Joyce Frieden

The experience of the drug discount card program that Medicare beneficiaries participated in prior to the launch of the Medicare drug benefit offers some lessons for the Centers for Medicare and Medicaid Services, the Government Accountability Office said in two reports.

In its first report, the GAO said that although the Centers for Medicare and Medicaid Services (CMS) had identified and corrected some problems with the entities that sponsored the drug cards, it also "had some limitations with respect to the timeliness of oversight activities and the guidance provided to sponsors."

For instance, the report noted, "CMS finalized guidance on how drug card sponsors should report data on price concessions from manufacturers and pharmacies in November 2004, about 5 months after the program began. According to CMS, as of August 2005, the overall quality of that data remained questionable, with problems such as outliers and missing data."

The report also noted that a CMS contractor requested two preenrollment information packets from six drug card sponsors.

"All the packets were noncompliant with program requirements," the report said. "Most packets were missing materials required by CMS and some materials had not been previously approved for distribution by the CMS contractor. The contractor never received several requested packets." CMS told the GAO that it had worked with the sponsors to resolve the problems.

For its part, CMS said in a letter to the GAO that the report "did not paint a full picture of the depth and breadth of the actual monitoring and oversight activities." Dr. Mark B. McClellan, CMS administrator, acknowledged that with the discount card program, "we have learned many valuable lessons that will inform our future efforts as we plan for the drug benefit in 2006."

The second report looked at CMS's beneficiary and outreach education efforts for the discount card program. In general, the GAO found that "CMS's efforts did not consistently provide information that was clear, accurate, and accessible, and they collectively fell short of conveying program features." The report did add, however, that the GAO got this impression by looking at assessments that CMS has done on its own programs, and "these assessments acknowledge the actions taken by CMS to address some of these problems."

In spite of CMS's outreach efforts, the report said, "beneficiaries confused the drug card with the 2006 prescription drug benefit, and some beneficiaries did not enroll because they were under the impression that Medicare would be sending them a card. Furthermore, the concept of a private drug card sponsor was difficult for many beneficiaries to understand."

Beneficiaries also were confused about eligibility, the report said. "Many beneficiaries incorrectly thought that the drug card was only for low-income people, and those who likely qualified for the $600 in transitional assistance did not believe they qualified for it, even after having the income criteria explained to them," the report noted.

In response to the second report, Dr. McClellan said that it, like the first report, did not address the "full picture of the depth and breadth of the actual activities undertaken." The number of education and outreach activities was "unprecedented for a program of limited duration," he added.

As he did in responding to the first report, Dr. McClellan said that the lessons learned from this portion of the discount card program would be applied to the drug benefit. But he also added, "From a public service perspective, the most important question about the drug discount card is whether the program provided discounts and access to prescription drugs for any beneficiary who wanted help. The answer is yes, immediately."

The reports are available at www.gao.gov

The experience of the drug discount card program that Medicare beneficiaries participated in prior to the launch of the Medicare drug benefit offers some lessons for the Centers for Medicare and Medicaid Services, the Government Accountability Office said in two reports.

In its first report, the GAO said that although the Centers for Medicare and Medicaid Services (CMS) had identified and corrected some problems with the entities that sponsored the drug cards, it also "had some limitations with respect to the timeliness of oversight activities and the guidance provided to sponsors."

For instance, the report noted, "CMS finalized guidance on how drug card sponsors should report data on price concessions from manufacturers and pharmacies in November 2004, about 5 months after the program began. According to CMS, as of August 2005, the overall quality of that data remained questionable, with problems such as outliers and missing data."

The report also noted that a CMS contractor requested two preenrollment information packets from six drug card sponsors.

"All the packets were noncompliant with program requirements," the report said. "Most packets were missing materials required by CMS and some materials had not been previously approved for distribution by the CMS contractor. The contractor never received several requested packets." CMS told the GAO that it had worked with the sponsors to resolve the problems.

For its part, CMS said in a letter to the GAO that the report "did not paint a full picture of the depth and breadth of the actual monitoring and oversight activities." Dr. Mark B. McClellan, CMS administrator, acknowledged that with the discount card program, "we have learned many valuable lessons that will inform our future efforts as we plan for the drug benefit in 2006."

The second report looked at CMS's beneficiary and outreach education efforts for the discount card program. In general, the GAO found that "CMS's efforts did not consistently provide information that was clear, accurate, and accessible, and they collectively fell short of conveying program features." The report did add, however, that the GAO got this impression by looking at assessments that CMS has done on its own programs, and "these assessments acknowledge the actions taken by CMS to address some of these problems."

In spite of CMS's outreach efforts, the report said, "beneficiaries confused the drug card with the 2006 prescription drug benefit, and some beneficiaries did not enroll because they were under the impression that Medicare would be sending them a card. Furthermore, the concept of a private drug card sponsor was difficult for many beneficiaries to understand."

Beneficiaries also were confused about eligibility, the report said. "Many beneficiaries incorrectly thought that the drug card was only for low-income people, and those who likely qualified for the $600 in transitional assistance did not believe they qualified for it, even after having the income criteria explained to them," the report noted.

In response to the second report, Dr. McClellan said that it, like the first report, did not address the "full picture of the depth and breadth of the actual activities undertaken." The number of education and outreach activities was "unprecedented for a program of limited duration," he added.

As he did in responding to the first report, Dr. McClellan said that the lessons learned from this portion of the discount card program would be applied to the drug benefit. But he also added, "From a public service perspective, the most important question about the drug discount card is whether the program provided discounts and access to prescription drugs for any beneficiary who wanted help. The answer is yes, immediately."

The reports are available at www.gao.gov

The experience of the drug discount card program that Medicare beneficiaries participated in prior to the launch of the Medicare drug benefit offers some lessons for the Centers for Medicare and Medicaid Services, the Government Accountability Office said in two reports.

In its first report, the GAO said that although the Centers for Medicare and Medicaid Services (CMS) had identified and corrected some problems with the entities that sponsored the drug cards, it also "had some limitations with respect to the timeliness of oversight activities and the guidance provided to sponsors."

For instance, the report noted, "CMS finalized guidance on how drug card sponsors should report data on price concessions from manufacturers and pharmacies in November 2004, about 5 months after the program began. According to CMS, as of August 2005, the overall quality of that data remained questionable, with problems such as outliers and missing data."

The report also noted that a CMS contractor requested two preenrollment information packets from six drug card sponsors.

"All the packets were noncompliant with program requirements," the report said. "Most packets were missing materials required by CMS and some materials had not been previously approved for distribution by the CMS contractor. The contractor never received several requested packets." CMS told the GAO that it had worked with the sponsors to resolve the problems.

For its part, CMS said in a letter to the GAO that the report "did not paint a full picture of the depth and breadth of the actual monitoring and oversight activities." Dr. Mark B. McClellan, CMS administrator, acknowledged that with the discount card program, "we have learned many valuable lessons that will inform our future efforts as we plan for the drug benefit in 2006."

The second report looked at CMS's beneficiary and outreach education efforts for the discount card program. In general, the GAO found that "CMS's efforts did not consistently provide information that was clear, accurate, and accessible, and they collectively fell short of conveying program features." The report did add, however, that the GAO got this impression by looking at assessments that CMS has done on its own programs, and "these assessments acknowledge the actions taken by CMS to address some of these problems."

In spite of CMS's outreach efforts, the report said, "beneficiaries confused the drug card with the 2006 prescription drug benefit, and some beneficiaries did not enroll because they were under the impression that Medicare would be sending them a card. Furthermore, the concept of a private drug card sponsor was difficult for many beneficiaries to understand."

Beneficiaries also were confused about eligibility, the report said. "Many beneficiaries incorrectly thought that the drug card was only for low-income people, and those who likely qualified for the $600 in transitional assistance did not believe they qualified for it, even after having the income criteria explained to them," the report noted.

In response to the second report, Dr. McClellan said that it, like the first report, did not address the "full picture of the depth and breadth of the actual activities undertaken." The number of education and outreach activities was "unprecedented for a program of limited duration," he added.

As he did in responding to the first report, Dr. McClellan said that the lessons learned from this portion of the discount card program would be applied to the drug benefit. But he also added, "From a public service perspective, the most important question about the drug discount card is whether the program provided discounts and access to prescription drugs for any beneficiary who wanted help. The answer is yes, immediately."

The reports are available at www.gao.gov

As President Bush puts health savings accounts higher on his agenda, experts continue to debate whether they are a good idea for solving the problems of the uninsured.

"The more I think about these proposals, the more troubling I find them to be," Leonard Burman, codirector of the Urban-Brookings Tax Policy Center, said in a teleconference sponsored by the Center on Budget and Policy Priorities (CBPP). "I don't think the idea [that people will be more cost conscious] is really going to play out."

Health savings accounts (HSAs) are accounts that employees contribute to in order to pay for the first several thousand dollars of their health care costs. The accounts are almost always combined with a high-deductible health insurance plan. Contributions to the HSA are tax free, as is money that is withdrawn from the account for covered medical expenses. If the money is not used in a particular year, it can accumulate in the account.

The Galen Institute, an organization that supports consumer-driven health care, has a more positive view of HSAs.

"HSAs give consumers even more control over their health spending decisions—and provide them an incentive to spend wisely and save for future health care needs," according to a statement from Galen.

Critics argue that sick people are not always in a position to shop around for care; that making consumers more cost conscious won't help lower health care costs because most health care spending is for expenses higher than the amount of the deductible, which is out of the consumers' control; and that HSAs tend to attract mostly healthy people, driving up premiums for sicker individuals who remain in more traditional plans.

President Bush highlighted HSAs in his State of the Union address, vowing to "strengthen health savings accounts—making sure individuals and small business employees can buy insurance with the same advantages that people working for big businesses now get."

In a more detailed statement, White House officials said that the president "proposes making premiums for HSA-compatible insurance policies deductible from income taxes when [these policies are] purchased by individuals outside of work. In addition, an income tax credit would offset payroll taxes paid on premiums paid for their HSA policies."

The president is also proposing to allow any spending on out-of-pocket health expenses incurred by HSA enrollees—up to $10,500 per family—to be tax free, not just expenses pertaining to the deductible, as allowed under current law.

Such changes would make HSAs even more tempting to some people, said Jason Furman, senior fellow at the CBPP. "HSAs are already an unprecedentedly favored tax vehicle. This proposal now takes a system already tilted and adds a new tax credit."

If enacted, these proposals could make HSAs so attractive financially that they could begin to rival 401(k) plans as retirement savings vehicles, Mr. Furman said.

