State of the Union: Economic Response

Washington Post business columnist Steven Pearlstein was online Wednesday, Jan. 24 at 11 a.m. ET to discuss the domestic economic issues related to this year's State of the Union address, including health care, energy, entitlements and taxes.

The transcript follows.

Read the column: Bipartisan Cooperation on Health Care Is Dead on Arrival (Post, Jan. 24).

About Pearlstein: Steven Pearlstein writes about business and the economy for The Washington Post. His journalism career includes editing roles at The Post and Inc. magazine. He was founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion. He got his start in journalism reporting for two New Hampshire newspapers -- the Concord Monitor and the Foster's Daily Democrat. Pearlstein has also worked as a television news reporter and a congressional staffer.

His column archive is online here.

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Somewhere, Fedland: Why do I feel that "lavishly" insured means that you have a plan so you can get the health care you need when you need it. What about these plans makes them lavish? On demand organ transplants? Weekly MRI's? Coverage for pets? Is it lavish if you wait weeks for an MRI vice months? How about some specifics?

Steven Pearlstein: In terms of health insurance, lavish means first dollar coverage -- that is, low or no deductibles and copayments. The more of the bill that is covered, the higher the premium, and high premium is what we are talking about. If people want that kind of coverage, by all means, they should be able to buy it. But there is no reason the rest of us have to subsidize it, or encourage someone to chose it because it is subsidized, while ordinary cash wages are not. This tax subsidy costs $200 billion a year, roughly, and is rising fast. Is it so terrible to say that we cap this highly regressive tax subsidy at it roughly where it is today, and not let it grow to $300 billion? I don't think so. And neither do most health policy experts. The people who want to continue it are those that have policies that may lose some tax preference in the future, and health insurers, who like to sell these high premium policies.

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Anonymous: Generally, how would the President's health insurance proposal affect the majority of federal employees and retirees who subscribe to the various Government health insurance plans?

Steven Pearlstein: Government employees have very generous health plans, so they are among those who might begin to lose deductibility of the full value of their insurance early on. Most of the benefit would continue to be deductible. But to the degree the value of the policy rises above 15,000, that increment would not be tax free.

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Charleston, Ill.: We have two health care systems at work in our country. One is for-profit, under which about 69 percent of the money we spend goes for needed care while the rest goes for profits, CEO salaries and overhead. The other is not-for-profit with a proven 40-year history under which 97 percent of the money spent goes for needed care. Schwarzenegger vetoed a plan passed by both houses of the California legislature that would have saved that state $14 billion. Instead he offered a plan that will cost $12 billion. As a health care consumer I would like to be in the largest risk group possible, but am not "free" to do so. We keep looking for Free Market solutions to a Captive Market problem. Why is the media not covering the real story here?

Steven Pearlstein: Because you've set up a fantasy choice. If it were as clear to us as it is to you that going to a government run system is cheaper, better and politically acceptable to the majority of Americans, its not just the media that would have embraced it, the entire country would have. We haven't. And unless you believe that our democracy is so flawed that, on such a big and visible and important issue, a single industry -- the health insurance industry--has manipulated the entire political machinery at both the federal and state level for decades -- then you have to accept that maybe the choice is not as easy as you believe, at least in the eyes of the American people. The fact is tat the public is not a puppet of the media and the media and the public are not puppets of the health insurance industry. You need a more credible theory. And you need to be more honest about the downsides of completely government run system.

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Silver Spring: First off, I applaud your column regarding the president's health care plan. I am far from this president's biggest fan, as I imagine is true of you as well, considering most of your opinions. But you are absolutely right, for once this actually sounds like a real attempt to fix a broken system - and rather than jumping on the bipartisan bandwagon, democrats should look at it as the beginning of a real dialogue that can lead to real answers. I receive a pretty decent health plan at work, and would possibly be subject to some additional taxes. But you know what - why shouldn't I? My girlfriend has to buy her insurance outright, and pays almost 200 a month in after-tax dollars. It's the only tax(break) that's more regressive than sales tax! On another note, and more question than comment here - I'm not a huge fan of Webb either, but I liked what he had to say in response to the economy. I am pretty sick of looking at the past half-decade of median-income data and being told at the same time all about how great the economy is doing. It all sounds a bit like the trickle down theory - if the overall numbers look good, that will eventually benefit everyone. Although SOME economic studies show that reaganomics works under certain economic situations - Do you believe that we really have any basis to believe it will work in a global economy? i.e.- if a company wants to grow, that no longer necessitates employing the same population that will buy it's products. Am I mistaken here, or is basing our economic strategy on a theory from a completely different world a bad idea?

