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In his most recent State of the Union Address, President George Bush introduced a new proposal with regards to health insurance. Specifically, he discussed the plan wherein the federal government intended to make healthcare more affordable.

The primary way by which the said proposal would accomplish its goal is by offering tax breaks to families and individuals who acquire health coverage from private insurance companies. However, the said proposal also calls for lax levies on employer-provided health insurance depending on the value of the coverage.

Basically, the said proposal calls for a reform of the current tax system for health insurance. It can be noted that despite his goal to make health insurance more affordable, his plans do not include any funding or spending on the part of the federal government.

Statement of the Problem

Several issues were raised by various people with regards to the proposal presented by President Bush. Concerns from various groups especially those to be directly affected by the reforms proposed were aired through various channels.

Some of the problems that have been identified with regards to the new healthcare proposal are as follows:

How will the new health insurance tax proposal affect the major stakeholders in the insurance market?
How will the proposal affect the people who do not have the discretionary income to pay for the higher premiums in the individual health insurance market?

Heath care experts foresee the new system proposed as a problem. Various debates have resulted from the President’s proposal wherein the primary contention is the possible benefits and drawbacks that the new tax system on health insurance offers.

Healthcare organizations such as Families USA have voiced out their concerns over the issue. They have pointed out that in certain regards the proposal inadequately addresses the healthcare needs of the less privileged. The specified those with pre-existing medical conditions to be among those to be directly affected by the proposal. For one, these people will face difficulty in acquiring heath insurance because of their medical condition.

Another group that has brought up certain issues with regards to the new proposal is that composed of public hospitals. They have criticized Bush’s proposal by saying that when the reforms are implemented, the cost that they incur for treating uninsured patients are bound to increase significantly.

This is due to the fact that in the new system, private hospitals will be given part of the funding that used to be allotted for public hospitals.

It is quite obvious that the new proposal has numerous issues involved. This paper intends to shed light on the said healthcare issue. The following sections will discuss important topic related to the said issue.

History of Healthcare Coverage and the Corresponding Tax System

The history of health insurance in the United States can be traced back to the 1930s. It was in this decade that pre-paid hospitals plans were introduced. (Thomasson, 2003) With the entry of commercial insurance companies in the health market in the 1940s, the health insurance market grew significantly. Moreover, government policies introduced in the said period contributed significantly to the growth of the market.

It was in the same decade that laws with regards to taxation on health insurance were first introduced. This was likewise influential in shaping the employer-based system of health insurance to what it is now. According to Thomasson (2003):

“Perhaps the most influential aspect of government intervention that shaped the employer-based system of health insurance was the tax treatment of employer-provided contributions to employee health insurance plans. First, employers did not have to pay payroll tax on their contributions to employee health plans.

Further, under certain circumstances, employees did not have to pay income tax on their employer’s contributions to their health insurance plans.”

Furthermore, in 1954, such law was codified and extended through the 1954 Internal Revenue Code (IRC) which stated that employer contributions to employee health plans were exempt from employee taxable income. (Thomasson, 2003). Such laws served as the basis of the current system that applies today on health insurance coverage.

The current tax system on health insurance being implemented is set-up in such a way that people who hold health insurance given by their employers as part of their benefits are exempted from paying taxes on such insurance regardless of the amount of their coverage.

At the same time, the current taxation laws on health insurance levy taxes on health coverage that people acquire on their own. In simpler terms, in the current setup, when an individual owns health coverage that comes part of his benefits as an employee, are given tax deductions. However, those who purchase health insurance as individuals, separate from that given by employers, do not receive the same tax breaks.

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