Economic Snapshot | Health

Bush’s health plan scratches the surface, starts an infection

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Snapshot for February 2, 2007.

Bush’s health plan scratches the surface, starts an infection

by Elise Gould

Some budget watchers applaud the president for proposing a budget-neutral health plan.  But is it really possible to have a revenue-neutral proposal that supposedly negatively affects only 20% of plans, yet manages to give a tax break to over 100 million people?  Either the plans negatively affected are enormously expensive or there is more to the story.  There are at least two reasons to be skeptical of this proposal.

First, the proposed health deduction amount starts out at $15,000 for family plans and $7,500 for singles in 2009.  And, here is the key fact: the level is indexed by overall inflation, not health care inflation.  Health costs have been rising far faster than general inflation since the late 1990s, and in most years it has tripled it.  So, this seemingly generous deduction amount will steadily erode, as shown in the chart below.  Assuming a growth in premiums similar to what we’ve experienced over the last 10 years, by 2010 the family health insurance deduction will fall below the cost of the average family plan.  Even under a more conservative growth rate, premiums will surpass the deduction in 2014.  Essentially, the Bush proposal gets budget neutrality by transferring money from those with moderate- or high-quality plans to those with thin and cheap plans.

This brings us to the second reason to be skeptical.  The Bush plan takes an expensive tax benefit away from people with high-quality, comprehensive health insurance and spreads it to people with low-cost, cheap plans, doing little to solve the growing problem of uninsurance or underinsurance in this country.  Even the administration’s estimates forecast only 3 million fewer uninsured—that’s barely over 6% of the 47 million uninsured today.  There are many preferable ways to provide coverage to those most in need.  The goal should be to help provide affordable, high-quality health insurance to those without access-not to attack those lucky enough to have it now, putting them at risk of losing their own coverage.  To the contrary, President Bush has proposed to crush the best examples we have of affordable, high-quality coverage, the kind of coverage that most Americans strive for.

Family Insurance Premiums Rise Faster Than Health Insurance Tax Deduction

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