President Bush’s Healthcare Plan
President Bush outlined a serious healthcare reform plan in last night’s State of the Union. The President’s plan is to replace the existing tax-exemption that applies only to money spent on employer-sponsored health insurance with a standard deduction that can be taken by any individual who purchases health insurance, regardless of employer or employment status.
1. Assuming the size of the deductions is reasonable, opposing this plan tantamount to saying “I oppose tax-breaks for individuals; tax-breaks should only be given to big corporations”. And yet we will surely see this reaction from the usually anti-business left. In fact, we already do.
If libs can get past their knee-jerk “if Bush is for it, I’m against it” response to the entire universe, they will see that this plan addresses many of their complaints about Wal-Mart not providing insurance to enough of its employees. Under the Bush plan, for example, companies lose financial incentive to hire lots of part-time workers to avoid paying health benefits.
Arnold Kling of the Cato Institute systematically sums up and counters liberal reactions he has observed to the President’s plan (h/t Instapundit)…
Since the President’s plan was leaked, I have seen three complaints from the left.2. However, the biggest challenge to the President’s proposal may not come from organized liberal shrieking, but from misunderstanding at America’s apolitical center. Under the current system, employers do little more than choose the health plans that their employees will be allowed to spend their own salaries on. In spite of this, many individuals enrolled in employer-sponsored health plans are convinced that their employers are “giving” them something for nothing. When they hear about tax-code changes that will end the special status of employer based coverage, they will feel that the government is trying to take something away from them — even though most will be able to to purchase same amount coverage with the same amount of money via an individual plan. Overcoming this perception will be one of the toughest challenges faced by Bush plan supporters.
In my view (2) and (3) are positive developments….As for (1), I fail to see the cause for alarm. Consider the status quo. An economist on the faculty at Princeton who receives generous health benefits from the University is able to enjoy them tax-free. So can the professor’s secretary. But, as with all tax breaks, there is a vertical inequity — the professor derives more benefit from the tax break than does the secretary. But today there is a horizontal inequity as well. A self-employed economist and a self-employed secretary get no tax break for obtaining comprehensive health insurance.
- The tax break benefits the rich more than the poor.
- The tax break encourages people to leave employer-provided health plans and instead get health insurance on their own.
- The proposals encourage catastrophic health insurance rather than insulation.
Now, if the President’s proposal is enacted, the self-employed economist and the self-employed secretary will get a tax break….
My sense is that the hard left is going to dig in against the President’s proposals. Too bad for the millions of people for whom health insurance is more expensive simply because where they work falls outside the corporate umbrella.
3. To really make the Bush plan work, people must be allowed to buy insurance across state lines. Today’s OpinionJournal article on the President’s plan mentions that “the average employer-sponsored family plan runs about $11,500 annually”. Even for someone in the top tax-bracket, a $15,000 deduction would pay for less than half of a $11,500 plan. But the $11,500 figure averages together nsurance costs in high-regulation, high-cost states (like Rhode Island) with insurance costs in low-regulation, low-cost states (like Idaho).
I poked around the “ehealthinsurance” website (as suggested by Anchor Rising commenter Emily Harding) and found that in some states, high-deductible insurance plans are available for a family of four in the range of $2,500 – $4,000. If people are given the freedom to escape from legislative mandates that drive the cost of insurance up, they should be able to find affordable coverage with the numbers the President is using.
4. Barack Obama was wrong in his post-SOTU interview with Charlie Gibson of ABC when he said there are no cost-controls in the President’s plan (no link available). The cost-controls come from introducing transparency and choice into medical care, both of which are currently lacking in a system where an employer hands you a very complex health plan and tells you to “take it or leave it”. Could Obama be confusing “cost controls” with “price controls”?
5. ‘Tis not all praise I have for President Bush for proposing this plan. Here’s my criticism: Why didn’t he propose something like this when his party controlled both houses of Congress?