Friday, February 03, 2006


There is NO sense in giving tax breaks to employer schemes only. In Australia, EACH INDIVIDUAL deals directly with the health insurer

President Bush wants to bring to healthcare the same "ownership society" approach that gained him little political traction during last year's Social Security debate but remains central to his self-help view of America. By proposing new tax breaks for the health savings accounts he won congressional approval for three years ago, analysts said, Bush hopes to nudge the nation away from the employer-sponsored health insurance on which most working Americans depend. Instead, Bush wants to use sweeping new tax incentives to encourage workers to set aside their own money to cover routine medical expenses and get individually purchased insurance plans to meet larger costs.

In his State of the Union address to a joint session of Congress and an accompanying news release from the White House, the president put forth a healthcare strategy remarkably similar to the plan he promoted last year to permit younger workers to divert a portion of their Social Security taxes into stock and bond accounts that they would own. "He is walking down the same road as he did with Social Security," said Robert D. Reischauer, a former director of the Congressional Budget Office and president of the nonpartisan Urban Institute, a Washington think tank. "He wants to shift more of the responsibility and risk now borne by insurance onto individuals."

Bush indirectly acknowledged the link between the two policy prescriptions by calling for a bipartisan commission to examine the problems of cost and coverage that loom for all of the government's major safety net programs with the coming retirement of the baby boom generation. "Congress did not act last year on my proposal to save Social Security, yet the rising cost of entitlements is a problem that is not going away," Bush told lawmakers and a national television audience.

He cast his healthcare initiatives primarily in terms of helping workers who do not have the kind of comprehensive health insurance traditionally provided by large companies — especially the self-employed and those employed by small businesses. But his strategy of greater reliance on individuals has important implications for most working Americans because even major corporations are seeking ways to reduce the burden of providing traditional insurance.

The theory behind the president's proposal is that individuals who shop for their own insurance and spend their own dollars from personal health savings accounts will drive a harder bargain with care providers than employers and the government have done. That, he argues, will help tame spiraling costs. To encourage individuals to take on the job, the government already offers health savings accounts that combine a bare-bones insurance policy with a personal account into which people deposit money and from which they withdraw funds to pay medical bills — all tax-free. In this regard, health savings accounts are unique in the federal tax code; no other type of account provides tax breaks for deposits and withdrawals.

Health savings accounts are an arrangement in which consumers deposit their own money into special accounts — sometimes with contributions from employers. That money, which is not counted in taxable income, can be used to pay for routine medical costs. At the same time, workers get less-than-comprehensive insurance for major medical problems; again, employers can contribute to the cost. The insurance policies feature lower monthly premiums than comprehensive plans because they pay for less coverage. The president proposed to sweeten the deal by permitting individuals to deduct the premium cost of the bare-bones policy from their taxable income, and by steeply increasing the tax-free amount that people can put into health savings accounts.

The exact size of the of the proposed increase was somewhat unclear Tuesday. The White House news release describing Bush's plan suggested that individuals could deduct all out-of-pocket medical expenses from their taxable income by paying for them with health savings accounts. Under current law, people can deduct medical expenses only if they exceed 7.5% of their adjusted gross income. In addition, the release said that the president wanted to give individuals who set up health savings accounts a tax credit that could be worth as much as $1,500 a year for an individual in the top tax bracket. "The president proposed allowing Americans … to cover all out-of-pocket costs under their HSA policy," the White House release said. The Bush plan "will allow patients to cover all their out-of-pocket expenses tax-free through their HSAs," it said.

However, independent analysts said they believed Bush's proposed tax breaks would not be open-ended. They said that the 2003 law establishing health savings accounts set a cap on out-of-pocket expenses at $5,250 for an individual and $10,500 for families, and these probably limit how much in medical expenses people could deduct from their taxes. Even with the limit, however, the president's proposal would nearly double the amount people could contribute to their accounts tax-free. Under current law, the maximum contribution for an individual is $2,700 and for families $5,450.

The White House clearly believes that its proposed tax incentives would give health savings accounts a huge boost. About 3 million have qualified for the accounts and some experts have estimated that number could rise to 14 million by 2010. With the new incentives, White House officials said that number could jump to more than 20 million by the end of the decade.

Analysts were unable Tuesday to estimate the cost to the government of boosting the amount people could contribute tax-free to health savings accounts, but they predicted that it would run into the tens of billions of dollars over the next decade. A previous administration proposal to make premiums for bare-bones insurance tax-deductible was estimated to cost nearly $30 billion over 10 years.

Some critics challenged the administration's assertion that health savings accounts would help solve the nation most pressing healthcare problems — rapidly rising medical costs and an increasing number of Americans with no health insurance. And they warned that any expansion of the individual accounts could undermine the existing employer-based health insurance system. In addition, critics said that Bush's reliance on tax breaks effectively limited the benefits of his proposals to those who paid substantial taxes. "HSAs are going to do nothing for medical inflation, which is pricing almost all of us out of healthcare," said California Insurance Commissioner John Garamendi. The president's new tax breaks "will be a significant benefit to the wealthy, but it won't do much for the middle class because they have no extra money to put into another savings account."

Account proponents argue that by giving individuals the kind of tax breaks that employers get for providing healthcare, the savings accounts encourage more people to get health insurance and to become more involved in managing their own health. "If we're going to solve our nation's healthcare problems, patients are going to have to be involved," said John C. Goodman, president of the conservative National Center for Policy Analysis and a longtime advocate of health savings accounts. "Research shows that people with chronic diseases like diabetes can manage their healthcare on their own," he said.

But critics say the president's approach will encourage healthy people with few medical costs to split off from the traditional employer-based insurance system. That could destabilize the employer system by leaving it to cover a larger proportion of older, less healthy and therefore higher-cost people. "The real danger is that the employers market erodes fast," said Robert Greenstein, executive director of the liberal Center on Budget and Policy Priorities in Washington.



For greatest efficiency, lowest cost and maximum choice, ALL hospitals and health insurance schemes should be privately owned and run -- with government-paid vouchers for the very poor and minimal regulation. Both Australia and Sweden have large private sector health systems with government reimbursement for privately-provided services so can a purely private system with some level of government reimbursement or insurance for the poor be so hard to do?

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