Steven Pearlstein: Thanks for your note. And I agree, Jim Webb was FANTASTIC! I hadn't heard him by the time I finished the column (written before the during the president's speech). But if I had, I would have put in a couple of lines on him. I think I heard Bryan Williams say he had torn up the speech written for him by Democratic "leaders" and written the thing himself. Which says as much about them as it does about him.

Also, did you hear how well Barak Obama handled the health care question after the speech, as opposed to the old bulls. In Webb and Obama you have people who can take us to a new place in politics. Its refreshing. Very refreshing.

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Yorktown Heights, N.Y.: Hi Steven, Respectfully, I must completely disagree with the premise of your article today. I can't see how the senior Democrats you mention are supposed to see Bush's proposal as a positive gesture, when it stands to hurt a big portion of their constituency, Union members. In fact, I think some have rightly identified the fact that his plan is yet another put forward, not in the interest of solving a problem, but in the interest of stripping away yet another entitlement. It isn't necessarily the rich who have these so-called "gold plated plans". Not only that, like the HDHP and the HSA he proposed, these tax breaks will not be enough to help the uninsured.

The "most basic" insurance likely has a high deductible, pays low coinsurance and has a high out-of-pocket maximum. Certainly not a plan that will keep a poor-to-middle income family out of debt. Can you tell me exactly how this proposal can help the uninsured, or even serve as a starting point for something that will?

Steven Pearlstein: There are so many things we can talk about, but one is what the purpose of health insurance is. It should not be prepaid health service. It should be insurance against really bad outcomes that, in fact, could ruin you financially. And it should include preventive care, because we know that otherwise too many people won't do it, and that will be bad for them and for the society. The stuff in the middle, the more routine events, ought to be handled out of people's ordinary income and ordinary savings, just like lots of bad stuff that happens in life, like a car that dies or funeral of a loved one. Insuring against all of these things is very inefficient. One problem I have with your comment is that you equate coverage with care -- they are not the same, and shouldn't be the same.

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Richmond, Va.: Re: Bush's health care initiative -- if I understand it correctly, a tax on those with a higher-end insurance would be, in fact, a tax increase, right? How does that square with the GOP's platform?

Steven Pearlstein: Well, it doesn't square with the idea that Republicans should never, ever raise a tax on anyone, especially rich people. Because this is a tax increase from current law on those with the highest premium insurance plans, who tend to be all the rich people Democrats love to excoriate, plus some union members who have, over the years, negotiated very rich benefit packages. And why did they trade off pay increases for rich benefit packages over the years? Because of the tax preference/subsidy, a dollar in benefits was worth more than a dollar in cash, that is why? All the President is doing is to suggest that maybe the tax factor should be eliminated in such future considerations, and people make the decision of a dollar of pay versus a dollar of benefit, straight up.

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Atlanta: Mr. Pearlstein, Thanks for taking questions. As a health insurance agent for the past 20 years, I just can't understand the President's proposal for tax deductions. Insurance is predominantly governed by the state, not the federal government, which is why coverage varies from state to state. In my state, individual health insurance is not a guarantee issue product. You can be declined, wavered for a particular condition (meaning the very condition you may need coverage for is not covered for a period of 2-5 years), and all include a 12-month pre-existing condition clause if you are accepted. In my state, if you had cancer in the past 5 years, you are automatically declined for coverage. A tax credit of $1,000,000 would not be helpful. Yet I never read about this situation in any articles about health insurance. People from Employee Benefits Research Institute only comment on the financial effect of people leaving employer sponsored plans and how beneficial it would be to employers. (In fact, it wouldn't be beneficial to employers either if they maintained a group plan. All the young, healthy people would leave and the plan would be stuck with the older, sicker people, rates would rise dramatically). While I have not read the fine print, if the President wanted to be innovative, he'd look along the lines of the Massachusetts and California plans. Your thoughts, please.

Steven Pearlstein: Well, if you read the president's plan carefully, or you read my column carefully, you will see references to "reform" of the "dysfunctional" small group and individual insurance markets, which must be done state by state under the current regulatory structure. And what this means, to many of us, is three things: One, allowing only small premiums differences for different customers based on age and health status, so older, sicker people can actually afford insurance; two, a rule that requires insurers to issue a policy to anyone who wants to buy one, regardless of age or health status, so insurers can't cherry pick just the "good" risks'; and, three, elimination or reduction of ridiculous state mandates that special interest groups have got inserted into state laws, that require any health insurance sold in the individual and small group market to cover certain benefits (all mental health, podiatry, chiropracty, home visiting nurses, etc. etc.). These add considerably to the cost of these policies versus group insurance sold at large, interstate companies, that are exempt from the mandates, allowing employers and employees to decide for themselves what they want covered.