For example, suppose a family in a 25% tax bracket contributed the maximum $10,500 to an HSA that is invested at a 3% interest rate. Under the president's proposal, they would owe a payroll tax of $1,607, but they would also get a tax credit for that amount, so the entire $10,500 would stay in the account. If they contributed the same amount into a 401(k), they would still owe the payroll tax, but would not get a tax credit, so only $8,893 would be deposited into the 401(k) account. As a result, the HSA account would end up with $25,486 in it by 2036, versus $21,587 for the 401(k), Mr. Furman said.

With such results, "a lot of employers who offer 401(k) plans would have a lot less of an incentive to," he added. "Their employees could go on their own and get a much better deal from an HSA than from a 401(k), and avoid nondiscrimination rules." The payroll taxes that HSA account holders no longer have to pay would also put a dent in the federal budget, Mr. Furman said.

Barry Barnett, a principal in PricewaterhouseCoopers' human resource solutions practice, acknowledged that the proposal would result in substantial tax incentives, but said he did not think that employers were going to get rid of their 401(k) offerings because of it.

Ever since employers have switched to defined contribution retirement plans, "there has been enough noise in the system by employees feeling they've lost the entitlement to a defined benefit plan in retirement," Mr. Barnett said. "If employers start canceling 401(k) plans and instead offer HSAs, I think there will be a major outcry by employees and Congress or some other body of people saying, 'There's got to be some form of retirement benefit,' especially as the government tries to cut back on Social Security entitlements and Medicare entitlements as the president is talking about."

A recent report from the Government Accountability Office found that federal employees who enrolled in the government's high-deductible health plan combined with an HSA were more likely to be younger and to earn higher salaries than were employees who did not enroll in the plans. The report did not compare the health status of HSA enrollees with that of other federal employees.

As President Bush puts health savings accounts higher on his agenda, experts continue to debate whether they are a good idea for solving the problems of the uninsured.

"The more I think about these proposals, the more troubling I find them to be," Leonard Burman, codirector of the Urban-Brookings Tax Policy Center, said in a teleconference sponsored by the Center on Budget and Policy Priorities (CBPP). "I don't think the idea [that people will be more cost conscious] is really going to play out."

Health savings accounts (HSAs) are accounts that employees contribute to in order to pay for the first several thousand dollars of their health care costs. The accounts are almost always combined with a high-deductible health insurance plan. Contributions to the HSA are tax free, as is money that is withdrawn from the account for covered medical expenses. If the money is not used in a particular year, it can accumulate in the account.

The Galen Institute, an organization that supports consumer-driven health care, has a more positive view of HSAs.

"HSAs give consumers even more control over their health spending decisions—and provide them an incentive to spend wisely and save for future health care needs," according to a statement from Galen.

Critics argue that sick people are not always in a position to shop around for care; that making consumers more cost conscious won't help lower health care costs because most health care spending is for expenses higher than the amount of the deductible, which is out of the consumers' control; and that HSAs tend to attract mostly healthy people, driving up premiums for sicker individuals who remain in more traditional plans.

President Bush highlighted HSAs in his State of the Union address, vowing to "strengthen health savings accounts—making sure individuals and small business employees can buy insurance with the same advantages that people working for big businesses now get."

In a more detailed statement, White House officials said that the president "proposes making premiums for HSA-compatible insurance policies deductible from income taxes when [these policies are] purchased by individuals outside of work. In addition, an income tax credit would offset payroll taxes paid on premiums paid for their HSA policies."

The president is also proposing to allow any spending on out-of-pocket health expenses incurred by HSA enrollees—up to $10,500 per family—to be tax free, not just expenses pertaining to the deductible, as allowed under current law.

Such changes would make HSAs even more tempting to some people, said Jason Furman, senior fellow at the CBPP. "HSAs are already an unprecedentedly favored tax vehicle. This proposal now takes a system already tilted and adds a new tax credit."

If enacted, these proposals could make HSAs so attractive financially that they could begin to rival 401(k) plans as retirement savings vehicles, Mr. Furman said.

For example, suppose a family in a 25% tax bracket contributed the maximum $10,500 to an HSA that is invested at a 3% interest rate. Under the president's proposal, they would owe a payroll tax of $1,607, but they would also get a tax credit for that amount, so the entire $10,500 would stay in the account. If they contributed the same amount into a 401(k), they would still owe the payroll tax, but would not get a tax credit, so only $8,893 would be deposited into the 401(k) account. As a result, the HSA account would end up with $25,486 in it by 2036, versus $21,587 for the 401(k), Mr. Furman said.

With such results, "a lot of employers who offer 401(k) plans would have a lot less of an incentive to," he added. "Their employees could go on their own and get a much better deal from an HSA than from a 401(k), and avoid nondiscrimination rules." The payroll taxes that HSA account holders no longer have to pay would also put a dent in the federal budget, Mr. Furman said.

Barry Barnett, a principal in PricewaterhouseCoopers' human resource solutions practice, acknowledged that the proposal would result in substantial tax incentives, but said he did not think that employers were going to get rid of their 401(k) offerings because of it.

Ever since employers have switched to defined contribution retirement plans, "there has been enough noise in the system by employees feeling they've lost the entitlement to a defined benefit plan in retirement," Mr. Barnett said. "If employers start canceling 401(k) plans and instead offer HSAs, I think there will be a major outcry by employees and Congress or some other body of people saying, 'There's got to be some form of retirement benefit,' especially as the government tries to cut back on Social Security entitlements and Medicare entitlements as the president is talking about."

A recent report from the Government Accountability Office found that federal employees who enrolled in the government's high-deductible health plan combined with an HSA were more likely to be younger and to earn higher salaries than were employees who did not enroll in the plans. The report did not compare the health status of HSA enrollees with that of other federal employees.

As President Bush puts health savings accounts higher on his agenda, experts continue to debate whether they are a good idea for solving the problems of the uninsured.

"The more I think about these proposals, the more troubling I find them to be," Leonard Burman, codirector of the Urban-Brookings Tax Policy Center, said in a teleconference sponsored by the Center on Budget and Policy Priorities (CBPP). "I don't think the idea [that people will be more cost conscious] is really going to play out."

Health savings accounts (HSAs) are accounts that employees contribute to in order to pay for the first several thousand dollars of their health care costs. The accounts are almost always combined with a high-deductible health insurance plan. Contributions to the HSA are tax free, as is money that is withdrawn from the account for covered medical expenses. If the money is not used in a particular year, it can accumulate in the account.

The Galen Institute, an organization that supports consumer-driven health care, has a more positive view of HSAs.

"HSAs give consumers even more control over their health spending decisions—and provide them an incentive to spend wisely and save for future health care needs," according to a statement from Galen.

Critics argue that sick people are not always in a position to shop around for care; that making consumers more cost conscious won't help lower health care costs because most health care spending is for expenses higher than the amount of the deductible, which is out of the consumers' control; and that HSAs tend to attract mostly healthy people, driving up premiums for sicker individuals who remain in more traditional plans.

President Bush highlighted HSAs in his State of the Union address, vowing to "strengthen health savings accounts—making sure individuals and small business employees can buy insurance with the same advantages that people working for big businesses now get."

In a more detailed statement, White House officials said that the president "proposes making premiums for HSA-compatible insurance policies deductible from income taxes when [these policies are] purchased by individuals outside of work. In addition, an income tax credit would offset payroll taxes paid on premiums paid for their HSA policies."

The president is also proposing to allow any spending on out-of-pocket health expenses incurred by HSA enrollees—up to $10,500 per family—to be tax free, not just expenses pertaining to the deductible, as allowed under current law.

Such changes would make HSAs even more tempting to some people, said Jason Furman, senior fellow at the CBPP. "HSAs are already an unprecedentedly favored tax vehicle. This proposal now takes a system already tilted and adds a new tax credit."

If enacted, these proposals could make HSAs so attractive financially that they could begin to rival 401(k) plans as retirement savings vehicles, Mr. Furman said.

For example, suppose a family in a 25% tax bracket contributed the maximum $10,500 to an HSA that is invested at a 3% interest rate. Under the president's proposal, they would owe a payroll tax of $1,607, but they would also get a tax credit for that amount, so the entire $10,500 would stay in the account. If they contributed the same amount into a 401(k), they would still owe the payroll tax, but would not get a tax credit, so only $8,893 would be deposited into the 401(k) account. As a result, the HSA account would end up with $25,486 in it by 2036, versus $21,587 for the 401(k), Mr. Furman said.

With such results, "a lot of employers who offer 401(k) plans would have a lot less of an incentive to," he added. "Their employees could go on their own and get a much better deal from an HSA than from a 401(k), and avoid nondiscrimination rules." The payroll taxes that HSA account holders no longer have to pay would also put a dent in the federal budget, Mr. Furman said.

Barry Barnett, a principal in PricewaterhouseCoopers' human resource solutions practice, acknowledged that the proposal would result in substantial tax incentives, but said he did not think that employers were going to get rid of their 401(k) offerings because of it.

Ever since employers have switched to defined contribution retirement plans, "there has been enough noise in the system by employees feeling they've lost the entitlement to a defined benefit plan in retirement," Mr. Barnett said. "If employers start canceling 401(k) plans and instead offer HSAs, I think there will be a major outcry by employees and Congress or some other body of people saying, 'There's got to be some form of retirement benefit,' especially as the government tries to cut back on Social Security entitlements and Medicare entitlements as the president is talking about."

A recent report from the Government Accountability Office found that federal employees who enrolled in the government's high-deductible health plan combined with an HSA were more likely to be younger and to earn higher salaries than were employees who did not enroll in the plans. The report did not compare the health status of HSA enrollees with that of other federal employees.

WASHINGTON — The costs of malpractice insurance and defensive medicine account for about 10 cents of every dollar spent on health care premiums, several speakers said at a press briefing sponsored by America's Health Insurance Plans.

Medical liability and defensive medicine represented the lion's share of cost increases in both the physician and outpatient areas, Michael Thompson, principal at the New York office of Pricewaterhouse- Coopers, said at the briefing.

Litigation and defensive medicine also accounted for about a third of the costs associated with poor-quality health care, said Mr. Thompson, noting that the cost of poor-quality care was spread throughout the health care system.

According to AHIP President Karen Ignagni, efforts must be made to reduce the amount of poor-quality care being given. “We have a system where 45% of what's being done is not best practice,” she said. “No public or private entity could operate at that rate.”

Overall, the rate of increase in health care premiums was 8.8% in 2004–2005, down significantly from 13.7% in 2001–2002, noted Jack Rodgers, managing director at PricewaterhouseCoopers. One factor contributing to the slowdown was a decrease in the rate of cost increases for prescription drugs, according to Mr. Thompson. “It's now trending in line with overall premiums,” he said.

