Answering the critics of the Bush health plan

President Bush made bold health policy proposals in his State of the Union message. First, he would level the playing field between individual and employer purchase of health insurance. Second, he would eliminate provisions in the tax law that reward waste and penalize economy in the purchase of health insurance. Third, he would allow the states to redirect federal funds used for charity care and use them to subsidize private insurance instead.

The plan has drawn praise from the right and the left. It gets high marks from the Urban Institute and the Brookings Institution, as well as the Heritage Foundation and the American Enterprise Institute. Yet the critics have been quite vocal. Let's look at their complaints.

Is the Bush Plan a Sop to the Rich?

Families USA claims that the Bush health plan would benefit the rich at the expense of the poor. The same charge was made by Paul Krugman in the New York Times and some Democrats in Congress. But as Steven Pearlstein and Ruth Marcus explain in separate editorials in the Washington Post, the opposite is the case.

The Bush proposals would redistribute tax subsidies for health insurance from the haves to the have-nots. Specifically, the plan would grant everyone a health insurance standard deduction of $15,000 (family) or $7,500 (individual), regardless of the cost of the insurance or how it is purchased. Families whose insurance costs less than $15,000 would pay less in taxes than they currently pay. Families whose insurance costs exceed $15,000 would pay taxes on the excess. Thus, for the first time, people who must purchase their own insurance would receive the same tax relief as people who obtain insurance through an employer.

Under the current system, the federal government dispenses more than $200 billion a year in tax subsidies for private insurance. Families with incomes in excess of $100,000 get seven times as much subsidy as families who earn less than $30,000. [See the figure.] The Bush plan takes a large step toward a fairer arrangement.

According to White House estimates, about 20 percent of taxpayers - mostly those at the top of the income spectrum - would pay higher taxes. These are the 30 million people with expensive employer-provided plans. By contrast, the Bush plan will cut in half the cost of health insurance for a typical uninsured family.

Would Employer Coverage Erode?

The New York Times complains that the Bush plan makes it easy for employees to leave their employer plan and purchase their own insurance. This exodus of employees would cause employer plans to crumble. Some business trade groups make the same complaint. Does this criticism have merit?

In virtually all group plans, employers pay half the cost of the insurance, and in the average plan, they pay three-fourths for family coverage. Even on a level tax playing field, an employee exiting an employer plan leaves three-fourths of the premium payment behind. If the employee can find a better plan for one-fourth of the premium dollars (to say nothing of the economies of group buying), the employer plan would have to be extremely wasteful. Some employer plans may be that wasteful. If so, all would gain if the employer gets out of the health insurance business and pays more wages instead. (See the next question.)

Would Employers Drop Their Health Plans?

Paul Fronstin (Employee Benefit Research Institute) says, "The president's proposal would mean the end of employer-based benefits as we know them." Is this really true? Under the Bush plan, individual and group coverage would compete on a level playing field. In such a world, employers would not offer insurance at all unless they had a comparative advantage in doing so in their competition for labor. Undoubtedly, many large companies do have an advantage - they can do for their employees things the employees cannot do for themselves. Many small firms, however, have no such advantage and would probably be better off paying higher wages instead of paying for health insurance. These issues should be resolved in the marketplace, rather than by the tax-writing committees of the U.S. Congress.

That said, where employers can add value - say, through economies of group purchase - the Bush plan creates new and stronger incentives to do so. The reason: For millions of people, the tax subsidy for purchasing insurance will be higher and the tax penalty for failure to purchase will be lower. (See the next question.)

Would the Plan Increase the Number of People with Health Insurance?

Paul Krugman, Families USA and other critics claim that the Bush plan will do little to insure the uninsured. Even if the plan failed to induce a single new person to obtain insurance, it would still be worth enacting. Tax fairness - treating equals equally under the tax law - is a worthy goal in its own right and is long overdue. Similarly, eliminating incentives to make wasteful health insurance purchases is also a worthy goal.

That said, the Bush plan will make health insurance more attractive for millions of families that are currently uninsured. The White House estimates 3 million to 4 million additional insured. That estimate is probably too conservative.

