Note: On re-reading what I wrote, I realize I calculated improperly... that extra is a reduction to your income. If your tax rate is 25%, you'd save $1,175 in taxes for having insurance, minus the $550 below paid out for the benefit I receive. This makes a lot more sense: A savings of about $525 in taxes for a middle-class family [assuming 25% tax rate is middle-class] for having health insurance. For those on the lowest end of the scale, the savings is greater (%-wise): Let's say a combined income for a newly married couple of $25,300. Right now, they'd have a standard deduction of $10,300, and 2 exemptions for $6,600, leaving them with a taxable income of $8,400. Their tax would be $843. After this change, however, the deduction would make their taxable income $3,700, meaning their tax would be just $373 - a savings of $470. This will allow people to get at least very basic health insurance. Better yet, if they had perhaps a few hundred dollars to put into health insurance and can now add this savings in, they can get somewhat better health care. The initiative calls to help make health plans more affordable as well, and expand Health Savings Accounts (HSAs) which are excellent and provide even further savings to people.
On second thought, they're probably taxing the % the employer pays, which is a LOT more - almost double what I'm getting from the deduction... but that doesn't make sense, because most plans are structured like mine, and it talks about getting lower premiums for the 20% getting hurt by this. Anyone have a clue as to how this would work? I'm thinking now that my first analysis was closer, which would be great for everyone, and make a LOT more sense than universal health care - which ties up a lot of money into beauracracy, among other issues that I'm not getting into here. It also seriously preempts Hillary's plans for 2008 by proxy - more Americans would benefit from this plan than hers, including helping most of all those on the poorer end of the scale.
The final paragraph on the subject is also huge:
There Are Many Other Ways That Congress Can Help. We need to expand Health Savings Accounts, help small businesses through Association Health Plans, reduce costs and medical errors with better information technology, encourage price transparency, and protect good doctors from predatory lawsuits by passing medical liability reform.Amen to all of those. More on the State of the Union when I have a chance to actually read some details...
The real answer for your family is much simpler...
ReplyDeleteMake ALIYA!
(I'll even come meet you at the airport)
While I won't for a moment discount the socialized medicine enjoyed by those living in Israel, I am watching to see how Schwarzenegger's plan pans out.
ReplyDeleteLook for employers to stop contributing to your insurance costs. in the first year they will give you the amount that they were paying for you and say you get the full deduction now, so there is no tax cost if we do it. As insurance premiums increase every year, you will be on your own. The company won't be there to say there was an increase in premiums and we'll take care of X% of it. It will all fall on your shoulders now. A few years down the line you will probably be worse off. The company may be willing to offer as its service to its employees to shop around and give you some choices, but the company now has no vested interest in fighting to lower premiums, other than employee revolt, which usually only lasts as long as the first or second paycheck after the increase. Why doesn't bush just offer a deduction from income for cash paid for insurance? If you work somewhere and contribute, you will get less of a deduction. If you buy your own, you will get a larger deduction.
ReplyDeleteBush's plan does not appear to address the fact that private health insurance is not available for any individual, at any price, for anyone with a pre-existing condition. And the tax penalty will adversely impact employer plans, likely resulting in even fewer having insurance.
ReplyDelete"ties up a lot of money into beauracracy"
Compare the efficiency of fee-for-service Medicare to every other health insurance plan in the US. Medicare spends a smaller fraction of its expenses on administration than all of them. There are very few things for which the government is more efficient than the private sector, but this is one of them. (Energy and transportation are the others.)
I just read the fine print in the Bush plan. It is worse than I thought. It would basically end state regulation of the health insurance industry. This will create a tremendous opportunity for undercapitalized insurance firms to sell underpriced policies and skip out on paying claims. Fortunately, the combination of health advocacy groups (like the Orthodox Jews who forced New York to mandate coverage of expensive fertility treatments), the real insurance industry, and consumer advocates will likely see that Bush's plan will be DOA.
ReplyDeleteTrilcat - Heh. You and hundreds of others...! :) (Soon, soon...)
ReplyDeleteTTC - As am I. A meeting I was at Monday evening discussed it... and think it's terrible in the long term. Hillary's top advisor is the architect of that one, by the way.
