Congratulations to Al Gore. His new health care reform plan proposes a major step toward eliminating severe inequities in the tax law and giving needed relief to the millions of people who must buy their own health insurance or go without.
Unfortunately, the Gore plan doesn't stop there. Instead, it reverses course and calls for the expansion of three major government health programs – using money that could be more efficiently and more effectively spent helping people acquire private insurance.
First, the good part. Gore has put his finger on a major reason why the number of uninsured has reached 43 million and continues to grow. To paraphrase James Carville: "It's the tax code, stupid." The federal government spends more than $125 billion a year on tax subsidies for employer-provided health insurance. Yet while some families have lavish health coverage, subsidized by the federal government, other Americans get no tax relief, even when they buy bare bones coverage.
Under the current system, employer payments for health insurance are excluded from the employee's taxable income – a tax benefit that can cut the cost of health insurance in half for many middle-income families. By contrast, individuals who purchase their own health insurance must do so with aftertax dollars, forcing many to earn twice as much before taxes in order to purchase the same insurance. The self-employed get a partial tax deduction, but not as generous as the tax benefit for those whose insurance is purchased through an employer.
Gore would rectify this imbalance by offering a 25% refundable tax credit for those who purchase private insurance. (Refundable means that individuals can file a return and get the subsidy even if they do not owe income taxes.) The proposal is consistent with several other proposals on Capital Hill, but not as generous nor as effective.
For example, the Gore proposal is not nearly as generous as the tax credit proposed in the House of Representatives by Dick Armey (R-TX) and Pete Stark (D-CA). For a $4,000 family policy, Gore would offer $1,000 of tax relief, compared to $3,000 for Armey and $3,600 for Stark. Nor is Gore's proposal as good on incentives. Armey-Stark subsidizes core insurance, forcing the taxpayer to pay for any bells and whistles with aftertax dollars. The Gore subsidy, by contrast, is unlimited – 25 percent of spending, no matter how wasteful.
Still, this is a step in the right direction.
The same cannot be said for the other elements of the plan. For example, Gore proposes to allow people between the ages of 55 and 65 to buy into Medicare. Yet not only is Medicare going broke faster than Social Security, dollar for dollar it's one of the worst buys in the marketplace. Medicare coverage has holes in it that expose seniors to thousands of dollars of personal expenses. Last year for example, 360,000 Medicare beneficiaries faced $5,000 or more in out-of-pocket costs. To avoid these financial risks, a majority of seniors obtain private insurance to fill the gaps in Medicare – either through a former employer or by purchasing supplemental "Medigap" insurance. However, seniors with medigap insurance consume significantly more health care than those without insurance, much of it wasteful.
To eliminate this kind of waste and make Medicare dollars cover more needed services, Congress has been trying for several years to give the elderly the opportunity to leave Medicare and enroll in the same types of private plans routinely available to the non-elderly. Gore's proposal, by contrast, would reverse course – encouraging the near-elderly to buy inferior insurance when those same dollars could buy better coverage in the private sector.
Another mistake is to expand the Children's Health Insurance Program (CHIP), which provides insurance to low-income children. While the goal is laudable, the reality is that this program insures many children who would have had insurance anyway – either through an employer or Medicaid. As a result, we're spending a lot of money for only a small net increase in the number of uninsured children.
Gore's third bad idea, expanding Medicaid, is wasteful for a similar reason. At the margin this program is replacing private coverage that would otherwise come from an employer. And because Medicaid is a program for the poor that pays low reimbursement rates, it will always have problems attracting the best doctors. We should be trying to figure out how to get people off of Medicaid and onto private insurance. Gore's plan does just the opposite.
On balance, Al Gore's plan takes one step forward, and three steps backward. So here's some unsolicited advice: Get rid of the bad ideas and use the money saved to expand on the one good one.