Plan Would Tax Families With High Premium Costs Without Curbing Insurers’ Bloated Spending and Discriminatory Practices
Santa Monica, CA — Among the domestic themes billed as prominent in President Bush‘s State of the Union speech tonight is federal health care reform, which he outlined in his radio address Saturday. Unfortunately, his chief solutions are based on tax deductions that would encourage financially strapped families to buy policies that, while they have lower premiums, are likely to leave them deep in medical debt, said the Foundation for Taxpayer and Consumer Rights. Many middle-class families with higher-quality insurance would find themselves subject to a new tax.
Bush also called for Congress to allow the sale of degraded “junk insurance” nationwide to individuals and employers, said FTCR. Such a law would weaken patient bills of rights in many states and could leave families owing tens or hundreds of thousands dollars because such policies often do not limit how much patients must pay out of pocket.
Bush proposes a tax deduction on individual policies up to $7,500 a year for singles and $15,000 for families. Above that, employees getting coverage through employers above that amount would be taxed. This harms people who pay very high premiums because they are older or ill, as well as businesses with an older or sicker work force.
“Call it the cancer tax,” said Jerry Flanagan, health director of FTCR. “Bush’s scheme leaves out families that can’t afford any insurance, and harms people who are charged very high premiums because they may have a job or a health condition that marks them for huge surcharges.”
“In addition, rising insurance costs would, probably within a few years, overtake any tax benefit for families, much as the alternative minimum tax once meant to keep millionaires from evading federal income taxes is now eating into middle-class incomes,” said Flanagan.
“Insurers could circumvent state health insurance regulation to price employers and families out of their current health plans and replace them with inferior policies,” said Flanagan. “Insurance companies would be allowed to sell this junk insurance to individuals and employers at higher rates based on health, occupation, age and where they live, even though this type of discrimination is currently illegal in many states.”
Such plans often pay far too little to actually cover hospital stays and sophisticated treatments for serious illness, and they fail to limit what patients pay out of pocket, unlike almost all group policies sold today, said FTCR. Dana Christensen of Playa Del Rey, California, was featured in a 2006 PBS “NOW” exposé of such junk insurance. She bought an “association health plan” after being told it would cover medical catastrophes and was left with nearly half a million dollars in unpaid medical bills when her husband, Doug, died of bone cancer.
“Awareness and debate of the desperate need for health reform must lead to actually covering people who can’t afford the greed-driven private insurance market,” said Judy Dugan, research director of FTCR. “Bush’s own Treasury Department states that only 5 million of the nation’s 47 million uninsured people might gain coverage under this tax proposal, and we doubt even that figure. Even worse, people who now have good insurance will pay a tax penalty, one that grows as medical inflation overtakes their tax deduction. And in a desperate search for insurance they can afford, people will have to buy junk policies that don’t begin to cover their costs when they fall seriously ill.”
FTCR believes that any broad health reform must start with reining in, not encouraging, the unfairness and bloated finances of insurers and HMOs. Specifically, FTCR says insurers must:
– Take all comers rather than denying policies based on health history, occupation and even medications taken, as they now do in the individual market in California and many other states. Currently, applicants may be denied for something as minor as taking Lipitor, a common cholesterol drug, and their policies are often rescinded later for minor, even inadvertent omissions on a complex insurance application.
– Price policies on broad community characteristics rather than individual health status. This is known as community rating, sharing risk in a large population rather than cherry-picking individuals likely to cost insurers little or nothing.
– Submit health insurance rate changes to public review and approval of regulators, to prevent administrative waste and profiteering that make insurance premium increases the biggest driver of medical inflation. California already conducts such reviews of auto insurance under Proposition 103, saving motorists billions of dollars, without effect on the competitiveness and availability of such insurance in the state. Unless insurance companies’ spending is curbed, the rest of the medical industry has little reason to examine its own pricing practices.
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