Senate Finance Chairman Max Baucus (D-MT) has just unveiled a
comprehensive health plan in the form of a white paper, which he
sees as framing the upcoming debate on health care reform. [1]
The introduction of Senator Baucus's plan is a welcome
development in that it puts some flesh on the bones of ideas that
have been circulating in policy circles. It also indicates a more
open conversation about health reform than occurred during the last
major effort at reform, which was characterized by the secretive
health task force of the Clinton Administration.
Rigging the Rules for "Medicare for
All"
Among the key proposals in the Baucus document is a health
exchange. While the idea of an exchange generates broad interest
and support among a wide range of policymakers, Baucus--like
President-elect Obama--proposes a national exchange rather than
encouraging a variety of state exchanges that would reflect local
conditions and stimulate state creativity in designing better
access to private health insurance. While it is true that a
national system of exchanges can achieve a well-functioning health
insurance market across the U.S., it would be wise to let states
propose the best ways of realizing those objectives.
Within his national exchange, Baucus also proposes letting a new
public plan "similar to Medicare" compete with private health
plans. This approach is fraught with difficulty and danger, because
the federal government would then "own" a plan in the competition
while also setting the rules for that competition. Who can doubt
that the rules would be rigged in favor of the Medicare-style
public plan?
A Level Playing Field
There is a good argument to be made for assuring the existence
of some type of reliable plan that Americans with major health
problems can afford. Senator John McCain (R-AZ) acknowledged that
in the 2008 presidential campaign, and proposed a program of
guaranteed access to coverage. But Baucus needs to work with others
to achieve two things:
- Develop an alternative to a Medicare-style "public plan"
that can achieve the same objective. In the Federal Employees
Health Benefits Program (FEHBP), for instance, the government has
arranged for a variety of affordable national plans to be available
in conjunction with numerous local plans and does not run a
competing public plan.
- Find a way of structuring competition that guarantees a true
level playing field. In the FEHBP, for example, national
private health plans, not the taxpayers, bear the insurance risk
and compete fairly with local coverage options.
Without a convincing way of doing both of these things, it will
be very hard to dispel the idea that Baucus's combination of a
national exchange with a public plan is anything other than a
stalking horse for a single-payer "Medicare for All."
Tax Treatment of Health Care
A very welcome feature of the Baucus document is its discussion
of the federal tax treatment of health insurance. Federal tax
treatment of health insurance is widely understood as a fundamental
element in achieving affordable health care reform. It is arguably
the most important factor shaping the health insurance markets and
thus a key driver of the incentives that dominate health care
financing and delivery. As the Baucus document notes, "Many
economists argue that the unlimited employee tax exclusion leads to
increased health spending."
Baucus suggests an incremental approach to reforming the tax
treatment of health insurance by proposing a cap on the existing
tax exclusion. Thus workers would retain their tax-free health care
benefits but there would be a maximum amount that could be excluded
from their taxable income. This approach is consistent with other
tax-preferred benefits, such as 401(k)s and health savings
accounts. Baucus also proposes expanding coverage through targeted
tax subsidies. This discussion of the tax treatment by the finance
chairman could lead to a very productive bipartisan conversation.
Hopefully, President-elect Obama will join in that
conversation.
Entitlement Expansion
Distressingly, Baucus would support entitlement expansions,
which is hard to defend given the unsustainable nature of existing
entitlements.[2] Medicare and Medicaid are already fiscally
unsustainable, and expanding these programs now just exacerbates
the existing problem. The expansion of these programs would also
further crowd-out private coverage options in favor of
taxpayer-financed coverage.
Baucus also proposes an individual mandate on Americans to buy
coverage and on employers to either offer coverage or pay a fine.
The senator should reconsider both mandates. There would be no need
for an individual mandate if Congress were to enact a combination
of positive tax incentives (such as tax credits) and methods to
help facilitate take-up in private coverage (such as automatic
enrollment). Likewise, the employer mandate is misguided: It would
merely hide the real cost of coverage and be passed on to workers
in the form of lower cash wages.
More Discussion Needed
The proposal thus has strengths and weaknesses and raises key
questions that must be debated fully. Baucus should be commended
for putting forward such a thorough document at the beginning of
the debate instead of the common practice of trying to push through
a chairman's proposal close to a vote. He now needs to foster a
bipartisan conversation on how to build on the white paper's
strengths, such as addressing the inequitable and inefficient tax
treatment of health insurance, and how to deal with the paper's
current weaknesses.
Stuart M. Butler, Ph.D.,
is Vice President for Domestic and Economic Policy Studies at The
Heritage Foundation.