Consider a family with the opportunity to purchase a $5,000 high-deductible, no-frills health plan. Under the current system, the family would receive a tax subsidy (if purchased through an employer). Under the Bush plan, the size of that subsidy would triple. The reason: The family gets to exclude $15,000 from income and Social Security taxes, regardless of the premium cost. Conversely, the penalty (taxes owed on $15,000 instead of $5,000) would also triple if the family failed to insure.

The Bush plan is likely to encourage insurance in another way. By redistributing the benefits from the haves to the have-nots, the plan makes health insurance far more attractive to low- and moderate-income families. For example, two-thirds of the uninsured (nearly 30 million individuals) are families with incomes under $50,000. Under the current system these families receive a tax subsidy of only about one-quarter ($733) of the subsidy families earning more than $100,000 receive ($2,780). Under the Bush plan, a $15,000 standard health insurance deduction would be potentially worth $4,545 in subsidy (15 percent federal income tax and 15.3 percent payroll tax).

Would the Plan Cripple Safety Net Hospitals?

Sen. Hillary Clinton says the Bush plan would take money away from public hospitals that cater to the poor. The New York Times agrees. Yet the White House points to Gov. Mitt Romney's health plan in Massachusetts as an example of what it wants states to be able to do; and the Romney plan was endorsed by Massachusetts hospitals, along with a huge majority of Republicans and Democrats in the state - including Sen. Ted Kennedy.

Safety net hospitals exist to provide care to indigent patients who cannot afford health insurance. These hospitals receive government subsidies to reimburse them for the cost of providing "uncompensated" care. In a market with few uninsured individuals, safety net hospitals should not need the current subsidies and would have to compete for patients against other hospitals.

Under the Bush plan, low-income families would no longer be trapped in public systems where the quality of care is frequently suspect and there is often rationing of care, especially rationing by waiting. Instead, states would be able to apply federal funds previously allocated to hospitals to subsidize the purchase health insurance for the poor.

Conclusion. While not perfect, Bush's plan would be a considerable improvement over the system we have today.

Source






Britain: Why New Labour is losing the health war

Want to really know how well - or not - the Government is doing? Ask a senior minister. No, really: an outbreak of candour has descended upon those reaches of the Cabinet who generally prefer to tell us that everything is going marvellously.

But today the Health Secretary Patricia Hewitt tells this paper that she wishes NHS reforms had been begun earlier and gone faster. Hazel Blears told us the same thing last week on state schools. In the no-man's land between the Blair-Brown leaderships, ministers are anxious to defend their record and stake their claim to a place in the next phase of the New Labour story.

Mrs Hewitt is to be commended for her openness, but even she does not reflect the degree of political concern inside the party that it could "lose health". A splenetic memo from Mr Blair's favourite pollster Philip Gould reflects that fear and recommends health as the first area of policy which needs to be addressed to get the party on course for a fourth term.

"Just tell me," asks one young minister, "How did we contrive to lose our way quite so badly in the one area Labour has a cast-iron, in-built advantage as the party which founded and defended the NHS?" The voters are confused - a hitherto impregnable poll lead over the Tories on competence to run the NHS has entirely disappeared.

A wave of "reconfigurations" - the newspeak for unpopular hospital closures to create bigger treatment centres is underway, the NHS is struggling with massive deficits - five hospital trusts in London alone are in the red.

Between now and the next election, Labour has to get the budget back into balance, close hospitals and reorganise services accordingly - and deliver the promised maximum waiting time of 18 weeks. It is a very tall order indeed. No wonder David Cameron is starting to enjoy himself with a "campaign" against Labour's "cuts" - serving up the same jibes that used to be turned on the Tories as a preliminary salvo.

Tony Blair began his NHS reforms seven years ago, with a barnstorming speech about dragging the service "out of the Forties and making it fit for the new century". What has been lacking is not good intentions - as always, he saw more clearly than many around him that the NHS needed to change to satisfy the demands of modern users.

