WASHINGTON – President Bush will propose deep tax breaks for Americans who purchase their own medical insurance and finance the plan with an unprecedented tax on a portion of high-priced health care plans that workers receive from their employers, according to the White House.
The initiative, which the president briefly previewed in his radio address Saturday, has a dual purpose: It would create a financial incentive for the 46 million to 48 million Americans who lack health insurance to buy it. And it would rein in the soaring cost of health insurance by encouraging workers in high-priced plans to seek more modest coverage.
“Today, the tax code unfairly penalizes people who do not get health insurance through their job,” Bush said. “It unwisely encourages workers to choose overly expensive, gold-plated plans. The result is that insurance premiums rise and many Americans cannot afford the coverage they need.”
The proposal, which Bush plans to fully unveil in Tuesday’s State of the Union address, marks a sharp departure for a president who has been criticized for advocating tax cuts that disproportionately benefit higher-income Americans.
Administration officials familiar with the plan say it reflects the new political order in Washington, where Democrats control both chambers of Congress. They refuse to characterize the plan as a tax increase because it raises no new money for the federal government. Instead, it would add a new tax on employer-provided health care plans worth more than $15,000 to subsidize those who buy modestly priced plans out of their pockets.
In addition, they say, the plan is consistent with the president’s idea of increasing access to health insurance through the private market while encouraging people to be more cost conscious as they purchase medical coverage.
In his speech Tuesday night, the president also will propose increasing federal assistance to states that make private health care plans available to low-income or chronically unhealthy people who are uninsured. The administration hopes to provide waivers under Medicaid to allow states to redirect money from hospitals and nursing homes to individuals to help them buy health insurance.
Some states are moving to offer health care coverage to the uninsured, including California. Republican Gov. Arnold Schwarzenegger recently announced a plan to provide coverage to about 6.5 million people, including many recent immigrants, who are uninsured. If the plan is approved by the state legislature, California would become the fourth state – along with Massachusetts, Vermont and Maine – to offer near-universal health insurance.
The new tax measure would attempt to roughly equalize the benefits of people who have health insurance, regardless of whether they buy it or receive it from employers.
Currently, the 17 million Americans covered by health plans that they purchased out of pocket receive no federal tax break for their expenditure. Meanwhile, the estimated 150 million people covered by employer-provided health insurance are not taxed on the value of their health insurance, regardless of how much it is worth. The average employer-provided family health insurance plan costs $11,500 a year, administration officials said – three times what it cost 19 years ago.
Under the president’s proposal, workers who receive employer-provided health insurance would have to pay a tax on the cost of their benefit above $15,000, the threshold proposed by Bush for the tax break.