Why Bush's health care idea is a tough sell
In tonight's State of the Union address, President Bush is expected to propose a universal tax deduction for the purchase of health insurance. The winners: Anybody who is paying for health insurance on their own. Or those who are close enough to being able to afford it that a tax break might help. The losers: Anybody with a really, really good employer-based plan. Right now, health insurance is tax-free when it's part of your benefits package. Under the Bush plan, you'd have to pay taxes on benefits above $15,000 for a family policy, or $7,500 for an individual. About 20% of those with insurance have coverage worth more than that.
I went to my company's HR website today to figure out if I'd be hit with a higher tax bill under the Bush plan. Among all the statements detailing my compensation and benefits, I couldn't find any mention of the value of my health plan.
Under the Bush proposal, I'd not only only know how much my health-care is worth, I'd also have a pretty big incentive to keep it under the cap. In other words, I'd be more likely to choose less-generous insurance. Maybe that would seriously slow down overall health care spending--although it's debatable--but it would certainly make health care less of a nightmare for employers. Over time, I expect few companies would offer coverage beyond the cap. (Bush's Health Savings Accounts also encourage employers to move towards lower-cost, higher deductible plans.) Companies would find it easier to project their health-care benefits costs into the future, which would make their shareholders very happy.
The politics of this are interesting. Democrats lately have held out hope that big employers might become their allies in the fight for universal health care. But if the Bush plan somehow got through, health care costs might eventually become less of a threat to balance sheets.
But this dog won't hunt. Whatever the merits of the idea--and I think there are some--I don't see how a politically weak President can come to Americans worried about their health insurance and say that the answer is to make good plans less good. Not unless the pay-off for those without coverage is really big. One thing the Clintons learned during their attempt at health-care reform is that people are highly loss-averse when it comes to health insurance. Those "Harry and Louise" were aimed squarely at people who already had decent insurance and were afraid that the government might take it away. The Clintons failed to make the benefits of their plan obvious enough that insured Americans would be willing to take a risk. Ditto for Bushcare, I predict.
What does the plan do for individuals who are denied health care coverage at any cost because of pre-existing health conditions?
This is a very interesting approach - essentially, Bush is attacking the out-of-control healthcare costs on the backend by providing a tax incentive to consume healthcare in a socially responsible manner (reward those who choose higher deductible, more self pay plans with lower premiums and penalize those who choose "use all the healthcare you want per month for $20 out-of-pocket"). Combined with HSA's, it's a good start but unfortunately it's still not enough.
What really needs to happen is to ban all private health insurance and force people to pay for their consumption of health care entirely out of pocket. Here's what would happen: (1)real price competition would be created instantly because people would consume health care like other goods and services, (2)prices would plummet because medical billing would no longer have to hassle with private health insurance companies, (3)the doctor-patient relationship would strengthen tremendously because there would no longer be an interested third party regulating medical practice, (4)prices for the vast majority of medical treatment would fall because you can't set prices for goods and services so high that no one can afford to pay - you'll be out of a job very quickly. Additionally, consumers would DEMAND price transparency, something sorely missing in health care - practically the only business sector in this country with that problem.
A few notes: catastrophic insurance would be provided by each state - already in place today and funded via taxes by residents in the vast majority of states. Tort reform would also be necessary to elminate the high fixed costs for malpractice insurance, thus enabling prices to fall even greater.
The private health insurance companies are the only ones in health care who are making a killing. Furthermore, no one likes dealing with these crooked companies. One local hospital has gone so far to avoid the medical billing hassle that they will discount every charge by 40% if the patient prompt pays in cash by 30 days after receiving a bill. If this organization can reduce charges by 40% and remain profitable just by eliminating medical billing problems, then every other institution can too. Unfortunately with the status quo, that 40% is pure bloat that circles right back to the consumers in the form of increased health care insurance premiums. The result? Everyday, this country loses manufacturing jobs to foreign countries where labor is cheap and health care costs aren't even considered. It's even happening in the service sector. Things need to change.
