The Bush Insurance Tax Plan

This article at Reason does a good job of explaining in plain terms the potential effects of the Bush tax plan. It also, however, stops short of mentioning one of the major possible sticking points:

The complaint that changing the tax treatment of health insurance would encourage employers to stop providing it misses the point: If employers are offering medical coverage instead of extra pay purely for tax reasons, they should stop.

There’s an assumption there that may not be born out: that if employers are faced with the loss of tax breaks for offering pricey insurance instead of cash, they’ll just hand the cash that they were previously spending on insurance over to their employees, who will then make informed market decisions about what coverage they need and can afford.

In practice, I imagine that many employers will choose instead to opt for lower-priced health coverage and pocket the difference, leaving their employees with a lower overall compensation package. Secondly, for employers that opt to hold on to higher-priced insurance coverage, there is no guarantee that their employees will be available to afford the additional taxes that they will now pay on their coverage; considering that the average insurance plan for a family is $11,500.00, and additional taxes start showing up at $15000.00, it’s entirely possible that some families will see themselves made poorer but Bush’s ostensible tax break.

The bottom line on this plan, though, is that it is a band-aid on the real crisis that the U.S. faces in health care. The plan will only bring an additional 5% of the currently uncovered Americans under the protection of insurance coverage, and money will continue to be wasted on underwriting the cost of uninsured Americans having to wait until they are severely (and expensively) ill before seeking medical care. When they then file for bankruptcy (medical costs are the leading cause of personal bankruptcy in the United States), those with insurance care are left picking up the bill in the form of higher medical costs and correspondingly higher premiums.

Medicine in the United States is already subsidized by the general public. It’s just done in the least efficient way possible- both in terms of dollars spent, and ultimate health outcomes. Reasonable socialized spending on preventative medicine- vaccinations, screenings and a few maintenance drugs- could, in the long term, save U.S. consumers money on their own health care, reduce personal bankruptcy (and thus the cost of doing business for medical practitioners), and improve the health outcomes for the currently uninsured.

So why are we throwing peanuts at a few hundred thousand people instead of seeking a solution that would bring much greater benefits to a wider number of citizens? In part, it’s because the irrational prejudice against government subsidized medicine for anyone other than children makes the conversation a non-starter for many die-hard small government conservatives, even when though there are demonstrable market gains to be made in the process. Second, Bush’s lame duck administration lacks the support or the will to push through anything more than a token effort at this stage of the game. Real medical care and insurance reform- like the war in Iraq- will be left on the shoulders of the winner of the 2008 election.

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