Wednesday, July 8, 2009

Proposals to Tax Health Benefits and Institute Individual Mandates

The July 2, 2009 issue of the New England Journal of Medicine includes a larger-than-usual number of ”Perspectives” articles. Two directly relate to current health-reform efforts. Jonathan Gruber, of MIT, in “A win-win approach to financing health care reform”,, argues that the cost can be met by eliminating (or reducing) the tax subsidy on employee health benefits. He notes that the loss to the federal government in taxes that occurs because employees do not pay tax on employer contributions to health insurance as they would on regular income amounts to $250 billion a year. He cites 3 flaws: that we could use the money, to expand health care access, among other things, that this is a regressive tax break with greater benefit going to those in higher income brackets (and therefore usually higher tax brackets, as well as often more expensive coverage), and that it undervalues the cost of health care compared to other goods, encouraging over-utilization. This last depends on what you mean by “over-utilization” , but, as I noted on July 5, most identified “over-utilizations” (e.g., going to the doctor for a cold) are not big cost-drivers. The high costs are for services that, for the recipient anyway, seem very important. The waste in these costs is when untested or inadequately evaluated or even evaluated-and-found-to-be-ineffective therapies are applied. (This involves comparative-effectiveness research, and is the subject of two other “Perspectives” in this issue,,, and has been addressed by me previously, on May 12, 2009). The other two make some sense.

Gruber then identifies 4 “counterarguments”, and goes on to counter them. Of these, the first is technical (how it could be done administratively) but the others are important. The first (or second, I guess) is that high-risk groups who now can get group insurance would have more difficulty. He states that this would be eliminated with a new form of health coverage for all. It would be, but this would have to be a conscious effort. Too often in legislation a protection is lost with a “plan” to provide it in another way that is never, in fact, implemented. His next “counterargument” is that it would be in effect a tax increase. Yes, he says, but this could be done in a manner that exempts lower-income workers from the tax, and is thus a more progressive tax. Not a bad idea, but again, it would have to specifically include this plan. His final “counterargument” is that it would be unfair to those living in regions with a higher cost of health care (thus higher premiums to be taxed) or those with an older workforce. He suggests a simple adjustment factor.

The cost of the tax break on employer-paid health insurance benefits is important. It is one of the components of the costs currently borne by government (along with Medicare, Medicaid, coverage for federal, state and local government employees, and VA) that collectively account for more than half of all health spending, and would be enough to cover everyone under a single-payer system. And that is how it should be used. To eliminate while continuing a plan that is based on employer-purchased (from a for-profit company) insurance absolutely does run the risks that Gruber has tried to address.

In another perspective, Linda J. Blumberg and John Holahan, from the Urban Institute, advocate for individual mandates; this is the method adopted in Massachusetts, which requires everyone to buy a health insurance policy and (presumably) subsidizes the cost for the poor. Their piece, “The individual mandate – an affordable and fair approach to achieving universal coverage”,, starts by criticizing the practices of insurance companies, which of course are encouraged by the entire process of health insurance underwriting and financial incentives:

“Health insurers engage in many practices that make it difficult for people with health problems to obtain and maintain their coverage; they do so for the express purpose of protecting themselves from the potentially enormous financial consequences of adverse selection. Adverse selection entails the disproportionate enrollment in insurance plans of people with higher-than-average health risk. There is a natural tendency for such selection to occur, because people prefer to pay for coverage only when they think they will need health care services. Insurance pools cannot be stable over time, nor can insurers remain financially viable, if people enroll only when their costs are expected to be high. Consequently, insurers create, and regulators permit, structured barriers against such behavior, including such policies as exclusion periods for coverage of preexisting conditions, benefit riders that permanently exclude particular types of care, higher premium rates or cost-sharing requirements for people with health problems, and outright denials of coverage.”

So insurance companies do a whole lot of awful things, but it the fault of those people who will not buy insurance until they are sick. Maybe this is a part, but it is also because they are trying to make as much money as possible, as opposed to provide needed health care for people. Blumberg and Holahan state that, by requiring everyone to buy insurance (with subsidies for the poor) all this need for adverse practices will disappear. They go on and on, talking about (let us remember Gruber, above) how this will – if it is enforced – work. Complexly. As they note,
The cost of subsidies will be relatively high, but most subsidies will go to benefit the poorest and sickest — those who are most likely to enroll on a voluntary basis. Thus, a mandate will tend to bring healthier people and those with higher incomes into the system at a relatively low incremental cost, as compared with a voluntary approach — and with the added benefit of government financing redirected from the programs that currently cover uncompensated care.”
Or – we could just have a single payer system.

Blumberg and Holahan say “Enforcement is the final issue.” They suggest that, like Massachusetts, the federal government enact a penalty – “equal to half the lowest available premium” – for people who don’t buy coverage. And, to show that they are not hard-hearted, they “…believe that those who do not enroll in a qualified plan should receive care when it is sought (as if they were enrolled) but should then have to pay back-premiums for the calendar year, plus a penalty, possibly as much as 25%.” Sweet. And what if they can’t? After all, it’s worked in Massachusetts – oh yeah, it doesn’t. Lots of people are not getting coverage, those that do can’t get an appointment to see a doctor, and those that get penalized are paying penalties far in excess of much more serious crimes – if they are individuals. Of course, if they are companies, the penalty is a fraction of the cost of actually buying employees health insurance.

Why are all these people coming up with such stuff? Why do they torture themselves – and us – by complex mathematical calculations and mandates and penalties? The answer is in their last sentence: “In our view, an enforceable individual mandate, with adequate subsidies and benefits, as well as a choice of plans, is the most politically feasible route to universal coverage in the United States today.” That is, they don’t think a rational, cost-effective plan that will cover everybody and save money – a single-payer plan – can get enacted. Now if there were only some leadership, we might actually be able to do something rational.


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