WASHINGTON – As President Bush’s healthcare plan, announced in his 2007 State of the Union Address, sinks in, industry stakeholders are debating the implications of tax credits, taxable health benefits and cost-shifting methods outlined in the proposal.
The proposal looks to reform the tax code to give a standard tax deduction to Americans buying their own insurance. Single taxpayers will see the first $7,500 of their annual income exempt from payroll and income tax, while families will have $15,000 of tax-exempt income.
Meanwhile, taxpayers with employer-sponsored insurance will begin paying taxes on the coverage as if it were income. Currently, approximately 175 million Americans have employer-sponsored health insurance, while about 27 million buy their own insurance.
“Changing the tax code is a vital and necessary step to making healthcare affordable for more Americans,” Bush said.
Although the president urged Congressional bipartisanship on healthcare and other issues, leading Democrats generally rejected the proposal, which some dismissed as a mere tax increase for people who have health benefits. “We’re talking about exchanging one regressive tax for another,” said Sen. Hillary Clinton (D-N.Y.).
Groups such as the American Medical Association and America’s Health Insurance Plans lauded the announcement of the tax credit. AMA President William G. Plested III, MD, said, “Bottom line, Americans with individually purchased health insurance pay taxes on the entire cost of their insurance, while those with employer-sponsored health coverage don’t.”
AHIP President Karen Ignagni said, “Enacting common-sense tax incentives for individuals will go a long way toward helping millions secure and maintain the coverage they need.”
Commonwealth Fund President Karen Davis criticized Bush’s proposal as one that would do little to make healthcare more affordable. “Truthfully, it is a move away from employer coverage to individual market coverage, and that has much higher administrative costs,” she said. “People don’t have the power to negotiate effective rates the way the insurers do. I don’t think that having people pay more and more of their own bills will magically make the healthcare system more affordable.”
The Citizen’s Council on Health Care said that by moving ownership of insurance to the individual, Bush’s proposal will begin to eliminate health plans’ power to raise prices.
“If most of the American public suddenly became individual customers with cash in their pockets, health plans with high prices might find themselves with a considerably smaller book of business,” said Twila Brase, president of CCHC.
Joe Paduda, principal of Health Strategy Associates, said Bush’s plan problematically relies on insurance companies to provide additional coverage for people who don’t have insurance. “Insurance companies make money by selecting risks, not by managing healthcare,” he said. “They are out to make a profit, not provide health coverage to people who need it.”