WASHINGTON, Jan. 27 — With his proposal to
uproot a tax break that has been in
place for more than 60 years, President Bush has touched off an impassioned
debate over the future of the employer-based system that provides health
insurance to more than half of all Americans.
“Changing the tax code is a vital and necessary step to making health
care affordable for more Americans,” Mr. Bush said in his
State of the Union address this week.
Mr. Bush said his proposal would eliminate
a bias in the tax code that strongly favored insurance provided by employers
over coverage bought by individuals and families outside the workplace.
Paul Fronstin, director of health research
at the Employee Benefit Research Institute, a nonpartisan organization, said: “The president’s
proposal would mean the end of
employer-based benefits as we know them. It gives employers a way out of
providing the benefits because their employees could get the same tax break on
their own.”
Tony Fratto, a White House spokesman,
denied that the president wanted to move people away from the employer-based
system and toward the individual insurance market. “We are seriously
agnostic on that,” he said.
It might take years for changes to occur. “Large corporate
employers could not immediately
terminate their health benefits because there is, at present, no reliable place
where employees can get coverage they can afford outside the workplace,” said Frank B.
McArdle, a health policy expert at
Hewitt Associates, a benefits consulting firm.
The economic rationale for Mr. Bush’s proposal is that
too many people have “gold-plated, deluxe”
health insurance, which encourages them to use excessive amounts of health care, driving up costs for
everyone.
Many economists agree. But they doubt that
Mr. Bush’s
proposal would do much to hold down
costs or cover more people.
“The
president’s proposal addresses inequities in the tax code that provide an open-ended subsidy for premiums paid by
employers,”
said Robert D. Reischauer, a former
director of the Congressional
Budget Office. “If your employer does not provide health insurance and you have to buy it on your own, you get no tax benefit
at all. The president’s plan would eliminate that
distinction.”
But Mr. Reischauer said, “A glaring problem with the president’s plan is that he did not call for any stronger regulation of the
individual insurance market.” In that market as it now
exists in most states, insurers can deny coverage or charge higher rates to
sick people.
In their desire to achieve universal
coverage, some Democrats have also begun to raise questions about the
employer-based system. “We have to ask ourselves if
the employer-based system of health care is still the best way for providing insurance
to all Americans,” said Senator Barack Obama, Democrat of
Illinois, noting that workers frequently changed jobs.
The Service
Employees International Union negotiates with employers to secure health
benefits for its members, but the president of the union, Andrew L. Stern,
said, “The
current employer-based health care system is not the foundation for 21st-century health care reform.”
Mr. Bush’s proposal differs radically from President Bill Clinton’s plan for universal
coverage, but experts on health benefits said they were similar in one respect: In an effort to help the uninsured — about one-sixth of the population — they would upend the
system that covers most Americans.
The Clinton plan would have provided
comprehensive health benefits to 39 million uninsured Americans, with more than
$400 billion in new federal spending over 10 years. The White House says the
tax changes proposed by Mr. Bush would provide coverage for 3 million to 5
million people at no cost to the government over 10 years.
Since Mr. Bush took office in 2001, the
number of people without insurance has increased by more than 5 million, to
46.6 million, according to the Census Bureau.
Administration officials said they hoped to reverse that trend by helping
states that offered basic private insurance policies to their residents. To pay
for such help, the administration would take federal money from hospitals that
serve large numbers of poor people.
Under Mr. Bush’s proposal, employee
health benefits would, for the first
time, be treated as income and would be subject to income and payroll taxes,
just like wages. At the same time, Mr. Bush would create a tax deduction for
health insurance of $15,000 for families and $7,500 for individuals. The same
deduction would be available to everyone with coverage, regardless of the
source or value of the policy.
A family with coverage worth $18,000 would
have to pay taxes on the amount exceeding the $15,000 standard deduction — $3,000, in this
example.
Katherine Baicker, a member of the
president’s Council of
Economic Advisers, said the proposal would increase taxes for 30 million
people with the most generous employer-provided health benefits, unless they “change their
behavior” and choose less costly coverage. Ms. Baicker said the proposal would cut taxes for more than 100 million
people who bought insurance on their own or had employee health benefits worth
less than the standard deduction.
Treasury officials said that under the
Bush proposal, an uninsured family of four with an annual income of $60,000
would save $4,545 if it bought coverage in the individual market. By contrast,
they said, a family that earns $80,000 and has employer-provided coverage worth
$20,000 could see a tax increase of about $1,500.
Joel D. Kaplan, deputy chief of staff at
the White House, acknowledged that the proposal could accelerate the trend of
employers’
dropping health benefits for
employees. But he said more people “would be able to buy insurance in the individual market,” so there would be “a net increase in
the number of insured.”
Politicians and health care providers are
skeptical.
Representative John D. Dingell, the Michigan
Democrat who is the chairman of the Committee on Energy and Commerce, said, “The president’s
proposal would do little to help the
uninsured, but would undermine the employer-based system through which 160 million
people get coverage.”
Richard J. Umbdenstock, president of the
American Hospital Association, agreed. “The tax proposal would have the effect of
driving people to the small-group
insurance market — a market that has proved unstable,” Mr. Umbdenstock said. “For many people, even with a tax break,
coverage would remain unaffordable.”
Historically, employers have used benefits
as a tool to recruit workers and keep them healthy and productive.
R. Bruce Josten, executive vice president
of the United States Chamber of Commerce, praised the general direction of the
president’s
proposal but said his members had
serious concerns.
First, Mr. Josten said, the $15,000 cap on
tax-free insurance takes no account of wide geographic variation in the cost of
health care and insurance. The same package of benefits typically costs more in
Boston than in Minneapolis, for example.
Moreover, Mr. Josten said, a health plan
may be expensive because it covers older workers with major medical problems,
not because it is “gold-plated.” A single
mother, working as a low-paid secretary at a law firm, could be pushed into a
higher tax bracket because she participates in an $18,000 health plan covering
older men who have had heart attacks and expensive surgery, Mr. Josten said.
Treasury officials acknowledged that some
people with costly, comprehensive benefits had modest incomes.
But deluxe health plans are vanishing
fast. In recent years, many workers have found themselves paying more for less
comprehensive benefits. From 2000 to 2006, premiums for employer-sponsored
coverage rose 87 percent, about four times as fast as workers’ earnings, according
to the Kaiser Family Foundation.