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Rome, N.Y.: By exempting $7,500 for singles and $15,000 for families from PAYROLL and income taxes, hasn't the President delivered a mortal wound to the Social Security system? Is there any concurrent plan to lift the cap on wages taxed for Social Security to offset the revenue losses the administration's plan entails?

Steven Pearlstein: Actually, you bring up an important point that the Democratic critics either didn't understand (which I doubt) or chose to ignore -- namely, that the exemption/deduction would apply for both income and payroll tax purposes. What this means, first, is that the deduction will have some value (albeit reduced value) even to low income people who pay little or no federal income tax, which accounts for 590 percent of the uninsured. Being relieved of the employee share of payroll tax for 15,000 is 7.5 percent of 15,000 or $1125. That's not enough to buy an insurance policy, but its not nothing, either. And economists would say that in relieving employers of paying their 7.5 percent share, in the long run that will generate higher wages for those employees, which could take the benefit to close to $2,000.

Now you raise a question about whether this will rob the SS and Medicare trust funds of badly needed revenue. and the answer, apparently, is that it won't, because it will have the effect of recapturing revenue from higher income people whose income exceeds the "cap" on Social Security taxation.

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Falls Church, Va.: First a bit of credit to Pres Bush for making the connection for us between energy and the economy and the GWOT with this statement: "For too long, our nation has been dependent on foreign oil. And this dependence leaves us more vulnerable to hostile regimes and to terrorists who could cause huge disruptions of oil shipments and raise the price of oil and do great harm to our economy."

His solution, however is to switch our addiction to the inferior drug of biofuels. Where does the energy in oil come from? It is the concentration of hundreds of millions of years of sunlight. The energy density of fossil fuels is incredible. Where does the energy in biofuels come from? Same place (sun) except that it is only one growing season. To increase the energy density of the fuel to fossil fuel levels, energy is applied making the energy returned for energy invested (EROEI) very close to unity. This is much different than just sticking a straw in the ground and sucking up the stored energy in oil. What will cause anyone to use biofuels vs oil (foreign or domestic)? Continual subsidy, that is what. Meanwhile the rest of the world will continue to use the superior fuel of stored ancient sunlight, while we tax ourselves to pay for the privilege of commuting 40 miles to work every day and shuttling our children great distances to school every day? Does this make sense?

Most Americans have decided that they like living where they have to drive 40 miles a day to go to work, and living in places where it is infeasible for their children to ever walk to school, parks, or to their friends house and where as adults the only choice for going out to dinner, a show, church or anything is to hop in the car and drive. How do we keep this desirable (albeit energy intensive) system going on biofuels where the energy you get out is almost equal to the energy you put in?

Steven Pearlstein: Well, you know, I'm sure, that there is a lot of disagreement among experts about all of this. Its not as clear cut as you make it out. But if you are right, then I suspect the we will move in the direction you suggest. The system is not that irrational.

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Washington, D.C.: The president's tax hike funded 'health plan' is venal, wrong headed and will make the health insurance availability worse as it rewards young healthy workers for moving to a catastrophic health insurance plan. Folks too poor to buy health insurance also are too poor to pay much in non-Social Security taxes. These folks are therefore also not likely to get much income from a tax deduction.

I liked the 'Send the Astronauts to Mars' proposal better from Bush's prior SOTU. That proposal was easy to understand as an interesting 'never gonna enact it' policy. The health tax proposal was painful to watch in the SOTU as Bush tried to explain how the tax revisions would work. What was your favorite, 'never gonna enact it' proposal?

Steven Pearlstein: What makes you think that young health people in group health plans, where they get their employer to pay for a good chunk of their insurance, to forgo that employer contribution and go out in the individual market and buy a high deductible plan? I doubt that individual will save much money, if any, while considerably increasing his risk if he gets sick. And if we can assume for the moment that we also reform the small group and individual market so that his premium discount for being young and healthy has been severely limited by community rating laws, then this is even more unlikely. Sure, it still may divert a small number of people. But given that the small group and individual markets are now dysfunctional because they don't have any young, healthy people in the pool., this hardly strikes me as the worst problem in the world. It may mean that the big difference between individual v. group premiums will be reduced, which sounds like a fairer system to me. Why should people who work for small firms, or firms that offer no insurance, be required to pay higher premiums for the same coverage than people who work for the Washington Post or General Motors. What fairness is there in that? And yet that has been the case for decades under the current setup.

