Bush eyes tax break for health insurance

WASHINGTON -- President Bush will propose deep tax breaks for Americans who purchase their own medical insurance, and would finance the plan with an unprecedented tax on a portion of high-priced healthcare plans that workers receive through their employers, according to the White House.

The initiative, which the president briefly previewed in his radio address yesterday, has a dual purpose: It would create a financial incentive for the roughly 47 million Americans who lack health insurance to buy it. And it would rein in the soaring cost of health insurance by encouraging workers in high-priced plans to seek more modest coverage.

"Today, the tax code unfairly penalizes people who do not get health insurance through their job," Bush said. "It unwisely encourages workers to choose overly expensive, gold-plated plans. The result is that insurance premiums rise and many Americans cannot afford the coverage they need."

The proposal, which Bush is to fully unveil in his State of the Union address Tuesday night, marks a sharp departure for a president who has been criticized for advocating tax cuts that disproportionately benefit higher-income Americans.

Administration officials familiar with the plan say it reflects the new political order in Washington, where Democrats now control both chambers of Congress.

They refuse to characterize the plan as a tax increase because it raises no new money for the federal government.

Instead, it would add a new tax on employer-provided healthcare plans worth more than $15,000 to subsidize those who buy modestly priced plans out of their own pockets.

In his speech Tuesday, the president will also propose increasing the federal assistance to states that make private healthcare plans available to low-income or chronically unhealthy people who are uninsured, the officials said.

The administration hopes to provide waivers under Medicaid -- the healthcare program for the poor that is jointly funded by the federal government and the states -- to allow states to redirect money from hospitals and nursing homes to individuals to help them buy health insurance.

Some states are already moving to offer healthcare coverage to the uninsured. California's Republican governor, Arnold Schwarzenegger, recently announced a plan to provide coverage to about 6.5 million uninsured residents, including many recent immigrants.

If the plan is approved by the Legislature, California would become the fourth state -- along with Massachusetts, Vermont, and Maine -- to offer near-universal health insurance.

The new tax measure would attempt to roughly equalize the benefits of health insurance, regardless of whether people buy it or receive it from employers.

The 17 million Americans covered by health plans purchased on their own receive no federal tax break for the expenditure.

Meanwhile, the estimated 150 million people covered by employer-provided health insurance are not taxed on the value of their health insurance, regardless of how much it is worth. Administration officials said the average employer-provided family health insurance plan costs $11,500 a year -- three times its cost 19 years ago.

Some leading Democrats are skeptical of the Bush plan.

"It is good that the president is finally talking about healthcare," said Senator Edward M. Kennedy, Democrat of Massachusetts, chairman of the Senate committee that oversees healthcare matters.

"I question, however, why the president thinks the way to solve this problem is through the tax code," Kennedy said.

Under the president's proposal, workers who receive employer-provided health insurance would have to pay a tax on the cost of their benefit above $15,000, the threshold proposed by Bush for the tax break.