Thought Theater

Rudy's Health Plan Comes With A Tax Break & A Tiara genre: Econ-Recon & Polispeak

GOP presidential candidate Rudy Giuliani offered his notion of a national health care plan...one that sounds fit for a king or a queen...but not the average citizen.

Then again, if the recent Vanity Fair article on the latest Mrs. Giuliani is accurate, its the kind of plan one might expect from a man whose wife wore a tiara to her wedding and who also needs an extra airline seat for her Louis Vuitton handbag.

No doubt that remark is unfair but this laughable attempt to deliver a plan for reforming the health care system warrants a heavy slathering of sarcasm.

From The New York Times:

In his speech here, he excoriated Democrats for advocating a “socialist" solution to solving the problem of the nation’s 44.8 million uninsured, saying the party’s candidates encouraged a “nanny government" by proposing a greater government role in health care.

Instead, he proposed tax exemptions of up to $15,000 per family, allowing individuals to direct that money toward the purchase of health insurance and other medical spending. He also said he opposed any government mandates that would require people or businesses to buy insurance, which is central to the universal health care plan neighboring Massachusetts passed in April 2006 when Mitt Romney, a Republican rival, was governor there.

And to help the poor or others struggling to afford health insurance, Mr. Giuliani said he would support vouchers and tax refunds, but he gave no details about how he would pay for them.

In proposing a tax exemption of up to $15,000 for a family and $7,500 for individuals, Mr. Giuliani said that money could be used by consumers to buy an insurance policy of their liking. The money left over, he said, could be put into a “health savings account" to be used to pay for deductibles or other uncovered medical expenses.

Where to begin! For Mr. Giuliani's plan to be appealing to an employee, that employee would have to be making significant money such that the tax benefit both offsets the potential loss in company provided benefits and is needed to reduce a large tax burden.

To be clear, my assumption presumes that an employee is working for a company that pays some portion of the employees health insurance. In many such instances, employees who opt out of company provided health insurance do not receive an equal increase in compensation resulting from the money the company save by not having to pay some or all of the employee's insurance.

So the bottom line is that Giuliani's plan would benefit a very narrow segment of society. The vast majority of employees simply could not afford to pay for private insurance. The reasons are many.

First, if their tax burden isn't large enough to warrant the need for the tax break, the tax break is meaningless. Secondly, individual policies are currently rated differently than group policies and they are primarily priced for those who have no pre-existing conditions. Further, if an individual or a member of his or her family have any pre-existing conditions, they either would be excluded from coverage or the costs of the anticipated care would be reflected in the policy pricing.

In essence, only those with perfect health would have the potential to find cheaper health insurance...leaving all others to pay significantly higher rates since they wouldn't benefit from the combined averaging done when insurance companies price group policies. The result of this scenario is that those in greatest need of care would be burdened with the highest costs...which, in my opinion, should lead one to view Giuliani's proposal as an illness penalizing plan.

Some examples might be beneficial. Suppose a family of five includes a child with juvenile diabetes. That family...with great need for coverage...would undoubtedly pay higher premiums...if they could find a company willing to issue a policy. If that same family of five included a mom who had survived breast cancer some five years prior would have the same problem.

Giuliani then glosses over the means to cover those who receive no coverage from their employers and already lack the means to purchase private insurance. He indicates his plan might provide tax refunds or vouchers. Rudy, my friend, poor people don't pay any significant taxes...so what taxes would you refund? Additionally, if they are paying any taxes, I'm fairly sure it isn't much and the refunds you're talking about would be a mere drop in the bucket towards their insurance costs.

So we're down to vouchers. If 45 million Americans can't afford health insurance...and if the taxes they pay would only return minimal tax returns, then the money needed in vouchers to make up the difference is still going to be a huge number.

Pardon my cynicism, but the bottom line is that Giuliani's plan is tossed out for the edification of those who would stand to benefit (perhaps the well to do friends Rudy rubs elbows with?)...and those in great need will remain an afterthought or an asterik swept under the proverbial rug in typical GOP fashion...co-opt concerns for an obvious need...transform it into a benefit for the wealthy...and leave those in need to fend for themselves.

Let's be honest, the closest these people trapped at the bottom of the totem pole are going to get to health care is working in nursing homes for minimum wage and caring for Mr. Giuliani's discarded parents.

From The New York Times:

Mr. Giuliani said the resulting flood of competition among insurers for customers would lead them to reduce the costs of their policies, estimating that only 20 million to 30 million of the 120 million who currently get their insurance through an employer would need to sign up for individual insurance plans for that to happen.

For instance, he offered no assurances that insurance companies would not “cherry pick" by insuring only healthier people, or by charging much higher rates to more vulnerable people — like those with chronic diseases.

Instead, he said, moving to a market system would create incentives for people to remain healthy.

Currently, he said, “there is no incentive to wellness."

Yes those 20 to 30 million will be those who benefit from the tax break...people who can already afford insurance...people who can afford to pay a premium for insurance if it is offset by a tax benefit. The remaining 90 to 100 million employees will either be penalized by higher costs for employer sponsored plans or they might even lose their coverage as employers are allowed to cease offering company sponsored group plans altogether.

As to cherry picking...ask anyone who has a chronic ailment how they are viewed by insurance companies. Not only do insurance companies look for opportunities to penalize those with persistent diseases, they will no doubt seek the means to refuse coverage or price it so it becomes prohibitive.

Lastly, as to wellness incentives...give me a break. For years, insurance companies have fought physicians on the particulars of preferred preventative plans as well as the implementation of aggressive, early, and frequent diagnostic testing.

Mr. and Mrs. Giuliani have apparently been removed from the realities faced by millions of hard working Americans for far too long. While Mrs. Giuliani worries about commandeering a seat for her handbag, I'm afraid that the average working Joe and his wife are struggling to afford a first class car seat for their new infant...you know...the same infant for which they owe the local hospital a few thousand dollars because they couldn't afford health insurance.

Image courtesy of Denis Reggie/Getty Images via Vanity Fair