Experts Differ Over Bush's Healthcare Tax Plan

By Monisha Bansal | July 7, 2008 | 8:32 PM EDT

( ) - Political and economic experts are at odds over the potential impact on America's healthcare system of President Bush's new health insurance tax deduction plan.

In his State of the Union address last month, Bush said the government should make sure that "individuals and small business employees can buy insurance with the same advantages that people working for big businesses now get."

Entitled the "standard deduction for health insurance," the program would take the tax-free portion an employer pays for health insurance for an employee and add that amount to the employee's taxable income.

Any individual with health insurance, regardless of amount of coverage or employment status, would then score a tax deduction of $7,500, or $15,000 for families.

The proposal would also allow employees to adjust their insurance premiums, leaving them with higher wages.

Former Rep. Bill Thomas (R-Calif.) said the president deserved credit for trying to change "one of the most perverse systems we've had over the last 60 years."

"We should have addressed this a long time ago," he said. "The president has stepped forward."

"If you are uninsured right now, this provides an enormous incentive to get insured," Katherine Baicker, a member of the Bush's Council of Economic Advisors, told a policy discussion in Washington, D.C., on Monday.

"It dramatically lowers the cost of insurance as long as it covers at least catastrophic care," she said.

According to White House estimates, three to five million more people would get insurance under the new plan.

Baicker added that employer-provided benefits have "eaten up 25 percent of wage increases over the last five years" as costs of healthcare continue to rise.

"Healthcare spending is 16 percent of GDP and will be 20 percent by 2015," she said.

The standard deduction will "slow healthcare spending" and will be "revenue neutral over 10 years."

But Roberton Williams, a principal research associate with the Tax Policy Center, was less impressed. "Not everybody benefits," he said.

Those who would not be able to afford even minimal coverage would not receive the credit and those whose premiums are more than the deduction will see their taxes rise, Williams said.

"Many employers may drop employer covered costs" he added. Also, younger, healthier employees may choose to opt out of a group plan, leaving "sicker people in the pool" and raising costs.

Paul Fronstin, a senior research associate with the Employee Benefit Research Institute, said the deduction would mean the "end of employment based health coverage as we know it."

"Employers have been thinking about this for many years - how they can get out of employment based health coverage," he said.

Williams warned that while the program would be revenue-neutral for the first 10 years, "after 15 years it becomes a cash cow for the federal government."

Thomas voiced doubt that Congress would approve the program.

"There are too many folk on the other [Democratic] side who are running for president with their own plan, so it's too good to fix now," he said.

Americans are dissatisfied with the healthcare system and Democrats would not benefit politically if healthcare issues were resolved before the 2008 presidential election, Thomas argued.

The Democrats "can't go out and cut deals," he said.

A Gallup Poll conducted in January found seven out of 10 Americans were dissatisfied with the availability of affordable healthcare.

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