NCPA - National Center for Policy Analysis


May 16, 2007

We don't have a free-market health system. It's not just that we have Medicare for the old and Medicaid for the poor. If you have insurance through your employer, the government is subsidizing you, says Pat Regnier, Money Magazine senior editor.

The U.S. government gives up about $200 billion a year in taxes by exempting the health insurance premiums employers pay, as well as some employee contributions.  If you have to buy insurance on your own, you don't get that subsidy.  But President Bush wants to change that by replacing the current tax exemption with a standard deduction for anyone with a health plan.

Under the proposal:

  • Individuals would receive a $7,500 deduction and families $15,000.
  • Some people with more expensive plans would pay higher taxes.
  • For example, a single person earning $50,000 would get a $3,000 tax break to help buy a policy, according to the Tax Foundation.

But there's a lot more going on in Bush's proposal than tax fairness, says Regnier. Conservatives want to shift people out of employer plans and into policies they choose and pay for themselves.  One reason is to use market forces to tamp down costs.  The plan is a natural complement to Bush's other big health-care tax initiative, the Health Savings Accounts that made their debut in 2003.

Another attribute of the system is its portability.  "What gives stability to a system is if people have a long-term relationship with an insurer, even if they change jobs," says John Goodman, president of the National Center for Policy Analysis.

Source: Pat Regnier, "Rx America: What's the prescription for U.S. health-care reform?", May 15, 2007.

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