Bush Continues to Improve Medical Insurability

Today’s Washington Post reports that President Bush, at his State of the Union address, will propose “New Tax Breaks for Medical Expenses.”

Of course, the proposals are subject to tuning over the next two-weeks. However, while their trial-balloon outline by the Post appear to me to make sense, more is needed. I’ve managed insurance for large and emerging companies and for the past two-decades as an employee benefits broker and consultant, studying and seeing how medical care and insurance decisions are made.

The proposals include increasing the tax-deduction for out-of-pocket medical expenses, leveling the playing-field with the deductibility by employer-provided health insurance, and increasing the portability of coverage when leaving an employer.

Currently, unless self-employed, an individual taking responsibility for themselves and family by paying for medical insurance may only deduct that portion of the premium that is above 7.5% of adjusted taxable income. Analysts indicate a $28-billion reduction in tax revenue if full-deductibility by individuals is allowed.

Additionally needed are refundable tax-credits, or equivalent chits, for the working-poor to better afford medical insurance. Also, as many are just negligent in buying medical insurance, I believe that medical insurance should be required of all. This will increase the budget impact beyond the $28-billion estimated.

Currently, if group medical coverage is lost, and COBRA extension exhausted, an individual has 2-months to obtain guaranteed-issue replacement coverage without preexisting condition exclusions. The President’s proposals include extending this period.

However, if extended by too much, this proposal may lead to actually increasing premiums for the more responsible, as many will delay until having a serious medical condition but will not have contributed to the premium-pool to pay their fair share. The few states that have unlimited guaranteed-issue individual medical insurance have seen a sharp spike in premiums as a result.

Also, the Post says that the availability of health savings accounts will be proposed for expansion. These link individual and group tax-deductible health care savings accounts, usable for out-of-pocket expenses, to high-deductible medical insurance policies.

To now, relatively few have enrolled in these, as they are more appropriate to the young, healthy and affluent who can take out-of-pocket risks, and the relative premium-saving – to my estimation whenever I’ve evaluated them for clients – is not worth the probable savings gains. The bulk of claims expense comes from serious illnesses and accidents, covered by these insurance policies. Also, this approach to medical cost containment relies on the shaky assumption that medical consumers are able to “shop” smartly for care savings.

Nonetheless, the President’s tentative proposals will whittle away at our uninsured population, and our anxieties about obtaining adequate medical care.

This is not an anxiety restricted to the poor and unfortunate. A survey of the relatively affluent (defined as earning over $150,000 a year or having over $500,000 of investable assets if working or $1-million if retired) shows 52% rating “providing for my health and wellness” as their number one financial concern.

I'll leave a discussion of the politics of health care for another post.