The people who would most benefit from Bush's health care plan are the same ones that benefit from lower tax rates, people who don't have to work for an employer, the independently wealthy, those who make money on investments instead of wages - these are the real beneficiaries (like the Bush family and their country club pals). These people would get to deduct the entire cost of the insurance they buy, whereas, being a working schmuck, if I happen to have a really good insurance policy through my employer, I would be paying taxes to support the uninsured, which is just par for the course in this country where the middle class bears the burden of supporting the poor.
How will me paying a higher deductible lower health care costs? It will just shift more of the cost of health care from businesses to the people.
This sounds like another way of shifting more expense onto the middle class. A tax deduction is not the same as a tax credit. Your benefit from the tax deduction would only be on average about 25% of the amount. So on a $15,000 deduction your benefit is only $3,750. Try buying health insurance for only $312.50 per month. Good Luck. This is just another scam by George Bush and the republicans to shove more cost off onto the middle class.
I can't for the life of me imagine that a democratic run house would ever pass this measure, as it is a direct affront towards the middle class, not to mention the baby boomers who are getting older (i.e. need Health Insurance).
What's most insulting about this plan is it does not really address the issue of uninsured people, as the White house stated that this plan will only get 3-5 million people out of something like 45 million insured, since many of those people are still too poor (15% bracket) to afford healthcare anyways.
"So on a $15,000 deduction your benefit is only $3,750. Try buying health insurance for only $312.50 per month. Good Luck"
In response to Jeff in Stevens Point, actually it's quite easy to find comprehensive medical coverage for ~$300/month. That's about what I pay for a family of five. What do I get? 100 percent coverage for the vast majority of medical services included in comprehensive group coverage after meeting a $5,650 family deductible. Additionally, I receive the negotiated PPO discount on covered expenses prior to meeting the deductible. What's the alternative? $1,200 a month rip-off group coverage that pays maybe $150 per month on average in health care costs for my family.
Under this proposal, I would essentially be receiving "free" health insurance for my family of five. And as part of the working middle class with no employer-sponsored health insurance, that's a tremendous benefit.
Look, this is really a debate about the have's and have not's. Those people who have fantastic employer-sponsored health insurance plans better enjoy them while they last because things are going to change; actually, they already are changing. The cost for comprehensive group insurance coverage is rapidly exceeding the budgets of the smallest companies all the way up to the largest multinational enterprises. What's the result of this change? (1) Employers who have the capability are shipping domestic jobs to foreign countries where labor charges are less and health care costs are non-existent, and (2) employers who can't ship labor overseas are dramatically reducing health care benefits to reduce their costs or they are dropping health care coverage altogether. It's impossible for these businesses to remain globally competitive burdened with unreasonably high fixed labor costs when foreign companies don't have that problem.
In response to Barbara in Kettering, Ohio, paying a higher deductible will cause you to be more frugal with your consumption of health care. Because you would be solely responsible for the majority of minor/routine expenses, you would be more inclined to shop around for the best discounts. If the entire populace did this, health care providers would have a strong incentive to lower prices due to competitive pressure. This is fundamental market economics. Those providers who are willing to work with patients on price transparency will be more successful. Furthermore, eliminating the insurance billing process would cause prices to fall significantly because labor costs for health care providers would be reduced.
My wife and I experienced this dynamic two years ago during the prenatal care of our third child. Because each of my wife's pregnancies has been deemed high risk, she has been seen by a genetic specialist who is an expert in ultrasounds. With each of her prior pregnancies, we were covered with a comprehensive group policy. The doc's bill for his services throughout her prior pregnancies was ~$1,500 each time. For our third child, we had individual coverage with no maternity coverage. However, she successfully negotiated a 67% reduction in the specialist's standard fee. The result? We wrote a check for $500 and received an identical level of service. And that was the end of the transaction. We heard on multiple occasions how simple the transaction was for the office staff - no hassling with insurance companies to get paid six months after the service was provided. Everyone (except the insurance company) won in that transaction. Regarding the cost of labor and delivery, she negotiated about a 50% discount across the board from every provider and the facility. In the end, we paid less overall by paying completely out of pocket than if we had purchased group coverage that covered maternity expenses with its extraordinarily high premiums. More importantly, we removed about 50% of the current health care bloat and both patient and provider benefited tremendously. Again, the loser was the health insurance industry.