Part of the reason for that decrease is employers' increasing use of three-tiered or four-tiered drug programs, in which patients pay a larger share for brand-name drugs, especially if there are generic equivalents. In 2000, only 27% of patients were in drug plans with three or more tiers; in 2004, the figure was 68%, he said.

In addition, cost trends were helped by a drop in the number of state mandates that are being added each year, from 80 in 2000 to less than 40 in 2004, Mr. Thompson said.

Outpatient costs rose significantly last year, Mr. Rodgers said. “Those are the services that are really growing rapidly.” The increase in outpatient services accounted for more than a third of the 8.8% increase in premiums, he noted.

Despite these problems, Mr. Thompson said in an interview that he did not expect premium increases to go higher next year. “We're looking at the same number or maybe a little lower,” he predicted. Part of the stabilization will likely be due to consumers having to pay more for their health care costs and becoming more aware of prices as a result, he added.

WASHINGTON — The costs of malpractice insurance and defensive medicine account for about 10 cents of every dollar spent on health care premiums, several speakers said at a press briefing sponsored by America's Health Insurance Plans.

Medical liability and defensive medicine represented the lion's share of cost increases in both the physician and outpatient areas, Michael Thompson, principal at the New York office of Pricewaterhouse- Coopers, said at the briefing.

Litigation and defensive medicine also accounted for about a third of the costs associated with poor-quality health care, said Mr. Thompson, noting that the cost of poor-quality care was spread throughout the health care system.

According to AHIP President Karen Ignagni, efforts must be made to reduce the amount of poor-quality care being given. “We have a system where 45% of what's being done is not best practice,” she said. “No public or private entity could operate at that rate.”

Overall, the rate of increase in health care premiums was 8.8% in 2004–2005, down significantly from 13.7% in 2001–2002, noted Jack Rodgers, managing director at PricewaterhouseCoopers. One factor contributing to the slowdown was a decrease in the rate of cost increases for prescription drugs, according to Mr. Thompson. “It's now trending in line with overall premiums,” he said.

Part of the reason for that decrease is employers' increasing use of three-tiered or four-tiered drug programs, in which patients pay a larger share for brand-name drugs, especially if there are generic equivalents. In 2000, only 27% of patients were in drug plans with three or more tiers; in 2004, the figure was 68%, he said.

In addition, cost trends were helped by a drop in the number of state mandates that are being added each year, from 80 in 2000 to less than 40 in 2004, Mr. Thompson said.

Outpatient costs rose significantly last year, Mr. Rodgers said. “Those are the services that are really growing rapidly.” The increase in outpatient services accounted for more than a third of the 8.8% increase in premiums, he noted.

Despite these problems, Mr. Thompson said in an interview that he did not expect premium increases to go higher next year. “We're looking at the same number or maybe a little lower,” he predicted. Part of the stabilization will likely be due to consumers having to pay more for their health care costs and becoming more aware of prices as a result, he added.

WASHINGTON — The costs of malpractice insurance and defensive medicine account for about 10 cents of every dollar spent on health care premiums, several speakers said at a press briefing sponsored by America's Health Insurance Plans.

Medical liability and defensive medicine represented the lion's share of cost increases in both the physician and outpatient areas, Michael Thompson, principal at the New York office of Pricewaterhouse- Coopers, said at the briefing.

Litigation and defensive medicine also accounted for about a third of the costs associated with poor-quality health care, said Mr. Thompson, noting that the cost of poor-quality care was spread throughout the health care system.

According to AHIP President Karen Ignagni, efforts must be made to reduce the amount of poor-quality care being given. “We have a system where 45% of what's being done is not best practice,” she said. “No public or private entity could operate at that rate.”

Overall, the rate of increase in health care premiums was 8.8% in 2004–2005, down significantly from 13.7% in 2001–2002, noted Jack Rodgers, managing director at PricewaterhouseCoopers. One factor contributing to the slowdown was a decrease in the rate of cost increases for prescription drugs, according to Mr. Thompson. “It's now trending in line with overall premiums,” he said.

Part of the reason for that decrease is employers' increasing use of three-tiered or four-tiered drug programs, in which patients pay a larger share for brand-name drugs, especially if there are generic equivalents. In 2000, only 27% of patients were in drug plans with three or more tiers; in 2004, the figure was 68%, he said.

In addition, cost trends were helped by a drop in the number of state mandates that are being added each year, from 80 in 2000 to less than 40 in 2004, Mr. Thompson said.

Outpatient costs rose significantly last year, Mr. Rodgers said. “Those are the services that are really growing rapidly.” The increase in outpatient services accounted for more than a third of the 8.8% increase in premiums, he noted.

Despite these problems, Mr. Thompson said in an interview that he did not expect premium increases to go higher next year. “We're looking at the same number or maybe a little lower,” he predicted. Part of the stabilization will likely be due to consumers having to pay more for their health care costs and becoming more aware of prices as a result, he added.

WASHINGTON — Does your Medicare patient need a prescription for a drug not on his or her drug plan formulary? Be warned: You may have to fill out pages of forms.

“There continue to be widespread reports of drug plans requiring prior authorization for beneficiaries to receive needed medication,” Sen. Hillary Clinton (D-N.Y.) said during a hearing of the U.S. Senate Special Committee on Aging. “Some reports have plans requiring forms for each drug, while others are requiring doctors to fill out forms as long as 14 pages for drugs that a beneficiary has been taking for years.”

Addressing her remarks to Dr. Mark B. McClellan, administrator of the Centers for Medicare and Medicaid Services and the hearing's first witness, Sen. Clinton continued, “Your agency's request that plans discontinue this practice does not seem to be working, based on the information we have. I hope that you will require, not request, require that the plans cease this practice and enforce that requirement.”

In his prepared testimony, Dr. McClellan told the committee that CMS has “developed specific procedures for timely exceptions and appeals. Using those procedures, a Medicare beneficiary can get coverage for a drug that is not on a plan's established formulary.”

He also acknowledged, however, that the plan rollout was not without problems. “We make no excuses for these problems,” he told committee members. “They are important, they are ours to solve, and we are finding and fixing them.”

Many of the problems with getting prescriptions filled occurred in the dual-eligible population—patients who qualified for both Medicare and Medicaid. “These often are the poorest and most vulnerable Americans who rely on medications to manage their chronic physical and mental illnesses,” noted committee chairman Gordon Smith (R-Ore.). “We knew there would be challenges associated with their transition from Medicaid into the new Medicare drug benefit, but it seems that perhaps not enough was done to ensure a seamless transition.”

As a result of the problems with the drug benefit, “pharmacists are not getting paid on time and have to take out loans to pay their bills and keep their doors open,” said committee member Blanche Lincoln (D-Ark.). “These problems could have been avoided.”

Sen. Clinton said the problems were so bad that she was ready to give up. “I for one believe we should scrap this and start over. We are spending hundreds of billions of dollars on an inefficient delivery of a plan that could be done in a much more cost-effective way,” she said.

But Sen. Rick Santorum (R-Pa.) disagreed. “Throwing it out would doom seniors to a situation where they would be getting less care than they are today,” he said. “We should not be flippant about casting out babies with bathwaters. The idea that we're going to once again play politics with prescription drugs … is below the dignity of this committee.”

Committee member Conrad Burns (R-Mont.) also weighed in. “We Americans are in this business that everything has to be instant—tea, coffee, everything that we do, and we're supposed to have a new program put in place and all at once it's perfect,” he said. “I would ask my colleagues [to just] get the program in place; that serves our purpose, and then we know what to fix. Right now, we don't know what to fix.”

One thing Sen. Smith said he wants to change about Medicare is the program's requirement that dual-eligible patients living at home or in an assisted living facility pay copayments for drugs received under the program; currently, only dual-eligible patients in nursing homes are exempt from copayments. Sen. Smith introduced a bill eliminating such copayments for dual-eligible patients in home- or community-based care; the measure, cosponsored by Sen. Jeff Bingaman (D-N.M.) was still being considered at press time.

WASHINGTON — Does your Medicare patient need a prescription for a drug not on his or her drug plan formulary? Be warned: You may have to fill out pages of forms.

“There continue to be widespread reports of drug plans requiring prior authorization for beneficiaries to receive needed medication,” Sen. Hillary Clinton (D-N.Y.) said during a hearing of the U.S. Senate Special Committee on Aging. “Some reports have plans requiring forms for each drug, while others are requiring doctors to fill out forms as long as 14 pages for drugs that a beneficiary has been taking for years.”

Addressing her remarks to Dr. Mark B. McClellan, administrator of the Centers for Medicare and Medicaid Services and the hearing's first witness, Sen. Clinton continued, “Your agency's request that plans discontinue this practice does not seem to be working, based on the information we have. I hope that you will require, not request, require that the plans cease this practice and enforce that requirement.”

In his prepared testimony, Dr. McClellan told the committee that CMS has “developed specific procedures for timely exceptions and appeals. Using those procedures, a Medicare beneficiary can get coverage for a drug that is not on a plan's established formulary.”

He also acknowledged, however, that the plan rollout was not without problems. “We make no excuses for these problems,” he told committee members. “They are important, they are ours to solve, and we are finding and fixing them.”

Many of the problems with getting prescriptions filled occurred in the dual-eligible population—patients who qualified for both Medicare and Medicaid. “These often are the poorest and most vulnerable Americans who rely on medications to manage their chronic physical and mental illnesses,” noted committee chairman Gordon Smith (R-Ore.). “We knew there would be challenges associated with their transition from Medicaid into the new Medicare drug benefit, but it seems that perhaps not enough was done to ensure a seamless transition.”

As a result of the problems with the drug benefit, “pharmacists are not getting paid on time and have to take out loans to pay their bills and keep their doors open,” said committee member Blanche Lincoln (D-Ark.). “These problems could have been avoided.”

Sen. Clinton said the problems were so bad that she was ready to give up. “I for one believe we should scrap this and start over. We are spending hundreds of billions of dollars on an inefficient delivery of a plan that could be done in a much more cost-effective way,” she said.

But Sen. Rick Santorum (R-Pa.) disagreed. “Throwing it out would doom seniors to a situation where they would be getting less care than they are today,” he said. “We should not be flippant about casting out babies with bathwaters. The idea that we're going to once again play politics with prescription drugs … is below the dignity of this committee.”

Committee member Conrad Burns (R-Mont.) also weighed in. “We Americans are in this business that everything has to be instant—tea, coffee, everything that we do, and we're supposed to have a new program put in place and all at once it's perfect,” he said. “I would ask my colleagues [to just] get the program in place; that serves our purpose, and then we know what to fix. Right now, we don't know what to fix.”