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Falls Church, Va.: Earlier this week the Washington Post included a graph with an article on the recent trend toward state mandated health coverage. The graph showed the relative contribution dollars of employers versus employees on health plans for individuals/couples/families. The source of the graph was not listed, but the figures were well off from my experience. According to the graph, employers contribute $9000 of an average $12000 family policy and the employee the other $3000. My last two jobs had almost exactly the opposite ratios. To include my family on the health care plan would cost between $700-$800 per month, of course there were also co-pays and deductibles. We have a healthy family that has averaged less than $500 per year in total medical bills over the last 10 years. Can anyone actually tell me with a straight face that spending over 12 percent of my yearly salary for insurance just on the off chance we might have a family tragedy, is a good idea? This is just gambling. The insurance companies spend big bucks figuring out where to set the odds and I can get much better odds in Vegas.

washingtonpost.com: Universal Health Coverage Attracts New Support

Steven Pearlstein: I'm so glad you wrote in, because you ought to be Exhibit A for the president's proposal.

First, let me say that the data you cited are generally correct, as I understand it. Employers do pay two thirds or three quarters of the premiums (remember, not including co pays and deductibles) for the health insurance of their employees.

Second, you are upset because you pay large premiums to insure yourself against the financial effects of a bad health event, while spending very little for ordinary health services. And you are exactly the kind of person that might prefer a high-deductible plan, which would have lower premiums that really only cover the really bad or "catastrophic" events. Right now, the tax code tilts your decision, and that of your employer, for the more expensive insurance. But if that were limited, you might make a more rational choice about how much of your health costs to insure against, and how much, in effect, to self-insure. And what we know is that systems are more efficient if you and others make that choice without incentives or disincentives from the tax code.

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Silver Spring, Md.: I wanted to disagree with your comment in today's column about union health plans. I work at a unionized company, where we have a richer health plan than most and which might be subject to tax. It's absurd to me to state that the guys in the mail room, who may make less than $25,000 are the "aristocrats of the working class" because their union has negotiated the same health plan for them as for higher-paid employees.

Beyond that I'm sure Mr. Pearlstein is right in stating that "-Almost every health economist agrees that the tax subsidy for employer-paid health insurance is not only unfair but that it also encourages people to buy too much insurance, consume too much health care and pay too much for both." but it shows that health care economists have a fundamental misunderstanding of the field they are studying. Health care is a good like no other. People don't consume health care because they have money to spend on it but because their providers tell them they must spend money on it.

I have good dental insurance. I have a friend who has the same dentist as I, has no dental insurance and less money, but he spent more money on dental care less year because he got a root canal, while I didn't. I don't go to the dentist and say give me a root canal because I have money to pay for it.

There has been a huge cost shift in the workplace toward employees in the last few decades. According to health care economists, this should have restrained health care inflation, but it hasn't. What restrained health care inflation, for a time, was the switch to managed care, where the managed care institutions negotiated discounts from providers and dealt with some inefficiencies in the system. The real source of health care inflation is providers, not consumers, and President Bush, and others, do a tremendous disservice pretending the solution is consumer behavior.

Steven Pearlstein: Lots of thing to agree and disagree in that. why don't I leave it there.

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MD: I am interested in, though also somewhat concerned about, Bush's health care proposal. I've had several jobs where I didn't receive any employer-sponsored benefits and always thought that it was really unfair that I had to use after-tax money to pay for health care when others get their benefits pre-tax. More and more companies are contracting out positions, and I think that those workers deserve some tax breaks to help with their health care.

On the other hand, I am very concerned that taxing employer provided benefits will hasten the trend of employers not providing any benefits at all (now that I finally have them, personally I'd like to keep them). I've had a couple of jobs where I held the exact same position as a contractor and then a full-time employee - my experience has been that employers don't pay extra wages to contract workers at anywhere near the value of the benefits provided to regular employees, so if we implement a system that encourages employers to not provide benefits, American workers will likely end up overall much less well off.

My understanding of this scheme is that the first couple years of implementation will cost the government a lot, but eventually, health care costs will rise faster than the index they're using to cap the deduction amount, so everyone with a half-way decent health care plan will end up paying extra taxes on it. I just don't think that's a good road for this country to start down. I'd rather have a straight health insurance deduction for everyone . . . and make up the tax revenue loss by raising the capitol gains tax.

