Bush's Rx for insurance: Buy your own
By John McCarron
Chicago Tribune
February 10, 2006
Additional material published Feb. 11, 2006
CORRECTIONS AND CLARIFICATIONS
In his Commentary column Friday, John McCarron stated that General Motors recently announced it will cap spending on health insurance premiums for salaried employees at 2006 levels. In fact, the announced cap applies only to retired salaried employees.
Say good-bye to your group health insurance.
OK, maybe not right away. Your employer may stick with your plan for a few more years. Don’t toss out that health-care card just yet.
But if you’ve been following the business news lately, and if you paid close attention—very close attention—to President Bush’s State of the Union address, you may hear a distant knell for the way most Americans get their health insurance.
General Motors, which spends more on health care for its workers than on steel, announced that it will cap spending on health insurance for salaried employees. Any future cost increases—and costs have been rising by double digits—will be borne by paying higher premiums, deductibles and co-pays.
That’s not so drastic, really, when you consider big outfits like GM, where labor contracts set a high standard, have offered employees some of the nation’s best benefits. But it does signal that the cost-sharing arrangement between employers and employees—you pay half, we pay half (or some such split)—is going the way of the defined-benefit pension. Remember the defined-benefit pension?
Then again, GM had little choice but to unhook from the great medical money machine here in Viagra Nation. The company must compete globally, as must all U.S. manufacturers. Compete for investors, too, in a world where you can buy the stock of Honda or Toyota as easily as Ford or GM.
So the race is on to limit corporate exposure to runaway health insurance costs. And sure enough, President Bush has a plan.
In his address, the president said government has a responsibility to “help people afford the insurance coverage they need.” The way to do that, his aides later explained, is to “level the playing field” so folks who buy their own insurance get as good a deal as folks who join their company’s plan.
Sounds reasonable. But details of the proposal, released by the Treasury Department, are causing quite a stir among the fraternity of insurance wonks who understand the implications.
Bush proposes a supercharged version of the health savings accounts, or HSAs, that Congress first authorized in 2003. Think of HSAs as an individual retirement account for health-care expenses. The way it works now, workers who choose “high-deductible” plans—plans that require patients to pay the first $1,500 or more out-of-pocket—are eligible to make tax-deductible contributions—up to $5,450 a year in a family plan—to an HSA and later use that money to pay uncovered medical expenses.
Bush would let that family sock away $10,500 per year tax-free. Moreover, they could claim a tax credit equal to 15.3 percent of the amount they deposited. But it gets sweeter. If the worker buys his own high-deductible insurance policy, rather than one offered at work, the premiums he pays would be fully tax-deductible and eligible for the 15.3 percent tax credit.
It’s all very complicated, but the bottom line is that relatively healthy people who can afford to set aside 10 grand a year would come out ahead by opening an HSA and buying their own insurance. After all, most employees cannot deduct the premiums they pay for their group plans, much less claim a refundable credit.
So what’s wrong with this picture? What’s wrong with encouraging workers, and their employers, to opt out of group insurance and go it alone … with large amounts of help from Uncle Sam?
Plenty, according to the Center on Budget and Policy Priorities, a Washington-based think tank. You can read its analysis online (www.cbpp.org), but an abbreviated list of horribles goes like this:
- If, as expected, the healthiest and wealthiest leave the group insurance pool, premiums will shoot up for the not-so-healthy and not-so-wealthy. That’s if they can find a plan that will take them. What insurance company is going to want your diabetic wife or disabled child?
- If, as expected, small-business owners, many of whom earn too much to qualify for a tax-deductible IRA, opt for the Bush HSA, which has no income limits, won’t many owners simply do away with their company’s group plan altogether? What’s good for the boss must be good for the workers, right?
- If, as the free-market theorists predict, people with high deductibles “shop around” for bargain health care and forgo “unnecessary” care, how are folks to decide what and when care is necessary, much less where they’ll get the most for their money? Surf the Internet? Thumb the Yellow Pages? So much for your primary-care physician and his or her trusted referral network of specialists.
No, what we have here is another Texas “two-fer,” a combo better than $3 gasoline and lower taxes on capital gains. What we have here is the fig leaf behind which corporate America will walk away from group health insurance, along with the sweetest tax shelter ever invented for the fortunate few with six-figure incomes.
RIP, group health insurance.
John McCarron writes, teaches and consults on urban affairs.