December 18, 2005
Employer-Provided Health Insurance, Tax Subsidies, and the Uninsured
The New York Times ran a short but insightful piece today on the exclusion of employer-provided health insurance contributions from employees' taxable income. The amount of the subsidy (in foregone tax collections) is fast approaching $150 billion and is expected to get to $180 billion by 2010. Quoting Harvard economist David Cutler, "If you had $150 billion to play with, you could come very close to universal coverage." Eliminating the tax subsidy, however, would be enormously unpopular with the employed taxpayers who have gotten use to the tax break. And MIT economist Jonathan Gruber sees other problems:
As soon as the tax break was eliminated, company-provided health insurance would be likely to disappear, too. So some mechanism would be needed to pool groups of people and to avoid leaving higher-risk people to face enormous insurance costs. Such a mechanism would probably make health insurance affordable for all. And to make it universal, a mandate would be needed to make people buy it.
This isn't communism. The changes could happen under a public health care system or one that is privately run.
The politics of the issue are such that taking away the tax subsidy would probably be suicidal, despite the impressive bill of particulars against it:
[T]he fiscal incentive isn't helping many of the people who need it most. A report by the Kaiser Family Foundation says two-thirds of the 45.5 million Americans who lacked health insurance in 2004 earned less than twice what the federal government defines as poverty. (For a family of four, the poverty line is about $19,300.) In four of every five cases, the uninsured made less than three times the poverty level.
In addition to going to the wrong people, the subsidy as designed promotes wasteful medical spending, encouraging the wealthy to buy more insurance and to use more health services than they need, according to the president's tax panel. And it may bolster premiums across the board.
Altogether, the health insurance tax break exacerbates America's medical dystopia: while the nation has the highest per-capita spending on health in the world - about $5,400 in 2002 - 18 percent of the population under 65 remains uninsured.
The President's Advisory Panel on Federal Tax Reform's final report (Nov. 1, 2005) addressed the issue and offers a tepid, but politically realistic suggestion (cap the tax benefit at the average cost of family health policyies ($11,500). It would be a start. . . . [tm]
December 18, 2005 | Permalink
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