One thing Sen. Smith said he wants to change about Medicare is the program's requirement that dual-eligible patients living at home or in an assisted living facility pay copayments for drugs received under the program; currently, only dual-eligible patients in nursing homes are exempt from copayments. Sen. Smith introduced a bill eliminating such copayments for dual-eligible patients in home- or community-based care; the measure, cosponsored by Sen. Jeff Bingaman (D-N.M.) was still being considered at press time.

WASHINGTON — Does your Medicare patient need a prescription for a drug not on his or her drug plan formulary? Be warned: You may have to fill out pages of forms.

“There continue to be widespread reports of drug plans requiring prior authorization for beneficiaries to receive needed medication,” Sen. Hillary Clinton (D-N.Y.) said during a hearing of the U.S. Senate Special Committee on Aging. “Some reports have plans requiring forms for each drug, while others are requiring doctors to fill out forms as long as 14 pages for drugs that a beneficiary has been taking for years.”

Addressing her remarks to Dr. Mark B. McClellan, administrator of the Centers for Medicare and Medicaid Services and the hearing's first witness, Sen. Clinton continued, “Your agency's request that plans discontinue this practice does not seem to be working, based on the information we have. I hope that you will require, not request, require that the plans cease this practice and enforce that requirement.”

In his prepared testimony, Dr. McClellan told the committee that CMS has “developed specific procedures for timely exceptions and appeals. Using those procedures, a Medicare beneficiary can get coverage for a drug that is not on a plan's established formulary.”

He also acknowledged, however, that the plan rollout was not without problems. “We make no excuses for these problems,” he told committee members. “They are important, they are ours to solve, and we are finding and fixing them.”

Many of the problems with getting prescriptions filled occurred in the dual-eligible population—patients who qualified for both Medicare and Medicaid. “These often are the poorest and most vulnerable Americans who rely on medications to manage their chronic physical and mental illnesses,” noted committee chairman Gordon Smith (R-Ore.). “We knew there would be challenges associated with their transition from Medicaid into the new Medicare drug benefit, but it seems that perhaps not enough was done to ensure a seamless transition.”

As a result of the problems with the drug benefit, “pharmacists are not getting paid on time and have to take out loans to pay their bills and keep their doors open,” said committee member Blanche Lincoln (D-Ark.). “These problems could have been avoided.”

Sen. Clinton said the problems were so bad that she was ready to give up. “I for one believe we should scrap this and start over. We are spending hundreds of billions of dollars on an inefficient delivery of a plan that could be done in a much more cost-effective way,” she said.

But Sen. Rick Santorum (R-Pa.) disagreed. “Throwing it out would doom seniors to a situation where they would be getting less care than they are today,” he said. “We should not be flippant about casting out babies with bathwaters. The idea that we're going to once again play politics with prescription drugs … is below the dignity of this committee.”

Committee member Conrad Burns (R-Mont.) also weighed in. “We Americans are in this business that everything has to be instant—tea, coffee, everything that we do, and we're supposed to have a new program put in place and all at once it's perfect,” he said. “I would ask my colleagues [to just] get the program in place; that serves our purpose, and then we know what to fix. Right now, we don't know what to fix.”

One thing Sen. Smith said he wants to change about Medicare is the program's requirement that dual-eligible patients living at home or in an assisted living facility pay copayments for drugs received under the program; currently, only dual-eligible patients in nursing homes are exempt from copayments. Sen. Smith introduced a bill eliminating such copayments for dual-eligible patients in home- or community-based care; the measure, cosponsored by Sen. Jeff Bingaman (D-N.M.) was still being considered at press time.

As President Bush puts health savings accounts higher on his agenda, experts continue to debate whether they are a good idea for solving the problems of the uninsured.

“The more I think about these proposals, the more troubling I find them to be,” Leonard Burman, codirector of the Urban-Brookings Tax Policy Center, said in a teleconference sponsored by the Center on Budget and Policy Priorities (CBPP). “I don't think the idea [that people will be more cost conscious] is really going to play out.”

Health savings accounts (HSAs) are accounts to which employees contribute funds in order to pay for the first several thousand dollars of their health care costs. The accounts are almost always combined with a high-deductible health insurance plan. Contributions to the HSA are tax free, as is money withdrawn for covered medical expenses. If the money contributed is not spent within a particular year, it can accumulate in the account.

The Galen Institute, an organization that supports consumer-driven health care, has a more positive view of HSAs. “HSAs give consumers even more control over their health spending decisions—and provide them an incentive to spend wisely and save for future health care needs,” according to a statement from Galen.

Critics argue that sick people are not always in a position to shop around for care; that making consumers more cost conscious won't help lower health care costs because most health care spending is for expenses higher than the amount of the deductible, which is out of the consumer's control; and that HSAs tend to attract mostly healthy people, driving up premiums for sicker individuals who remain in more traditional plans.

President Bush highlighted HSAs in his State of the Union address, vowing to “strengthen health savings accounts—making sure individuals and small business employees can buy insurance with the same advantages that people working for big businesses now get.”

In a more detailed statement, White House officials said that the president “proposes making premiums for HSA-compatible insurance policies deductible from income taxes when [these policies are] purchased by individuals outside of work. In addition, an income tax credit would offset payroll taxes paid on premiums paid for their HSA policies.”

The president is also proposing to allow any spending on out-of-pocket health expenses incurred by HSA enrollees—up to $10,500 per family—to be tax free, not just expenses pertaining to the deductible, as allowed under current law.

Such changes would make HSAs even more tempting to some people, said Jason Furman, senior fellow at the CBPP. “HSAs are already an unprecedentedly favored tax vehicle. This proposal now takes a system already tilted and adds a new tax credit,” he said.

If these proposals are ultimately enacted, they could make HSAs so financially attractive that they could begin to rival 401(k) plans as retirement savings vehicles, Mr. Furman said.

For example, suppose a family in a 25% tax bracket contributed the maximum $10,500 to an HSA that is invested at a 3% interest rate. Under the president's proposal, they would owe a payroll tax of $1,607, but they would also get a tax credit for that amount, so the entire $10,500 would stay in the account. If they contributed the same amount into a 401(k), they would still owe the payroll tax, but would not get a tax credit, so only $8,893 would be deposited into the 401(k) account. As a result, the HSA account would end up with $25,486 in it by 2036, versus $21,587 for the 401(k), Mr. Furman said.

With such results, “a lot of employers who offer 401(k) plans would have a lot less of an incentive to,” he added. “Their employees could go on their own and get a much better deal from an HSA than from a 401(k), and avoid nondiscrimination rules.” The payroll taxes that HSA account holders no longer have to pay would also put a dent in the federal budget, Mr. Furman said.

Barry Barnett, a principal in PriceWaterhouseCoopers' human resource solutions practice, acknowledged that the proposal would result in substantial tax incentives, but he said he did not think that employers were going to get rid of their 401(k) offerings because of it.

Ever since employers have switched to defined contribution retirement plans, “there has been enough noise in the system by employees feeling they've lost the entitlement to a defined benefit plan in retirement,” Mr. Barnett said. “If employers start canceling 401(k) plans and instead offer HSAs, I think there will be a major outcry by employees and Congress or some other body of people saying, 'There's got to be some form of retirement benefit,' especially as the government tries to cut back on Social Security entitlements and Medicare entitlements as the president is talking about.”

A recent report from the Government Accountability Office found that federal employees who enrolled in the government's high-deductible health plan combined with an HSA were more likely to be younger and to earn higher salaries than were employees who did not enroll in the plans. The report did not compare the health status of HSA enrollees with that of other federal employees.

As President Bush puts health savings accounts higher on his agenda, experts continue to debate whether they are a good idea for solving the problems of the uninsured.

“The more I think about these proposals, the more troubling I find them to be,” Leonard Burman, codirector of the Urban-Brookings Tax Policy Center, said in a teleconference sponsored by the Center on Budget and Policy Priorities (CBPP). “I don't think the idea [that people will be more cost conscious] is really going to play out.”

Health savings accounts (HSAs) are accounts to which employees contribute funds in order to pay for the first several thousand dollars of their health care costs. The accounts are almost always combined with a high-deductible health insurance plan. Contributions to the HSA are tax free, as is money withdrawn for covered medical expenses. If the money contributed is not spent within a particular year, it can accumulate in the account.

The Galen Institute, an organization that supports consumer-driven health care, has a more positive view of HSAs. “HSAs give consumers even more control over their health spending decisions—and provide them an incentive to spend wisely and save for future health care needs,” according to a statement from Galen.

Critics argue that sick people are not always in a position to shop around for care; that making consumers more cost conscious won't help lower health care costs because most health care spending is for expenses higher than the amount of the deductible, which is out of the consumer's control; and that HSAs tend to attract mostly healthy people, driving up premiums for sicker individuals who remain in more traditional plans.

President Bush highlighted HSAs in his State of the Union address, vowing to “strengthen health savings accounts—making sure individuals and small business employees can buy insurance with the same advantages that people working for big businesses now get.”

In a more detailed statement, White House officials said that the president “proposes making premiums for HSA-compatible insurance policies deductible from income taxes when [these policies are] purchased by individuals outside of work. In addition, an income tax credit would offset payroll taxes paid on premiums paid for their HSA policies.”

The president is also proposing to allow any spending on out-of-pocket health expenses incurred by HSA enrollees—up to $10,500 per family—to be tax free, not just expenses pertaining to the deductible, as allowed under current law.

Such changes would make HSAs even more tempting to some people, said Jason Furman, senior fellow at the CBPP. “HSAs are already an unprecedentedly favored tax vehicle. This proposal now takes a system already tilted and adds a new tax credit,” he said.

If these proposals are ultimately enacted, they could make HSAs so financially attractive that they could begin to rival 401(k) plans as retirement savings vehicles, Mr. Furman said.

For example, suppose a family in a 25% tax bracket contributed the maximum $10,500 to an HSA that is invested at a 3% interest rate. Under the president's proposal, they would owe a payroll tax of $1,607, but they would also get a tax credit for that amount, so the entire $10,500 would stay in the account. If they contributed the same amount into a 401(k), they would still owe the payroll tax, but would not get a tax credit, so only $8,893 would be deposited into the 401(k) account. As a result, the HSA account would end up with $25,486 in it by 2036, versus $21,587 for the 401(k), Mr. Furman said.

