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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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ShelleyrdgMatthew HoltJohn C.elliottg Recent comment authors
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Shelley
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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,… Read more »

Eric Novack
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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.… Read more »

John C.
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John C.

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… Read more »

Eric Novack
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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… Read more »

Tom Leith
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Tom Leith

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… Read more »

Tom Leith
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Tom Leith

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… Read more »

theorajones
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theorajones

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… Read more »

Matthew Holt
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Matthew Holt

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… Read more »

Tom Leith
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Tom Leith

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… Read more »

rdg
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rdg

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.… Read more »

elliottg
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elliottg

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… Read more »

elliottg
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elliottg

“… 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?)

Eric Novack
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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… Read more »

Matthew Holt
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Matthew Holt

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

Tom Leith
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Tom Leith

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… Read more »