Monday, January 22, 2007

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.


michael said...

nice post my high fallutin friend

Matz said...

This sounds bad. It's not even out there yet, but so far it looks like part of the plan is state's "reducing benefit or premium mandates", you know those laws that states pass to ensure that HMO's cover things like mental health care and birth control. The logic is that health insurance is too costly because HMO's cover too much (those poor HMO's). Another part of the plan is that the secretary of HHS would be able to redirect federal payments away from institutions (such as hospitals) and to needy individuals in eligible states. This really screws county hospitals and ER's. Sure, in the long term increased insurance coverage will help them, but in the short term they'll have budgets slashed. And finally, the plan would invalidate much of the (better) legislation states have already passed to mandate health coverage.

Garrett said...

Indeed, it seems like the transition away from employer-based insurance will be more of a problem than deciding what to transition to. Way too many short-term disasters loom.