Curing Tax Code Could Cure Health Insurance Woes, Citizen Group's Study Concludes

National Taxpayers Union ^ | July 22, 2003 | Paul Gessing, Pete Sepp, and Maureen Tell

[Onelifetogive]

As Congress continues work on health care issues such as adding a prescription drug benefit to Medicare, a study by the 350,000-member National Taxpayers Union (NTU) urges lawmakers not to overlook a key element in any health care reform effort: the Tax Code itself.

"In their zeal to supposedly 'fix' America's health system, policymakers have focused far too often on tinkering with or even worsening the very source of the problem," said NTU Director of Government Affairs and study author Paul Gessing. "Solving our nation's health care woes requires thinking outside of the current entitlement-based structure, which unwisely permits third parties to undercut the essential free-market relationship between consumer and provider."

Gessing stresses the importance of personal preference in regard to health care, specifically focusing on individual choice in determining health care insurance plans. Gessing argues that this freedom not only makes the health care system more reflective of taxpayer needs, but it also drives costs down and increases mobility in the job market. Unfortunately, the tax laws work against these beneficial forces:

In order for taxpayers to claim a health care expense deduction, 7.5 percent of a tax filer's Adjusted Gross Income must be spent on health care. Not surprisingly, only 4.5 percent of individual taxpayers qualify, even as businesses widely deduct their employee health insurance costs.

Putting individual taxpayers at a disadvantage when purchasing health care coverage places all of the power in the hands of insurance companies, in many cases encouraging employers to opt for the most expensive version of coverage because it offers the greatest tax benefits. Of those under 65 with private health insurance, roughly 90 percent get their insurance through their workplaces, even though the modern job market demands more portability.

The current system wastes between 20 and 30 percent of total insurance spending through warped incentives and the misallocation of resources. This maximizes economic distortion and minimizes economic freedom.

In an effort to cure this insurance ill, Congressman Chris Cox (R-CA) has introduced H.R. 1117, "The Health Care Freedom of Choice Act." His bill would allow consumers to choose their own health care insurance on a tax-deductible basis. Rather than being forced into one-size-fits-all health plans offered by employers, individuals could select a plan that fits their needs. Thus, spending would decrease and efficiency would increase.

"Members of Congress, as well as taxpayers, would be wise to support Congressman Cox's proposal to inject a dose of common sense into the health insurance debate," Gessing concluded. "Until Congress enacts the new and less burdensome tax system that Americans deserve, lawmakers can work to make the existing Tax Code fairer by providing equal treatment for health care purchases."

NTU is a non-partisan organization founded in 1969 to work for lower taxes, less wasteful spending, and more accountable government. For more information regarding health care issues, or for a copy of NTU Issue Brief 145, "Tax Deductible Health Insurance for Individuals: Just What the Doctor Ordered," please visit us online at www.ntu.org.

[Onelifetogive]

A sensible solution...

I have long wanted the government to quit screwing up the market for health insurance.

My job doesn't provide my homeowners insurance...I buy my own and everything is fine.
My job doesn't provide my auto insurance...I buy my own and everything is fine.
My job doesn't provide my life insurance...I buy my own and everything is fine.
My job provides my health insurance...and the whole thing is a pain. Limited choices, can't combine coverage with home, life and autos for a discount. Can't call Geico for a better rate...No choices!!!

[newgeezer]

So, the NTU says the tax code is bad, eh? Well, as much as I agree with them (100%), ...

"In related news, this just in!":

NORML says hemp is key to revitalizing economy

;O)

[inquest]

It's amazing how all this common-sense talk was completely missing from that whole Hillarypalooza healthcare debate of '94, even from the Republican side. Just goes to show their own true colors.

[AZLiberty]

On this topic, and on the more general topic of fixing the broken healthcare system, I highly recommend Newt Gingrich's other new book, Saving Lives & Saving Money. Also check out the related web site of the Center for Health Transformation.

