April 19, 2006
JS-4195

The Honorable John W. Snow
Prepared Remarks
The World Health Care Congress

Good afternoon; thanks so much for having me here today. This is an important gathering and the subject matter is simply critical.

I appreciate very much the topic you've asked me to address, because the economic impact of health care is absolutely central to the policy discussions that surround the issue.

I often say that a strong, growing economy can handle any challenge. Health care will prove to be the test of my assertion. The American economy is in excellent shape today. We are growing faster than any other major industrialized nation. Jobs are being created at a good pace – about 5.2 million new jobs since the President's tax cuts took effect in 2003. The underlying fundamentals are strong, and we're at the tipping point on wages. I expect to see continued job creation and wage growth as well.

But even with more people working than ever before, with homeownership at record levels and household wealth reaching an all-time high in the fourth quarter of last year – even with all this good news and prosperity, we still struggle with the cost of health care.

Health is one of the foundations, one of the necessities of our lives, but its cost is making it more of a luxury every day. Health-care cost growth has been exceeding GDP growth by two percentage points annually since 1940. Health-care spending currently stands at 16 percent of GDP, and it is predicted to come to 18.7 percent of GDP by 2014. This raises a lot of questions and a lot of concerns.

We all know that the cost of health insurance can put coverage out of reach for the group caught in the middle – those who don't have employer-sponsored coverage but aren't low-wage enough to qualify for government coverage.

To the uninsured, employer-provided health coverage seems ideal because it seems "free." Of course it isn't, but it is a better bargain because of the tax treatment of health insurance. I think it's unfortunate that the tax structure has led us, as a society, to a reliance on employer-provided coverage. It has left the small-group and individual markets without the competition needed to keep costs low. Those higher – and ever-rising – costs mean that self-employed and employees of small-business are far less likely to have coverage. According to the Kaiser Family Foundation's annual survey, nearly 100 percent of firms with 200 or more workers offer health insurance to their employees, yet only 59 percent of firms with between 3 and 199 workers do, a drop of 9 percentage points from 2000.

So costs are extremely troublesome in terms of aggravating the problem of the uninsured, and I want to get back to how we can help that targeted group in a moment. But it's important to note, first, that benefit cost growth also hampers wage growth for those who are insured because the price puts pressure on employers. Benefit cost growth has exceeded wage and salary growth every year since 1999, taking a progressively larger bite out of the overall compensation package and leaving a smaller share for wages and salaries.

In December of 2005 – the latest data available – wages and salaries accounted for about 70 percent of labor compensation, compared with about 72.5 percent in 1999. This is not surprising, considering the fact that health care costs made up about 5.8 percent of total compensation in 1999 but have jumped to 7.6 percent of compensation in the latest data.

We – government, employers, workers, taxpayers – all face this cost-battle together. It impacts us all, and I know that's really why this group meets. Yours is a critical dialogue that I hope produces the next great ideas on how to tackle the problem.

Let me quickly break out the perspectives on the health-care cost challenge.

Employers feel the pressure on their business. The cost structure of every company that provides health insurance benefits is impacted by prices that seem to be growing at an out-of-control rate. They aren't tempered by natural market forces – I think they should be, and I'll get back to that in a moment.

Workers are pinched, as I said before, whether they are insured or not. Those who work for businesses that don't offer coverage – traditionally the smallest employers – struggle to afford something in the individual market or go without. And those who are covered on their employer plan are feeling the cost pinch whether it's through an increase in their own contribution or a weight on the growth of their own wages.

Finally, the government – and really I should say the taxpayers – faces overwhelming current and future costs for employees and citizens covered by Medicare and Medicaid. Over the next 75 years, the Medicare program is expected to cost taxpayers $29.7 trillion more than the revenue dedicated to it; that's 4.7 percent of the GDP over that time period.

The challenge is daunting, no doubt. But bringing health care costs under control – preferably tempered by market forces – is also an enormous opportunity. It carries the promise of increased discretionary income for workers, a reduced downward pressure on business profits and growth, and a brighter future for taxpayers than we see in the current numbers.

Furthermore, I know we'd all like to see the growth of unproductive health care spending reduced while preserving incentives for the health care sector to innovate and provide people with longer and healthier lives. That, after all, is what the business and the terrific science of health care is really all about.

