January 21, 2007
The Bush Health Care Plan
In his State of the Union address later this week, President Bush will unveil a new health insurance tax break for individuals and families who purchase their own plans. He would simultaneously begin taxing the value of any employer-provided family plans that exceeded $15,000 a year ($7,500 for individuals).
The plan, pitched as taxing the well-off to provide help for the uninsured, is actually a carefully constructed scheme to further undermine the employer-based group insurance system. It provides a powerful tax incentive to encourage the well-off and healthy to abandon their employers' plans in favor of the Health Savings Accounts/individually-purchased catastrophic insurance plans favored by free market enthusiasts.
While the specific details remain to be seen, both today's New York Times and Washington Post said the plan's core element would provide a $15,000 automatic tax deduction to any families ($7,500 for individuals) who purchase their own health insurance. The plan would "pay" for this tax break by taxing as income any insurance plan offered by employers that exceeded those amounts.
Let's look at how this proposal might affect two different two-income families: one where both husband and wife earn $25,000 a year at lousy employers who don't provide health insurance; and the other earning a combined family income of $150,000 a year with a good health insurance plan that costs their employer under $15,000 a year. (With the average family plan now costing around $11,500, not many plans will fall into the taxable category; it will be interesting to see how the Congressional Budget Office calculates the tax revenue implications of the Bush proposal).
That moderate-income family without insurance will now get a $15,000 tax deduction if, and only if, they buy insurance. And don't forget, this is a deduction, not a credit. So, at their marginal tax rate of 15 percent, the tax break is worth $2,250. If they go into the marketplace and buy that "average" plan, their actual cost will be $9,250 or about $800 a month. Very few hard-working, moderate-income families without health insurance will find that incentive very attractive. If they buy a catastrophic plan, which provides hospital insurance only, it might cost only $8,000 a year. Even after the tax break, that's still nearly $500 a month. How many families bringing home $3,600 a month after all other federal, state and local taxes will opt for that?
Now, let's look at the $150,000 couple. Their employer plan, which costs their employer $11,500 a year for their family, is okay, but they're pretty tired from being shuttled between HMOs every year. Moreover, their employer this year began a new program: they can get a cash grant of $10,000 to buy their own insurance and/or put in a health savings account for routine medical expenses.
Over a cappuccino one night, the couple sits down and does the math. If they took $8,000 and bought a catastrophic insurance plan that covered any emergency hospitalization or life-threatening illness, they could put the other $2,000 in their tax-deferred health savings account to pay for routine medical bills. Given the fact that they're healthy (knock on wood) and the kids' care is routine, that's more than enough to pay the bills.
On the tax side, their total income from their employer goes up by $8,000 (the other $2,000 in the HSA is tax-deductible, don't forget). But that is more than offset by the $15,000 tax break, leaving a $7,000 tax deduction. At their tax bracket of 28 percent (as with the home mortgage deduction, health care deductions are worth more to those who earn more), that puts an extra $1,960 in their pocket at tax time.
You don't have to be a rocket scientist to figure out that this proposal provides a powerful incentive for healthy, well-off families to abandon their employer plans if their employer gives them that option. And employers will increasingly want to do that since it will save them money: the cash grants will always be less than the cost of insurance. Indeed, as more and more well-off, healthier families opt for the grants, only the sickest and most costly employees will remain in the insurance pool. This will drive the cost of regular insurance higher and further erode employers' willingness to continue paying for it.
It's hard not to conclude that this plan was carefully designed to put another nail in the coffin of the employer-based health insurance system, and build upper-middle-class support for individual families purchasing their own plans and care. It has nothing to do with insuring the uninsured, since the benefits are far less than what is needed to effectively move them into the insurance pool.
There is little question that this proposal is intended to bolster individual insurance as compared to employer sponsored insurance. Why is that a bad thing? The current system strongly favors the haves to the detriment of the have-nots. Why are you upset that this proposal would level the playing field and provide an advantage to the have-nots? You play down the tax incentive but it is an extra $2,000+ that the uninsured does not have now. You also dismiss the power of what could occur if the individual risk pool could attract a broader base of participants. The individual market suffers somewhat today because most people are in group plans. Strengthening the individual market would tend to provide more stable rates over time because the risk pool would be larger.
