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Assistant Secretary Ann L. Combs
October 23, 2002
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Highlights |
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Thank you, Helen, for that kind introduction. I appreciate
the opportunity to talk to the Washington Business Group on
Health. I am pleased to be with you today.
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First, let me commend WBGH for the fine job you do providing a
voice for employers dedicated to finding innovative solutions
to the nation’s health care problems.
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You are truly leaders in the national effort to increase
worker productivity through access to quality, affordable
health care coverage and innovative disability management
programs.
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Today, I want to discuss our common goal of preserving health
care quality and access while also controlling costs. Clearly,
plan sponsors face obstacles pursuing both quality and value.
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Maintaining health care coverage is especially difficult
during these economically challenging times. And, there are
many factors that drive up the cost of health-care coverage
that are out of your control.
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A recent Kaiser Family Foundation study cited increases in
costs for prescription drugs, hospital services, and medical
technology as significant contributors to the double-digit
medical inflation we face today.
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In addition, the enormous cost driver of state and federal
regulation increases every year. Overly burdensome regulations
threaten to stifle access to affordable health care coverage
by driving up costs.
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Of course, you understand better than anyone that workers who
have quality health care coverage, when they or their
families need it, are healthier, happier -- and more
productive. And, for many years, increased worker productivity
has been the foundation of our economic strength and
resilience.
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The Bush Administration is committed to achieving the
objectives of access, quality and affordability in the
policies we support and implement for the nation.
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Like you, we are dedicated to strengthening America’s
private employer-based health insurance system. This system
preserves freedom and rewards the innovations that provide the
best possible health care at the best possible price.
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But the tremendous potential of our system to innovate is
threatened when patients have limited choices about their
health care coverage and providers, and plans don’t compete.
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For this reason, the President strongly believes that we must
take action to strengthen and improve the health care coverage
options available to Americans. The administration has
proposed several innovative solutions, which I’d like to
briefly discuss.
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Rising health care costs are a major
concern on the minds of employers everywhere.
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According to a study just released by
Hewitt Associates, the cost of health benefit plans at large
companies will rise an average of 15.4 percent next year. This
is on top of the 13.7 percent increase recorded this year, and
11% in 2001. According to the study, and I quote, “unless
there is fundamental change in how health care is delivered,
costs will double in the next five years.”
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These cost increases are cutting into companies’ ability to
compete and create jobs, and causing many employees to pay
more for their share of insurance premiums. As a result, many
employers are considering or implementing health plans that
try to control costs through defined contribution models. The
hope is that these models will lead to more efficient health
care usage by making employees personally responsible for more
of their health care spending.
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Predictably, rising costs also are
increasing the number of uninsured Americans. According to the
recent Census Report, the number of people without health
insurance rose 1.4 million in 2001, to 41.2 million. This
translates into an estimated 14.6 percent of the population
that had no health insurance coverage during all of 2001. This
is an increase from 14.2 percent in 2000.
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Clearly, the employer-based health
insurance system is under stress. Our private sector
employment-based system continues to deliver the highest
quality healthcare in the world. But we must work together to
improve access to health care if our private sector system is
to survive. The President has several proposals to make
better, more affordable coverage options available through
employers.
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The latest example of private sector innovation is the
development of the health reimbursement arrangement (HRA). As
you know, the Treasury Department recently issued a new
revenue ruling clarifying the tax treatment of HRAs and
clearing the way for them to be adopted more broadly. Helen,
your leadership and this organization’s influence was
instrumental in prompting Secretary O’Neill to make this
guidance a reality.
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We strongly support the ruling and applaud Treasury’s
foresight in having it published in a timely fashion. We look
forward to working with you to facilitate the development of
other innovative designs to help control costs by making the
consumer a true participant in the financing of healthcare.
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The President also supports improvements in
Flexible Spending Accounts to make them work more effectively
- notably by modifying the notorious use-it-or-lose-it rule.
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Under our proposal, employees could roll
over as much as $500 in unspent health care contributions to
an FSA for use in the following year or to put into a 401(k)
plan for retirement.
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And to make it easier to pay for retiree
medical expenses, this amount could also be used for health
expenses in retirement.
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I know that easing the restrictions on FSAs
is one of your top legislative priorities. We are grateful for
your continuing grassroots efforts in support of the
Administration’s proposal.
