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January 22, 2007
Bush's Health Plan
Let me do the unpopular thing today and tentatively suggest that George Bush's rumored health legislation will be a good thing. If early reports are to be believed, tomorrow night's State of the Union will see Bush set a limit on the deductibility of employer-based health care, capping it at $7,500 for individuals and $15,000 for families. That's not a stingy limit. The average employer-provided health plan, according to the Kaiser Family Foundation's 2006 Employer Benefit Survey, costs $4,242 for individuals and $11,480 for families. And it's not as if plans costing more will be declared illegal. They will simple be taxed, like they should have been all along, with the new tax revenues creating deductibility in the individual market, where the lack of such favorable tax treatment amounts to a 30+% penalty on those unlucky enough to purchase coverage outside of an employer's umbrella. The self-employed will now have the same deductibility -- and limits -- as everyone else.
Early response from many on the left is lukewarm, at best. And, to be sure, dismissing this as useless incrementalism is a fair attack. Bush's plan will do nothing to salve the deeper dysfunctions of the health care system. It will not keep insurers from discriminating on grounds of health and history, it will not subsidize low income workers, it will not create universality, or widen the risk pool, or aggregate buying power, or end the employer tie, or do most anything else that needs to be done.
But so far as incrementalism goes, this is supportable. The full deductibility of employer-based benefits has had nothing but pernicious consequences for the health system, creating and strengthening a structure that traps Americans in jobs, giving employers absurd control over their workforce's health security, and penalizing the entrepreneurial and unemployed alike. And every taxpayer, whether they have insurance or not, is forced to subsidize this unjust, inefficient structure. It's crazy. Progressives should indeed support efforts to sever the Gordian knot tying insurance to employment and, now, with Democrats in control of Congress, should see this proposal as a starting point atop which a yet-more progressive tax change can be constructed.
Taxing high-end health plans may be unpleasant, but a flipside to our health system's many, many losers is that there are quite a few winners, and affordable reforms will, on some level, make them a bit worse off. Were Republicans still in control of Congress, such a risk would be unwise. But they are not. Bush is taking a tentative first step towards a traditionally progressive end: Making the health care system more equal, and untethering it from employers. And this militates towards the ultimate goal as well: If employer benefits cease being so subsidized, and their true cost and inefficiency comes clearer, the case for reform will strengthen. In reality, Bush's proposal may be but a minor tweak that exposes little save the paucity of his vision, but it's an opening through which more comprehensive solutions can stride.
If you want to learn more about this stuff, by the way, the best article is Jason Furman's "Our Unhealthy Tax Code" from the inaugural issue of Democracy.
Also at Tapped.
January 22, 2007 in Health Care | Permalink
Comments
Count me as just insanely skeptical that this is what Bush's actual, substantive proposal will be. Yes, I agree that if early reports are to be believed, the proposal will be a minor but positive step.
But why would we believe that Bush will offer even the most meager tax increase on the wealthy, at least without pairing it inextricably to some other, larger, more destructive giveaway to the upper class? There's just a slight pattern of behavior here.
I agree with you on the wonkery, but I think that vigilance rather than wonkery is called for right now.
Posted by: DivGuy | Jan 22, 2007 11:01:53 AM
That's a bad way of putting it. I love wonkery, it's one of the reasons I dig this blog so. I appreciate this post as an explication of a policy issue, jumping off from early reports of the president's proposal. On that level, great.
What I'm saying is that I think a more forceful disclaimer than "if reports are to be believed" is called for in this case, given how consistently disastrous Bush's foreign and domestic policies have been.
Posted by: DivGuy | Jan 22, 2007 11:04:21 AM
I'm just confused as to how something even accidentally progressive could get into Bush's SOTU address, let alone actually put into effect.
Where's the trap here? That's what we need to find out.
Posted by: Stephen | Jan 22, 2007 11:07:28 AM
This conversation, as you set it up, is a little like limiting the conversation to fixing the engine on your car as the car is driving off a cliff. How much will this save someone in taxes over the period of a year? A few hundred dollars- maybe one month or two of premium, and still the price will go up by double digits. Even in terms of incrementalism won't the real cost of healthcare result in the person being the exact same place as the car? Also, my issue with this is not incrementalism- it's that it gives the illusion to engaged in the conversation like something is being done about the car by fixing the engine when a bigger issue actually looms.
