You are correct. If the threshold is not indexed, inflation will capture more and more employees (and non employees) in the taxability area -- but this is not a difficult concept and we'll have to wait to see the details.
It would seem reasonable to presume the 7500/15000 threshold is in constant dollars. As for HC rising faster than inflation, it is probable that there will be a rosy scenario assumption embraced that a plan like this will in some way slow the price increases.
But if it does not, you're probably being way too paranoid. This subject is now going to be thoroughly focused on by the workforce. If HC inflation (as opposed to general inflation) drives people past the taxability threshold, or is about to, the pressure on legislators would become enormous immediately.
I am noticing that a lot of folks who want to oppose this are doing so because they find holes in it, or an absence of comprehensive address to the entire problem.
My view is that's not its intent. Its intent is strictly and only to create some equivalence of the pretax nature of employee premium payments with the post tax nature of non employee premium payments -- and reality is non-employees are now a majority of the workforce.
Also, I think it has a very very powerful side effect, and that is the Dems want a National Health Care plan with a government agency staffed up to run it. This is the FIRST well advertised manifestation of a Conservative counter to that drumbeat. This is a tax deduction/credit for most people. This is likely going to result in negotiations beginning that will argue over thresholds of income and thresholds of premium payments -- and as soon as that starts the Democrats have lost the ideological war. It will mean the negotiation is over the magnitude of a conservative solution rather than over how many will staff a new agency.
By SHERYL GAY STOLBERG and ROBERT PEAR
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In his radio address on Saturday, Mr. Bush described his proposal as a way to “treat health insurance more like home ownership,” giving people tax deductions for their health insurance in much the same way as they get tax deductions for home mortgage interest. He said the current system “unwisely encourages workers to choose overly expensive, gold-plated plans,” driving up the overall cost of coverage and care.
The federal government does without tens of billions of dollars each year in potential tax revenue by making health coverage tax-free. The idea of limiting such tax-free coverage has circulated in various forms for more than two decades and is “quite controversial,” said Dr. Mark B. McClellan, a former White House economist and Medicare administrator, who has consulted with Bush officials on the plan.
“The conventional wisdom is that there would be too much political opposition to propose” such limits, Dr. McClellan said.
In preparation for the president’s speech, the White House has been shopping the idea around Capitol Hill, trying to sound out lawmakers like Senator Charles E. Grassley of Iowa, the senior Republican on the Senate Finance Committee, and Senator Ron Wyden, Democrat of Oregon.
The administration official said Mr. Wyden’s plan contained tax provisions similar to the one proposed by the president. But in an interview, Mr. Wyden was skeptical. He said any tax changes must be coupled with regulations that would encourage private insurance companies to offer affordable coverage to people with pre-existing health conditions.
“The market is broken,” Mr. Wyden said. “Private insurance companies cherry-pick. They’re trying to take just healthy people and send fragile people over to government programs more fragile than they are, and I’m not sure what this does to fix the broken market.”
The Census Bureau estimates that 175 million Americans obtain private health insurance through employers, while 27 million people are covered by insurance bought outside the workplace. The rest, with the exception of the 47 million uninsured, are covered through government programs like Medicare and Medicaid and military health care.
Under Mr. Bush’s proposal, people buying health insurance on their own would receive a tax break similar to the one that has historically been available to people who receive coverage through their jobs. The plan is tied to the average cost of family health coverage, which is currently $11,500 a year.
It would work like this: The administration would cap the amount of benefits that can remain tax free at $15,000 for a family and $7,500 for an individual. Anyone whose health insurance cost more than that would pay taxes on the difference. For example, a family with coverage costing $16,000 a year would pay taxes on $1,000.
The cap would also be used to establish the amount of the new deduction for people who lack coverage. In this example, a family buying insurance on its own could take a $15,000 deduction — even if the insurance cost less. The cap would rise with some measure of overall inflation, but would not necessarily keep pace with the costs of medical care and health insurance.
A White House official, speaking on condition of anonymity so as not to upstage the president, said, “The vast majority of people with employer-provided coverage will benefit as well.”
One of the nation’s leading experts on tax policy, C. Eugene Steuerle, a Treasury official in the Reagan administration who is now a senior fellow at the Urban Institute, said the proposal “would probably help increase the number of people with health insurance at no cost to the budget.”
The administration official said the White House envisioned health insurance companies offering new plans to meet a growing market. But employers expressed doubts.
“This is a classic case of robbing Peter to help Paul pay for coverage,” said E. Neil Trautwein, a vice president of the National Retail Federation, which represents retailers of all sizes. “I do not think the president will find many backers in the employer community for this proposal.”
In trying to address the problems of the uninsured, Mr. Trautwein said, “we should not start by endangering coverage for people who already have it.”