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President Bush Promotes New Health Care Plan

January 25, 2007 at 6:15 PM EST
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MARGARET WARNER: President Bush took to the road again today, this time to sell his new health care plan.

He met with doctors and nurses at Saint Luke’s Hospital in Lee’s Summit, Missouri, then held a roundtable discussion on the proposals he had first laid out in his State of the Union address. The goal, he said, is to make affordable health insurance available to more Americans.

We look at the president’s plan, first, for the basics, with our health correspondent, Susan Dentzer.

Susan, welcome.

So, what, broadly, is the outline of the president’s plan?

SUSAN DENTZER: Margaret, there are two new aspects to what the president is proposing this year.

The first is a major change in the federal tax treatment of employer-sponsored health insurance coverage that, in effect, would change that very dramatically, and replace it with a system where all Americans who had health insurance would be eligible for a standard deduction that would help pay for their health insurance. That’s part one.

The second part is an offer of flexibility, in terms of federal funding, for states that undertake themselves to expand health insurance coverage for their own populations. And the effort is to take federal funds that are currently given to states for health care and redirect them to help carry out these reform efforts.

A two-part system

Susan Dentzer
NewsHour Correspondent
[W]hat the president is proposing to do is now make health insurance contributions from your employer taxable income.

MARGARET WARNER: So, tell us a little bit about how part one would work. And this is the one that creates this new standard deduction for health insurance.

SUSAN DENTZER: Right.

Well, employer-sponsored health insurance has long been tax deductible to the employer and tax-exempt, non-taxable, to the employee. And this results in a revenue loss to the U.S. Treasury now equal to about $140 billion a year. So, that's a big subsidy to health insurance.

The problem that many people perceive is, this subsidy goes to people who get their coverage through the employer. So, an idea that has circulated for many decades is to take that subsidy and spread it more broadly across the population, give a tax benefit to people who have to buy coverage themselves on the individual market.

So, what the president is proposing to do is now make health insurance contributions from your employer taxable income. But, to offset that, people would be able to take a $7,500 standard tax deduction, like the deduction you take now for yourself or a dependent. It would be another standard deduction, $7,500 for an individual, $15,000 for a family.

And the argument is that that would enable people who don't have coverage now to help pay for it.

MARGARET WARNER: So, how many people get health insurance now through the employer? And what percentage of them have plans that cost more than, say, $15,000 or $7,500, so they would be taxed on this?

SUSAN DENTZER: About 147 million Americans, more or less, have coverage through the employer. This is, again, workers and dependents of workers, spouses, domestic partners, et cetera.

The administration says that 80 percent of policies -- not people -- of policies -- fall under the $15,000 cap. But 20 percent don't. And, for those policyholders, in effect, if they had policies that were worth more than $15,000, they would have to, in effect -- they would have a choice of either dropping down to have less generous coverage or, in effect, paying a tax on the differences, taxable income.

MARGARET WARNER: And those whose plans are less rich or less expensive, they would get some sort of a tax break?

SUSAN DENTZER: They do. And they not only get a tax break, because the standard deduction not only -- it frees you from federal income tax; you're also exempt from payroll taxes, Social Security and Medicare.

So, it's -- it could be a large tax advantage for people, at least for people who have enough income that they're paying federal income taxes in the first place.

MARGARET WARNER: And, then, briefly, the other part about giving the states more flexibility, what's that designed to encourage?

SUSAN DENTZER: Basically, it's designed to support states like California, which, of course, under Governor Arnold Schwarzenegger, recently announced it would undertake to have universal coverage within the state.

And, in effect, what this federal offer now is, is basically to take dollars that are currently channeled under Medicaid and Medicare to hospitals that have a so-called disproportionate share of the uninsured, take those dollars that now go to support those institutions that care for the uninsured, and channel them, instead, to help states expand coverage for the population.

But what the states have to do...

MARGARET WARNER: Expand insurance coverage?

SUSAN DENTZER: Exactly.

But what states have to do in return is, they have to define a basic package of benefits. They have to exempt those packages of benefits from many requirements that are now in place in states on what to cover. And they have to come up with a system of subsidies. And these federal dollars would -- could be redirected to help them pay for all of that.

MARGARET WARNER: Thanks, Susan.

