Competing Health Reform Plans Battle it Out on Campaign Trail

Published October 1, 2007

In early September, Democratic presidential candidate John Edwards said he wants to make preventive care mandatory in his proposed universal health insurance system. That aptly illustrates the truth that once you turn over your freedom to the government, the intrusion doesn’t stop.

If you are forced to buy health insurance, politicians must determine what qualifies as insurance, what you must pay, and ultimately what treatments will be available. Edwards wants to force you to get the care he decides you should have–another step toward political control of the health care economy.

Eventually, there will be penalties against individuals, as we learn from across the Atlantic. In the United Kingdom’s government-run health system, conservatives have proposed, “patients who refuse to change their unhealthy lifestyles should not be treated” by the National Health Service. They could earn “points” by losing weight and quitting smoking, but would be penalized if they don’t.

A Tory panel said people should not “expect that the state will underwrite the health implications of any lifestyle decision they choose to make.”

Better Incentives Needed

Here in the United States, some employers are using carrots as well as sticks to encourage better health habits among their workers, as are some public programs such as West Virginia’s Medicaid plan.

Clearly, people need better incentives to make healthy choices–but it becomes Orwellian when Big Brother watches, especially in a federally controlled health system.

Wouldn’t it be better for people to have positive incentives to take care of themselves and their health spending? Evidence shows this can work.

Competing Plans

The lead editorial in the September 5 Wall Street Journal weighed in on giving individuals more control over their health care and spending. The editors endorse a tax deduction over a refundable tax credit to facilitate individual ownership of health insurance. The editors also endorse a refundable credit that would “go to individuals who pay no taxes at all–essentially in the form of a government handout to buy individual insurance.”

The Journal explains how Republicans are divided on this crucial financing issue. President George W. Bush and Sen. Jon Kyl (R-AZ) support a “standard deduction,” which would replace the current unlimited health care tax deduction for employers with a $15,000 deduction for a family or $7,500 for an individual.

“The deduction would apply both against the income and payroll tax, and would go a long way toward creating a more affordable private insurance market. Presidential candidates Rudy Giuliani and Mitt Romney also now favor a version of the tax deduction policy,” the Journal reported.

Conversely, Republican Sens. Jim DeMint (SC) and Tom Coburn (OK) agree on ending employer subsidies but want to give individuals “refundable” tax credits. Sen. Richard Burr (R-NC) has proposed a tax credit of $5,400 per family and $2,160 per individual.

Combined Approach

An individual tax deduction would be preferable to the current invisible exclusion of health insurance from the taxable income of workers, with all of its distorting consequences. But lower-income people need more help to buy insurance.

My response: We may need to combine tax credits and deductions.

The refundable credit would be more valuable to those at the lower end of the economic scale by providing meaningful help in purchasing health insurance. A deduction would be more like the tax benefit those with job-based insurance currently receive through the tax exclusion.

The deduction should be capped, as Bush has proposed, to limit the open-ended tax benefit it provides to those with the most generous health benefits.

The specifics of the plan can flow from the budget numbers to determine the amount of the credit and deduction and what the cutoff and trigger points would be.

The good news: At least we are having this debate. The bad news: As we debate, government encroachment continues.

Grace-Marie Turner ([email protected]) is president of the Galen Institute, a free-market think tank in Virginia.