POLICY: Tax health care benefits, go on I dare ya!

Hat tip to Ezra, who clearly wasn’t partying enough this weekend and read the NY Times on Sunday. In it there’s a rational argument that me, Fuchs, Enthoven and Eric Novack all agree with: get rid of the tax deductibility of health benefits.

Next year, the federal government expects to provide about $130 billion for Americans to buy health insurance. The amount is substantial: it is equivalent to about 11 percent of all federal income tax revenue and more than a fifth of federal spending on Medicare and Medicaid. And it is growing fast: the bill is expected to surpass $180 billion in 2010.

Of course, this was recently proposed  by the same panel that suggested getting rid of tax deductibility of mortgages, and immediately disowned by the politicians who set up said panel.  But linking this to the issue of the uninsured and showing that it’s unbelievably regressive on those people who buy their own insurance and don’t get the tax break can’t be a bad meme for us wonks to pursue.

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  1. How to Fix the United States Health Care System
    We Must Do It Ourselves
    “Problems cannot be solved at the same level of awareness that created them.”
    –Albert Einstein
    Identify the Components: Ones That Work and Ones That Don’t
    The first step to solving any seemingly daunting problems is to break it down into component parts, identify what works about the existing status; and what doesn’t. It’s crucial to learn from the past.
    As a physician and owner of a solo practice (small business) I’ve experienced the health care system from all sides. I’m intimately familiar with how Medicaid, Medicare, and for-profit insurance companies such as Blue Cross, United Healthcare, Aetna, and others work. I am also a consumer of health care services. I’ve had babies, knee surgeries, and other personal interactions with the American medical system. I have witnessed first-hand the extent to which non-citizens are receiving benefits paid for by working Americans. I am a small business owner so I’ve had to decide whether and how to offer health insurance to my employees. I, and others like me, am among the most qualified people in America to help fix the health care system because we have experienced health care from all angles: health care providers, patients, business owners, and tax payers.
    In this chapter we’ll explore what works and what does not work about the existing U.S. health care system. We’ll also address how to fix what doesn’t work and improve upon what does work.
    What Does Not Work
    Big Government Entitlement Programs
    Big Government does not work. Entitlement programs such as Medicare and Medicaid have spiraled out of control, increased our debt, and are a huge burden to existing and as-yet unborn taxpayers. Many people have figured out how to “game” the system and receive benefits they don’t deserve.
    In my county the office that determines Medicaid benefits is populated by some former illegal migrants who are now citizens. Through knowing people who work in that office and are dismayed by current practices, I am aware some staff members are dispensing Medicaid benefits to those who don’t deserve them. We all pay for this. I don’t want my children bearing the cost of the ballooning U.S. entitlement programs, as it will impact their and their children’s standard of living.
    Medicaid “Emergency Services Only” is a perfect of example of an entitlement program gone woefully wrong. Don’t misunderstand me – some of the recipients of this entitlement program truly deserve it. However, this benefit is dispensed to some citizens and non-citizens alike who drive brand new large SUV’s, and reside in single family homes – I’ve literally seen them deliver a baby at the taxpayer’s expense and drive away in a shiny brand new Cadillac SUV. They pay through these luxuries with cash earned “under the table,” not subject to income tax.
    The Medicare Part D prescription drug program is another example of an entitlement program which benefits pharmaceutical companies and wealthy Americans at the expense of middle class and younger Americans. Most beneficiaries of Part D are retired older Americans who did not pay enough into the system to cover this benefit during their working years. As a consequence working Americans and future working Americans as yet unborn will pay for this program. Pharmaceutical companies are guaranteed a “permanent” revenue stream through Part D unless the system is revoked or revamped. As drug costs increase, which they inevitably will, Part D will balloon out of control as has the rest of Medicare and Medicaid and be another source of national debt and excess tax burden.
    Big government does not work because it’s too costly to administer and it is too easy to take advantage of.
    For the first time in U.S. history we are seeing new generations’ standard of living decline compared to the generations that preceded them. This should be a wake-up call to all of us. If you live in the moment and have the attitude, “It won’t affect me,” think again. Your children or your friends’ children, or mother Earth will bear the brunt of our existing behaviors. Examine your motives. Be honest. Do you feel like you need more money or more stuff? Do you really need these things? Or do you need a healthy earth in which you and your children can live sustainably? Now that you’re making a baby it’s up to you to create the best world possible for them.
    Inequities in Wealth Distribution Harm Everyone
    As a species we have not solved the problems engendered by unequal distribution of wealth. The rich getting richer and the poor getting poorer is not simply an economic problem. It’s an environmental and moral one: It’s hard to care about the pollution you create as an individual when you’re worried about how you’re going to feed your family from day-to-day.
    Ostentatious displays of wealth accentuate inequities and engender jealousy. This sentiment leads to the emotion of rage and ultimately to behaviors of radical and violent extremism, terrorism being just one example.
    Dramatic inequity in wealth distribution is a moral problem that engenders social ills such as thievery, violence, and mistaken beliefs.
    National Health Care Administered by the Government is a Bad Idea
    Several countries already have national health care systems in Canada and Europe. This approach has resulted in a two tiered system: A “private” system in which the wealthy can receive any and all healthcare when they desire it; and a “public” system in which the average person must sit on a waiting list for a year or more to have their knee replacement or their heart surgery. Many of these countries have high income taxes on the order of eighty percent to pay for their entitlement programs. The government decides how the individual citizen’s money is spent. Do you think the U.S. Federal Government has proven it is the best entity to determine how your health care dollar is spent? That is the inevitable outcome of a “National Healthcare System”.
    A national health care system already exists in the United States. It’s called Medicare and Medicaid. These programs have failed miserably in several aspects: Lack of coverage: The number of uninsured citizens keeps rising despite the ever increasing money spent on Medicaid and Medicare. Those who are on Medicaid and Medicare are under-insured because these systems reimburse physicians at a rate of roughly twenty cents on the dollar. Most primary care physician practices’ overhead averages forty to fifty or more percent. Thus, physicians lose thirty cents on the dollar for every Medicaid and Medicare patient they see. This necessitates physicians to either refuse to accept Medicaid and Medicare; or to be forced to go out of business through lack of financial viability.
    Entitlement programs charge working Americans twice, and in some cases three times, for the benefits they provide their recipients: through taxes, through cost-shifting of high insurance premiums; and through obligating physicians and hospitals to provide free care to anyone who walks through the door, be they tax-paying citizens or not.
    Just so you’re under no illusions this is a small problem, look at the 2006 statistics published in the American College of Obstetricians and Gynecologists’ newsletter: Seven percent of obstetricians quit delivering babies altogether and another twelve percent curtailed services to accept only low risk clients. The reasons cited for this were declining reimbursement for deliveries and increase financial and emotional cost of malpractice insurance. A large portion of obstetric patients are illegal immigrants who are either uninsured or covered by Medicaid “Emergency Services Only” which pays dismally. This twenty percent reduction in obstetric services in a single year is truly astounding.
    The main reason reimbursement by Medicare and Medicaid is insufficient is because there is a tremendous disconnect between the consumers of these benefits and those paying for these benefits. The payers are middle class working Americans. The consumers are retirees, people below the poverty level, and people who are illegal migrants. There is a complete disconnect between those who pay for the system (middle class Americans) and those who receive the benefits.
    Disconnect between payer and recipient results in over-utilization of expensive services. If you don’t have to pay for something why hesitate to use it? Many people on Medicaid use the nation’s emergency departments like clinics because they don’t have to foot the several thousand dollar bill for an emergency department visit. If people are insulated from the cost of their prescription medications they are likely to use expensive heavily marketed drugs even if they have no proven benefit over older generic drugs.
    Solving the health care crisis in this country requires increasing the connection between the payers and recipients and dispensers (health care providers and organizations) of health care services.
    Profit Incentives…well…raise profits (and cost)
    Why should commercial insurance companies and pharmaceutical companies make billions in profits when there are 46 million uninsured Americans? It just does not make sense. That is the multi-million dollar question. How can, for example the CEO of United Healthcare justify taking home a multi-million dollar annual compensation package when there are children and adults in this country who go without basic health care needs such as vaccinations and access to medical providers?
    Commercial Insurance Companies:
    Increasing Transparency and Evaluating “Managed Care”
    Increasing Transparency
    How do you know you’re getting the health care benefits for which you’ve paid? Do you understand your EOB (Explanation of Benefits) you receive in the mail after you’ve visited a health care provider or pharmacy? Have you checked to see if the insurance company has paid the correct percentage (accounting for deductibles and co-pays) according to your written policy? Have you read your insurance policy?
