Is There a Republican Alternative to ObamaCare?
“GOP to the Uninsured: (Feel Free to) Drop Dead.” So reads the title Michael Millenson post at the Health Care Blog yesterday. It gets worse:
[N]o Republican presidential candidate has ever presented a serious plan to cover all the uninsured … The difference between Democrats and this generation of Republicans — unfortunately including even the GOP Doctors Caucus — is not at its core a disagreement on what government can legitimately do to help create universal access to health care for the 50 million Americans without it, but whether the goal itself is worth pursuing.
Was Millenson completely asleep (like Rip Van Winkle) during the last election? Does he not read my Wall Street Journal editorials? Does he never visit my blog? Or was this meant to be an April fool’s column?
John McCain’s health plan was more radical and even more progressive than ObamaCare. I’ve never seen any serious health policy wonk deny that. Maybe Millenson doesn’t live in a battle ground state. If he did, he would know that the Obama campaign spent more money attacking the McCain health plan during the election than has ever been spent for or against a public policy idea in the history of the republic. In fact, it is probably no exaggeration to say that Obama successfully turned the election into a referendum on the McCain health plan!
The McCain health plan is discussed at this blog here, here, here, here and here.
And although Millenson singles out Oklahoma Senator Tom Coburn as an especially egregious example of the Republican failure on health policy, the McCain vision actually was based on a bill, sponsored by Sen. Coburn and Sen. Richard Burr (R-NC), along with Reps. Paul Ryan (R-WI) and Devin Nunes (R-CA), [hereinafter called the Coburn bill]. That bill, in turn, was based on an idea which Mark Pauly and I proposed in a Health Affairs article more than a decade ago. (Does Millenson not read Health Affairs?)
Why Not Me?
What makes this Republican approach so radical is that it would replace all government tax and spending subsidies for the purchase of private health insurance with a fixed-sum tax credit — essentially giving every American the same number of dollars to apply to their health insurance, regardless of where they obtain it.
Under the current system, federal state and local tax subsidies for private health insurance approach $300 billion a year. The distribution of these dollars is arbitrary, unfair and wasteful.
How much help a family gets from government depends on such factors as its tax bracket, the type of health plan the employer chooses, and state and local tax rates.
The subsidies are also regressive. According to the Lewin Group families earning more than $100,000 a year get nearly six times as much tax relief as families earning $25,000. We give the most encouragement to buy health insurance to those people who least need encouragement and who probably would have purchased it anyway.
In addition, people can always lower their taxes by spending more on health insurance, and there is no limit to how bloated a health plan can be.
Oddly enough, we place special burdens on people who must purchase their own insurance. Essentially, they must pay taxes first and bring the insurance with what’s left over.
For a worker facing a 15.3% (FICA) payroll tax, a 25% income tax rate and a 5% state income tax, having to buy health insurance with after-tax dollars essentially doubles its cost.
Special burdens also are placed on part-time workers and the self-employed.
Consider that 1-in-5 workers are part time. Employers usually do not offer these workers health insurance. And federal law makes it difficult for employers to give them a choice between wages and health insurance.
The self-employed are now able to deduct health insurance costs on their income tax returns. Unlike other workers, they get no relief from the 15.3% payroll tax. For many, the payroll tax bite is larger than the income tax.
These problems can be solved with an approach that treats everyone alike, regardless of income or job status.
It should start with these basic ideas:
- The current system of tax and spending subsidies would be replaced by a tax credit of, say, $2,500 per person or $8,000 for a family of four for the purchase of health insurance.
- The subsidy would be refundable; everyone gets it even if he does not owe any income taxes.
- Families can obtain the subsidy in the year in which the insurance is purchased and would not have to wait until April 15 the following year to get their credit.
- Insurance companies and other intermediaries would be able to help families obtain their credit and apply it directly to the health insurance premiums.
As a result, people who must purchase their own insurance (including part-time workers and the self-employed) would get just as much tax relief as people who obtain insurance through an employer.
The tax credit would subsidize the core insurance that everyone should have. It would not subsidize all the bells and whistles, as the current system does.
Since employees and their employers would be paying for additional coverage with after-tax dollars, everyone would have an incentive to compare the value of extra health benefits to the value of other things money can buy.
Thanks, we needed that.