I am a Benefits Director for a Fortune 500 company and the current system makes no sense at all. Why do we have it in our heads that everyone is better off by buying their health insurance through their employer. If that is the case, why don't I buy my automobile, clothing, food and everything else through them as well? By providing the incentive to only go through the employer we have created massive extra costs and inefficiencies and severely limited choice in health care by most Americans. Health care coverage is, in reality, compensation from the employer. The only reason that it ended up the way it did was to get around wage and price controls during WWII. It is time to return to some common sense. Congratulations to President Bush for bringing this issue to the fore.
Posted by: Benefits Pro at January 22, 2007 10:06 AMDear Benefits Pro,
Couldn't agree with you more about how employer-based insurance makes no sense. But moving people into an individual market isn't the answer, which the Bush plan is designed to accomplish. That's a guarantee for a two-tier system where the poorest and sickest will have the least coverage and least preventive care. That's why I believe we should move to a single-payer system that covers everyone: no adverse risk selection, no class stratification in basic care (there will always be a private market for extraordinary interventions -- some of them useful, some of them not -- for the well to do), everyone in the same pool.
Posted by: Merrill at January 22, 2007 10:52 AMA single payer system will surely lead to second rate care for most and leave us with a two tier program on top of it.
What almost everyone ignores is that someone has to make the allocation of resources decision when it comes to health care. This is the only way we can keep health care costs in line under control over the long term. I prefer that it be done by the individual rather than the government.
People in this country largely rebelled against HMO's when they tried to fill this role. Why would they want the government determing whether their child should get a needed test or they can have their hip replaced. Medicare works only because the private payers are subsidizing Medicare. Most hospitals and doctors will tell you that they could not cover their costs if they had to rely on Medicare reimbursements across the board. If the government took over all of health care it would not be pretty and quality would inevitably suffer as would technological innovation in health care. For example,
Canada has 3 total PET scanners in the whole country. Most major US cities have at least that many. In the UK if you need a hip replaced and you are too old...forget it...it will not be covered.
In the end there would be a system for most that is worse than today while those with means would buy supplemental coverage to get higher quality or more timely coverage. The disparity in care would be even greater than it is today in all likelihood.
This is exactly what happens in the UK, Canada and other places that have single payer system. As with most liberal ideas, the theory is great. However, looked at from a practical view, the promise of most liberal ideas does not work in the real world.
Posted by: Benefits Pro at January 22, 2007 06:06 PMBenefits Pro:
"This is exactly what happens in the UK, Canada and other places that have single payer system. As with most liberal ideas, the theory is great. However, looked at from a practical view, the promise of most liberal ideas does not work in the real world."
Three Questions:
1) By "other places," are specifically referring to these Anglo examples or the rest of the developed (and undeveloped) world minus a couple of exceptions.
2) Where is this "real world" you seem to know so much about? From what I can tell, we stand in sharp contrast with the rest of this world (earth), and our "ideas" don't seem to be working to well. . .that is if you are referring to outcomes and not profits.
3) And by "this" are you referring to greater life expectancy, lower infant mortality, and health care efficacy as measured by any objective measure (other than the unfettered freedom to by as much snake oil. . .er vioxx. . er zyprexa. . .as the market will bear).
Posted by: Morris Berg at January 23, 2007 09:23 AMTwo minor points, neither of which change the thrust of your argument:
1. I believe the deduction is limited to the amount spent on coverage, in this case $8,000. (Allowing everyone to claim a deduction of $7,750/$15,000 would be completely asinine, though that’s not enough to rule out the possibility).
2. You overestimate the price of catastrophic coverage. Mine (family of 4, no cc’s) is ~ $5,500/yr.
The questions for me are:
1. Why should the benefit continue to be proportional to your marginal tax rate? This guarantees that the nominal benefit will be greater the greater your income, whereas the problem with gaps in the coverage pool is generally amongst those with lower incomes. If you have the standard objectives balancing the distortion any tax causes against the constellation of selection/financing issues in health care, better alternatives abound.
2. Where is portability? I’d always thought that a necessary component of decoupling coverage with employment. We’ve had two failed attempts so far – COBRA & HIPPA. If it is lacking in the current proposal, then this is definitely a sham. If not, how can it be a bad thing?
3. Is it realistic to expect that US citizens will ever be homogeneous enough to be comfortable with the single ethical framework required of a single payor system? Funding is a clear expression of values, and I don’t see the US as capable of settling on one set.
4. Finally, considering second order affects, whither savings? Anyone aware of studies on the impact of universal coverage/single payor on personal savings rates? As pathetic as Americans are at saving (micro and macro data each telling depressing stories), wouldn’t stripping out one of the principal reasons for savings further reduce aggregate savings? I’m assuming here that the gov’t would be the payor, and it wouldn’t pre-fund. That doesn’t strike me as a heroic assumption.
