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Investor's Business Daily


Dust Off Last Year's Health Reform For This Year's State Of The Union

January 25, 2008

By David Gratzer

Now, as the country teeters on the brink of a recession, with health costs continuing to spiral upward, and middle America feeling more pressure than ever, President Bush will deliver his last State of the Union address.

If he listens to his aides, a remedy for America's health care cost control crisis will be basically absent from the speech, which will focus on small, attainable items. The White House must rethink that meek strategy:

With no election to fight, the president should champion a significant reform in the way Americans pay for their health care. Such a proposal is unlikely to alter Congress' agenda in the coming months, but it could change the terms of the debate over health reform.

Some argue that rising costs are an inevitable consequence of advances in medical science. In an age of PET scanners and pre-birth surgeries, they suggest, health care must carry a hefty price tag. But in all other aspects of the economy, technological advances lead to a fall in prices.

Health care is the exception because of an IRS decision during WWII allowing businesses to spend pre-tax dollars on employee coverage. Thus employers can deduct the fraction of health premiums they pay themselves, no matter how expensive the plan, but individuals, employed or not, can't deduct anything at all. They are left on the hook for the balance of the premiums, any out-of-pocket spending, or, if their employer doesn't provide coverage, the entire cost of a policy.

Such a system reinforces employer coverage, with limited co-pays, insulating employees from the cost of health decisions—a prescription for high-expense health care.

Many in Washington want more subsidies to help Americans pay for their health care. For most of 2007, Congress debated plans to expand the Children's Health Insurance Program to middle class and even upper middle class families.

Instead, the president should cut the Gordian knot of private insurance and advocate an alternative more responsive to the free market. Though there are several intelligent ways of doing this, Mr. Bush can find a solid proposal in a familiar place—last year's State of the Union address.

There he proposed, first, eliminating the deduction available to employers providing health care coverage; second, taxing all employee health benefits as income; and third, allowing all Americans who purchase health insurance to deduct a standardized amount, whether or not they have a job that provides it. For individuals, the deduction would be $7,500; for families, $15,000.

This reform would end the tax discrimination against those who purchase health policies themselves, tax especially heavily those with gold-plated policies and bring tax relief to roughly 100 million Americans. Most importantly, it would encourage people to choose policies that make them more aware of health care's true cost.

Lower-premium, higher-deductible plans—which under the Bush proposal have the advantage of making a smaller addition to taxable income than high-premium plans, as well as enhancing the value of the deduction—would be especially attractive.

Bush's proposal won praise from a variety of sources. The Washington Post, hardly a bastion of Bush supporters, declared: "By giving all insurance buyers a standard deduction, irrespective of the type of health coverage they choose, Mr. Bush would restrain medical costs and promote fairness."

Even Democratic economists embraced the president's reconsideration of tax policy. While still endorsing tighter government control over health care, Jason Furman, the former economic director of the Kerry-Edwards campaign, wrote that the plan was "innovative."

Some claimed the plan would harm the poor and the sick. In fact, the opposite is true. Today, the Treasury loses $200 billion a year to the employer health tax deduction, with a quarter of that total benefiting those earning over $150,000 a year. The Bush plan doesn't completely repeal special treatment of employees' health expenses, but by standardizing the deductible, and putting the CEO and the mail clerk on a more even tax footing, it becomes what liberals approvingly call a "progressive" tax.

And the sick? Under the Bush proposal, those who did not receive employer coverage would be better able to purchase insurance on their own—not a panacea, but a step in the right direction.

The president's proposal would end 60 years of arbitrary tax policy, which punishes the self-employed, rewards society's most affluent and distorts the entire health care system.

Last year, congressional Democrats declared it "dead on arrival." Part of the problem was timing: The President's proposal came when the Democrats, fresh off their mid-term wins, had high approval ratings and were largely uninterested in entertaining anything except an expansion of public programs.

Today, Mr. Bush can reach back and promote the most important idea of his second term on the most pressing domestic issue that America faces. By doing so, President No. 43 could lay the intellectual groundwork for No. 44 to tackle health care reform. That would be far more important than the traditional State of the Union laundry list.

Original Source:



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