Your next column – to be fair and balanced – should be to discuss the disadvantages of this approach and who would take umberance with this approach and why.
That’s how to have a great debate.
I like the song pairing.
I dunno, John. I don’t see any room in here for bureaucrats, unless they get to define what does and does not constitute “minimum essential coverage” for using your tax credit.
Most people don’t know there is a Republican health reform alternative because Republicans wasted so many years running way from health policy issues. Historically, Republicans perceived health reform as an issue owned by the Democrats. If Republicans had championed personal & portable health insurance 30 (or even 20 years ago), we probably would not be having a court case on the constitutionality of the Affordable Care Act.
If Republicans had championed (guaranteed renewable) individual insurance 20 years ago (back from the U.S. spent 13% of GDP on medical care), a family policy wouldn’t now cost an average of $15,000.
The medical marketplace has been dysfunctional for nearly 50 years. As a result, it’s more difficult politically to offer an alternative that involves individual ownership and personal responsibility because things have gotten so bad because voters are afraid of what they might face.
Today it’s a pretty tough sell to convince families to go it alone and buy individual health insurance when a family plans cost at least $10,000 and can even hit $20,000 for some families living in high cost regions.
Good response. I expect the NYT and the Washington Post to completely ignore a few inconvenient realities like the McCain proposal and the Coburn-Burr bill — both of which were serious and therefore expensive proposals – but I would think Millenson should and would know better.
Gail
I like this approach. There are some issues that need addressing. For example, how would this solve the problem of the uninsurable? There would be millions who couldn’t or wouldn’t take advantage of the credit just as there are eligible people who do not sign up for Medicaid. What do we do with them? This still does not fix the third party payer problem unless some of the credit can go into an HSA type vehicle.
Although advancable, refundable tax credits to purchase private health plans have long been advocated by some Republicans, these tax credit proposals leave in place far too many of the flaws in our dysfunctional health care financing system, especially those related to private insurance plans.
The only consistent Republican recommendations in the past couple of years include selling insurance across state lines (race to the bottom), malpractice caps (when we need alternate dispute resolution instead), health savings accounts (which we already have), and Medicaid block grants (further stressing state budgets). (There are bills before Congress introduced by Republicans, but they are no more Republican Party bills than John Conyers’ “Improved Medicare for All” bill is a Democratic Party bill.)
Since Mitt Romney will likely be the Republican candidate, and the parties tend to bring the platforms into conformity with their candidates’ positions, it is important to understand Romney’s current health policy positions. Besides an executive order to grant states “Obamacare waivers,” his positions are as above (with a little added fluff). He doesn’t include the tax credit proposal.
Romney’s Health Care proposal:
http://www.mittromney.com/issues/health-care
If the goal is to include everyone and control costs, then it really is fair to say that the Republican Party does not have an effective plan. For that matter, the Democrat’s Affordable Care Act fails for the same reasons.
Another approach is legislation sponsored by Georgia Representative Tom Price, a physician, which allows employers to purchase whatever insurance plan employees choose. Employers would still enjoy the same tax benefit for providing coverage, tax-free to the employee, but workers would be able to choose from an entire range of options, policies that they could carry with them when they change jobs. Currently employees are generally limited to one plan, sponsored by their employer, and lose that coverage when they change jobs. Employees could also purchase health insurance with tax-free dollars outside the system.
The contrast with ObamaCare could not be starker. Rather than turn the insurance industry into a federally-controlled public utility, the Republican plans would allow all Americans, including recipients of Medicare, Medicaid and the Children’s Health Insurance Program, to shop around and get their health insurance on the open market – just as they buy other kinds of insurance.
Diana Furchtgott-Roth
Senior Fellow
Manhattan Institute for Policy Research
1200 New Hampshire Avenue NW, Suite 800
Washington D.C. 20036
Glad you nailed this clown.
John, you are one of my favorite policy entrepreneurs, but I stand on my facts. Having debated Sen. McCain’s health care adviser in 2008 on behalf of the Obama campaign, I can say two things with certainty. First, if you take away the issue of the uninsured, there was a lot of agreement on the need for the government to improve its performance as a care purchaser. A lot of the ACA efforts the right-wing GOPers have savaged because they are in the ACA are initiatives that came from conservative intellectuals and are a continuation of Bush administration initiatives. Reflexive right-wingers are as bad as the reflexive left-wingers (who’ve also criticized me).
