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    Sunday, January 21, 2007

    Shifting Insurance: President Bush wants to change the way we tax health insurance:

    President Bush intends to use his State of the Union address Tuesday to tackle the rising cost of health care with a one-two punch: tax breaks to help low-income people buy health insurance and tax increases for some workers whose health plans cost significantly more than the national average.

    ....The basic concept is that employer-provided health insurance, now treated as a fringe benefit exempt from taxation, would no longer be entirely tax-free. Workers could be taxed if their coverage exceeded limits set by the government. But the government would also offer a new tax deduction for people buying health insurance on their own.


    It isn't clear that this will increase the number of people with health insurance, but it's likely to shift the purchase of health insurance away from the employer and to the individual. That's not necessarily a bad thing. It's much better to own your own policy than to rely on a third party to buy it. There's more portability and more of a choice - at least in theory. The choice part is what's difficult. Individual policies are difficult to find, and they tend to be more expensive than those offered at group rates to employers. On the other hand, if the demand shifts toward individual policies, then won't insurance companies have an incentive to shift their focus to the individual market and away from group markets? Health insurance would become like car insurance and life insurance. And that would be a good thing.

    Here are the details:

    It would work like this: The administration would cap the amount of benefits that can remain tax free at $15,000 for a family and $7,500 for an individual. Anyone whose health insurance cost more than that would pay taxes on the difference. For example, a family with coverage costing $16,000 a year would pay taxes on $1,000.

    The cap would also be used to establish the amount of the new deduction for people who lack coverage. In this example, a family buying insurance on its own could take a $15,000 deduction — even if the insurance cost less. The cap would rise with some measure of overall inflation, but would not necessarily keep pace with the costs of medical care and health insurance.

    A White House official, speaking on condition of anonymity so as not to upstage the president, said, “The vast majority of people with employer-provided coverage will benefit as well.”


    The article says that the average cost to a family for health insurance is $15,000 per year, half that for an individual. That's probably not affordable for someone making $10-12 an hour. One could argue that wages would go up if employers were not purchasing health insurance, and maybe they will. But it's been my experience as an employer that when an employee is given the money instead of th health insurance, they spend it on something else and then complain they don't have health insurance coverage. Can that attitude be changed?
     

    posted by Sydney on 1/21/2007 11:20:00 AM 6 comments

    6 Comments:

    The short answer is no. Many of those without insurance are students finishing college and waiting for their first job, or those between jobs, waiting for their new job's insurance to kick in. We then have a surprising group that feel no compunction to have, or pay for, health insurance. They feel it is simply a "right" to be cared for in the best manner, and are quit willing to sue to achieve this goal.

    We recently watched as a college educated woman had her second child out of wedlock and without insurance. The child's father had health insurance available, but since she qualified for government coverage, he did not feel the need to pay for insurance or birthing cost.

    There will have to be a mandate to force those able to seek health insurance coverage. The day of the all inclusive health policy are coming to an end. Taxing excessive coverage will eliminate this coverage as people will only want what is free. Doctors will need to adjust their practices to more restrictive testing and visit requirements.

    Steve Lucas

    By Anonymous Anonymous, at 12:47 PM  

    I agree with you, Steve. I heard an entertaining segment on talk radio when Massachusetts passed their comprehensive insurance reform and some young guy called in to complain that he shouldn't have to buy health insurance, and the otherwise astute host agreed. They both seemed to think that youth and good health habits would prevent illness completely. This attitude is extremely prevalent- and partly the fault of organized medicine.

    We emphasize modifiable risk factors to the point that people think they won't get a disease if they don't have any risk factors. People have completely forgotten that bad things just happen- most folks think most illness is someone's fault, directly or indirectly. From miscarriages to MIs, people look for a reason, and often think it's due to something done (or not done) by the sufferer themselves.

    This plan will still do ablsolutely nothing to help people with chronic disease, in fact, it could make it worse because they usually go for the "platinum" plans just to keep their OOP costs down to say, less than the mortgage.

    By Anonymous Danie, at 12:57 PM  

    Absolutely agree with both Steve and Danie.
    I might not be entirely objective because I probably have a better-than-average health plan from a Fortune 500 company, but those of us who get this type of plans are already paying for them. Not just by contributing, but also because the companies shift the expense to us by paying us less. So with Bush' plan we'll be paying twice - once with our smaller salaries and another time with taxes.

    In addition, faced with taxes on benefits people, especially young and healthy, will choose to work for companies that pay more but provides less benefits. In order to continue attracting best people, the companies will simply drop this extra coverage.

    Also the reason large companies can afford to provide better health insurance is a large pool of insured people with the majority of employees being young and healthy. With individual plans, insurance companies will be loosing money on people who need the insurance most - those with chronic deseases. They will react by denying coverage and raising cost of insurance to the point that people who need insurance most will not be able to afford it.

    You'll end up with more uninsured not less.

    Agree with Danie on people's unrealistic perception of the power of prevention.

    By Anonymous Diora, at 11:14 PM  

    Just to add something.
    About running health insurance like car insurance as suggested:
    "Health insurance would become like car insurance and life insurance. "
    Is it really a good thing? Would you like the cost of health insurance be based entirely on how much your health care is likely to cost?
    Dinosaur wrote a really good comment about this a while ago on a different subject.

    By Anonymous Diora, at 11:38 PM  

    My wife and I own a business, and the business pays for our health insurance. Because of our age and the fact that it is just the two of us, our insurance costs $19K per annum. Under Bush's new plan, we would be taxed on the $4K premium above the family limit of $15K.

    Great. Just what we need as a small business owner, additional taxes.

    By Anonymous Bruce Small, at 11:50 PM  

    According to the Kaiser Family Foundation, about 2/3 of the uninsured earn less than 2X's the Federal Poverty Level, and almost all earn less than 4X's.

    So perhaps the two primary obstacles the uninsured face in securing insurance are (1) the terribly high cost of health care itself in the U.S.- that's why insurance is expensive in the first place and (2) Medicaid has failed at the mission it was created to accomplish - provide health insurance for the poorest Americans.

    A third but much less pervasive cause is individual underwriting - in other words, people who have some known, serious health condition are refused insurance at any price and sometimes even if the condition seems not so serious. (While this category is relatively tiny, even 0.30% of our population is a million people).

    Stella Baskomb

    By Anonymous Anonymous, at 11:31 AM  

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