Posted by: akaison | Jan 22, 2007 11:20:15 AM
The early reports seem solid. But, obviously, if Bush proposes something different, there will be plenty of time to stick it full of knives.
Posted by: Ezra | Jan 22, 2007 11:21:52 AM
The 7.5% income tax deduction thingee.
Have you ever blogged on it? The idea that you have to spend more thatn 7.5% of your salary on health care before you can start deducting, AND that it is only the amount ABOVE that which is deductible?
Posted by: Robert P. | Jan 22, 2007 12:05:22 PM
I'm going to suggest another good incremental change.
1) Cash payers can't be billed more than 125% of the Medicare/Medicaid rate. Currently, insurers and Medicaid pay 1/2 or 2/3 as much for most care as people paying directly. That's counterproductive.
Posted by: SamChevre | Jan 22, 2007 12:32:56 PM
You miss the point Ezra. The proposal is intended to supplant universal health insurance and community rating, and provide political cover for the veto or fillibuster of the same.
And I dont even think its better than the status quo, which is awful. Encouraging a shift from employer as payer to individual as payer will only result in more adverse risk selection.
Insurance 101:
The smaller number of people who buy insurance together, the smaller the number of unhealthy people that can get health care. And the smaller the purchasing group, the greater the risk that the insurance company will more aggressively contest the claims -- after all they only stand to lose one customer each time, and if that customer is getting sick anyway, losing him or her helps the bottom line. Plus, larger purchasing groups can bargain for better prices and quality.
I am shocked that you would support this plan. You need to draw a line somewhere -- how about universal coverage and community rating?
Posted by: RW | Jan 22, 2007 12:45:41 PM
You can find numerous examples of drugs that cost say about $200 in this country can be had for close to $10 other nations.
Unless the Pharmas stop using the American consumers as the source for their research funding the health care problem will not be solved.
Posted by: gregor | Jan 22, 2007 12:49:11 PM
This is not good incrementalism. This won't raise much revenue. The number of plans which exceed this limit is small, and only the value above the limit is taxed. The people who can't afford health insurance in the first place aren't going to benefit from the deduction, so i doubt that the number of uninsured will fall much. The public may think that some part of the health care insurance crisis has been solved and lose interest in the issue for a few years. We're only going to get a certain number of shots per election at fixing the system. Each increment needs to count.
Posted by: MarvyT | Jan 22, 2007 12:57:02 PM
RW: Explain again how it would decrease risk pooling to allow those already on the individual market to have some deductibility? Because I'm confused.
I also disagree that this supplants or impedes universal plans. This is a tax law change, not an answer to the health care crisis. Democrats will keep pushing better bills and, as I argue above, this will begin to break down the weird subsidies that keep people content with the fucked-up employer system.
Posted by: Ezra | Jan 22, 2007 1:07:33 PM
ezra
i find myself in rare disagreement with you. this isn't "unuseful incrementalism", it's downright pernicious.
first, the deductibility of health premiums is far from a first- (or even second-) best way of providing insurance, but, it does encourage risk pooling among relatively large groups of workers not sorted by health characteristics, and, hence provides essential pooling functions for decent insurance to be offered to even those with who are going to end up being expensive to insurance companies. the individual market does none of this, and, a move to unravel employer pools w/o any way to make the individual market a more hospitable places just means more folks with (say) diabetes unable to find any insurance at all.
second, the Bush plan doesn't save any money at all on the tax expenditure for premiums. it is purportedly revenue-neutral, but, i bet it's only neutral over the long-run, and, will cost lots of money in the short-term. he's not just capping the exclusion - he's also providing a flat $15,000 exclusion (for family plans) that taxes the value of plans above this amount, but, returns money to folks with cheaper plans. this creates incentives for people to buy thin health insurance.