As for McCain’s plan, no objective observer, including folks like Laszewski, thought that it covered anywhere close to as many of the uninsured as the Obama plan. And, though I’m not a single-payer fan, no objective observer believes the Obama plan covers as many as single-payer. More to the point, as people like Regina Herzlinger of the Harvard Business School have pointed out, there are private-public models in Europe in places like Switzerland and Germany that we could adapt.
No GOP presidential candidate or president ever has submitted a serious plan to cover all the uninsured. Newt Gingrich toyed with the idea when he was out of power, but his think tank never followed through. Theodore Roosevelt was the first presidential candidate to propose universal care as an objective, but he was a Bull Moose candidate in 1912, not a Republican. Since the first universal coverage came from Prussia, from the Iron Chancellor as a way to one-up the Socialists, it would be great to see our current conservatives do the same thing.
As Nixon A-G John Mitchell put it, “Watch what we do, not what we say.”
The problem is that we have accepted two false assumptions: 1. The federal government is responsible for everybody getting medical care. 2. “Coverage” equals care, when in fact it is neither necessary, nor sufficient, and often results in denial of care.
“Universal” is incompatible with insurance, which involves voluntary sharing of comparable risks.
We need to tell the truth about Medicare: it is not the model. It is an unconstitutional monstrosity, with reverberations throughout medicine, whose unfunded liabilities threaten to sink the whole economy. The only reason it works as well as it does is massive cost shifting, physician compassion, and massive subsidies from general revenues.
Jane:
First, I don’t advocate the federal government being responsible for everyone getting care. The public-private models to which I referred make it the business of the federal government — us, as a society — to subsidize care for those who cannot afford it.
Second, “universal” is not in any way incompatible with insurance. Indeed, the reason I presume Heritage and others were for mandates is it addresses the issue of adverse selection. It doesn’t require anyone to get care and, in fact, the private plans could be based on HSAs.
Which brings me to the third point: it’s not that I don’t love pithy denunciations. I do. But if you denounce Canada, but ignore Switzerland, denounce Obamacare, but ignore what happens in China where no-money-no-care is the rule except for very basic care, then you’re not part of the solution.
Smart people on both ends of the political spectrum are really good at eliding the difficulties in their preferred solution (e.g., single payer does not solve medical bankruptcy, as I’ve written and AEI has quoted). Come up with a solution that an objective party could say addresses the issue or acknowledge that you can’t/won’t (pacem, Ron Paul).
Reply to Michael Millenson:
Okay, the McCain plan can’t be called “universal coverage.” Nor can the Coburn bill. But that’s only because they fail to contain an important element that has always been in the Goodman version of all this. (I’m still trying to persuade everybody.)
Unclaimed credits (and there will always be some, under everyone’s plan) need to go into a social safety net in the area where the uninsured live. So the government makes a commitment of $X to every individual. If you buy insurance it supports the premium. If you don’t, it goes to the safety to pay for care if you cannot pay for it yourself.
That’s as close to “universal coverage” as we are going to get or that we need to get.
OK, John, you ALMOST have my vote. (Well, not initially — we’ll have them report your bill out of the conference committee.) But that last line, “As close to universal coverage as we are going to get or that we need to get” raises a red flag. As close as WHO needs, exactly?
How close would that be? Here’s Laszewski on the McCain plan: (http://healthpolicyandmarket.blogspot.com/2007/10/analysis-of-senator-john-mccains-health.html) Do you do better? Some numbers that compare Goodmancare (Oh, what the heck, let’s make it: Goodcare) to Obamacare and Bush-doesn’t-really-care?
I’m not ignoring the McCain or Coburn-Burr bills. But accusations of elite media bias by Gail notwithstanding (Oh, ye of short memories — who do you think broke the Whitewater and Monica Lewinsky stories during the Clinton administration? Think Fox News would do the same to a President Santorum?), let’s get some objective scoring numbers in there instead of “it’s good enough.”
As Ronald Reagan once said in a somewhat different context, “Trust, but verify.”
Those are better ideas than what the administration is trying to push through.
Hi John (and Michael):
Wow! what a treat to have two of my favorite health care thinkers talking directly about solutions. Now if we can just get rid of party labels there would be a real chance for progress.
