The health insurance reform stakes begin
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.