Tax-free health savings accounts a sticking point in talks on Medicare drug bill

Friday, October 31st 2003, 12:00 am
By: News On 6

WASHINGTON (AP) _ Lawmakers failed to agree on tax-free health savings accounts, one of several major unresolved issues in negotiations on a Medicare prescription drug bill.

Closed-door talks that stretched late into the evening Thursday failed to produce any agreements, lawmakers said. ``There were no decisions made on anything,'' said Senate Finance Committee Chairman Charles Grassley, R-Iowa.

The core group of negotiators _ all but two of them Republicans _ are trying to write legislation to provide a prescription drug benefit for seniors and try to remake Medicare, the government-run program for older and disabled Americans. President Bush has called for its completion by year's end.

Some parts of the bill are independent of Medicare, including the health savings accounts. Lawmakers took up a House-backed measure that would allow people to invest in and draw on these accounts, akin to various retirement accounts that have favorable tax treatment.

Unlike the retirement accounts, however, which allow investors either to take a tax deduction on the money they invest or withdraw it and any interest earned tax free, the proposed health accounts would offer tax breaks on both ends.

They would be available only to people who have health insurance policies with sizable deductibles, $1,000 a year for singles and $2,000 a year for couples.

Sen. John Breaux, D-La., one of two Democratic negotiators, said the accounts would offer unprecedented tax breaks. ``I look at them as a tax shelter that basically helps younger, healthier people,'' Breaux said, echoing complaints of other Senate Democrats.

But the issue is very important to House Republicans, who received a briefing Thursday on the status of the negotiations from House Ways and Means Committee Chairman Bill Thomas, R-Calif., and House Energy and Commerce Committee Chairman Billy Tauzin, R-La.

Rep. Rob Portman, R-Ohio, said the absence of the health savings accounts in a final bill could jeopardize its passage in the House.

Following the Republican briefing, Speaker Dennis Hastert said, ``I think we're very close'' to a compromise.

``There are a couple of things that we haven't put to bed yet,'' the Illinois Republican said, although he added, ``I don't know how long its going to take.''

Chief among the unresolved issues is a Republican demand for traditional Medicare to compete directly with private plans that would be set up under the legislation.

The Bush administration and GOP lawmakers view this proposal as an essential element in their drive to overhaul Medicare. But Democrats say it could cause the Great Society-era program to unravel by leading to higher premiums for older sicker beneficiaries.

Also unresolved is a dispute over whether to allow lower-cost prescription drugs to be brought in from Canada and other countries. Several participants in the talks said senators, citing concerns about the potential for unsafe drugs to enter the United States, appeared unwilling to accept any plan that did not give the Food and Drug Administration veto authority.

The drug importation issue triggered a massive lobbying campaign by the pharmaceutical industry.

Industry critics pointed to a new study by two researchers at the Boston University School of Public Health, who estimated that without steps to reduce the cost of medication, the legislation would mean dramatically increased profits for drug companies. ``This windfall means an estimated $139 billion dollars in increased profits over eight years for the world's most profitable industry,'' the study concluded.

Thursday's negotiating session began with a delegation of House Democrats marching unbidden into Thomas' Capitol office, the site of the marathon talks.

The well-mannered intrusion was an act of political theater scripted to dramatize opposition to legislation taking shape in negotiations dominated by Republicans.