What has been lacking is consistency of implementation. "The trouble with Tony," says a civil servant who worked closely with him, "is that he thinks that just because he says he wants something to happen, it is going to happen." Delivery tsars have come and gone, but implementing reform has always been the Achilles heel of the Blair years.

To which the PM might well respond that it might have happened a bit faster had healthcare reforms not become a football kicked between Number 10 and the Treasury, with the Chancellor intervening to stymie some of the plans for autonomy developed by Alan Milburn as health secretary and then approving large pay increases across the board with too few guarantees of value for money in return. Either way Mr Brown is set to inherit a lot of unfinished business at an inconvenient time in the electoral cycle.

Consultants' restrictive practices still go unchallenged, managers become mere administrators tied to clipboards and computers and we have acquired some of the most expensive GPs outside Europe thanks to the 2004 Treasury pay deal, without securing reliable out-of-hours cover that does not rely on jobbing locums of variable quality.

To add to the good news, a Department of Health leak reveals that the Government will miss its MRSA target and the BMA claims today that waiting lists are being routinely fiddled. (The BMA, we should remind ourselves, is a trade union with a posher name: it is good at producing Jeremiads but is not exactly putting its shoulder to the wheel to make things work either.) The most well-argued account of what isn't working I have come across recently comes from Ian Smith - a near-miss form the job of NHS Chief Executive - in the Health Service Journal.

"There is no doubt, " he writes, " that health outcomes have increased over the last 10 years," he writes. "The Government deserves credit for acting to change historic weaknesses in healthcare - under-provision of resources and inadequacy of policy design ... (but) pouring money into an unreformed, poorly managed system has inevitably created waste and will continue to do so."

Mr Smith cannot see how this can be remedied without giving managers far greater freedoms to be accountable and responsible for what they produce and allowing the Health Service to be radically decentralised. Nor can I. The people presently appointed to lead change, he points out, are senior NHS managers and officials. "It s not possible for someone brought up within the system to have the inclination, derive experience and perspective to change it."

Mr Blair once told me that he has nothing in principle against the private sector managing parts of the NHS if that yielded the best results. But NHS management has not really crossed this Rubicon. Private sector management thrives on risk and reward: yet whoever loses their job at senior level in the health service for failing to deliver?

Mrs Hewitt, or a successor, cannot be expected to control everything from her perch in Whitehall. A complex, modern health service has to give responsibility to managers to ensure that agreed changes are driven through from the top to the bottom as efficiently as possible, and allow a market in incentives to make it happen. I suspect that will mean acquiring the very best managers, many from the private sector with experience of this sort of process, paying them accordingly to deliver results and toughing out the reaction from the vested interests. Most importantly, they should be left by the politicians to get on with it.

Mr Brown is no slouch on political strategy. He knows that rescuing New Labour's reputation as the party which enjoys most public trust on health is a key defence against the Tories and he will focus his efforts here. Yet it remains mysterious to me what mechanism he believes will transform the service into a more consistently excellent one.

On past practice, he looks an unlikely figure to embrace Mr Smith's nostrum of more independence from Whitehall and the Treasury and expansion of private sector management. One of his keynote speeches in the last parliament outlined his vision of the "limits of the market" in health. But without some more radical prospect, all he has to fall back on, seven years after the Big Bang on NHS reform started, are the old remedies of targets (yep again) for three per cent efficiency savings and exhortations, patchily implemented in the wards and surgeries.

New Labour rallied voters in 1997 with the promise to "save" the NHS. It had time to do so and patience is running out. Mr Brown can deliver a political surprise and seek to show he is a real healthcare reformer: or he can trust a continuation of the present in-between solutions will convince the voters next time. That would be quite a gamble, and one he might lose.

Source

***************************

For greatest efficiency, lowest cost and maximum choice, ALL hospitals and health insurance schemes should be privately owned and run -- with government-paid vouchers for the very poor and minimal regulation. Both Australia and Sweden have large private sector health systems with government reimbursement for privately-provided services so can a purely private system with some level of government reimbursement or insurance for the poor be so hard to do?

Comments? Email me here. If there are no recent posts here, the mirror site may be more up to date. My Home Pages are here or here or here.

***************************