This year’s batch of controlled leaks building up to the State of the Union address has included a lot of talk about health-care proposals. It looks as if the President will offer two new health-care ideas in the speech: one involving a reform of the tax code and the other supporting state efforts to help the uninsured get private health insurance.
The President seems set to propose replacing the long-standing system of tax exemption on employer-purchased health insurance. This system makes it more expensive for Americans not covered through their job to get health insurance on their own and creates an incentive for employer-based plans to grow ever more costly (as Eric Cohen and I point out in the February issue of COMMENTARY). The President wants to put in its place a standard deduction for health insurance of $15,000 for families and $7,500 for individuals.
Anyone who has private health insurance, regardless of how it was purchased, would qualify under this plan. About 80 percent of workers who are now covered at work have plans that cost less than $15,000 and so would see their taxes go down or stay the same under this proposal, but the other 20 percent of those with employer-based coverage would end up paying more taxes. The money brought in by this measure would help cover the cost of allowing families who buy their coverage themselves to get in on the tax deduction. This would lower their health costs, and would be a major incentive for the uninsured who can afford it to purchase their own coverage.
The trouble is that those 20 percent are not just fat-cat CEO’s with extravagant health plans, but also some unionized workers, whose unions have negotiated particularly good coverage. The new Democratic majority in Congress is very unlikely to stand for a tax increase on its union constituency. And many Democrats also fear such proposals would reduce the pressure for a government-run system, their preferred health-care solution.
In the face of such opposition, the second proposal under discussion may be both more significant and more realistic. The President apparently intends to propose means of helping states turn the Medicaid funds they now use to pay hospitals for caring for the uninsured into direct assistance to uninsured individuals to buy their own private health insurance. Eric and I lay out the benefits of such an approach in our article, but we also point out that neither the Left nor the Right wants to discuss the real looming fiscal crisis in health care: the costs of care for older Americans. If what we see in the papers is right, that won’t change this year.