    The average person (including me) has not read her insurance policy word for word. It’s usually a dense 50 or 60 page document written in legalese. The fine print within this document can contain many exceptions to the summary of the policy, of which you are unaware.
    Does your insurance company pay for “out-of-network” providers in strict accordance with the written policy?
    If you don’t know the answers to all these questions you may not be (probably aren’t) receiving the full benefits for which you are paying. Ask your insurance policy to account proportionally for every dollar of your premium – write to their CEO or CFO. They should at least send you an “annual report” – the company summary they mail yearly to investors. If you can’t get the information by asking, state you’re interested in investing in the company and can they send you an annual report? Money talks and information is power. We can’t do anything about rising health care premiums until we understand where each dollar goes. Once we understand where the dollars go, we can work to control the components eating those dollars.
    Part of how insurance companies have made away with so much of our money is because we don’t demand the information. If we sit passively and complain it accomplishes nothing. Do something! Start by demanding an accounting of where your money goes. You have a right to know.
    If we curtail existing entitlement programs we decrease the administrative burden of the Federal Government. There is a National body, the Joint Commission on Accreditation of Hospital Organizations (JCAHO), whose job is to regularly visit every hospital in the United States to see if they are living up to standards of safety and hygiene. Why not demand a Federal body that does for commercial insurance companies what JCAHO does for hospitals? Given that the largest portion of our national gross domestic product goes to health care it’s only appropriate the insurance companies be held accountable for responsible use of those dollars.
    Evaluating Managed Care
    Managed Care is a model that originated in the 1980’s to attempt to control heath care costs. The original intention behind it was to link quality to cost and use the scientific method to evaluate the merit of various medical treatments. It has undergone much iteration over the past three decades. However, managed care has failed to control cost. Indeed costs have risen hundreds of percentiles over the past three decades.
    Original versions of managed care involved a “gatekeeper” system in which insurance companies dictated patients must see a primary care physician before obtaining a referral to a specialist. Patients also had to jump through hoops to get basic services or tests ordered by the doctor covered. These factors caused great dissatisfaction among consumers of healthcare.
    The present version of managed care involves “Preferred Provider Organizations” (PPO’s): establishing “in-network” and “out-of-network” benefits paid at different levels. The idea behind this is an insurance company negotiates “discounted rates” with a group of physicians or hospitals then drives consumers to use those physicians or hospitals. The advent of PPO’s has also failed to result in controlling health care costs.
    Some of the greatest reductions in health care costs have come from hospitals and physicians themselves. Many physician groups and hospitals have taken the initiative to develop “Disease State Management Protocols” and “Clinical Pathways”. These are tools used to standardize care for common illnesses using evidence-based medicine and proven methods to control the cost of in-patient hospital care. These and similar efforts have produced the most dramatic control of health care costs, while actually improving and standardizing the quality of medical care delivered.
    The FDA incentivizes pharmaceutical companies to develop and market “new and better” drugs because patents on drugs expire after ten years and the drugs can then be produced as generics. Pharmaceutical companies are under minimal obligation to prove their “new and better” drug really is more effective than older, cheaper generic drugs. Pharmaceutical companies aggressively market new expensive drugs direct to consumers on television and to physicians without being required to prove they are more effective than their predecessors. Why? They should at least be required to disclose data about efficacy, just as they’re required to disclose side effects of their drugs.
    Often new drugs are simply old drugs that have been “tweaked” by adding a minor chemical appendage so as to technically make them into new chemical compounds, although they don’t act any differently than their older predecessors. Some examples are “new” birth control pills touted to improve premenstrual syndrome and acne, which are variations on older generic birth control pills. Newer birth control pills sell for about $50 to $60 per month; whereas generic pills sell for about $7 to $10 per month. Both types of pills improve acne and premenstrual syndrome.
    Another example is newer anti-depressants such as Lexapro and Celexa. These drugs are off-shoots of the old stand-by, Prozac (fluoxetine). Prozac is now generic (fluoxetine) and cheap whereas these newer drugs are not. They are touted to have fewer side effects; and they may indeed have fewer side effects. But they have not been required by the FDA to prove it in head-to-head randomized double-blinded, placebo-controlled trials. Are they required to disclose this fact in direct-to-consumer advertising? Why not? Moreover, there are new concerns about all the anti-depressants and increased risk of suicidal or violent behavior.
    What is the logic insurance companies use to determine what they will and will not cover? For example, some insurance companies cover drugs to treat erectile dysfunction but they don’t offer maternity coverage, or coverage for contraception. Or they offer these benefits for additional premium. Why?
    We certainly don’t want to discourage development of new drugs by removing the profit incentive. However, companies should be required to disclose efficacy data in marketing to consumers and physicians. Drug development must become more transparent to consumers so they can make the best choices for their physical well-being and the well-being of their wallets.
    Malpractice Risk Drives Up Cost Via Defensive Medicine
    You’ve all heard the politicians and the media bemoan the fact that malpractice risk increases costs for everyone so I don’t want to tire you with repetition of this other than to summarize. The high cost of malpractice insurance and the emotional toll of malpractice suits cause physicians and hospitals to engage in “defensive medicine”. Defensive medicine is ordering unnecessary tests in order to prove the patient doesn’t have a serious illness and thereby avoid a malpractice suits. There is no evidence that defensive medicine results in better medical care or reduces malpractice suit. The only reliable conclusion drawn by studies of defensive medicine is that it increases the overall cost of health care.
    Malpractice suits have become something of a “lottery” – consumers looking for the multi-million dollar payoff. Defendants (physicians or hospitals) “win” eighty percent of malpractice suits that go to trial – usually after an expensive, drawn out, draining battle. The only people who truly win in these cases are the trial lawyers. Even the malpractice insurance companies take a hit but at least they can pass their cost onto the physician. Guess who the physician passes the cost onto?
    However, if physicians passed on the entire cost of rising malpractice premiums to patients, no one would be able to afford to visit the doctor. Therefore, they only pass on a portion of the increased cost and they absorb the remainder. As malpractice insurance premiums rise, guess what happens to the business bottom line? This is a large contributor to the exodus of physicians from obstetrics: rising malpractice cost and declining reimbursement. If it actually costs you money to get up at 3 a.m. and go deliver someone’s baby, why do it? It makes no sense.
    Money Spent on Extremes of Life
    Ninety percent of the health care dollar is spent on the last six months of life. This often involves intensive care for people afflicted with terminal illnesses who are on life support. They
    may require a tube to breathe, medication to keep their heart rate going and blood pressure normal, a tube for feeding in the stomach, or intravenous nutrition. We often die in hospitals hooked up to machines and being pumped full of drugs. We may not even be conscious. Is this how you want to die?
    Just because we possess the technology does not mean it is best for us to use it. In the past we died with dignity in our homes, surrounded by family members. You should consider how you want to die at a time when you have full mental faculties and can make an advance directive. An advance directive is a document specifying what measures you want taken to extend your life should you not be able to decide for yourself. Don’t leave it up to your family members to make the decision because no one wants the responsibility of “pulling the plug”.
    These extreme measures often consume the final dollars of a family’s savings and are a large component of Medicare expenses. This is money that could go to your children and grandchildren. It could pay for someone to go to college or someone to have a place to live. We have to decide for ourselves how much is enough and how much is too much?
    Okay, so I’ve identified this, that and the other thing that are wrong with our health care system. What is right with it? Well we have access to advanced technology, well-trained physicians and nurses, antibiotics, and the best science money can offer. Too bad such a huge number of people struggle to get basic health care needs met. How do we get out of this mess?
    Addressing the Big Four will “Fix” the United States Health Care System
    In summary there are four big offenders in producing out-of-control health care costs:
    Addressing each of these will decrease the cost of health care while preserving the advantages of technology and science, and increase access for everyone to basic health care services.
    The silent underpinning of many of these problems is risk. So how we manage risk determines the cost of our health care.
    Connecting the Payer with the Recipient
    It is crucial to connect the recipient of health care directly with the payer. The consumer needs to bear the risk of his health care decisions. The consumer of health care needs to directly feel the impact of system utilization in their wallet.
    Eliminating or reducing the scope of entitlement programs would go a long way toward reducing the burden of health care costs for the middle class. Recipients of Medicaid should be required to prove they are U.S. citizens. Non-citizens should not be eligible to receive benefits for free. They should have to pay for their health care just like the rest of us.
    If we do issue driver’s licenses or identification cards to non-citizens, it should be tied to proof of health insurance, proof of auto insurance, and proof of paying taxes.