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The President also has proposed several improvements to
Medical Savings Accounts in an effort to make them an
attractive insurance option for both employers and employees.
MSAs give individuals greater control over their health care
spending and make out-of-pocket spending on healthcare more
affordable. The proposals would allow a broader array of
insurance products to be purchased through MSAs, encourage
preventive health services, and allow employees to make their
out-of-pocket payments with pretax dollars.
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Together the President’s proposals to expand MSAs, improve
FSAs and promote HRAs would provide an additional $15 billion
in tax benefits to support employment-based health care.
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For Americans without employer-based health
care coverage, the President has proposed $89 billion in new
health credits to make private health insurance more
affordable for low- and middle-income American families. The
refundable tax credits would be worth up to $1000 for
individuals and $3000 for families, and would be available when
people need them to pay their insurance premiums.
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The credits will enable 6 million Americans
who would otherwise be uninsured during a year to get
coverage, and will help many more who are struggling to pay
for their own health insurance with little or no government
help.
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The President signed into law, as part of
the Trade Promotion Authority Act, legislation to provide $15
billion in health tax credits to assist workers who have lost
their jobs. The credits would pay 65 percent of the cost of
health care coverage and would assist over 4 million displaced
workers. The two groups eligible for this subsidy are workers
dislocated due to the impact of trade, and individuals over
the age of 55 who are receiving an annuity from the Pension
Benefit Guaranty Corporation.
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I am aware of your concerns about potential
increases in COBRA costs if affected workers elect to use
their tax credits to purchase COBRA. I think this legislation
may have some other unintended consequences as well -
particularly for the PBGC. We need to be careful in
implementing the statute and monitor its effects carefully.
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The President also supports legislation that provides for the
creation of Association Health Plans (AHPs). The Department of
Labor would have primary responsibility for ensuring that AHPs
enable small businesses to provide better and more affordable
health insurance options for their employees.
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In support of this initiative, on September
13, Secretary Chao released an AHP report which makes the case
that the legislation would make quality health insurance more
affordable and accessible for millions of small business
owners and their employees. AHPs would allow members of
associations to pool together to offer health insurance to
their employees.
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Under uniform federal standards, AHPs would
enable small employers to achieve greater purchasing power,
administrative efficiencies, and flexibility in benefit
design. These are the same advantages long available to large
businesses.
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Small businesses are far less likely than
larger businesses to offer health benefits. In 1999 only 47
percent of firms with fewer than 50 employees offered health
benefits compared with 97 percent of larger firms. Some of the
most rapid increases in health insurance premiums in the last
few years have occurred in small businesses.
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So, why are AHPs important to the large
companies in WBGH?
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Any initiative such as AHPs that could
reduce the number of uninsured will be good in the long run
for WBGH’s companies and for the health care system in
general.
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To the extent that AHPs are successful in
reducing the number of uninsured who now receive uncompensated
care, AHPs will reduce health care costs. As you know, the
costs borne by those with insurance are often inflated through
the invisible tax of the “cost shift.”
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Secondly, to the extent that AHPs are
successful in bringing in new, healthy members who pay into
the premium pool, AHPs may exert downward pressure on health
care inflation.
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We believe that all these alphabetized
initiatives - HRAs, FSAs, MSAs and AHPs -- advance our goal to
make it easier for employers to adopt health plans with
patient-directed features, and to give employees more choice
and greater control over their health care coverage.
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Now, a few words about Medicare and retiree health issues.
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The rapidly rising cost of prescription drugs is of increasing
concern to large employers. One of the largest flaws in
Medicare coverage today is its failure to cover outpatient
prescription drugs. Approximately 98 percent of private health
insurance plans offer a prescription drug benefit or a cap on
out-of-pocket expenses as an integral part of the benefit
package. Drugs can often be cost-effective therapies
preventing the need for more expensive hospitalizations or
other intensive therapies.
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Coupled with a systematic effort to change the outmoded
Medicare program, the Administration is committed to urgently
needed Medicare modernization, including providing for an
integrated prescription drug plan.
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Although we have not succeeded in passing legislation, on
October 21, President Bush announced a new rule to lower
prescription drug costs by improving access to generic drugs.
The proposed rule is expected to lead to savings in drug costs
of over $3 billion per year for consumers.
