much. Would you each please summarize your reaction? Mark, would you go first?
Mark Pauly: The problem the administration faces is that it has no new money to devote to the uninsured; all these things are budget neutral. To get more money, taxes would have to go up or Medicare would need to be cut. The states actually have the money now, so the idea is to give them the primary job of dealing with poor uninsured, while the tax changes affect the middle-class uninsured (about 45% of total).
John Dodds: The Bush proposal won't deal with the issue of affordability of insurance for families and individuals. We see many every day who are priced out of the insurance market and will not be able to use the Bush tax plan. We do need explicit plans that provide insurance to lower-income and middle-income people. This will reduce costs as they get more proper regular care when it's needed, not in emergency rooms in a crisis.