Health care reform is on the agenda, but there are two significant questions that will need to be decided. First, will Congress include a viable public option that permits a national plan, modelled on Canada's, for example, to show what a government health care system can look like? Second, will Congress provide for reasonable funding options? The two are closely interconnected. Reform needs to drive costs down, but our current private insurer system tends to drive costs up without correlated higher costs with better care.
Ezra Klein discusses the various public options that are apparently on the table in his blog at Washington Post, in "Health Care Reform for Beginners: The Many Flavors of the Public Plan", June 8, 2009. He notes that there is a "trigger plan", a "weak public plan" and a "strong public plan". The strong public plan is what both Ezra Klein and I would like to see--"Medicare for the rest of us" that would permit government muscle to cut costs in significant amounts for average Americans. The other two aren't really public plans at all, but ways that Big Insurance stays in control.
Robert Reich notes that lobbyists for Big Pharm and Big Insurance are on the attack to kill the public option, and are advancing by pushing for "legislation that would include [a public option] in name only--he's talking about the "trigger plan" described by Klein. See Reich, Big Pharma and Big Insurance go on the attack, Salon.com, June 8, 2009. In both the House and Senate, Reich reports that the big corporate players are pushing the trigger strategy that will allow a public option in the future that can be triggered by failure of the private options to increase participation or reduce costs. The problem with the trigger is that there are already a few specifics planned that will clearly reduce costs somewhat and expand participation--computerization of records and mandated coverage. So the trigger would never be satisfied in a way that would put the public option in play. I agree with Reich--if a real public option isn't included side by side with the insurers, we'll likely never get one and the Big Insurers will go on fattening their purses at the expense of decent health care for all. The Wall Street Journal calls that mode of health care reform "increased cost sharing" based on individual responsibility. See "Obama's Health Cost Ilusion," op-ed, Wall St. J., June 8, 2009.
So that gets us to the funding question. Will individual decisions about health care based on payment of a greater out-of-pocket share solve the problem, as the Wall Street Journal contends. I don't think so. Fact is, those who need health care generally aren't in a position to comparison shop. If it is an accident, time matters, and the nearest emergency room is the right decision. At many stages the patient can't choose because there is only one specialist in the vicinity or only one that they can afford to visit. Most of the enormously expensive care is at the end of life anyway, and again not something susceptible to comparison shopping.
So how will we raise the additional revenues that will be needed to create decent, universal health care? The JCT produced a report titled "Background Materials for Senate Committee on Finance Roundtable on Health Care Financing", JCT, JCX-27-09, May 12, 2009. The report provides some useful background information, including the following chart (at 4) on the value of tax expenditures such as the exclusion for employer provided care, which is currently not subject to any cap and hence of most benefit to taxpayers at the highest marginal rates.
Table 1--Selected Tax Expenditures for Health, 2008
Value of Tax Expenditures Billions of Dollars
Exclusion of employer sponsored health care .........................226.2
Income ...........................................132.7
FICA ..............................................93.5
Exclusion of Medicare benefits from income ............................41.8
Hospital Insurance (Part A) ........................21.3
Supplemental Medical Insurance (Part B) ......14.9
Prescription Drug Insurance (Part D) ............4.4
Exclusion of subsidies to employers who
maintain prescription drug plans .....................1.1
Deduction for medical expenses above 7.5% of adjusted gross income .10.7
Self-employed health insurance deduction .....................................5.2
Exclusion of medical care and TRICARE insurance for military
dependents and retirees not enrolled in Medicare ............................2.1
Exclusion of health insurance benefits for
military retirees enrolled in Medicare ..........................................1.2
Health savings accounts ..........................................................0.5
Health Coverage tax credit .......................................................0.1
Clearly, the exclusion for employer-provided health care is a significant entitlement as is, and any changes to that benefit will need to make sense in the overall package. Reducing that benefit for the wealthiest recipients should be on the table, but it will have to be done carefully and with due regard to our tendency to think we are entitled to benefits we have had in the past. A June 2, 2009 letter from the JCT to Finance Committee Chair Baucus and Ranking Member Grassley (available on BNA at this link) provides estimates of revenue effects of several proposals to cap the income tax exclusion for employer-provided health care (and for other proposals). The JCT estimates that a cap on the employer-provided exclusion at the actuarial value of the Blue Cross/Blue Shield standard option for single taxpayers with $100,000 AGI and joint filers with $200,000 AGI would raise $161.9 billion over ten years. Considerably more could be raised by a much harsher approach: limiting the income exclusion across the board to 50 percent of the premium amount would raise $1,173.1 billion over ten years. Capping the income exclusion at the actuarial value for all taxpayers (rather than just high earners) would raise $418.9 billion over ten years. The proposals for a soda tax (3 cents per 12 oz.) and alcohol tax ($16 per proof gallon) would raise 51.6 billion and 61.5 billion, respectively.
One way or another, there will need to be tax increases to fund a new health care system available to all. In addition to the above proposals, others on the table include the Obama proposal for a cap on itemized deductions for the rich. I was asked for a comment on that, and noted that it wasn't likely to go over well. But that doesn't mean we shouldn't do it. Tax expenditures for the wealthy are over the top and capping itemized deductions is a way to cut back on that, without singling out and eliminating any particular itemized deduction. Such caps add complexity, but complexity for the rich is not worth worrying about--they aren't exactly likely to do their own taxes anyway. Another tax increase that we should put on the table is elimination of the capital gains preference. If dealing with it directly is too unpalatable, then Congress could reinstate an AMT adjustment for the capital gains preference.
One way or another, we should legislate a public option for health care and we should pay for the increased costs of the reform through increased taxes rather than simply adding more to the deficit with a promise to try to figure out a way to pay later.
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