Insuring the uninsured: President Bush joins the health care debate

President Bush's private-insurance initiative, unveiled during the 2007 State of the Union address, keeps alive the debate over how to get at least some of the estimated 47 million uninsured Americans into the system. Experts at the School of Health Management and Policy at the W. P. Carey School of Business offer two perspectives. Bradford Kirkman-Liff, professor of health policy and biotechnology, sees the president's initiative as a missed opportunity. School director and Professor Marjorie L. Baldwin views it as a constructive step toward expanding health care coverage through market solutions.

President Bush's private-insurance initiative, unveiled during the 2007 State of the Union address, keeps alive the debate over how to get at least some of the estimated 47 million uninsured Americans into the system. Health policy experts at the W. P. Carey School of Business this week offered analysis of the Bush proposal and other initiatives.

Bradford Kirkman-Liff, professor of health policy and biotechnology in the School of Health Management and Policy at the W. P. Carey School of Business, sees the president's initiative as a missed opportunity. Marjorie L. Baldwin, director of the School of Health Management and Policy, views it as a constructive step toward expanding health care coverage through market solutions.

The health insurance debate revolves around the roles played by the public and private sectors. A government-sponsored single-payer system would have government take the lead and provide universal coverage where private insurance has fallen short. Market advocates believe private insurance and individual responsibility is a better solution.

The Bush plan

Bush advocated a tax incentive for private insurance that would expand coverage by about 5 million of the 47 million uninsured Americans, according to the Treasury Department. Kirkman-Liff says Bush could have taken more of a middle-ground position "in which there is an emphasis on the private sector but also a role for limited government regulation of the small-group and individual health insurance market."

For three decades, Kirkman-Liff says, "Our health-reform discussions too quickly ended up in bitter fights because we lost sight of what we agree on. He could have centered the discussion. But he did not." Among the good ideas Kirkman-Liff says Bush could have endorsed but did not are:

• The Health Coverage Coalition for the Uninsured's (HCCU) bipartisan recommendations that include public-sector and private-sector aspects. The HCCU is a coalition that has been ruminating heath care reform for 50 years and comprises 16 organizations including the AARP, the American Medical Association, the Catholic Health Association and pharmaceutical corporations.
• Market-based proposals by California Gov. Arnold Schwarzenegger and Massachusetts Gov. Mitt Romney that aim to close the gap for the uninsured through private-sector solutions.

Kirkman-Liff says the HCCU organizations worked for more than two years to negotiate an accord that embraces a set of feasible reforms, but the HCCU package did not win the president's embrace. However, Bush deserves credit, Baldwin says, because his plan would start closing the uninsured gap and would make the health insurance system more equitable.

"The U.S. Treasury estimates 5 million people would move from uninsured to insured because of this proposal. If it were enacted, my guess is that it would be more," Baldwin says. "Markets aren't static. As more people opt to purchase health insurance on their own, insurance markets would respond with more options. Different products would be made available at different prices."

Private policies also would be portable as employees change jobs, Baldwin says. Under Bush's plan, employers' spending on employee health benefits would become taxable income for employees, who would get standard deductions of $7,500 for individuals and $15,000 for families if they had qualifying coverage. The worker gets the entire deduction if the employee or employer spends less on insurance, but the deduction stays the same if more is spent.

How it would work

The Institute for Policy Innovation, which calls Bush's proposal for health insurance tax reform "the simplest and yet most radical proposal to emerge in decades," gives this practical example: An employee makes $50,000 and his employer provides $5,000 for health insurance. The employee currently pays taxes on $50,000 in income but nothing for the insurance.

Under the Bush proposal, that worker would report $55,000 income but get the full $7,500 deduction for an individual, so he would pay taxes on $47,500. If the employer were to spend $8,000 on his health insurance policy, the employee would now have taxable income of $58,000. With the $7,500 deduction, he would be paying taxes on $50,500.

Kirkman-Liff estimates the Bush plan would increase the costs for 20 percent of Americans with employer-sponsored health insurance. On the other hand, Baldwin notes that the 17 million Americans who currently purchase their own health insurance with no tax breaks would see their costs drop dramatically.