Steven Pearlstein: Let me comment on one thing you said, which is that if you begin to tax just a bit of the health benefit as its value rises over time, that somehow this will encourage employers to drop coverage. What is the microeconomic logic of that. The tax change doesn't have any effect on the cost of the policy to the employer. The only impact might be on the decision of the employee, in terms of what kind of insurance he/she chooses, or pushes or, and whether to take it up or not. I can't imagine giving up employer-paid group health insurance because my tax bill will go up $100 next year. Can you?

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Madison, Wis.: Thanks for your article and for taking questions, Mr. Pearlstein. Old habits die hard. It would appear that many Democratic leaders got an early phone call from union officials urging them to condemn Mr. Bush's health insurance tax plan. Are there any Democratic moderates who may break free of the union lobby and embrace Bush's proposal?

Steven Pearlstein: Looks like Barak Obama had the right response. And Ron Wyden at least had the intellectual honesty to acknowledge that his comprehensive health reform plan also contained a change in the tax deductibility of health benefits.

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Silver Spring, Md.: What is your evidence that two million of the 47 million uninsured will buy insurance with the tax break contained in the Bush proposal? How will this number, whatever it is, compare to the number who will lose insurance as employers drop coverage because of rising group rates? These rates will inevitably rise because many if not most employers will begin offering employees the option of remaining in the group plan or taking the (now taxable) cash cost of the plan. Most healthy families who are not among the 5 percent of individuals who account for half of all health care costs will find much cheaper insurance in the private marketplace. In other words, the adverse risk selection inherent in the Bush plan will drive group insurance rates upward as they cover only sicker people, and thus force employers at the margin to drop coverage. So, to repeat my question, how does your presumed 2 million covered compare to the number that would lose insurance?

Steven Pearlstein: Let me repeat: controlling adverse selection needs to be part of the reform. But you assume it can't, or won't be done. Why? The fact is that group health insurance makes a lot of sense, for employers, employees, the system. It is cheaper to administer, more convenient to employees, its what 160 million Americans are used to. Moreover, you have based your argument on the fallacious assumption that people know, in advance, what their health care needs are going to be for he coming year. Its true that elderly people know, which is why we need a public Medicare system for the elderly. And people with chronic conditions might know. But for the rest of us, you never know whether next year will be the year you get in a car crash, or develop cancer, or have a heart attack, which is why even health families insure against those events. And if health families decide that, for ordinary care, they would prefer to take the risks and pay for those themselves, that's NOT a bad thing. That's a good thing because it will begin to inject some real market forces into the health system, controlling utilization rates and putting downward pressure on prices. With first dollar coverage, people and their doctors have absolutely no incentive to control utilization or shop for good prices, and that is a BIG, BIG, BIG problem for the U.S. system. It is why we spend $2 trillion a year on a system, way more than any other industrialized country, and still don't have the best health care.

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dc: Some people have really good health plans and relatively low salaries. These people would be --unfairly--penalized by Bush's proposal.

Steven Pearlstein: Or maybe they have been unfairly subsidized all these years, and would now be losing that unfair subsidy. Is that making the system more unfair, or more fair. Well, I suppose it depends on your angle of view, doesn't it.

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Alexandria, Va.: So, because I have a chronic illness and need the best health plan out there, I'm to be penalized and taxed on my employer's contributions?

Steven Pearlstein: No, nobody said that. And that won't be the effect. You're exaggerating and assuming all sorts of worst case scenarios.

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Silver Spring, Md.: You attack "labor dinosaurs" for trying to defend their Cadillac health insurance plans. But do members of the UAW really have health insurance that is so much more generous than other Americans working for major corporations? Or is it that the declining auto industry has a high proportion of retirees with (former) employer-paid Medigap plans, and an aging workforce that has a higher risk profile, and thus costs more to insure? In other words, isn't the segmentation of the risk pool the core problem with American health insurance, not Cadillac care?

Steven Pearlstein: Yes, they are more generous. Do you realize that, until this year, UAW members contributed nothing -- nothing-- toward their health insurance premiums, with very low deductibles and co payments. I work for a very generous and prosperous company, and we haven't had anything like that for years.

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re Webb: Did anyone else question the credibility of some of Webb's figures? He claimed the average CEO makes 400 times what the average worker makes. That would take the average CEO pay up to roughly $12MM. That may be accurate for the Fortune 100 (though it still sounds a bit high even for that) -- but not for CEOs across the board. There are an awful lot of officers of smaller companies working hard for reasonable pay.

Steven Pearlstein: He was probably referring to Fortune 500, or S & P 500 companies.

