This week’s “Daily Journal” guest columnist is Joseph Coletti, Fiscal Policy Analyst for the John Locke Foundation.
If simple demagoguery does not work, leave it to advocates of universal, i.e., socialized, health insurance to create their own facts. The editorial board at the Raleigh News & Observer, apparently not satisfied with getting the Duke lacrosse story wrong at the start, is intent on using health policy to further destroy its own credibility.
The board’s target in an August 10 editorial was a proposed amendment from Republican Senators Richard Burr (N.C.), Bob Corker (Tenn.), Tom Coburn (Okla.), Elizabeth Dole (N.C.), and Mel Martinez (Fla.). The amendment would institute a tax credit left and right agree is worthwhile to replace a regressive giveaway that resulted from wage freezes during World War Two. At that time, firms offered health insurance benefits as a way to increase compensation and attract workers without raising wages, which would have been illegal.
In 1954, the Internal Revenue Service affirmed that health insurance would not be considered taxable income. This created a huge incentive for unions to seek richer insurance benefits: low-deductible plans with low or no co-payments for prescriptions, dental visits, and eye exams became common in manufacturing companies. Executives in the highest tax brackets were happy to grant these benefits as they gained even more from the tax exemption. People who worked for small employers or themselves had to spend a significant portion of their income on insurance premiums and health care costs before any of it could be deducted, and even then they still had to pay the full amount of the payroll tax – a burden that became larger in the 1960s with the passage of Medicare.
As health care has evolved over the intervening decades, traditional insurance has become too expensive even for the most generous employers. Indemnity plans, which covered almost anything at any doctor, gave way to preferred provider organizations (PPOs) and managed care such as the much-maligned health maintenance organizations (HMOs). Employee premiums, deductibles, and co-payments grew even as benefits shrank. Many employers dropped coverage altogether. Even North Carolina’s state government has decided in the latest budget to move from its traditional indemnity plan to a PPO.
Our aging population has also helped to push the cost of insurance for younger employees and their families out of reach. As young workers face premiums that may be reasonable for their older co-workers with diabetes and heart conditions but are beyond the pale for a typical younger family, many face the choice of going uninsured or using after-tax dollars to purchase insurance in the individual market.
The Burr plan would level the playing field in health care in two ways. First, it would treat insurance premiums paid by an employer as compensation, removing the tax disadvantage for those left to pay for their own health care. Second, it would provide a refundable tax credit of up to $5,400 for a family to cover health care costs, which is more than the premiums for typical policies bought in the individual market.
Critics then argue: “Many … people, particularly those with pre-existing conditions, would likely be up a creek in trying to find their own insurance, or could expect to pay many thousands of dollars a year for policies.” The General Assembly, however, recently made North Carolina the 35th state to pass legislation creating a state-supported high-risk health insurance pool precisely for those with pre-existing conditions – an exceedingly small portion of the population.
Of course no lament about health care would be complete without overstating the number of people without insurance. The N&O editorial said there are “nearly 50 million Americans uninsured.” Unfortunately for their purpose, the Census Bureau’s most recent estimate was that 47 million Americans were uninsured at some point in the last two years – most of these people were without insurance for a short period of time between jobs, like friends of mine who went without coverage for two days. Research published by the journal Health Affairs indicates that the number of people who cannot afford insurance and do not qualify for government-paid health care nationally is likely fewer than 25 million. The other 22 million uninsured can get care through Medicaid, which advocates say is a great program, or have chosen to self-insure.
Government involvement over the last 60 years has severely distorted the market for health care and health insurance. The only segment of our economy that has suffered more from perverse incentives is education. Rather than demagogue against reasonable attempts to address the serious shortcomings in this critical area, all but the most ardent supporters of socialized medicine will recognize that we need to improve the market for health care, not destroy it.