Bush Insurance Plan Gets Cold Reception
Tuesday, January 23, 2007; 8:46 AM
WASHINGTON -- President Bush's proposed tax deduction for health insurance appears to be shaping up as a tough sell in the Democratic Congress.
Rep. Pete Stark, D-Calif., said Monday that the tax changes, which Bush will promote in Tuesday night's State of the Union address, would encourage employers to stop providing health insurance.
"Under the guise of tax breaks, the president is pursuing a policy designed to destroy the employer-based health care system through which 160 million people receive coverage," the lawmaker said.
Stark, who oversees a key House Ways and Means subcommittee, said he would not consider holding hearings on the proposal, which includes a trade-off. Contributions from employers toward health insurance would begin to be treated as taxable income. At the same time, a standard deduction for taxpayers with health insurance would be set at $15,000 for families and $7,500 for individuals.
The White House says 80 percent of workers with health insurance through their jobs would see a tax cut as a result of the change. But about 20 percent would see a tax increase _ those workers whose health insurance cost more than the standard deduction.
The change in tax policy is one of two major health proposals announced by Bush last weekend. The other would take some federal money now going to hospitals and other facilities and give it to states for programs to reduce the number of uninsured.
Health and Human Services Secretary Mike Leavitt said there are better uses for some of the $30 billion a year the government spends on bills for the uninsured.
"When you subsidize institutions but not people, oftentimes the institutions get taken care of, and the people don't," he said.
Leavitt said he can redirect some on the money on his own, but he needs help from Congress for other transfers.
Bush's insurance proposal would have to go through the Senate Finance Committee. Chairman Max Baucus, D-Mont., said his first priority is extending coverage to uninsured children.
"I'm ready to work with anyone who's putting forward real ideas about getting health care to more Americans," Baucus said.
Insurers said the president's tax proposal would help many of the 17 million people who buy coverage through the individual or small-group market. Their ranks include real estate agents, consultants and employees of small businesses. Also benefiting would be those in newer industries, like technology, where the workers tend to be younger and the health coverage more basic.
Meanwhile, many state employees, teachers and older workers in such established industries as automobile and steel manufacturing could see their expenses go up, said Karen Ignagni, president of America's Health Insurance Plans, the insurers' trade group.
The trade group has not yet taken a position on the president's proposal. However, the insurers like the president's focus on health care going into the year.
"With the president coming forward and making health care such a major issue on his priority list, I think progress is definitely possible," Ignagni said.
The Congressional Budget Office reported as far back as 1994 that exempting health insurance premiums from taxation contributes to the higher cost of health insurance.
Eleven years later, in 2005, a panel appointed by Bush recommended that caps on tax-free premiums be put into place _ $5,000 for individuals and $11,500 for families. The recommendation went nowhere.
Grace Marie Turner, president of the Galen Institute, said the president's latest proposal treats all consumers the same regardless of how they get their insurance. Plus, it will require people to take a look at what kind of health insurance policy they need.
"We had sort of the castor oil version of this policy change in mind. What they've come up with is the honey version," she said.
But Paul Fronstin, a senior research associate at the Employee Benefit Research Institute, said he has serious concerns about the president's proposal.
"I think we're giving employers the incentive to get out of the business of providing health benefits," Fronstin said.
If that happens, more people would have to get their insurance coverage through the individual market, he said. Landing such coverage can be more difficult for sicker, older workers, he said.
Diane Rowland, executive vice president of the Kaiser Family Foundation, said some of the people with health insurance premiums above $15,000 don't necessarily have "gold-plated insurance," as the Bush administration has called it. She said the cost of insurance varies depending upon the cost of health care in that state. Other factors include the size of the company and the age of its workforce.
"A single cap can mean very different things in different places of the country," she said.