Bush to propose health insurance tax breaks, limit some tax benefits for those covered at work

(AP) President Bush will propose a tax deduction of $7,500 for individuals and $15,000 for families regardless of whether they buy their own health insurance or receive medical coverage at work.

The proposal, to be announced Tuesday in his State of the Union address, is aimed at giving the uninsured an incentive to purchase a medical plan. It also is designed to encourage those with generous plans to either embrace cheaper insurance or pay taxes on the part that exceeds the deduction, a Bush administration official familiar with the proposals said Saturday.

If passed by Congress, the proposal would be the first time that workers could get a tax break if they bought their own insurance. But it also would be the first time that some employer-provided health care benefits could be taxed. Health care benefits provided by companies are currently exempt from income and payroll taxes.

In his nationally televised speech, Bush also will announce steps to take some federal money now going to hospitals and other facilities and give it to states for programs to reduce the number of uninsured people.

The cost of health care is growing more than two times faster than wages, making it harder for families to buy insurance and for employers to sponsor a health benefit for workers, Bush said Saturday in his weekly radio address.

"Our challenge is clear: We must address these rising costs, so that more Americans can afford basic health insurance," Bush said. "And we need to do it without creating a new federal entitlement program or raising taxes."

Further details of the two proposals were to be announced in the State of the Union address.

"The tax code unfairly penalizes people who do not get health insurance through their job," Bush said.

House Ways and Means Committee Chairman Charles Rangel, D-N.Y., is not embracing the idea.

"This is a dangerous policy that ultimately shifts cost and risk from employers to employees and could result in a higher number of uninsured," Rangel said. "The new, Democratic majority in Congress is interested in relieving, not increasing, working families' tax burden."

But another senior administration official notes that the deduction is higher than the cost of an average policy for families, which currently is estimated at $11,500.

Because of this, about 80 percent of people with employer-based plans will actually see their tax liability fall because their insurance policies cost less than the deduction, he said.

Both officials spoke on condition of anonymity because they did not want to pre-empt the president's speech.

There are an estimated 46 million to 48 million people in the United States who are uninsured at some point during the year.

"Most of the uninsured are people who are working and they've got a little bit too high of income to qualify for Medicaid or other government programs. If they buy health insurance they have to pay for it entirely out of their own pocket," Mark McClellan, former administrator for the Centers for Medicare and Medicaid Services and former commissioner of the Food and Drug Administration, said in a telephone interview. "This would be a significant amount of new help for them."

Bush also wants to redirect federal dollars that hospitals and other institutions get to help cover costs for caring for the uninsured. With this money, states would set up programs to assist people in getting health coverage and help people with high-cost health conditions.

Several states are working to reduce the number of people living without health insurance.

California Gov. Arnold Schwarzenegger, for instance, has announced a plan that would cost $12 billion a year to extend health care coverage to most of the state's 6.5 million uninsured. That would make it the second state, after Massachusetts, to require everyone to carry insurance.

Hospital administrators are worried about what the president's plan will mean for their facilities. They fear they will get fewer dollars when they treat Medicare patients. They say federal reimbursements already fail to cover costs.

Bush, who has begun rehearsing drafts of the speech, left Saturday for Camp David with Secretary of State Condoleezza Rice, national security adviser Stephen Hadley and White House chief of staff Joshua Bolten. Before departing, he met with Rice and Defense Secretary Robert Gates to hear details of their recent foreign trips.

Rice was in the Middle East, and Gates returned to Washington on Saturday after a whirlwind tour that began last weekend in London and ended Friday in southern Iraq. In between he visited NATO headquarters in Brussels, Belgium, met with troops and officials in Afghanistan and made stops in Saudi Arabia, Bahrain and Qatar.

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Associated Press Writer Kevin Freking contributed to this report.