    We need to decrease the influence of the middle man and limit the role of private health care insurers and the government. One approach to this would be for groups of people to participate in pooled risk plans in which premiums and benefits are determined impartially by an actuarial company. This could be self-directed, for example, by employees of large companies or other pooled risk groups. Alternatively the existing insurance company framework could be restructured so as to decrease the “fat” in the system. This would require government or some outside agency regulating insurance profitability. What justification is there for the CEO of an insurance company making millions of dollars while many Americans go without basic services? Insurance companies would certainly balk at government regulation.
    Consumers must demand greater transparency from commercial insurance companies regarding how their health care premium dollars are spent. Only when we understand where the money goes can we solve the problem of high cost.
    Exert Your Own Cost Control
    You have the power to control your individual health care costs. If everyone reduces her individual costs, the collective cost of health care will decline. Examine your utilization. The most expensive healthcare services are emergency room care, intensive care units (ICU’s), surgery, and advanced imaging studies such as MRI’s and CT scans.
    Examine your utilization of the system. First, if you are ill after regular business hours, decide if you’re sick enough to need to go to the Emergency Room at a cost of thousands per visit; or can your condition wait until your doctor is available during regular business hours for a fraction of the cost?
    Of course for emergencies like chest pain or hemorrhage you should proceed to the emergency room. But if you have chronic pelvic pain and have developed a worsening of pelvic pain the emergency department is not the best place to receive care for this problem. Childhood runny noses and rashes also don’t need to be seen in the Emergency department unless you’re concerned your child may be seriously ill (e.g. have a high fever, or is unable to keep food and water down).
    If your doctor recommends a test, ask why? What is the doctor trying to learn with the test? What are the benefits, risks, and costs of the test? Will this test lead to further testing or surgery? Are you asking for the test because you want to know a certain result? Is the test going provide the information you desire? Will the test give you any useful clinical information to better understand your health? You should know the answers to all these questions before submitting to tests.
    A perfect example of useless tests is “hormone levels”. Women ask me every day to check their hormone levels. If I can’t talk them out of it I usually oblige to satisfy them. However, female hormone tests do not tell us anything your own body can’t tell. For example, if you are having regular monthly periods your hormones will be “in the normal range”. The “normal range” is determined by measuring hormones of millions of “average” people to establish normal values. If you are over thirty, skipping periods, having night sweats, or have stopped having periods, your hormones will be in the “menopausal range” because these values are established by measuring hormone levels of millions of menopausal women. If you are skipping periods before age thirty, you probably have “polycystic ovary syndrome” caused by irregular ovulation. I can test your hormone levels to confirm, but this is usually a diagnosis that can be made by asking questions and doing a physical exam.
    If you are having raging premenstrual syndrome (PMS) I can test your hormone levels. They will most likely be “in the normal range” because hormone levels vary depending on time of cycle, age, and other factors. I can be of much more help by addressing your symptoms and developing a plan to manage them than I can by testing your hormone levels.
    Knowing your actual hormone levels does not help us treat hormonal disorders most of the time because treatment is based on symptoms, not on a number from a lab.
    If you have excess acne or hair growth it is likely your testosterone is high. I can measure it to be sure, but your body is telling me, by producing excess hair and acne that your testosterone level is high. Now if you have these symptoms a hormone level would be useful to exclude a testosterone-producing ovarian tumor. However, testosterone-producing ovarian tumors are exceedingly rare (<1/100,000). I will still recommend the test if I think it’s necessary based on your symptoms and physical findings.
    Be careful of independent labs that offer “saliva tests” for hormones. These are expensive and can be misleading. Saliva levels of hormones can be quite variable from time of cycle and time of day.
    Develop an advance directive while you’re at an age when you have full mental capacity and you can consider these decisions in a thoughtful manner. Write it down. You don’t need an attorney to create an advance directive. Simply writing it down in one page or one paragraph is sufficient. If you want it to be “official” have it notarized. Make sure it answers crucial questions in a clear fashion for your relatives to understand. Advise your relatives you have an advance directive; review it with them; and make sure they know its location. At the end of life do you want to be kept alive with a breathing tube, intravenous feedings, or drugs? To what extent and expense do you want your body to be preserved, possibly with your mind in a vegetative state? Do you want to be resuscitated (brought back to life) if your heart or breathing stops? What would be the criteria you would want established for any of these measures to be taken?
    Require Insurance Companies and Pharmaceutical Companies to Increase Disclosure, Transparency, and Accountability
    We must hold big business accountable for making the most of the dollars we pay them. Insurance companies should be required to present policies in clear, consistent, standardized language to make it easy for the consumer to compare policies. An objective oversight body similar to the Joint Commission for Accreditation of Hospital Organizations (JCAHO) should be established to assess insurance companies and pharmaceutical companies to determine if they hold up to their promises.
    Pharmaceutical companies or an outside agency (don’t we pay the FDA to do this?) should be required to conduct studies of efficacy of new drugs in an objective manner and disclose these results to the public along with the rest of their direct-to-consumer advertising.
    The free market system works: competition encourages innovation and fosters incentives for cost control. We want to preserve the elements of the free market system that function well, while not sacrificing accountability and quality control.
    Doctors Can Impact Cost by Using Evidence Based Medicine and Resisting the Temptation to Practice Defensive Medicine
    Doctors, nurses, and other healthcare providers can dramatically impact the cost of health care by resisting pressures to practice defensive medicine. One would not want to deny access to a necessary diagnostic test or treatment based on price. However, so many tests and treatments are ordered as “cya” measures.
    Often patients request tests that are unnecessary. Usually one can explain the rationale behind testing or not testing and advise the patient to make an informed decision. However, some people are set on the idea that they need this or that test to understand their health. In this instance it is usually counter-productive to try to “talk” the patient out of it, and just go ahead and order the test.
    In order for health care professionals to reduce the habit of defensive medicine, they need relief from the pressures to do so. A revamping of the “malpractice” system in the United States is long overdue.
    Eighty percent of “malpractice” suits are won by the doctor or hospital being sued. This means in most cases that go to trial, evidence of malpractice cannot be found. The stress and cost of malpractice suits is discouraging good people from entering the field of medicine; and causing many to leave medicine or limit their practice to “low risk” disease conditions.
    It has been suggested by consumer groups, physician groups, politicians, and government agencies that it is time to move to institutionalizing compensation for bad medical outcomes. The extent of damage and amount of compensation could be determined by an arbitration group. Funds for this should come from a number of sources: insurance premiums, lawyers, physicians, and consumers. Everyone should have to bear the cost of bad medical outcomes in order to curtail frivolous law suits and keep overall health care costs down over the long term.
    It is much more effective to use a carrot to get people to do the right thing, than to beat them with a stick. For the most part doctors are smart, conscientious – often perfectionist – people who strive to do their best; and if you prove to them certain disease management protocols improve care and reduce cost, they will use these disease protocols. Doctors have studied long and hard to become physicians and it is a life-long learning process that involves accumulating “continuing medical education credits” throughout one’s career.
    Evaluate How We Manage Extremes of Life
    You can maximize your chances of having a healthy term baby by following the advice in this book. You have more control than you may realize. Overall, though, ninety percent of the health care dollar is spent on the last six months of life. Premature babies are expensive and we should strive to reduce prematurity.
    This phenomenon has occurred because advances in technology have outpaced the study of ethics and responsibilities of a society to its members to provide the greatest good to the most number of people.
    We need to decide as a society: How do we want to enter and exit life? Do we want to die hooked up to machines in a vegetative state? Is this the best use of our precious resources? Do we want to risk leaving a legacy of health care debt to our heirs?
    You actually have complete control over this. By writing your advance directive, you remove the burden of your life’s decisions from others and take the initiative. I encourage you to write an advance directive and make your friends and family aware it exists. It doesn’t have to be long – a page or a paragraph. It doesn’t need to be written by a lawyer or notarized. However, if you take the trouble to have it notarized it may increase the likelihood it is taken very seriously.
    You must consider all the possibilities: What if you’re completely paralyzed or brain damaged in an accident? Or rendered into a coma? What type of medical interventions do you want to take place? I urge you to think about these things and write them down: Your family’s lives depend upon it.
    Only by tackling the four major factors increasing health care cost in this country can we obtain a safe, logical, cost-effective health care system. I encourage you to do your part.

