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STATE OF THE UNION HEALTH CARE PROPOSAL

January 24, 2007

As expected, the President proposed a bold new health care proposal in his speech last night. The proposal would end the tax-free treatment of employer-paid health insurance. It would replace it with a personal "standard deduction" for everyone with health insurance, along with proposals to give the states funds for low-income and high health-risk taxpayers and to open a nationwide market for health insurance.

Bitter Bush-baiting blogger Daniel Shaviro is actually sympathetic to elements of the plan:

Despite its limitations, the President's plan marks an encouraging step in the right direction. With appropriate modifications, it could expand health insurance coverage and improve market efficiency.

The right-leaning Tax Policy blog is, in contrast, surpisingly downbeat:

Tax Foundation economist Gerald Prante released a new study that reveals less than half of the uninsured would be able to claim such a deduction:

Over 50 percent of uninsured Americans owed no income taxes in 2004 after taking all credits and deductions. Therefore, if a healthcare tax incentive were passed in the form of either a deduction or a nonrefundable credit, over half of the uninsured would not even be able to claim any of it. The only way in which such an initiative would entice them to purchase any health insurance at all would be if the credit were made refundable.

But refundable credits have their own problems. We have already seen the number of non-payers explode during the Bush Administration and another refundable credit would continue that trend...

...Ultimately, this may be a death blow for serious tax reform. The pressure to fix an insanely complicated and unfair tax code will continue to dwindle as fewer and fewer Americans have to pay into the system.

The TaxProf has a good roundup of reaction to the proposal.

My views are here. I think the proposals are a good step. Much of the problem with health care is the insulation of consumers from health spending decisions caused by employer coverage, espeically "first dollar" coverage. The best way to address these problems is to break the link between employment and coverage and to create a nationwide health insurance market. I think the notion that the proposal is a "tax increase" is misplaced and gives short-shrift to its important market-opening features. It also ignores the important tax cut the bill provides to those who don't get insurance from an employer, including the self-employed.

Arnold Kling expresses similar views, but much more elegantly.

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