Feasibility of the proposal

Sara Rosenbaum
George Washington University
[W]e don't know how many people will lose the coverage they have and will -- may or may not be able to reacquire coverage in the individual market.

MARGARET WARNER: Let's now get two perspectives on the president's proposal from Sara Rosenbaum, who chairs the Department of Health Policy at George Washington University School of Public Health, and Grace-Marie Turner, president of the Galen Institute, a group that promotes free-market approaches to health care.

So, Grace-Marie Turner, will this work? Will this expand health insurance access for more Americans?

GRACE-MARIE TURNER, President, Galen Institute: Absolutely.

When you -- when you put a generous tax break out there, and a generous new incentive, that everybody is eligible for -- 47 million people don't have health insurance. This is a way to encourage everybody to buy health insurance, in order to get the $15,000 tax break. It's -- you know, it's a deal. You can't get the tax break unless you buy the health insurance.

So, yes. And I think, also, it's going to dramatically change the incentives for the market to offer more affordable choices. So, I think there will be more affordable choices. And people will have new money through this new tax break, that otherwise was going to the federal treasury in taxes, that they can keep to buy health insurance.

MARGARET WARNER: Do you think it will work, Sara Rosenbaum?

SARA ROSENBAUM, Department of Health Policy Chair, George Washington University School of Public Health: The White House estimates that about three million people will acquire coverage who don't have it today.

MARGARET WARNER: Three million of the 47 million uninsured?

SARA ROSENBAUM: Correct.

The problem is that the proposal has the potential to destabilize coverage for the 147 million people whom Susan Dentzer mentioned. And we don't know how far...

MARGARET WARNER: Those who get it through their employer?

SARA ROSENBAUM: Exactly.

And we don't know how many people will lose the coverage they have and will -- may or may not be able to reacquire coverage in the individual market.

Risks of the plan

Grace-Marie Turner
Galen Institute
For most employees, I don't think anything is going to change. Big employers especially, middle-sized employers, want to provide health benefits.

MARGARET WARNER: Well, explain why this would destabilize the employer-based market.

SARA ROSENBAUM: As Susan pointed out, today, health insurance is part of wages and compensation. And, so, an employer gives you part of your wages in the form of a health insurance plan for you and your family.

The employer, of course, gets a tax deduction. And you have excluded income. If the tax code is changed to allow you to take that deduction as an individual, then, an employer could turn to its work force and say: You know what? This is really a burden on us to provide an insurance plan. So, instead, what we're going to do is let you go out and buy an insurance plan and take your own tax deduction.

The employer may or may not put any of that money that was part of your compensation package back into your wages. You may find yourself, in fact, without the insurance subsidy you have been getting, and now shopping for benefits in a market that doesn't exist with much less income.

MARGARET WARNER: Do you think that's a risk?

GRACE-MARIE TURNER: No, because -- no, I think that employers are -- are so devoted to providing health insurance. They see it as a real competitive advantage, that they want to provide good health benefits, so they can attract good workers.

For most employees, I don't think anything is going to change. Big employers especially, middle-sized employers, want to provide health benefits. And it's just a matter of changing where the tax break is. Instead of getting it as an employee, you now get it as an individual. It makes health insurance more portable.

But I think, for the great majority of Americans, they're not going to see a change. But, for -- for millions of Americans who don't have the option to get health insurance at work, this provides them a new opportunity.

And it just seems to me that, always, in health policy, we're talking about, oh, we can't change anything, because it might be -- affect this person, the coverage they now have, when we keep forgetting about, what about the 47 million people who don't have anything? Let's give them a new opportunity. And let's make this coverage portable, so people don't have job lock and don't get stuck into jobs, because they have to keep their health insurance.

MARGARET WARNER: Now, what about the other part of this idea, which is, if your plan costs more than $15,000 -- which the White House is defining as a very rich and expensive plan, which I guess maybe 20 percent of Americans have -- that you would now have to pay taxes on that?

Is the -- do those mostly go to the wealthy, and they could afford to pay taxes on that extra $2,000 or $3,000?

SARA ROSENBAUM: One of the -- the problems with the proposal is that it equates having a wealthy plan, or having a good plan, with being a wealthy person.

There may, in fact, be no correlation between having a very beneficial plan and being a wealthy person. Some of the workers who have very good plans today are teachers, nurses and health care workers, assembly line workers, municipal employees. These are people who make relatively modest livings.

