MedPol: Bush insurance proposal: SOTU preview

The Reuters skinny:

Bush's health-care proposal would use tax breaks to make it easier for people who do not have employer-provided health insurance to buy coverage on their own. The tax incentives would be similar to deductions used by homeowners for the interest on their mortgages, Bush said.

But the program is intended to have no effect on government revenues because the cost of the tax breaks would be offset by changing the way health insurance is treated in the tax code, according to a senior administration official who described the proposal to reporters.

The current health system relies primarily on employers to provide health-care coverage as a fringe benefit. Employees are not taxed on the benefits but the Bush plan would set a cap on the amount of coverage that could be offered tax-free.

Anything above that would be taxed as income, the administration official on condition of anonymity.

Mankiw's commentary:

Economists have long suggested that tax subsidies lead to excessive use of employer-provided health insurance. This proposal would help fix that problem, while giving a helping hand to the uninsured.

Note that some Democratic economists have made similar proposals in the past, so there is hope that this idea will command bipartisan support.

I'm convinced Mankiw is correct in the longview, that fifty years from now, this sort of incentive-disincentive revamping would lead to a better equilibrium than exists currently. But I'm not sure that apparently taxing middle-class health care benefits to fix a larger problem is going to be particularly attractive for the left or the right.

A prolonged evolution away from employer-based health care only creates problems in transitions. As folks are macro-scale moved from getting insurance from employers to somewhere else, they'll likely face large unfilled gaps in insurance status, and given that insurance is supposed to be something that provides peace of mind, flirting with its status seems unattractive.

If my point isn't clear, see Stephen J. Gould's model of punctuated equilibrium for evolutionary change. Auxiliary point: we can't start creating disincentives against current modes of delivering health insurance without creating equally viable alternatives for those finding themselves unable to attain insurance through traditional, employer-based plans.

Kevin Drum finds the proposal to be too little, too late.

The amazing thing about this isn't whether it's a good idea or not. It's the fact that healthcare is supposed to be one of the big issues in this year's SOTU but this puny little proposal is all Bush has to offer. To call it laughable would be giving it too much credit.

The good news is that this will go nowhere in Congress. The bad news is that Bush will probably want to make up for the lameness of his healthcare plan with some brand new mega-hawkery about Iran. Otherwise, no headlines. I can hardly wait.

I'm not sure that it's necessarily good news that this will go nowhere in Congress, because I'm not sure the plan doesn't have some merits in the context of broader intervention as a way of weaning the country away from employer-based health plans.

What is clear is that this isn't an administration that takes advancing the plight of the uninsured seriously.