Cost of Bush Health Insurance Plan Above Initial Estimates

President Bush's health insurance proposals for the tax code would increase tax revenues by $526 billion through 2017, according to a preliminary estimate from the Joint Committee on Taxation that "is stunningly different from the administration's estimates as well as those from other independent analysts," the AP/San Francisco Chronicle reports (Freking, AP/San Francisco Chronicle, 3/1).

Bush in January promoted his proposal to offer a federal tax deduction of $7,500 for individuals and $15,000 for families who obtain health insurance on their own or through an employer, saying that a change in the tax code is a "necessary step to making health care affordable for more Americans." Bush's proposal would for the first time levy a tax on the value of employer-sponsored health insurance in some cases.

Currently, most employees are not taxed on the value of their employer-sponsored health insurance. Under the proposal, individuals and families with employer-sponsored health insurance plans worth more than the proposed allowable deductions would pay taxes on the difference.

The deduction would be available to all individuals and families who purchase health insurance, regardless of the value of their policies or whether they itemize deductions on their tax returns. For U.S. residents who receive employer-based health insurance, the deduction would be offset by the cost of their coverage.

The administration said the proposal would pose no net cost to the government over 10 years (American Health Line, 1/24).

The Joint Committee on Taxation's analysis found that the president's plans initially would reduce federal revenue if they went into effect in 2009 as Bush has proposed. Because health insurance premium rates are expected to rise at a faster rate than the standard deduction and the tax preference for employer-provided coverage would be capped at the level of the standard deduction, the committee projected that the proposal would bring in more tax revenue in later years after implementation.

Tax revenue would increase beginning in 2011, and annual revenue increases would reach $148 billion by 2017, according to the analysis. A separate analysis by the Lewin Group estimated that the plan would reduce taxes by $108.5 billion through 2017.

Analysts say that the differences in future revenue estimates are based on competing projections about the rate at which the growth of insurance costs will slow in the future. The Bush administration's estimate is based on an assumption "that the tax change would slow health costs because people would look for cheaper insurance so that they can get a tax cut," according to the AP/Chronicle.

As a result, the "administration likely anticipated slower growth in health insurance premiums than the committee assumed, though just how much slower is unclear," the AP/Chronicle reports (AP/San Francisco Chronicle, 3/1).

House Ways and Means Health Subcommittee Chair Pete Stark (D-Calif.), who is a critic of the president's proposal, said that Bush "doesn't like tax increases. This is sure as heck a tax increase" (CongressDaily, 3/1).