Pres. Bush's statements on health care and health insurance in the State of the Union (free subscription required) address left me somewhat confused about the President's real objectives. While he advocated controlling the cost of care, he also strongly endorsed extending tax breaks for insurance and any individual expenditure on anything medical.

These two programs are contradictory. Reducing the consumer's real cost of health care makes them less likely to reduce expenditures, thereby feeding medical inflation.

The central premise of the Bush plan appears to be a belief in the power of information and tax policy to encourage better decision making by health care consumers. This approach, known as consumer-directed health care, will do nothing to reduce health care inflation.

Bush also:

• continued his oft-repeated support for association health plans (AHPs) to enable more small employers to purchase health insurance (although critics note that existing plans have had little to no impact on adoption of insurance; these plans are also strongly opposed by regulators and the health insurance industry; and prior legislation for AHPs has died in the Senate several times);
• endorsed tax credits for low income families to encourage them to set up Health Savings Accounts (HSAs) (although these people tend to be the less well-educated, are less likely to have access to the Internet or other data sources to assess the quality of physicians and appropriateness of care, a central component of the consumer-driven approach to health care)
• continued to push for expanded funding for electronic health records and "other health information technology";
• repeated the call to increase the limits on tax-free annual contributions to HSAs, now over $5000 per family. In fact, over half of the HSA accounts set up to date have not been funded; people are just not contributing to these funds, despite the tax break. HSAs will do nothing to reduce health care demand; they are merely another tax break for the well-to-do.

Bush also endorsed limits on medical malpractice awards for pain and suffering. This lamentable attempt to blame lawyers and plaintiffs for health care costs, defensive medicine, and physician behavior disappears when faced with the facts - malpractice costs are simply not a significant contributor to health cost inflation.

The real drivers of health cost inflation are technology, the rising cost of drugs (driven by higher prices and greater utilization), higher labor costs (especially in the hospital sector) and an aging population. Insurance premiums reflect the cost of providing care to the uninsured, a burden that is paid by those with insurance.

None of the President's proposals do anything to address the core drivers of health care inflation, and some actually will add to the demand for health care, likely increasing costs.

What does this mean for you?

The lack of national leadership ensures medical inflation will continue unabated. Look for the rolls of the uninsured to grow as the number of employers offering, and employees buying, health insurance continues to drop.