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.