Michael F. Cannon
Committees in the House of Representatives are crafting their contributions to an eventual budget-reconciliation bill. As part of that process, various committees are proposing changes to tax and spending provisions that affect health care.
And changes, we need. The federal tax code is the principal reason why health care prices and health insurance premiums are so high, and why the quality of health insurance and medical care is far lower than it should be. Federal health care subsidies are the main force driving the US government toward a debt crisis that would require devastating cuts and disrupt access to medical care for the 120 million people who receive those subsidies.
The changes that House Republicans have proposed fall far short of what Congress must do to make health care better, more affordable, and more secure. They fall into three main categories.
Health-Related Tax Provisions
Left alone, as a matter of course, a free market would continuously make health care better, more affordable, and more secure—in a word, more universal. The federal tax code interrupts that market process. Across economic sectors, the tax code favors health consumption and penalizes other uses of income. Within the health sector, it favors low-quality insurance and certain ways of delivering medical care while penalizing others.
The result is everything you hate about US health care: excessive prices, deficient quality, and massive gaps in health insurance coverage. The harm that the second federal income tax has done in health care alone is enough to justify repeal.
Rather than reduce the distortions the tax code creates between the health sector and other economic sectors, House Republicans offer several proposals that would expand them. Those proposals include additional opportunities to divert more income into tax-free health savings accounts (HSAs) and health reimbursement arrangements (HRAs). Increasing HSA deposit limits is fine—if Congress pairs those changes with offsetting limitations on the tax distortions that favor the health sector. House Republicans propose no such offsetting limits. Quite the contrary: they even propose a new tax credit for certain health insurance arrangements, as if we suffer from a lack of those. The silliest distortion-expansion is a new tax preference for gym memberships and two-on-one fitness classes.
House Republicans propose only weak steps to reduce the distortions the tax code creates within the health sector. They propose to use HRAs to reduce the implicit penalties on workers who choose non-employer-sponsored health insurance. They propose to reduce other implicit penalties on job-site clinics, Obamacare-style “bronze” and “catastrophic” health plans, and primary care pooling arrangements (“direct primary care”). That’s all to the good.
On balance, these provisions prize special-interest giveaways more than improving health care. The largest budget impact (revenue loss) from any of these changes comes from the tax preference for gym memberships and fitness classes—$11 billion over 10 years. Kudos to the Peloton lobbyists.
Medicare
The $1.1 trillion Medicare program is the main force driving the US government toward a debt crisis. The Medicare Payment Advisory Commission estimates that Medicare’s “pricing errors” result in $84 billion in excessive payments to private health insurance companies each year. Medicare has a drastically negative impact on health care quality. Former Rep. Donna Shalala (D‑FL), who ran Medicare under President Bill Clinton (D), said that to match the performance of private insurance plans, “We would have to upgrade Medicare.” Generations of seniors have died waiting for that upgrade.
Congress could give Medicare that upgrade—improve health care quality, reduce health care prices, reduce Medicare spending, and do it on a bipartisan basis—by reforming Medicare using traditionally Democratic “public option” principles.
Here’s what House Republicans propose to do about the rampant waste and quality problems in Medicare: pffft.
Zip. Nothing. Enjoy your debt crisis, folks.
Medicaid
The $873 billion Medicaid program is the fastest-growing major federal entitlement program. Everything about Medicaid encourages higher spending and higher taxes. As I have blogged previously, “It costs more to cover an able-bodied, uninsured adult through Medicaid ($29,583) than to cover an entire family through employer-sponsored health insurance ($25,572), and more than three times what it costs to cover a single adult through employer-sponsored health insurance ($8,951).” Medicaid spending levels are highly unpopular. Congress needs to cut Medicaid and enact fundamental, structural reform—I recommend zero-growth block grants—that ends Medicaid’s matching-grant system. Once. And. For. All.
House Republicans are not cutting Medicaid. Even under their most austere proposals, Medicaid spending would continue to grow each year.
House Republicans are refusing even to tweak Medicaid’s matching-grant structure. They propose to preserve the current system where the incentive to subsidize able-bodied adults is seven times as large as the incentive to subsidize the elderly, blind, disabled, pregnant women, or children. Sure, they propose to reduce the growth of Medicaid spending by reducing the abuses that the matching-grant system encourages, such as “state-directed payments” and provider taxes. But any state Medicaid director worth her salt could devise half a dozen strategies to keep gaming federal matching grants. The consultants could double that number. But if the Congressional Budget Office scores those changes as saving money, that’s all Republicans need to let them cut taxes and increase the federal debt with just 51 votes in the Senate.
Again, enjoy your debt crisis.