With such results, “a lot of employers who offer 401(k) plans would have a lot less of an incentive to,” he added. “Their employees could go on their own and get a much better deal from an HSA than from a 401(k), and avoid nondiscrimination rules.” The payroll taxes that HSA account holders no longer have to pay would also put a dent in the federal budget, Mr. Furman said.

Barry Barnett, a principal in PriceWaterhouseCoopers' human resource solutions practice, acknowledged that the proposal would result in substantial tax incentives, but he said he did not think that employers were going to get rid of their 401(k) offerings because of it.

Ever since employers have switched to defined contribution retirement plans, “there has been enough noise in the system by employees feeling they've lost the entitlement to a defined benefit plan in retirement,” Mr. Barnett said. “If employers start canceling 401(k) plans and instead offer HSAs, I think there will be a major outcry by employees and Congress or some other body of people saying, 'There's got to be some form of retirement benefit,' especially as the government tries to cut back on Social Security entitlements and Medicare entitlements as the president is talking about.”

A recent report from the Government Accountability Office found that federal employees who enrolled in the government's high-deductible health plan combined with an HSA were more likely to be younger and to earn higher salaries than were employees who did not enroll in the plans. The report did not compare the health status of HSA enrollees with that of other federal employees.

As President Bush puts health savings accounts higher on his agenda, experts continue to debate whether they are a good idea for solving the problems of the uninsured.

“The more I think about these proposals, the more troubling I find them to be,” Leonard Burman, codirector of the Urban-Brookings Tax Policy Center, said in a teleconference sponsored by the Center on Budget and Policy Priorities (CBPP). “I don't think the idea [that people will be more cost conscious] is really going to play out.”

Health savings accounts (HSAs) are accounts to which employees contribute funds in order to pay for the first several thousand dollars of their health care costs. The accounts are almost always combined with a high-deductible health insurance plan. Contributions to the HSA are tax free, as is money withdrawn for covered medical expenses. If the money contributed is not spent within a particular year, it can accumulate in the account.

The Galen Institute, an organization that supports consumer-driven health care, has a more positive view of HSAs. “HSAs give consumers even more control over their health spending decisions—and provide them an incentive to spend wisely and save for future health care needs,” according to a statement from Galen.

Critics argue that sick people are not always in a position to shop around for care; that making consumers more cost conscious won't help lower health care costs because most health care spending is for expenses higher than the amount of the deductible, which is out of the consumer's control; and that HSAs tend to attract mostly healthy people, driving up premiums for sicker individuals who remain in more traditional plans.

President Bush highlighted HSAs in his State of the Union address, vowing to “strengthen health savings accounts—making sure individuals and small business employees can buy insurance with the same advantages that people working for big businesses now get.”

In a more detailed statement, White House officials said that the president “proposes making premiums for HSA-compatible insurance policies deductible from income taxes when [these policies are] purchased by individuals outside of work. In addition, an income tax credit would offset payroll taxes paid on premiums paid for their HSA policies.”

The president is also proposing to allow any spending on out-of-pocket health expenses incurred by HSA enrollees—up to $10,500 per family—to be tax free, not just expenses pertaining to the deductible, as allowed under current law.

Such changes would make HSAs even more tempting to some people, said Jason Furman, senior fellow at the CBPP. “HSAs are already an unprecedentedly favored tax vehicle. This proposal now takes a system already tilted and adds a new tax credit,” he said.

If these proposals are ultimately enacted, they could make HSAs so financially attractive that they could begin to rival 401(k) plans as retirement savings vehicles, Mr. Furman said.

For example, suppose a family in a 25% tax bracket contributed the maximum $10,500 to an HSA that is invested at a 3% interest rate. Under the president's proposal, they would owe a payroll tax of $1,607, but they would also get a tax credit for that amount, so the entire $10,500 would stay in the account. If they contributed the same amount into a 401(k), they would still owe the payroll tax, but would not get a tax credit, so only $8,893 would be deposited into the 401(k) account. As a result, the HSA account would end up with $25,486 in it by 2036, versus $21,587 for the 401(k), Mr. Furman said.

With such results, “a lot of employers who offer 401(k) plans would have a lot less of an incentive to,” he added. “Their employees could go on their own and get a much better deal from an HSA than from a 401(k), and avoid nondiscrimination rules.” The payroll taxes that HSA account holders no longer have to pay would also put a dent in the federal budget, Mr. Furman said.

Barry Barnett, a principal in PriceWaterhouseCoopers' human resource solutions practice, acknowledged that the proposal would result in substantial tax incentives, but he said he did not think that employers were going to get rid of their 401(k) offerings because of it.

Ever since employers have switched to defined contribution retirement plans, “there has been enough noise in the system by employees feeling they've lost the entitlement to a defined benefit plan in retirement,” Mr. Barnett said. “If employers start canceling 401(k) plans and instead offer HSAs, I think there will be a major outcry by employees and Congress or some other body of people saying, 'There's got to be some form of retirement benefit,' especially as the government tries to cut back on Social Security entitlements and Medicare entitlements as the president is talking about.”

A recent report from the Government Accountability Office found that federal employees who enrolled in the government's high-deductible health plan combined with an HSA were more likely to be younger and to earn higher salaries than were employees who did not enroll in the plans. The report did not compare the health status of HSA enrollees with that of other federal employees.

Bill Halts 4.4% Cut

Congress' long-awaited passage of the budget reconciliation package (also called the Deficit Reduction Act) put a freeze on a 4.4% cut Medicare physicians experienced in the month of January. While the congressional action stopped any further reductions to payments, it did not increase Medicare physician pay for 2006. The Centers for Medicare and Medicaid Services will reimburse physicians retroactively for the reductions experienced in January, and has instructed its contractors to automatically reprocess claims. But work on this issue is far from over, Dr. J. Edward Hill, president of the American Medical Association, said in a statement. “With 6 years of cuts still scheduled to come as practice costs continue to rise, we fear more physicians will make difficult practice decisions about treating Medicare patients. … We must build on the momentum and awareness raised in 2005 to make 2006 the year Congress permanently repeals the broken Medicare physician payment formula.”

Junk Food Lawsuit

Consumer groups and parents are suing Nickelodeon (Viacom International Inc.) and the Kellogg Co. in an attempt to stop them from marketing junk food to children. The announcement follows an Institute of Medicine report that found food advertising aimed at children encourages them to request high-calorie, low-nutrient foods. “Nickelodeon and Kellogg engage in business practices that literally sicken our children,” said Michael Jacobson, executive director of the Center for Science in the Public Interest, one of the plaintiffs. “It's a multimedia brainwashing and reeducation campaign and a disease-promoting one at that.” Other plaintiffs in the suit include the Campaign for a Commercial-Free Childhood and parents Sherri Carlson of Wakefield, Mass., and Andrew Leong of Brookline, Mass. Because of the pending litigation, Kellogg is not commenting, said Jill Saletta, Kellogg's director of communications.

2007 Medicare Formulary Guidance

In February, the U.S. Pharmacopeia released its final model guidelines for use in developing Medicare prescription drug formularies in 2007. The model guidelines are used by the Centers for Medicare and Medicaid Services to evaluate the formularies created by private drug plans that participate in the Medicare Part D program. There are fewer unique categories and classes in the 2007 document—133, compared with 146 in 2006. In addition, the number of formulary key drug types, which are used by CMS to test the comprehensiveness of the formulary, has increased from 118 to 141. The U.S. Pharmacopeia model guidelines are available online at

www.usp.org/healthcareInfo

ADA Announces Policy Agenda

Increasing the budget for diabetes research and making stem cell research easier to perform are two of the major public policy priorities for the American Diabetes Association this year. “Policymakers will hear from our army of volunteers and grassroots advocates about the urgent need for Congress and the [Bush] Administration to set a new course for diabetes policy,” Dr. Robert A. Rizza, president for medicine and science at the ADA, said in a statement. Specific priorities include increasing the budget for the Centers for Disease Control and Prevention's division of diabetes translation by $20.8 million, increasing the budget for research at the National Institute of Diabetes and Digestive and Kidney Diseases by $92 million, and getting Congress to pass the Stem Cell Research Enhancement Act of 2005 (S. 471/H.R. 810), which would greatly increase the number of stem cells available for use in research.

Hospital Ethnicity Data

Most hospitals collect data about the race, ethnicity, and language preference of their patients, but few are using the data to improve health care quality, according to a study conducted by the National Public Health and Hospital Institute. Researchers surveyed 500 acute care hospitals and found that half collect information on patients' language, more than three-fourths collect information on patients' race, and half collect information on ethnicity and language preference. Of the hospitals that did not collect this information, more than half said they did not see the need to. “We are encouraged to know that so many hospitals already have quality data that enable them to develop and monitor interventions to eliminate racial and ethnic disparities in health care,” said Marsha Regenstein, Ph.D., the study's lead author and director of NPHHI. “Our challenge now is to work with hospital staff to make sure they recognize the importance of this quality data and that they put the data to use immediately.” The study was supported by the Robert Wood Johnson Foundation.

Bill Halts 4.4% Cut

Congress' long-awaited passage of the budget reconciliation package (also called the Deficit Reduction Act) put a freeze on a 4.4% cut Medicare physicians experienced in the month of January. While the congressional action stopped any further reductions to payments, it did not increase Medicare physician pay for 2006. The Centers for Medicare and Medicaid Services will reimburse physicians retroactively for the reductions experienced in January, and has instructed its contractors to automatically reprocess claims. But work on this issue is far from over, Dr. J. Edward Hill, president of the American Medical Association, said in a statement. “With 6 years of cuts still scheduled to come as practice costs continue to rise, we fear more physicians will make difficult practice decisions about treating Medicare patients. … We must build on the momentum and awareness raised in 2005 to make 2006 the year Congress permanently repeals the broken Medicare physician payment formula.”

Junk Food Lawsuit

Consumer groups and parents are suing Nickelodeon (Viacom International Inc.) and the Kellogg Co. in an attempt to stop them from marketing junk food to children. The announcement follows an Institute of Medicine report that found food advertising aimed at children encourages them to request high-calorie, low-nutrient foods. “Nickelodeon and Kellogg engage in business practices that literally sicken our children,” said Michael Jacobson, executive director of the Center for Science in the Public Interest, one of the plaintiffs. “It's a multimedia brainwashing and reeducation campaign and a disease-promoting one at that.” Other plaintiffs in the suit include the Campaign for a Commercial-Free Childhood and parents Sherri Carlson of Wakefield, Mass., and Andrew Leong of Brookline, Mass. Because of the pending litigation, Kellogg is not commenting, said Jill Saletta, Kellogg's director of communications.