FYI to Benefits Pro: While no longer growing as quickly, it is wrong to claim HMOs have been “rebelled” against when, for example, 47% of all Californian’s receive coverage through an HMO.
Benefits Pro wrote: "A single payer system will surely lead to second rate care for most and leave us with a two tier program on top of it."
Not based on the "real world" examples that we have, including such things as the VA system, Medicare, and every other industrialized nation.
"What almost everyone ignores is that someone has to make the allocation of resources decision when it comes to health care."
Yup, and these resources are not unlimited. This isn't exactly a surprise.
"I prefer that it be done by the individual rather than the government."
Sorry, but nothing in the Bush plan guarantees that individuals will be able to control the allocation of resources. We cannot do it today; we won't be able to do it with the Bush plan. In fact, nowhere in the "real world" does the individual control the allocation of medical resources, other than the very unreal world of the incredibly wealthy.
"Most hospitals and doctors will tell you that they could not cover their costs if they had to rely on Medicare reimbursements across the board."
Oh, garbage. Most hospitals and doctors will also tell you that one of the biggest of their costs is the paperwork for the various insurance companies they deal with.
"If the government took over all of health care it would not be pretty and quality would inevitably suffer"
And again, garbage that is directly contradicted by all of the available evidence.
"This is exactly what happens in the UK, Canada and other places that have single payer system."
And again, complete garbage. By damn near any measure you care to name, including outcome, satisfaction, cost, various health metrics, and so on, the rest of the "real world" does better than the U.S. Hell, even Medicare and the VA system, two government-run health plans, do better than the patchwork available in the rest of the U.S. Your post was unsupported nonsense, from start to finish.
Posted by: PaulB at January 23, 2007 06:13 PMYow, you were correct in that it is a $7,500/$15,000 deduction. So much for the concept of coinsurance.
Posted by: cjp at January 24, 2007 01:26 PMPaul,
You seem to not like to call everything garbage without quoting any real facts yourself.
Here are a few facts on Canada's system:
Average wait for a hip replacement is 2-3 years
Median time between a referral from a family physician and an appointment with a specialist is 8.3 weeks (up from 3.7 weeks in 1993)
Median wait between appointment with a specialist and treatment is 9.4 weeks (up form 5.6 weeks in 1993)
The system is working so well that the major push there is a push for privatization.
This from an article in the 2/26/06 NY Times (it is also the source of the stats above):
"The country's (Canada) publicly financed health insurance system is gradually breaking down. Private clinics are opening around the country by an estimated one a week, and private insurance companies are about to find a gold mine".
This is despite the fact that Canada outlaws privately financed purchases of core medical services. This is a major reason that Buffalo is always a leader in heart surgeries. Who wants to wait in line for your turn to come up for your bypass in Toronto? In the end, you may not need the surgery if you stay in Canada.
The facts on the UK from James Bartholomew in The Spectator (UK)
"If you are a woman with breast cancer in Britain, you have (or at least a few years ago you had, since all medical statistics are a few years old) a 46 per cent chance of dying from it. In America, your chances of dying are far lower — only 25 per cent. Britain has one of the worst survival rates in the advanced world and America has the best.
If you are a man and you are diagnosed as having cancer of the prostate in Britain, you are more likely to die of it than not. You have a 57 per cent chance of departing this life. But in America you are likely to live. Your chances of dying from the disease are only 19 per cent. Once again, Britain is at the bottom of the class and America at the top.
How about colon cancer? In Britain, 40 per cent survive for five years after diagnosis. In America, 60 per cent do. With cancer of the esophagus, survival rates are low all round the world. In Britain, a mere 7 per cent of patients live for five years after diagnosis. In America, the survival rate is still low, but much better at 12 per cent.
The more one looks at the figures for survival, the more obvious it is that if you have a medical problem your chances are dramatically better in America than in Britain."
The main reason for these poor results is again due to wait times. In social model single payer systems the government determines the supply with little regard to demand. Therefore, you must wait 2 months to start treatment for breast cancer in the UK and in the US you start that afternoon. If you are age 70 and want a hip replacement you do not qualify. You are too old to play golf anymore anyway.
Paul, I know you want the country to have a single payer system. Which system do you want for yourself?
Food for thought...
Posted by: Benefits Pro at January 24, 2007 06:17 PM