You have an incredible line-up of speakers today who will cover a lot of ground, so I want to focus in on a health-care solution that the Bush Administration is proud of because it's shown a lot of success so far and we, in fact, are encouraging Congress to expand the capabilities of this innovative product: Health Savings Accounts, or HSAs.

Today, over 3 million Americans – a large portion of whom were previously uninsured –are enjoying access to more affordable health care because of the tax advantages and savings benefits of HSA-qualified plans.

I believe you all know how HSAs are structured, but just briefly – they are a savings product paired with an insurance product – a high deductible health plan, or an HDHP.

Individuals and/or their employers can contribute, tax free, to the accounts to save for future medical expenses. Contributions can be made to them as long as the account-holder has an HDHP, a comprehensive health insurance policy with deductibles of at least $1,050 for self-only coverage and $2,100 for family coverage. Annual out-of-pocket expenses associated with the HDHP are limited to $5,250 for self-only coverage and $10,500 for family coverage. Annual contributions can currently be made up to the amount of the deductible. Withdrawals from the HSA can be made, tax free, at any time for qualified health expenses, which includes most out-of-pocket medical expenses. Thus, someone with an HDHP can contribute, every year, an amount equal to the deductible to his HSA and use those funds, which are exempt from income taxes, to meet the deductible. Any amount remaining in his HSA at the end of the year is rolled over to future years, to be used for future health care expenses.

Choosing an HSA over traditional insurance plans puts patients in charge of their health-care purchasing decisions, and that's why their creation was so important. Similar to retirement-saving tools like IRAs, HSAs were designed to help individuals take more control over how their health care dollars are spent and save for future medical and retiree health expenses on a tax-free basis.

The creation of HSAs was historic, really, because it embraces a philosophy that favors the individual, versus an employer or the government. This is different from the direction we've seen in health-care coverage for decades, and I believe it is an improvement because it does inject some market force. Consumers of health care with and HSA are going to compare costs and ask more questions about pricing.

Another benefit of HSAs that is often overlooked is their ability to protect individuals from something that can be a financially catastrophic event: the loss of employer-provided health insurance when a job is lost.

The uninsurance rate is twice for the unemployed than it is for the employed, and less than a quarter of the COBRA-eligible population takes up COBRA coverage. It's no surprise, with average family insurance premiums now exceeding $10,000 a year that someone without employment would forego health insurance. With health care consuming 16 percent of the economy, public policy is finally recognizing and addressing the shock of losing one's employer-sponsored health insurance subsidy by giving people an incentive to save for that possibility, because HSA-accumulated funds may be used to pay for COBRA premiums or for someone receiving unemployment insurance to pay for health insurance premiums on the individual market. Or, for that matter, to purchase long-term care insurance to insulate against post-retirement health shocks.

For all these reasons, I'm pleased that more employers are choosing to offer HSAs to their employees every day, and I encourage all employers and individuals to consider them as an attractive alternative to traditional health insurance.

In a speech last week, President Bush talked about a small business owner in Connecticut who runs a retirement community. One-third of his employees now have HSAs, and he's told the President that the HSAs have given them good coverage and saved the company $78,000 on health premiums. In other words, they work. So we want to see more people, more individuals and small businesses and big businesses use them. The next step is to improve upon the structure of HSAs – make them even more useful and more likely to lower the number of uninsured Americans.

The Administration is proposing:       

• That the limit on annual HSA contributions be raised from the deductible to the policy's out-of-pocket maximum.
• Full income tax deductibility of premiums on all HSA-qualified policies, whether the premiums are paid for by an employer or by an individual.
• An income tax credit equivalent to the payroll tax on premiums for HSA-qualified plans and HSAs, whether the plan is purchased on the individual or group market.
• A refundable tax credit to help low-income people purchase health insurance on the individual market. As structured in this year's budget, low-income families could get up to $3,000 in a refundable tax credit to purchase HSA-qualified insurance.

Taken together, we expect these proposals to increase take-up of HDHP/HSA plans from a projected 14 million to 21 million by 2010.

The President has outlined a number of other ways to tackle this broad challenge of rising health-care costs, and I know Al is going to get into more of those. So I want to conclude by saying that the nature of health-care costs and the impact of those costs on our economy is big enough that we can't play games. We really can't waste time with partisan politics on this one. Innovation and technology are bringing health-care blessings to the people of this country and to the world, and I will continue to encourage everyone I work with on the government end of things to not impede that kind of progress with the short-game of politics.

Thank you again for having me here; I wish you luck with your important work.