The Right Direction On Health Insurance Reform

The Bush Administration has been leaking selective portions of the policy proposals that will be contained in President Bush’s State of the Union speech including a proposal to reform health insurance that actually makes sense:

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, 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.”

The proposal, which Bush plans to fully unveil in Tuesday’s State of the Union address, marks a sharp departure for a president who has been criticized for advocating tax cuts that disproportionately benefit higher-income Americans.

Administration officials familiar with the plan say it reflects the new political order in Washington, where Democrats now control both chambers of Congress. They refuse to characterize the plan as a tax increase because it raises no new money for the federal government. Instead, it would add a new tax on employer-provided health-care plans worth more than $15,000 to subsidize those who buy modestly priced plans out of their pockets.

In addition, they say, the plan is consistent with the president’s idea of increasing access to health insurance through the private market while encouraging people to be more cost-conscious as they purchase medical-care coverage.

Quite honestly, the ideal situation would be to get rid of any tax breaks for health insurance or medical expenses, because that’s how you can really ensure that people will become more cost-conscious not only when purchasing health care coverage, but also when utilizing medical services to begin with.

However, as Michael Cannon points out over at Cato@Liberty, the proposal to eliminate the tax deduction for high-priced employer-provided health care coverage is an idea that has been a long time coming:

That tax break is behind much of the inefficiency and inequity in America’s health care sector. It encourages almost 200 million Americans to behave irresponsibly, which increases the cost of health care for themselves and everyone else. Economists on the left and right have argued for limiting or eliminating it for decades. The last president to propose such a limit was named Reagan.

Reagan wasn’t able to get a limit passed, of course, and he had a lot more political capital than Bush has at the moment, so the political prospects for this plan don’t exactly look good. It’s an interesting proposal, though, and, at least in part a step in the right direction. And I suppose that counts for something.

  • Patrick Sullivan

    Bush is (as usual) overlooking the fact that tax breaks don’t do any good for the vast majority of people who need help getting health care – the low wage-earners who pay little if any of their income in federal taxes, who can’t afford to pay H&R Block to find this deduction, and who need help NOW, not at the end of the year.

    This guy doesn’t get it, hasn’t gotten it, won’t get it.

  • Vijay

    Hello !!!

    How does Bush’s tax credit plan benefit minimum wage earners who have either purchase an insurance or die as an alternative. The question I have is this, is there anything called nominnal social responsibilty?

    If there is none, Bush’s plan is the very best for the rest of us.

  • Mel

    Who exactly are these Americans who are supposedly behaving so irresponsibly in choosing their health care? There’s a lot of heresay but not much fact around this issue.

    Is my health care plan gold-plated because it provides yearly health screenings for me and my family? Because it helps pay for my son’s asthma medication or my daughter’s reconstructive surgery? Is anything beyod “catastrophic” coverage considered gold plated by this administration? I’d really like to know.

  • Adam Selene

    Most minimum wage earners, the one’s your hearts bleed for, are under age 25 and members of a family where they are not the primary income earner. In other words, they are not the issue, both from a health perspective and a provision of insurance perspective.

    Those who are uninsured cannot be helped today by anything the government does, regardless of the wishes of Patrick, Vijay and Mel. The question is the best path forward, and this path, while not ideal, at least holds the promise of reforming the market to be responsive to the consumer.

  • windrider

    Sounds great except for the fact that most people who don’t have health insurance as part of job benefits are those earning so little that they can’t afford to buy any. MOST real honest to god working Americans don’t have $5,000 a year to spend on minimal coverage health insurance.

    And I’m fairly sure that “gold-plated” health insurance is anything that pays enough of your medical bills that you don’t go bankrupt after a serious illness. I AM bankrupt (Chapter 13) by heart disease, coronary bypass and two strokes…but my health insurance probably meets the rich-loving Bush definition of “gold-plated”…

    I am so sick of the class warfare waged against the majority of Americans by those who hate the idea that someone might have more than they do (even if most of us don’t) and by silver-spoon Presidents who never have and never will lack for anything material in their lives but are scared to death that ordinary people might enjoy decent health care without working three jobs and working themselves to death.

