Monday, January 22, 2007

More on the Bush Health Plan

My good friend Bill Boyles of Health Market Survey offers these comments regarding the President's upcoming health proposal (my own post is below this one):

New Bush Proposal Takes Intriguing Approach

After six years of offering the same old thing, President Bush Tuesday will propose a creative new health reform that is drawing support from both sides of the political spectrum and could be taken seriously on Capitol Hill. Enactment of the plan is probably not doable before 2008, but it could be a serious contender in policy circles.

The problem with all these new proposals to cover the uninsured is they target the low-income children population first, not the low-income chronically ill who need it more. The new Bush plan would also target the low-income chronically-ill first with a new tax subsidy, which is better for the system, better for hospitals and physicians, and better for insurers.

The Bush plan (a regrettable label) is based on an old and generally discredited idea: the old health insurance “tax cap” proposed by Alain Enthoven circa 1979. But instead of merely a cap, the new plan will also give a standard tax deduction to everybody – employer or individual coverage – based on how much they are paying for health insurance. This cap might phase out quickly, but in the short run it seems a good idea.

The plan would basically give 80% of all current taxpayers a small new tax deduction for having health insurance that is not excessive. If their family coverage were the average of an estimated $13,000 in 2007, they would get a $2,000 deduction (the amount is based on a dollar benchmark of $15,000, minus the actual premium of the taxpayer).

By the same token, those whose premiums are excessive (over $15,000) would pay income taxes on the amount over the benchmark. The plan would thus be tax-neutral – the increased taxes on expensive plans would be offset by the new deduction.

If somebody has no insurance they get a full $15,000 tax deduction/credit.

Politically, this is a major shift that might work. Since 80% of taxpayers would get a new tax break for doing nothing, and those who would be taxed have the option of simply changing to a lower-cost plan, the political equation is tremendously more favorable than simply taxing excess health insurance. Lots of Democrats are likely to support it.

There will be a lot more analysis in the next few days, so we’ll give the bottom line:

-- The impact on health plan profitability is probably neutral in the first few years. The increased demand caused by giving the uninsured purchasing power is the key, and might offset the fact that marginal benefits are being taxed on a small percentage of existing enrollees. It looks at first blush like a good deal.

-- The big Enchilada in the details might be adjusting the benchmark. Some will argue it should be regional, by income, by health status, and on and on and on.

-- Because it is indexed to inflation and not average premium increase, within a couple years this would apparently cause the tax deduction to phase out, leaving only a tax cap.

-- We like the idea in general because it was designed by a small private group of market- savvy economists versus the White House eggheads.

-- There would no doubt be a new tax form for all individuals based on plan data. That sounds like a paperwork/admin cost increase but maybe not. For example, when HSAs kicked in banks did not see a big increase in costs despite added tax form reporting.

Stay tuned.
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