Everyone will pay for this health care design

Editor’s note: This comes from today’s Washington Post. What they are saying is that everyone is going to have to pay more for their health care and pay for the cost of health care for the uninsured. That unless they are willing to raise taxes yet, again, they will not be able to pay for existing and gathering debt of our current spending. So much for that campaign pledge of not increasing the taxes of 95% of the people.

As to the Post’s assertion that the tax break paid on the premium “pumps up demand for expensive treatments”, shows their total lack of understanding of the hydraulics of health care plan design that employers have been utilizing for many years.

Part of the reason that High Deductible Health Plans and other plans that use deductibles, coinsurance and out of pocket maximums have an effect on health care consumption is that it impacts the purchasing decision at the point of use. We long ago learned that increasing the premium or payroll deduction for health insurance had little effect on purchasing decisions. Standalone copayments we much of the same ilk. The consumer would pay their $10, $15, or $30 copayment and it would be like a buffet — all they could eat or convince their doctor that they needed.

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The Deep-Pockets Mirage
House Democrats would have us believe that the rich can pay for it all.

Wednesday, July 15, 2009

THERE IS a serious case to be made that the U.S. income tax system should become more progressive. The average rate paid by the top 1 percent of households shrank from 33 percent in 1986 to about 23 percent in 2006. At the same time, the share of adjusted gross income claimed by that highest-earning sliver of American society doubled, from 11 percent to 22 percent. So, in principle, higher taxes for the well-heeled could make sense — as part of a broader rationalization of the unduly complex tax code.

But there is no case to be made for the House Democratic majority’s proposal to fund health-care legislation through an ad hoc income tax surcharge for top-earning households. The new surtax would hit individual households earning $350,000 and above. It would start at 1 percent, bumping up to 1.5 percent at $500,000 in income and to 5.4 percent at $1 million. The new levy would begin in 2011 and is supposed to raise $540 billion over 10 years, about half the projected cost of health-care reform. The rest of the money would come from reduced spending on Medicare and Medicaid — though the surtax for the lower two categories would jump by a percentage point each in 2013 unless the Office of Management and Budget determines that the rest of the bill has saved more than $150 billion.

The traditional argument against sharp increases in the marginal tax rates of a very narrow band of Americans is that it could distort their economic behavior — most likely by encouraging them to put more of their money into tax shelters as opposed to productive investments. This effect could be greatest in certain states, such as New York, where a higher federal rate would add to already substantial state income taxes. The deeper issue, though, is whether it is wise to pay for a far-reaching new federal social program by tapping a revenue source that would surely need to be tapped if and when Congress and the Obama administration get serious about the long-term federal deficit.

That moment may be approaching faster than they would like. Even if Congress pulls off a budget-neutral expansion of health care, the gap between federal revenue and expenditures will reach 7 percent of gross domestic product in 2020, according to the Congressional Budget Office. And that’s assuming that the economy returns to full employment between now and then. The long-term deficit is driven by the aging of the population as well as by growing health-care costs, both contributing to Social Security and Medicare expenses. There is simply no way to close the gap by taxing a handful of high earners. The House actions echo President Obama’s unrealistic campaign promise that he can build a larger, more progressive government while raising taxes on only the wealthiest.

Mr. Obama praised the House bill yesterday without addressing the surtax. A far better way to pay for health care would be to end the tax break for employer-provided health benefits, a subsidy that not only artificially pumps up demand for expensive treatments but also disproportionately benefits upper-income earners. Eliminating or, at least, capping it would be good health-care policy as well as good tax and budget policy. Pretending that “the rich” alone can fund government, let alone the kind of activist government that the president and Congress envision, is bad policy any way you look at it.

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