Look Who's Proposing a Soak-the-Rich Health Plan

TRB

July 11, 1991|By TRB

WASHINGTON — Washington. -- Health care costs are bankrupting the nation and 34 million Americans have no health insurance at all. Why? Because today's basic system evolved not in response to the needs of consumers, but ''according to the marketing and professional objectives of suppliers of health care.''

Who says so? Ralph Nader? Long-Haired Physicians For Socialized Medicine? No, it's the Heritage Foundation, of all people. Washington's leading right-wing think tank has produced a remarkably progressive idea for health care reform.

The Heritage proposal zeros in on a huge, unacknowledged government program: the tax exemption for employer-paid health insurance. This costs the federal government $48 billion a year in lost revenue. The states lose billions more.

As a method of subsidizing health care, it has several defects. It is regressive: the higher your tax bracket and the more lavish your health plan, the larger your government subsidy. It makes those who are covered -- most Americans -- almost indifferent to costs. It does nothing for those without company health benefits.

Heritage would fully tax employer-paid health care. But it would offer a tax credit for health care costs of any sort. A typical family might get a credit of 20 percent. That is, it would get to subtract 20 cents from its tax bill for every dollar it spent on health care (including what employers spent on its behalf).

Those with lower incomes or high health care costs would get a bigger credit. Those with very high incomes might get no credit at all.

The credit would be ''refundable'' -- meaning that the government would write a check to those who pay little or no income tax. Medicare for the elderly and Medicaid for the jobless poor would continue.

Heritage would require all Americans to prove that they have obtained health insurance. But the government would guarantee through these various devices that no family would have to pay more than 10 percent of its income on health care.

The idea is to invigorate competition while still protecting people from ruinous expense. If people are paying 80 cents on the dollar for health care, they will be better shoppers. The Heritage plan's author, Stuart Butler, claims that red tape can be saved as market efficiency replaces bureaucratic supervision in restraining health costs.

The Heritage Foundation does not leap to acknowledge how progressive its proposal is. To start, it amounts to a major tax increase on the well-to-do.

Any top-bracket taxpayer is currently getting a health care subsidy of something like 40 cents on the dollar (including the state income tax deduction). This would be reduced to 20 cents or even zero for the very affluent.

A $200,000 taxpayer with a $10,000 insurance package -- not uncommon -- could pay $4,000 more in taxes if Heritage has its way. The average taxpayer in the 15 percent bracket, by contrast, would come out slightly ahead if the exemption was replaced by a 20 percent credit. The working poor and their families (including most of those 34 million uninsured) would get hTC a generous boost.

If the Heritage plan actually worked as advertised to reduce health care costs through competition, it would be redistributive in another way: by reducing the incomes of physicians, medical equipment manufacturers and others who do well in the current system.

These folks would squawk. That makes the Heritage proposal a nice test for conservative politicians. Do they really support the free market, or do they merely support the business status quo?

Philosophically, for all its talk of markets, Heritage with this proposal accepts -- at least in health care -- the basic principle of socialism. In fact, it goes beyond socialism. Not only does the government have a duty to guarantee everybody affordable health care, but the government can require its citizens to obtain health care insurance whether they want to or not.

With this proposal, Heritage also abandons the tiresome right-wing conceit that it is illegitimate to talk about tax expenditures. Health care is just one area where huge subsidies through the tax code go unexamined.Housing is another: The home mortgage interest deduction costs the government more than all direct housing programs for the poor.

This proposal is not the panacea the Heritage publicity machine would have you believe. Misguided tax policy is only one reason competition can't function in medical care the way it does in other markets.

Even under Heritage's plan, people would be insured and therefore largely indifferent to the cost of individual doctor and hospital bills.

Insurance aside, most people have neither the ability nor the inclination to decide what lab tests they need or to bargain with a brain surgeon. Private and government cost control bureaucracies would still be needed. But the Heritage plan would provide a bit of market discipline.

And it would provide universal coverage by (don't tell anybody) taxing the rich to pay for it.

TRB is a column in The New Republic written by Michael Kinsley.

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