Who wants a tax break for health insurance when the tax break will be moot for the ever-increasing hungry mouth of the AMT glutton?
There are two hurdles not dealt with adequately in the explanatory information on the new proposal.
This is going to seem dumb, but it wouldn't be the first time doing something dumb in the interest of change happened. Having SOME kind of health insurance must be made mandatory, or younger folks may just opt out and could qualify for a hugh tax deduction. It presumes folks are smart enough to know they need health insurance, which includes the younger healthier insurable pool of workers who might just opt out of ANY program and chalk up a huge tax deduction. The system has to make sure we aren't incentivizing not having insurance at all, and just handing everyone a $7.5 or 15K deduction for nothing. Seems dumb to say that, but it wouldn't be the first time dumb was done with good intention--the young and healthy shouldn't just wind up with a deduction and have to avoid health care insurance in the first place--it is upon them the entire system relies to make catastrophic illness amongst older insured payable.
Seems dumb to say this, on many levels but, needs to be adequately dealt with in the rules.
The second issue is differentiating taxing "benefits", meaning taxing the employer paid employee paid premiums over 15K, from taxing the claim itself.
The taxation of the employer/employee premium is talked to clearly, but not differentiation from taxation of the claim benefit itself for suffering say, a catastrophic illness.
People have to be able to differentiate whether they are going to be taxed on what they receive in the form of CLAIM benefits, say, a $1M benefit for some catastrophic illness, and have to pay tax on that $1M paid as claim on the insurance policy under this change, with this, which is really taxation on excess paid for insurance PREMIUMS-or payments to support the plan.
Taxation on the claims themselves, have their own set of tax rules and regulations has its own set of rules, that needs to be differentiated and talked to in the selling of this plan, if it is to be adequately sold to the public as an improvement to the current system, imho.
Kathleen, as a "working schmuck" your employer-provided health insurance is already tax deductible. The actual deduction goes to your employer, but the result is certainly reflected in your wages.
If you really do have a gold plated employer provided health insurance plan worth more than $15,000 a year, you are receiving an enormous benefit from your employer (just like a large salary or a stock grant or the use of a company car). Don't you think that all benefits, be they a $20,000 health insurance plan or a $20,000 company car, should be taxed as benefits?
It is the very deductability of only employer provided health insurance that leads to the gross inequities of employer provided insurance vs. individual insurance. These inequities manke it more difficult for the unemployed (like me) to obtain health insurance in the private market.
I truly do not understand why employers are involved in health insurance at all in this country. I mean, when I lost my job I didn't lose my car insurance. I didn't lose my homeowner's insurance (and therefore my home loan and quite possibly my home).
Jeff, I went over to a popular health insurance website and for a family with two parents and two children in Stevens Point, WI they listed 15 health insurance plans for under $312.50 a month, from such Wisconsin providers as UnitedHeathCare, Anthem, and Humana.
Aaron, please move to Texas and run for gub'ner. We need you. Hope you are working on your southern drawl with a top accent expert. Cheers!
I am amazed at how many people are so emotionally disconnected and cold about the "middle class", yes it's true there is a lot of financial irresponsibility going on--but Madison Avenue and peer pressure don't help. Most of us are 1 step away from total melt down if we have a major medical problem (even those who live fiscally responsible lives). As far as higher education goes: I hope some of these education snobs need a good roofer, plumber, electrician, mechanic, beautician, etc. and the sooner the better--not everyone can be a Phd or even want to be a Phd!--"May their McMansions fall down around their ears, and may their Vulvo lose a tire in the biggest pothole within a mile of their home." I assume that their answer to this is to give all these jobs to illegial immigrents. Let them eat cake, ahmen.
