Health Reform & Standards for Equal Justice
The Urban Institute’s Eugene Stuerle is not very happy with the health care expansion legislation that is likely to be passed into law. Stuerle argues that the legislation violates the standards of equal justice.
Of course, families in this income bracket pay far more than $14,700 for health care. They get hit by uninsured expenses or covered expenses they have to share-perhaps an average of $5,100 with the $14,700 policy just noted. They also pay fairly large amounts of tax to cover others, such as retirees. In fact, Americans spend about 24 percent of monetary income (wages and interest and the like) on health care. Using a more familiar metric, the total comes to 16 percent of the gross domestic product (GDP), though GDP includes many items that aren’t typically reported as income (such as the rent you save by owning a home).
Congressional health reformers believe that most households shouldn’t pay that much. They propose something closer to tithing. That way, no more than a tenth or an eighth of household income would go to purchase health insurance. This has a nice political ring to it, but here’s the reality: the 24 percent burden is rising and can’t drop without lower cost growth. Congress can only change who pays or temporarily borrow more from China and other creditors.
The problem gets serious when these arithmetical contradictions get woven into legislation. And we’re already on a slippery slope there.
Take the Senate Finance Committee efforts at health reform that have garnered so much attention. Under one version, households with $54,000 of income would get a subsidy of almost $10,000 toward the $14,700 health insurance policy that Congress has decided that they can’t afford. The first catch 22 is that since these subsidies are so expensive, Congress plans to exclude from getting the subsidy those households that get health insurance in lieu of higher cash wages from their employer.
This is unfair. It violates the fundamental principle of equal justice. People in similar circumstances should be treated similarly under the law.
The notion of justice here that Stuerle is referring to is often called horizontal equity and holds that people in similar circumstances should be treated similarly. In this case they are not.
There is also the distorting effect that related penalty on not providing health insurance for workers. There is a $400 cap on the penalty in one case. Could this lead to employers who are in that situation dumping their workers health care and taking the penalty? And, if you have less than 50 employees you are exempt from the penalty, and this provides a subisidy to small businesses.
Then there is the tax subsidy for employer provided benefits.
Here’s yet another complication. Congress is holding fast to today’s regressive tax subsidy for employer-provided health insurance, which can be worth $2,000 to $6,000 per family. This benefit, an exclusion from tax of compensation received as health insurance, would be valuable enough to some employers—especially those with highly paid employees who aren’t eligible for the new individual subsidies—to keep them from dropping insurance coverage. It is also probably one reason why the Congressional Budget Office estimated that a Senate Finance Committee version of health reform would cause a drop of only about 3 million in employer-provided coverage over the next 10 years. John Shields and Randy Haught of the Lewin Group, in a study for the Peter G. Peterson Foundation, estimated that when fully implemented, this same Senate Finance bill would cause one set of employers to drop insurance coverage for 19 million people but another set to add coverage for 12 million.
Considering the new and old subsidies together gets complicated. Still, many low- and middle-income earners paying through an employer by accepting lower cash wages would lose out big time. They would get thousands of dollars less in subsidy than families making an equivalent amount of total compensation in cash and then getting insurance from the type of insurance exchange that the reform bills would establish.
All in all, the current legislation is going to have many bizzare incentives and it could very well result in less desirable outcomes. For example, what if small employers who grow over time simply never offer health insurance like large employers today? If the penalty is not sufficiently large then these firms will essentially be getting a subsidy as will the workers. A wealth transfer from those who do work for employers who provide health care benefits to those who do not.
And the current legislation completely fails to address the issue of cost. So when President Obama stated,
Soaring health care costs are unsustainable for families, they are unsustainable for businesses, and they are unsustainable for governments, both at the federal, state and local levels.
It wasn’t serious enough to actually warrant addressing. And if one were to look at history we see that government has a rather bad record when it comes to health care and costs. As my co-blogger Dave Schuler has noted, for the past several years Congress has failed to reduce Medicare reimbursement rates. Also, the U.S. takes up the health care issue, legislatively, about once every decade or two. So the idea that the issue of costs will be addressed later is not very reassuring considering it might be 15 years later. At which time we can probably expect health care to be consuming at least 20 – 25% or GDP and who knows how much of our federal budget. And given the inability of politicians to reduce spending it will likely add to our already large debt and growing deficits. Or to put it differently, the trillion dollar deficits? Get used to them. You thought Bush was a spendthrift, you ain’t seen nothing yet.
This is why I don’t consider the legislation passed by the House of Representatives and what the Senate is working on to be health care reform. It will expand and entrench our current system. A system that people have already agreed is broken. Will it be easier to reform the cost side of the issue when you take the current system and expand and further entrench it? Such thinking is simply delusional. Refroming any system will create losers as well as winners. My guess is that the winners will be more motivated, a smaller group, and have better funded lobbyists.
So I agree with Eugene Stuerle when we rights,
Done the right way, I believe that Congress could get more equal justice, higher levels of basic insurance coverage for Americans, and lower costs all in the same package.
I agree from a theoretical perspective this is possible, but from a politically feasible standpoint I’m more inclined to think it is impossible.