But a good chunk of their compensation is in the form of their health benefits. And, therefore, clamping down on their -- the tax benefit of a wealthy plan may, in fact, have a very serious effect on workers who can least afford it.

GRACE-MARIE TURNER: But what that has done, because workers are getting more and more of their compensation packages in the form of health benefits, then, it means that they're getting lower cash wages, that it's making them poorer, because so much more of their compensation is going to pay for health insurance.

But they don't know it, because most people don't have the vaguest idea how much the full value -- what the full value of their health insurance policy is.

So, this makes that more visible. And it gives people a negotiating tool. Employers and employees would be on the same side of the table, saying, how can we figure out how to stay under that $15,000 cap, so that we can then have more resources for cash wages, and not have so much of it going to health insurance?

MARGARET WARNER: Let me ask you this.

When the White House briefed on this, they did say -- as you both have said -- all three of you have said -- that, really, only about three million new people would be getting health insurance.

Does that strike you as -- I mean, that's 5 percent, maybe, or 6 percent, of the uninsured. Does it strike you as a risky move for such a small payoff? Or is the payoff something else that we're not getting here?

GRACE-MARIE TURNER: Well, first of all, this -- this proposal is budget neutral for the -- to the federal government, which is a big deal in Congress, obviously.

And it provides a tax cut for about 100 million people, provides portability and security of ownership of health insurance, and can provide new opportunities for the uninsured to get coverage.

And I think, in addition, if states step up to the plate and use some of the money that Susan talked about to provide extra -- extra funds to help people buy health insurance...

MARGARET WARNER: Under the second part of this proposal.

GRACE-MARIE TURNER: ... then, I think you would actually see that number go higher.

But it's hard for them to calculate that, because we don't know what the states will do. It's going to change the whole conversation. There's going to be a whole bunch more people out there saying: I want an affordable policy.

Let's see what happens.

Prospects for success

Sara Rosenbaum
George Washington University
I would say that the wisest course at this point is to congratulate the president on joining the discussion, and go slow.

MARGARET WARNER: Do you think this could spark a whole reform of the system in a way that would end up expanding coverage?

SARA ROSENBAUM: I think you put your finger on the fundamental flaw in the proposal, which is that we are being asked to make what could be very dramatic changes in a very rapid way in the current system for financing health care for 200 million people, if you add in, also, the Medicaid program, which would be asked to pay over into this new state pool, and, then, if you add in Medicare, again, millions more, for the promise that maybe we would pick up another three million people.

I would say that the wisest course at this point is to congratulate the president on joining the discussion, and go slow.

MARGARET WARNER: And, so, finally, very briefly, to all three of you, what do you think the political prospects are for this on Capitol Hill?

SARA ROSENBAUM: I think that, once the excitement about the fact that the president has now stepped up to the plate, has opened the door to a discussion about affordability as an issue, a subsidy as being absolutely eventual to solving the uninsured problem, what we will see is a sober and serious and somewhat lengthy discussion.

The hope is that, on some of the issues that we can resolve today, such as expanding coverage for children, we will do that quickly.

MARGARET WARNER: Grace-Marie Turner?

GRACE-MARIE TURNER: Organizations as diverse as the Heritage Foundation and the Urban Institute, The Washington Post and The Wall Street Journal, have all said, a core problem at the heart of the health care system is the discriminatory tax treatment of health insurance.

This begins to address that. I think we have a whole new conversation. And I think that's hard to ignore.

MARGARET WARNER: And, Susan, political prospects?

SUSAN DENTZER: Under the Constitution, tax legislation has to originate in the House of Representatives. And the leadership of the House Ways and Means Committee that originates that legislation has already said, Charlie Rangel, and Pete Stark, who heads the Health Subcommittee, that they're not going to take up the tax proposal. So, for the next two years, that is not going any place.

However, the other proposal about helping states, I think, will get some more serious examination, particularly in the Senate, and especially as states continue to look at ways to do their reforms. They want more money, though, than the president has put on the table. So, we will have to see where the dialogue goes.

MARGARET WARNER: Which -- that is an old story.

Thank you, all three, very much.

SARA ROSENBAUM: Thank you.

GRACE-MARIE TURNER: Thank you.