2007 Medicare Formulary Guidance

In February, the U.S. Pharmacopeia released its final model guidelines for use in developing Medicare prescription drug formularies in 2007. The model guidelines are used by the Centers for Medicare and Medicaid Services to evaluate the formularies created by private drug plans that participate in the Medicare Part D program. There are fewer unique categories and classes in the 2007 document—133, compared with 146 in 2006. In addition, the number of formulary key drug types, which are used by CMS to test the comprehensiveness of the formulary, has increased from 118 to 141. The U.S. Pharmacopeia model guidelines are available online at

www.usp.org/healthcareInfo

ADA Announces Policy Agenda

Increasing the budget for diabetes research and making stem cell research easier to perform are two of the major public policy priorities for the American Diabetes Association this year. “Policymakers will hear from our army of volunteers and grassroots advocates about the urgent need for Congress and the [Bush] Administration to set a new course for diabetes policy,” Dr. Robert A. Rizza, president for medicine and science at the ADA, said in a statement. Specific priorities include increasing the budget for the Centers for Disease Control and Prevention's division of diabetes translation by $20.8 million, increasing the budget for research at the National Institute of Diabetes and Digestive and Kidney Diseases by $92 million, and getting Congress to pass the Stem Cell Research Enhancement Act of 2005 (S. 471/H.R. 810), which would greatly increase the number of stem cells available for use in research.

Hospital Ethnicity Data

Most hospitals collect data about the race, ethnicity, and language preference of their patients, but few are using the data to improve health care quality, according to a study conducted by the National Public Health and Hospital Institute. Researchers surveyed 500 acute care hospitals and found that half collect information on patients' language, more than three-fourths collect information on patients' race, and half collect information on ethnicity and language preference. Of the hospitals that did not collect this information, more than half said they did not see the need to. “We are encouraged to know that so many hospitals already have quality data that enable them to develop and monitor interventions to eliminate racial and ethnic disparities in health care,” said Marsha Regenstein, Ph.D., the study's lead author and director of NPHHI. “Our challenge now is to work with hospital staff to make sure they recognize the importance of this quality data and that they put the data to use immediately.” The study was supported by the Robert Wood Johnson Foundation.

Bill Halts 4.4% Cut

Congress' long-awaited passage of the budget reconciliation package (also called the Deficit Reduction Act) put a freeze on a 4.4% cut Medicare physicians experienced in the month of January. While the congressional action stopped any further reductions to payments, it did not increase Medicare physician pay for 2006. The Centers for Medicare and Medicaid Services will reimburse physicians retroactively for the reductions experienced in January, and has instructed its contractors to automatically reprocess claims. But work on this issue is far from over, Dr. J. Edward Hill, president of the American Medical Association, said in a statement. “With 6 years of cuts still scheduled to come as practice costs continue to rise, we fear more physicians will make difficult practice decisions about treating Medicare patients. … We must build on the momentum and awareness raised in 2005 to make 2006 the year Congress permanently repeals the broken Medicare physician payment formula.”

Junk Food Lawsuit

Consumer groups and parents are suing Nickelodeon (Viacom International Inc.) and the Kellogg Co. in an attempt to stop them from marketing junk food to children. The announcement follows an Institute of Medicine report that found food advertising aimed at children encourages them to request high-calorie, low-nutrient foods. “Nickelodeon and Kellogg engage in business practices that literally sicken our children,” said Michael Jacobson, executive director of the Center for Science in the Public Interest, one of the plaintiffs. “It's a multimedia brainwashing and reeducation campaign and a disease-promoting one at that.” Other plaintiffs in the suit include the Campaign for a Commercial-Free Childhood and parents Sherri Carlson of Wakefield, Mass., and Andrew Leong of Brookline, Mass. Because of the pending litigation, Kellogg is not commenting, said Jill Saletta, Kellogg's director of communications.

2007 Medicare Formulary Guidance

In February, the U.S. Pharmacopeia released its final model guidelines for use in developing Medicare prescription drug formularies in 2007. The model guidelines are used by the Centers for Medicare and Medicaid Services to evaluate the formularies created by private drug plans that participate in the Medicare Part D program. There are fewer unique categories and classes in the 2007 document—133, compared with 146 in 2006. In addition, the number of formulary key drug types, which are used by CMS to test the comprehensiveness of the formulary, has increased from 118 to 141. The U.S. Pharmacopeia model guidelines are available online at

www.usp.org/healthcareInfo

ADA Announces Policy Agenda

Increasing the budget for diabetes research and making stem cell research easier to perform are two of the major public policy priorities for the American Diabetes Association this year. “Policymakers will hear from our army of volunteers and grassroots advocates about the urgent need for Congress and the [Bush] Administration to set a new course for diabetes policy,” Dr. Robert A. Rizza, president for medicine and science at the ADA, said in a statement. Specific priorities include increasing the budget for the Centers for Disease Control and Prevention's division of diabetes translation by $20.8 million, increasing the budget for research at the National Institute of Diabetes and Digestive and Kidney Diseases by $92 million, and getting Congress to pass the Stem Cell Research Enhancement Act of 2005 (S. 471/H.R. 810), which would greatly increase the number of stem cells available for use in research.

Hospital Ethnicity Data

Most hospitals collect data about the race, ethnicity, and language preference of their patients, but few are using the data to improve health care quality, according to a study conducted by the National Public Health and Hospital Institute. Researchers surveyed 500 acute care hospitals and found that half collect information on patients' language, more than three-fourths collect information on patients' race, and half collect information on ethnicity and language preference. Of the hospitals that did not collect this information, more than half said they did not see the need to. “We are encouraged to know that so many hospitals already have quality data that enable them to develop and monitor interventions to eliminate racial and ethnic disparities in health care,” said Marsha Regenstein, Ph.D., the study's lead author and director of NPHHI. “Our challenge now is to work with hospital staff to make sure they recognize the importance of this quality data and that they put the data to use immediately.” The study was supported by the Robert Wood Johnson Foundation.

Stem Cell Committee Formed

Two arms of the National Academies, specifically the National Research Council and the Institute of Medicine, are convening a new committee to update the National Academies' voluntary guidelines on the conduct of human embryonic stem cell research. The committee's stated purpose will be to update last year's guidelines by the academies to reflect recent “advances in stem cell science.” The voluntary guidelines “are intended to enhance the integrity of human embryonic stem cell research by encouraging responsible practices,” according to a National Academies statement. The new committee will be funded by private sources that include the Ellison Medical Foundation, that supports research on aging and global infectious diseases; the Greenwall Foundation, that supports bioethics research; and the Howard Hughes Medical Institute.

Brain Health Strategies

Education, cardiovascular health, genetics, physical activity, and psychosocial factors all appear to be associated with brain health during aging, according to a report published online in Alzheimer's and Dementia: The Journal of the Alzheimer's Association. The report is a product of the National Institutes of Health's Critical Evaluation Study Committee, led by Dr. Hugh Hendrie of Indiana University in Indianapolis. The committee based its conclusions on several large ongoing studies of older adults. “This report suggests a future direction of research and is a terrific example of what we can learn when scientists of diverse specialties work together on a complex health issue,” said Dr. Elias A. Zerhouni, NIH director. The committee reviewed 36 large, ongoing studies and found that higher levels of education correlate with good cognitive and emotional function, while depression and anxiety seem to be correlated with poor cognitive and emotional health later in life. The committee suggested consideration of a large clinical trial to look at exercise as an intervention against cognitive decline.

Poll Says Health Changes Needed

Americans agree that fundamental change is needed in the health care system, according to a poll sponsored by the Americans for Health Care and the Center for American Progress, a liberal think tank. The poll of 1,100 adults, conducted in November 2005, found that 89% agreed with the statement, “With costs rising out of control and the quality of health coverage declining, the health care system in our country is broken, and we need to make fundamental changes.” Support for the idea dropped to 49% when respondents were told changing the system might involve big government or higher taxes. While that is a significant drop, “the fact that nearly half of Americans remain solid in their support despite these concerns is a testament to not just the profound public dissatisfaction with our current health care system, but the strong popular support for extending coverage to all Americans,” the center noted.

Stem Cell Committee Formed

Two arms of the National Academies, specifically the National Research Council and the Institute of Medicine, are convening a new committee to update the National Academies' voluntary guidelines on the conduct of human embryonic stem cell research. The committee's stated purpose will be to update last year's guidelines by the academies to reflect recent “advances in stem cell science.” The voluntary guidelines “are intended to enhance the integrity of human embryonic stem cell research by encouraging responsible practices,” according to a National Academies statement. The new committee will be funded by private sources that include the Ellison Medical Foundation, that supports research on aging and global infectious diseases; the Greenwall Foundation, that supports bioethics research; and the Howard Hughes Medical Institute.

Brain Health Strategies

Education, cardiovascular health, genetics, physical activity, and psychosocial factors all appear to be associated with brain health during aging, according to a report published online in Alzheimer's and Dementia: The Journal of the Alzheimer's Association. The report is a product of the National Institutes of Health's Critical Evaluation Study Committee, led by Dr. Hugh Hendrie of Indiana University in Indianapolis. The committee based its conclusions on several large ongoing studies of older adults. “This report suggests a future direction of research and is a terrific example of what we can learn when scientists of diverse specialties work together on a complex health issue,” said Dr. Elias A. Zerhouni, NIH director. The committee reviewed 36 large, ongoing studies and found that higher levels of education correlate with good cognitive and emotional function, while depression and anxiety seem to be correlated with poor cognitive and emotional health later in life. The committee suggested consideration of a large clinical trial to look at exercise as an intervention against cognitive decline.

Poll Says Health Changes Needed

Americans agree that fundamental change is needed in the health care system, according to a poll sponsored by the Americans for Health Care and the Center for American Progress, a liberal think tank. The poll of 1,100 adults, conducted in November 2005, found that 89% agreed with the statement, “With costs rising out of control and the quality of health coverage declining, the health care system in our country is broken, and we need to make fundamental changes.” Support for the idea dropped to 49% when respondents were told changing the system might involve big government or higher taxes. While that is a significant drop, “the fact that nearly half of Americans remain solid in their support despite these concerns is a testament to not just the profound public dissatisfaction with our current health care system, but the strong popular support for extending coverage to all Americans,” the center noted.

Stem Cell Committee Formed

Two arms of the National Academies, specifically the National Research Council and the Institute of Medicine, are convening a new committee to update the National Academies' voluntary guidelines on the conduct of human embryonic stem cell research. The committee's stated purpose will be to update last year's guidelines by the academies to reflect recent “advances in stem cell science.” The voluntary guidelines “are intended to enhance the integrity of human embryonic stem cell research by encouraging responsible practices,” according to a National Academies statement. The new committee will be funded by private sources that include the Ellison Medical Foundation, that supports research on aging and global infectious diseases; the Greenwall Foundation, that supports bioethics research; and the Howard Hughes Medical Institute.

