Bush is Wrong on Health Care

By Karen Davenport | January 23, 2007

• Watch Karen Davenport discuss health care on CNBC (YouTube.com)

In tonight’s State of the Union speech, President Bush will unveil a radical change in America’s health care system. Our health care system certainly needs fundamental change, yet the president’s prescription for our health care crisis will only intensify the problems we have today without helping the nearly 47 million Americans without health care coverage.

According to the White House, the president will propose replacing the current tax break for employer-sponsored health insurance with a standard tax deduction for health insurance coverage. This $7,500 deduction for individuals and $15,000 deduction for families can be claimed by anyone who holds at least a high-deductible health insurance policy—regardless of how much their coverage costs and whether it is provided by an employer. The president will also propose a series of grants to states intended to help them move uninsured residents into private health coverage.

This approach would do little to help the uninsured and could replace the employer health insurance system with individual coverage that in most states is inaccessible and unaffordable to many. The president’s plan, for example, does little (if anything) to make health coverage more affordable for the uninsured. In essence, this proposal replaces one regressive, flawed tax deduction with another. Most uninsured Americans pay low or no taxes and would get a smaller benefit from this plan than higher-income Americans.

In addition, the proposal ignores the current problems people have buying health insurance, even though it creates a new tax subsidy and new incentives for coverage in the individual insurance market. In most states, this market permits underwriting, denial of coverage, carve-outs for cancer and other pre-existing conditions, and other discriminatory insurance company practices. The president’s proposal does nothing to fix this.

Even worse, by ending the tax benefit of employers' contributions to health insurance, the proposal could lead to a downward spiral in employer coverage, thus unraveling the employer-based health insurance system without providing a real alternative. Employers could dramatically change, reduce, or end the health coverage they offer their workers, simply telling them to file for their tax deduction and buy coverage in the individual market. The number of uninsured could actually increase.

Finally, the proposed deduction would be a tax “voucher” unrelated to the actual cost of health insurance. People with premiums above the standard deduction amounts of $7,500 and $15,000 would pay new taxes. This would hurt people in high-cost areas, those who pay high premiums due to age or a history of health problems, and the one-in-five policy holders who have employer coverage that costs more than these limits. Over time, an increasing number of Americans would pay higher taxes as the tax deduction fails to keep pace with the cost growth of health insurance.

The president’s state grant initiative suffers from similar flaws. Without new rules to govern the marketplace for individual insurance policies, efforts to offer direct help with premium costs through the states are likely to be inadequate. Other suggested uses for the grant funding, such as high-risk pools, are made necessary by the problems in individual insurance-policy markets. To make matters worse, to be eligible for federal grant funding, states would be required to unravel their existing rules for adequate benefit packages and other consumer protections in the marketplace for individual policies.

Instead of disrupting the current system without providing a meaningful and better alternative, the president should support proven policies that provide the most assistance to those in greatest need, create real options for accessible group health insurance, and lay the groundwork for an efficient, high-quality health system.

Karen Davenport is Director of Health Policy at the Center for American Progress.

The Center for American Progress has developed a range of prescriptions for health care reform in this country. For more information on the Center’s health care work please see our health care pages on the Center’s main website or go to our Health Progress and Policy Project Initiative.