Future Shock

Peering into the future the NYT is reporting the following:

President Bush intends to use his State of the Union address Tuesday to tackle the rising cost of health care with a one-two punch: tax breaks to help low-income people buy health insurance and tax increases for some workers whose health plans cost significantly more than the national average.

My initial reaction is positive. However, I see a couple of problems.

First, low income people pay almost no taxes. What good are tax breaks for those who get most or all of the taxes withheld from their paycheck back in the form of a refund?

Second, how will this "national average" be determined?

The basic concept is that employer-provided health insurance, now treated as a fringe benefit exempt from taxation, would no longer be entirely tax-free. Workers could be taxed if their coverage exceeded limits set by the government. But the government would also offer a new tax deduction for people buying health insurance on their own.

This is almost like a luxury tax on rich benefits. Interesting concept. Not sure if this will have legs or not.

critics say it would, in effect, tax people with insurance to provide coverage to those without it.

This already happens via cost shifting. Those without insurance and the ability to pay for care have their bills shifted to those with the ability to pay and have insurance.

This is nothing new.

The administration would cap the amount of benefits that can remain tax free at $15,000 for a family and $7,500 for an individual. Anyone whose health insurance cost more than that would pay taxes on the difference. For example, a family with coverage costing $16,000 a year would pay taxes on $1,000.

This is something with appeal. I wonder if the figures would be adjusted for higher or lower cost areas of the country.

The cap would also be used to establish the amount of the new deduction for people who lack coverage. In this example, a family buying insurance on its own could take a $12,000 deduction — even if the insurance cost less.

Nice idea as long as it does not create a subsidy program such as the earned income credit.

This will be interesting to watch & see how it pans out.