“GOP to the Uninsured: (Feel Free to) Drop Dead.” So reads the title Michael Millenson post at the Health Care Blog yesterday. It gets worse:
[N]o Republican presidential candidate has ever presented a serious plan to cover all the uninsured … The difference between Democrats and this generation of Republicans — unfortunately including even the GOP Doctors Caucus — is not at its core a disagreement on what government can legitimately do to help create universal access to health care for the 50 million Americans without it, but whether the goal itself is worth pursuing.
Was Millenson completely asleep (like Rip Van Winkle) during the last election? Does he not read my Wall Street Journal editorials? Does he never visit my blog? Or was this meant to be an April fool’s column?
John McCain’s health plan was more radical and even more progressive than ObamaCare. I’ve never seen any serious health policy wonk deny that. Maybe Millenson doesn’t live in a battle ground state. If he did, he would know that the Obama campaign spent more money attacking the McCain health plan during the election than has ever been spent for or against a public policy idea in the history of the republic. In fact, it is probably no exaggeration to say that Obama successfully turned the election into a referendum on the McCain health plan!
And although Millenson singles out Oklahoma Senator Tom Coburn as an especially egregious example of the Republican failure on health policy, the McCain vision actually was based on a bill, sponsored by Sen. Coburn and Sen. Richard Burr (R-NC), along with Reps. Paul Ryan (R-WI) and Devin Nunes (R-CA), [hereinafter called the Coburn bill]. That bill, in turn, was based on an idea which Mark Pauly and I proposed in a Health Affairs article more than a decade ago. (Does Millenson not read Health Affairs?)
Why Not Me?
What makes this Republican approach so radical is that it would replace all government tax and spending subsidies for the purchase of private health insurance with a fixed-sum tax credit — essentially giving every American the same number of dollars to apply to their health insurance, regardless of where they obtain it.
Under the current system, federal state and local tax subsidies for private health insurance approach $300 billion a year. The distribution of these dollars is arbitrary, unfair and wasteful.
How much help a family gets from government depends on such factors as its tax bracket, the type of health plan the employer chooses, and state and local tax rates.
The subsidies are also regressive. According to the Lewin Group families earning more than $100,000 a year get nearly six times as much tax relief as families earning $25,000. We give the most encouragement to buy health insurance to those people who least need encouragement and who probably would have purchased it anyway.
In addition, people can always lower their taxes by spending more on health insurance, and there is no limit to how bloated a health plan can be.
Oddly enough, we place special burdens on people who must purchase their own insurance. Essentially, they must pay taxes first and bring the insurance with what’s left over.
For a worker facing a 15.3% (FICA) payroll tax, a 25% income tax rate and a 5% state income tax, having to buy health insurance with after-tax dollars essentially doubles its cost.
Special burdens also are placed on part-time workers and the self-employed.
Consider that 1-in-5 workers are part time. Employers usually do not offer these workers health insurance. And federal law makes it difficult for employers to give them a choice between wages and health insurance.
The self-employed are now able to deduct health insurance costs on their income tax returns. Unlike other workers, they get no relief from the 15.3% payroll tax. For many, the payroll tax bite is larger than the income tax.
These problems can be solved with an approach that treats everyone alike, regardless of income or job status.
It should start with these basic ideas:
- The current system of tax and spending subsidies would be replaced by a tax credit of, say, $2,500 per person or $8,000 for a family of four for the purchase of health insurance.
- The subsidy would be refundable; everyone gets it even if he does not owe any income taxes.
- Families can obtain the subsidy in the year in which the insurance is purchased and would not have to wait until April 15 the following year to get their credit.
- Insurance companies and other intermediaries would be able to help families obtain their credit and apply it directly to the health insurance premiums.
As a result, people who must purchase their own insurance (including part-time workers and the self-employed) would get just as much tax relief as people who obtain insurance through an employer.
The tax credit would subsidize the core insurance that everyone should have. It would not subsidize all the bells and whistles, as the current system does.
Since employees and their employers would be paying for additional coverage with after-tax dollars, everyone would have an incentive to compare the value of extra health benefits to the value of other things money can buy.