Tax Shelters Disguised as Health Care Reform

February 8, 2006
By Gene C. Gerard

In his State of the Union address last week President Bush finally acknowledged, after five years in office, that "we must confront the rising cost of [health] care ... and help people afford the insurance coverage they need." Millions of Americans have lost access to health insurance since Mr. Bush took office in 2000. But his proposal to "strengthen health savings accounts by making sure individuals and small business employees can buy insurance" will have little if any impact on the poor and middle class who lack coverage. Instead, it will help the wealthy protect their assets, and actually increase the ranks of the uninsured.

According to a study by the Economic Policy Institute, approximately 3.7 million people lost employer-sponsored health insurance between 2000 and 2004. The proportion with health insurance provided by their employer declined from 63 percent in 2000 to 59 percent in 2004. Although 80 percent of families in the top one-fifth of wage earners have insurance, only 20 percent of families in the bottom one-fifth of wage earners have health insurance. Families earning $20,000 - $38,000 annually saw the largest decline in employer-sponsored insurance since 2000, falling from 54 percent to 47 percent.

Since 2000, part-time workers have experienced a decline in health insurance supplied by their employers by almost three percent. Full-time workers have seen a decline of more than two percent. Employer-provided health care coverage has declined more precipitously for children than any other group. Between 2000 and 2004, the decrease in insurance provided by employers for dependent children dropped by almost five percent.

Only 18 percent of children in the bottom one-fifth of wage earners have employer-sponsored insurance, compared to 87 percent of children in the top one-fifth of wage earners. Not surprisingly, during President Bush's first term the proportion of children enrolled in Medicaid, the federal health care plan for the poor, grew by almost seven percent.

Mr. Bush's plan to expand health savings accounts (HSAs) would have almost no impact on those currently lacking health insurance. But as with most of President Bush's fiscal policies, it would be a huge tax advantage for the wealthy, according to a study by the Center on Budget and Policy Priorities. HSAs allow families who enroll in high-deductible health insurance plans with minimum deductibles of $2,100 to establish tax-favored savings accounts. The accounts are wonderful tax shelters for the wealthy since contributions, earnings, and withdrawals for out-of-pocket medical expenses including deductibles, co-payments, and non-covered medical costs are tax-free.

Under proposals recently offered by the Bush administration, 100 percent of the costs of a high-deductible insurance policy would be tax deductible. But since the value of a tax deduction increases with a family's tax bracket, the proposal would ensure the largest tax benefits for the wealthy, most of which can already afford health insurance. Workers who do not earn enough to pay taxes and who lack insurance would receive no benefit from the deduction. And the deduction would decrease the cost of health insurance policies by only 10 to 15 percent, at best, for three-fourths of America's middle class families.

Many economists have warned that allowing the total cost of the premium for a high-deductible insurance policy to become a tax write-off would prompt some employers to decrease or eliminate the health plans they offer. Since workers could claim more of their medical expenses on their taxes, economists fear that this would serve as a rational for some employers to simply discontinue offering insurance.

Currently, families with an HSA may claim a tax deduction for contributions made to the account of up to $5,450. President Bush's proposals include raising the tax deduction to $10,500. But families without health insurance are overwhelmingly among the bottom one-fifth of wage earners. These families simply do not have $10,500 to devote to a health insurance policy; they typically earn $38,000 or less annually. This proposal would almost exclusively benefit the wealthy, which would use it as a tax shelter. And it would further encourage employers to discontinue offering health insurance.

Last year was the fifth consecutive year in which employer-sponsored health insurance coverage declined. At least 46 million Americas are now without health insurance. And most earn too little to put much money toward a high-deductible health insurance policy. With rising inflation the working poor and middle class are lucky enough to be able to save $100 toward the cost of their health care, let alone $10,500. The president's proposal to "strengthen health savings accounts" is nothing more than an attempt to increase tax shelters for the rich.

Gene C. Gerard has taught history, religion, and ethics for 14 years at a number of colleges in the Southwest and is a contributing author to the forthcoming book Americans at War, by Greenwood Press. He writes a political blog for the world news website OrbStandard at www.orbstandard.com/GGerard.