May I offer just a couple of small observations:
Health care can only be truly reformed from the bottom up, not the top down. Health care is individual–a one-on-one experience. It is based on a relationship between a patient and a provider. Reform must begin there with the patient assuming responsibility for his/her own well-being while the provider holds sacred the trust invested by the patient in the provider. The provider must be free to treat the patient and advocate for the patient to the best of his/her ability and training without fear of retaliation for exercising his/her medical judgment, so long as the care proposed and rendered is within the acceptable standards of care. The recognition and preservation of this individual relationship of trust must remain the core of our health care system.
All health care delivery is local. I have never been examined or treated by a Washington bureaucrat and hope I never am. My providers are in my community. The organization of health care delivery is not standardized from place to place in our country. Instead, it is a patchwork of systems and players whose styles and functionalities reflect local historical market forces. Conforming health care to a one-size-fits-all standard is not an attainable goal in our lifetimes, and the value of such an exercise is dubious.
Instead of federal top-down solutions, we should be building community-based solutions. The simplest example of a local solution to a local problem is your local fire department. We do not have Congress legislating that everyone must buy fire insurance to have universal access to a fireman. As a practical matter we all agree as asocial contract, that everybody needs a fire department. How they are financed and staffed is decided locally, and without great national debate or partisan rancor.
Even though local fire departments are not under a huge bureeacracy they learn best practices from one another and share them from community to community. We maintain fire departments because it is part of our community duty to our neighbors. There is self-interest in assuring a fire department is at hand if we need one, but there is also a sense of compassion that compels us to see that the fire department is there if our neighbors need one. Isn’t it curious that people an agree about protecting their garages houses, and buildings, but cannot agree on a social contract that takes care of our bodies and potentially our very lives?
So Americans need to tackle health care like a barn-raising, community by community. We need to acknowledge our own self-interest in assuring that health care delivery systems will be in place if we need them, and we need extend a measure of compassion to our neighbors by assuring that it is there in their time of need.
This approach is All-American. It seeks to reverse the trend of the last 75 years during which time we have made health care more and more specialized and more and more institutional and thus more and more complex. To make it through the demographic bulge of the Baby Boomers, we are going to have to rely less on institutional solutions and more on individual and community solutions. We are going to have to learn how to take care of one another.
We are beginning to see these kinds of solutions popping up (e.g. The Village moverment and the Patient-Physician Alliance)
By beginning from the bottom up, we can begin to right the health care economy. We can begin to establish values based on individual transactions measured against local economic yardsticks.
The present trend not only toward price controls (whether enforced by government regulation or by oligopolic pricing or flatly by health plans unrestrained by antitrust laws) won’t work. It will just drive providers from the market. And piling on quality measures as further modifiers of these price controls will only distort the market and encourage gamesmanship rather than real reform.
In the wake of the current attempt at national reform, let us hope that the door will be opened to local reform. Let us remove the barriers to community coops and community health plans, so we can establish for the first time in the history of health care economics in America health care delivery systems that are founded on real cost-based pricing, functioning in a dynamic local economy.
Local reform would not only reset vaues in health care, but would be the biggest stimulus package this country could mount. Imagine what effect an infusion of 1-in-5 dollars would really mean to local economies if those funds were efficiently spent locally and if the savings were recycled back into the community.
So just as I wrote in my last comment on this blog how 4 simple legislative changes could knock 3 points off the percentage of our gdp that we spend on health care [thereby solving the Simpson-Bowles deficit problem, so can we stimulate local economies by infusing non-borrowed money back we are already spending back into local economies–just by encouraging community-based health care reform.
So, John and Michael, I applaud your efforts to instill wisdom into the minds of solons in our Capital. You have far more optimism than I in their ability to return to statesmanlike governance. In the meantime, there are some of us lowly folk trying to work out in the field, trying to let average folks know that they can have a say in the future of health care in their town, city or region. It will require, however, a shedding of political labels and an awakening to a spirit cooperation. In such an environment genial geniuses like the two of you, John and Michael, can thrive. The Washington windmill, it seems, has become too big to tilt.
Accordingly, we would warmly welcome each of you (as well as your readers) to our Board of Advisors at the Patient-Physician Alliance.
Cheers,
Charlie Bond
John’s approach is exactly (should be) the basic model for any GOP healthcare solution.
