Almost Perfect
resident Bush scores low on the Iraq war and in popularity polls. But we give him nine points out of 10 for his State of the Union proposal to equalize health insurance options among Americans.
As Grace-Marie Turner, president of the Galen Institute, recently put it, “The president’s plan can be a win/win/win/win/win.”
The centerpiece of the president’s plan would be a standard tax deduction for people who have qualified health insurance, whether a corporation employs them or not. The deduction would be $15,000 for a family or $7,500 for an individual. It would be subtracted from income on a federal tax return the same way as the dependent child deduction is.
Taxpayers wouldn’t pay income, payroll or Medicare taxes on the income deducted and wouldn’t have to
itemize to get the deduction.
If an employer paid for the insurance, the value of the benefit would be included as income on the employee’s annual W-2 earnings and tax statement (and offset by the deduction).
Everybody with insurance would benefit equally instead of the current preferential treatment for employer-provided insurance.
The president’s plan “would eliminate the current bias in favor of health insurance obtained through employers,” write Leonard E. Burman, Jason Furman and Roberton Williams of the Washington, D.C.-based Urban Institute.
The White House says this change would result in a tax cut for the 80% of Americans having health insurance costing less than the $15,000 deduction amount, about 100 million people.
The other 20%, whose employers spend more than $15,000 on their health plan, would pay more tax.
These employees are typically wealthier and earn more than the average worker earns.
Pros
There are 12 clean wins in the proposal:
– People without insurance would be better able to afford coverage. The White House estimates the average family tax bill for these families would go down by $3,350. Several million more people would have health insurance as a result.
– Employees actually would see how much money their company is spending on healthcare.
Employers spend almost $12,000 every year for the average family health insurance plan.
– Employees would have a better chance to buy their own, portable coverage that they could take with them if they change jobs.
– As they shop for more affordable coverage, insurance buyers would force more competition into the health insurance market.
– Employers would have a better opportunity to let workers buy their own coverage that would better meet the worker’s own needs.
– Doctors and hospitals would be more responsive to patients and their families as more people choose health savings accounts.
– Most taxpayers would get a tax cut.
– Bush’s proposal is budget neutral and would not require the government to increase tax revenue.
– For those favoring progressive taxation, wealthier workers and executives with more expensive health plans would pay more taxes.
– The plan would not force anyone to change health plans.
Employers could continue to provide health benefits.
– Individuals and families, instead of governments and employers, would be in greater control of their healthcare choices and spending.
– There’s even an opportunity for visionary labor leaders to advance the cause of union members.
Unions themselves could develop a wider variety of health plans at attractive prices for their members and other customers.
Cons
The handful of reasons why we don’t give the plan the highest 10 out of 10 rating:
– People who don’t have any health insurance don’t get any tax break when they save money for medical expenses or pay their doctor or hospital directly. In our view, they should also get a tax deduction for such spending.
– A refundable tax credit for health spending or insurance instead of a tax deduction would benefit more people, especially the poor not earning enough to pay taxes.
They would get cash refunded if they qualified. Health and Human Services Secretary Mike Leavitt recently implied that the administration was open to considering this.
– The president’s proposals continue to use American’s health spending as a pawn in ongoing political and social engineering fights.
We’d prefer to have our health spending totally out of the sight of politicians and to have a tax system less prone to social engineering.
Although we do have these fine point quibbles, Bush is moving the debate in a positive direction. Let’s not make “perfect” the enemy of the “best” possible.
Finally, we strongly agree with the president’s admonition, “We must remember that the best healthcare decisions are made not by government and insurance companies, but by patients with their doctors.”
Glueck comments on medical-legal issues and is a visiting fellow in economics and citizenship at the International Trade Education Foundation of the Washington International Trade Council. Cihak is a senior fellow and board member of the Discovery Institute and a past president of the Association of American Physicians and Surgeons.
