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.