Politics & Policy

Healthy and Wise

The tax code may not be the root of all evil, but it has certainly fouled up health care. We pay taxes on the wages, but not on the health care, that our employers give us. So instead of asking them for a raise and buying health insurance ourselves, we ask them to buy insurance for us. And it leads us to ask them for insurance that covers even routine medical expenses, rather than just the catastrophic events insurance should cover. Since people don’t pay out of their own pockets for those routine expenses, they have no incentive to keep costs down. So the tax code has underwritten a large share of our medical inflation. It has also increased our anxiety: Under this arrangement, we lose our health coverage if we lose our jobs. Or we may have to pass up an otherwise good job opportunity because it would mean trading a good health plan for a lousy one.

One way to fix the problem would be simply to tax employer-provided health insurance. But that would be a fairly brutal, and disruptive, tax increase, and it is hard to imagine any Congress enacting it. President Bush has proposed another way to fix the problem: He would extend the tax break to individuals who buy their own health insurance. So the tax code would no longer encourage people to get insurance from their employers, but would instead be neutral. He would also change the tax break so that people no longer had an incentive to buy expensive health coverage. Under his plan, the size of the tax break would stay the same no matter how expensive the coverage. A person who buys a plan that is cheaper than the size of the tax break would be able to pocket the difference, and a person who buys a more generous plan would have to shell out for it himself.

The new tax break will encourage some people to buy health insurance, reducing the number of uninsured Americans. Most people who get employer-provided insurance would gain, too, although a few, with “gold-plated” plans, would pay higher taxes. That last fact is likely to generate opposition to the proposal. Sen. Ted Kennedy has been cool, and Rep. Charles Rangel hostile.

But the president’s plan is solid. If enacted, it would be the boldest free-market health-care reform ever, and the biggest step toward tax reform in years.


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