Sunday, January 21, 2007

Bush and his new Health Plan

Apparently President Bush will be making a HUGE proposal in his State of the Union Speech on Tuesday.

His proposal is about health care...

First of all, let start with this, our health care system is BROKEN. I have dealt with our health system a great deal with my parents and I can tell you that it is 100% broken. With the baby boomers approaching retirement we need to fix it now.

I do not currently think our system can be fixed; however, we MUST try. I am NOT sure how it can be fixed.

To understand Bush's proposal you have to first understand the current tax code and most people do not.

Lets say you work for the Fort Wayne police department, Northwest Allen County Schools, GM, or Lincoln in Fort Wayne. If you do, you have a great health insurance plan provided by your employer and you do NOT pay taxes on it. Your employer IS allowed to deduct it as a business expense and there is no tax consequence to you.

Lets say you work for most small businesses in Fort Wayne like: Karena Sylvester, CPA, CBF Sales, etc. You are generally in a far different situation...

You most likely pay for your own health insurance. You may get a limited tax break if you have set it up right. I will use my family as an example.

My wife and I run a small business that employs the two of us. I am 39 and she is 37, we are relatively healthy. We have two kids who are 3 and 5, they are also relatively healthy. We have an HSA and we choose to have a low-cost health insurance plan that covers NOTHING until we meet a rather large deductible. This makes us pay for most of our health care ourselves and means that we really watch what we spend. In 2006 our health insurance premiums for our family were about $4000 and we contributed $2000 to our HSA for medical expenses. We pay for our own health insurance since as a small business we really have no choice... This year we will deduct $6000 from our adjusted gross income and not pay taxes on it...

Currently the Federal tax code vastly favors citizens who have health care provided by an employer.

Bush's proposal is in its early stages and will be modified. I am just looking at their preliminary proposal... It is NOT very detailed and A LOT OF THINGS will need to be "firmed up."

Basically what president Bush is saying is that he wants to allow each married family a $15,000 tax deduction for health insurance and every single American a $7500 deduction for health insurance. He says his plan is revenue neutral. Bush wants to drive Americans into low cost health insurance plans because he thinks this will lower the cost of health care since Americans will pay closer attention to what they spend. I tend to agree with his overall thoughts on the matter. President Bush also thinks his proposal will cause more uninsured Americans to go and get their own low-cost health insurance, I think he is right on this as well... They will get a MAJOR tax break if they go and get health insurance...

Here are some things that would need to be "firmed" up and that need to be understood:

1. This is an accountant job creation act and a health insurance job creation act as well. Each employer would be forced to put a cost on the health insurance they provide for each employee. This is a HUGE thing and should not be underestimated. This would be TOUGH in many situations. This could be a large compliance problem. Basically each W-2 would HAVE to include a separate line listing the total cost to provide that employee with health insurance for the year.

2. How would this work for people on Government health insurance like Medicare? Would seniors include their premiums, the cost to the government to provide medicare insurance, and/or supplemental insurance... The above questions would have to be considered for Medicaid, Hoosier Health Wise, etc.

3. How would it work when the employer pays part of the cost and employee pays part?

4. How would it work when the employer provides it for employee and employee makes up the difference for their family?

5. How would co-pays be handled?

Etc, Etc, Etc...

Here are some examples of how I THINK it would work:

1. How this would effect Mike and Karena Sylvester. It would help us GREATLY because per his plan anyone who provides their own health insurance via a low cost plan would be allowed to deduct $15,000 from their taxable income if they are married. We would lose the $6,000 that we currently deduct. So this would end up reducing my taxable income by $9000 per year. This would help me and it would help everyone who is self employed or who works for an employer that does not provide health insurance.

2. How this would effect a Fort Wayne police officer. I am not sure how much the City of Fort Wayne pays for health coverage per employee of the Police Department. I would guess it is about $12,000 per year. Assuming it is $12,000 for a married police officer then that police officer would be able to deduct $3000 (15k - 12k) from his taxable income.

3. How this would effect a major corporate executive with a Platinum health insurance plan provided by his employer. Lets assume the person is married and the cost to the company to provide his health insurance is $20,000 per year. This would mean that this example would have to pay taxes on $5000 more then under the previous method.

It is WAY to early to tell if this is a good idea or not. The devil will most likely be in the details...

It will be very interesting to see how The Democrats and Republicans respond to this proposal. It will be very interesting...

