The health insurance reform stakes begin

June 4, 2009

 Diana Furchtgott-Roth–- Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-

Health reform season kicked off this week with a meeting between President Obama and 24 Senate Democrats at the White House in preparation for congressional hearings and debate on health care in the weeks ahead.

Obama declared: “So we can’t afford to put this off, and the dedicated public servants who are gathered here today understand that and they are ready to get going, and this window between now and the August recess I think is going to be the make-or-break period. ”

At issue is how best to use the $250 billion plus pot of money that could result from taxing the value of employer-provided health insurance. Currently, health insurance provided by the employer to workers is free of income tax. When Senator McCain suggested eliminating tax-free employer-provided health insurance and replacing it with an individual tax credit to be used for health insurance purchases from any company, Obama accused him of raising taxes.

Now, according to Senate Finance Committee Chairman Max Baucus, one of the attendees at the White House meeting, President Obama is open to ending the tax break—without substituting an alternative individual tax credit—in order to finance health care reform. Removal of the tax exclusion would break Obama’s campaign promise not to raise taxes on Americans making less than $250,000 per year.

The tax benefit for employer-provided health insurance has prevented the development of a private health insurance market and tied Americans to their jobs for fear of losing coverage. No one complains that losing a job will mean termination of auto or home insurance, because these policies are purchased independently of employment and numerous companies compete to offer the best deals.

The additional $250 billion a year—as estimated by the nonpartisan Congressional Budget Office—could be a substantial downpayment to the $634 billion that President Obama’s budget sets aside for health care reform.

Democrats want the federal government to use the $250 billion for a national plan to insure the 47 million uninsured. In contrast, Republicans want to use the funds to give each family a refundable tax credit, worth about $2,300 for individuals and about $5,700 for families, with an extra $5,000 for poor families, to purchase health insurance and to expand tax-free health savings accounts.

Coincidentally—or perhaps not—Democrats and Republicans are both proposing to set up “exchanges” as the path to better health care. But there are major differences between the two proposals.

A new Council of Economic Advisers report entitled The Economic Case for Health Reform (view pdf) proposes the creation of an “insurance exchange” to improve the operation of markets for health insurance. This national exchange would coordinate health plan participation; negotiate premiums with employers; disseminate information about different plans; and facilitate enrollment.

During the campaign, President Obama proposed using the insurance exchange in combination with a new public plan. Those Americans who wanted to sign up to the new plan could do so, and private insurance plans would be regulated by the new insurance exchange.

State-based health care exchanges are a crucial feature of the leading Republican health care proposal, “The Patients’ Choice Act of 2009,” (view pdf) proposed by Wisconsin Congressman Paul Ryan and Oklahoma Republican Senator Tom Coburn, a physician who goes home and delivers babies on Mondays. This state exchange would be used as a portal where Americans could take their tax credits and choose private insurance. All insurance plans that are licensed in the state could participate in the state exchange, and premiums would be set by the different companies.

Under Dr. Coburn’s plan, health insurance plans could include high deductible plans combined with health savings accounts, or more traditional managed care or fee for service plans. Those with chronic illnesses, such as hemophilia or diabetes, would be placed in special plans.

Politicians from both parties are open to ending the tax-favored status of employer-provided insurance and putting in place some type of exchange. The question in the months ahead is whether to use the funds for another government health plan and further federal government regulation, or for an individual tax credit encouraging increased consumer choice of plans.

6 comments

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The healthcare issue is turning America into something that is not “traditionally” America. I thought the boneheads in Washignton were supposed to be able to come up with ideas that did not infringe on the rights of others. Whatever “idea” Barack Obama maybe trying to pass off on the American people is a bad one. Barack Obama was supposed to be smart. Smart enough to come up with common-sense solutions to our countries growing problems. His healthcare plan is not smart and is going to turn the word “monopoly” into something neccesary and “moral”. If he wants to make a difference, why not come up with a plan that gives those who want and need insurance a break. Not one that actually gives the people something. It’s not the U.S. governments’ job to give people free healthcare insurance but they can make things easier for the people by coming up with ways to make healthcare more affordable, with better quality.

Here’s an idea, HOW ABOUT THE GOVERNMENT STOPS TAXING INSURANCE COMPANIES ALTOGETHER? Start encouraging companies to accept, on their books, people with pre-existing conditions? Barack Obama should stop using healthcare as a way to generate revenue for the government. They have enough of our money. He should stop the government from constantly making healthcare about money, money, money.

Posted by Jose | Report as abusive

Let’s [1] expand this issue to include RETIREMENT as well as HEALTH, and [2]level the playing field just a bit, before we venture too far into this health and social security quagmire.

