|Sunday, July 18, 2004
Bush's medical plan: Class warfare
By PAUL KRUGMAN
If past patterns are any guide, about one in three Americans will go
without health insurance for some part of the next two years. They won't,
for the most part, be the persistently poor, who are usually covered by
Medicaid. They will be members of working families with breadwinners who
have jobs without medical benefits or who have been laid off.
Many Americans fear the loss of health insurance. Last week, I described
John Kerry's health plan. What's the Bush administration's plan?
First, it offers a tax credit for low- and middle-income families who don't
have health coverage through employers. That credit helps them purchase
health insurance. The credit would be $3,000 for a family of four with an
income of $25,000; for an income of $40,000, it would fall to $1,714. Last
year, the average premium for families of four covered by employers was
more than $9,000.
A study by the Kaiser Family Foundation estimates that the tax credit would
reduce the number of uninsured, 44 million people in 2002, by 1.8 million.
So it wouldn't help a great majority of families unable to afford
insurance. For comparison, an independent assessment of the Kerry plan by
Kenneth Thorpe of Emory University says that it would reduce the number of
uninsured by 26.7 million.
The other main component of the Bush plan involves "health savings
accounts." The prescription drug bill the administration pushed through
Congress last year had a number of provisions unrelated to Medicare. One of
them allowed people who purchase insurance policies with high deductibles,
generally at least $2,000 per family, to shelter income from taxes by
setting up special accounts for medical expenses. This year, the
administration proposed making the premiums linked to these accounts fully
Although the 2005 budget presents that new deduction under the heading
"Helping the uninsured," health savings accounts don't seem to have much to
do with the needs of the families likely to find themselves without health
insurance. For one thing, such families need more protection than a plan
with a $2,000 deductible provides. Furthermore, the tax advantages of
health savings accounts would be small for those families most at risk of
losing health insurance, who are overwhelmingly in low tax brackets.
But for people whose income puts them in high tax brackets, these accounts
are a very good deal; making the premiums deductible turns them into a
great deal. In other words, health savings accounts will offer the already
affluent, who don't have problems getting health insurance, yet another tax
shelter. Meanwhile, health savings accounts, in the view of many experts,
will actually increase the number of uninsured.
This perverse effect shouldn't be too surprising: Unless they are carefully
designed, medical policies often have side consequences that worsen the
problems they supposedly address. For example, the Congressional Budget
Office estimates that one-third of the retirees who now have drug coverage
through their former employers will lose that coverage as a result of the
Bush prescription drug bill and will be forced to accept inferior coverage
In the case of health savings accounts, the key side consequence is a
reduced incentive for companies to insure their workers. When companies
provide group health insurance, healthier employees implicitly subsidize
their sicker colleagues; they're willing to do this largely because the
employer's contributions to health insurance are a tax-free form of
compensation, but only if the same plan is offered to all employees.
Tax-free health savings accounts and premiums would provide healthier and
wealthier employees an incentive to opt out, accepting higher paychecks
instead, and would lead to higher insurance premiums for those who remain
in traditional plans. This would cause some companies to stop providing
health insurance, or raise employee contributions to a level some workers
The difference couldn't be starker. Kerry offers a health care plan that
would extend coverage to most of those now uninsured, paid for by rolling
back tax cuts for those with incomes over $200,000. President Bush offers a
tax credit that would extend coverage to fewer than 5 percent of the
uninsured, plus a new tax break for the affluent that would actually
increase the number of uninsured. I don't see how Bush can win this debate.