On its face this plan would help:

Self employed Americans
Small Businesses
Un-insured Americans

On its face this plan would hurt:

Those employees who have health insurance that costs their employers more then $15,000 per year would have to pay taxes on this excess income
Large businesses for two reasons
1. It will remove some of the advantage they have over small businesses
2. This will be complicated and it will cost them money to comply with it

At first blush I am for this plan if the details are worked out in a reasonable fashion...

Consider this:
58% of Americans have health insurance provided by an employer
9% of Americans pay for their own health insurance
16% of Americans have no insurance
17% of Americans have insurance provided by the Government (Including military)

Mike Sylvester

8 comments:

Dave said...

Hi Mike,
Your extensive post on the Bush Health Care proposal sheds light on winners and losers. You're right that the devil is in the details, as always.

I still think the winners are the small businesses like your own and the proposal will resonate with them, as it does with you. I'm not convinced, however, that the Democrat congress will find it appealing because I don't think it will dramatically change the uninsured base.

What's really going on here is a shift in costs to large businesses with rich plans with tax benefits accruing to small businesses like yours.

I think if public workers with rich plans will wind up paying taxes on the value of some of their benefits, it's DOA.

In my state teachers have very rich health care benefits (I don't know the costs). If the Bush plan requires them to pay taxes on some portion of those benefits, they will influence the Democrats to oppose this or find a way to exempt themselves from it.

Jeff Pruitt said...

Some additionaly thoughts:

1)Many uninsured Americans will NOT benefit from this plan because they probably don't make enough money to benefit from the tax deduction. In other words, they ALREADY pay little to no federal income tax.

2)It will be very difficult for many uninsured Americans to become insured at reasonable rates. Insurance companies will exclude many for pre-existing conditions or force them to pay high-risk premiums

3)This could encourage employers to drop coverage since individuals would receive a tax deduction for finding their own. While this WOULD be a good thing in the long run, if the plan doesn't work as expected then we could end up w/ MORE uninsured.

I'm not sure this is the right way to solve this problem but I'm certainly interested in the debate being started again...

LP Mike Sylvester said...

Dave:

You are not quite right in my opinion because the way the system is today the large businesses have a HUGE advantage, this will help even it out...

It may well be DOA...

Jeff:

Your first point is certainly true; however, no one ever said that it would make ALL Americans get insurance. This plan does not do that. HOWEVER this plan would cause MANY people to go out and get insurance...

Your second point is certainly true.

Your third point may well be true as well...

I agree that this plan is NOT perfect; however, it is a plan and it would be a START.

I have not heard ANYONE else come up with a plan on healthcare besides Bush, have you?

Mike

William Larsen said...

The vast majority of companies are what is referred to as "self insured." This means they higher and administrator to setup a plan and manage it. As bills come to the Plan Administrator, they determine how much is paid and so on. At the end of the month, the plan administrator sends a bill to the company for expenses paid plus their administrative fee.

Generally speaking, there are not insurance companies being paid a fee for each employee.

The problem with our healthcare system is that Medicare shifts costs to everyone else. Insurance companies/plan administrators negotiate for lower costs and shift costs to everyone else. Maybe what we need is to just pass a law that states that a provider may not charge different rates for the same procedure for different people.

Think how buying groceries would be difficult. Milk for one group is $1.50 while for those not part of a group is $4.00. If the provider is charging too much, then they will loose patients. At some point in time it will level off, the way it was prior to Medicare.

Jeff Pruitt said...

Mike,

There certainly are other plans out there that are worthy of debate and I have no doubt they will now be debated given the President's own plan.

Senator Wyden's Plan

Senator Kennedy's Medicare Single Payer Plan

Also, let us not forget that when HillaryCare was defeated there were several other competing plans - some from Republicans, including Minority Leader Bob Dole.

The '94 GOP takeover of Congress essentially ended any debate/discussion on healthcare. It took a Democratic takeover (as well as states moving towards their own plans) to revive that debate and it's one I certainly welcome...

LP Mike Sylvester said...

Jeff:

Both plans you bring up are Universal Health Care plans...

I want to see a plan for healthcare that is NOT Socialist...

Mike Sylvester

Jeff Pruitt said...

You asked for plans and those were the ones I knew of...

LP Mike Sylvester said...

Jeff:

Thanks for posting them Jeff.

My point is that there SHOULD be many different plans for fixing our BROKEN healthcare system; however, the only plans I have seen are socialized medicine...

Mike Sylvester