Feed on
Posts
Comments

President Bush proposed a practical health care reform during the annual State of the Union Address. Alas, with health care shaping up to be a major issue in the 2008 Presidential election campaign we do not expect Congress to give it deserved serious consideration.

Government wage controls during World War II induced American employers to use health insurance benefits to attract quality workers. Price controls ended with armistice, but the illogical connection between employment and health care remains today. The tax-favored employer-based system is inequitable, inefficient, and unduly encourages consumption of health care.

It is inequitable because employees are tax-favored over otherwise self-employed individuals, and higher income individuals and those with more expensive health plans receive higher subsidies than more modest income families and those with less expensive health plans. It is inefficient because large subsidies are paid to people that would have purchased insurance anyway – and at an estimated cost of over $150 billion it would represents the fourth largest item in the federal budget if it were reported. Subsidizing health care encourages consumption of it over other goods and services, and guides individuals to purchase more elaborate coverage, with more third-party coverage, than they would otherwise choose to purchase.

President Bush offered two proposals to partially undo this arrangement. The first would treat employer contributions for health insurance premiums as taxable income to employees. The second would create a standard federal tax deduction that all taxpayers, including itemizers, purchasing a health insurance policy can claim – $7,500 for individuals and $15,000 for families and indexed to the rate of consumer price inflation. Over time, the value of the deduction will erode since historical health care costs have increased faster than overall consumer prices. The deduction is non-refundable and fixed – families with no income tax liability will not receive payments from the government, and those with liability can deduct the full amount, even if their plan cost less. Workers with little or no income tax liability would benefit because the deduction also reduces their payroll tax liability.

Your tax liability depends on your income and payroll tax rates and the amount your employer contributes to your health insurance plan. For example, the net impact on tax liabilities for a family earning $50,000 with a company insurance contribution of $8,000 will be a savings of $1,586 in the first year.

The fixed deduction results in the largest tax savings for those with the least expensive employee health plans, for those who purchase insurance on their own, and for the uninsured who newly purchase a policy. Those with more expensive health plans will incur tax increases. More costly plans may reflect more generous insurance (such as first dollar coverage or fewer specialist restrictions), but may also reflect regional cost differences and poorer health – leading some to believe that the new plan is unfair. Regardless, the plan will encourage individuals and employers to seek out lower cost plans, such as high-deductible health insurance plans, in order to maximize tax savings.

The Bush proposals have four merits. They promote equity by leveling the playing field for those purchasing insurance on their own and limiting subsidies enjoyed by workers who purchase expensive policies. Second, they make the full costs of health expenditures transparent for the 60 percent of Americans currently receiving insurance though their employers – which might introduce more competition and cost consciousness among insurance companies. Third, they would eliminate the arbitrary favoritism in the tax code to health care over the purchase of other goods and services. Finally, labor mobility and the quality of job matches may improve as there is less pressure on workers to remain in or seek jobs solely for the health insurance benefits.

The proposals’ impacts will be limited. The non-refundable income tax deduction will not benefit the 32 percent of Americans who filed federal tax returns and paid no income tax in 2006. Among the uninsured, over half have no income tax liability while only a quarter owe more than $2,000. Thus, the program is, at best, expected to remove only five million people (of 47 million) from the uninsured ranks. Workers benefiting from a reduction in taxable payroll earnings would incur potentially substantial declines in their future Social Security retirement incomes because benefits are dependent on lifetime taxable wages – a non-trivial loss for lower-income families. The Bush plan is unlikely to restrain national health expenditure growth since it does little to address its fundamental causes such as the high demand for expensive new medical technologies.

Nonetheless, this small step away from the employer-based system merits consideration.

12 Responses to “The State of the Bush Healthcare Proposal”

  1. 952564 823307Wanted posting. Loads of exceptional writing here. I wish I saw it located the site sooner. Congrats! 623483

  2. lottorich28 says:

    457264 381149wonderful post, very informative. I wonder why the other experts of this sector do not notice this. You should continue your writing. Im positive, youve a terrific readers base already! 191922

  3. 519526 32919Just wanna comment that you have a extremely good site, I the style and style it in fact stands out. 294308

  4. 898434 303077Ill create a hyperlink to the internet page about my personal weblog. 166816

  5. BAU4IQ1 says:

    578232 574772This internet site can be a walk-through its the details you wanted concerning this and didnt know who to ask. Glimpse here, and youll undoubtedly discover it. 613222

  6. 766574 900668Just a smiling visitor here to share the adore (:, btw outstanding layout. 339777

  7. 70661 498431Thanks for yet another informative post. Exactly where else could anyone get that kind of information in such a simple to understand way of presentation. 645798

  8. find out says:

    874699 828149What a excellent viewpoint, nonetheless is just not produce every sence by any indicates discussing this mather. Just about any technique thanks and also i had try and discuss your post directly into delicius but it surely appears to be an issue in your blogging is it possible you need to recheck this. thank you just as before. 924112

  9. y2k168 says:

    899390 141233Hiya! Wonderful weblog! I happen to be a everyday visitor to your web site (somewhat more like addict ) of this website. Just wanted to say I appreciate your blogs and am looking forward for much more to come! 596411

  10. read article says:

    679734 115360This internet page is often a walk-through its the internet you wanted about this and didnt know who to question. Glimpse here, and youll completely discover it. 170039

  11. 6200 472507I adore your wp style, wherever did you download it via? 989111

  12. 394222 876851It is a shame you dont have a donate button! Id without a doubt donate to this brilliant blog! I suppose for now ill settle for book-marking and adding your RSS feed to my Google account. I look forward to fresh updates and will share this weblog with my Facebook group. Chat soon! 948251

Leave a Reply