Bush Eyes Health-Insurance Tax Changes Should Americans be able to deduct the cost of health-insurance premiums from their taxes? President Bush is expected to put forward such a proposal in his State of the Union address.
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Bush Eyes Health-Insurance Tax Changes

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Bush Eyes Health-Insurance Tax Changes

Bush Eyes Health-Insurance Tax Changes

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And as David mentioned, the president will make the plight of those who lack health insurance a major theme of his State of the Union Address. And that will be a first for this president. Health care has been moving up the priority list for the new Democratic Congress and for governors around the nation.

Still, as NPR's Julie Rovner reports, the president's new plans seems likely to generate far more controversy than consensus.

JULIE ROVNER: President Bush used his Saturday radio address to preview the plan to help reduce the number of uninsured in the U.S. from its current 47 million.

President GEORGE W. BUSH: Today, the tax code unfairly penalizes people who do not get health insurance through their job. It unwisely encourages workers to choose overly expensive, gold-plated plans. The result is that insurance premiums dries, and many Americans cannot afford the coverage they need.

ROVNER: To address that, the president's plan would make two key changes to the Federal Tax Code. Currently, people who get health insurance from their employers don't pay any taxes on the value of that coverage, no matter how generous. People who are self-employed get to deduct the cost of their premiums. But others who buy coverage on their own don't get any tax break at all. That's widely perceived as unfair, and the plan would give everyone who buys their own coverage the same ability to deduct the cost of those premiums.

To offset that cost to the federal budget, the president would then tax those people with what he called gold-plated coverage, plans valued at more than $15,000 a year for a family or $7500 for an individual. The administration says that would affect about 20 percent of those currently covered by employer-provided plans.

Tom Miller, a health economist at the American Enterprise Institute, says it makes sense to put some limits on how much health insurance taxpayers should subsidize.

Mr. TOM MILLER (Health Economist, American Enterprise Institute): What he means is there will be incentives for that employer coverage to be a better value at a lower cost, and for employers to think about what type of coverage they provide so they get more bang for the buck.

ROVNER: But health economist Paul Fronstin, of the Employee Benefit Research Institute, says this plan could actually do far more harm than good.

Mr. PAUL FRONSTIN (Health Economist, Employee Benefit Research Institute): I view it as the end of employment-based coverage as we know it.

ROVNER: On the one hand, he says, employers may simply give up providing coverage since every employee would now get a standard tax deduction for healthcare, employer-provided or not. And even if employers do continue to provide coverage…

Mr. FRONSTIN: Individuals may start to opt out of the employment-based market, because they could get coverage on their own with the same tax benefits as they would had they stayed with their employer. If the healthy are dropping out of the employment-based market because they could get a better deal on their own and take the full deduction - if that's starts to happen you start dealing without a adverse selection; healthy people dropping out of group coverage, unhealthy people staying in.

ROVNER: That, in turn, creates what in insurance-speak is known as the death spiral, where premiums go up and up until it simply becomes unaffordable. But most observers think none of that will happen because the president's plan won't pass. And they base that on the fact that every previous effort to tinker with employer-based health insurance has been met on Capitol Hill with a great big no.

Mr. CHIP KAHN (President Federation of American Hospitals): It's been discussed every time major health reform has been discussed, and it usually is put on a shelf pretty quickly.

ROVNER: Chip Kahn is president of the Federation of American Hospitals and a veteran of health reform debates going back two decades. He says a key reason Congress hasn't wanted to touch the system is that it's not just rich executives who have such high-end health plans.

Mr. KAHN: Over time, relatively low-income workers who may work in manufacturing, that are members of unions, have gotten very generous coverage. So policymakers have been reticent to act and limit this open-ended subsidy.

ROVNER: And even those who favor the tax changes caution the president that he's walking into a political hornet's nest. Former Louisiana Democratic Senator, John Breaux, unsuccessfully floated a variation of the president's plan more than a decade ago.

Mr. JOHN BREAUX (Democrat, Former Senator, Louisiana): I'm still bleeding from some of those ideas.

ROVNER: But Freaux, now a health lobbyist, says he's at least glad the debate is getting started again.

Julie Rovner, NPR News, Washington.

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