  2. John- please allow me to allay your fears and perhaps disabuse you of misinterpreting my opinions:
    1. the government’s use of ‘sin’ taxes date back to the ‘Whiskey rebellion” (1794). Today, ‘sin’ taxes exist on tobacco and alcohol. They are some of the highest taxes on anything. Both states and the federal government gladly impose these (and in AZ, there is a plan under consideration to raise the tobacco tax by $0.80 per pack).
    2. I do not have the solution for how to implement the changes, but I agree that increasing government intrusion into our lives is not desirable. However, when you have the government (ie. you and I, the taxpayers) paying, it is not unreasonable to expect a certain degree of accountability for the spending. In healthcare, that accountability must come both on the part of healthcare delivery (doctors, hospitals, etc.), but also on the part of healthcare utilization (patients).
    You bring up New Orleans– it is reasonable to ask for accountability both on the part of the contractors for reasonable projects (delivery) and and for reasonable use of money given to people directly (utilization)- you remember the short lived debit cards?
    When looking at homeland security- the real problem is that funds are NOT being applied where the risk is likely the greatest, so I do not think that analogy helps your argument.
    For many months on the blog I have been a proponent of increased healthcare freedom. However, the political reality is that the government is not going to step aside when it comes to healthcare delivery.
    I think the best prescription for healthcare in this country comes from Benjamin Rush- famous physician and Revolutionary War era politician- at the Constitutional Convention in 1787:
    “The Constitution of this Republic should make special provision for medical freedom. To restrict the art of healing to one class will constitute the Bastille of medical science. All such laws are un-American and despotic… Unless we put medical freedom into the constitution the time will come when medicine will organize into an undercover dictatorship and force people who wish doctors and treatment of their own choice to submit to only what the dictating outfit offers.”