Brain Health Strategies

Education, cardiovascular health, genetics, physical activity, and psychosocial factors all appear to be associated with brain health during aging, according to a report published online in Alzheimer's and Dementia: The Journal of the Alzheimer's Association. The report is a product of the National Institutes of Health's Critical Evaluation Study Committee, led by Dr. Hugh Hendrie of Indiana University in Indianapolis. The committee based its conclusions on several large ongoing studies of older adults. “This report suggests a future direction of research and is a terrific example of what we can learn when scientists of diverse specialties work together on a complex health issue,” said Dr. Elias A. Zerhouni, NIH director. The committee reviewed 36 large, ongoing studies and found that higher levels of education correlate with good cognitive and emotional function, while depression and anxiety seem to be correlated with poor cognitive and emotional health later in life. The committee suggested consideration of a large clinical trial to look at exercise as an intervention against cognitive decline.

Poll Says Health Changes Needed

Americans agree that fundamental change is needed in the health care system, according to a poll sponsored by the Americans for Health Care and the Center for American Progress, a liberal think tank. The poll of 1,100 adults, conducted in November 2005, found that 89% agreed with the statement, “With costs rising out of control and the quality of health coverage declining, the health care system in our country is broken, and we need to make fundamental changes.” Support for the idea dropped to 49% when respondents were told changing the system might involve big government or higher taxes. While that is a significant drop, “the fact that nearly half of Americans remain solid in their support despite these concerns is a testament to not just the profound public dissatisfaction with our current health care system, but the strong popular support for extending coverage to all Americans,” the center noted.

WASHINGTON — The costs of malpractice insurance and defensive medicine account for about 10 cents of every dollar spent on health care premiums, several speakers said at a press briefing sponsored by America's Health Insurance Plans.

Medical liability and defensive medicine represented the “lion's share” of cost increases in the physician and outpatient areas, Michael Thompson, principal at the New York office of PricewaterhouseCoopers, said at the briefing. Litigation and defensive medicine also accounted for about a third of the costs associated with poor-quality health care, he said, noting that the cost of poor-quality care was spread throughout the health care system.

According to AHIP President Karen Ignagni, efforts must be made to reduce the amount of poor-quality care being given. “We have a system where 45% of what's being done is not best practice,” she said.

Overall, the rate of increase in health care premiums was 8.8% in 2004–2005, down significantly from 13.7% in 2001–2002, noted Jack Rodgers, managing director at PricewaterhouseCoopers. One factor contributing to the slowdown was a decrease in the rate of cost increases for prescription drugs, according to Mr. Thompson.

Part of the reason for that decrease is employers' increasing use of three-tiered or four-tiered drug programs, in which patients pay a larger share for brand-name drugs, especially if there are generic equivalents.

Also, cost trends were helped by a drop in the number of state mandates that are being added each year, from 80 in 2000 to less than 40 in 2004, Mr. Thompson said.

Outpatient costs rose significantly last year, Mr. Rodgers said. “Those are the services that are really growing rapidly.” The increase in outpatient services accounted for more than a third of the 8.8% increase in premiums.

Despite these problems, Mr. Thompson said in an interview that he did not expect premium increases to go higher next year.

WASHINGTON — The costs of malpractice insurance and defensive medicine account for about 10 cents of every dollar spent on health care premiums, several speakers said at a press briefing sponsored by America's Health Insurance Plans.

Medical liability and defensive medicine represented the “lion's share” of cost increases in the physician and outpatient areas, Michael Thompson, principal at the New York office of PricewaterhouseCoopers, said at the briefing. Litigation and defensive medicine also accounted for about a third of the costs associated with poor-quality health care, he said, noting that the cost of poor-quality care was spread throughout the health care system.

According to AHIP President Karen Ignagni, efforts must be made to reduce the amount of poor-quality care being given. “We have a system where 45% of what's being done is not best practice,” she said.

Overall, the rate of increase in health care premiums was 8.8% in 2004–2005, down significantly from 13.7% in 2001–2002, noted Jack Rodgers, managing director at PricewaterhouseCoopers. One factor contributing to the slowdown was a decrease in the rate of cost increases for prescription drugs, according to Mr. Thompson.

Part of the reason for that decrease is employers' increasing use of three-tiered or four-tiered drug programs, in which patients pay a larger share for brand-name drugs, especially if there are generic equivalents.

Also, cost trends were helped by a drop in the number of state mandates that are being added each year, from 80 in 2000 to less than 40 in 2004, Mr. Thompson said.

Outpatient costs rose significantly last year, Mr. Rodgers said. “Those are the services that are really growing rapidly.” The increase in outpatient services accounted for more than a third of the 8.8% increase in premiums.

Despite these problems, Mr. Thompson said in an interview that he did not expect premium increases to go higher next year.

WASHINGTON — The costs of malpractice insurance and defensive medicine account for about 10 cents of every dollar spent on health care premiums, several speakers said at a press briefing sponsored by America's Health Insurance Plans.

Medical liability and defensive medicine represented the “lion's share” of cost increases in the physician and outpatient areas, Michael Thompson, principal at the New York office of PricewaterhouseCoopers, said at the briefing. Litigation and defensive medicine also accounted for about a third of the costs associated with poor-quality health care, he said, noting that the cost of poor-quality care was spread throughout the health care system.

According to AHIP President Karen Ignagni, efforts must be made to reduce the amount of poor-quality care being given. “We have a system where 45% of what's being done is not best practice,” she said.

Overall, the rate of increase in health care premiums was 8.8% in 2004–2005, down significantly from 13.7% in 2001–2002, noted Jack Rodgers, managing director at PricewaterhouseCoopers. One factor contributing to the slowdown was a decrease in the rate of cost increases for prescription drugs, according to Mr. Thompson.

Part of the reason for that decrease is employers' increasing use of three-tiered or four-tiered drug programs, in which patients pay a larger share for brand-name drugs, especially if there are generic equivalents.

Also, cost trends were helped by a drop in the number of state mandates that are being added each year, from 80 in 2000 to less than 40 in 2004, Mr. Thompson said.

Outpatient costs rose significantly last year, Mr. Rodgers said. “Those are the services that are really growing rapidly.” The increase in outpatient services accounted for more than a third of the 8.8% increase in premiums.

Despite these problems, Mr. Thompson said in an interview that he did not expect premium increases to go higher next year.

WASHINGTON — The costs of malpractice insurance and defensive medicine account for about 10 cents of every dollar spent on health care premiums, several speakers said at a press briefing sponsored by America's Health Insurance Plans.

Medical liability and defensive medicine represented the “lion's share” of cost increases in the physician and outpatient areas, Michael Thompson, principal at the New York office of PricewaterhouseCoopers (PWC), said at the briefing. Litigation and defensive medicine also accounted for about a third of the costs associated with poor-quality health care, said Mr. Thompson, noting that the cost of poor-quality care was spread throughout the health care system.

Karen Ignagni, AHIP president, said efforts must be made to reduce the amount of poor-quality care being given. “We have a system where 45% of what's being done is not best practice,” she said. “No public or private entity could operate at that rate.”

The rate of increase in health care premiums was 8.8% in 2004–2005, down significantly from 13.7% in 2001–2002, noted Jack Rodgers, managing director at PWC. One factor contributing to the slowdown was a decrease in the rate of cost increases for prescription drugs, said Mr. Thompson. Part of the reason for that decrease is employers' increasing use of three- or four-tiered drug programs, in which patients pay a larger share for brand-name drugs, especially if there are generic equivalents. In 2000, only 27% of patients were in drug plans with three or more tiers; in 2004, 68% were, he said, adding that cost trends were also aided by a drop in the number of state mandates being added each year, from 80 in 2000 to fewer than 40 in 2004.

Outpatient costs rose significantly last year, Mr. Rodgers said, accounting for more than a third of the 8.8% increase in premiums, he noted.

Despite these problems, Mr. Thompson said in an interview that he did not expect premium increases to go higher next year. Part of the stabilization will likely be due to consumers having to pay more for their health care costs and becoming more aware of prices as a result, he added.

WASHINGTON — The costs of malpractice insurance and defensive medicine account for about 10 cents of every dollar spent on health care premiums, several speakers said at a press briefing sponsored by America's Health Insurance Plans.

Medical liability and defensive medicine represented the “lion's share” of cost increases in the physician and outpatient areas, Michael Thompson, principal at the New York office of PricewaterhouseCoopers (PWC), said at the briefing. Litigation and defensive medicine also accounted for about a third of the costs associated with poor-quality health care, said Mr. Thompson, noting that the cost of poor-quality care was spread throughout the health care system.

Karen Ignagni, AHIP president, said efforts must be made to reduce the amount of poor-quality care being given. “We have a system where 45% of what's being done is not best practice,” she said. “No public or private entity could operate at that rate.”

The rate of increase in health care premiums was 8.8% in 2004–2005, down significantly from 13.7% in 2001–2002, noted Jack Rodgers, managing director at PWC. One factor contributing to the slowdown was a decrease in the rate of cost increases for prescription drugs, said Mr. Thompson. Part of the reason for that decrease is employers' increasing use of three- or four-tiered drug programs, in which patients pay a larger share for brand-name drugs, especially if there are generic equivalents. In 2000, only 27% of patients were in drug plans with three or more tiers; in 2004, 68% were, he said, adding that cost trends were also aided by a drop in the number of state mandates being added each year, from 80 in 2000 to fewer than 40 in 2004.

Outpatient costs rose significantly last year, Mr. Rodgers said, accounting for more than a third of the 8.8% increase in premiums, he noted.

Despite these problems, Mr. Thompson said in an interview that he did not expect premium increases to go higher next year. Part of the stabilization will likely be due to consumers having to pay more for their health care costs and becoming more aware of prices as a result, he added.

WASHINGTON — The costs of malpractice insurance and defensive medicine account for about 10 cents of every dollar spent on health care premiums, several speakers said at a press briefing sponsored by America's Health Insurance Plans.

Medical liability and defensive medicine represented the “lion's share” of cost increases in the physician and outpatient areas, Michael Thompson, principal at the New York office of PricewaterhouseCoopers (PWC), said at the briefing. Litigation and defensive medicine also accounted for about a third of the costs associated with poor-quality health care, said Mr. Thompson, noting that the cost of poor-quality care was spread throughout the health care system.

Karen Ignagni, AHIP president, said efforts must be made to reduce the amount of poor-quality care being given. “We have a system where 45% of what's being done is not best practice,” she said. “No public or private entity could operate at that rate.”

