Bush’s Solution To The Health Care Crisis

W hen he made his State of the Union address in January, George W. Bush knew he would soon be announcing sizable cuts in Medicare and Medicaid two weeks later. He chose to say nothing about that. Apparently he understood that a $101.5 billion cut over 5 years in Medicare and Medicaid is not the sort of thing that provokes standing ovations from members of Congress on prime-time television. 

What Bush did mention was “two new initiatives” that would shift federal subsidies from some Americans to other Americans. His first “initiative” called for raising taxes on Americans who have employer-sponsored health insurance in order to lower taxes on Americans who buy health insurance on their own. His second proposal called for shifting federal tax subsidies from hospitals that serve disproportionate numbers of uninsured patients to insurance companies (which are not in the business of serving uninsured patients). The White House estimated the first proposal would lower the nation’s number of uninsured, now at 47 million, by 3 to 5 million in 2009 when these proposals would take effect. The White House offered no estimate of what the second proposal would do. 

Bush’s proposal to raise taxes on people with employer-sponsored health insurance rests on the assumption that health care inflation in the U.S. is driven by “overuse” of medical services and that overuse is in turn driven by health insurance with “low” deductibles and copayments. According to the right wing in this country, medical care is no different from any other commodity—if insurance pays for most of your medical costs, then you’ll consume far more medical services than you need. 

To make this point, advocates of high-deductible policies like to ask audiences to imagine what would happen to food prices if all Americans had grocery insurance that paid for 95 percent of their grocery bills. The problem with the grocery/insurance analogy is that medical services, unlike food, are rarely pleasurable and are often painful and even life-threatening. Would you rush off to have your uterus or prostate removed if it was not cancerous just because you are insured and would pay only a minor portion of the bill? Would you endure radiation and chemotherapy if you did not have cancer? Or, to take a service that is not painful, but just plain boring, Would you take time off work to have blood drawn for a cholesterol test you didn’t need just because you didn’t have to pay full price? 

Research demonstrates that Americans, including insured Americans, vastly underuse medical services. To take just two examples: (1) half of all insured Americans with high blood pressure are not being treated for it; and (2) one-fourth of insured Americans who have had an angiogram that demonstrates they need either bypass surgery or angioplasty have neither done. 

A large study conducted by the Rand Corporation that was published in the New England Journal of Medicine late in 2003 demonstrated that underuse of medical care occurs four times as often as overuse. The high-deductible policies advocated by Bush and the Republican Party ($5,000 to $10,000 per year for families) might or might not reduce overuse (patients are not doctors, after all), but they will definitely aggravate the underuse problem. Of course, highdeductible policies will not address the enormous waste generated by the health care industry in the form of excessive administrative costs, excessive prices for specialist services and drugs, and fraud. 

Bush nevertheless invoked the myth of the “overinsured” America, arguing that some unspecified portion of the populace had “gold-plated” health insurance. He implied that overuse by these people was a primary cause of health care inflation. To discourage the purchase of “gold-plated” health insurance, whatever that is, Bush proposed to raise taxes on those who purchase it. 

Under Bush’s proposal, employer contributions toward employee health insurance would, for the first time, be treated as income, just like wages and salaries are now. Employer contributions would show up on W-2 forms, just like other forms of income. However, Bush would offset this new liability with a deduction worth $15,000 for families and $7,500 for individuals. Thus, as long as you keep your insurance premium below the deduction, you would not have to report your employer’s payments for your health insurance and, therefore, you would not owe more taxes. One way to do that, of course, is to buy health insurance with a very high deductible. 

According to White House estimates, the average cost of family insurance in 2009 will be $13,500, which is just below the $15,000 deduction Bush is proposing. Bush announced during his State of the Union address that 80 percent of Americans with employer-sponsored insurance will pay no new taxes. What Bush did not mention was that this 80 percent figure, while accurate for 2009, will fall as time goes by because the $7,500 to $15,000 deduction is pegged to the general inflation rate, while health insurance inflation zooms along at 3 to 4 times the general inflation rate in most years. By 2011 or so the average price of health insurance will surpass the deduction. According to the Tax Policy Center, the percent of Americans with employer-sponsored coverage who will pay more taxes will rise to 40 percent within a decade. 

The minor effect of the two money-shifting “initiatives” Bush announced during his State of the Union address will be swamped by his proposed cuts in Medicare and Medicaid. Granted, these cuts are not reductions in total dollars for Medicare and Medicaid, but are, rather, cuts in the projected rates of growth in expenditures if current law governing coverage and eligibility is not altered. Nevertheless, we may call them cuts because enrollment in both programs is growing and inflation in health care costs these programs have to pay for is high and unrelenting.