Jane, I think that in order to get the credit or voucher the government will have to specify a minimum coverage requirement (similar in function to state Worker’s Comp requirements). But that is not all. There will have to be some liberalizing of underwriting requirements in order to make this work. The moral hazard is greatly decreased with this model, and strict medical underwriting would not be necessary. Carriers will compete based upon price and the services they provide.
The real pay off is not that the “too many uninsured” mantra of the left would be quieted, although that is certainly a positive. The big victory would be that the entire healthcare culture could (and I think would) be changed. The social dynamics of moving the responsibility from government and third parties back to the buyer would change the whole paradigm of healthcare financing.
Any other type of reform is simply rearranging the deck chairs.
John:
First and most importantly, I like the music you selected for this post. I think you have used it before, but I still like that song and am glad to hear it again. Next: try Travis Tritt’s “God have mercy on the working man.” It relates vaguely to health policy.
Second, there is much in your post with which I agree and have agreed all along: I would prefer a world without employers in the health-insurance equation, aside from merely collecting payroll-based premium contributions, as in Germany or Holland.
I dislike the huge, regressive tax preference accorded employer-based healht insurance as much as you do, and, naturally, I dislike tax-deductible contributions to HSAs which is similarly regressive. The entire tax preference should be abolished.
Now as I recall, McCain (and Coburn) did have the guts to say they wanted to abolish this tax preference and give veryone — everyone, rich and poor employees — a tax credit on the order you mention in the text. I am not sure what Romney is saying about it — can’t keep track of his meandering positions on many issues.
The question then (in 2008) was: if everyone got those tax credits ($2,500 per individual and $5,700 per family), how much money would you actually have been left to conentrate on additional subsidies to low-income households, which these bills called for? I don’t recall every seeing a proposed annual dollar budget for subsidies to the poor in addition to the $5,700 tax credit they would receive.
Second, let me ask you this question (and I would have asked McCain and Coburn the same): picture a family of 4 with an annual household income (after all taxes and cash transfers) of, say, $30,000. Keep in mind that, according to the Milliman Medical Index the total medical costs for a typical US family with private employer-based insurance, averaged over some 10 million, came to $19,500 (including the employer-paid premium cotnribution, the employee’s contribution and out of pocket spending). That total may have some fat in it for unnecessary stuff, but I wonder how much it can be, given the high health spending concentration among a few very sick patients and given our cultural trait, especially among conservatives, ever to rule out any heroic procedures over issues of cost-effectiveness.
Now tell me this: of that $30,000 household income, what fraction should this fasmily be expected to spend on health care on health insurance premiums and out-of-pocket spending for health care? Do you have any approximate dollar figure in mind here?
Finally, if every family has that $5,700 tax credit to buy health insurance in the private, individual market (where medical loss ratios can fall as low as 55%), what of a family with chronically ill members? Would that insurance market use community-rated premiums and guaranteed issue, or would every one be medically underwritten and charged actuarially fair premiums?
The Coburn bill your reference (I think it was S1099, May 2009) had a narrative suggesting community rating, guaranteed issue and auto enrollment. That narrative (in his summary of the bill) cited Holland and Switzerland’s insurance markets as role models. Both have mandatory insurance, community rating and guaranteed issue. Is that what you had in mind? Is that what Coburn had in mind — these European models?
If not, how would their plan work? Suppose this family with $30,000 household income had one or two chronically ill members and where quoted an actuarially fair premium of, say, $12,000 or $15,000 for even a fairly skimpy policy, which could easily happen to people not in good health. Would we then say: tough, you got $5,700 from American society, the rest is your problem? Or how would that be handled? If not, what would be done?
There’s more that I could say, but perhaps you can clarify your proposal by responding to my question. Do you agree with Sen. Coburn’s approach in S1099?
Charlie:
What barriers are there to community health plans?
In 1986, Blue Cross lost its federal tax-exempt status because it had evolved into their for-profit competitors.
IRC section 501(m) was passed saying that the Blues resembled commercoal insurance, and was no longer earning its tax advantage over its for-profit commercial competitors.
In order to be non commercial insurance, it means that the insurance must not be available commercially, must be unique and set apart from its competitors.
I have over 30 pages from the IRS referring to this unique type of plan, whether you are an insurer, a museum, or a debt counseling agency.
