We Face Major Healthcare ChoicesWith a shift towards a Republican proposal that he derided during the campaign, President Obama kicked off his health-reform campaign earlier this week at a White House meeting with 24 Senate Democrats.
Real Clear Markets
June 4, 2009
Mr. Obama has not yet presented a plan to the Democratic caucus, much less begun negotiations with the Republicans.
But the Democratic president now sounds willing to limit, and perhaps repeal, the existing exclusion from income tax for employer-paid premiums. When his Republican opponent proposed doing that during the campaign for the purchase of private health insurance, Mr. Obama accused Senator John McCain of raising taxes.
Now Mr. Obama seems to admit that the tax exclusion for the premiums, which are part of an employee's compensation, is destructive in two ways. It has limited development of the private insurance market, and curtailed labor mobility by creating incentives for workers to stay with their existing employer, since new insurers generally exclude coverage of "pre-existing conditions."
The more sensible view is that workers should be able to keep their health insurance when they change jobs, just as they keep their car and home insurance.
The $250 billion a year of additional revenue that would be raised by taxing premiums has undoubtedly tempted the president to break his promise of not raising taxes on those who earn under $250,000. An extra $250 billion, or part of it, would give him a share of the $634 billion health care fund that his budget projected without identifying specific sources.
Democrats are proposing to earmark the fund for a public health-insurance plan for people without employer-paid insurance underwritten by Washington. Republicans oppose the public plan as unfair competition for the private sector and as a possible step towards a costly national, single-payer health-care system that might mean the end of private insurance, just as Medicare drove plans out of business in the 1960s.
Rather than raising taxes, Republicans want to transfer the tax deduction for employer-provided health insurance to the individual. Individual tax credits to purchase health insurance are a crucial feature of the leading Republican health care proposal, "The Patients' Choice Act of 2009." Sponsors include Wisconsin Representative Paul Ryan and Oklahoma Senator Tom Coburn, a physician who goes home and delivers babies on Mondays.
The refundable tax credits would be worth $2,300 for individuals and $5,700 for families, with an extra $5,000 for poor families, enabling many families now on Medicaid to choose their own plans. ("Refundable" means the credit would be paid in cash to the extent it exceeded an individual's or a couple's tax bill.) In addition, monthly contribution limits for tax-free health savings accounts would be increased.
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 assigned to special plans designed to avoid high-penalty premiums
Such a system would encourage Americans to shop around for the best plan as they do for auto and home insurance. Just as medical procedures that are not covered by health insurance, such as laser eye surgery and cosmetic surgery, have seen declines in prices over the past decades, so health care costs are likely to decline also as people become more aware of deductibles and copayments.
The administration's goals for health reform go beyond insuring the uninsured. Mr. Obama declared in his White House meeting, "What we've got to figure out is how do we create the incentives in terms of how we are reimbursed, how we deal with getting doctors to work together more effectively, how we're working on prevention and wellness so that we're driving down costs across the board."
In other words, the administration hopes to revamp the way doctors practice medicine, possibly with metrics that purport to compare the effectiveness of different treatments. It seeks to trim 1.5 percentage points from the annual rate of increase in the country's total health-care spending, not through increased competition and shopping around, but through regulation, even though the disastrous deficits of Medicare prove that this hasnít worked in the past.
A new Council of Economic Advisers report entitled The Economic Case for Health Reform suggests the creation of a national insurance exchange to regulate the operation of health insurance markets. The exchange would coordinate health plan participation; negotiate premiums with employers; disseminate information about different plans; and facilitate enrollment.
State exchanges are a crucial feature of Dr. Coburn's Patients' Choice Act, but they would fulfill a different function, acting as portals where Americans could take their tax credits and choose private insurance. All insurance plans licensed in a state could participate in the state exchange, and premiums would be set unilaterally by the different companies.
In the months ahead Americans will be presented with a choice between expansion of private insurance, modeled after auto or home insurance, or a Medicare-type government plan combined with more regulation. The result will affect the cost and quality of health care for years to come.
Diana Furchtgott-Roth is a contributing editor of RealClearMarkets and an adjunct fellow at the Manhattan Institute.