The Obama administration is now open to taxing health care benefits. Forget the incessant 2008 Obama campaign ads; this is 2009, and they are searching for money to pay for a major overhaul of our health care sector.
It is important to modernize the tax treatment of health insurance, and I have long supported such reform. Unfortunately, the changes Obama is expected to propose would turn what should be a gentle nudge into a sledgehammer.
There is talk that the reform could include punishments against employers who don’t follow new government mandates to provide and pay for coverage, or used as yet another way to raise taxes while locking in the current system’s flaws.
Need for Targeting
If the goal truly is to help the uninsured, then let’s target resources directly to them. Make sure those eligible for public programs are enrolled and give them more options for coverage, and provide new subsidies for the uninsured to purchase private insurance. We certainly don’t have to turn our entire health sector inside-out.
The first step should be to set a limit on how much income workers can protect from taxes in the form of health benefits. We should set it high so few are affected, to give people and companies time to adjust. The revenues collected should go to provide direct tax credits to help the uninsured purchase private coverage.
This policy would have two advantages. It would make the cost of health insurance more visible to workers so they can become partners in managing their care and spending, thus reducing inflationary pressures. And it would provide money to the uninsured to help them buy the coverage that works best for them.
Tax Breaks for Workers
Tax provisions that tie health insurance to the workplace are out of date with our highly mobile society and cause people to lose their health insurance when they lose or change jobs. We need to tie tax breaks to people, not their jobs.
Millions of Americans are happy with the health insurance they get at work, and they shouldn’t be forced to change their coverage.
Not Enough Money
It is hypocritical for the Obama administration to say it is open to altering the tax treatment of health care benefits after spending millions and millions of dollars in campaign ads blasting John McCain for proposing that very reform.
The reason the Obama administration is considering the change is it’s the only place the White House and Congress can find enough money to pay for the overhaul agenda they’re planning.
The $634 billion Obama has set aside as a “down payment” for health care reform in his stimulus package and budget just isn’t enough, according to John Rother of the American Association of Retired Persons. He estimates the 10-year cost to be about $1.5 trillion, an estimate some analysts think is on the low end for a plan that commits the nation to covering everybody.
That is more than twice the amount Obama has set aside in his budget, and there already is fierce criticism of his proposals for raising the $634 billion, which include reducing the federal tax deductions for home mortgage interest and charitable contributions and limiting payments to Medicare Advantage plans.
Congress Moving Fast
But this isn’t stopping federal legislators from moving forward. Leading House Democratic chairmen have agreed to work together to come up with a health overhaul bill. Three of their key pillars will certainly meet opposition: a mandate that employers provide coverage, a mandate that individuals have insurance, and creation of a new government health insurance plan.
There also is a lot of talk about passing the bills without Republican votes, which would contradict Obama’s pledge to end partisanship in Washington.
The most important question is whether the American people will have time to focus on the details of legislation that could affect every one of us and our children and grandchildren for generations to come.
Shouldn’t it be considered absolutely vital to get this right?
Grace-Marie Turner ([email protected]) is president of the Galen Institute.