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Washington, D.C.: The steadily rising cost of providing health insurance for employees is frequently cited as a major concern among business owners. Just one example: the Milwaukee Journal Sentinel ran an article in their Business section on March 8, 2006, which talked about Wisconsin CEOs being more optimistic about the economy than peers in other parts of the country. However, in this article it was reported that the single government action that would "make US businesses more competitive globally" was health care reform.

My question is, since this is a consistent finding, why isn't health care reform at the top of the national political agenda? I was baffled as to why organizations like the Chamber of Commerce didn't press the previous Republican congress to do something about an issue that has such an obvious impact on corporations' ability to compete in a global marketplace. What chance is there that this Congress will enact a comprehensive reform of health insurance, providing coverage for all Americans, this year? And, if passed, what chance is there that the President will sign the bill into law?

Steven Pearlstein: We've run out of time, so I'm just going to print this and lots of other comments as they were submitted, with no response, just to get them all on the record. Thanks for a good, lively discussion. See you next week.

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New York, N.Y.: Steven, I have a slightly different health care question. To what extent, do you think that the volume of people on Medicare and Medicaid affect the costs of health care for everyone else?

The reimbursement rate for these government plans don't seem to have any connection to economic reality. If doctors and hospitals have to accept these plans, isn't there significant cost shifting to everyone else? (PS From my in-laws experiences, I can't even begin to describe how many doctors in New York City won't accept Medicare, and in some cases I can't blame them.)

Steven Pearlstein: Thanks.

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Boston, Mass.: I didn't catch the numbers, but I'm pretty sure my company provides us with a really generous PPO plan (I never need referrals to go to a specialist), and I have a feeling I would get hit with this tax. On the other hand, I make just enough to live without any debt and modest savings for my family of three. So half of me feels yes, I know I should subsidize health care for those who make a lot less than I do. But the other half feels this is the wrong place for the money to come from...

I think that everyone should have access to complete health care. I know these generous health plans still fight to deny coverage for unnecessary procedures (like LASIK or liposuction), and that makes sense. Wouldn't it be better to get this money from a less tainted source, like income tax, and just say our country values a high level of health care for all its citizens?

Steven Pearlstein: Thanks.

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wash dc: So would the 15K/7.5K standard deductions be set to increases with the rising cost of health care. Otherwise this will end up like the alternative minimum tax, where it seems OK now but in a few years will significantly increase costs to the average family when 15K just won't be enough.

Steven Pearlstein: Thanks.

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Sewickley, Pa.: Mr. Pearlstein, I frequently check the BLS website for employment data. The latest reporting in the "B tables" shows that since Mr. Bush's first inauguration the economy has created just 2.45 million new private sector jobs. During the equivalent time frame in the previous administration 19.1 million new private sector jobs were created. Why in your opinion isn't this discussed more? I believe the latest Post poll showed 57 per cent were dissatisfied with Mr. Bush on the economy. Is that what Jim Webb and the Democratic Congress are tapping into with the response to SOTU?

Steven Pearlstein: Thanks.

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Bethesda, Md.: You are spot on about the Kennedy, et al., knee-jerk, inaccurate response to the health-care proposal from the President. And your reference to the "propaganda" from the "dinosaurs" at the AFL-CIO brought a wry smile. John Sweeney was in Speaker Pelosi's box at the speech. So much for new ideas.

Steven Pearlstein: Thanks.

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McLean, Va.: What about the health equivalent of a Hurricane Katrina: an individual with a low-premium, catastrophic plan, come down with a chronic, long term, high cost condition. Can that person revamp their coverage? At what cost? People don't stay healthy all their lives.

Steven Pearlstein: Thanks.

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South Orange, N.J.: I was under the impression that part of the rationale for the relatively modest wages paid to Police, Firefighters, Teachers and many other public servants was that they were eligible for health insurance plans that are by and large better then private sector health insurance plans. Wouldn't the President's proposed health Insurance tax policy either set off a round of salary inflation or place an economic burden on those who protect and serve the public?

Steven Pearlstein: Thanks.

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Washington, D.C.: In your response to Somewhere, you missed the point that the issue is to shift costs from employers to employees, without changing the tax effect. If copays go up by 500$/year I'll put $500 more in my flex spending account, pre-tax, in theory the premiums go down by $500, but I'll bet you that my employer won't pass that on to me. Net tax effect is zero, more out of my pocket more into employers pocket.

Steven Pearlstein: thanks.

