Bush's Health Insurance Plan Would Eliminate a Pernicious Tax Preference

Bush's solution to these problems is straightforward. He would reverse the policy of excluding health insurance from taxable income. To avoid an overall tax increase, he would give taxpayers with health insurance a standard deduction of $7,500 for individuals and $15,000 for families.

The White House estimates that 80 percent of taxpayers who get health insurance through their employers would receive tax cuts as a result of these changes because their coverage costs less than the deduction. (The average cost of employer-sponsored medical coverage last year was about $4,200 for individuals and $11,500 for families.) The other 20 percent would pay higher taxes, which might encourage them to seek less generous coverage and get more of their compensation in cash.

Everyone who buys his own health insurance would pay lower taxes under Bush's plan. Some people who currently cannot afford coverage might be able to swing it as a result of the tax break, which (in the example favored by the Bush administration) would amount to $4,500 for a family of four earning $60,000.

The complaint that changing the tax treatment of health insurance would encourage employers to stop providing it misses the point: If employers are offering medical coverage instead of extra pay purely for tax reasons, they (SET ITAL) should (END ITAL) stop. Eliminating the pernicious preference for employer-provided insurance would promote a greater diversity of options and help people choose the coverage that makes the most sense for them.