    Compared to the rest of the civilized world, America has the most expensive, least affordable, and least efficient health care system. Period. But then, we’re the only civilized developed country that still clings to the delusion that private companies whose ONLY goal is to make as much profit as possible at the expense of everyone else should be the ones who make the life or death decisions as to who gets health care and how much.

    And yes, there’s a direct connection between the two.

  • Amy

    Health insurers make profit by denying health care. They don’t provide, they interfere and deny. Why do we pay them anything for this ‘service’?

    It IS that simple, we simply can’t afford them, they’re not helping the situation, just cut them out of the loop. Remove the age limit from Medicare. I don’t care if you call it a “premium” or a “tax” (nonprofit or government), just refuse to pay the protection racket’s blood money.

    How is it possible that US corporations who are competing against corporations from other countries who don’t have to carry the leeches (US health insurers) don’t stand up to say NO! Let’s spend our money wisely, on health CARE not on health INSURANCE.

  • VRB

    Would having to get a Doctor’s note for staying out every time one has a cold, be considered as behaving irresponsible?

  • Adam Selene

    I think that a doctor’s visit when you have a cold, which cannot be treated in any fashion other than therapeutically, would be an example of over utilization of a scarce resource. Unfortunately, our current system provides NO economic incentive to not over utilize scarce resources.

  • MK Wagner

    The bush administration doesn’t get the fact that too many people don’t have health insurance because THEY CAN’T GET HEALTH INSURANCE no matter how much money they make. Anyone with a chronic condition (clinical depression, diabetes, cancer even if over 5 yrs in remission) cannot get health insurance; no insurance company will sell them insurance. A tax break for those who purchase individual plans still leaves millions uncovered.
    Amy got it right; we don’t need health insurance, we need a health care system.

  • Brad Warbiany

    It’ll be so nice when we have a national health care system. We can finally put an end to rationing. If only they’d nationalize everything else, we can declare the laws of economics officially null and void!

  • Adam Selene

    So, Mr. Wagner, you want a faceless bureaucrat in DC to make decisions about your healthcare? They do such a fantastic job with all their other decisions, don’t they?

  • VRB

    Adam, I didn’t get what you got from Mr. Wagner’s statement. What I would like to know if any of the contributers here have had severe health problems. You all seem to make light about those who have. When you have critical or catastrophic illness quite a bit of your decision making depends upon whether you want to see the next day and a lot of the decision making is taken out of your hands. Your surrogate may or may not have any influence.

  • Adam Selene

    VRB, those who advocate a health care system inevitably mean a single payer or nationalized approach to health care.

    Yes, I have had major health problems, of my own and in my family. Unfortunately, the comment that was eaten by the server move talked about the fact that we have other areas that involve catastrophic issues that are driven by market forces just fine. Life, home and auto insurance, for example, deal with catastrophic issues that involve urgent and emotional situations. We have excellent examples to look at of a government system vs. market forces in this area, and determine which is better.

    When, however, we discuss healthcare and advocate government run systems as opposed to market driven systems, we are inevitably comparing a dysfunctional government system (ours) to a semi-functional government system (normally Canada or the UK) and claiming that proves that free markets don’t work for healthcare. I’m appalled that we think that we have proved any such thing.

  • Quincy

    MK Wagner –

    There’s a reason you can’t be *insured* against a pre-existing condition: It’s because the certainty of the cost is 100%. It’s like you coming to me and buying auto insurance, then admitting that you’re going to drive your car into a telephone pole tomorrow morning. That event can’t be insured against since it is certain to happen.

    If you want to talk wealth transfer programs for those who have pre-existing conditions, we can do that, but in terms of pure insurance, it can’t be done.

