What Does 'Gold-Plated' Health Care Look Like?

President Bush says individuals whose health-care coverage costs more than $7,500 annually — or families whose tab exceeds $15,000 — should pay taxes on their health benefits. A family provides a real-life example.

STEVE INSKEEP, host:

President Bush's plan for health reform would use the tax code to make it more appealing and affordable to purchase health insurance on your own. This plan, though, is receiving a cold response from key Democrats, and here's one reason: Many experts worry that the approach could also destabilize the system of employer-based coverage.

NPR's Patty Neighmond reports.

PATTY NEIGHMOND: Under the Bush plan, people would pay taxes on health insurance premiums, but only if the policy cost more than $7,500 a year for an individual or $15,000 a year for a family. Len Nichols is a policy analyst with the New America Foundation.

Mr. LEN NICHOLS (Policy Analyst, New America Foundation): It stops the strong preference for untaxed health benefits and makes all people more cost-conscious about what kind of health insurance policy you want.

NEIGHMOND: The average cost of a family policy today is about $12,000. So, most people would not have to pay more tax. But millions would. Those are people with what the president calls gold-plated plans, people like Gloria Andrews, an environmental engineer who works for the state of New Hampshire. Andrews gets her insurance through her husband who also works for the state.

Ms. GLORIA ANDREWS (Environmental Engineer, New Hampshire Department of Environmental Services): It's a great plan. It's a really great plan. And we - I've never taken that for granted. It's a great plan.

NEIGHMOND: Andrews has no deductible and co-pays are just $10 for a doctor visit. The state pays the entire premium at a cost of about $20,000 a year.

Ms. ANDREWS: We could make more money. My husband and I could both make more money working as private consultants. But part of the reason you work for the state is because they have really good benefits. So, even though your salary is less, you kind of think your whole income is higher because of the good benefits that you have.

NEIGHMOND: Over the years, many unions have opted for generous health benefits instead of salary increases. But there's people who don't have generous health benefits who have expensive policies, people who work in high-cost areas like New York, New Jersey, and parts of California, and people who work for companies with an older or sicker workforce.

Larry Levitt of the Kaiser Family Foundation says just one premature baby or a case of cancer can drive up premiums for the whole company.

Mr. LARRY LEVITT (Kaiser Family Foundation): An expensive illness might cost several hundred thousand dollars, even over $1 million. So, even a company with a few hundred people could see their premiums go up substantially from one or two employees with a high-class illness.

NEIGHMOND: White House officials estimate about 20 percent of employees who get health benefits now through their employers would have to pay higher taxes. But Levitt says, as years go by, that 20 percent will increase to 40 percent. That's because the cost of health care policies are rising a lot faster than inflation.

Mr. LEVITT: And in fact, last year, health insurance premiums grew at double the rate of inflation. So, over time, more and more people will find themselves above the $15,000 cap and paying greater taxes.

NEIGHMOND: The Bush plan would also try to get more people to buy insurance. Under the plan, if you buy your own policy, you would get a tax deduction of $7,500 for individuals and $15,000 for families. While that would help some people buy coverage, a deduction wouldn't help many lower-income people who don't pay much income tax anyway. And policy analysts like Len Nichols worry such an incentive could destabilize the health care system where employers pay the bulk of costs.

Mr. NICHOLS: It would very much encourage healthy people to leave their current group coverage through their employer and go out into the individual market or non-group market and buy it on their own, where they could, the healthy, find it relatively cheap and they could pocket large savings off their tax bill for doing this.

NEIGHMOND: For example, a 25-year-old might buy a coverage for $4,000 a year and take a $7,500 tax deduction. Nichols says many younger, healthier workers would likely opt for this when the cost of their employer coverage is higher because the group includes some older and sicker workers. And if, say, half a company's workforce chooses to buy benefits on their own, then, says Nichols, employers would be encouraged to stop providing health insurance.

Patty Neighmond, NPR News.

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