Bush unveils new health insurance plan

By Caren Bohan
Saturday, January 20, 2007; 7:26 PM

WASHINGTON (Reuters) - President George W. Bush on Saturday proposed tax breaks to make health insurance more affordable to the nearly 47 million Americans who lack it and suggested removing some tax benefits for the most expensive employer-provided health care plans.

Health care is emerging in opinion polls as a top concern among many Americans as private health insurance costs soar, putting a burden on workers and companies.

The president, looking to gain momentum for his domestic agenda that is at risk of becoming overshadowed by the Iraq war, will include the health proposal in his State of the Union address on Tuesday.

"We must address these rising costs, so that more Americans can afford basic health insurance. And we need to do it without creating a new federal entitlement program or raising taxes," Bush said in his weekly radio address.

Democrats, newly in control Congress, reacted skeptically to Bush's proposal although Sen. Edward Kennedy of Massachusetts said he was pleased the president "is finally talking about the growing crisis in health care."

Most Americans who have health coverage get it through their employers, but others receive it through government programs such as those for the elderly, the disabled and low-income children. Some people also buy it on their own.

Bush's proposal would for the first time allow people to take a tax deduction -- similar to the one used by homeowners for their mortgage costs -- when they buy health coverage on their own instead of through an employer.

The program is intended to have no effect on government revenues because the cost of the tax breaks would be offset with other tax changes, according to a senior administration official who described the proposal to reporters.

Currently, employees who receive health coverage through their jobs do not pay taxes on the benefit. Bush would cap the amount of coverage that would be considered tax-free. Anything above that would be taxed as income. The limit for deductions would be $15,000 for families and $7,500 for individuals. The average cost of family health coverage is $11,500.


While some people would get hit with higher taxes, there would be a windfall for those who opted for low-cost plans.

For example, a family who bought a $10,000 plan could still take the full $15,000 deduction and pocket the extra money.

"This is essentially a standard deduction for health care, and the size of the deduction will be significantly higher than the cost of an average policy," said a senior White House official. "Because of this, about 80 percent of people with employer-based plans will see their tax liability fall because their insurance policies cost less than the deduction."

Bush said the current tax code unfairly penalized people who buy health insurance on their own while steering some toward "gold-plated" plans that drive up the cost of coverage.

But Kennedy said he was concerned that the tax changes could undermine employer-provided coverage while failing to do enough to help the uninsured.

New York Democratic Rep. Charles Rangel, chairman of the House Ways and Means Committee, said the Bush plan would increase the tax burden on working families.

"This is a dangerous policy that ultimately shifts cost and risk from employers to employees and could result in a higher number of uninsured," Rangel said.

A few states are experimenting with ways to extend coverage to the uninsured, including California and Massachusetts. The Bush plan would redirect some money that now goes to hospitals and other institutions to help states broaden health coverage.

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