I have several excerpts and links devoted to 501(m) and commercial insurance.
Feel free to E-mail me at donaldlevit@aol.com, and I can provide some of those links.
Don Levit
@ Larry
In this comment and in the previous one I am addressing weaknesses in the McCain plan that can be improved.
@ Jane
Let’s both hope the bureaucrats don’t get to define the minimun standards.
@ Gail
Agree about the NYT. Too bad.
@ Tom Henry
McCain and Coburn would adopt a lot of the guaranteed issue requirements that are in current law and in other plans to deal with people who are “uninsurable.”
Frankly I don’t like any of that. I would like to see a real market in which people can insure for the possibility of getting a pre-existing condition. You can find some of my thinking on this at this site. More on that in the future.
@ Don McCanne
I agree that neither parthy has completely thought through this.
@ Diana
Thanks for drawing our attention to the Price bill.
@ Stuart
Ouch.
@ Michael
Can’t do justice to the Laszewski critique of the McCain plan, which I regard as mainly nit picking and carping — especially when you consider what a mess Obama Care is turning out to be.
Here is what is important to remember. McCain and Coburn were listening to the economists, who know that if you don’t get the incentives right, you are going to be in big trouble. Obama Care, which does not have a similar interest, has perverse incentives all over the place.
@ Charles Bond and Frank Timmons
I have a some what different approach I would suggest on converting to a real insurance market. More on that in the future.
@ Uwe
I believe we can have credits of $2,500 for adults and $8,000 for a family of four. I believe that very quickly you would find insurance products that offered $8,000 premiums.
However, I’m willing to keep Medicaid as a backup for the $30,000 a year worker. In fact i would open Medicaid to everyone — let them join by paying their $8,000 to Medicaid. How is that for a public plan competing on a level playing field?
At the same time, I would let everyone on Medicaid have the option of going private.
I guess all is fair in love and war. Just wish that the verbal abuse that is being bandied about doesn’t serve any useful or constructive purpose. Now Rush Limbaugh out to be tarred and feathered for his scurrilous diatribe about the Georgetown student. Shooting him isn’t worth losing a live bullet. The PPD fiasco makes me wonder if the Palin 15 year old and her mother Sarah had access to some good counsel from Planned Parenthood. Her life is in many respects going to be markedly changed, all the while that Ms Palin is denigration the value of such an organization.
Dr Bob Kramer
214 676 5692 office
214 522 8040 fax
drbobkramer@pol.net
A comment above noted that Mitt Romney’s plan does not mention refundable tax credits. FYI, Rick Santorum’s plan clearly does:
http://www.ricksantorum.com/news/2012/03/healthcare-freedom-agenda-rick-santorums-prescription-america
I wish conservatives would stop calling tax deductions “subsidies.” A subsidy is when I get something from someone else that I didn’t earn. Letting me keep my own money to buy the amount of health insurance I decide I need is NOT a subsidy. It is a subsidy only if you buy into the notion that the government owns all of your income and then lets you keep what they decide you need.
I would love feedback and a counter to this concern that conservatives are making a mistake with the use of the term “tax subsidy.”
Ron, I am puzzled as to why you believe “tax subsidy” is a political term.
There are two possibilities in any tax system. One is a tax rate that has no exceptions at all; e.g., tithing — everyone sends in 10 percent of their income. Or, a progressive tax code with no exceptions; e.g., you send in 10 percent of your income if you earn up to $100k and 20 percent over $200k. There are no subsidies, no deductions, no exceptions.
The second possibility is a tax code where the people’s elected representatives decide that exceptions should be made. It’s not that the government owns “all” of your money. It’s that the tax code said that we as a people agree that this is a fair tax rate — flat or graduate — BUT for public policy purposes, we’re now going to make exceptions.
Call them subsidies, call them deductions, call them tax credits. Conservatives and liberals alike believe it is government’s proper role to encourage certain activities, be it homeownership or oil drilling or solar panels or charitable donations. If you’re not a flat tax person or a libertarian, you believe in exceptions.
Of course, MY exceptions are for the public good and YOUR exceptions, if I don’t agree with them, are loopholes. But, again, that’s not conservative/liberal, it’s human nature.