The rate of increase in health care premiums was 8.8% in 2004–2005, down significantly from 13.7% in 2001–2002, noted Jack Rodgers, managing director at PWC. One factor contributing to the slowdown was a decrease in the rate of cost increases for prescription drugs, said Mr. Thompson. Part of the reason for that decrease is employers' increasing use of three- or four-tiered drug programs, in which patients pay a larger share for brand-name drugs, especially if there are generic equivalents. In 2000, only 27% of patients were in drug plans with three or more tiers; in 2004, 68% were, he said, adding that cost trends were also aided by a drop in the number of state mandates being added each year, from 80 in 2000 to fewer than 40 in 2004.

Outpatient costs rose significantly last year, Mr. Rodgers said, accounting for more than a third of the 8.8% increase in premiums, he noted.

Despite these problems, Mr. Thompson said in an interview that he did not expect premium increases to go higher next year. Part of the stabilization will likely be due to consumers having to pay more for their health care costs and becoming more aware of prices as a result, he added.

As President Bush puts health savings accounts higher on his agenda, experts are debating whether they are a good idea for solving the problems of the uninsured.

“The more I think about these proposals, the more troubling I find them,” Leonard Burman, codirector of the Urban-Brookings Tax Policy Center, said in a teleconference sponsored by the Center on Budget and Policy Priorities (CBPP). “I don't think the idea [that people will be more cost conscious] is going to play out.”

Health savings accounts (HSAs) are accounts that employees contribute to in order to pay for the first several thousand dollars of their health care costs. The accounts are almost always combined with a high-deductible health insurance plan. Contributions to HSAs are tax free, as is money withdrawn for covered medical expenses. If the money is not used in a particular year, it can accumulate in the account.

The Galen Institute, an organization that supports consumer-driven health care, has a more positive view of HSAs. “HSAs give consumers even more control over their health spending decisions—and provide them with an incentive to spend wisely and save for future health care needs,” the institute notes in statement. But critics argue that sick people are not always in a position to shop around for care; that making consumers more cost conscious won't help lower health care costs because most health care spending is for expenses higher than the amount of the deductible, which is out of the consumers' control; and that HSAs tend to attract mostly healthy people, which will drive up premiums for sicker individuals who remain in more traditional plans.

President Bush highlighted HSAs in his State of the Union address, vowing to “strengthen health savings accounts—making sure individuals and small business employees can buy insurance with the same advantages that people working for big businesses now get.”

In a more detailed statement, White House officials said that the president “proposes making premiums for HSA-compatible insurance policies deductible from income taxes when [these policies are] purchased by individuals outside of work. In addition, an income tax credit would offset payroll taxes paid on premiums paid for their HSA policies.”

The president is also proposing to allow any spending on out-of-pocket health expenses incurred by HSA enrollees—up to $10,500 per family—to be tax free, not just expenses pertaining to the deductible, as allowed under current law. Such changes would make HSAs even more tempting, said Jason Furman, senior fellow at the CBPP. “HSAs are already an unprecedentedly favored tax vehicle. This takes a system already tilted and adds a new tax credit.”

If enacted, these proposals could make HSAs so attractive financially that they could begin to rival 401(k) plans as retirement savings vehicles, said Mr. Furman.

For example, suppose a family in a 25% tax bracket contributed the maximum $10,500 to an HSA that is invested at a 3% interest rate. Under the president's proposal, they would owe a payroll tax of $1,607, but they would also get a tax credit for that amount, so the entire $10,500 would stay in the account. If they contributed the same amount into a 401(k), they would still owe the payroll tax, but would not get a tax credit, so only $8,893 would be deposited into the 401(k) account. The HSA account would end up with $25,486 in it by 2036, versus $21,587 for the 401(k), Mr. Furman explained.

With such results, he said, “a lot of employers who offer 401(k) plans would have a lot less of an incentive to. Their employees could go on their own and get a much better deal from an HSA than from a 401(k), and avoid nondiscrimination rules.”

Barry Barnett, a principal in PricewaterhouseCoopers' human resource solutions practice, said if employers started canceling 401(k) plans and offering HSAs instead, employees and Congress would argue that there has to be some form of retirement benefit, especially as government tries to cut back on Social Security and Medicare entitlements.

As President Bush puts health savings accounts higher on his agenda, experts are debating whether they are a good idea for solving the problems of the uninsured.

“The more I think about these proposals, the more troubling I find them,” Leonard Burman, codirector of the Urban-Brookings Tax Policy Center, said in a teleconference sponsored by the Center on Budget and Policy Priorities (CBPP). “I don't think the idea [that people will be more cost conscious] is going to play out.”

Health savings accounts (HSAs) are accounts that employees contribute to in order to pay for the first several thousand dollars of their health care costs. The accounts are almost always combined with a high-deductible health insurance plan. Contributions to HSAs are tax free, as is money withdrawn for covered medical expenses. If the money is not used in a particular year, it can accumulate in the account.

The Galen Institute, an organization that supports consumer-driven health care, has a more positive view of HSAs. “HSAs give consumers even more control over their health spending decisions—and provide them with an incentive to spend wisely and save for future health care needs,” the institute notes in statement. But critics argue that sick people are not always in a position to shop around for care; that making consumers more cost conscious won't help lower health care costs because most health care spending is for expenses higher than the amount of the deductible, which is out of the consumers' control; and that HSAs tend to attract mostly healthy people, which will drive up premiums for sicker individuals who remain in more traditional plans.

President Bush highlighted HSAs in his State of the Union address, vowing to “strengthen health savings accounts—making sure individuals and small business employees can buy insurance with the same advantages that people working for big businesses now get.”

In a more detailed statement, White House officials said that the president “proposes making premiums for HSA-compatible insurance policies deductible from income taxes when [these policies are] purchased by individuals outside of work. In addition, an income tax credit would offset payroll taxes paid on premiums paid for their HSA policies.”

The president is also proposing to allow any spending on out-of-pocket health expenses incurred by HSA enrollees—up to $10,500 per family—to be tax free, not just expenses pertaining to the deductible, as allowed under current law. Such changes would make HSAs even more tempting, said Jason Furman, senior fellow at the CBPP. “HSAs are already an unprecedentedly favored tax vehicle. This takes a system already tilted and adds a new tax credit.”

If enacted, these proposals could make HSAs so attractive financially that they could begin to rival 401(k) plans as retirement savings vehicles, said Mr. Furman.

For example, suppose a family in a 25% tax bracket contributed the maximum $10,500 to an HSA that is invested at a 3% interest rate. Under the president's proposal, they would owe a payroll tax of $1,607, but they would also get a tax credit for that amount, so the entire $10,500 would stay in the account. If they contributed the same amount into a 401(k), they would still owe the payroll tax, but would not get a tax credit, so only $8,893 would be deposited into the 401(k) account. The HSA account would end up with $25,486 in it by 2036, versus $21,587 for the 401(k), Mr. Furman explained.

With such results, he said, “a lot of employers who offer 401(k) plans would have a lot less of an incentive to. Their employees could go on their own and get a much better deal from an HSA than from a 401(k), and avoid nondiscrimination rules.”

Barry Barnett, a principal in PricewaterhouseCoopers' human resource solutions practice, said if employers started canceling 401(k) plans and offering HSAs instead, employees and Congress would argue that there has to be some form of retirement benefit, especially as government tries to cut back on Social Security and Medicare entitlements.

As President Bush puts health savings accounts higher on his agenda, experts are debating whether they are a good idea for solving the problems of the uninsured.

“The more I think about these proposals, the more troubling I find them,” Leonard Burman, codirector of the Urban-Brookings Tax Policy Center, said in a teleconference sponsored by the Center on Budget and Policy Priorities (CBPP). “I don't think the idea [that people will be more cost conscious] is going to play out.”

Health savings accounts (HSAs) are accounts that employees contribute to in order to pay for the first several thousand dollars of their health care costs. The accounts are almost always combined with a high-deductible health insurance plan. Contributions to HSAs are tax free, as is money withdrawn for covered medical expenses. If the money is not used in a particular year, it can accumulate in the account.

The Galen Institute, an organization that supports consumer-driven health care, has a more positive view of HSAs. “HSAs give consumers even more control over their health spending decisions—and provide them with an incentive to spend wisely and save for future health care needs,” the institute notes in statement. But critics argue that sick people are not always in a position to shop around for care; that making consumers more cost conscious won't help lower health care costs because most health care spending is for expenses higher than the amount of the deductible, which is out of the consumers' control; and that HSAs tend to attract mostly healthy people, which will drive up premiums for sicker individuals who remain in more traditional plans.

President Bush highlighted HSAs in his State of the Union address, vowing to “strengthen health savings accounts—making sure individuals and small business employees can buy insurance with the same advantages that people working for big businesses now get.”

In a more detailed statement, White House officials said that the president “proposes making premiums for HSA-compatible insurance policies deductible from income taxes when [these policies are] purchased by individuals outside of work. In addition, an income tax credit would offset payroll taxes paid on premiums paid for their HSA policies.”

The president is also proposing to allow any spending on out-of-pocket health expenses incurred by HSA enrollees—up to $10,500 per family—to be tax free, not just expenses pertaining to the deductible, as allowed under current law. Such changes would make HSAs even more tempting, said Jason Furman, senior fellow at the CBPP. “HSAs are already an unprecedentedly favored tax vehicle. This takes a system already tilted and adds a new tax credit.”

If enacted, these proposals could make HSAs so attractive financially that they could begin to rival 401(k) plans as retirement savings vehicles, said Mr. Furman.

For example, suppose a family in a 25% tax bracket contributed the maximum $10,500 to an HSA that is invested at a 3% interest rate. Under the president's proposal, they would owe a payroll tax of $1,607, but they would also get a tax credit for that amount, so the entire $10,500 would stay in the account. If they contributed the same amount into a 401(k), they would still owe the payroll tax, but would not get a tax credit, so only $8,893 would be deposited into the 401(k) account. The HSA account would end up with $25,486 in it by 2036, versus $21,587 for the 401(k), Mr. Furman explained.

With such results, he said, “a lot of employers who offer 401(k) plans would have a lot less of an incentive to. Their employees could go on their own and get a much better deal from an HSA than from a 401(k), and avoid nondiscrimination rules.”

Barry Barnett, a principal in PricewaterhouseCoopers' human resource solutions practice, said if employers started canceling 401(k) plans and offering HSAs instead, employees and Congress would argue that there has to be some form of retirement benefit, especially as government tries to cut back on Social Security and Medicare entitlements.