to believe this is more progressive than the current system, you have to believe that "gold-plated" plans are purchased by rich folks. there's very little evidence to this effect. the rich-folks get most of the benefits from the current policy just because they have higher tax liabilities, not because their plans are necessarily better. If you work at a small, or relatively old/sick workplace, you can only get very expensive insurance plans offered to you. Thus, even if the benefits ain't great, lots of people in this boat look like they're consuming "gold-plated" health care. they're not, they're just unlucky.
this plan, unsurprisingly, sucks. a last note - they could've actually gone a long way towards progressivity: replace the flat exclusion with a refundable tax credit that would pay out even to those w/o earnings to support the full value of the exclusion (like the EITC). i still wouldn't have loved it, but, at least it would've been a serious way to get some money to people with less money. the fact that they couldn't even do this speaks volumes.
joshb
Posted by: joshb | Jan 22, 2007 1:07:45 PM
akaison: like limiting the conversation to fixing the engine on your car as the car is driving off a cliff.
I can't recall a specific instance where Bush has actually proposed legislative language (in the form of a draft bill) on an issue. He outlines a concept, and then his team denies that any negative consequences of that concept are included in the concept. Then the Repubs actually start to hack away and define the concept, with much back and forth on what is really being proposed. Social Security is a good example of this.
The problem with his concept is that it defines the maximum of what he is willing to accept, thereby short-circuiting anything truly comprehensive. It is great legislative strategy if you really don't want to do anything truly substantative. This is usually called a Rovian Rat-Fuck.
My understanding is that individuals can only claim the deduction for purchase of high-deductible insurance coupled to Health Savings Accounts (the favorite hobby horse of the right in dismantling any progress on national risk pools - community rating). If this is true, then this isn't a good first step, but a retrograde movement. BushCo doesn't want us to all be together in the same boat, because that leads somewhat naturally to comprehensive national health insurance policy.
So instead, they give some individuals half of a life-vest as they are thrown into a perfect sea-storm. Those who don't get the half-vest (because of occupation or previous medical encounter - no matter how minor) are shark food. It is not even clear that they could deduct the cost of the actual, non-insured care they had to purchase.
I interpret the Bush plan as just a concession to the national mood on health care, without an real progress toward removing the negative features of the current situation or capturing the possitive features of a different manner of approaching the issues.
Posted by: JimPortlandOR | Jan 22, 2007 1:11:41 PM
In some of the econ lit, when you increase subsidies for individual purchase (in the name of fairness) you reduce group plans, because you make it easier for lower-cost people to disfavor group plans. Also provide an incentive for employees to become independent contractors. This pushes the death spiral.
I doubt any proposal would provide some kind of rebate if your plan was under $15K. Chances are it would just be an increased tax of some kind on plans over the cap (either an explicit tax, or just exclusion of the premiums from AGI or taxable business income).
From this standpoint any money raised for this would not be well spent, unless you are young and healthy, and only for as long as you are young and healthy.
Posted by: Miracle Max | Jan 22, 2007 1:50:40 PM
As a data point, I'll note that the ~30 person California company where I'm currently working pays approximately $500 per individual and $1100 per family per month for health insurance. Every year the company gets hit with a significant cost increase.
It won't take much of an increase to push us into the "no more deductions for you" zone. Caught between ever-increasing premiums and a cap on tax deductibility, I can see some very hard decisions being made down the line.
Posted by: fiat lux | Jan 22, 2007 2:14:05 PM
Where's the trap here? That's what we need to find out.
A cynical person would note that the most generous health plans tend to be in unionized companies where the unions have fought hard to hang onto their gold-plated coverage. A deductibility ceiling would give employers another argument for resisting coverage proposals that would exceed the ceiling. That may be a good thing for health-care policy, but it may also be a bad thing for unions that have made protecting generous health plans a central part of their bargaining strategy.
Posted by: DaveL | Jan 22, 2007 2:15:33 PM
I also disagree that this supplants or impedes universal plans. This is a tax law change - Ezra
It does so precisely because it's a tax law change. Forget about who's going to propose this, it'll be the Democratic house which this has to pass. By 2010, or perhaps even 2008, the yanking of some deductions for health care will be an "Democratic tax increase on hard working Americans" (c.f. "the death tax") and "do you want Democrats to 'fix' health care, in which they will, of course, raise taxes, like they did before to 'fix' health care?". And there goes the momentum for universal health care as people worry about what'll do to their taxes.
