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OPINION by BRADFORD KIRKMAN-LIFF

Jan. 25, 2007 — President Bush had an opportunity in his State of the Union address to center the discussion on health reform around American values.

He could have talked about how Americans want a health care system that recognizes their desire for choices, a system in which they trust our institutions and their physicians, in which there is an emphasis on the private sector but also a role for limited government regulation of the small group and individual health insurance market.

In the past 30 years, our health-reform discussions too quickly ended up in bitter fights because we lost sight of what we agree on.

He could have centered the discussion. But he did not.

Bush had an opportunity to publicly endorse the proposal by the Health Coverage Coalition for the Uninsured. The Coalition includes 16 major organizations that have been involved in the health-reform debate for over 50 years, including the AARP, the American Medical Association, and corporate members such as Pfizer and Johnson & Johnson.

Those organizations have worked for more than two years to negotiate an agreement to move forward on a feasible set of affordable, practical reforms. Their recommendations include both public-sector and private-sector proposals.

More importantly, they are the kind of market-driven, tax-credit-based reforms that the president favored. He could have endorsed them. But he did not.

Bush had an opportunity to publicly endorse the concepts in the plans put forward by Republican Gov. Mitt Romney of Massachusetts and Republican Gov. Arnold Schwarzenegger of California. Both of those Republican governors have worked in a bipartisan manner to develop market-based models that use private-sector solutions to close the gap for the uninsured. But he did not.

He chose to present an idea that has been discussed among health economists for decades as a way to level the incentives for the purchase of health insurance. However, the president did not reveal that his proposal also contains other elements that would increase the costs for 20 percent of Americans with employer-sponsored health insurance.

The White House Web site Fact Sheet: Affordable, Accessible, and Flexible Health Coverage explains health insurance would be considered taxable income. This is a change for those who now have health insurance through their jobs. Why is the president proposing this?

In the 1960s and 1970s there was a policy concern that some patients were too protected from the costs of health care. There were proposals to limit the amount of health insurance that an employer could provide an employee without it being considered income to the employee. This would cause employees to choose less "gold-plated" insurance plans so they would be better consumers of health care.

However, the health care inflation of the past 30 years has resulted in many changes in health benefits. The vast majorities of employers have reduced their contributions to health plans and have shifted the costs to employees.

They moved to HMOs and PPOs, introduced disease management, case management and pharmacy benefit management (to name just a few), and have moved far from "gold-plated" health coverage plans. The result is that there is no longer any need for tax employer-provided insurance.

Why are 20 percent of employers paying so much for health insurance? It is not because they are providing "gold-plated" benefits as the president said in his radio address. Employers who are paying high premiums for health insurance are doing so because they are in small groups. Insurers charge small groups much more than they do large groups — even if they are of equal risk.

There is also the issue of geographical variation. There are volumes of reports showing the large cost differences between Miami, New York City, and San Francisco on one end and Cedar Rapids, Waco and Provo on the other in health care premiums. The president's proposal does not include any adjustment for those higher costs.

His proposal to make health insurance premiums provided by an employer taxable over a defined limit — without a geographical adjustment or an adjustment for the size of the group — would be very unfair to small employers in high-cost states like New York or California and their middle-income employees.

The other problem with the president's proposal is that the individual who wants to purchase health insurance has to buy the insurance first, and then, a year later, file their income tax return and claim the deduction. They have to be able to pay for the premium from their wages first and wait for their return.

Imagine a proposal to set a cap on the amount that a family can deduct from their income tax for their home mortgage — in order to provide home mortgage assistance for the homeless. Who is going to be affected by the cap? Middle-income families. Does anyone expect that a bank would give a mortgage to a homeless person because the federal government is going to give the homeless person a tax credit on their mortgage payment — especially when the homeless person does not get the check to help them pay for their mortgage until they file their income tax return?

In the real world, health insurance companies will not let you wait 15 months before paying your premiums and physicians and hospitals will not let you wait the same amount of time to pay their bills.

Yet, the president's proposal seems to require that everyone be willing to wait for the IRS to calculate tax returns on the previous year's earnings.

The real tragedy of the president's proposal is that his advisers know that nothing the president has proposed will be enacted. It is an empty proposal. It was put forward with an awareness by the president's advisers that with a Democratic majority in the House and the Senate it will not pass.

It is simply an ideological obstruction, and it happens at a time when there are serious people across the ideological spectrum making serious efforts at bipartisan collaboration. Everyone would have been better off if Bush had left health care out of his speech and had instead presented his ideas again for the reform of Social Security.

Anyone remember those ideas? A partial investment into a market index fund over the past two years would have been a good idea.

Bradford Kirkman-Liff is professor of health policy and biotechnology at the School of Health Management and Policy at Arizona State University's W. P. Carey School of Business.