What's Really in the Bush Plan?

After listening to the president last night and reading the press accounts this morning, it would appear that the first leaks of his health care proposal on Sunday were inaccurately described. Bush, according to this morning's New York Times, is proposing a standard $15,000 deduction ($7,500 for individuals) for health insurance, which means, I presume, he would make ALL health benefits taxable as income (to give a standard deduction and still leave plans under $15,000 untaxed would bankrupt the Treasury). So, if your employer-provided plan cost more than $15,000, you'd pay additional income taxes. If it cost less, you'd pay less (how much less would depend on the difference between your plan's cost and $15,000, multiplied by your marginal tax rate).

This changes nothing for the working poor who are uninsured. They are still being offered a tiny tax break compared to the cost of even a catastrophic insurance plan (one reader suggested to me that this is closer to $5,500 rather on average rather than the $8,000 I estimated Sunday). Okay, even if that's true on average, that's still three times more than the amount offered in the tax break. And it would do nothing for those folks who go to the emergency room on Saturday night with a sick kid for routine care. They'll still be socked with huge bills.

There's no doubt that making people aware of how much their employers are spending on their health care will sensitize people to health care costs. But it seems to me that it will still create all the perverse incentives that I outlined on Sunday if employers give their workers an opt-out option (take the cash and buy your own insurance). This will encourage the well-off, well-insured to switch to catastrophic plans, bank the rest in tax-deferred accounts and eviscerate the risk pool.

Which brings me to Steve Pearlstein's column in today's Washington Post, which he'll be on line to discuss live this morning at 11 a.m. I will skate over his ad hominem attacks on Sens. Ted Kennedy and Harry Reid and Reps. Pete Stark and Charlie Rangel, all of whom immediately called the president's proposal DOA (dead on arrival). "Labor dinosaurs" propagating "half-truths, unsupported assumptions and outright lies," he wrote.

What are those lies? It will do nothing for working families. It will increase the number of uninsured. And it will encourage everyone to buy less insurance than they need.

Even Pearlstein says it will at best encourage "a few million" to buy insurance from the 47 million who don't have it. What does he base that number on? And would that number, whatever it is, be larger than the number who would join the ranks of the uninsured when their employers drop coverage because of skyrocketing rates due to healthy people leaving the risk pool?

I think there is absolutely no doubt that this would lead to a shift toward catastrophic insurance plans. That's great if your healthy. But if you are among the 5 percent of the population that accounts for 49 percent of all health care costs (or are on the road to inclusion in that category because you smoke, are obese, eat poorly, fail to exercise, are under stress, have untreated hypertension, etc. etc.), those plans will cause you to stint on routine and preventive care and just make the overall burdens on the health care system worse. Economists who prattle on about "consumer-driven" medicine reducing unneeded health care costs -- and Pearlstein appears to have drank their Kool-Aid -- remain blissfully ignorant about the real drivers of rising health care costs in this country.

Mark Stanton of the Agency for Healthcare Research and Quality did an excellent paper last year on the distribution of health care costs. Anyone with the bully pulpit on health care reform (like a columnist for a major newspaper) ought to read it before engaging in ad hominem attacks on legislators who have been thinking about health insurance reform for decades. I'm not saying Pete Stark and Ted Kennedy are right about everything, but I believe an accurate understanding of the implications of the Bush plan lay behind their rhetoric.

Pearlstein called them on the carpet for demonizing the president and grandstanding, and asks, "Haven't we had enough of this?" Memo to Pearlstein: Look in the mirror and learn a few things about the health care system before you go running for your computer.

Posted by gooznews at January 24, 2007 08:40 AM