A Better Way to Encourage Private Health Insurance
By John C. Goodman • Wednesday March 20, 2013 9:43 AM PDT • 6 Comments
In my previous post I explained that the subsidies of the Patient Protection and Affordable Care Act are regressive and unfair and create high marginal tax rates. What would a better approach look like?
To achieve the ideal, the federal government should offer people the same tax relief for the purchase of health insurance, regardless of where it is obtained—at work, in the marketplace, in a health insurance exchange, through a cooperative, and so on. In addition, we should end the regressive practice of giving the largest subsidies to those taxpayers who need help the least. A reasonable system would be one in which every taxpayer receives the same subsidy, regardless of income. If it is socially desirable to encourage people to insure and if the cost of insurance is largely independent of income, the financial help coming from government should also be independent of income.
Finally, we should end the wasteful practice of allowing people unlimited opportunity to lower their tax burden by buying more expensive insurance. Instead of generously subsidizing the last dollar of premium people pay, we should subsidize the first dollars more heavily and let them pay the last dollars out of their own pockets. A straightforward way of doing this is with a lump sum tax credit. A family would get, say, $8,000 to apply dollar for dollar to the first $8,000 of health insurance premiums. Since many employer plans cost almost twice that amount for family coverage, the tax credit would not cover the entire amount people are likely to spend on health insurance. Nor should it.
Families would be encouraged to think carefully about what value they get from the second $8,000 they and their employers have been spending. If they can find ways to economize, each dollar not spent on health insurance would be a dollar available for some other purpose.
For more ideas on healthcare reform, please see my Independent Institute book, Priceless: Curing the Healthcare Crisis.
[Cross-posted at Psychology Today]
Tags: Healthcare, Insurance, Regulation, Taxation 
I disagree with this approach. The government shouldn’t be subsidizing any of our personal choices: buying a home, buying health or life insurance, paying for college or private schools, junking a car and buying a new one, adding insulation to an attic, etc. Governments that do this are domineering, know-it-all nannies who treat adults like 10-year-old children.
If people above the poverty level choose to spend their money on things other than health insurance, that’s their choice. Giving them a tax credit for buying insurance is worthless because a family can be well above the poverty level yet pay no income tax. Even for higher income people, a health insurance tax credit may not provide enough incentive. I worked at a VA medical center that offered 401k plans with full matching for the first 6% the employee’s contribution and half matching for the next 6%. Only 20% of employees contributed to an IRA, so the others got no “free” money. If health insurance is separated from employment, that mentality will result in large segments of the middle class and lower-middle class having no health insurance. So be it.
MingoV | Mar 20, 2013 | Reply
All tax is theft. All theft is evil. Why would anyone but thieves want subsidies from stolen goods?
MamaLiberty | Mar 21, 2013 | Reply
That was essentially the McCain plan in the 2008 campaign. It is still as valid now as it was then.
Rick Caird | Mar 22, 2013 | Reply
Why is homeowners insurance relatively inexpensive?
Why is auto insurance relatively inexpensive?
How much would each of the above cost if they covered a plugged toilet or an oil change?
How much would the above cost if the Federal govt. got involved in the above in any way?
How much would food cost, and how available would it be, if grocery shopping only required a $25 co-pay?
Why is health care so F’n expensive???
1. Because the federal govt has implemented policies that drive up the cost.
2. the medical community has moved heaven and earth to limit the number of doctors.
3. because employers provide health insurance
4. because many medical insurance companies cannot provide their policies across state lines.
5. because when you go to the doctor you will see about 10 administrators in the office who do nothing but deal with insurance forms and other crap that has zero to do with providing care.
Get the government – at ALL levels- out of the medical care business, implement policies to encourage vigorous competition amongst providers and insurance firms, PROHIBIT employers from providing health care insurance, implement medical tort reform.
Once the govt. gets its corrupt, inept, criminally negligent, fraudulent, crooked hands on ANYTHING, they totally F it up.
JA | Mar 22, 2013 | Reply
Why should the people put up with ANY interventionism in their medical care! This is none of the federal government’s damned business!
That is the whole problem with this country! The elites keep sticking their noses into our private business and telling us what we can and cannot do, what we can and cannot buy, and what we HAVE to buy just because they say so.
I wish they would shut up about it and stay out of it!
There is no reason on God’s green earth why the feds should be regulating or interfering in medical care markets in any way whatsoever.
One intervention just leads to another, and the problem is never solved, just more problems created which must, themselves be solved by yet more interventions.
We do not need “incentives” from the feds! We need them to stay out of our way and let the markets do their work.
People need to speak up with one roaring voice on this and put these muddleheaded bureaucratic busybodies in their place.
Martin Faries | Mar 24, 2013 | Reply
The major problem is that the “decision maker” in all this is usually not the patient, but the doctor. If the doctor says “I think you should have this test, that test,” how many patients are going to disagree? The real solution is as I’ve stated on my blog: Change the relationship from “doctor/patient” to “contractor/client”. Then the decision maker becomes the person who is paying for the service. Currently however there is the problem that the doctor enjoys a government enforced monopoly over access to medical drugs. Which is part of the reason why the patient has far less of a choice in the matter. The solution is to repeal our prescription laws and put medical drugs on a status of “behind the counter, adult signature required”. Then the individual can also “educate” themselves as to health care issues. At least to the point that they have some basic understanding of issues such as high blood pressure, cholesterol, high blood sugar (diabetes) and so forth. Today, with public libraries, the Internet, you can learn a great deal of how to take care of your own health. You will also learn the relative importance of various aspects of taking care of your health. What is of immediate importance and what can be put in the classification of “I’ll think about it”. Only then can we make informed decisions about what is “important” and what is not so important. You won’t find either Democrats or Republicans supporting ideas like this, only those libertarians who understand the problem of government involvement in the health care field...
Jerome Bigge | Mar 25, 2013 | Reply