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Leesburg, Va.: What's in the President's plan to replace the insurance benefit employees have been receiving, in terms of income? If my employer decides to no longer offer health insurance (since we employees can now get the President's tax break "benefit" by buying insurance on our own) and I have to buy insurance on the outside, it may well be tax-deductible, but it's still money that I'm currently using for other things - like retirement savings, a mortgage, food. My company makes a great show of including my benefits costs in an annual statement telling me how much I'm "really" paid, and that will go down once the company stops providing my insurance payments. What's the plan for replacing that income, so I can afford to buy the benefit I once received?

Steven Pearlstein: Thanks.

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Burke, Va.: Mr. Pearlstein, I'm interested in examples of what you would define as "in the middle" health care (in between preventive and catastrophic). Would it include things like CAT scans, MRIs, ultrasounds used to diagnose catastrophic conditions? If so, these are very expensive things and generally not affordable under most people's discretionary income. Even an ordinary doctor's visit for a child with an earache is out of reach for many without insurance coverage--yet that sounds like it's "in the middle" too.

Steven Pearlstein: Thanks.

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Anonymous: In the case of a federal retiree, would the $15,000 standard deduction apply only to the portion of the health insurance premium paid by the Government? E.g, each monthly premium consists of the Government's share and the enrollee's share. Am I asking a stupid question? Obviously, the portion paid by the retiree could not be considered "income."

Steven Pearlstein: Thanks.

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Columbia, SC: Posting another question. Is there any movement to address healthy choices in health insurance? If you have deadbolts, alarms, etc you get a deduction in your homeowners policy. If you have a good driving record - ditto for car insurance. Why can't we have the same deductions for making healthy life-style choices. This could help the "subsidizing other's" debate in my mind.

Steven Pearlstein: Thanks.

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Social Security Redux: The problem with Bush's "Plan" is that it makes the same rather slimy "compromise" that Social Security did. To wit, the poor get subsidized by the middle class, and the rich take a walk. By taxing "gold plated health plans", you basically take the rich and middle class and hit them with a tax to fund the working class and poor. But there is a de facto income cap, as the difference between a Union Plumber's health insurance and a CEO or Paris Hilton's is rather trivial. Much like FICA, I basically pay the same as Paris.

Since the funding comes solely from this tax, the rich get to skate, while we in the middle get to have the gap between us and those above us widened by an additional tax they don't pay. I love how these brilliant "compromises" always let the inheritor class skate.

Steven Pearlstein: Thanks.

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Laurel, Md.: In your column you stated: "For a few million of the roughly 47 million Americans with no insurance, it may also make the difference between being able to afford basic insurance or not."

I saw on CNN that at best the President's proposal may help 3 million of the uninsured in this country. This is like putting a band aid on severed hand. Why should anyone who cannot afford health insurance be excited by this plan? Why don't you and others who are praising this health-care plan by Bush, ask why nothing is being done by this pro-business administration to reign in the incredible cost of health care and prescription drugs? Isn't it time to join all the other countries who have universal health-care for their citizens, do it for much less than we spend and yet cover everyone?

Also, what about the ridiculous part where money is taken away from public hospitals to fund the uninsured? Why not take away the huge tax cuts for millionaires, billionaires and oil companies that Bush and his cronies gave over the past few years? That would more than pay for health care for every uninsured child in America and maybe more.

Steven Pearlstein: Thanks.

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Rolla, MO: Is the President's health care proposal wherein tax breaks for lavish plans are redirected toward those who have trouble affording now going to be in the form of a tax break for those individuals to purchase health insurance? If so, I can't see it working. Unless you have a system of lower premiums to the point of affordability on a modest budget, people will not but into it. If a family of four is making $50,000 a year, and the cost is over $500 per month, after tax or not, they will take the risk of no insurance. A tax break does not factor into their decisionmaking.

Steven Pearlstein: Thanks.

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McLean, Va.: Steven, The President's Plan has a major problem: the rich and well-off will opt for low-premium, high-deductible plans, while those with health issues will be forced into a smaller, high risk pool.

Then there's the even bigger problem: having a $7500 personal exemption for health care premiums doesn't do a person a bit of good if that person is over 50, had major health issues, and can't find anyone to insure him. That could mean a net loss of $15-$20K per year, when one considers paying the outrageous full retail price of modern meds. Until those issues are addressed, the President's proposal is nothing more than smoke.

Steven Pearlstein: Thanks.

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Manassas, VA - Sick of taxing the rich: It used to be in this country people aspired to do well. Now it just seems like the better you do, the more people will come after you from a tax standpoint - whether directly or indirectly like this health care proposal. Whenever Congress has a problem to solve, it seems like, hey lets tax the rich people a little more they make enough. Hey they have a good enough health care plan lets take some more from them.

