It’s looking as if the health care finance litmus test noted earlier this week is already quite revealing. The Washington Post’s Steve Pearlstein, who has never been particularly enthusiastic about the Bush Administration, reports:
But the most surprising and encouraging development is that a president who for six years has only nibbled around the edges of health-care issues has weighed in with some bold ideas to expand coverage, rein in costs and bring some fairness to the tax code. And get this: It actually involves raising taxes on the rich and lavishly insured and giving the money to the working poor and the uninsured.
Given that, you’d think Democrats would have welcomed a politically courageous proposal to put a cap on one of the biggest and most regressive features of the individual income-tax code. But instead, they’ve shifted reflexively into partisan attack mode, mischaracterizing the impacts of the proposal and shamelessly parroting the propaganda from the labor dinosaurs at the AFL-CIO.
“Dead on arrival,” declared Rep. Pete Stark (D-Calif.), chairman of a key health subcommittee in the House, hinting at a dark conspiracy to kill off employer-sponsored health insurance.
“A dangerous policy that ultimately shifts cost and risk from employers to employees,” said Charlie Rangel, chairman of the House Ways and Means Committee.
Sen. Harry Reid, the majority leader, called it nothing less than an “attack” on American workers.
Worst of all was the five-page memo distributed by Sen. Edward Kennedy to Democratic colleagues that ought to embarrass a man who considers himself the Senate’s leading health-care expert — a compendium of half-truths, unsupported assumptions and outright lies. Kennedy reverted to the hackneyed rhetoric of class warfare, asserting that the president’s proposals will do nothing for working families, give new tax breaks to the rich, increase the number of uninsured and encourage everyone to buy less insurance coverage than they should have.
In fact, all of these are almost precisely the opposite of the truth.
The president’s health plan would, in fact, put a cap on a $200 billion-a-year tax break that now goes disproportionately to those with the most generous and costly employer-provided health insurance plans. It would redirect a small portion of that break to those who have less generous coverage or those who have to buy their own insurance because their employer does not offer it. For a few million of the roughly 47 million Americans with no insurance, it may also make the difference between being able to afford basic insurance or not.
The fact that some of those who have these rich policies happen to be members of auto or postal unions doesn’t change that the president’s proposal would make the tax code more progressive, not less. They are the aristocrats of the working class who, like lawyers, investment bankers and journalists, earn more in tax-free benefits each year than uninsured janitors earn in taxable wages. And whatever modest tax increase they might face from the cap on tax-free health benefits, it is certainly less than the tax cuts they got from Bush that Democrats are so eager to rescind.
Almost every health economist agrees that the tax subsidy for employer-paid health insurance is not only unfair but that it also encourages people to buy too much insurance, consume too much health care and pay too much for both. Bush deserves praise for having the political courage to confront the issue.
Now is this the magic bullet that will solve the health-care crisis? Of course not.
Would any real solution also require finding billions of dollars more to subsidize the purchase of health insurance by low-income workers and getting states to reform dysfunctional markets for individual and small group insurance? No doubt about it.
But anyone seriously interested in health reform would welcome the president’s proposal as a basis for negotiations, raising public expectations and increasing pressure on the president to embrace more comprehensive reform. Unfortunately, that is not the approach of Messrs. Stark, Rangel, Reid and Kennedy, who apparently prefer demonizing the president and grandstanding on the issue until the next election.
Haven’t we had enough of this?
Read the entire piece. President Bush’s proposal — although not an all-encompassing solution to America’s dysfunctional health care finance system — addresses a fundamental problem of system — tax subsidies that have insulated many Americans from the true cost of health care through employer-based health insurance. The president’s plan identifies the problem and responds to it in a common sense way by proposing to negate the distorting subsidy. There are reasonable alternatives that should be examined — such as removing the tax subsidy of health insurance altogether — but to castigate the President’s proposal in favor of the insulation provided by the current system is the epitome of elevating political form over substance.
While one could argue that employees have been paying all along for their health insurance (in the form of lower raises and other benefits), eliminating the employer ‘insulation’ might be ‘equitable’ but won’t solve much of anything.
First, even though health insurance becomes taxable to the employee, there will still be huge advantages to getting health care through the employer, benefits that won’t be available to the individual having to buy on their own (even with a tax deduction).
Second, even if you shift the burden to individuals to buy insurance, you’ll still have people unable/unwilling to pay the money to get coverage… you’ll still have people without money to cover their share of the co-pays and deductibles, and you’ll still have people who want treatment outside the scope of their coverage… with the result that we’ll still have plenty of sob stories about people not getting treated the way they want to be treated.
As the ‘health care problem’ is simply that some people don’t have the money to pay for all of the health care they want, your two options are (1) have society start footing the bill even more than we now do (which isn’t really an option since society as a whole doesn’t have enough money to pay for all of the desired health care), or (2) find a way to really cut the costs of health care less (and I wish you luck on this).
Of course, society could also tell those who don’t have the money “sorry, but we can’t/won’t help you”… but that too is a political non-starter.
And I see nothing wrong with the tax subsidy provided to employer-paid health care, and certainly this is not without precedent. Society provides lots of tax benefits in order to encourage a preferred behavior (mortgage deductions, capital gains rates, etc). Society thinks it good that people have health insurance, so why discourage it by making it a taxable event?
Steve, I’ve boiled down your argument in the following paragraphs, which corrsponde with each paragraph of your comment:
Although I agree with some of your points and disagree with others, I suggest that the foregoing is not a rational defense of the current tax treatment of employer-based health insurance policies versus individual policies.
Tom: Wow, you did a great job of summarzing my points, better than I could done myself. Do you want to moonlight as my (pro-bono) editor?
Just to be clear, it isn’t that I am dead set against phasing out the tax free benefit of employer-paid health insurance, nor am I against providing a tax subsidy for those purchasing health insurance on their own. My complaint is that, if the health insurance/care system is truly broken and needs fixing, Bush’s proposal is akin to fixing the radio on a car that won’t start… it might make sitting in the car a bit more pleasurable, but it won’t help get you where you’re trying to get. If Bush’ proposal was being sold as tinkering, fine, but it isn’t being presented in that spirit and will thus really p*** people off when they find their situation hasn’t much changed.
Oh, and by the way, what do I have to do to earn immediate posting privileges?
Steve, I agree with you that Bush’s proposal is not a cure-all for the dysfunctional health care finance system and that it is disingenuous to sell it as such. But given the barren wasteland of productive proposals regarding domestic policy issues in the U.S. right now, I’m not willing to criticize an otherwise productive proposal simply because it does not address every defect in a problem-laden system.
As for immediate posting of comments, sorry. The scourge of comment spam necessitates that I approve comments before publication. I wish that were not the case.