Not many expected George W. Bush to advance a serious healthcare proposal in his State of the Union Address, and few expect anyone in Congress to act in response to it. But Bush did, and at least one member of Congress seems interested. More ought to be paying attention.
Bush's proposal in a nutshell is to end the preferential tax treatment for employer-provided health insurance. In 1943, in the midst of World War II, when wage and price controls were in effect, the government decided that employers could deduct the cost of health insurance for their employees and that employees would not be taxed on the value of the policies. This decision has saddled us with a system in which health insurance has been tied to employment, with many perverse results. Healthcare is perceived as a free good, and consumers have no incentive to take costs into account.
Bush proposes to change this by giving every couple paying taxes a standard $15,000 deduction ($7,500 for individuals) for the cost of health insurance. Those with employer-provided insurance worth more than $15,000 (about 20 percent of the total) would be taxed on the additional amount; this would very likely discourage expensive policies.
As a Washington Post editorial on the speech pointed out, this would be a progressive change.
The biggest beneficiaries of the current system are high earners with employer-provided insurance. The biggest losers in the current system are low earners without employer-provided insurance. Health insurance experts on the left, right and center have long called for ending the tax code's preference for employer-provided health insurance. But employers haven't wanted to lose the deduction, and politicians have flinched at the prospect of taxing voters on something they have been getting tax-free. Bush has found a way out, by equalizing the tax treatment of health insurance wherever it comes from.
Bush's point was not lost on Oregon's Democratic Sen. Ron Wyden, who over a long congressional career has specialized in assembling bipartisan coalitions for various reforms. He notes that government single-payer health insurance -- the goal of some senior liberal Democrats in Congress -- was rejected by the voters of his liberal state by a four-to-one margin. He also notes that we don't have employer-provided auto insurance -- we buy that out of after-tax earnings. He argues that people should be able to buy health insurance as members of Congress and federal employees do, from an array of choices offered by private insurers.
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