Employer-Plan Tax Change May Aid Coverage for the Needy
By JOHN D. MCKINNON and DEBORAH SOLOMON
Wall Street Journal, January 16, 2007; Page A6
WASHINGTON -- With health-care costs emerging as one of voters' biggest domestic concerns, President Bush is considering promoting a tax-code change making it easier for people to buy health insurance for themselves in the open market, rather than relying on employers.
The president's coming State of the Union address and annual budget proposal are likely to include other ideas for easing the crunch, Republicans close to the White House said. Those would build on the administration's efforts to encourage states to create special insurance pools for lower-income individuals and small businesses. The administration also is likely to make another push for expanding health savings accounts. The accounts, first authorized in 2003, allow people to save tax-free for health-care needs provided they choose low-cost, high-deductible coverage.
The ultimate idea is to expand health-care coverage while reducing cost pressures, in part by giving people more of a financial incentive to be smart shoppers.
Mr. Bush's emphasis on health issues comes as cost and coverage complaints are drawing attention in Washington -- and in state capitols throughout the country. As employers shift health coverage burdens to employees, state governors -- namely Republicans Mitt Romney of Massachusetts and Arnold Schwarzenegger of California -- as well as the new Democratic Congress have paid more attention to the issue, putting new pressure on the president to join the debate.
The examination of health care comes as Mr. Bush looks to define a domestic agenda in the final two years of a presidency that increasingly is being overshadowed by Iraq and hemmed in by newly empowered Democrats. In a recent op-ed in The Wall Street Journal, Mr. Bush listed "affordable health care" among "the biggest issues facing the American people" along with energy security and comprehensive immigration reform. He added "I look forward to working with Congress on these difficult issues." White House spokesman Tony Fratto declined to comment on specific proposals under consideration but said: "The President has said that for all Americans, we must confront the rising cost of care, strengthen the doctor-patient relationship, and help people afford the insurance coverage they need."
While President Bush advocated some health-care changes last year -- an expansion of health savings accounts and computerization of patient records -- they were more modest than what is currently under consideration.
The big new idea this year could involve tax changes around employer-provided plans. While officials said major decisions are still being made, the White House tax proposal likely would cap some taxpayers' ability to exclude employer-provided health care from their income, as part of an effort to broaden availability of health-care insurance.
Currently, health-care benefits aren't subject to federal income tax, no matter how generous the benefit -- a factor many economists have said has contributed to health-care inflation. The Bush administration is considering a change that would tax some executives' "gold-plated" plans and possibly even affect some rank-and-file union members with particularly generous benefits. The savings would be used to pay for tax credits for lower-income people who buy their own health insurance or for state insurance pools, or both. The effect could be relatively small now but could grow over time.
The current policy of excluding employer-provided health insurance benefits from employees' tax returns costs the government more than any other tax policy -- about $900 billion between 2006 and 2010, counting all health-related breaks. That is more than either the mortgage-interest deduction or the various breaks for retirement savings. Thus, even tinkering around the edges of the exclusion could produce large amounts of revenue for subsidizing coverage for lower-income people.
Some of the administration's possible proposals, particularly the changes to the tax code, are likely to meet resistance from Democrats, who worry about further undermining the market for employer-provided coverage and driving up costs for those who remain in the system.
Helping states fix the problem of the uninsured could attract bipartisan support. Democrats said much depends on whether the Bush administration backs up its rhetoric with money. A few Democrats -- as with their Republican counterparts -- are willing to encourage a shift from employer-provided plans to state-sponsored ones.
State insurance pools have begun to appear in states such as Massachusetts in recent years, using funding from the federal government's insurance programs for low-income people, such as Medicaid. The trend has been fueled by looser federal restrictions on how funds from low-income health entitlement programs can be used. Experts have said they expect the administration to continue that in the coming reauthorization of one of the federal programs, the State Children's Health Insurance Program.
Mr. Bush's proposals likely will be the starting point for a Washington debate on health-care coverage plans.
Tomorrow, a bipartisan group including Sen. Jeff Bingaman (D., N.M.) and Sen. George Voinovich (R., Ohio) plans to introduce legislation that would provide grants to states to craft their own plans for helping the uninsured.
Last week, Massachusetts Sen. Edward Kennedy, who chairs the Health, Education, Labor and Pensions Committee, called for eventually expanding Medicare to all Americans, regardless of age, starting with people 55 to 65, and those younger than 20. Currently, Medicare generally guarantees health-care coverage to those age 65 and older.
Political experts have said the focus on health care reflects the effect that soaring costs are having on voters, particularly aging Baby Boomers, who are using more health care and worrying about costs. Polls show that, increasingly, people tend to rank health care among the biggest financial woes they face, says Karlyn Bowman, a polling expert at the American Enterprise Institute.
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