  3. Eric, you are attempting to regulate a person’s health status. That is not government’s role and is a far reaching effort to control people’s lives. Are you seriously suggesting that along with our annual IRS tax returns we submit our lab work to see if we owe an “unhealthy” tax?
    You bring up some of the concerns I have about a nationalized health care system in a politicized country like the US. As I mentioned in my earlier examples, what you are suggesting is analogous to the draconian methods of the Spanish Inquisition, but modernised. Instead of death we will tax the shit out of you. Would there by an additional alcohol tax? What about a fast food tax? I see this at best, as an example of good intentions-bad policy and at worst socialism gone amok.
    There are alternative ways to address poor health behavior…finacially penalizing the behavior is not one of them. What do you do if they don’t pay, throw them in jail?
    To the concern about “you and I and others for subsidizing the more expensive care of the chronically ill” my response is that’s what insurance is all about. In fact, that is what government does with most of our tax dollars through it programs. New York gets a greater share of Homeland Security spending than does Kansas. New Orleans is about to receive an entire overhaul of its infrastructure because they lived below sea-level in a hurricane prone region.
    Are you suggesting that the trade off for universally covering the sick and uninsureds is reduced personal choice and government policing of my health status? Sounds like the cure is worse than the disease.

  4. Theora- Tom makes a good point with risk and healthcare. Practically, I would also disagree– if everyone knows that obesity is bad, why are 40% of adults obese? If everyone knows that smoking is bad, why do so many millions continue to smoke? There are always reasons and excuses.
    Making people more responsible does not have to mean blindly punishing. Most people do not choose to have chronic diseases (none do, I would imagine). I am suggesting, without having a monitoring plan to offer here, that in exchange for you and I and others for subsidizing the more expensive care of the chronically ill, we expect a modicum of effort in return: maintaining good hemoglobin A1C levels, exercise logs, urine tobacco screens, etc.
    Look, we in medicine are not in the ‘denial of care’ business. Much of this blog reports on ‘too much care’ being delivered. I want people to take an interest in their own health anf healthcare.
    I am not talking about micromanaging every person’s habits: in order for you to continue to collect unemployment, you must show you are making at least some effort to get a job. Why not expect that people who rely on society for healthcare payments to make an effort to improve their health?
    As you and Tom mention, the devil is in the details… which is why it is easier to foist the responsibility on the physicians to get better outcomes, not just process measures.
    Physicians, nurses, technicians all want patients to do well. The resistance comes when outcomes are being measured that they have little control over. Also, resistance comes when the “standard of care” changes regularly. Remember that a recent review of “major” studies from the most prestigious journals were examined recently- 1/3 were refuted or had their conclusions substantively questioned within 10 years.
    To summarize: for doctors- start with defining “completely unacceptable” and then progress to “don’ts” rather than having government run committees determine best practices. (getting best practices requires much more… see my beginning commentary on thismakesmesick.com)
    for patients- start with defining things the same way– “unacceptable” and “don’ts”

  5. Theora writes:
    > I’m sorry, but just don’t see how if having my foot
    > hacked off and going blind doesn’t get a diabetic to
    > behave responsibly, that there’s a punshment worse
    > than that which is going to make him see the light.
    This is easy, Theora. People undervalue risk. That’s why we have to make car insurance mandatory: the threat of personal bankruptcy tomorrow is evidently not enough to get people to spend $1,000 today. With healthcare, the Margaritas today taste great, and the possibility that something bad will happen tomorrow is just that: a possibility. And who knows: if that day ever comes, surely there will be a cure, what with all the Rapid Advancements(tm) we’re entitled to as Americans. And besides that, nobody will really let me JUST DIE! This is all completely logical, but based on faulty assumptions.
    I think Bad Behavior Today must trigger some kind of Pain Today if we will modify at all the behavior of a substantial population among us. But I am loathe to try to do so I suspect for the same reasons you are…

  6. OK, but remember that “the system” is an awful lot of people, that “dying” isn’t the same as “dead”, and that incentives matter everywhere in “the system”. I know, of course, that you know this, and I’m not trying to be pedantic with you. Its just that I don’t quite know what trades I am willing to make on behalf of 250M other people, or how “the system” will react in the face of a universal coverage scheme. I think the UK, European, and Canadian systems do as well as they do in part BECAUSE of the non-system here in the States. And these systems are beginning to feel the weight of underinvestment. In some of the Scandanavian countries they frankly kill the dying. I will never be on-board with that, and will do all in my power to prevent this practice coming to these shores, or to repel it if it lands.
    I am told by the VP of Human resources at a big health system headquartered here in St. Louis where I live that 40 years ago, the average nurse was graduated from high school in the top 25% of her class. He says now that the average nurse is just that — average. Partly this is due to increasing vocational opportunities for women. But partly it is due to tremendous pressure on wages for nurses (and other allied health folks). I think you will extend this to physicians also. The famous communitarian Charles Murray thinks that this will be OK — that people sufficiently talented will still be attracted to medicine (he was making this argument in the context of education, but he spoke in universal terms) and that they’ll actually do better at it because they feel an attraction DESPITE the limitations placed on their incomes. I am not so sanguine about it.
    There are lots of other things we could talk about, and I’m positive I’d be learning far more than I’d be teaching during the exchange. But, alas, for now I just can’t pursue it all the way I want to. I really need to understand the dynamics in other countries better than I do. But I am skeptical of the rosy predictions I hear from revolutionists of any stripe…

  7. My point, and I may have been unclear, was that in a Medicare-for-all system we’d need a bigger tax base, not that we’d need to spend more money. I.E., one pays higher taxes, but one pays nothing for insurance, so you’ve still got the same amount of money (or more) in your pocket at the end of the day.
    Personally, I think healthcare spending is functionally equivalent to a tax–it’s not like you can choose not to pay it. Arguably, the penalties for not paying premiums are worse than not paying taxes–I’d much rather end up in a country club prison for tax evasion than have a doctor say, “so, about that cancer…because you’re uninsured, we can’t afford to cure ya. Sorry!”
    Eric–I’m blushing.
    I guess I disagree with you rather fundamentally on how effective it’ll be to focus on punitive approaches as a mechanism to get people to make better health decisions. It’s funny, that for all I rail against screwy incentives being a huge problem in the healthcare system, I actually think patients’ incentives are very well aligned to generate good health outcomes.
    I believe that nature has given us the most powerful punishment imaginable for personal irresponsibility –pain, suffering, and death. It’s also given us great incentives to avoid unnecessary care–having your body split open really freaking hurts, and nobody wants to go through that for nothing! I’m sorry, but just don’t see how if having my foot hacked off and going blind doesn’t get a diabetic to behave responsibly, that there’s a punshment worse than that which is going to make him see the light.
    And, of course, there’s a downside to the “sick people pay more” approach, which is that not all sickness is because of bad behavior–lots of it is bad luck. Punishing the unfortunate isn’t just wrong, it’s counterproductive–it turns people into fatalists.
    That isn’t to say that I think we should throw up our hands. Take smoking–banning tobacco ads and banning smoking in public places has had a big impact, and jacking up the price of smokes worked well on kids. But fundamentally, if we want people to behave more healthfully, we’re not going to make much gain by punishing them more for bad choices.
    And, as always, I fail to see how showing people what they “really” pay will make them push harder for change. They think they pay too much already. That hasn’t had an impact on the system as far as I can tell.

  8. Tom–you’ve got it, yup it will eventually come out of the hides of the system, but if uninversal coverage is implemented
    a) no one will go bankrupt for getting health care, or not receive relatively cheap care because they just can’t afford it
    b) no one will be denied access to the system because they’re poor, sick or unlucky
    c) the rest of the economy won’t be burdened with the costs of a never increasing health care system
    In return, there’ll be less excessive care of the virtually dead anyway, and there may be more than a 30 second wait to have an MRI for your tennis elbow. That’s a trade I’ll take any day.

  9. Matthew Holt writes:
    > Tom, Of course they’re right, as my Spot-on
    > piece tells ya!
    Hmmmm. What I got out of your Spot-On piece is that price reductions will come out of the hides of the army of overpaid nurses and sterilization techs. As soon as a complete monopsony is created, and we have spent the dreamed-of $170B saved by eliminating insurance companies to buy votes, er, I mean cover the uninsured, there will be pressure to begin to save money. We have seen today an excercise of monopsonistic tendencies by the US Senate, haven’t we? They’re pulling the levers they have, and I expect this trend to continue.

