When he first introduced his tax plan to a joint session of Congress, President Bush declared, "Some say my tax plan is too big. Others say it's too small. I respectfully disagree. This plan is just right." Conceding that he failed to meet his original $1.6 trillion target, the President has switched from porridge to another food metaphor. ''First of all, define the size of the pie and then we can figure out the slices,'' Bush recently said. According to a budget resolution passed this week by both houses of Congress, the size of the pie will be $1.35 trillion over 11 years.
At least on that, he's finally gotten it right: Now that Congress has decided the size of the tax cut to be enacted this year, perhaps we can at last focus on the real question, which is how we slice the pie.
Democrats have done a poor job of defining the issue as distributional thus far. Former Vice President Al Gore's campaign countered the Bush tax proposal with a complicated series of cuts that few people understood, and which allowed Bush to argue that the Gore program let the government decide what was good for you, did not benefit all Americans -- even among those in the middle class -- and amounted to less in total relief. All of this muddied matters enough to enable Bush to shrug off Gore's indictment of the distributional inequities of his plan as simply "fuzzy math." This math would appear a lot less fuzzy if Bush's plan had ever had to stand up side-by-side with a simple, easy-to-explain tax cut for all Americans, of similar total size, with only one important difference: a distribution skewed to the vast majority of Americans, instead of one bestowing nearly half its benefits upon the richest 1 percent, as Bush has consistently proposed.
With the battle over size largely over, however, as Bush himself points out the time has come to, "figure out the slices.'' And there is, in fact, a way to slice the pie that is simple, easy to explain, available to virtually all Americans, and offering basically the same total tax cut as the President's -- but dramatically skewed toward working households instead of the rich. And, unlike the President's highly divisive plan, politicians across the political spectrum embrace the basic idea. Both Bush and Al Gore endorsed variants of it in last year's campaign, and the President included a limited version of it as part of his proposed budget.
Nonetheless, this logical alternative -- a refundable Health Insurance Tax Credit (HITC), scaled up to the size the President calls "just right" so as to allow all Americans to ladle a heaping portion of the cost of their health insurance right out of the government's trough -- is not even on the menu. And that's just wrong, because an HITC allowing everyone to deduct from the bottom line on their tax form the lion's share of what they pay in health insurance premiums could do more than anything else to satisfy the Three Bears of domestic politics simultaneously: First, it would deliver tax relief to almost every American family -- as Bush pointedly boasts he intends to do -- but in a far more equitable fashion tripling the amount of money the President proposes giving back to the average household. Second, it would cure the major defects in virtually every bipartisan plan to provide health insurance to all Americans. And third, it would restore consumer control of health care and thus curtail the worst abuses of HMOs and insurers without passing a patient's bill of rights -- or any other government regulatory scheme to which Republicans object.
The key thing is that it would allow Congress to address all three of these issues together; seemingly intractable on their own, they are in fact remediable in tandem.
The only major policy objective heard around Washington to which such an admittedly stark tax proposal would not conform is the President's oft-stated contention that the rich pay most of the taxes, and should therefore get the bulk of any tax cut. It would therefore test whether the difference between the two parties is really about trusting government instead of the people -- or just about giving money away to the rich. Since Bush, some of the most conservative members of his party, and most of its moderates, have joined Democrats in embracing a Health Insurance Tax Credit; it would be difficult to explain why one of sufficient size to make a difference to almost all Americans wouldn't produce the kind of bipartisan compromise the President claims his presidency is all about.
And that brings us to the second point, which is that all existing HITC proposals are way too small to do any good. Candidate Bush promised an HITC of up to $2,000 per family; this comes to perhaps one-third of the cost of any kind of reasonable insurance policy these days, leaving eligible families to pay a health care bill ranging from nearly 10 percent to over one-quarter of their total incomes -- an amount still deemed "catastrophic" under any definition. Gore's proposal would have paid for 25 percent of a policy.
With the President on record as supporting the $2,000 figure, congressional backers of the main bipartisan HITC proposal, such as Republican James Jeffords of Vermont and Democrat Tom Carper of Delaware, have upped the ante to $2,500. None of these proposals, however, begin to pay a large enough share of an insurance premium to make it affordable for any significant number of those who lack coverage -- or for those with employer-provided plans to go out and buy better coverage on their own. As Judith Feder, a former health policy official in the Clinton Administration, says, "You're talking about giving a 10-foot rope to someone in a 30-foot hole."
At the same time, critics of such plans point out that a tax credit -- even a refundable one in which the poor who owe little or no tax can receive its full benefit -- is an inefficient way to provide coverage to those without it. It can be utilized by those who already have insurance anyway -- in fact, by one reckoning, the majority of beneficiaries of any existing proposal would already have private insurance -- and it could even induce some employers to drop insurance benefits and force the government to pick up the tab instead. Any attempt to raise the dollar level of the credit to a meaningful amount would exacerbate this problem, flooding it with more and more middle class families able to afford insurance on their own. This would make the credit exorbitantly expensive.
But that's the beauty of it now: We've already settled upon an exorbitantly expensive $1.35 trillion tax break. Once we're throwing that kind of money around, why not create a tax break for millions of middle class families? It beats handing nearly half of all that extra dough to the richest 1 percent, instead. Bush boasts that his tax plan would have given the average family a $1,600 break -- and "that's real money," he says. (The figures provided by the Treasury Department once the President submitted a real budget cut that average family's break by about two-thirds.) But providing a tax credit for a family's health insurance payments (up to roughly the amount of the average employer contribution to premium costs) would provide the same family (and, in fact every family, making it completely equitable) with more than three times the President's "refund." Now, that's real money. And it would form the foundation for a truly universal health care system -- without an accompanying government bureaucracy.
