Why target “tax expenditures”?

(See September 20, 2011 post)

1. Because eliminating "tax expenditures" would make our tax system simpler, fairer, and more efficient, as explained in the comments of my original post.

2. Because there's no better way to fund health insurance vouchers.

Vouchers could be funded with a new tax, such as a national sales tax. But support for that would likely be low. Who wants to add another tax on top of the mess we have already?

The Affordable Care Act is funded by mandates and penalties and several new taxes, which are offset by tax breaks and subsidies. The complexity of the system undermines the confidence that people ought to have in it.

I think most people will feel that funding health insurance vouchers with income taxes is fair – if they feel that the income tax itself is fair. But they'll never think it's fair until we get rid of all those “tax expenditures” and the complexity and uncertainty that goes along with them.

My guess is that, individually, most people will be glad to give up the tax breaks that they are currently claiming on their own tax returns in order to have a simple income tax that is much easier to comply with, and to know that it is funding universal healthcare coverage.

Opposition to eliminating “tax expenditures” is more likely to come from people and groups who feel that their business or employment depends in some way on these provisions in the tax law. A lobbyist, for example, may not care about the tax breaks he would lose, but may be very concerned about losing his job if regular opportunities to influence tax legislation are eliminated.

We have a unique opportunity to achieve healthcare reform and tax reform at the same time. Universal healthcare coverage gives us a compelling reason to do tax reform. Both would be a great benefit to the country.

Why Vouchers?

(See September 20, 2011 post)

1. Because vouchers would cover everyone.

The major purpose of the Affordable Care Act was to get more people covered by health insurance. It employs a number of elaborate measures (with lots of rules and regulations that can't be mentioned here), but it still won't cover everyone.

The Republican plan to replace the ACA would also encourage health insurance. But with no penalties for going without insurance, it wouldn't cover as many as the ACA.

People facing large medical expenses, but who don't have health insurance for whatever reason, have various options (not necessarily considered in this order):

• Go without medical treatment.
• Use savings, maybe including retirement funds.
• Sell assets -- business property, houses, cars, personal property, anything of value.
• Appeal to charity.
• Go into debt (possibly resulting in bankruptcy).
• Go on Medicaid, after personal resources are depleted.

I think most people would be glad if they had health insurance for themselves, and would be glad if they knew that everyone else had it too.

2. Because vouchers would help control costs.

Vouchers are limited by their nature. They will introduce a lot of effort to get as much value as possible from the funds available. Annual increases will be subject to deliberate controls.

Vouchers would be a big change from the current system where more expensive insurance gets bigger tax breaks and subsidies. Generous insurance coverage results in overpricing of medical services, and in overuse of services, especially those that are more expensive and/or of unproven or marginal value. So medical spending goes up, insurance premiums go up, and tax breaks and subsidies go up, in a vicious cycle.
 

Healthcare Reform That Works

Updated December 20, 2014

To the Republican Members of Congress

Looking into your plan for replacing Obamacare, I notice some major problems, which might explain why it doesn't seem to be generating much popular support.

First of all, it fails to get everyone covered, which makes it deficient in the minds of many, maybe even in the minds of a majority.

Second, it continues the very unjust policy of giving generous tax breaks exclusively to those who have healthcare benefits. Those without benefits have to pay more tax, income tax, Social Security tax, and Medicare tax.

Third, your plan fails to eliminate the perverse incentives created by tax breaks for healthcare, which have been driving up the cost of healthcare for decades. The burden of these higher costs also falls heavier on those without healthcare benefits.

Clearly, you need a better plan.

Maybe the time is right for a plan that covers everyone, is fair to everyone, and helps to control healthcare costs. You could propose such a plan, as follows:

1.  The Patient Protection and Affordable Care Act of 2010 will be entirely repealed on January 1, 201X.

2.  Beginning January 1, 201X every United States citizen under the age of 65 who is not covered by Medicaid will receive a health insurance voucher.

• The amount of the voucher will depend on the age and sex (and maybe the location) of the person receiving it.
• Health insurance and HMO plans that accept vouchers must accept all applicants who present vouchers and must charge the same for everyone of the same age and sex, except that discounts may be offered for certain wellness practices.
• Each plan that accepts vouchers must disclose the benefits and terms of the plan in a standard format that facilitates comparison between plans.
• Mandatory benefits should be kept to a minimum, so that freedom of choice and competition can work to provide the most valued benefits from the voucher funds available.

3.  The initial budget for health insurance vouchers will not exceed the amount required to provide for basic care. Vouchers generally will not be large enough to provide for care that has not proven to be cost-effective for most patients. However, anyone can have any expensive or unproven or uncovered treatment that they want to pay for on their own (which will ensure that the frontiers of medicine continue to advance). But the voucher program will be strictly limited to a basic care budget.

Increases in the voucher budget will be limited to the growth of the population and overall inflation, or to the growth of the economy.

4.  Vouchers will be funded by (a) the elimination of all healthcare benefits (other than vouchers) for government employees and members of Congress; (b) the elimination of all healthcare-related tax breaks in the Internal Revenue Code; and (c) the elimination of all other "tax expenditures" in the Internal Revenue Code, except for a few that might be required for fairness or simplicity.

Tax rates will then need to be reduced, so that this plan will have a neutral net effect on the overall budget.

5.  Medicaid will be retained until it is determined that it can be successfully incorporated into the voucher system.

6.  Medicare will be reformed separately, with the goal of achieving results and costs at least as good as Canada's.

7.  If it becomes clear over time that the voucher system is controlling costs and serving us better, then Medicare will be converted to the voucher system.

8.  If it becomes clear over time that Medicare is controlling costs and serving us better, then the voucher system will be replaced by Medicare for all citizens.


Comments:

Universal healthcare coverage will be a great benefit to the economy. Employment-related costs will be lower. There will be more job mobility, less trauma from unemployment, less poverty, less welfare, and fewer bankruptcies.

Most “tax expenditures” probably do our nation more harm than good in the long run because they misdirect economic resources. They benefit special interest groups by increasing taxes on everyone else.  Many of them (such as home mortgage interest and retirement-related tax breaks) are also very regressive.  Eliminating "tax expenditures" will make the tax code much simpler, much fairer, and much more efficient.

Social Security and Medicare will both be strengthened by this plan because healthcare benefits currently not subject to Social Security and Medicare taxes will be replaced by wages that are subject to these taxes.

Very few regulations will be needed for the voucher system. The burden will be on the insurance companies and HMOs to prove their worth.  They will have to serve us better than the reformed Medicare if they want to stay in business.

Health plans should be allowed to limit the amount they will pay for certain treatments, and to exclude some treatments entirely, to enable them to offer broader coverage or to reduce their prices.

There should be no restrictions on citizens of one state joining health plans in other states, assuming that they are willing to travel to the doctors and hospitals associated with the plan they join.

States should be encouraged to address tort reform (malpractice issues) to give their citizens more value from their vouchers.