Wednesday, January 24, 2007

Doing some math on the Bush tax plan

Here's how the Bush tax plan for health insurance works out for me, I think: The total premium for my employer-provided family HMO coverage is $1050 per month (of which I pay $68 per month). If the value of my coverage is computed based on what my employer pays, $982 per month or $11,784 per year, that yields a deduction of $3,216 ($15,000 - $11,784). At our marginal tax rate of 15% (last year, anyway), that means we'll pay about $482 less in taxes than I would have without the deduction.

So that's nice, I guess. But the question I have is, what's the government getting in terms of its stated goal of expanding health coverage for that outlay? Well, I guess it's discouraging the kind of Cadillac plan for which people are going to end up losing some tax deductions. And I guess the argument is that by penalizing the Cadillac plan, we're somehow discouraging the rising cost of health care in the country. So, OK. But as I understand it, the deduction for people like me with Hyundai plans won't be totally offset by the deductions lost by Cadillac people for a number of years. In fact, the only reason the Cadillacs will eventually zero out the Hyundais is because the $15,000 figure won't go up as fast as my Hyundai policy goes up. So eventually, even the Hyundais will end up losing the goodies they'd get early on, and end up being contributors to the tax subsidy (sorta the way families with moderate incomes have been swept up by the alternative minimum tax).

And what about that subsidy? In the beginning, I get a nice little piece of that action, even though it's going to cost the government in the beginning. But eventually, me and fellow Hyundais are going to be kicking in money to subsidize somebody else's tax deduction. The thinking is that the tax subsidy is going to make it possible for somebody who isn't presently covered to get coverage.

I don't think it's a bad idea to quit using the tax code to subsidize Cadillac health coverage, and I don't think it's a bad idea to use the tax code to subsidize Hyundai coverage for people who don't have any. I just think it's another example of too little, too late. There are millions of people without coverage, and many of them aren't going to benefit in a meaningful way from a tax deduction.

For a different take on the Bush plan, check out Ruth Marcus's piece in today's WaPo. And for an interesting peek into Bush's SOTUs, check out NYT's interactive feature that lets you search the text of Bush's SOTUs for keywords. Search for "health" and watch the 6-year evolution of the Bush health policy agenda.

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