Bush Health Care Plan Triggers Debate

Published April 1, 2007

Responses to President George W. Bush’s new health initiative have filled newspapers and the airwaves since his January 8 State of the Union address.

While opinion leaders on both left and right have praised Bush for exposing fundamental flaws in the national tax code’s treatment of health insurance, response has been chilly among some with a vested interest in the status quo–including hospitals, big employers, and some labor groups with expensive health insurance policies.

But without reform, the number of people without health insurance will continue to increase, and the threat of a government-controlled health care system being imposed will grow.

Outmoded System

The current system of job-based insurance, designed for a post-World War II economy, isn’t working in the Information Age.

In a January 23 Washington Post op-ed, Deputy U.S. Treasury Secretary Robert M. Kimmitt noted more job churning occurred last year than at any other time since the Labor Department started keeping records in 2000. Fifty-five million Americans, or four of every 10 workers, left their jobs in 2005, the vast majority voluntarily, and there were more new jobs created than workers to fill them.

Job churn among younger workers–who, not coincidentally, are also the most likely to lack health insurance–is highest. They can expect to work for 10 different employers between the ages of 18 and 38. Tying health insurance to the workplace worked for the twentieth century, but it’s failing tens of millions of workers now–a fact states considering employer mandates should recognize.

Bush has proposed a twenty-first century solution. He would give families the opportunity to own health insurance that is portable from job to job, and he would free up some of their tax money to help them buy the coverage.

Under Bush’s approach, the dynamic changes in the marketplace for health insurance would transform the system to offer health insurance that is more affordable, flexible, and portable.

Number Crunching

John Sheils and Randy Haught of the Lewin Group, a national health care consulting firm based in Virginia, have produced their own analysis of the president’s plan. They conclude it would cost significantly more ($154 billion over 10 years) than the administration’s estimates, which suggest overall neutrality, but that 9.2 million currently uninsured people would get health insurance.

As American Enterprise Institute budget expert Joe Antos points out, if more people buy coverage and take the deduction, it will reduce tax revenues more.

Sheils and Haught also say those in higher income categories would be more likely to take advantage of the deduction, because the tax break is worth more to them under our progressive income tax system.

Since Bush proposed a $15,000 standard family tax deduction for health insurance, there has been increased talk of a tax credit that would be more helpful for lower-income workers. Apparently there was a debate in the administration about the two approaches. Now the debate moves to Congress.

Drug Benefit Choice

The Centers for Medicare and Medicaid Services (CMS) has produced additional evidence that private competition for customers using the new Medicare drug benefit is giving seniors more choices at lower costs.

In early February, CMS reported beneficiaries enrolled in the drug benefit program are saving an average of $1,200 a year compared to what they would have to pay without the new Medicare drug benefit. When the legislation passed, Part D premiums were expected to be $37 a month; at press time, they averaged $22 per month.

U.S. Health and Human Services Secretary Mike Leavitt said results from the year-old program show seniors prefer choice. Private drug plans compete not only on price but also on benefit structure, and seniors are more likely to choose plans with no deductibles and coverage for the so-called “doughnut hole” in Part D–the point at which beneficiaries reach their initial drug coverage limit of $2,250 and become responsible for the full cost of their drugs until they reach $3,600 worth of out-of-pocket drug costs.

According to CMS, “about 88.5 percent of all beneficiaries who enrolled in a prescription drug plan for 2007 chose a plan that offers coverage other than the standard benefit.” Only one in eight seniors chose the standard benefit Congress designed in 2003–which some legislators had wanted to offer as the only option.

Half of the seniors CMS surveyed reviewed their current coverage during the open enrollment period that ended December 31. But only 6 percent of them reported switching plans. Clearly, if they were unhappy, they would have moved to a different plan.

Choice, competitive market forces, and flexibility work, and they work not only with Medicare but with private insurance as well.

Grace-Marie Turner ([email protected]) is president of The Galen Institute, a free-market think tank in Virginia.

For more information …

“Why Job Churn Is Good,” by Robert M. Kimmitt, The Washington Post, January 23, 2007, http://www.washingtonpost.com/wp-dyn/content/article/2007/01/22/AR2007012201089.html

“President Bush’s Health Care Tax Deduction Proposal: Coverage, Cost and Distributional Impacts,” written by John Sheils and Randy Haught and published by The Lewin Group in January 2007, is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to http://www.policybot.org and search for document #20722.