Health
Reform Debate in Congress Takes a Free Market Turn
By Grace-Marie Arnett
September
15, 1999
The most unexpected of debates is brewing in
Washington - a debate over the best way to help uninsured Americans
obtain private health insurance. Congress is considering a number of
bills that would offer tax credits directly to individuals to purchase
their own health coverage in the private marketplace.
The
measures have diverse bi-partisan support, from liberal California
Democrat Pete Stark to conservative Texas Republican Dick Armey. Why
would this self-described congressional odd couple be supporting the
same idea? "We seldom agree on anything, but on this we do agree," Armey
and Stark wrote in a recent Washington Post commentary they co-authored.
"Congress should act now to help the 43 million Americans who have no
health insurance…[and] create a new refundable tax credit to enable all
Americans to buy decent health coverage."
Both sides see
the number of uninsured rising during the healthiest economic climate in
decades, and both realize that action is needed. Liberals say they
aren't optimistic about creating another new federal health program for
the uninsured in this Congress. The $48 billion State Children's Health
Insurance Program - the largest government health insurance expansion
since Medicare and Medicaid - was enacted in 1997, and President Clinton
admitted last week that he is disappointed with its results.
Conservatives have tired of the incessant battles of fighting back
liberal proposals to pull more Americans into government-run health
systems and are energized by an idea that offers private-sector
solutions.
Health reform now registers as the number one
issue that voters who responded to a Pew Research Center poll in
mid-July say they want discussed in the 2000 elections. Already, the
congressional docket is dominated this summer by health care issues,
from Medicare reform and prescription drug coverage, to medical privacy,
and managed care regulation.
For decades, policy makers at
all levels of government have been searching for ways to help Americans
gain greater access to affordable health care. As costs and the number
of uninsured continue to rise, a different approach clearly is needed.
Liberals and conservatives see tax credits for the uninsured as a first
step that both can agree would help.
A number of tax credit
bills either have been introduced or soon will be. Besides Mr. Armey and
Mr. Stark, other sponsors include representatives Jim McDermott (D-WA),
Nancy Johnson (R-CT), Charlie Norwood (R-GA), John Shadegg (R-AZ), and
Gene Green (D-TX); plus senators Jim Jeffords (R-VT), Barbara Boxer
(D-CA), Richard Durbin (D-IL), John Breaux (D-LA), John Kerrey (D-NE),
and Joe Lieberman (D-CT). In addition, proposals based on tax credits
for the uninsured have been offered by the American Medical Association,
the Health Insurance Association of America, the American College of
Physicians/Society of Internal Medicine, the National Association of
Health Underwriters, and Blue Cross and Blue Shield
Association.
All differ in the size of the credit and the
targeted populations: Armey would offer credits of up to $3,000 a year
to families who cannot get health insurance through an employer, and
Stark offers $3,600 a year per family, with an income phase-out, for
those not participating in an employer plan. Under both bills, those at
lower incomes would qualify to have the amount of the credit "refunded"
to them for the purchase of health insurance if the amount of the credit
is more than they owe in taxes.
The Health Policy Consensus
Group, made up of 18 health policy experts from the leading
market-oriented think tanks, held a news conference in June in which
they recommended directing credits to individuals and families to help
them obtain private health insurance. They believe that many of the
problems in the health sector are rooted in the tax code, particularly
the tax treatment of health insurance that is antiquated, regressive,
inflationary, and discriminatory.
Tax credits, therefore,
are not only a good idea politically, but wise policy as well.
Economists have been arguing for decades that the structure of tax
subsidies for health insurance benefits taxpayers in upper incomes who
have jobs that offer health insurance and does little to provide help
for people who work for companies that don't offer insurance and who
have lower incomes. For them, the tax benefit is worth little or nothing
and they are the most likely to be uninsured.
Economist
John Sheils of the Lewin Group in Fairfax, Virginia, estimates that
federal and state tax preferences for health insurance were worth $125
billion in 1998. Those at the lower end of the income scale, the young,
minorities, and those working for small firms that don't provide health
insurance receive virtually none of these tax breaks. Sheils estimates
that a family with an income of $100,000 or over receives a tax benefit
worth $2,357 for health insurance while a family making less than
$15,000 gets only $71 in tax benefits.
But the system that
ties health insurance to the workplace is breaking down and is one of
the reasons the number of uninsured is rising when the economy is
strong. The Labor Department estimates that 13 million Americans change
their employment status every month, and that 40 percent of the
workforce, or roughly 50 million workers, change jobs within a year. The
young change jobs most rapidly and, not coincidentally, younger
Americans aged 18-24 are the most likely to be without health insurance.
With this kind of job mobility, having industrial-age federal policies
dating to before World War II that tie health insurance to the workplace
clearly are not suited for a highly mobile 21st century
economy.
For their part, employers are having second
thought about being the only vehicle for private health insurance. Costs
are beginning to rise again, and companies are nervous about potential
legal liabilities under legislative proposals that would make them
responsible for bad medical decisions made by the health plans that they
sponsor for their employees.
In considering
individually-based tax credits, Congress is taking the first halting
steps to consider policies that would break the lock between health
insurance and the workplace and allow more individuals to purchase
health insurance on their own. There are a number of problems, including
the thousands of health insurance regulations and mandates that have
been imposed by the states that are crippling the market for individual
and small group insurance.
But given enough incentive, the
vitality and creativity of the marketplace can overcome even this
obstacle. For example, a 110-year-old insurance company, Provident
American Corp of Pennsylvania, severed ties with 20,000 shoe-leather
agents and moved into cyberspace. Now called HealthAxis.com Inc., the
company is selling a variety of health insurance products on-line in
what it believes is a largely untapped $73 billion annual market of
individual consumers and small businesses.
In the arcane
tax policy debate in Washington, the main point of contention is whether
to offer tax credits or tax deductions. Unfortunately, both chairmen of
the tax writing committees of Congress - House Ways and Means Chairman
Bill Archer of Texas and Senate Finance Committee Chairman Bill Roth -
support tax deductions. Deductions are worth more to those who have
higher incomes, are in higher marginal tax brackets, and who itemize
their taxes. Tax credits are a more efficient way to subsidize the
purchase of health insurance for middle and lower-income taxpayers. In
addition, by making tax credits refundable, it is possible to use the
tax system to subsidize those people who do not currently pay income
taxes. When the Senate considers tax legislation on the floor this week,
Senator Jeffords plans to introduce a bill that would move the debate
front and center by offering a refundable tax credit targeted to low and
moderate income Americans.
Providing credits or other fixed
incentives to individuals and families would mean millions of Americans
not eligible for the current tax subsidy would receive help in
purchasing health insurance. This would expand choice, give individuals
the opportunity and responsibility to choose and own their own health
insurance, and it would make costs both more visible and predictable to
consumers. Health care costs could be contained, quality enhanced, and
access to care greatly expanded by creating a new and more equitable set
of incentives so individuals can choose and own their own health
insurance and make their own health care arrangements in an open and
competitive marketplace.
This is a far cry from the dark
days of the Clinton health reform debate five years ago when it seemed
the slide toward socialism was inevitable. For the first time, the
terrain of the debate has shifted toward free markets.
Grace-Marie Arnett is president of the Galen
Institute, a public policy research organization based in Alexandria,
Virginia. She is the editor of Empowering Health Care
Consumers through Tax Reform, published in 1999 by the University of
Michigan Press.