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Sunday, May 24, 2009

Funding Universal Health Care

Robert Reich says that since other alternatives to fund health care have been closed off, it's time for Obama to consider taxing employer provided health benefits:

The Only Sure Way to Fund Universal Health Care, by Robert Reich: During the presidential campaign,... Obama ... criticized John McCain for proposing to tax all employer-provided health benefits. ... I worried that Obama would come to regret the position he took.

Half a year later, it appears that the President will need to tax employer provided health benefits in order to finance universal health care. Or at least the tax-free benefits now enjoyed by higher-income employees. Many in Congress and in the White House are convinced it’s the only good option. ...

The White House is in a revenue bind. The President had intended to raise money for health care by limiting the income tax deductions that wealthy taxpayers can claim. This would have generated ... about half of Obama’s proposed “health care reserve fund.” But the proposal ran into a buzz saw of opposition from congressional Democrats. ...

With deficit vultures already circling, Obama has to come up with a far more reliable way to fund health care. That’s where employee health benefits come in. According to the Congressional Budget Office, taxing all employee health benefits would yield a whopping $246 billion every year. Even limiting the tax to higher-income employees would go a long way to funding universal health care. Employer-provided health insurance is the biggest tax break in the whole federal income tax system.

Tax-free employer-provided health care is also, in effect, the government-backed health insurance system we now have. ... Seventy percent of the 253 million Americans with health insurance receive at least some of it through their employers. ...

But, face it, it’s become a crazy system. You’re not eligible for these benefits when you and your family are likely to need them most – when you lose your job and your income plummets. And these days, as we’re witnessing, no job is safe. The system also distorts the labor market. It prevents lots of people from changing jobs for fear they’ll lose their health insurance, or won’t get the benefits they do now. And it invites employers to game the system by seeking young, healthy employees who pose low risks of ill health and will therefore keep insurance costs low... The system also encourages employers to try to push married employees onto their spouse's health insurance plan so that the spouse’s employer bears the cost.

It’s also an upside-down system. The biggest share of the $246 billion goes to upper-income people. ... Few people collecting $12 an hour at fast-food restaurants or big-box retailers see any part of the $246 billion. The higher your pay, the more health coverage you receive, and the bigger chunk of the $246 billion you get. Top executives and their families get gold-plated plans...

The good news is that a program providing universal health care doesn’t need the full $246 billion a year... Obama’s health care reserve fund needs around $650 billion over ten years. So a sensible and politically feasible alternative is to limit tax-free employer-provided health benefits to workers whose incomes are under, say, $100,000 a year, and subject those with higher incomes to progressively higher taxes on them.

It’s still not the position Obama took in the campaign. But, hey, circumstances change.

The administration has signaled that this door is not closed, but it is not their first choice.

    Posted by on Sunday, May 24, 2009 at 11:10 AM in Economics, Health Care, Taxes | Permalink  TrackBack (0)  Comments (24)

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