Romney Health Plan: The Good, the Bad and a Question Mark

I know I promised no more August commentaries, but Gov. Romney just released his health plan and everyone wants to talk about it. So here is my take.

Mitt Romney is the only U.S. politician who can credibly claim to have created universal health care coverage. His Massachusetts Health Plan may yet falter; but so far he has walked the walk, while his Democrat opponents have only chattered. He alone owns the health care issue.

The Good. In taking the Massachusetts plan nationwide, Romney has left most of the bad features on the cutting room floor. There is no individual mandate, no employer mandate and no managed competition. States would have the opportunity to go their own way.

At the federal level, Romney would have the government help, rather than hinder. People who buy their own health insurance would get the same federal tax relief as those who obtain health insurance at work. Subsidies would allow low-income families to buy private insurance. A block grant of Medicaid funds would give states the ability to move enrollees to the private sector.

The Bad. People would be able to deduct all out-of-pocket health costs. This bizarre idea probably got added late at night when the Romney team was tired. In New York City, where the marginal tax rate is 50%, government would be paying half the bill. You would be able to buy an MRI scan or a stomach staple for 50 cents on the dollar. The incentives would be to spend, spend, spend. By contrast, Health Savings Accounts (which Romney also supports) create incentives to save.

Guiliani (following Bush) opts for a health insurance standard deduction. The result: people could not lower their taxes by buying more extensive coverage. Under the Romney plan, by contrast, people could lower their taxes no matter what they do — buy more insurance, buy more health care, or any combination thereof. This is the opposite of cost control.

The Question Mark. What kind of subsidy will low-income purchasers of health insurance get? Romney is still resisting tax credits. That opens the door to a spending subsidy, which risks becoming another entitlement.

A Humble Suggestion. Romney doesn't need a mandate in order to claim universal coverage as the goal of his plan. But he does need to close the loop. As in Massachusetts, funds hospitals now use to provide free care to the uninsured would subsidize private health insurance instead. That's good. But if people turn down the offer and remain uninsured, surely the money needs to go back into the safety net. That promise needs to be explicit.

Then there is that problem of out-of-pocket spending…

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