He Would Tax Those With Higher-Priced Plans, Give Breaks for Buying Cheaper Ones
By Michael A. Fletcher
The Washington Post
January 21, 2007
President Bush will propose a deep tax break for Americans who purchase their own medical insurance and would finance it with an unprecedented tax on a portion of high-priced health-care plans that workers receive from their employers, according to the White House.
Under the president’s proposal, workers who receive employer-provided health insurance would have to pay a tax on the cost of their benefit above $15,000, the threshold proposed by Bush for the tax break.
People with families who buy low-cost policies, meanwhile, would have their taxable income reduced by $15,000, regardless of the cost of the plans and whether they itemize deductions on their tax returns. The deduction would be $7,500 for single individuals. The deduction, to be indexed to account for inflation, would also be extended to those with employer-provided plans, to be offset by the cost of their coverage.
The Bush administration estimates that 80 percent of people with employer-provided plans would see their tax liability fall because the deduction would be larger than the value of their insurance plans.
http://www.washingtonpost.com/wp-dyn/content/article/2007/01/20/AR2007012000468.html
Comment:
By Don McCanne, MD
By giving every family with health insurance a $15,000 deduction from their taxable income, the president provides incentives to buy less expensive plans, since the tax benefit is the same for the cheapest plan and every other plan up to a value of $15,000.
Why would the president want to provide tax incentives to encourage individuals to buy cheaper health plans? He claims that insurance causes patients to over-utilize health care, and that health care costs will not be controlled until we end this waste. The fact is that the savings achieved by having the healthy decline services of marginal value is only a minuscule portion of our total health care budget. Most health care is provided to sick or injured individuals who need the care. The cheaper plans that the president is encouraging will increase out-of-pocket costs, often making actual health care unaffordable for precisely those who really do need it.
A further potential impact is that employers who would like to terminate their health benefit programs would have less incentive to continue to provide coverage since the employee now would become eligible for the $15,000 deduction. This further advances the president’s goal of shifting responsibility to the individual through an expansion of the ownership society – wherein you own the right to pay for your medical care.
His proposal also is a regressive method of funding health care. Since every insured individual receives the same deduction, higher-income individuals receive a greater government subsidy because of our graduated tax schedule. Worse, for individuals with modest incomes, the tax subsidy is not enough to make insurance affordable, and they will continue to do without.
At a time when everyone agrees that major reform is essential, the president comes up with this proposal. Doesn’t he care about us?