Which brings us to another point: A sufficiently generous health insurance tax credit would empower working Americans with the one thing that polls show they really hunger for -- the ability to ditch their HMOs and control their own health care. In fact, the fundamental cause of a lack of "patients' rights" in health insurance today is the existing tax structure.
By making employer-provided health insurance a non-taxable form of compensation, our tax code subsidizes employers to provide such coverage instead of additional wages. As a result, 80 percent of insured Americans get their policies through employer plans, but also as a result, the people paying the bills and interested in holding down costs aren't the same ones seeking the care. This used to mean that consumers didn't have to worry about how much care cost or how much they bought -- but not since employers (and other third-party payers) got smart and started pushing more patients into managed care plans. Now, the fact that someone else -- usually employers -- pays for most health insurance in this country means that patients (and their doctors) have little say in their care: Sure, if you're treated like dirt by an HMO or insurer, you can take your business elsewhere and drop out of your employer's plan -- but only if you're willing to leave a group plan for the individual market and, in all likelihood, lose your employer's contribution to the premium cost. All in all, it would cost you about three times as much -- and, to add insult to injury, you don't even get the tax subsidy for buying your insurance that your employer gets for buying it for you. In short, however bad the HMO, for most Americans the cost of leaving it is prohibitive -- and the HMOs know it.
A few years ago, the Wall Street Journal claimed that government intervention was unneeded to make HMOs clean up their act, because in the free market such shoddy treatment of patients -- who are, after all, consumers -- couldn't last long. The Journal would be right, except for one thing: We don't have a free market in health insurance -- we have a captive market. And patients are the overhead.
For years, health policy wonks have called for repeal of the tax deduction for employer-provided health insurance, in order to re-impose cost and care decisions on the patients, thereby better rationalizing health care expenditure decisions. But that would triple the cost of insurance for most families and further swell the ranks of the uninsured, and therefore should and will never happen. Instead, we should offer an improved tax break for all health insurance, not just the employer-provided kind. And the current search for ways to give back trillions of dollars to taxpayers provides the perfect opportunity.
A refundable tax credit for the cost of health insurance would make it financially feasible for families to choose their own health plan if the options given them by their employers prove unresponsive. Combining this with permission for everyone to buy in to the Federal Employee Health Benefit Plan (FEHBP) would make Congress's own health insurance coverage affordable to almost every American. Of course, there must be a limit to the amount written off; the government cannot buy everyone the insurance policy of his or her choice. The credit should be capped at a level putting those who buy their own insurance on a par with those who receive employer-provided coverage -- say, 75 percent (slightly above what the average employer covers) of the average policy (currently about $6,500 for a family and $2,500 for an individual): about $4,800.
Like any worthwhile idea, this simple plan has its complications. Any HITC is subject to the criticism that it will "crowd out" employer-provided insurance. We believe, however, that it is more likely to reduce the percentage of the tab that employers pick up, leaving most employees with essentially "free" health coverage, provided partially by employers, and mostly by the government. In any event, recent studies indicate that -- not surprisingly -- employers are dumping health coverage for lower-income employees, anyway.
Overall, this approach would make health insurance -- and health care -- more accessible and more affordable for all Americans. The generous tax subsidy would induce large numbers of healthy, young workers who are uninsured by choice or working in low-wage jobs without benefits to enter the insurance market, improving the overall risk pool and lowering everyone's premiums. Creating a large-group alternative such as open access to FEHBP for all Americans without employer coverage would increase competition and further diversify risk, lowering cost even more. But most of all, millions of Americans would finally be able to tell their insurer to take its denial of needed care and shove it -- and have the financial wherewithal to buy from a company with a better record of balancing costs against care. Getting the care we deserve wouldn't cost three times as much for the simple privilege of being able to shop around -- and it wouldn't require an expansion of litigation or government bureaucracy.
Of course, even a refundable 75 percent credit would still leave insurance unaffordable for some (although a lot fewer than under more paltry HITC schemes). That situation can be addressed by raising this percentage along a means-related sliding scale. This could even be integrated with Medicaid; allowing Medicaid recipients to exchange traditional Medicaid for this subsidized private insurance would be a better and cheaper way to provide health care to the poor, anyway. This would also allow us to save most of the money we now pay in inefficient "charity care" reimbursements to hospitals for the services they provide to the uninsured poor -- care hardly equal to what a family could obtain under a pre-paid health plan.
Such an enlarged government subsidy for health insurance for all Americans comes with an enlarged price tag, of course: It would cost roughly $290 billion per year, although the Medicaid and charity care savings would bring the cost down by about $50 billion, and an additional $50 billion per year would probably be recouped from the current tax subsidy to employers. The net cost would thus come to a little less than $200 billion per year. At first this might sound outrageously expensive. But over the course of a decade it works out to about the same cost as the President's plan when lost interest and the like are factored in. And if phased in over 10 years, like the President's plan, even at recent levels of medical inflation the legislation's price tag would be more manageable than the Bush proposal's. If we're going to enact revenue rollbacks of that magnitude, why not at least do so in a way that will solve a real public policy problem and benefit all Americans, not just those with huge capital gains and million-dollar estates?
Now, of course, a compassionate conservative would argue that we should simply give the public's money back, no strings attached -- but then we would continue neglecting the managed care problem, increasing pressure for government regulation of the type Democrats are pushing. And that isn't very compassionate, or very conservative. Instead, by enacting a generous tax credit for health insurance, we would provide a massive tax cut for average Americans in the area where they want help most. We would also redress the problems of the uninsured and managed care the right way -- empowering consumers and making the marketplace more competitive -- not by creating more government bureaucracy and regulation.
Most of all, we wouldn't just do this for the benefit of the "big" and powerful. We wouldn't just do it for the "small." We would do it for all Americans, more or less equally.
And that would be just right.