For me personally, I make a salary that in any other part of the country would probably be considered wealthy. But having to live in Arlington some months I am barely breaking even. Why isn't geographic location an input into how much you pay in income tax? Certainly we can all agree making $80,000 in DC living in this area is not the same as say living in rural Kansas and making $80,000 a year?

Steven Pearlstein: Thanks.

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Leesburg, Va.: What's in the President's plan to replace the insurance benefit employees have been receiving, in terms of income? If I have to buy insurance on the outside, it may well be tax-deductible, but it's still money that I'm currently using for other things - like retirement savings, a mortgage, food. My company makes a great show of including my benefits costs in an annual statement telling me how much I'm "really" paid, and that will go down once the company stops providing my insurance payments. What's the plan for replacing that income, so I can afford to buy the benefit I once received?

Steven Pearlstein: Thanks.

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Silver Spring, Md.: What effect would the proposed tax credit have on the group aspect of employer-provided insurance? The argument made by a number of commentators, e.g., Krugman, is that a healthy employee would take the full credit and buy his or her own private insurance. This would leave the company-provided plan with only the riskiest pool and make it uninsurable.

Steven Pearlstein: This is bull, and Krugman knows it.

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Princeton, N.J.: But Steve as I have pointed out over and over again, It costs a fortune to weed out the people you don't want to insure, to prevent doctors from prescribing drugs you company did not get a good deal on, etc, etc. You can deny it all you want but other rich countries get better health care (as measured by all reasonable public health statistics) at a much lower cost per patient. It's a question of waste in the present system.

Doctors have to fill out 1,500 different complicated forms for private insurers. This wastes over 200 Billion a year. Private companies have overheads between 15 and 20 percent. (The Canadian system has an overhead of 1.3 percent.) This wastes over 100 Billion a year.

The problem is that the rules are set by the private insurers who are not interested in efficiency or good health care, but simply making money. If it save them money to have a doctor fill out a 40 page form to prescribe a certain drug, they require the form. (This is an actual example.)

Steven Pearlstein: Thanks.

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McLean, Va.: Oh, mental health benefits are a luxury? I hope that you and no one in your family ever suffers from schizophrenia, clinical depression or mental retardation under the type of health care you are advocating.

Steven Pearlstein: Some mental health benefits are a luxury. Others are not. But a blanket law that says you have to cover Woody Allens twice weekly visit to his shrink for 20 years is excessive -- and covered under most state mental health mandates.

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Silver Spring, Md.: You have yourself set up a fantasy choice by making a stark separation between regular health care needs and health insurance. There is fundamentally a reasonable "average" cost for good health care for an individual. Let's figure out what it is, and share the cost in some reasonable fashion! You may say that's impossible, but others disagree.

Steven Pearlstein: Thanks.

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Arlington, Va.: I felt the President tax incentive for health care was an interesting idea to consider. What did you think about his pledge to balance the budget? How do you think revenue would be raised to offset the war's costs and the incentives he mentioned?

Steven Pearlstein: Thanks.

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Whoville, VA: How is the value of a health plan determined?

Steven Pearlstein: The premium.

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Arlington, Va.: On the Prez's health ins. plan--is this for the "working poor" (for example, a family receiving EIC) or can the non-working take advantage of it? Is it going to be something like a refundable credit? Appreciate your thoughts.

Steven Pearlstein: The absence of a refundable tax credit is a problem with the President's plan. Reason: it costs a lot of money. That's why I wrote we need to find a source of funding for that.

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Washington, D.C.: I consider myself a liberal democrat who would probably prefer a single-payer health system, but given the unlikelihood of that, counting health benefits as income for taxation purposes seems logical to me. But how will Bush's program do anything for those who I imagine to be the bulk of America's uninsured: folks who don't make enough to pay taxes anyway?

Steven Pearlstein: Thanks.

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Cannon Falls, Minn.: After an expensive surgery and recovery my husband's company laid him off. With a pre-existing condition it makes it very hard to get insurance. Bush's plan seems completely divorced from the reality of most peoples problems with health coverage: he seems to think we have TOO MUCH coverage and we need to spread it out. But his method of spreading it out assumes that people with no health insurance will benefit from a tax cut and will use this extra money to buy insurance. Hello? Am I not understanding this correctly? How is this not a totally insane plan? Can you help me understand?

Steven Pearlstein: Thanks.

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Silver Spring, Md.:

Dead on arrival sounds about right to me. The president was trying to tell us that the problem with our health care system is the tax code? I'm familiar with the Texas Two-Step, but you'd have to be better than Fred Astaire to follow that argument!!

Steven Pearlstein: Thanks.

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