The President’s Health Insurance Proposal – A First Look

Leonard Burman, Jason Furman, and Roberton Williams look at the President’s Health Insurance Proposal and consider it a step in the right direction. Here is how the view the plan,

In some respects, the plan is very innovative and a step in the right direction. It acknowledges that there are no easy answers and spells out some tough choices. The plan attempts to move forward on the twin problems of the rising number of uninsured and rising health spending without increasing the deficit—and in fact as proposed it would even reduce the long-run deficit. The president’s plan effectively turns the tax subsidy for health insurance into a kind of voucher. It would increase the amount of tax relief that subsidizes acquisition of health insurance while eliminating the tax advantages for increased consumption of health care over all other goods. The proposal will almost certainly encourage some people who currently lack insurance, particularly middle-income families, to get it.

They also offer what I consider to be an improvement on the President’s plan. Instead of a tax deduction, which tends to benefit those at the upper end of the income distribution more, use a tax credit that is on a sliding scale with income. That is, as income increases, the size of the tax credit decreases. This could done in a way so that when ever an individual is faced with the prospect of earning more income, the change in the tax credit wont discourage the individual from pursuing that opportunity.

They also note that the proposal is not perfect nor will it solve the entire problem of people not having insurance. And here is their conclusion,

Despite its limitations, the proposal marks an encouraging departure from current policies that underprovide incentives to purchase insurance and encourage families to be over-insured and underpaid. Adoption of a substantially revised and expanded version of the proposal could increase insurance coverage and help stem the rapid rise in American expenditures on health care.

FILED UNDER: Economics and Business, Health
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. CMK says:

    So its ok to raise tax’s on someones benefit’s? The reason the price of health care is going up or to high is not because of people using their benefits,its because the doctors and insurance Co’s. are gouging the middle class that is paying the premiums.

  2. jpe says:

    If Ezra is right, the plan looks either evil or stupid:

    If you’re 23 and your health care costs $2,000 a year, you still deduct $7,500, pocketing the difference. It would, in that situation, be economically foolish of you to purchase high quality, comprehensive coverage.

  3. floyd says:

    Isn’t this proposal just a new tax on employer provided health insurance? [with a deduction thrown in] I haven’t heard the whole story so where am I wrong?

  4. ken says:

    Steve,

    You didn’t catch this?

    The president’s plan effectively …would increase the amount of tax relief that subsidizes acquisition of health insurance while eliminating the tax advantages for increased consumption of health care over all other goods.

    Health care is NOT like ‘all other goods’. The consumption of health care takes place only at need, never on a whim.

    These guys don’t know what they are talking about.

  5. anjin-san says:

    Yea, those darned over-insured families are causing all the problems, sho ’nuff.

    They are just like those greedy middle class people who actually want to collect the social security they have been paying into all their lives someday…

  6. Steve Verdon says:

    jpe,

    Ezra is wrong in that he doesn’t understand the incentive structure of the plan. One can argue over how to set up the incentive plan, but that we need an incentive to keep people from purchasing health “insulation” vs. health insurance is not in doubt. Furman, Burman and Williams are not evil, stupid nor conservatives.

    ken,

    Oh, but you do? I’m sorry, but you just aren’t up to speed on this discussion. You seem stuck on the fact that part of health care deals with things like triple bypass surgery, chemotherapy and other procedures that people are going to utilize due to necessity not “whim” as you put it. On the other hand there are health care purchases that are “whim”. You have a cough, go the the doctor, what the heck it only costs a $5 or $10 co-pay. I know my wife is guilty of this with my son. This means a doctor, a nurse, and administrative staff are spending part of their day dealing with a cold or other minor ailment that could be simply treated at home. Multiply that by millions of households and you could have a not-insignificant contributor to the rapid rise in health care costs.

    Is it the sole contributor? No. Is it going to solve the entire problem? No. I’ve admitted this. Burman, Furman and Williams have admitted this. This is why it is called a first step. Will more need to be done to fully address the problem? Sure. Heck, I even agree with Dave Schuler’s complaint that there are supply side problems. If the number of doctors is constant and the population is growing that is a recipe for increasing doctor’s fees/incomes. The reason for this is that the AMA functions as a cartel that limits entry into the profession. Less entry means less competition and higher prices.

    So, there are many sides to this problem. Your mantra that health care is anywhere and everywhere soley and absolutely about need vs. want is completely inaccurate. it is completely innaccurate not because it isn’t true in some maybe even many circumstances, but because it isn’t true in all circumstances.

    anjin-san,

    Yea, those darned over-insured families are causing all the problems, sho ’nuff.