I agree with your comments on how governments can encourage certain social actrivities through the tax code. I object to the continued use of the tern “subsidy” to express the situation of when the government allows me to keep my own money to buy what I need. Again, language is important. Words are important. I see a subsidy as an unearned value given from someone else. The use of the term by conservatives falls into the trap that all of my earnings are owned by the government and they then provide a subsidy when I get to keep it without taxation. If you beoeve the sword subsidy is correct, who is providing the subsidy when I buy health insurance with pre-tax dollars?
“The government allows me to keep my own money.” OK, there is a minimum tax rate that we as a democracy have agreed that everyone needs to pay. Call it a flat tax, call it a graduated income tax. When you ask for an exception from that obligation from your fellow citizens — remember, this is a democracy, you’re not going to the king or emperor — you are saying that a public purpose is important enough that you don’t have to pay the taxes everyone else has to pay.
That’s what’s happening here. Now, if the government in this democracy puts in a series of exceptions that are perceived as unfair, then citizens feel as if the “government” (which they elected) is taking their money. But unless you believe there should be NO exceptions, and unless you don’t believe in democracy, then what we have is a set of exceptions to our obligations as citizens. That’s what the tax code is.
You can say there are too many exceptions, they’re illogical, etc. But if government says you don’t have to pay the taxes you otherwise would have to pay (whether a 15% or 55% tax rate) AND total expenditures are not reduced as a result, then the rest of us taxpayers have to make up the difference. Hence, the word subsidy. It may be for a good cause — encouraging health insurance or a home for widows and orphans. But unless every tax exception (no deductions, no credits, no nuthin’) or we can predict precisely which exceptions will generate tax revenue (e.g., for business investment) or which will cost revenue, then subsidy is a pretty neutral term.
And I may have just talked myself into endorsing Herman Cain’s 9-9-9 plan. 🙂
John:
I think we can do business together here. If everyone who got the tax credit (voucher) could use it to buy into Medicaid or private insurance, then we would have at least a tried and acceptable floor for everyone and folks could go to church or synagogue or whatever and feel right with God. If course, you and I and everyone who can think straight realize that Medicaid’s risk pool would likely to be more expensive than that of competing private insurers. Therefore we would not want this blog desecrated by some Yahoo claiming that government insurance is more expensive than private insurance without proper risk adjustment. But I am sure that you, like Bill O’Reilly a fair-minded person, would make sure of that.
In fact, seems to me I had proposed something similar in 1993, as an alternative to the Clinton plan. Here’s a link to it.
http://www.princeton.edu/~reinhard/pdfs/AMERICAN-HEALTH-CARE-PLAN.pdf
Fact check: According to a chart produced by the Economic History Association, about 60 million Americans had health insurance in 1950 (http://eh.net/encyclopedia/article/thomasson.insurance.health.us). That would be about 40 percent of the population insured, and 60 percent uninsured – not 90 percent, as claimed by Mr. Millenson.
By 1960, the incidence of insurance was about 80 percent. So, Medicare and Medicaid were not saviors of the people, but johnny-come-latelies.
By the way, where does it say that the federal government has a duty to ensure everyone has health insurance? If it was so straightforward, we would not have had three days of excitement at the Supreme Court last week.
If the Constitution made the federal government responsible for ensuring that everyone had food and housing, we’d all be lining up outside our FEMA trailers for a bowl of soup and some stale bread.
John, your post gave me cognitive dissonance. On the one hand, you read closely enough to want to check my facts. Bravo! On the other hand, you imply as fact something that is not true — I did not assert that the federal government has a duty to ensure everyone gets health insurance.
First, the facts. Thanks for the correction. I misremembered the last digit in my own research. In 1940 (not 1949, which was after unions started getting health benefits), about 12 million Americans, or less than 10 percent of the population, had health insurance. By 1950, that had grown to 77 million Americans as employes responded to union demands and favorable federal tax treatment. (Based on insurance industry data and my calculations from government reports.)
Just to be clear: it is a valid social goal to ensure that every citizen has access to health care services through a large insurance pool, provided by government financing for some or private financing. I never said that the government had a “duty” to do this, but I believe it’s a good idea.
The Heritage Foundation thought the best way to do it would be through the private market, which the Obama plan builds on. John Goodman has a different idea. So do the Canadian-plan advocates. All agree that the social goal is a good one. If you don’t, just say so you don’t or endorse a method to reach this desirable social goal. Otherwise, you’re using an ideological objection to a process (one I did not advocate) to hide indifference to a goal.
