In his State of the Union Address tomorrow, President Bush will propose providing a standard deduction for health insurance for all Americans as long as they purchase at least catastrophic health insurance coverage. The deduction will be worth $7,500 for single persons and $15,000 for families. These amounts will be indexed to general inflation (CPI) annually. The current exclusion from income and payroll taxes for health insurance purchased through an employer will be eliminated. Also eliminated will be the ability to deduct health care expenses above 7.5% of adjusted gross income (the medical expense deduction), with one exception – Medicare beneficiaries will still be able to take this deduction.
This means millions of Americans who purchase insurance on their own or are currently uninsured will be able to deduct $7,500 or $15,000 on their income taxes if they simply by a health insurance policy that at least covers catastrophic health expenses. Only the approximately 20% of people getting employer-sponsored health insurance that costs more than $7,500 or $15,000 would likely realize any impact from this proposal. They could always avoid any impact by switching to a lower- cost insurance plan.
Additional Information About The President’s Proposed Standard Deduction For Health Insurance
- The President’s primary goal is to make health insurance more affordable, allowing more
- In his State of the Union Address, the President will propose a “standard deduction for health insurance” – just like the standard deduction for dependents.
- Under the President’s proposal, families with health insurance will not pay income or payroll taxes on the first $15,000 in compensation and singles will not pay income or payroll taxes on the first $7,500.
- At the same time, health insurance would be considered taxable income. This is a change for those who now have health insurance through their jobs. The President’s proposal will result in lower taxes for about 80 percent of them. The 20 percent of them with more generous policies will have the option to adjust their compensation to have lower premiums and higher wages to offset the tax change.
- The President’s proposal levels the playing field for Americans who purchase health insurance individually rather than through their employers, providing a substantial tax benefit for all those who currently have health insurance purchased on the individual market.
- This proposal lowers taxes for all currently uninsured Americans who decide to purchase
- As they reform the Federal tax code, they will also support the innovative measures that States are taking to address the problem of the uninsured. Governors across the Nation have put forward plans to make basic private health insurance more accessible for their citizens. Governor Ritter has promised some sort of universal health insurance for Colorado by 2010.
- In his State of the Union Address, the President will announce a new effort – led by Health and Human Services Secretary Michael Leavitt – to help governors reduce the number of people in their states without private health insurance. At any given time, Colorado has about 700,000 people without health insurance.