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 Category: AllTax CapJanuary 19, 2007
While we have no confirmation at all from the White House, news reports are circulating that President Bush is considering bold changes to tax policy impacting health insurance.
Hooray! There are several valuable proposals that would make it easier for people to buy coverage, such as making health insurance tax deductible whether you buy a policy yourself or get it at work. But the gutsiest idea, and one that would win the biggest cheers from the policy community and from economists around the country, is to limit the generous tax break for gold-plated, job-based policies and then use the revenue to help the uninsured buy coverage. The "tax cap" was one of the key recommendations that the president's Tax Reform Panel made in its 2005 report. Earlier that year, 59 policy experts representing more than 49 organizations, primarily non-profit public policy research organizations, submitted a statement to the panel advocating a cap. We said that the double tax break for employment-based health insurance - deductible for the employer and excluded from income for the employee - drives many of the distortions in the health sector today. But capping the tax break wouldn't mean the end of employment-based health insurance as we know it. Companies would still offer health insurance, and the full value of the policy would still be deductible for the employer. But if the health insurance policy an employee gets at work were worth more than, say, $11,500 a year for a family, then anything above that amount would be considered part of the worker's taxable income ($11,500 was the amount of the cap recommended by the tax commission and is the current value of the average job-based family policy). For example, a worker with a $12,000 policy would pay taxes on the extra $500 - equal to about $165 a year in added federal income taxes for a worker in the highest bracket. To repeat: Employers would still be able to deduct the full cost of health insurance because benefits and cash wages both are employee compensation and therefore are legitimate business expenses. But employees would not receive tax exemption for an unlimited amount of health insurance. Why is this so crucial? Our joint statement explains some of the distortions the current system creates:
I am convinced that the tax cap would provide a new negotiating tool so employers and employees could become partners rather than adversaries in figuring out how to stay under the cap and seek better quality, better outcomes, better service, and better prices in health care. A tax cap isn't the end all and be all of health policy. But it is a huge step in the right direction to give both employers and employees better incentives. And the amount recouped from people who don't change their behavior and who still get expensive policies at work (such as highly paid lawyers, corporate executives, and members of Congress) could generate resources to help the uninsured. This would be a courageous stand, but we will surely hear criticism that "they're going to tax your health benefits." But that need not be so if people make smarter decisions and respond to incentives to bargain for more affordable health insurance - which also frees up more of their pay for other needs. And isn't moderating the escalation of health costs the goal? This would help even more. As I explained in a talk to the American Benefits Council in 2005:
A tax cap would be the right thing to do. Grace-Marie Turner RECENT NEWS ARTICLES AND STUDIES:
THE WRONG PRESCRIPTION The Washington Post called House legislation to require the government to negotiate Medicare drug prices "misguided." In an editorial published the day after the House voted 255 to 170 to approve the measure, the Post said that the Department of Veterans Affairs is a poor model for how to get low prescription drug prices. "Fully 3,000 of the 4,300 medicines covered by Medicare are unavailable under the veterans' program. Restricting the list of covered drugs saves money, but it also reduces the quality of the benefit -- 1.5 million veterans are sufficiently unhappy with the result that they opt to buy the more inclusive Medicare coverage." The Post concludes that "government fiat" is not the answer, and allowing competition among insurers is the better course. National Review editor Rich Lowry argues that Medicare Part D's "unexpected success" is due in large part to the absence of government interference in drug price negotiations. "As it happens, government negotiations of prices won't do any good unless the government is empowered not to offer certain drugs, thus achieving real bargaining power," writes Lowry. But this tactic will not only deny choice, it will also "obstruct medical progress, to the detriment of seniors and all of us." IS 'QUICK' ENOUGH? Ranit Mishori, a family medicine resident at Georgetown University/Providence Hospital, describes the growing physician resistance to retail based health clinics, like MinuteClinics, RediClinics, and MediMin. Some critics "worry about a child's receiving medical care at different places by different providers," writes Mishori. "But even as many doctors sound the alarm, others are scrambling to adapt?Increasingly, the discussion among physicians like me is focusing on how to compete with the new clinics." Some have started offering expanded office hours, online scheduling, and opening on weekends. But MinuteClinic's Anne Pohnert argues that retail based health clinics pose no threat to traditional medicine, noting that their list of patients includes people on vacation, young adults who don't have regular physicians, and the uninsured. "There are so many people and not enough providers?There's room for everybody," she says. "The consumers want to have choice, and we'll work together." DIVERSE GROUPS SEARCH FOR HEALTH CARE ANSWER "Groups representing doctors, retirees, business executives and others united behind a plan on Thursday to reduce the number of uninsured Americans through tax breaks and an expansion of some existing government programs," the AP reports. The groups, which have been working for nearly two years, include the U.S. Chamber of Commerce, the American Medical Association, and the AARP. "Their first priority is to focus on children." The coalition "envisions a 'one-stop shopping' center that would let uninsured children be automatically enrolled in the State Children's Health Insurance Program when they enroll in other means-tested programs such as discount school lunches and food stamps," AP reports. "The initiative, which the groups labeled as Kids First, also creates a new tax credit designed to make it easier for families with incomes below 300 percent of poverty to pay for insurance for both children and adults." The Kaiser Commission on Medicaid and the Uninsured has published a new group of publications that examines trends in access to Medicaid and the State Children's Health Insurance Program (SCHIP). The package includes an update on enrollment procedures, eligibility rules, and cost-sharing practices in Medicaid and SCHIP in the 50 states in 2006. RETHINKING HEALTH INSURANCE Cato Unbound is a monthly "virtual trading floor" from the Cato Institute featuring essays and responses from the world's leading thinkers. This month's lead essay is by economist and author Arnold Kling, who argues "that the American health system does not insure citizens against the risk of ill health so much as 'insulate' them from the true cost of medical procedures, encouraging often needless procedures, and putting upward pressure on the costs of care." Respondents include health care consultant Matthew Holt, Duke University Professor Clark C. Havighurst, and Jonathan Cohn, senior editor of the New Republic, with some conclusions that universal, government-directed health care is inevitable in the U.S. TECHNICAL EXPLANATION OF H.R. 6408, THE "TAX RELIEF AND HEALTH CARE ACT OF 2006" AS INTRODUCED IN THE HOUSE ON DECEMBER 7, 2006 Legislation passed in December as part of the Tax Relief and Health Care Act of 2006 provides new opportunities to enhance Health Savings Accounts. The House Joint Committee on Taxation has published a technical explanation detailing the provisions related to HSAs. See pages 71-80 of the report. The Department of Treasury also published a news release with a good summary that helps consumers make sense of the new legislation. UPCOMING EVENTS: Can Government Price Negotiation Work for the Medicare Drug Benefit? Grace-Marie Turner speaking on the Small Business Advocate Show America's Health Care System is Sick - How to Cure it Third Annual Health Savings Account Summit Engaging the Consumer to Deliver on the Promise of HSAs Health Information Technology and Rapid Learning Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features research and writings by participants in the Health Policy Consensus Group, articles of interest from the health policy world, and announcements of coming events. Health Policy Matters is published by the Galen Institute, a not-for-profit public policy organization specializing in information and education on health policy. For more information about the newsletter and our organization, please visit our website at www.galen.org. If you wish to subscribe to this free weekly newsletter, update your address, or be removed from our list, please send an e-mail message to galen@galen.org. The views expressed in this newsletter are the opinions of the authors and do not necessarily reflect the views of the Galen Institute or its directors. CommentsNo comments Add Comment |
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