  10. RE: individual health insurance market. I would say that there is a growing class of buyers in the individual market, contract employees. These are people in the tech sector that go through a contract house. Certain large employers (Motorola comes to mind) seem to hire a lot of engineers on contract. But these large companies have policies that require the contractors to go through a third party contract house instead of being self employed and being on a 1099. What happens is that the contractor performs work for the large company but is a W-2 employee of the contract house. This gives the large company extreme flexibility in hiring and firing and saves them from having to pay benefits to the contract employee. This leaves the contract employee in the individual market.
    I am currently a full time employee after spending some time as a contract employee. The other day I had a conversation with a colleague. The colleague asked if I thought a $600 dollar deductible for the company provided health insurance was a lot of money. I said no and my colleague was shocked. That’s because my deductible is $5200 because having gone through the undewriting process, I am no longer going to purchase my insurance through my employer.
    I tend to agree with Eric Novak. I think that most people do not have a clue how much insurance premiums are. I advise people to call HR and ask what their COBRA payment would be. This will serve as a shocking eye opener to most people. After having say $100 dollars per month deducted from their paychecks, I think most people would be surprised to learn the full bill is actually $800 per month.

  11. Eric, most individual insurance policies are deductible in my experience because of the demographices of who buys them. The poor have Medicaid. I don’t care about deductibility of Medigap since they receive enough benefit already. Most self-employed can figure out how to deduct their insurance especially with recent changes in the tax law. This leaves non-self-employed people buying insurance in the individual market. I’m not sure how many people there are like that and even if you consider those people, you need to consdier that deductibility means nothing to people who don’t pay income taxes <35k. The real problem these people have is the stupid individual market. So my short answer after a long winded explanation is: Knock yourself out, but, in the real world, trying to address this through any kind of tax legislation won't gain much and will end up messing more things up as Congress piles on stupid additional stuff.

  12. “… getting rid of the tax-dedctiility should only be done in combination with a compulsory universal insurance system.” ???. I don’t get that statement at all. If its compulsory then it’s a tax by any other name and if it’s universal then it’s an entitlement by any other name. Of course it will cost less than what it costs now. (Matt, I thought your spot-on piece was good, but I thought we were due to cross the $2 trillion threshold in 2005. Where are your somewhat lower numbers from?)

  13. elliot- I am against excessive government regulation. If you are against the repal of the employer deduction, given the current economy, would you favor extending the deductibility to individually purchased insurance? Do you favor small business health plans?
    I would like to see some evidence that people know how much insurance costs. If people really knew, there would be much more of an uproar over the disparity between those who get insurance through their employer and those that do not (7k-9k less in compensation).
    Large employers that cover 100% of healthcare — that money comes from somewhere… wages, profit, r+d — employees already pay for it. The reason transparency in this is so essential, in part, is that as the insurance market changes, the real costs of healthcare and health insurance are visible to employees.

  14. Tom, Of course they’re right, as my Spot-on piece tells ya!
    Great discussion all, and of course I think that getting rid of the tax-dedctiility should only be done in combination with a compulsory universal insurance system…of which type I dont really care too much

  15. elliotg writes:
    > I would rather you all work directly
    > for your preferred end state.
    I am not sure I can even describe my preferred end-state, much less work directly towards it.
    Theora writes:
    > I believe strongly that we need to restructure the
    > health care system so it covers everyone. I think
    > if we do it properly, we can get huge long-term
    > savings and everyone will be better off. I
    > understand that in order to do that, we’ll need
    > a bigger tax base–you can’t do Medicare for all
    > without spending more than we are now.
    But Theora! It is precisely this that is disputed by the Universal-Coverage-Single-Payer camp! They say that by eliminating greedy insurance companies, by simplifying the financing side generally, we can cover everyone better than we do now, for no more money. Do you think they are wrong?

  16. I agree with Theora and Elliot, eliminating the tax deduction is reckless and falls short of addressing fundamental problems with the system.
    First of all, the truly poor have a health care system available to them…Medicaid. Now, State governments really don’t want everyone eligible for those programs to sign up because of the costs increases. But the point is, there is a program available for the truly poor. So unless the freed up dollars will be used to expand eligibility for Medicaid, I don’t see this helping the poor.
    The impact on the middle class would be substantial and Theora states the case very well. Remember Eric, at 15% or 35% the tax break only applies to their employee share of the premium. Most large employers (GM, Ford, most public sector employers) pay 100%, or almost 100%of the employee portion anyway because of union contracts (which btw is a significant barrier to costs transparency for the patient). So this would increase the cost to most workers because they don’t pay anything now. Also if you are trying to cover family members a 15-35% discount on insurance premiums, that appear more like a mortgage, in addition to increased cost sharing, it’s a lifesaver. Not to mention that IF employers did provide 100% of the employer paid portion, the additional income may push some employees up another tax bracket and thereby increasing their tax burden. The elimination of the deduction will not affect the poor because they either pay little or no taxes, or are eligible for Medicaid. We all agree it does not affect the rich (on average >$200k). So guess who gets stuck with the bill? The middle class.
    I don’t see the gross evil or obsolete nature of the employer based system consistently blamed for much of the nation’s health care woes. Remember, the employer based system is one part of the triumvirate of the US health system, Medicare and Medicaid being the other two. And the other two face equally rising costs, inequalities, and epic battles on funding and reform. Suggesting that removing the tax deduction will in some way improve the system by making it more transparent is short sighted. That’s the same analogy used to promote HSAs (which I am not a fan). Placing additional undue pressure on the demand side does not help to improve system.
    In spite of what Eric says, employees are aware of the costs insurance. True, many are unaware of the employer paid portion, but they are very sensitive to the employee costs. And in spite of the gov’t and employer subsidy, it’s hurting them. And not just from the insurance premium side, but also from the increase in cost sharing for services. A recent Milliman and Robertson study found that the average annual medical costs for a family of four in 2005 is $12,214 (and rising). That’s just the employee portion! And some of us on here think that increasing that burden is a good thing?
    As Elliott said, if your hope is that things need to get much worse before wholesale transformative change is implemented than this is a great start. But alot more people will get hurt along the way. In a sense we agree it will fail eventually.
    I would support a reform of the tax deduction to reduce the subsidy for those in the highest tax bracket, and use the money as a tax credit for those working uninsureds/underinsured (part-timers, temp workers, 1099 employees, etc) and/or expand enrollment/eligibility for Medicaid.
    BTW, to address the whole notion of paying for certain lifestyle choices. Personally, I am healthy, normal weight, smoke Cuban cigars now and then, and enjoy a good cocktail (or 2). I go for an annual physical and have a clean bill of health. But this notion of penalizing lifestyle choices is scary. Where does it end? We will bankrupt you unless you quit smoking? Perhaps we should shut New Orleans down because of the inherent risks involved with living on the coast in a city below sea level? What if I am obese and just can’t lose the weight? Will you start taxing me after my 3rd cocktail? What if I engage in high risk sexual behavior, will you tax me for sexual habits and risks of spreading STDs? All sexually active STD patients pay extra! It’s a form of torture and abdication of personal freedom. You start morphing past a socialist society and we become some form of extreme, oppressive tyrannical fundamentalist society. Perhaps its my insurance background (concept of pooling) and/or my Cuban heritage (pure bred anti-socialist and anti-communist) but these ideas make my hair stand on end.

