President Bush will propose a tax deduction of $7,500 for individuals and $15,000 for families regardless of whether they buy their own health insurance or receive medical coverage at work, according to published sources.
The proposal, to be announced Tuesday in his State of the Union address, has a two-fold purpose: reducing the cost of healthcare insurance for most Americans and providing an incentive for the uninsured to buy a policy.
While administration officials say the changes will not affect total tax dollar collections, the publish reports are unclear as to whether the traditional exemption for employers who pay for healthcare will continue. At present, employers can deduct the cost of healthcare insurance for employees dollar-for-dollar.
Employees with policies costing above the $7,500 and $15,000 limits would pay taxes on the excess. Individuals and families, who purchase healthcare insurance directly would, for the first time, have some tax relief.
In his radio address, the President said the measure is also aimed at giving the uninsured an incentive to purchase a medical plan.
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At the same time, Bush said "the tax code unfairly penalizes people who do not get health insurance through their job."
If passed by the Democratic-controlled Congress, the proposal would be the first time that workers could get a tax break if they bought their own insurance. But it also would be the first time that some employer-provided health care benefits could be taxed. Health care benefits provided by companies are currently exempt.
Published reports indicate that the proposals will enable any American with a healthcare plan to deduct either the individual or family maximum from their income tax, even if the healthcare insurance premium is lower. Some experts contacted by this newsletter believe the final proposals will include provisions for matching the amount spent on premiums with the deductions.
The cost of health care is growing more than two times faster than wages, making it harder for families to buy insurance and for employers to sponsor a health benefit for workers, Bush said Saturday in his weekly radio address.
"Our challenge is clear: We must address these rising costs, so that more Americans can afford basic health insurance," Bush said. "And we need to do it without creating a new federal entitlement program or raising taxes."
It also is designed to encourage those with generous plans to either embrace cheaper insurance or pay taxes on the part that exceeds the deduction, a Bush administration official familiar with the proposals said.
In his nationally televised speech, Bush also will announce steps to take some federal money now going to hospitals and other facilities and give it to states for programs to reduce the number of uninsured people.
One key committee chairman, House Ways and Means Committee Chairman Charles Rangel, D-N.Y., is not embracing the idea.
"This is a dangerous policy that ultimately shifts cost and risk from employers to employees and could result in a higher number of uninsured," Rangel said. "The new, Democratic majority in Congress is interested in relieving, not increasing, working families' tax burden."
But another senior administration official notes that the deduction is higher than the cost of an average policy for families, which currently is estimated at $11,500.
Experts reached by this newsletter doubt this provision will withstand Congressional scrutiny.
Administration officials argue that because of this, about 80 percent of people with employer-based plans will actually see their tax liability fall because their insurance policies cost less than the deduction, he said.
According to the New York Times, the Census Bureau estimates that 175 million Americans obtain private health insurance through employers, while 27 million people are covered by insurance bought outside the workplace. The rest, with the exception of the 47 million uninsured, are covered through government programs like Medicare and Medicaid and military health care.
There are an estimated 46 million to 48 million people in the United States who are uninsured at some point during the year.
"Most of the uninsured are people who are working and they've got a little bit too high of income to qualify for Medicaid or other government programs. If they buy health insurance they have to pay for it entirely out of their own pocket," Mark McClellan, former administrator for the Centers for Medicare and Medicaid Services and former commissioner of the Food and Drug Administration, said in a telephone interview. "This would be a significant amount of new help for them."
Bush also wants to redirect federal dollars that hospitals and other institutions get to help cover costs for caring for the uninsured. With this money, states would set up programs to assist people in getting health coverage and help people with high-cost health conditions.
Several states are working to reduce the number of people living without health insurance.
Hospital administrators are worried about what the president's plan will mean for their facilities. They fear they will get fewer dollars when they treat Medicare patients. They say federal reimbursements already fail to cover costs.