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.
Don McCanne’s Comment: 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?
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My top 15k of income isn’t taxed at the same rate as someone making more or less than me. The rich deserve more of a break on their health benefits than the poor?