Uwe, glad that I can feel right with God. Maybe we will end up in the same pew some day.
Mr. Millenson:
You may be more straight up than me: I would have just claimed a typo and rebuffed the critic for being too closed minded to recognize it! Indeed the source I cited had a typo within it – confusing 1950 with 1960, as is clear from the contradiction between the text and the graph.
With respect to a “duty” to cover everyone, what I was trying to do was uncover the unstated assumption. If the government does not have a duty to ensure everyone is covered, why would anyone care what a presidential candidate’s plan to cover the uninsured is?
If I don’t think it’s the government’s duty, then I don’t want a presidential candidate wasting time developing a plan: I want him to stick to his constitutional duties.
I’ll go even further: I agree that “the social goal is a good one” as you state – but I don’t see how that automatically leads us to the conclusion that a presidential candidate should have a plan for achieving it.
Or, if I were a presidential candidate, I might answer the question thus: “The federal government has never promised to feed, house, and clothe everyone, and we do not have a crisis of starvation, homelessness (due to lack of housing, as opposed to mental illness), or nakedness. The federal government has never promised to ensure universal coverage of automobile insurance or homeowner’s insurance, yet we have better cars and more housing stock than ever. But for a century the federal government has increased its intervention in health care, based on a notion that everyone should be covered. These interventions have driven up costs and made insurance frustrating and overly complex. So, my proposal for universal health coverage is simply to repeal all federal laws governing health care.”
But then we would not have interesting blogs like this one!
Not the same pew, John, because probably you are a pagan — but how about the same blog post?
I still find it objectionable to call anything a tax subsidy when it is my own money and not someone elses. Income taxes were originally to fund WWI and were to be temporary. If I pay more than the “flat tax” average, is it still a subsidy? Words are important. Call it a deduction, call it a tax b break, but conservatives calling it a subsidy supports the liberal idea that all our earnings belong to the federal government and we get to keep what politicians let us keep.
BTW I don’t recall a national referendum on an government that spends 40% more than it takes in and wants the citizens to pay for the goverment desires rather than a government living within its means. I guess that is what November 2012 will determine.
Regarding your post, I wrote an Op-Ed years ago and argued for it in a manner that would be applicable to promoting McCain’s plan. The basic argument is this (which I am sure you’ve already thought of so I’ll be brief).
Step one of health care reform is to remove some of the rather obvious distortions. Only after we have done that do we need to worry about step 2, because step 1 will likely shrink the problem dramatically. How much it shrinks the problem affects what is optimal for step 2.
David C. Rose
Professor and Chair
Department of Economics
University of Missouri-St. Louis
St. Louis, Missouri 63121-4400
Is it ironic that your the only one of your fellow co-authors on that Health Affairs article that signed a letter against ACA:
http://americanactionforum.org/sites/default/files/Final%20Open%20Letter_Impact%20of%20Healthcare%20Repeal_1182010.pdf
If the others were as well I would like to be corrected (not saying this is impossible). But from what I recall Cutler did help arguing for the law in the recent Supreme Court case.
I was mystified that the Coburn plan and other Republican health care proposals got so little attention in 2009 as alternatives to the Democrats’ health reform legislation. This happened during the Clinton health plan debate as well. Almost all the scrutiny centered on the Democrats’ reform proposal with little or no effort to inform the public about the problems in the current system or the problems with the alternative Republican proposals. The public needed to know the strengths and weaknesses of the status quo and all the reform options, but the media failed us on that in 1993-94 and again in in 2009-2010. Here are two 2009 articles I wrote looking at the problems with the Coburn and other GOP proposals.
–Harris Meyer
With about 300 million citizens, 300 billion in tax savings would pay for an average tax credit of $1,000/person, less than half of a subsidy scheme of $2,500/person or $8,000/(family of four). What will make up the difference? We’re talking about at least 2% of GDP here. (At least $300 billion more needed divided by roughly $15 trillion.)
Or, if you prefer to think in terms of real resources, would you care to speculate on how many more square feet of hospitals and clinics will result from this policy change? How many more doctors, nurses, and other health-care workers? How many more drug prescriptions?
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