The rationale of health insurance reform 1


By Tom Quiner

You, as a voter, are faced with two competing rationales when it comes to health insurance reform.

The Democratic approach uses massive government control as being implemented in Obamacare.

The Republican approach focuses on consumer control.

Obamacare imposes a mandate on consumers. In other words, you will be required by law to purchase health insurance if you are not insured, or you’ll face legal sanction. (The Supreme Court will soon be weighing the constitutionality of this aspect of the law.)

The rationale behind the mandate is understandable. It broadens the insurance pool and in theory will help lower, or at least mitigate, the cost of health insurance. The mandate helps to reduce freeloaders in the system, goes the theory, to save the rest of us money.

As things stand now, a chunk of people don’t carry health insurance. When they get sick, they typically can’t pay for all their health care, so they get bailed out by the rest of us who have been paying for health insurance all along.

It doesn’t seem fair. That’s why the conservative-leaning think tank, The Heritage Foundation, embraced the idea of a mandate back in the 80s. That’s why Newt Gingrich also embraced the mandate back in 1992.

Both Heritage and Mr. Gingrich have backed away from the heavy-handed government mandate, because there is a better, more just way to accomplish the same thing. Rather than penalizing the uninsured, we should reward the insured.

Let’s use a carrot instead of a stick to reward the insured and encourage the uninsured to become insured.

We should extend a tax credit to everyone with health insurance, which is similar to the current system if you get insurance through your employer. We should extend the tax credit to individuals who also purchase their own health insurance. In other words, let’s not discriminate on where people get their insurance, let’s reward everyone for purchasing it, because it is good for society.

People without the insurance, of course, do not receive the credit since they are being partially subsidized by the folks who do. This seems logical and fair. (Specifically, the non-insured consume half the health care as the insured, but they only pay for half of what they consume. That means the insured subsidize a quarter of what the uninsured consume.)

However, there’s an inequity in the current system. Higher earners tend to get more of their health insurance subsidized by their employer than lower income earners. We can level the playing field by providing everyone a fixed sum, refundable tax credit.

There’s something we can do using this approach to help the uninsured who can’t pay their bills. They’re paying more in taxes since they’re unable to claim the health insurance tax credit. Let’s take the extra tax money they’re paying and put it in a charity pool to help them when they need it instead of pouring it down the government rathole. It’s kind of like insurance without calling it insurance.

Under this approach, no one is forced to purchase health insurance, but they’re financially rewarded if they do through lower taxes.

If they decide they don’t want insurance, fine, but they pay more in taxes. Those taxes are then set aside and used to help the uninsured who face health hardships.

This plan comes from us via John Goodman of the National Center for Policy Analysis.

What do you think? Do you prefer a carrot or a stick?

One comment

  1. In general, I like the concept of incentives/disincentives rather than mandates. However, I see one major problem with using the income tax system to create these incentives. Here’s the problem: Something like 47% of the people in the U.S. pay no income tax. (And that itself is a whole different conversation!) Not all, but most of these people are low income people….and thus would not have insurance. Accordingly, there’s no way to incent them via the federal income tax system. There’s a lot of problems with our current income tax system. One is that it is too often used to create winner/losers or to incent/disincent certain activities that “someone” feels is important. That’s why I am a big supporter of the Fair Tax approach, which taxes consumption/spending rather than income/earnings. (Again…a topic for a different conversation). I like the idea of incentives, etc. rather than mandates…..but I don’t think it’s very practical to use the tax system to accomplish that goal. Then how? Again….a much more involved conversation for another time.

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