I almost mentioned that in this piece, but it's too much of a tangent. Romney's plan in MA was much better until the legislature killed it.
Rescue - Why would employers stop contributing? While it would now be taxable for employees, it doesn't affect them in any way - they still get to expense it, etc. They would lose no more than they are now.
In most fields, no single company could afford to stop offering towards health - they'd be unable to hire. I don't think they'll stop anytime soon.
Why doesn't bush just offer a deduction from income for cash paid for insurance?
For the same reason there's already a problem now: People will overpay for health insurance figuring they'll get a nice chunk back, anyway. Plus, that wouldn't help people on the low end of the scale as much.
Charlie - Bush's plan does not appear to address the fact that private health insurance is not available for any individual, at any price, for anyone with a pre-existing condition.
But that's understandable. Why would any insurance company take on a guaranteed loss? They'd go bankrupt, hurting everybody. Plus, this actually solves that in the long term - by *everyone* getting insurance, there will no longer be people with preexisting conditions save those who already have them at this moment. It seems foolish to scuttle the whole thing for a tiny current percentage - after everything else is in place, perhaps a separate accomodation could be made for people in that class.
Compare the efficiency of fee-for-service Medicare to every other health insurance plan in the US.
...yet seniors are constantly complaining about it, and the costs of medicines et al are astronomical, are they not?
There are very few things for which the government is more efficient than the private sector, but this is one of them. (Energy and transportation are the others.)
The increased privatization of energy seems to actually be reducing consumer costs, but I'll still grant you those two. But health has not been tried on a major scale here in the US, while it's been a failure in most places where it has been tried (I know, Japan, blah blah :) ). This plan makes a lot more sense.
It would basically end state regulation of the health insurance industry.
Yay! :)
This will create a tremendous opportunity for undercapitalized insurance firms to sell underpriced policies and skip out on paying claims.
How?
"Why would any insurance company take on a guaranteed loss?"
ReplyDeleteYou have just identified the major reason why the current private system will never work.
"by *everyone* getting insurance, there will no longer be people with preexisting conditions save those who already have them at this moment. "
The problem is that just about everyone over the age of 40 has a prexisting condition. Ever seen an application for individual health insurance? Some of them actually ask if you have EVER received medical treatment, and want the details of all such examples. Most insurance agents don't even sell individual health insurance policies anymore.
"...yet seniors are constantly complaining about it, and the costs of medicines et al are astronomical, are they not?"
Medicare doesn't cover medicines, unless they are given in a doctor's office or in a hospital. And the US is just about the only developed country that does not regulate the cost of medicines.
By efficiency I meant the fraction of Medicare's budget that actually goes into paying claims. No private insurer even comes close. It is mostly an economy of scale, although the fact that most private insurers now are for-profit entities means that their cost structure includes having to pay taxes also contributes to this.
"The increased privatization of energy seems to actually be reducing consumer costs,"
In the US, consumers who live in areas served by publicly owned electric utilities consistently pay lower rates than those of us served by investor owned utilities. I think the two reasons is that the publicly owned utilities have a lower cost of capital (tax exempt bonds) and don't pay taxes. And most of the rest of the world pays lower rates to the government owned energy monopolies.
Back in the old days of regulated monopolies, the electric grid in the US was probably superior to that in most other countries. That is no longer true, because there is little incentive under the new deregulated world for any energy company to have excess capacity. In the old days, the guaranteed rate of return meant that the utilities would overinvest in the infrastructure. So now we have the worst of both worlds.
"it's been a failure in most places where it has been tried"
By the best measures of health outcome, the US ranks about #23 in the world despite spending far more on health care than any other country. The failure is clearly in the US system, not the others.
"It would basically end state regulation of the health insurance industry.
Yay! :)"
Be careful what you wish for. To whom will you appeal when your claim is denied.
"This will create a tremendous opportunity for undercapitalized insurance firms to sell underpriced policies and skip out on paying claims.
How?"