"The president's proposal where every family gets a standard deduction for health insurance is much more equitable than the current system," Baldwin says, citing the estimate by the Lewin Group that under the current system, families making $100,000 or more in 2004 got a $2,780 tax subsidy while families making less than $30,000 got a subsidy of less than $725.

Baldwin says employees may choose to opt out of employer-provided coverage if they can find a better private deal. "Many may decide, 'I can do better purchasing the insurance myself,'" Baldwin says. "This isn't just the offer of a tax break; it's a fundamental change. It moves more responsibility to individuals."

And if 5 million or more Americans were to make such a choice, incremental but significant progress in closing the coverage gap would be made, an improvement upon which further progress could be built. "I think anything that makes the health insurance market more transparent is a good move," Baldwin says. "Now, we don't think of [employer-provided] health insurance as income, but it really is."

The debate

Baldwin concedes that private insurance prices would be based on risk and that people with pre-existing conditions might find it difficult to obtain health insurance at reasonable prices. That is where government-based policy options should kick in. "That may be where some government intervention may be needed to form pools of hard-to-insure people," she says. Critics of the Bush proposal say it offers tax breaks to people who can't afford to buy insurance anyway.

Kirkman-Liff points out that under the president's proposal, people would have to buy the insurance first, then file their income tax return and claim the deduction a year later. "Imagine a proposal to set a cap on the amount that a family can deduct from their income tax for their home mortgage — in order to provide home-mortgage assistance for the homeless," Kirkman-Liff says.

"Who is going to be affected by the cap? Middle-income families. Does anyone expect that a bank would give a mortgage to a homeless person because the federal government is going to give the homeless person a tax credit on their mortgage payment — especially when the homeless person does not get the check to help them pay for their mortgage until they file their income tax return?" Nor, he says, would insurance companies, physicians and hospitals let people wait 15 months before paying their premiums and medical bills.

"Yet, the president's proposal seems to require that everyone be willing to wait for the IRS to calculate tax returns on the previous year's earnings," Kirkman-Liff says. He also says the Bush plan failed to address the fact there are large cost differences between large and small cities. Another problem with the President's proposal, says Kirkman-Liff, is that a standard deduction is not as useful for low and moderate income households as a fully refundable tax credit would have been.

"A deduction benefits higher income households the most, because they have higher marginal tax rates," he explains. "A refundable tax credit gives purchasing power to lower income households." Still, Baldwin says, the Bush plan properly gives first priority to exhausting market solutions before having government step in. "Economists generally favor market solutions," she says. "Government should only do things government has to do, and the market should do the rest."

Although government coverage programs in Great Britain and Canada provide health care at lower per capita costs, the systems also limit access, create long wait times, and undermine incentives for medical and pharmaceutical research, she says. "Sure, we have problems with our health care system, but it is not true that Great Britain and Canada do not have problems with their single-payer model," Baldwin says. "'I don't know that we've given the private health insurance system a chance to work."

Prognosis: no action soon

"The real tragedy of the president's proposal is that his advisers know that nothing the president has proposed will be enacted," Kirkman-Liff says. "It is an empty proposal. It was put forward with an awareness by the president's advisers that with a Democratic majority in the House and the Senate it will not pass.

It is simply an ideological obstruction, and it happens at a time when there are serious people across the ideological spectrum making serious efforts at bipartisan collaboration." Baldwin agrees there is little chance that the Bush proposal will be passed. "I rate it slight," Baldwin says.

"The president doesn't have much political capital now. He's spending a great deal of what he has left on the war in Iraq. The next presidential election is the most likely scene of debate. It will be a big issue in 2008, and I don't know that legislators will make a big move on health care before that time."

Bottom line:

• The Bush health care proposal emphasizes market solutions instead of government-sponsored insurance.
• The proposal would expand the number of insured Americans by about 5 million but many more would remain without coverage.
• The Bush plan, critics say, is too narrow and ignored many well-researched ideas that recognize the importance of a mix of market and government solutions.
• Proponents say the Bush plan reflects more equitable tax policy and makes individuals more responsible for their health care decisions, which will lead to more efficient allocation of healthcare resources.
• Don't expect significant change until a new president takes office in January of 2009.