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In addition to tackling Medicare reform, I expect the next
Congress to begin to grapple with the issue of retiree health.
I know many of you have been struggling with increased costs
at rates never seen before. Many of you have scaled back your
plans or are considering substantial design changes.
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A 2001 survey by Mercer Human Resource
Consulting reports that only 30 percent of large employers
with 500 or more employees offer retiree health benefits. In
1993, 46% of companies offered retiree health. For those
employers with between 10 and 499 employees, only eight
percent offered retiree health benefits.
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Health inflation data helps explain the
drop in coverage. Insurance coverage for early retirees rose
12% in 2001, and cost over $6600 per retiree. With the
requirements of FAS 106, accounting for retiree health
benefits is not a pretty picture on the balance sheet. The
lack of favorable tax treatment for pre-funding, and the
uncertainty caused by the Erie County case only adds to the
disincentives to offer retiree health. Frankly, it’s a
credit to your companies that you continue to struggle to
provide this benefit when every card in the deck is stacked
against you.
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Together we need to begin discussing
whether there are ways to make pre-funding of liabilities a
reality.
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Let me take a moment to talk about one of
the major drivers of increasing health care costs - the
medical liability system -- and what the Administration
proposes to do about it.
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A major contributor to rising health care
costs is a medical liability system that is broken.
Frivolous lawsuits, or the threat of them, are driving doctors
out of certain specialties because they can’t afford to
defend themselves. Doctors, hospitals and managed care
companies settle cases even though they have not committed a
medical error.
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And the unpredictability of our liability
system means that even frivolous cases carry the risk of
enormous verdicts. The fear of even baseless lawsuits causes
good doctors to order excessive tests and procedures and
treatments. If a doctor thinks he or she might be sued, he
does everything possible to protect himself. The costs of
defensive medicine are passed on to employees and employers -
and worse may threaten patient health.
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Towers Perrin estimated that frivolous
lawsuits added $179 billion to health care costs in 2000. We
must, of course, protect any injured patient's right to a fair
trial and fair compensation, including full compensation for
economic damages. At the same time, we must prevent excessive
awards that drive up costs, encourage frivolous lawsuits, and
promote drawn-out legal proceedings.
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This is why the President has proposed a
reasonable federal limit of $250,000 on non-economic damages
awarded in medical liability lawsuits, and a reasonable limit
on punitive damages. Such a reform would help control health
care inflation and reduce skyrocketing employer costs.
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Before I close, I do want mention a
priority of Secretary Chao’s: compliance assistance. She has
stressed the need for PWBA to educate and assist employers,
plan officials, service providers and others in achieving and
maintaining compliance with ERISA.
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I also want to mention a new outreach initiative to improve
the understanding of and compliance with HIPAA, mental health
parity, the Mothers’ and Newborns’ Act, and WHCRA. As some
of you may know, PWBA reviewed almost 1300 group health plans
in 2001 for compliance with Part 7.
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Our cooperative process identified common
problems and misunderstandings. We plan to publish the results
of our review in the next few weeks, at which time we will
also announce three new compliance assistance strategies to
help plan sponsors and service providers comply with these
health laws.
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First, PWBA will issue three new
publications, including a self-audit checklist and tips to
help plans avoid common errors. Second, the agency will
dedicate a section of our website exclusively to the new
health laws-including Frequently Asked Questions and other
guidance.
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PWBA also will participate in workshops
around the country where trained staff will meet with plan
administrators, employers, attorneys, consultants and service
providers to discuss the health laws and compliance issues.
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Let me close by saying that we share the
commitment to preserving and strengthening the quality of our
health care system while also increasing access to coverage
and care for all Americans.
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And I know that you are striving, every
day, to achieve the dual objectives of quality and
affordability. Your efforts are critical to the continued
success of the private health care system in our country.
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At the end of the day, we want as many
Americans as possible to have health insurance coverage. We
want them to be satisfied with that coverage and confident
that it will be there when they need it. And obviously, we
want it to be affordable to both the employer and employee.
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The challenge for the Administration, the
Congress and the WBGH is to strengthen employers’ ability to
deliver the benefits that workers depend upon - but to do it
in a way that does not diminish your willingness to
voluntarily offer plans for workers, retirees and their
families.
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