Currently there is essentially no federal regulation of insurance. States require insurance companies to meet certain requirements for capitalization, disclosure, etc. There are two types of policies that are currently exempt: Employer self-pay plans (in every state except Hawaii) in which the employer doesn't provide insurance but instead simply hires an insurance company to pay the medical expenses of its employees (this is known as self-insurance), and religious pre-pay plans. The employer plans don't cause a lot of difficulty because businesses know that they need strong capitalization less a single major illness by an employee bankrupts the entire company. But there have been many problems with the religious self-pay plans. They don't have sufficient actuarial experience, so they charge too little. They lack investment experience so they don't invest the premiums wisely. As a result there have been many cases in which those plans have been unable to pay claims as promised, and the people who had paid the premiums are out of luck and still owe the hospitals. It will be like the bank failures of 1933 all over again.
The Bush plan will allow consumers to buy insurance from companies that do not meet state licensing requirements. The idea is that state regulation of insurance products drives up costs. That is unquestionably true. For example, New York's mandate for infertility treatments contributes significantly to the high cost of insurance here. You can thank Orthodox Jew and Assembly Speaker Sheldon Silver for that! But the real answer would be to establish uniform federal rules, something the insurance industry has always fought (for reasons unclear to me).
I'm skeptical that any plan managed by or mediated by the federal government will work properly...
ReplyDelete...unless there is a way for families with their own health insurance accounts to work with other families as a group to bargain with insurance companies to set acceptable rates, prevent unjustifiable exclusions, get prompt service on claims, etc.
With today's corporate-funded health plans, it's only the negotiating clout of the corporations that restrains the health insurors from gouging and excluding and delaying payment more than they do.
"I'm skeptical that any plan managed by or mediated by the federal government will work properly"
ReplyDeleteMedicare works pretty well, and has less administrative overhead than any private health insurer.
"unless there is a way for families with their own health insurance accounts to work with other families as a group to bargain with insurance companies to set acceptable rates, prevent unjustifiable exclusions, get prompt service on claims"
Good luck trying to get a hundred families together to bargain on such.
"it's only the negotiating clout of the corporations that restrains the health insurors from gouging and excluding and delaying payment more than they do."
And even then, the state regulators sometimes have to step in.
Ezzie,
ReplyDeleteit is similar to what happened with CPA firms and overtime. Firms used to pay overtime, (yes, I am a CPA) at one point someone said, if we raise everyone's salaries and say the raise this year is to cover the overtime you will work in the upcoming we can save admin costs and FUTURE COSTS because when pay raises come around the following year they don't have to consider the o/t costs. If there is a bad year and raises are not high, everyone still works like a dog, but it doesn't cost the firm anymore. Samething will happen here. Everyone will get a $10,000 raise which will be more than what the company is paying for now, but when insurance rates go up, you're on your own. If a policy now costs $8,000 and goes up in a few years to $12,000, the company continues to give you your regular raises and you have to cover the rest. The current situation is, that the companies have a vested interest in keeping the cost down, because there is only so much they can flow down to the employees without revolt. All you need is one big company to do this and almost everyone else will fall in line. (ow many CPA firms pay overtime anymore)There were people who said that companies would never stop pension plans, make employees pay more than niminal amount for doctor visits or prescriptions. It is all a matter of the current and projected future bottom lines for companies.
Lots to say, busy day. Please check back later for my comments... thanks! :)
ReplyDeleteEzzie,
ReplyDeleteSomething you might like to post on is the fact that it is now the Democrats who are now supporting market-based interventions to address the issue of carbon emissions, while President Bush is supporting traditional regulatory and interventional approaches. I'd post on it myself but I'm too busy for the next week and a half.
Charlie
For those on the lowest end of the scale, the savings is greater
ReplyDeleteBecause it is a deduction to taxable income, not a credit on taxes owed, wouldn't those on the lowest end of the scale gain no savings? Some people are stuck making very little money while having huge expenses including many that yield qualifying deductions, but, you know, "subtract line y from line x, no less than zero."
Some others have the same concerns as me:
ReplyDeletehttp://www.nytimes.com/2007/01/28/us/28health.html
Charlie, Rescue et al - I actually misunderstood even more about this plan. (Some better, some worse.) I need to read more about it before I continue... sorry.
ReplyDelete