  17. Not especially complimentary, but not especially denigrating either. I think that a proposal to eliminate the tax deduction is impossible politically so it is all academic (in the not complimentary way). It seems to me that the tax deductibility papers over some of the more obvious problems with our current system (such as the additional govt. subsidy it represents, or the cost to the employer, or the regressive nature of the deduction) so it seems to appeal to each of you because it will expose something that you feel needs to be exposed before real change can move forward. The fact that it hurts a lot of people in the process does not seem relevant to you all in my opinion not because you are idealogues (sp?), but because it looks like you expect that once you tear the veil away that something better will quickly replace the tax deduction. I think hoping that will happen to mitigate the real pain is misguided. I would rather you all work directly for your preferred end state. I’m not against incrementalism, but incrementalism that hurts people on the way to a more preferred place is not incrementalism.

  18. Theora- throughout our several discussions, I think your ideas have much merit. Also- please invite me to some parties if you are hanging around with the >$10 million per year crowd!
    You make the essential point that the issue is sick/healthy not rich/poor when it comes to healthcare system overall costs.
    Some central funding– either through pooling of private health insurance premiums or government (eg. medicaid, medicare) will be necessary to provide healthcare services to the bulk of the sick. However, personal responsibility is paramount: it is the only way to absolutely reduce costs. I am not speaking of forgoing ‘necessary’ or emergent care. Obesity, diabetes, smoking — reductions in the prevalence of these conditions by even a few percentage points would have more impact than any artificial government price controls.
    How does the society deter smoking? education, yes. But very important to this is the high taxes to try reduce accessibility and assign some responsibility for excess healthcare costs due to smoking. Here in AZ, there is a plan to try to add an additional $0.80 per pack tax.
    Everyone knows obesity is bad, everyone knows diabetes is bad. For those who make lifestyle choices that increase the total system costs, the costs perhaps should be greater. Of course, it is not as simple as smoking, because those with type-1, juvenile onset diabetes do not choose their disease.
    I think the current employer based system is flawed because as Tom (and I previously)- it hides costs and is a holdover from an economy that no longer exists— 400,000 people make a living selling on EBay, many 2 parent working families have one spouse who works ‘for the insurance’, the post WWII promises that megacompanies made cannot be fulfilled today, let alone in the future.
    Simply converting to a nationally funded universal payer system would result in the short run of a massive bailout for large, older companies. The government cannot (I know this will be argued) impose efficiency. More government control will result in the yearly fighting of one group to supercede another for sympathy money. You need look no further than the current issue with medicare paying for oxygen and oxygen supplies. Imagine that 100, no 1000 times over, every single year.
    elliot- I have no idea what you are talking about, but I think you were not complimenting Matthew, Tom and I?

  19. This idea seems less policy prescription than marxist ideology in the sense of “heightening the contradiction”. This is why I think Matt, Tom, and Eric can all get behind it. It seems to me that they are all sure that after the system blows up that they’re preferred choice for replacement will be implemented. Almost every day, I curse Nader for that strategy (the 2000 election) and I can’t think of a single example where it has ever worked.

  20. Eric–
    I don’t disagree that the employer deduction is regressive. I don’t disagree with you that in a rational system we wouldn’t have it.
    Howerver, I think solving this problem would reap no dividends that would justify the awesome political cost. I think it has definite policy downsides. In addition, I think you’ve overstated the equity argument.
    If I understand the proposal correctly, we’re talking about eliminating a tax credit and converting it to a voucher. If we assume revenue neutrality, then it appears to me that we’re just shifting a government benefit from the middle class and upper middle class to the lower middle class and the poor (but not truly impoverished). Since the middle class currently doesn’t think this government-provided benefit goes far enough to cover their costs, I don’t see how they’re going to think it’s sufficient once a big chunk of it has been re-allocated to lower-income populations.
    Now, it’s immediately obvious to me that’s an incredibly hard policical sell. However, bad politics can be good policy, and we should look at the merits, right?
    Well, I also think there’s not much going for it in the way of policy. First, you’re overstating the equity argument. While it’s less regressive than our current sytstem, it’s certainly not progressive–again, half the families impacted make less than $77k a year. And when one looks at the policy context in which this suggestion is being made–one where in the past 5 years, the tax breaks that make revenue neutrality a political necessity have skewed overwhelmingly to the benefit of the very wealthiest–it’s somewhat strange for an equity argument today to posit that the way to help the poor is for the government to demand more from the middle class. So I think your equity argument is weak.
    (As to how I define the wealthiest, I’m referring largely to the people outlined in these reports, the small group that controls more than half of America’s wealth: http://query.nytimes.com/search/query?frow=0&n=10&srcht=s&query=class+matters&srchst=m&submit.x=0&submit.y=0&submit=sub&hdlquery=&bylquery=&daterange=past365days&mon1=01&day1=01&year1=1981&mon2=12&day2=20&year2=2005
    Note especially the graphic that indicates people earning $100-$200k–whom I consider “very well off” but not truly wealthy–now pay more proportionately in income and payroll taxes than those making more than $10 million, who I do consider “wealthy.”)
    Additionally, maybe I’m obtuse but I don’t see the overall costs of the system declining because we’ve converted tax breaks to vouchers. If anything, overall spending will increase in the short term–well-off people will spend more to keep their health insurance, and less well-off people will have a shiny new voucher to spend. As to whether it will decrease in the long term? I don’t see where it would, since people ALREADY think their healthcare costs too much and it’s done little to contain costs. This faith that we just have to get people a little more broke and upset and then we’ll have some great reform seems to me to be wildly misplaced.
    I think the repeal argument also misses something important, which is that the divide in the uninsured isn’t just rich vs. poor, it’s sick vs. healthy. And given the 80/20 rule of healthcare spending, it seems to me that ensuring that the sick are the central focus of the healthcare delivery system is critical to containing costs and improving quality. I fail to see how repealing the employer tax break does this, and I can see where it would work against this.
    Today, individual markets make discrimination against the sick easier than group markets do. As long as payors know they can stay in business by avoiding the sick (or avoiding paying for their treatment through underwriting, etc), there is very little incentive for them to do the very hard work of reforming the healthcare system into one that’s acutally capable of providing cost-effective, quality care to the sick. Now, it is certainly possible for us to structure the individual market so that it creates these incentives, but ain’t going to shake out naturally simply because we give people vouchers and mandates.
    ((Additionally, since I think the inability to deliver quality/cost-effective care is the biggest problem in the healthcare system today, I think destabilizing the employer market, one of the only mechanisms that forces the powerful interest groups of insurers and employers to push for more cost-effective care, is probably not a good thing.))
    My opposition isn’t based in attacking the wealthy (some of my best friends, you know), or on a fundamental desire for national gov’t run health care (and I think you’re mischaracterizing the Clinton proposal, but maybe I misunderstand it myself).
    I oppose this idea because I think it’s reckless and doesn’t do much to address what I see as the fundamental problems in the system. I can see where wonks enjoy talking about it because pretty much everyone agrees the employer deduction is lousy policy and wishes we didn’t have it. But there’s a difference between agreeing we shouldn’t have it and getting rid of it. I really don’t see how shifting a government benefit that most find insufficient from the well-off to the less well-off is going to make the system work better. Additionally, I think there are real potential policy downsides to doing it that should not be elided.
    Finally, even if you think everything else I’ve said is without merit, I think it’s really important to acknowledge the politics and do a little cost-benefit analysis. This needs to be the last, not the first step of reform. If for no other reason than it if you do this, it will be the last thing you do in healthcare policy.

