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Bush's health-care plan is fine, but it doesn't go far enough


PRESIDENT BUSH'S long-awaited health-care reform plan may well reshape the debate over health care.

The president has offered a solid plan for extending medical benefits to the estimated 34 million uninsured and has offered realistic proposals for solving some of the ancillary problems driving up health-care costs, such as malpractice lawsuits based more on greed than justice.

But he doesn't push his reform plan far enough.

What ails the U.S. health-care system is apparent to virtually everyone. Costs are spiraling out of control. Too many people have no medical coverage. And millions of others are reluctant to change jobs for fear of losing their eligibility, or worse, dread a pink slip because their benefits will end.

Many of these symptoms are the result of an historical accident: an Internal Revenue Service ruling in the late 1940s that allowed employers to provide health-care benefits to their employees tax-free. An employee receiving $3,600 in cash would be taxed on that money; an employee receiving insurance coverage costing $3,600 gets it tax free. As a result, health insurance today -- unlike life, auto or homeowners insurance -- usually is directly tied to the place of work.

Now, workers who lose their jobs usually lose their medical benefits -- but they don't get a tax break to purchase their own insurance. Pan Am's bankruptcy left 25,000 former employees and retirees without medical benefits. General Motors has announced plans to cut 74,000 workers, roughly equivalent to Chrysler's entire workforce, and IBM plans to cut 20,000 this year.

Who's going to pay for their medical coverage?

The Bush plan would solve some of these problems. The plan would provide health vouchers (a so-called "refundable" tax credit) to help lower-income families purchase medical coverage regardless of their place of employment -- even if they are unemployed. It would also give middle-income taxpayers an income tax deduction to help pay for individual coverage.

Thus, virtually all Americans would have either employer- provided insurance or the money to purchase their own medical plan. And if they buy their own plan, their coverage would be completely "portable" if they changed jobs.

Where the Bush proposal falls short, both technically and politically, is in its financing provisions. The White House says it will cost an estimated $100 billion over five years. But the funding is left vague. Most likely, the administration will have to tamper with the financing of existing public programs.

The best way to finance health-care reform is to overhaul the tax code -- in effect trading the current tax exclusion for company plans for an across-the-board tax credit for all Americans, not just the uninsured. Comprehensive tax reform is at the heart of the Heritage Foundation's health plan. We would phase out the tax-free status of company-based health plans and replace this benefit dollar-for-dollar with tax credits for families. Our plan wouldn't add a cent to the deficit.

But the real payoff would come later. Workers now covered by company plans would have a financial incentive to seek less-costly alternatives. This would help hold down health costs.

The administration's plan doesn't do enough to control costs. Worse still, the Bush proposal could well amount to an exercise in political suicide if the White House tries to pay for it by forcing economies in Medicare -- one of Washington's most sacred cows.

But despite its deficiencies, the Bush plan is a major improvement over the other proposals now under consideration in Washington. It moves America toward a universal health system based on consumer choice and competition -- the same ingredients that promote efficiency and consumer satisfaction in other parts of the U.S. economy.

Stuart M. Butler is director of domestic policy studies at the Heritage Foundation, a conservative think tank in Washington.

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