« Alan Krueger: Civil Liberties and Terrorism | Main | Greg Mankiw's Top Ten List »

Sunday, December 18, 2005

Universal Health Care: Economics Easier Than the Politics

Here's a proposal for health care reform that provides increased coverage by eliminating the tax break for employer provided health insurance. While the economics may work, the same cannot be said about the politics:

Health Care for All, Just a (Big) Step Away, by Eduardo Porter, NY Times, Economic View: You may find it shameful that some 45 million Americans lack health insurance. Well, by reallocating money already devoted to health insurance, the government could go along way toward solving the problem. But you may not like the solution. Next year, the federal government expects to provide about $130 billion for Americans to buy health insurance. ... about 11 percent of all federal income tax revenue... Nonetheless, this financing remains under the political radar because it is provided indirectly - ... as a tax break that allows workers to receive health insurance coverage from their employers without having to pay income taxes on whatever it costs. ...

Although subsidizing health insurance may seem a ... positive contribution to the goal of universal coverage, it is among the most inefficient spending in the nation's fiscal arsenal. "If you had $150 billion to play with, you could come very close to universal coverage," said David Cutler, an economics professor at Harvard. ... According to President Bush's advisory panel on tax reform, about half of the tax break ... accrues to families making more than $75,000 a year. More than a quarter goes to families making over $100,000. These families would surely hate to lose the subsidy. ... On a typical family policy costing $11,500 a year, that is equivalent to some $4,000. ...

[T]he fiscal incentive isn't helping many of the people who need it most. ... In addition to going to the wrong people, the subsidy ... promotes wasteful medical spending, encouraging the wealthy to buy more insurance and to use more health services than they need... And it may bolster premiums across the board. ... As part of a series of proposals to rejigger the tax code, the president's tax panel ... suggested capping the total ... pretax dollars at an amount equal to the average health insurance premium ... some $11,500 for a family.

But if the objective is to expand health care coverage, a bolder option is available: focusing the bulk of the money on the bottom end of the income distribution. Added to what is already spent on Medicaid, this ... would be roughly enough to make health insurance free for people earning up to three times the poverty level... said Jonathan Gruber, an economics professor at the Massachusetts Institute of Technology... To make insurance universal, ... some mechanism would be needed to pool groups of people and to avoid leaving higher-risk people to face enormous insurance costs. ... And to make it universal, a mandate would be needed to make people buy it.

This isn't communism. The changes could happen under a public health care system ... But the new regime could be run privately as well... The government could give tightly focused tax credits so that lower-income people could buy health insurance on the market. And it could organize pools ... Regina E. Herzlinger, a professor of business administration at Harvard Business School, notes that the Swiss have such a system .... This, she said, gives the Swiss top-notch health services, universal health insurance and a medical bill that tops out at 10 percent of the nation's output, compared with 15 percent in the United States. ...

This health care revolution, however, is unlikely to catch on ... anytime soon. For starters, losing the tax break ... would be tremendously disruptive for the millions of Americans who get their insurance through their jobs. Perhaps most important, it would force higher-income families to buy health care without the tax break; that idea is probably as politically suicidal as abolishing the mortgage tax deduction. "I don't think anybody would dispute the economics," Mr. Gruber said. "I think the dispute would be over the politics."

    Posted by on Sunday, December 18, 2005 at 12:33 AM in Economics, Health Care, Taxes | Permalink  TrackBack (0)  Comments (14)


    TrackBack URL for this entry:

    Listed below are links to weblogs that reference Universal Health Care: Economics Easier Than the Politics:


    Feed You can follow this conversation by subscribing to the comment feed for this post.