  21. Theora writes:
    > how exactly does transforming a deductible
    > healthcare expense into a deductible wage
    > expense get rid of the perversions created by
    > taxation?
    It wouldn’t. But who says a medical insurance premium would be specifically deductible?
    The proposal is (essentially) to include the value of employee medical benefits in the category “taxable income” and then have the employee pay income tax on that value at whatever his rate is. For about half of Americans, that (federal) rate is close to zero, presuming we’re not going to try to collect FICA on that non-cash compensation. The standard deduction could be raised to maintain something like revenue-neutrality from the government side, if that is a goal.
    This does three things:
    1) Educates employees about the price of health insurance, and
    2) Removes the tax favored status of spending (beneficial or not) that is currently spent under the rubric of “healthcare benefits”, and
    3) Removes the biggest single obstacle to developing a robust health insurance market that does not rely on employers: namely the favorable tax treatment of insurance premiums when paid by an employer, but not otherwise.
    Making medical insurance premiums specifically deductible, or Eric’s tax credit idea kills benefit #2 of the “make it all taxable income” proposal, leaves #1 mostly intact, and shouldn’t hurt #3.
    If this were done, the first thing I’d do is try to get employers to pay me in cash instead of in “insurance”, and then go buy myself insurance through the IEEE or the Brotherhood of Healthcare Consultants or somewhere else, permanently de-coupling my financing arrangements for medical spending from the particulars of my employment status. This is a Very Good Thing.
    > If we want to find new revenue to cover the uninsured
    In this discussion, it is not a goal to find new revenue to cover the uninsured. This has more to do with rationalizing the market for medical services and financing. This kind of proposal springs from an aversion to “rationing” and from the belief that the higher pricing and higher utilization seen in the USA is due to insurance/benefit-induced price insensitivity on the part of patients. As a secondary effect, it may slow inflation in the medical sector and make other policy initiatives easier to implement.

  22. Theora- please define wealthy.
    You should be applauding a change in the tax status for health insurance: it is currently regressive- the highest wage earners get a 35% tax break on the cost of insurance, while the lowest earners get a 15% or zero break.
    In fact- eliminating the tax exclusion and converting to a universal tax credit for healthcare would benefit the very same people you are so desperate to help: the uninsured and the workers who do have health insurance offered currently.
    The tax credit should be set at a level to make it revenue neutral.
    Doing this would invigorate (perhaps create) the individual insurance market as you would approach health insurance like homeowners and auto insurance (both mandated but not provided by the gov’t or tax advantaged).
    Theora- my concern is that your opposition is based on attacking the ‘wealthy’ (which, again, I urge you to define clearly here) and the fundamental desire for national, government run (which the Clinton admin plan essentially was) healthcare system. Am I wrong?

  23. I’m not sure I’m fully clear on the economics of this. It’s my understanding that employers deduct pay from their taxes as well. So how exactly does transforming a deductible healthcare expense into a deductible wage expense get rid of the perversions created by taxation?
    And while I’m unclear on the economics, the politics of this are obvious–it’s lethal. You want to get class warfare to a high boil? Push this through, and I guarantee that middle class/upper middle class workers will take it out on low-income people for the next 50 years. Seriously, if I were a Republican operative, I’d be desperate to convince people that this plan is what Democrats really mean do when they speak about reform.
    I mean, look at the stats in your linked article–half of the tax breaks go to families making less than $77k a year. These are comfortable people, but they’re certainly not rich, especially if they’re living in places like NY, NJ, MA, or CA.
    To take the specific example in the article, let’s look at the family in LA making $100k a year. First off, they’re richer than the majority of people who would be affected by this change. Second, they’re comfortable, but they’re still worried about college and retirement and paying for grandma’s long-term care, and have big mortgages so their kids can be in a decent school system. If they have to spend $4,000 more on health insurance, that’s 4% of their gross income and probably closer to 6 or 8% of their net income when one factors in existing taxes. If you’re the politician who took away this much of their take-home pay in one year, you’ve done more than commit political suicide–you’ve committed political suicide with a nuclear weapon! You’ve killed yourself, and taken out anyone within 100 miles of you!
    I believe strongly that we need to restructure the health care system so it covers everyone. I think if we do it properly, we can get huge long-term savings and everyone will be better off. I understand that in order to do that, we’ll need a bigger tax base–you can’t do Medicare for all without spending more than we are now.
    I think the employer deduction is a red herring when it comes to shifting money in the system to support long-term cost-saving reforms like universal health care. Wonks spin it to themselves as not a new tax, because it’s “just repealing a deduction–making people pay a tax they already should be paying.” But the reality is that taxes you don’t pay aren’t taxes. These families would pay more in health care premiums, and they’d pay more in taxes. You’re spinning yourselves if you think this is just cost-shifting. It’s not–the reality is that the contribution from middle class families would be higher, and that’s what would fund the expansion of the government-based system to cover the uninsured.
    If we want to find new revenue to cover the uninsured, it makes a lot more sense to come up with a source of tax funding that affects the top 1-5% of taxpayers than to one that completely screws over the middle class but lets us argue that technically, we’re not raising taxes.
    And if our goal is to actually reform the employer-based market, then we can’t just bleed it for cash by repealing the employer deduction–we have to really reform it, probably with something that looks like the voluntary pools the Clinton administration proposed.
    If we believe we can generate savings by making the system universal but there are conversion costs, as a matter of policy and as a matter of political survival, those conversion costs simply should NOT be paid by the middle class. They should be paid for by the wealthy.

  24. I mostly agree, although I may be about to take a lowish-paying job that comes with full health benefits. I’d like to get a higher cash salary, if I’m going to have to pay taxes on the health benefit.
    My preferred solution is to make employer-provided benefits taxable, but to couple that with a universal–even refundable–tax credit for individually purchased coverage that costs as much as an FEHB policy. (Billionaires can’t by extra special deluxe insurance and expect to get a tax credit for it.) This, of course, assumes that we’ve opened the FEHB to everyone. With the current individual market all bets are off…

  25. I would add to that my regular statement that the taxing of healthcare benefits would have the added effect of forcing transparency of health insurance pricing- as total compensation would now be seen by the public. Living in an incrementalist society- start by showing wages + benefits on the W2 and then go for the deduction repeal (replace with universal tax credit- but that is a different topic…)