Bush plan targets 47 million with no health coverage

WASHINGTON — President Bush intends to use the State of the Union address Tuesday to tackle the rising cost of health care with a one-two punch: tax breaks to help low-income people buy health insurance and tax increases for workers whose health plans cost more than the national average.

"I will propose a tax reform designed to help make basic private insurance more affordable," Bush said in his weekly radio address Saturday, "whether you get it through your job or on your own." He did not offer specifics, but an administration official provided details late Friday.

The proposal is a startling move for a president who repeatedly has vowed not to raise taxes. And it is certain to run into opposition from business groups, labor unions and, most of all, the Democrats who now run Capitol Hill.

While Bush will not be able to avoid the subject of Iraq in his address, White House officials hope to use the speech to shift the national conversation away from the war and toward the possibility of bipartisan cooperation in Washington.

"What they want to accomplish is to have the average American believe that Bush really does want to work across party lines and he's going to do it," said one Republican strategist close to the White House.

White House officials say Bush has decided to forgo the traditional formula for the State of the Union — a laundry list of ideas, many of them dead on arrival — in favor of a more thematic speech that will concentrate on a few issues, such as health care, immigration and energy, on which he hopes to make gains with Congress.

The basic concept of the president's health-care plan is that employer-provided insurance, now treated as a fringe benefit exempt from taxation, no longer would be entirely tax-free. Workers could be taxed if their coverage exceeded limits set by the government. (The average cost of family health coverage currently is $11,500 a year.)

But the government also would offer a new tax deduction for people buying health insurance on their own.

"It's a bad policy," Rep. Charles Rangel, D-N.Y., chairman of the House committee that writes tax legislation, said Friday night. "We are trying to bring tax relief to the middle class. The president is trying to increase their tax liability. This proposal is inconsistent with what the majority is seeking in the House and the Senate."

White House officials say the health tax plan would neither increase spending nor reduce tax revenues. Supporters say it would expand coverage to some of the 47 million uninsured. But critics say it, in effect, would tax people with insurance to provide coverage to those without it.

That would amount to a fundamental shift in the way people get and pay for their health coverage, and historically it has been all but impossible to win congressional approval for such changes. When President Reagan made a proposal similar to Bush's in 1986, it died in Congress, with Rangel helping to lead the opposition.

In his radio address Saturday, Bush described his proposal as a way to "treat health insurance more like home ownership," giving people tax deductions for 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 White House has been shopping the idea around Capitol Hill, trying to sound out lawmakers such as Sen. Charles Grassley of Iowa, the senior Republican on the Senate Finance Committee, and Sen. Ron Wyden, D-Ore., who has drafted a health-insurance plan.

The administration official said Wyden's plan contained tax provisions similar to the one proposed by the president. But Wyden was skeptical of Bush's proposal. 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," 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 such as Medicare and Medicaid and military health care.