Experts See Peril in Bush Health Proposal

NY Times:

With his proposal to uproot a tax break that has been in place for more than 60 years, President Bush has touched off an impassioned debate over the future of the employer-based system that provides health insurance to more than half of all Americans.

“Changing the tax code is a vital and necessary step to making health care affordable for more Americans,” Mr. Bush said in his State of the Union address this week.

Mr. Bush said his proposal would eliminate a bias in the tax code that strongly favored insurance provided by employers over coverage bought by individuals and families outside the workplace.

Paul Fronstin, director of health research at the Employee Benefit Research Institute, a nonpartisan organization, said: “The president’s proposal would mean the end of employer-based benefits as we know them. It gives employers a way out of providing the benefits because their employees could get the same tax break on
their own.”

Tony Fratto, a White House spokesman, denied that the president wanted to move people away from the employer-based system and toward the individual insurance market. “We are seriously agnostic on that,” he said.

It might take years for changes to occur. “Large corporate employers could not immediately terminate their health benefits because there is, at present, no reliable place where employees can get coverage they can afford outside the workplace,” said Frank B. McArdle, a health policy expert at Hewitt Associates, a benefits consulting firm.

The economic rationale for Mr. Bush’s proposal is that too many people have “gold-plated, deluxe” health insurance, which encourages them to use excessive amounts of health care, driving up costs for everyone.

Many economists agree. But they doubt that Mr. Bush’s proposal would do much to hold down costs or cover more people. “The president’s proposal addresses inequities in the tax code that provide an open-ended subsidy for premiums paid by employers,” said Robert D. Reischauer, a former director of the Congressional Budget Office. “If your employer does not provide health insurance and you have to buy it on your own, you get no tax benefit at all. The president’s plan would eliminate that distinction.”

But Mr. Reischauer said, “A glaring problem with the president’s plan is that he did not call for any stronger regulation of the individual insurance market.” In that market as it now exists in most states, insurers can deny coverage or charge higher rates to sick people.