Of course, if the Dems. don't get behind it, we'll also be screwed ... so how is it the GOP keeps getting the Dems. stuck between a rock and a hard place, and we cannot manage to pull the same tricks on the GOP?
BTW -- I also agree with where DaveL is going with his comments. Let us not, in our eagerness to untie the Gordian knot, forget why and how it ended up being tied in the first place. If the "winners" in our health care system are to some degree working stiffs with good unions, we wanna encourage that, not tax those people more and drive them further into the hands of the GOP. We Dems. cannot even be perceived as the party that taxes the working classes to pay for the poor ...
Posted by: DAS | Jan 22, 2007 2:36:17 PM
Ezra:
Three ways:
First, there is an incentive for the businesses to dump or downscale the coverage they have. Large employers act as a de facto risk pool. And even smaller employers have access to professional group insurance markets.
Second, healthy people on the individual market will buy for themselves if they can do so. This reduces incentives to join group purchasing plans, including but not limited to employer provided health insurance.
Third, the political implications. Republicans and possibly conservative democrats wary of 94 Redux will support for cover and say they did or tried to do something about health care.
Posted by: RW | Jan 22, 2007 2:43:32 PM
max
efficiency would dictate i just find you in the office, but, looked around and didn't see you.
from what i've heard, the plan does indeed provide rebates to anybody purchasing plans that cost less the cap.
just FYI.
joshb
Posted by: joshb | Jan 22, 2007 2:58:13 PM
I haven't heard about the rebates to folks with cheaper plans -- that would be a catch, and ground for opposition. I disagree, however, on concerns about risk pooling here: This may disincentivize the purchase of generous health insurance by emplyouers, but it doesn't disincentivize employer health insurance, nor risk pooling. Meanwhile, I tend to think that degrading the employer tie is a good thing, and hastens eventual reform. I don't know how we expect to get critical mass for comprehensive changes if we keep subsidizing the folks getting the most from the current system. I'm not saying we burn the village to save it, but at some point, you can't keep putting out the fires yourself.
Posted by: Ezra | Jan 22, 2007 3:30:17 PM
Two constituencies for reform evaporate (well, maybe not evaporate, but, diminish) with this plan. One, businesses will be less concerned about health care cost and cost shifting because fewer of them will be providing health insurance. Two, healthy people in the individual market to whom insurance companies are willing to sell insurance, but who are unable to pay for it.
Posted by: RW | Jan 22, 2007 3:59:16 PM
See! Rove wins again. Even the non-Repub. are split on whether this is a good idea or not.
I think RW has it right. This is a party/bloc busting proposal. All the Dems will fear doing anything they are going to be attacked for, like raising taxes. They won't support the Bush plan, but they won't do anything comprehensive either.
Posted by: JimPortlandOR | Jan 22, 2007 4:15:48 PM
Here's one trap. Bush is claiming he'll have a pot of money for states to expand coverage, but only if certain "mandates" are not imposed by those states on health insurance policies.
Posted by: P O'Neill | Jan 22, 2007 4:19:46 PM
Jesus, good catch O'Neil! A premium mandate sounds like a restriction on the amount premiums can increase; in other words, the bill would scuttle state community ratings efforts!
Anyone care to rethink their support for the proposal? Anyone, anyone? Bueller?
Posted by: RW | Jan 22, 2007 4:48:37 PM
ezra
we can argue about incentivizing/not employer pooling later, but, here's the whitehouse spiel on this, and, unless i'm very, very wrong (and i'm sure i'm not) this includes a rebate aiming to convince people to buy thin health insurance.
also, it seems clear to me that the exclusion cap will be indexed to something that grows more slowly than premium inflation, so, in the short-run this will *cost* the feds boatloads of money, but, in the long-run will make more and more of health benefits taxable income, allowing him to say tonite that his plan is "revenue neutral".
um, this latter part is from my own fevered imagination, the rebate on cheap plans i think follows from reading the WH description.
joshb
http://www.whitehouse.gov/news/releases/2007/01/20070122-3.html
Posted by: joshb | Jan 22, 2007 5:14:18 PM
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