For over 50 years, the American tax code has declined to tax employer-provided health insurance. Employers can deduct the cost of providing the insurance, and employees' income is not taxed on this fringe benefit. Not only is this system unfair to the remainder of Americans who must buy their own insurance with after-tax money (or go without), it also distorts the health market in odd ways. Why should our system prefer that employers choose health plans, rather than consumers choosing for themselves? (These two groups likely have different priorities.) And given that workers often change employers (and therefore change insurers), this system encourages insurers to only manage short-term costs, without investing in long-term health.
According to the New York Times, in President Bush's upcoming state of the union address, he will propose that we change all that. And he thinks that doing so will bring health insurance to 47 million Americans. Aside from the merits of this proposal, Bush should be applauded by the Democratic Congress for using the bully pulpit to put the spotlight on this critical issue.
As my friend Ben Falit explained this summer in the Journal of Law, Medicine and Ethics, Bush's proposal won't be entirely new. (See 34 JLMEDETH 632.) In last year's SOTU address, Bush set the goal of helping "people afford the insurance coverage they need." In the interim, he has not done much about that goal, except to quietly release a White Paper (pdf) a few days later. That paper included many different reform proposals, beyond the mere tax treatment which we are now hearing about.
Below the fold: Initial analysis suggests that the 2007 plan may be worse in some ways, and better in some ways, than the quiet 2006 proposal. ...
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