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