New at Reason

January 31, 2007

Jacob Sullum notices an unsung benefit in the Bush health care proposal.

Comments

TF|1.31.07 @ 8:15AM|#

While I do agree with the basic premise of the medical insurance market being put under inflationary pressure by the demand created through massive employer health insurance accounts, and that the way to solve this problem is to have individuals buy their own health insurance...Just where the fuck does Sullum or the government get off telling employees how they should be compensated.

If I agree with my employer on a wage and benefit pack, what's the libertarian argument that the government should be able to pick an arbitrary number at which my benefits are excessive and begin taxing me an extra amount for daring to take advantage of my compensation options.

An even more stupid argument is made in that Bush cut taxes on 80% of the market so that this program wouldn't constitute a tax increase. WTF are you talking about? Just because you subsidized someone without employer insurance doesn't negate the fact that it was done using the income of those who did. That's like raising the maximum marginal tax rate to 50%, but saying it wasn't a tax increase because you cut the AMT.

Perhaps what is most pathetic is that the people cheering this on are the same ones who say that personal wealth generation shouldn't be penalized and that progressive taxing systems punish success. How is this any different? The argument is exactly the same with only a few changes in words.

|1.31.07 @ 8:36AM|#

This proposal looks like a stealth tax increase designed to prop up social security. The proposal says that employees would get a deduction for the employee half of FICA. What about the employer's half? Currently, employer-provided health insurance isn't subject to employer-side FICA taxes. If instead employers raise wages and employees buy their own insurance, the employer will get hit with additional payroll taxes (the hidden half of FICA the employer pays, plus possibly additional worker's comp and unemployment premiums based on the now-higher payroll).

|1.31.07 @ 8:45AM|#

This bias was created more or less by accident. During World War II, businesses competing to attract scarce workers got around wage and price controls by offering health insurance instead of higher pay. In 1943 the Internal Revenue Service decided not to count this increasingly popular fringe benefit as taxable income, a policy codified by Congress in 1954.

I sometimes wonder what the result would have been if they had offered, say, grocery vouchers, or clothing vouchers.

"I'm sorry, sir, but Sears is out-of-network for shoe purchases. Oh, their shirts and pants department is in-network, but not their shoe department."

Not to mention that medical bills are so strange with insurance:

Aspirin from hospital pharmacy: $1,304,785.00
Delivery by nurse: $500,000.00
Aspirin container: $100,000.00
Insurance discount: $1,904,784.00
Covered benefit: $0.90
Patient owes: $0.10

(Yeah, a slight exaggeration, but you get the point.)

So I can only imagine what it would be like for somebody trying to buy shoes out of pocket, if clothing vouchers had become a popular form of compensation during WWII.

|1.31.07 @ 8:50AM|#

Just where the fuck does Sullum or the government get off telling employees how they should be compensated.

I missed the part where anyone is trying to tell employees how they should be compensated. In fact, it looks like they are trying to eliminate a tax break that currently encourages one type of behavior over another.

Walker|1.31.07 @ 9:07AM|#

(1) Does anyone here remember what it was/is like to buy individual health insurance? The prices compared to group plans? Their ability to drop you at will because you have no collective bargaining? I am all for market forces, but libertarians have this nasty tendency to completely ignore risk in any analysis they do. This is the same reason the privatization of social security analyses are all flawed; factoring in risk you cannot do better than the current system.

(2) There is no Republican congress, so this idea is dead in the water. Why are we talking about it?

|1.31.07 @ 9:08AM|#

Thoreau, your conjecture is a little quirky, as many foods and other items (gasoline, rubber) were rationed during the war, or weren't even being manufactured (automobiles.) Wages and prices were controlled. I don't think the designation of medical insurance as an non-taxable benefit was an accident. I think the New Dealers were all for extending health coverage, and would have been fine with a British-style NHS. Truman made an attempt at a Federal health care program once the war was over.

Your view of Hospital Bistromathics is spot on, though.

I would prefer that instead of taxing benefits over a threshold, the entire amount be added to gross income, and the marginal rates adjusted to make the change "revenue neutral." Then employees would see that a job that pays $85k with a $15k medical policy actually pays the same as one at $100k, without benefits. They might start asking for cheaper insurance and more cash. Certainly the young, single and childless would opt for bare-bones catastrophic plans with high deductibles, while the family guys and gals will spend a higher % of their income on health.

I don't think the plan is going to get much traction, though. Bush chickened out of proposing something like this when he had buckets of "political capital." Now that the well is dry, he's not going to be able to do more than float a ballon.