    Do you think that voluntary procedures should be covered under health care insurance? If your answer is no, then technically you agree with me. If you answer yes, then you favor health care insulation where the costs people’s voluntary health care decisions are shared by a larger pool. This is a recipe for over-consumption.

    They are just like those greedy middle class people who actually want to collect the social security they have been paying into all their lives someday…

    Well, Medicare is on an unstable growth path that just cannot continue for the next few decades. You have to do something about it or it will be cut one way or the other. Acting now and with some forethought could avert some really bad outcomes.

  7. Derrick says:

    Steve,

    The fundamental issue is that you see a different problem than most of America. While you and other libertarian’s and Republican’s of like-mind see a health-care system with people with TOO much insurance, the rest of us see a health-care system that is too costly and doesn’t provide coverage for a large number of Americans. That is a fundamental difference that skews your solution which doesn’t impact any of the problems that MOST Americans face when it comes to health care coverage. Most of America isn’t looking for more risk despite Bush’s “Ownership Society” rhetoric, we are looking for less. All that his policy does is shift the burden of health care from employers onto the individual. Health care is risky enough if you are employed, I’m not sure that most people will be jumping at his proposal just to own their own.

  8. Steve Verdon says:

    The fundamental issue is that you see a different problem than most of America. While you and other libertarian’s and Republican’s of like-mind see a health-care system with people with TOO much insurance, the rest of us see a health-care system that is too costly and doesn’t provide coverage for a large number of Americans.

    Sorry, but you are quite wrong. The way I actually see the problem is that the types of insurance that people are getting make health care too costly. To pretend there is no connection, which is implied in what you wrote above, is just not realistic. More insurance that covers more and more procedures, some even voluntary like Lasik, makes health care more costly.

    And I’d point out that Burman, Furman and Williams are probably not Republicans/Libertarians, at least Furman is for damned sure. So to say this is a Republican/Libertarian vs. the Rest of the U.S. is just nonsense.

    That is a fundamental difference that skews your solution which doesn’t impact any of the problems that MOST Americans face when it comes to health care coverage.

    I disagree for the above reasons.

    Most of America isn’t looking for more risk despite Bush’s “Ownership Society” rhetoric, we are looking for less.

    Again, the problem isn’t risk, at least that is not what I’m addressing. I’m talking about things like voluntary procedures. Lasik is expensive, yet my employers insurance package covered it. Is that reasonable? Where is the risk there when a much cheaper pair of glasses will fix the same problem. Why go with contact lenses vs. glasses. Heck, why even go with glasses in insurance anyways? Are glasses expensive, not really. Not like a triple by-pass or chemotherapy or state-of-the-art drug treatments. Those can quick mount into the hundreds of thousands even millions of dollars pretty damned quick. Yet most insurance plans cover glasses, flu shots, and every time Mommy gets nervous about Johnny’s cough and drags him into the doctor’s office for a meager $10. Roll all those things up and multiply them by millions of people and you have lots of money…i.e. lots of resources.

    So if you waan to get rid of all that risk, expect to pay, and pay huge amounts of money for it. But stop bitching about your $12,000 health insurance plan, that is what you asked for and that is what you got. And in the coming decades when it costs $36,000 don’t bitch then either. You are merely getting what you asked for.

  9. ken says:

    Steve,

    there are health care purchases that are “whim”. You have a cough, go the the doctor, what the heck it only costs a $5 or $10 co-pay. I know my wife is guilty of this with my son.

    Wrong. No one uses medical care on a ‘whim’. The commitment to take time off from work, to get a babysitter, to pull your kid out of school, to stay home with a sick child, or do whatever else it takes to wait two hours in a doctors office for a ‘coughing’ child is never something undertaken on a whim.

    A $5 or $10 dollar co-pay is only a small part of the actual cost to the consumer who goes to the doctor for a ‘cough’.

    This is something you just don’t get Steve. You really don’t have to worry about medical care being over utilized. The fact of the matter is no one *wants* to use it, ever. Money aside, it is a pain in the ass. There is no enjoyment in it at all. Talk to your wife if you don’t believe me. At every level it is a problem, even when only paying $5 for an office visit, it could be free, and you are still not going to be spending your days there wasting the nurses and doctors time.

    Unlike any other consumer good, which people cannot get enough of, medical care is something, by its very nature, people want nothing to do with except in time of need.

    It is not like any other consumer good Steve. People learn, like perhaps your wife has, to use better judgement as they use more and more of the medical care product. The next time your son has a cough your wife may not waste her time going to the doctor for it. But still, her learning of this lesson is worth whatever the almost insignificant small cost the system incurs for it.

