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Akron Univ. School of Law

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Monday, January 30, 2006

Health Care and the Bush Administration

Last week, it was reported (Washington Post, 1/25/06) that "President Bush will propose [in the FY 2007 budget, due out in about two weeks] that Americans be allowed to take tax deductions on more of their out-of pocket medical expenses, as part of an initiative the White House believes will rein in soaring health costs by shifting responsibility toward individuals."  The tax break is part of a three-pronged approach described as follows:

  • The new tax breaks for personal health spending, to be included in the 2007 budget Bush will release in less than two weeks, are designed to help the uninsured and to allow people with insurance to write off a greater portion of the money they spend on co-payments, deductibles and care that is not covered. Under current tax rules, people can deduct medical expenses only if they exceed 7.5 percent of their adjusted gross income.
  • The president also plans to call for an expansion of health savings accounts, an idea long favored by conservatives and approved by Congress slightly more than two years ago, in which people who buy bare-bones insurance policies are allowed to put money into tax-free accounts for their medical expenses.
  • In addition, Bush intends to propose changes to allow people to keep their insurance, without extra cost, if they change jobs or decide to start a business, building on a decade-old law that was designed to make health coverage more "portable."

According to the Post article,

The idea of tax breaks for out-of-pocket medical expenses is borrowed from a recent book by three academics, including two with whom Hubbard has close ties: R. Glenn Hubbard, a former chairman under Bush of the White House Council of Economic Advisers, and John F. Cogan, a White House economic adviser when Ronald Reagan was president. Their book, "Healthy, Wealthy & Wise," calls for all such spending to become tax-deductible. The authors estimate that the revision in tax law would cost $28 billion a year when phased in completely, although they predict much of that lost revenue would be regained through ripple effects the change would create in the health care system.

Several outside health policy experts, both Democrat and Republican, speculated yesterday that the president is unlikely to make such a large financial commitment at a time when the administration has pledged to halve a $400 billion budget deficit during the next several years. Joseph R. Antos, a scholar at the conservative American Enterprise Institute, predicted that Bush will "open this particular door. But how far does it open? We'll see."

When this report first appeared, I wondered how they could possibly control cost increases.  All of the proposals should increase demand for health care services, which can be expected to fuel increases in cost, not decreases.  And expanding the existing tax subsidy for health insurance to include the self-insured and out-of-pocket expenditures would continue the "masking effect" that shields consumers from the true costs of their health-care decisions, not the other way around, as claimed by the President's people.

On Sunday, the New York Times' Robert Pear offered some additional reporting on the President's State of the Union address (scheduled for Tuesday evening) and picked up on some expert opinions that express doubts similar to mine.  [tm]

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