Fix it where it’s broken.

I doubt I’ll watch tonight’s State of the Union speech. The posturing and applause and general pomp is unappealing. I’m content to read the speech and grab the important bits out of it. I can add some Xbox 360 into the time I’d spend watching nothing happening. That’s always a winner.

One important indication in the pre-speech buildup is this story about President Bush’s proposed approach to the alleged health care insurance crisis in America. He’s correct to address this situation because there is a flaw. And although he’s not proposing the optimal solution, what he’s suggesting beats any other idea going. (Massachusetts and California) Consider:

President Bush will propose a deep tax break for Americans who purchase their own medical insurance and would finance it with an unprecedented tax on a portion of high-priced health-care plans that workers receive from their employers, according to the White House.

The initiative, which the president briefly previewed in his radio address yesterday [Saturday], has a dual purpose: It would create a financial incentive for the estimated 46 million to 48 million Americans who lack health insurance to buy it. And it would rein in the soaring cost of health insurance by encouraging workers in high-priced plans to seek more modest coverage.

“Today, the tax code unfairly penalizes people who do not get health insurance through their job,” Bush said. “It unwisely encourages workers to choose overly expensive, gold-plated plans. The result is that insurance premiums rise and many Americans cannot afford the coverage they need.”

That grasps the true problem. People want “everything under the sun” coverage, which is not surprising because perverse tax incentives have taught Americans to expect that. Like much in our society, we’ve hidden the costs and focused solely on the benefits. This should go away. We must understand that there are consequences to our choices that can’t be wished away through government involvement or incentive.

There are details to be worked out if Congress (Democrats) agree, but I don’t know that we’ll have quick agreement since the president’s plan isn’t socialistic enough. As such, I won’t comment until there are firmer reactions. But it might be useful to look at an editorial in today’s Washington Post about President Bush’s plan.

There are weaknesses in the president’s proposal. Rather than embracing tax deductions, which are most valuable to people in high tax brackets, Mr. Bush could have made his proposal even more progressive by recommending a refundable tax credit that would be worth the same to everyone. Moreover, there’s a danger that ending the tax privilege for employer-provided insurance will cause companies to discontinue coverage, driving more buyers into the individual market, where it’s hard to buy insurance at a reasonable price, especially if you already have a medical problem. The administration promises to support state efforts to redeploy federal Medicaid dollars in ways that would make the individual insurance market work better. But success here will depend on the states, and the details are sketchy.

The problem with the current system is not that it’s regressive, although it is. The problem is that our current system of tax incentives disrupts the normal private market that individuals could participate in by pushing efforts to group plans. Groups require many different things, and most corporations offering group plans are not in the health insurance administration business, so we ended up with a few plans offering everything. This is ineffective and expensive. (I don’t need pregnancy coverage or mammograms, for example, yet I had it in my corporate-sponsored plan before I went independent.)

The solution, though, is not to make the tax incentives progressive. Punishing a new group instead of the old group is still punishment. That is not the government’s job. The market will do that reasonably well. If “the rich” want super-extra coverage, they’ll pay for it. Most people, when seeing the cost in the individual market, will demand more specific coverage. In this regard, driving more buyers into the individual market is exactly what we want. We’ll get better, cheaper solutions that way because needs and cost will remain in view. They’ll tend to balance to meet customer demands, rather than the current system of hiding everything but the coverage.

The answer is to get government out of the insurance/health business altogether, not to encourage government to create the “correct” incentives. It can’t know the perfect mix, so it will screw it up. President Bush is not there, but he’s found the map.