Kevin

|1.31.07 @ 9:11AM|#

Rather than looking to this as the solution, I see it in the first of a series of steps that will free up insurance from employment--increasing job mobility, entrepreneurship and individual health access through time. Points raised by posters above are accurate in that this is not a perfect solution, but those of us in health care policy & management are racking our brains on how to make the transition from employer pays to patient pays for insurance.

|1.31.07 @ 9:20AM|#

'privatization of social security analyses are all flawed. Factoring in risk you cannot do better than the current system.'

A simple search on Google refutes that claim.

Warren|1.31.07 @ 9:45AM|#

Jacob is spot on, this would be a big step in the right direction.

Unfortunately, just like the only other issues this disaster of a president was right on, (immigration and Social Security) it will go nowhere at best. Or, having raised the issue, it might actually spur congress to make things worse.

|1.31.07 @ 9:46AM|#

Despite reading as much as I can about the health insurance crisis in this country I still know little of the details about the ins and outs of every different proposal. However it does, at least on face value, seem like a reasonable step to offer the same tax break to individual purchasers that is offered to employer based group plans. In addition, I think it would be irrelevant if an individual opted out of the group plan and was not then compensated with an increase in wages. On that last part I am not sure what's going on with Bush's new proposal.

|1.31.07 @ 10:00AM|#

Another obvious reform along the same lines would be to equalize the treatment of 401Ks and IRAs (currently 401Ks have a much higher contribution limit). Incidentally, the "job mobility" argument cuts the other way with 401Ks - they provide a perverse incentive to switch jobs so that the funds can be converted to an IRA (almost always an improvement, and in some cases a huge improvement).

If our elected officials were closer to middle class, instead of mostly zillionares, they might be clued in to stuff like this.

|1.31.07 @ 10:13AM|#

-Max

I agree totally on the IRA/401K bit. I spent about 30 minutes bugging the representitive at our last 401k meeting as to why this wasn't the case. At some point everyone got annoyed.

|1.31.07 @ 10:36AM|#

Just where the fuck does Sullum or the government get off telling employees how they should be compensated.

You're missing the point. The government has been saying "Hey, give your employees health insurance rather than cash, and we won't tax you." Bush's proposal is convuluted and his explanation was one of the weakest parts of the State of the Union address -- Bush doesn't do convoluted well -- but it was also the only way to help reverse the problems caused by this loophole without it being laughed out of town by people saying "OMG REPUBLICANS WANT PEOPLE TO GET SICK AND DIE"

thoreau|1.31.07 @ 10:52AM|#

Your view of Hospital Bistromathics is spot on, though.

Thank you. But I think I should have added a few zeroes to some of those quoted prices.

thoreau|1.31.07 @ 10:54AM|#

Oh, regarding clothing vouchers: Yeah, I know, there's probably no way that clothing vouchers would have been given as untaxed benefits in WWII. My only point was that just about any industry can be messed up when you have too many gatekeepers involved, and strong incentives to pass costs through intermediaries.

"I'm sorry, sir, but without insurance that shirt costs $600. With the insurance discount it's $29.99. With the copay you'll owe $5."

|1.31.07 @ 11:09AM|#

Stealth tax increase indeed. Bush has always branded any rollback of a tax cut as an increase, and as one who benefits from generous coverage from my employer I am happy to throw that back in his face. Tax increaser!
Jacob notes that it is strange to expect our employer to pay our health insurance. I'm no economist but I think the idea was that this allows pooling which for some reason seems more necessary to get decent prices in the health insurance market. Bush was at one time for letting small businesses band together and do such pooling as a unit (note: some libertarians who love them some corporate power and confuse that with libertarianism [an easy thing to do since corporations make sure to underwrite most libertarian thinkers and think tanks] were against such an idea; such pooling and organizing in order to get the best out of hte market is only OK for big companies to do, dammit!) And for the record lots of companies also offer life insurance for employees as well. It seems here the real small government solution would be to make the fellow who buys his own healt care tax exempt too, not to get rid of the exemption for the fellow who already gets the exemption. Giving this exemption also rewards the behavior of responsible companies who do the right thing by their employees by giving them generous health care (it's called incentives).

Jennifer|1.31.07 @ 11:13AM|#

Thoreau, your conjecture is a little quirky, as many foods and other items (gasoline, rubber) were rationed during the war, or weren't even being manufactured (automobiles.) Wages and prices were controlled.

But rationing and price-control laws ended along with the war. Tax-free employer health insurance did not, and the system's grown steadily more out of whack ever since.

|1.31.07 @ 12:18PM|#

Anyone who wants a very through explanation of why this article is dead on should read
The Cure: How Capitalism Can Save American Health Care. It was published before the Bush proposal of course, but it talks about the issue a lot, and makes a strong case for why it is the central problem.

If only Bush had any chance of passing this. Like most of the few other policies that I actually agree with him on, I suspect its all talk (especially since he's lost congress).