January 14, 2006
Health Care, Tax Cuts Will Top Bush's '06 Domestic Agenda
By Mort Kondracke

Having failed to reform Social Security last year, President Bush this year intends to make a smaller dent in a much bigger problem-America's health care crisis.

Other items on his domestic agenda include trying once again to get his tax cuts made permanent and a math-and-science initiative to keep America competitive.

Bush mentioned these items last week in a question-and-answer session with citizens in Louisville, Ky. which some White House aides described as a forecast of his State of the Union message.

Bush tried to reform Social Security last year claiming that he'd gained political capital in the 2004 elections. He spent a lot and failed to move Congress, even though it's GOP-dominated.

Now, he has less capital, his approval ratings are down and it's an election year. The science initiative, if it's ambitious, could attract bipartisan support, but his tax cuts and incremental, market-based health reforms will be fought fiercely by Democrats.

Bush has yet to use the "c" word-"crisis"-about the health care system, but it's clear there is one, and it presents an immediate threat to employers and moderate-income patients, a huge long-term threat to the U.S. economy and a political danger for Bush.

For the moment, health care costs are not rising at double-digit rates, but they're just under. The government just reported that total health care spending rose 7.9 percent in 2004.

But a survey of more than 2,000 employers conducted by the Kaiser Family Foundation found that premiums increased an average of 9.5 percent in 2005, down from 11.2 percent in 2004.

"The rate of growth is still more than three times the growth in workers' earnings (2.7 percent) and two-and-a-half times the rate of inflaton (3.5 percent)," Kaiser said. "Since 2000, premiums have gone up 73 percent."

The foundation found that 60 percent of U.S. businesses now offer insurance to their workers, down from 69 percent in 2000. Not only are increasing numbers of firms dropping insurance coverage, but most are forcing their employees to pay more of the premium cost and imposing more co-pays and higher deductibles.

The White House is fully aware of the consequence. Bush's chief economic adviser, Al Hubbard, told me in an interview last week that health costs were a primary reason that-despite a robust economy-wages have been rising slowly.

That's a major talking point for Democrats and some outsiders agree it could severely impact the 2006 elections. On Fox News Sunday Jan. 1, Diane Swonk, chief economist of Mesirow Financial, predicted that the Dow Jones Industial Average would roar up to 12,000 in 2006, but added, "if you're rich, this is a great economy to be wealthy in, but other than that, it's not great. And that's what people remember when they go to the polls."

The other guest on the program, John Bogle, founder of the Vanguard Group, agreed that "workers are falling behind cost-of-living increases and I think there's a lot of economic dissatisfaction. And since the Republicans are in power, it will redound against them."

Under current conditions, higher costs mean more people uninsured-some 45 million at some time during any year, and rising. About 20 million lack insurance all year long.

According to AHIP, the health insurance lobby, 15 million of the uninsured are lower-income persons not eligible for public programs like Medicaid, 9 million are eligible but not enrolled and about 10 million are higher-income persons who choose to go uninsured.

In the past, according to AHIP President Karen Ignani, the administration has aimed its proposals-tax credits, Health Savings Accounts and association health pools-at about 10 million to 12 million of the uninsured.

Based on what Bush and Hubbard said, it appears Bush will be back with the same proposals. It remains to be seen how ambitious the administration will be, but it's clear that health care will get more emphasis.As Hubbard told me, "if you have insurance through your employer, there are huge tax advantages. If your employer doesn't provide it, you have to pay out of your after-tax income. We've got to level the playing field."

Bush said he would also propose expansion of HSAs-tax-protected savings accounts that employees use to pay medical expenses and premiums for high-deductible insurance policies.

Both Bush and Hubbard said that HSAs would help lower health costs by making consumers aware of what they are spending for care. "The fundamental problem with health care," Hubbard said, "is that people think it's free. If your employer paid for food, when you go to the grocery you would never pay attention to price and you would buy more than you needed."

Eventually, supermarkets wouldn't even have prices. And if they didn't list prices, don't you think they would charge more? Absolutely, they would."

It's undoubtedly true, but Bush's incremental, market-based approach is anathema to Democrats and many health care non-profit groups, which favor a comprehensive, government-backed plan.

It's also not clear how much money Bush will put behind his proposals. For sure, he will again try to trim the growth of Medicare and Medicaid, which present ten times the long-term burden on the economy of Social Security benefits for the baby boom generation.

And, at the same time, he will try to get Congress to make his tax cuts permanent, at a cost estimated at nearly $2 trillion over a 10-year period-most of which would accrue to upper-income taxpayers.

At the end of the year, Republican candidates will have to try to convince voters-especially workers who wages are rising slowly-that they care about them as much as they do about those benefiting from tax cuts.

Mort Kondracke is the Executive Editor of Roll Call.

Mort Kondracke

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