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Bush Pushes Health, Boomer Issues

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President Bush emphasized proposals designed to cut the cost of health care in his State of the Union address on Jan. 31–including proposals to expand Health Savings Accounts greatly–but analysts said the proposals are not new and are unlikely to pass Congress.

The National Association of Insurance and Financial Advisors took heart as well at what the president did not say. Specifically, NAIFA noted that the president did not touch on tax reform proposals suggested by a bipartisan panel last year that would have limited inside build-up on life insurance and annuity products.

In a statement, NAIFA noted that the tax reform panel’s final report proposed a direct tax on the cash values that accumulate in permanent life insurance and annuity contracts, also known as inside build-up. “This direct tax would discourage Americans from purchasing the only products guaranteed to last a lifetime,” NAIFA officials said.

While President Bush did not indicate he will pursue fundamental tax reform in 2006, NAIFA is by no means claiming victory–the president could raise the issue again in his annual budget message, scheduled forFeb. 7, NAIFA officials said.

The president also called for a review of the programs that will be crucial to helping the “baby boom” generation in their retirement years, but he appeared to play them down in the view of analysts rather than admit his failure to alter the Social Security program, primarily through creation of so-called private accounts.

The American Council of Life Insurers, however, offered its support for the president’s call to review those programs.

Regarding retirement security, the president noted that the first of the baby boom generation will turn 60 this year, including himself and former President Bill Clinton.

“The retirement of the baby boom generation will put unprecedented strains on the federal government,” Bush said. “By 2030, spending for Social Security, Medicare and Medicaid alone will be almost 60% of the entire federal budget.”

As a result, he added, future Congresses will be forced to deal with these huge expenses by drastically cutting spending in other areas of government, or by reducing benefits paid to the elderly.

Noting that Congress declined to act on his Social Security reform proposals in 2005, the president called on lawmakers to help establish a commission to study the impact the baby boom generation will have on Social Security, Medicare and Medicaid.

“This commission should include members of Congress of both parties, and offer bipartisan solutions,” he said. “We need to put aside partisan politics and work together and get this problem solved.”

Frank Keating, ACLI president, said Bush “is on the right track in calling for a review of the issues our nation will face prompted by the upcoming retirements of 78 million baby boomers.”

Among the proposals the ACLI will be promoting in 2006, Keating said, would be helping Americans obtain annuities, which he said are “the only financial product that can guarantee an income throughout retirement no matter how long a person lives.”

Keating also backed the president’s call to make tax cuts passed by Congress over the past few years permanent, arguing that those cuts have helped workers save more toward their retirement. He also pointed to a key provision in the tax laws passed during the Bush administration that allow for older workers, those over 50, to contribute more toward their 401(k) plans as a “catch up” provision.

“This has been especially helpful to baby boomers who are trying to prepare financially for their rapidly approaching retirements and working women who are the most likely to have been in and out of the work force during their working lives,” Keating said.

The president’s focus on health care, including greater incentives to create HSAs, was lauded by Karen Ignagni, president and CEO of America’s Health Insurance Plans.

“In just two years, more than three million consumers–many of whom were previously uninsured–have chosen health savings accounts,” Ignagni said. “Boosting contribution limits and making HSAs more flexible will enable more consumers to access these innovative products.”

The president’s call for legislation designed to rein in medical malpractice lawsuits also was supported by Ignagni.

“Any plan to rein in health care costs has to include a solution for the medical liability crisis,” she said. “As a new study from PricewaterhouseCoopers reveals, consumers and employers are paying a hidden, 10% medical liability tax every time they encounter the health care system.”

But Joe Lieber, a securities analyst at Washington Analysis, played down the president’s proposals.

“While it was widely expected that Bush would focus much attention on health care and energy, many of the proposals were not new [i.e., medical malpractice reform, association health plans] and are unlikely to pass, while others have little immediate investment impact [i.e., clean coal, nuclear energy, solar].”

The Association of Trial Lawyers of America said in a statement that the “facts don’t match the president’s rhetoric on lawsuits,” citing statistics that federal tort trials are down 79%.

The ATLA statement cited statistics from the Congressional Budget Office that medical malpractice costs amount to less than 2% of overall health care spending in the United States.

“The president’s claims that lawsuits are clogging our courts are undermined by facts released by his own administration last summer,” ATLA said. According to the U.S. Justice Department, federal tort (personal injury) trials have decreased by 79% since 1985, it said. ATLA added that a recent survey of federal judges–including those appointed by Bush–found that an “overwhelming majority” do not believe that so-called “frivolous lawsuits” are a major problem in our civil justice system.

In his speech, the president asked Congress to make the medical liability system fairer and more predictable while reducing wasteful costs.

Under the president’s plan, contained in legislation passed by the House several times in his presidency but blocked in the Senate, payments for punitive damages would be limited to egregious cases “where they are justified.” The proposals would limit noneconomic damages to reasonable amounts, ensure that old cases cannot be brought to court years after an event and provide that defendants pay judgments in proportion to their fault.


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