[Always Right]

Breaking: NTU determines national sales tax cures cancer....

[Atlas Sneezed]

MORE subsidies will cause prices to go even HIGHER.

The solution is to make all health benefits taxable like income. People might not be delighted to have Cadillac programs when they have to pay hundreds of dollars a month in taxes on them. They might actually buy plans than make sense, and don't lead to excess consumption.

[Onelifetogive]

MORE subsidies will cause prices to go even HIGHER.

I was proposing giving the same treatment to health insurance purchase whether purchased by an individual or a company. That would NOT be MORE subsidies. It would either be the same subsidy (given to me, instead of the company) or LESS subsidy (given to neither me nor the company.)

[wjcsux]

Here is another thing. Health insurance should be like the insurance you have on your car or house, a means to protect you from a financial loss. You have insurance on your car to protect you financially in the event you have an accident or other type of loss with your car. You have homeowners insurance to protect your investment in your home.
"Health insurance" has become an entitlement to too many people. They expect Blue Cross, or whoever, to pay ALL of their medical expenses, big and small, for any reason. Its like expecting State Farm to pay for new tires and routine service on your car. If we treated auto or homeowners insurance the way health insurance is handled, no one could afford to own a car or house.

[Onelifetogive]

Its like expecting State Farm to pay for new tires and routine service on your car.

I live in San Francico...my auto insurance is paying to have my truck transformed into a car. My truck has always felt like a car, stuck in a truck's sheet metal. Sad...really...

[wjcsux]

I live in San Francico...my auto insurance is paying to have my truck transformed into a car. My truck has always felt like a car, stuck in a truck's sheet metal. Sad...really...
LOL!

[snopercod]

I agree.

Besides, with so many people out of work, employer-provided health insurance is becoming a moot point anyway.

[snopercod]

The solution is to make all health benefits taxable like income.

You're really Ross Perot, aren't you?

[scripter]

Now that is funny, thanks.

[genxer]

Its like expecting State Farm to pay for new tires and routine service on your car

Ah you would be so suprised at how many do try this.
I worked there for 10 years and heard some really really good ones.

[elbucko]

The solution is to make all health benefits taxable like income.

You're really Ross Perot, aren't you?

He's more like Gray Davis.

[Coleus]

`

[Redbob]

Actually, nobody's stopping you from calling Geico for your health insurance. Give it your best shot.

Employer-paid health insurance is an artifact of WWII wage controls: employers were not allowed to get into bidding wars for the services of those males too old or too cowardly to enlist, so they compensated by offering "free" healthcare.

This distortion of the market has been perpetuated by allowing it to continue to be non-taxable compensation ever since.

So the author is right: tax code reform is the solution - that and the understanding that nobody "owes" healthcare to anyone else.

[ninenot]

I disagree.

Although both your proposal and the NTU proposal will have the same end-effect in a perfect world, your proposal has the disadvantage of giving the Gummint revenues AND a direct method of controlling health-care options through IRS regs--that is, the IRS (as directed by Congress, of course) will be able to determine the value of a health insurance plan, and ALSO will be able to regulate such plans to the satisfaction of Congressional constituencies (which rarely, if ever, include regular working people like us.)

While the NTU plan has similar regulatory potential, at least it begins by depriving the Gummint of revenues, rather than giving more $$$ to it for their prudent spending practices.

[Atlas Sneezed]

"...your proposal has the disadvantage of giving the Gummint revenues AND a direct method of controlling health-care options through IRS regs--that is, the IRS (as directed by Congress, of course) will be able to determine the value of a health insurance plan..."

Actually, I would combine the taxability of health benefits with a reduction in income tax rates. And I don't see how the IRS would be more involved in valuaing health care. The issue is the actual cost of the benefit (which the business is writing off.) The true end result of my plan would be that no employers would offer health benefits, and people would buy their own just like they do for car insurance.

[Taxman]

Actually . . . .