Precept Employee Benefits Blog

Amidst an initial positive response from business groups, President Bush sketched out his plan for healthcare reform. As additional details continue to be forthcoming, I can’t help but question if such a proposal will ever go anywhere.

President Bush’s plan is this: The government would give every individual with health insurance a standard deduction from income taxes of $7,5000 ($15,000 for a family). For individual plan purchasers, this could be an instant windfall because their insurance costs today are only deductible if they reach 7.5% of their AGI (Adjusted Gross Income). Those with high AGIs would obviously have a big incentive to buy insurance, however I do not believe low wage earners will miraculously want to buy health insurance to receive a tax deduction that they could already benefit from.

The tax deduction windfall for people with employer-provided health insurance may not be as sweet as it sounds. All employer health insurance payments would be reported as taxable income. For those who are plagued by the Alternative Minimum Tax (AMT) or have income that puts them close to those limits, the added income could qualify you for the AMT. The result of the AMT is almost always an increase in taxes. Assuming you are not impacted by the AMT and your employer payments totaled less than $15,000, the family’s tax bill should go down under the Bush proposal. If employer contributions exceed $15,000, the opposite is true and your tax bill would go up.

Wherever you fit into the tax equation of this proposal, keep in mind that it is not perfect. Does a tax deduction matter for those that are uninsurable? It appears as though the “middle class” could see some negative implications while the low wage earners see no real advantage over current tax incentives.

I am a bit disappointed with this proposal. It does not address any of the real issues that are plaguing us in healthcare: uninsured, soaring hospital costs, Medicare reimbursement rates, etc. I am left wondering if President Bush used his proposal as propaganda or if he really thinks this is a legitimate solution.