In the latest NEJM, Jonathan Gruber succintly describes a huge potential source of savings in health-care financing. This is not a new idea but based on the fact that I'm reading it in more and more places, I think it's gaining steam.
"...There is one final potential source [of savings]: the elimination or limiting of the income-tax exclusion for expenditures on employer-sponsored insurance. Ending the massive tax subsidy for such insurance would result in both the most natural source of financing for health care reform and one of the few that is clearly large enough to finance the necessary subsidies.
The $250 billion per year in foregone revenues attributable to the tax exclusion of employers' health insurance expenditures represents the federal government's second-largest health insurance expenditure (after Medicare). When my employer pays me in cash wages, I am taxed on those wages. But the roughly $10,000 per year that my employer spends on my health insurance is not taxed, and it translates into a tax break for me of about $4,000. To be clear, this exclusion represents a tax break for individuals, not for firms; firms are largely indifferent about whether they pay employees in wages or in health insurance. But employees are not indifferent: they pay taxes on the former but not on the latter.
This tax exclusion has three flaws. First, the forgone tax revenue is an enormous sum of money that could be more effectively deployed elsewhere, especially through new approaches to increasing insurance coverage. Just taxing health benefits through the income tax as we do wages would raise $2.3 trillion in federal revenues over the next decade. Second, the exclusion is a regressive entitlement, since higher-income families with higher tax rates get a bigger tax break; about three quarters of these dollars go to Americans in the top half of the income distribution. Third, this tax subsidy makes health insurance, which is bought with tax-sheltered dollars, artificially cheap relative to goods bought with taxed dollars — a phenomenon that leads to overinsurance for most Americans and overspending on medical care.
Given these limitations, no health care expert today would ever set up a health care system with such an enormous tax subsidy for a particular form of insurance coverage. So why don't we just remove it?...."
2 comments:
I heard this discussed on NPR recently where another point was made as well - that health care insurance has only been provided via employer sponsored programs in the modern era (after 1950) and that originally it was designed to attract workers without raising pay or retain without giving pay increases. The point was that it really should be viewed the same way as income since that's how it started. I'm not sure yet where I stand on this matter but it was an interesting point anyway.
Unfortunately for supporters of this idea, President Obama strongly attacked Senator McCain when he (not Obama) suggested it during the campaign.
And we all know President Obama doesn't (ahem) change his positions.
http://www.msnbc.msn.com/id/29703278
I think such an enormous tax increase certainly will generate a lot of revenue .... at least until the employers run out of money or Congress decides it's not enough revenue (whichever occurs first).
Regardless, I want to know more about the system we end up getting before I cozy up to such an enormous tax increase.
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