    In terms of the tax breaks, it’s not the break given to individuals to buy health insurance that’s so laudable, it’s the one being taken away from (really just reduced) employers that’s done incredible damage to the incentive structure around health care in this country.

    Part of the damage is that people are forced to switch health plans every time they start or end or change employment, creating a need for people to find insurance far more often than they might want to. In health insurance, it’s better for both insured and insurer to maintain a long term relationship. For the insurer, the longer the relationship, the more they know about the insured’s health and claim history, which means more accurate pricing of the risk, a definite advantage for both the company and insureds who maintain their health. Apart from the above, insureds with a long-term relationship with their insurer are more likely to see benefits from the insurance.

    More specifically to your point, the advantage of long term relationships with an insurer becomes most clear for insureds who suffer a serious injury or condition with that particular insurer. For that insurer, the condition was not pre-existing. If the insured is forced to switch, as he often is today, he has to approach a different insurer with a pre-existing insurer, so it is *definitely* in the insured’s interest to maintain the original relationship.

    Further, if people picked their own insurers instead of employers picking for them, then companies would have a greater incentive in helping those who are hurt or fall ill on their plans. A great reputation when it comes to claims service is worth far more in terms of profit than minimizing costs in almost every insurance area except health insurance. Why the difference? Because for auto, property, liability, etc, the insured is paying the bill and wants to be taken care of. In health insurance, employers are usually paying the bill and seeking to minimize costs.

    Long story short, we DO need a health care system in this country, one that relies on the free market to allow people to pick what works best for them.

  • John

    The fundamental problem here is that the debate about the issue has been so fundamentally distorted that reasonable people can barely discuss it and can’t somehow realize that we all want the same thing. We all want to expand access to care and improve quality. We all want the system to be fairer and more equitable for those who find it difficult or impossible to have care. Refuse to believe it if you want to, but the President’s plan does that. It is not for the silver-spooned “rich,” it is not “conservative.” If anything, it is “progressive.” Here is why:

    Currently, the tax code discriminates against workers and provides an unfair benefit to employers, one that workers are not privy to. When an employer purchases health care for one of his workers it is a tax deductible expense, therefore he has an incentive to offer more and more compensation in health insurance, not actual wages. And it is the worker that ends up paying for this subsidy with the forgone wages.

    The President’s proposal seeks to expand this tax advantage to everybody. Why should employers and corporations have a tax benefit that the rest of us don’t? Especially one that fundamentally distorts the market and ends up pricing a significant amount of people out of the system? This proposal allows people to purchase insurance on parity with the way that their boss does it, only it will belong to them, not their boss. And why should health insurance be tied to a job? Why should you lose it if you are fired, at the very time you need it most, having to go without it or resort to COBRA, which can be prohibitively expensive for many, exactly because you have to pay the same thing your employer was paying in pre-tax dollars.

    Today’s unlimited tax exclusion works to the benefit of employers and well-paid workers, not the middle class and below. Tax parity is the answer, and this is a step (just a step, mind you) in the right direction.

  • Adam Selene

    John, good points all. What we see currently is, as you say, a very dysfunctional debate.

    On one side we have a group of folks who, for a variety of reasons, feel left out of the equation on healthcare. Some of it is jealousy: “they” have a fabulous PPO insurance, I should be able to get that too. Some of it is an issue of what is most utilitarian. Some of it is an issue of what is ethical in a society.

    On the other side, we have folks who have decent to good healthcare and view the other side of the debate as challenging that. They don’t want to end up in a UK style system for the sake of the excluded 20%. And with good reason on their side.

    I am neither of those groups. I’m not the conservative that wants to keep it the same because I’m in good shape (although I am in good shape). Nor am I the progressive who wants to shift to a government managed (more than we already have) scheme in the name of “fairness”. I am the classic liberal who wants to put the power in the hands of the people and the market and take it away from the elites, of all stripes.