This may come as a surprise, but in the early 80's Alan Greenspan suggested that all health benefits be taxable. At that time, doing so would have wiped out the federal deficit. Seemed like a really good idea at the time, no?
At the current time, people in Massachusetts can get their children covered by a state plan intended for otherwise uninsured children. The kicker is that even if the parent can cover the child through his or her employer's plan, they can opt the child out and have the state cover him or her at no charge! And guess who pays for the state plan for uninsured children? The smokers of the commonwealth! It is fully funded by cigarette taxes. I was always thrilled to provide insurance to most of the children in Mass out of my own dear pocket. Even those who didn't really need it but mommy didn't want to get it through her job.
The flaw in the logic above about very high deductible plans forcing people to be more frugal about health care choices, and that it will then cause providers of care to lower their prices is that it doesn't work. This idea and these plans have been in effect all over the U.S. since at least 1983. The health insurance industry around that time was forced to increase group insurance premiums from the usual annual 3% to increases ranging around 40% due to skyrocketing claims and provider fees. The "solution" at the time was to simply buy a cheaper plan for your employees and make them pay for their care until they met a rather huge deductible, and then make them pay a percentage even after that. It all sounded nice and easy, but what ended up happening was that working-class people couldn't afford health care so they just didn't get any care when they got sick. Routine medical problems turned into huge medical problems, and the employee got to pay thousands of dollars out of pocket when just a year prior it would not have cost them a cent. Some of them died because they didn't recieve proper care in time.
We won't even go into how this affected company morale.
Or how prospective employees began to choose for whom to work in no small part based on the health benefits.
The reality is that most people now have pretty stiff deductibles and co-payments. Even with co-payment limits, the out-of-pocket costs for an individual or worse, a family, can bring an onslaught of medical bills which must be figured into the monthly budget, IF there's anything left after food and basic living expenses.
I have several chronic illnesses. My husband has a fairly good medical plan at work, but the deductibles keep creeping up along with co-payments and co-payment limits. Prescription drug co-payments are getting out of this world. Last year I met my deductible, paid all my co-payments and finally met my co-payment limit. However, the insurance companies aren't well equipped to handle co-payment limit caps. Virtually all of my medical bills for the last 4 months of 2006 were paid incorrectly by the insurer because I'd hit my max and they should have been paid at 100%. There is apparently no computer trigger for this at insurers. We are still fighting about it and I have to call the insurer weekly to tell them which new bills came in that should have been paid at 100%. Sometimes the claim rep doesn't even understand what a co-payment limit *is*. I now have paid thousands of dollars out of pocket for medical care in 2006, as well as approximately $350 per MONTH for prescription co-pays. And I have to continually audit my EOB's and fight with the insurer to pay and negotiate paying the provider of care (which the insurer really owes) while they wait for the insurer to straighten out the mess so I don't get sent to a collection agency and my credit get ruined due to an insurer error. We don't make a staggering amount of money. Our benefit deductions at work are high.
Yeah, raising deductibles to the ceiling and making those darn consumers smarter about using health care and insurance is certainly the way to go. Not if they want to eat every day!
Kathy, your comments have completely proven my point. The first place to start in fixing this healthcare mess is eliminating private health insurance. Your illustration demonstrates how inept these companies really are. And if you have had that much trouble dealing with your insurance provider, imagine how much hassle the medical profession experiences EVERY DAY trying to collect payment from these pathetic companies.
The problem with the Bush health care plan is it would generally result in young, healthy people going without coverage entirely because it would be expensive while the older and unhealthy people who really need coverage would be forced to go without it because they couldn't afford it. So we're left with a system where rich people have coverage and everyone else goes without. Great plan, and exactly what you'd expect from a right wing extremist...
The socialist definition of a right-wing extremist is someone who wants to let an individual choose what to do instead of the government doing it for them.
FDR started the save the people from themselves beauracracy, and now look where we are. Some people just want more and more assurances until we are just like Eric and Greta in Sweden. Point your rear end toward the sun as much as possible and let the government do your thinking.
Stop arguing about details of how the government can get you others out of trouble that you got yourselves into.
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