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This just in - President Bush's Health Insurance tax deduction from the SOTU.

By The Armorer on January 20, 2007 | | Comments (4)
SOTU Preview:

Standard Deduction For Health Insurance

"So in my State of the Union Address next Tuesday, I will propose a tax reform designed to help make basic private health insurance more affordable – whether you get it through your job or on your own."

– President George W. Bush, Radio Address, 1/20/07

Additional Information About The President's Proposed Standard Deduction For Health Insurance

· The President's primary goal is to make health insurance more affordable, allowing more Americans to purchase insurance.

· In his State of the Union Address, the President will propose a "standard deduction for health insurance" – just like the standard deduction for dependents.

· Under the President's proposal, families with health insurance will not pay income or payroll taxes on the first $15,000 in compensation and singles will not pay income or payroll taxes on the first $7,500.

· At the same time, health insurance would be considered taxable income. This is a change for those who now have health insurance through their jobs. The President's proposal will result in lower taxes for about 80 percent of them. The 20 percent of them with more generous policies will have the option to adjust their compensation to have lower premiums and higher wages to offset the tax change.

· The President's proposal levels the playing field for Americans who purchase health insurance individually rather than through their employers, providing a substantial tax benefit for all those who currently have health insurance purchased on the individual market.

· This proposal lowers taxes for all currently uninsured Americans who decide to purchase health insurance – making insurance more affordable and providing a significant incentive to all working Americans to purchase insurance coverage, thereby reducing the number of uninsured Americans.

· As we reform the Federal tax code, we will also support the innovative measures that States are taking to address the problem of the uninsured. Governors across the Nation have put forward plans to make basic private health insurance more accessible for their citizens.

· In his State of the Union Address, the President will announce a new effort – led by Health and Human Services Secretary Michael Leavitt – to help governors reduce the number of people in their states without private health insurance.

Any smart guys with informed opinions here?

I'm trying to see how it will affect we military types who use the military system, TRICARE.

The government *does* pay into it, but I don't think they do so in the same way that, say, General Motors or Sears does - those policies, procured from specific companies, will have price tags attached.

I do see the Pentagon seeing a way to set the cost at the high end (where it may, in fact, be) in order to force as many of us as possible into the "The 20 percent of them with more generous policies will have the option to adjust their compensation to have lower premiums and higher wages to offset the tax change." group so that those of us who can will jump to employer-provided coverage.

Heh. The devil will be in the details. On a first read, by unsophisticated me, it doesn't sound that bad - but... I sense a pay cut or benefit cut coming my way, at one end or the other, simply because I'm in a group that doesn't appear to be really covered here in the vision. We'll see. It's got to get past Congress, first.

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4 Comments

By emdfl on January 20, 2007 10:53 PM
I suspect this to be the camel's-foot-in-the- door of taxing the portion of the cost of health benefits paid by your employer as ordinary income. I suspect that when the real cost of this is seen, there will be a mass withdrawal from company sponsored plans by workers who will seek there own individual plans. Bush and his advisors OBVIOUSLY have no desire to see a repub elected to the Office again... Of course the way the whole health insurance thing came about in the first place was the government during WWII putting wage controls in place. So the unions and companies came up with the idea of paying for health insurance as a way to "increase" take-home pay without increasing wages.
 
By SangerM on January 21, 2007 12:11 AM
The key is in the deduction vs. the taxable portion. It really will serve to move the savings and should reduce taxes. The key is to keep both parts in place. If the deduction goes away, everyone is screwed. A real key is the cost of insurance to the company. Most plans are group plans, and while expensive, they shouldn't come to as much as what is being offered, though it could be real close... For example, I pay around 200/month for med ins for a family of 3. It's a pretty good deal. But I don't know how much my company pays for this program. And here's the rub, I think. Employees of smaller companies will get hit worse than large ones because the cost per member in small companies will likely be higher than the cost per member in larger companies. So, if my org pays 12K for my plan as is, I get to deduct the cost of ins, which is a wash, there is no real benefit to me ('cause the company is not going to give me the difference in income or reduce my premiums); whereas if my org pays 18K for my plan, I lose 3K in currently tax free income. Which leads me to ask: Why should I support this idea. I'd like all people to have medical care, but I don't want to pay more so they can get it (that's just another way to give away my earnings); and since it's a wash to me either way if I don't have to pay the taxes, again I have no reason to care. All in all, this seems like a win for the Government and a who cares for me... NB, I cold have read that wrong, and it is a flat deduction of 15K no matter what I pay, and the difference is either mine to keep or mine to pay. That would be a very different situation, and I'd go for that unless I had to pay. BTW, a lot depends too on whether the FSA stil goes. Right now, I pull a fair bit out of my pay for medical expenses that I would never be able to take off my taxes using the normal way. If I could do that still, and the new plan, that could work out.
 
By John of Argghhh! on January 21, 2007 7:12 AM
Right now, via TRICARE Prime, I pay $460 a *year* and I dont' think the government pays a premium per se, essentially being self-insured. So I'm curious how all that will play out. I frankly just assume I'll get screwed to the wall, one way or another, based on prior experience, and that fact that the Pentagon would like people like me to either go somewhere else or pay a whole lot more, regardless. As emdfl noted, albeit indirectly, my healthcare plan is part and parcel of the pay package offered when I enlisted, if I stayed the course.
 
By Cricket on January 21, 2007 2:15 PM
A better way to 'afford' health care would be to write off what we pay in premiums and in total medical care instead of that lousy 7.5% of adjusted gross income. But this way...I will do my taxes the current way and then do them the proposed way and see if there is an appreciable difference. On the brighter side, we finally get to retire that 100 year old luxury tax on telephones..to pay for the Spanish American War, doncha know.
 
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