Friday, June 24, 2005

A Radical Idea?

Joe Kristan at Roth & Co, tipped me off to a rather interesting forum recently held in our nation’s capital. The panel included members of the President’s Advisory Council on Federal Tax Reform, and included folks from The Heritage Foundation and the Galen Institute.
In fact, the representative from Galen, a Ms Turner, opined that “the tax code contributes to employees' ignorance about the costs of health insurance, leading them to demand more expensive health insurance from their employers and raising healthcare costs.
Robert Moffit of the Heritage Foundation added that "(i)f you want to reform the health insurance markets, you must reform the tax system." He went on to advocate the elimination of the tax-free status of employer-provided health insurance.
Right problem, woefully wrong answer. If one frames the dilemma in those terms, then the only fair, equitable, and reasonable answer is to make health insurance premiums deductable for everyone, not just those covered under a group plan. That would solve a lot of the affordability problem simply and rationally.
It also blithely ignores the rising impact of qualified reimbursement plans, such as HRA and HSA. These serve several purposes, not the least of which is empowering insureds to be more proactive in their healthcare, and raising their awareness of what coverage and services really cost.
As one could imagine, this issue has caused quite the kerfluffle in several areas of the blogosphere, including insurance and tax related sites.
Over at Tusk & Talon, Chad posits that “(t)here would be a massive amount of social upheaval if the employer based system were scrapped either in favor of socialized medicine or free market individual health insurance.” He’s concerned that the costs of transitioning to a system where these tax breaks are absent would be staggering. He’s also concerned about how such a change would affect availability and quality of coverage.
We’ve been here before:
Back in April, we dissected an article by Dr Greenburg of George Washington University in Washington. He also proposed this course of action, believing that this would make the coverage even more attractive. As we stated then, and restate now, the tax advantages of employer-based coverage are, if anything, a minor issue.
Let’s review for a moment the underlying raison d’etre of this tax deduction: During the 2nd World War, private sector wages were frozen. Employers still needed to attract employees, though, and so lobbied Congress to let them offer benefits tax free. This seemed like a good idea at the time, and it has now become enshrined in the pantheon of worker bennies.
So, would eliminating the deduction really cause widespread panic?
Conversely, would such a measure resolve the issue of the uninsured?
No, on both counts, because the whole issue of group insurance deductability is a straw man. The real issue is benefit configuration, guaranteed insurance and portability. That is, group insurance (typically) covers more things than individual, e.g. maternity expenses. And, because group coverage is by law guaranteed issue, folks don’t have to worry about being declined for coverage, or having pre-existing conditions excluded.
Neither of these area are even remotely addressed by eliminating tax advantages. If anything, such a move would highlight the very real benefits of availability and portability, and underscore how very little the tax break figures into the equation.
The good folks over at T & T express the understandable concern that they’d “likely be out of a job if (this) proposal were to become law.” While I won’t pretend to offer vocational advice, I’m less sanguine about this possibility. From the time I got into this racket some 20 odd (or these odd 20) years ago, I learned that when Social Security was first proposed, life insurance agents panicked, convinced that their business was doomed. And in the mid-60’s, when Medicare came into being, the health insurance industry reacted in much the same way.
Of course, history teaches us that neither eventuality occurred.
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