Tuesday, January 23, 2007

The Urban Institute on Bush's healthcare plan

I would pretty much endorse the entire statement here, from the Brookings-Urban Tax Policy Center (easily available via google search). Much closer to my views than, say, Krugman's denunciation of the plan.

Anyway, herewith their summary statement about it (from the abstract for a longer discussion):

In his State of the Union address, President Bush will propose to replace most current tax exclusions and deductions for health insurance premiums and out-of-pocket costs with a new $15,000 standard deduction ($7,500 for single people) in the federal income tax-as well as an exemption from payroll taxes-for all taxpayers who obtain qualifying health insurance. The plan would eliminate the current bias in favor of health insurance obtained through employers, provide tax incentives for the purchase of health insurance in the private market, and reduce current tax incentives to over-spend on healthcare services. As designed, the proposal would be revenue neutral over ten years, after which it would generate a growing stream of revenue.

The innovative plan is a major step toward improving the efficiency of the market for health insurance. By severing the link between work and insurance, it would offer everyone the same tax incentives to obtain insurance coverage and limit spending on health care. Whether it would succeed in meeting its objectives in a fair way is less clear.

The new tax incentives will help some individuals to gain coverage. But they could also lead employers, particularly those in small firms, to discontinue health plans for their workers, some of whom would end up without insurance. Furthermore, by relying on tax deductions, the plan would continue to provide the largest benefits to high-income taxpayers and offer little or no financial incentive for low-income people who most need help paying for insurance. The plan would encourage states to shift existing funds to subsidize insurance for people with low incomes and chronic health conditions, but those funds could well be too small to be effective.

Changes to the President's proposal could improve its chances of success:

* Replacing the deduction with a refundable credit or voucher would provide more assistance to low-income families, increasing coverage and improving progressivity.
* Requiring that qualifying insurance plans offer community-rated premiums would help to assure the availability of affordable coverage for people regardless of their health status.
* Providing additional funds for complementary programs like Medicaid and SCHIP would help to provide coverage for low-income families and children.
* Explicitly mandating individuals to purchase health insurance, in combination with adequate subsidies for those with low incomes, would increase coverage and reduce adverse selection.
* Eliminating tax subsidies for health savings accounts would remove a bias in favor of those accounts that would otherwise exist.
* Indexing the deduction to the health CPI or even the rate of change in overall health spending would maintain its value over time, albeit at the cost of lost revenue.

Despite its limitations, the President's plan marks an encouraging step in the right direction. With appropriate modifications, it could expand health insurance coverage and improve market efficiency.

[BACK TO ME]: All this being said, it's just pure silliness for anyone to pay much attention to Bush's proposals on any domestic matters - as if he actually cared about any of this stuff, or had the clout to do anything even if he did care. You can't play the sorts of shenanigans he has over the past 6 years and then say "guess what, I'm turning over a new leaf and you guys should start voluntarily doing what I say." BUT, his healthcare proposal may matter in the future as a not-insane Republican guidepost that could actually play a role in a genuine policymaking process. Bad proposals certainly, but one would hope not entirely bad ones as well, never actually die any more than Michael Myers does in the Halloween movies.

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