Tax Cure For Health Care?

Allan Hubbard has written an op-ed in the WSJ about health care reform. He makes a great point regarding the proposed SCHIP expansion…

For example, one bill, sponsored by Sens. Max Baucus (D., Mont.) and Charles Grassley (R., Iowa), would expand Schip dramatically beyond what it is intended to do. And it would be a dangerous step down the path of government-run health care, ultimately resulting in fewer options and lower quality care for American families.

The Baucus-Grassley proposal would expand Schip to cover many children who are not actually poor. A family of four making $82,600 would be eligible for taxpayer-funded health insurance.

It would also cause many people to drop their good private coverage and move to taxpayer-funded, government-run health care. In fact, the Congressional Budget Office has estimated that for every two people who would join Schip under this bill, one would drop his/her private health insurance — a striking example of “crowd-out” that is contrary to the purpose of the program.

Finally, this bill would run up a huge tab — $71 billion over 10 years — and would impose new tobacco taxes to pay for it. But even a large tax hike won’t pay for this bill’s vast expansion of the Schip program. Instead, the bill resorts to a massive budget gimmick to hide its true costs. This trick makes it appear that Schip’s costs under this legislation will steadily increase from $5 billion this year to $16 billion in 2012 and will then suddenly drop to $3.5 billion a year — a steep fall that won’t happen of course because millions of kids would lose coverage.

…but he loses me here:

The problem is straightforward: Under today’s tax code, people who are fortunate enough to get health insurance through their jobs get a big tax break — but those who have to buy coverage on their own get no tax break at all. That is not fair, and it is not wise. It makes it impossible for millions of Americans who work for small businesses or who are self-employed to afford health insurance. And it drives up the cost of coverage for us all.

So President Bush has proposed to level the playing field for health insurance. Under his plan, every family with private health coverage would receive a standard tax deduction of $15,000 — no matter where they get their health insurance. This deduction would encourage more people to buy their own health insurance, just like the mortgage interest deduction encourages more people to buy their own homes. Some have suggested that a flat tax credit could also achieve the president’s goal of leveling the playing field, and he has signaled that he would be open to that option.

I have two major qualms about this proposal:

  1. It is not realistic. I am not sure that those who cannot afford insurance would benefit from a $15,000 tax deduction.
  2. More importantly, there needs to be a radical shift in how health care is provided in this country. We need to eliminate all tax deductions and credits (whether personal or corporate) and move toward an insurance policy that is much more similar to auto insurance than modern health insurance. Such a plan would bring price back into the equation and limit the administrative costs of HMOs and other managed care organizations. The plan proposed by Hubbard essentially tries — rather unsuccessfully — to give everyone the incentive to over-insure.

One response to “Tax Cure For Health Care?

  1. I’d love to see zero government distortions in health care. But this plan is one of the few I have seen that seek to eradicate the HUGE, government created distortion that health insurance is paid by employers.

    I’d complain that your idea is unrealistic, but the sad truth is that Hubbard’s plan, which is too intrusive for you, is unrealistic as well.

    Maybe just have the government buy it for everybody…

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