    I would rather trust the judgement of mothers and fathers, informed through experience, to make the decisions when to take a sick child to a doctor, then to have those choices be determined strictly by their ability to pay.

  10. Steve Verdon says:

    Wrong. No one uses medical care on a ‘whim’. The commitment to take time off from work, to get a babysitter, to pull your kid out of school, to stay home with a sick child, or do whatever else it takes to wait two hours in a doctors office for a ‘coughing’ child is never something undertaken on a whim.

    A $5 or $10 dollar co-pay is only a small part of the actual cost to the consumer who goes to the doctor for a ‘cough’.

    And yet the consumer is still avoiding all of the medical costs for this “cough”. You are still wrong. This isn’t a life-and-death-must-have thing. It well and truly is a “fringe benefit”. Getting people to pay the full, or more of the costs of such visits will help limit them. Then there are the voluntary procedurs like Lasik. These absolutely should not be covered under health care save perhaps in very few unusual cases. Yet health care packages do cover them.

    The simple fact is that when costs for any commodity are not borne by the person consuming the commodity, but by a much larger group of people (most of whom are not consuming the commodity) you get over-consumption.

    Unlike any other consumer good, which people cannot get enough of, medical care is something, by its very nature, people want nothing to do with except in time of need.

    No, this is simply not true. Do you need to go to the doctor’s office for the common cold? No. Does one need to go to the doctor for Lasik? No. Does one need to have a baby? No. These are either medical problems that don’t require a doctor or are voluntary. As such, covering them under insurance is a way of getting over-consumption.

    Insurance is usually for rare events that are quite costly. Car accidents, pre-mature death, a heart attack. Getting to avoid the full costs of going to the doctor to be told you have a cold or the flu on the other hand is not part of what insurance should cover. One of the reasons it is covered is that employer provided health care is not taxed. Thus, it is a way to “pay employees” and avoid paying taxes. This works out for both the employer and the employee.

  11. ken says:

    Steve,

    Do you need to go to the doctor’s office for the common cold?

    It is rare, in fact it is probably so rare that the statistics are insignificant, that an adult in otherwise good health goes to the doctors office for the common cold.

    An adult suffering from some chronic illness however would be well advised to go to the doctors when suffering from a common cold.

    It is not uncommon however for a parent to take a child to the doctor only to find out that the child has nothing but a common cold.

    But this is not something to complain about. Are you experienced enough to determine when a sick child, coughing all night long, feverish, and lethargic is not in danger of pneumonia and death? Pneunomia used to be a pretty common cause of childhood death, especially infants. How is a parent to know that it is just a waste of time to take a child to the doctor, until they in fact take the child to the doctor?

    Is failing eyesight not a medical condition that should be treated just like a failing joints wracked by arthritis? At one time we had no medical treatment for arthritis. Now we do. It cost money, whereas leaving it untreated cost nothing. I take it you would be happy if it were the same today?

  12. Steve Verdon says:

    It is not uncommon however for a parent to take a child to the doctor only to find out that the child has nothing but a common cold.

    Thank you. I think this settles it. Some use of health care resources are not “need” based and are more “want” based.

  13. ken says:

    Steve, you really don’t get it do you? Your claim is that people should be the diagnosticians instead of the trained medical professional.

    There is no difference between a parent taking a child to a doctor and finding nothing wrong than there is when you have a proctologist stick his finger up your you know what only to find nothing wrong.

    By your reasoning no one should ever have a prostrate gland checked until they have already determined, by means you haven’t told us yet, that they have cancer.

    Steve, I am trying my best to educate you but I feel it may be hopeless.

  14. anjin-san says:

    Ken,

    Look, don’t you know that people are basically the same as cars and should be treated as such?

    Let me give you an example. Let’s say Bush’s maid dies of cancer because she did not get a routine cancer screening that was not covered.

    Well hell, he can always get another maid, just like you can always get another car…

  15. Steve Verdon says:

    Steve, you really don’t get it do you? Your claim is that people should be the diagnosticians instead of the trained medical professional.

    To some extent yes. Knowing that when a child has a mild fever and a cough that it is probably the cold and treating with over-the-counter cold remedies is not that much of a leap. Not having insurance cover voluntary procedures like Lasik also seems reasonable.

    Steve, I am trying my best to educate you but I feel it may be hopeless.

    ken, the problem is you are fundamentally wrong on this. You view any and all medical procedures as the identical in terms of their need/importance. Clearly that is absurd and so are your conclusions.