    To get there, we have to get rid of the dysfunctional distortions that have gotten us into this mess. It’s taken 50 years to create our mess, we are not going to fix it overnight. The key is to transition decision making to consumers. Doing that means undoing government intrusion and distortion. What Bush is talking about is a reasonable, incremental first step.

  • Leigh Sutherland

    The concept of Health Care “Insurance” is immoral in a civilized society. Insurance companies make money by denying services not by providing them. Americans need actual health care for chronic and catastrophic conditions regardless of “100%” certainty of cost for a “pre-existing condition”. We are the richest country in the world. We spend 4 times the amount annually than any other industrialized nation and yet we have 46 million un-insured or under-insured people.

    What I want to know is this. What is the definition of “gold-plated” and “overinsured?”

    Visiting a doctor for a cold, while possibly unnecessary (who can tell? If you’ve had it for
    4 weeks, you might make an appointment just to check that it isn’t something else) is not a good
    example. It’s a cheap service. Insurers are happy to take children despite their numerous
    illnesses and DRs visits because they don’t cost much.

    They don’t want to treat people with expensive illnesses like cancer, diabetes and heart disease.

    My best friend had numerous expensive tests over a two year period all of which came back negative (her husband had a job with good insurance thank goodness!) Was that an example of gold-plated insurance? After all they didn’t find anything?
    Is that all the “unnecessary testing” we hear about? After all they didn’t find anything.

    Until they finally did. She was eventually diagnosed with ovarian cancer. Her daugher was six. With kemo and many ridiculously expensive drugs she was able to survive another 6 years.

    She had a wonderful productive life the last 6 years. She was actively involved in programs that teach children how to deal with it when a parent has cancer.

    Her healthcare ran into hundreds of thousands of dollars. Even then, she had to ration out medication due to expense. Is this an example of “gold-plated” overinsurance?

    Under the current system, if her husband lost his job, she should be allowed to die because of the 100% chance of cost with a pre-existing condition?

    Or even if Bush’s plan were implemented and her husband lost his job and eventually couldn’t pay the premiums and co-pays (o yes I forgot to mention that the co-pays were quite large), she
    should be allowed to die?

    I am not a big fan of Mr. Bush’s policies. If my
    mother were stupid and listened to the propoganda, she would be dead now. Her husband has a very good, probably what some would describe as “gold-plated” union negotiated policies with good prescription coverage.

    When medicare part-D came out, she would was encouraged to convert. Her insurance company said that it would be cheaper for her under medicare part D. She looked into it. Not only was it not going to be cheaper many of the drugs were not covered at all. Her cost would have been around $800 a month. (Oh the drug companies had a good time writing that piece of legislation didn’t they?)

    My mother has worked hard all over her life. It never even occurred to her to get un-employment when she didn’t have a job. Her modest social security benefits are less than $800 a month but too much to qualify for medicaid.

    Fortunately, my mother is a very intelligent woman. She didn’t make the switch and I hope to have with me for many years to come.

    Is that another example of “gold-plated” insurance?

  • Leigh Sutherland

    And P.S. – John – There are in fact economic incentives NOT to overutilize the resources. They are called co-pays. These have have been increasing by double digit % annually.

    I don’t think a minimum wage worker could afford the
    $2000 co-pay I have for my son’s braces, let alone the $5000 if they don’t have dental insurance.

    Doctors office co-pays are around $20-$30 per visit. I assure you that it stops people in tight circumstances from going to the DRs office unless they think it absolutely necessary.

  • Adam Selene

    So, Leigh, your solution, I must assume, is some sort of government funded solution? Mandatory health care for all citizens (and residents too?) paid for by taxation? Reduction of benefits to those that a government bureaucrat deems appropriate?

    Or, did you have something else in mind?

  • Leigh Sutherland

    Absolutely. Universal Healthcare funded by the government. But let’s not forget that then we would have the bargaining power of the entire population to reduce costs. We’ll model it after the VA system which pays 1/10 for drugs than medicare part D.