FIRST, let’s balance the health and retirement benefits afforded congress with those of the average worker, by extending the government’s health and retirement benefits to EVERY American. If it’s good enough for the people’s servants in congress, it ought to be appropriate as the basis for the new national health and retirement package. (And make sure we get a CBO/professional accounting of the true long-term costs, along with tough federal regs that ensure the new plan is PAY-AS-YOU-GO.)

SECOND, let’s make sure BOTH the government folks AND the domestic labor force receive EXACTLY the same tax treatment.

It seems pretty clear that addressing these two issues properly will provide an appropriate framework for discussing what we should do about health care and social security in this country.

Posted by mike | Report as abusive

As Rome faced mounting pressure from Barbarians and other hostile nations, the senate began raising taxes and applying taxes on anything and everything trying to keep enough money in the treasury to pay its Legions. Of course if they (Roman senators) quit being so Corrupt and stopped funneling money to their secret accounts, they wouldn’t have been in the problem they faced. But once you get your hand in the Cookie Jar, the greedy nature of those Senators would not let them stop stealing.

Look at the Expense Row over in England. How many American Senators use earmarks and other methods (Like Murtha) to funnel money to their friends, thus themselves. Instead of these Businessticians (Businessman Politicians) cutting their pay (Which a good leader would do, because money is not the most important thing in running a country) they continually keep adding TAXES onto the People they are “Sworn” to protect and represent to the best of their ability.

We, the American Public, already pay for healthcare, its called Medicare. It is just “Health Insurers” who have influenced Businessticians into making this into a “Money Making” Business for these “Insurers”. Why else do we as Americans pay the most for Health Care, and yet we are below 40th on the list of nations with the best Health Services? Follow the money people.

I propose to roll Medicare and Medicaid together, then split the combined pool into 50 funds, one for each state. Every Casino in every State is already attached to the States Tax system, we simply direct the taxes(increase them of course – the money lost in Casinos is already Americans Money, I simply wish to use our vice to pay for health care instead of letting a small group of Mafia types makes billions)

The money to pay for this is out there, its just a small group of rich powerful people who don’t want to give up their Profits, even though it will benefit ALL of America. To me, if you are running a country of 300 million diverse people, you need to advance what will help the majority of the people you “Swore to Defend and protect”. What does it say about our current leadership when they favor a small part of society over all else?

This system that is created to benefit the “Rich” isn’t it really a “Monetary Aristocracy” instead of a “Democratic Republic”?

If I was President, I would hold out two hands and count the number of my Countrymen in the separate groups.

In one hand my idea for Health care would benefit 298 million Americas since they would have more money to spend on Food, Shelter, and Energy (all over priced of course)

Maybe 2 million in the other hand, who already have enough money to feel like they are God? I don’t think they need my help, they can help themselves.

Posted by C. D. Walker | Report as abusive

A less complicated cure for the health care system is needed: break up the Big Business hospital and/or Nursing Home monopolies; forbid outrageous profit mark-ups on the costs of treatments and meds to patients by hospitals and pharmaceutical firms alike. This has not been done re: oil companies and probably won’t be done; so, remember that employer contributions to group medical insurance is part of the pay package; when this becomes taxable more pay will be required by same employee and the never corrected/simplified tax laws remain.

I sit on the board with Utah association of Health underwriters and http://www.BenefitsManager.net for health insurance reform. Several interesting changes took place with H.B. 188 passage earlier this year. The spirit of the bill allows private market place remedies. It essentially guarantees insurance providers a “no loss” or “no gain” over competing carriers in the insurance exchange portal which is http://www.UtahInsuranceExchange.info. On the surface it seems not to be attractive to participating carriers (voluntary at this point). But you have to understand the carriers goal is to cover their administration fees. That can be accomplished now. The other half of the equation is providers and their billing practices that needs to be reformed. That is on the agenda. Keep an eye on Utah because the national health care debate seems much the same ground we have already covered.

The basic point of the original post is simple and realistic. Most people can afford to take care of their regular doctor visits without using insurance. The doctor provides the service, the patient pays for it. The original idea of insurance was supposed to cover only major expenses, like cancer, that most people couldn’t afford. We got into this mess because of tax laws that encouraged people to get “pay for everything” medical coverage through their employer, and thus separated them from paying most of their own medical fees, which encourages both the doctors and the patients to spend more. The problems that we’re facing come from too much insurance, not too little. More accurately, it comes from most people having the wrong kind of insurance.

Congress needs to decide either to tax all medical spending, or not to tax it. That way, people can, once again, decide for themselves what kind of insurance that they want to buy.

Posted by Daniel Ferris | Report as abusive