Avik Roy has an excellent post on Rep. Paul Ryan’s new proposal for patient-centered health system reform:
“Beyond [Medicare and Medicaid],” said Ryan, “our current tax code provides additional fuel for runway health care inflation. Under current law, employer-sponsored health insurance plans are entirely exempt from taxation, regardless of how much an individual contributes to their policy. This tilts the compensation scale toward benefits, which are tax-free, and away from higher wages, which are taxable. It also provides ways for high-income earners to artificially reduce their tax-able income by purchasing high-cost health coverage – which in turn can fuel the overuse of health services…These structural flaws push affordable coverage out of reach for millions of Americans.”
Ryan proposed a variation of John Goodman and Mark Pauly’s proposal to provide universal coverage through a refundable tax credit: “Patient-centered reform means replacing the inefficient tax treatment of employer-provided health care with a portable, refundable tax credit that you can take with you from job to job, allowing you to hang onto your insurance even during those tough times when a job might be hard to find.”
Portable health insurance also solves the pre-existing condition problem that is an artifact of our employer-sponsored system. “Instead of top-down price controls imposed by 15 bureaucrats at IPAB, let’s try bottom-up competition driven by 300 million consumers.”
I’m watching the speech now. The following is from the Goodman and Pauly proposal Avik references above:
We propose to change incentives so that citizens will make the right choices along the fine line between appropriate medical care and excessive use of services. To achieve this objective, public policy should encourage adequate insurance coverage, appropriate resources to pay for out-of-pocket expenses, and fair and efficient financing. These three broad goals are achieved by (1) fixed-dollar tax credits to reward those who voluntarily purchase insurance; (2) basic catastrophic insurance coverage to cover large medical bills; and (3) MSAs to pay small medical bills and to offer rewards for prudent purchasing decisions.
These three characteristics complement each other. Catastrophic coverage provides protection against the risk of incurring large medical bills above a deductible. The ability to choose higher deductibles without taxpenalty gives families proper incentives to hold down the cost of insurance. And when they pay small medical bills from their own resources, they have incentives to make wise purchases. A way to fund medical expenses below the deductible is to have an earmarked savings account. We propose a tax credit to help all families pay for insurance and finance their MSAs. It offers a specific dollar reduction in taxes (or a refund or voucher, if the family owes no taxes) for those families who obtain at least the catastrophic coverage. The tax credit would be a fixed-dollar or predetermined amount; families would not receive more relief if they purchased more generous insurance coverage or added to their MSAs.
Though this proposal was made in 1995, it remains directly relevant to the sources of contemporary cost growth.