Bush's New Health Care Plan

In the State of the Union last night, Bush proposed a way to the way health care is taxed. This announcement was something of a surprise – the first I heard of it was Monday morning. It sounds sort of complicated, but once all laid out, it’s fairly straightforward. Currently, if you get health insurance from your employer you don’t pay any tax on the cost of the plan. Similarly, those who are self-employed can deduct the cost of their health insurance from their taxable income. Anyone who pays their own health insurance outright, either because their employer doesn’t offer it or they can’t qualify for the plans that their employer offers, pay that expense after tax.

Under Bush’s new plan, that last group would be allowed to deduct their health insurance cost. The loss in tax revenue would come from a change to the taxation of those in the employer-paid insurance group; their insurance payments would be taxed if they exceed $15,000 for a family or $7,500 for an individual. If your annual healthcare premiums are less than those limits, you would see no change and it would still be tax free. The idea here is that this change covers the lost tax revenue while at the same time discouraging employers from offering overly-generous healthcare coverage and encourage the creation of low-cost plans that don’t currently exist.