Bush’s Health Care Proposal

The New York Times reports:

WASHINGTON, Jan. 20 — President Bush intends to use his State of the Union address Tuesday to tackle the rising cost of health care with a one-two punch: tax breaks to help low-income people buy health insurance and tax increases for some workers whose health plans cost significantly more than the national average.

[...]

The basic concept is that employer-provided health insurance, now treated as a fringe benefit exempt from taxation, would no longer be entirely tax-free. Workers could be taxed if their coverage exceeded limits set by the government. But the government would also offer a new tax deduction for people buying health insurance on their own.

[...]

White House officials say the health tax plan would neither increase spending nor reduce tax revenues. Supporters say it would expand coverage to some of the 47 million uninsured. But critics say it would, in effect, tax people with insurance to provide coverage to those without it.

I do not have enough details on the plan to understand exactly how it would work. However, at first glance, this looks dead on arrival.

The health care system cannot be fixed by legislation designed to patch holes in the system. Similarly, it cannot be fixed through a massive overhaul that institutes government as the single-payer — this only masks the problem, it does not fix it. Rising health care costs are due to spending out on the margin. The solution must come from insurers, hospitals, and doctors working together to promote effective care, rather than costly care. This can and will work. The latest example is described in this article from The Wall Street Journal. If need be, the government could provide tax incentives to encourage this type of reform.

UPDATE:

As I have found more details regarding the plan, I am slightly more impressed. I do, however, remain skeptical of the likelihood of this plan ever coming to fruition. I also maintain my view that a movement toward more effective (rather than costly) care needs to be encouraged. Hopefully, this plan can provide an important first step.

Jason Furman recently made a good case for this type of reform:

This incentive is compounded by an asymmetry in the tax code: if your employer pays $1,000 in premiums to your insurance company, that money is effectively tax deductible to you. But if your employer raises your salary by $1,000 and you use the extra money to pay for medical bills, you generally will not get a tax deduction. As a result, many people end up with more-generous health insurance plans than they would otherwise choose to have. These plans have lower deductibles, lower co-payments, and lower co-insurance and are often focused around providing first-dollar coverage for routine medical expenses, rather than genuine insurance. As a result, individuals in the health system are often spending someone else’s money, which is never a recipe for cost consciousness. Unfortunately, ultimately it is not really someone else’s money: the cost is paid in higher premiums, which in turn are reflected in lower wages.

Arnold Kling likes the plan. In fact, he gives it an “A+”:

I would grade this as “A+”. The question is whether he can get any Democratic support. My guess is that some of the most extravagant health insurance plans come from unions. The fact that the President’s proposal is much more “progressive” than the status quo (as it stands now, the “rich” benefit the most from not having to declare the cost of gold-plated health plans as income) will not get any support from “progressives.”

What I love about it is that it takes away the childish illusion that health benefits are some sort of “gift” or “obligation” from employers. It treats them as compensation, which provides a much more grown-up basis for discussing health care.