    The developed countries that have this type of solution contain costs and provide better healthcare than we do in the U. S., despite the myth that government management will end up increasing cost and decreasing quality of care.

    Higher taxation rates do not always ruin the economy. A famous conservative economist whose name I cannot remember said “soak the rich taxes do not hurt the economy.”

    I’d like to see the truly wealthy pay more. Especially CEOs who make 40 million in a year,
    have pension plans of 2 million a year, and the only truly “gold-plated” heathcare plans in existence. (I’m talking about my CEO, who also stole the workers pensions, continues to reduce healthcare benefits and is sending jobs to BRIC and others like him.)

    I certainly can’t think of a logical reason that
    the companies themselves have to pay for the healthcare. Seems to me it would be better for both the shareholders and employees if they didn’t have to.

    I believe in capitalism and free trade, with the governments role primarily to keep companies honest. I even believe in globalization and free trade agreements even though it will eventually end up costing me my job.

    The exceptions to that should be retirement, health care, and college educations. Our country is wealthy enough to provide it for everyone. I don’t think 14,000 people should die from lack of healthcare or that old people should starve to death. Private charities, while a good thing, are not enough to solve the problems.

    And why should the social security tax be capped at 90K a year? People who are making 300K a year or a million a year can’t afford it?

    Trickle down theory is nonsense. In 1980, when Reagon made that popular, people in the top 1% of the income bracket had 8% of the countries wealth.
    Now they have 16%.

  • Leigh Sutherland

    Health Care Facts:

    44 million people in the U.S. have no coverage at all.

    Another 40 million are uninsured at some time during each year.

    Another 80 million have only partial health care.

    75% of Americans with no healthcare are working, often 2 or 3 jobs.

    We have more healthcare administrators in the U.S. than doctors.

    The U.S. Healthcare System is ranked #37 by the World Health Organization.

    Health Care is considered a basic human right in all democratic, industrialized nations except the U. S.

    The US has one of the highest infant mortality rates and lowest life expectancy rates among democratic, industrialized nations.

    The uninsured are billed at prices many times higher that what insured people are charged for the same service.

    Only HALF of every healthcare dollar is actually paid to doctors, hospitals and other providers of healthcare services.

    Prisoners are often afforded better healthcare than many law abiding citizens.

    I don’t think market forces are working and ,yes,
    a government sponsored single payer system would be much better than what we currently have.

  • Adam Selene

    Shrugs, I could type forever and never change your mind. When our health care system is completely socialized, I truly hope that you find it to be a good choice to give up your personal liberty. The conservative projections for raising the cap on social security are a 1% reduction in the growth of our economy. The less conservative projections are a recession with negative growth and millions of jobs lost. Think about that when you blithely claim “they can afford it”.

    On the other hand, it’s silly to argue with you. You say you believe in the market, except that you don’t. The areas you are arguing for government intervention are precisely the areas that could most benefit from getting rid of the massive intervention already occurring. Why have our universities been the model for the rest of the world? In a single word, competition. Why are our elementary and secondary schools the shame of the industrialized world? There’s a key difference between our universities and K-12 education: competition and market forces.

    There are so many examples and economic basics I could give you. But, I suspect (I know, actually, but I will give you the benefit of the doubt) that your mind is completely closed to them as you think with a bleeding heart and strive for things that will make life worse for the poor and underprivileged, not better.

    Just to pick out one point where you clearly don’t understand what’s going on:

    I don’t think market forces are working and ,yes,
    a government sponsored single payer system would be much better than what we currently have.

    I assume that you think that our current health system is a free market? It is not, by any stretch of the imagination. If you look at previous posts on the health system in this country, you will find an inordinate number of details on why that’s so, too many to repeat here. If you think our current system is broken, you are indicting a government regulated system full of government money, mandates and intervention, not a free market system.

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