A Damn Fine Health Care Proposal

The White House is sending out teasers regarding a health care proposal that President Bush will unveil in his (penultimate!) State of the Union address on Tuesday.  By design, such teasers leave out important details.  Yet they give the outlines of what could be a damn fine health care proposal.

The president is proposing to limit the currently unlimited tax break for employer-sponsored health insurance.  He’d also extend that newly limited tax break to people who don’t get coverage from an employer – in fact, he’d completely break the link between the tax break and employment.

That tax break is behind much of the inefficiency and inequity in America’s health care sector.  It encourages almost 200 million Americans to behave irresponsibly, which increases the cost of health care for themselves and everyone else.  Economists on the left and right have argued for limiting or eliminating it for decades.  The last president to propose such a limit was named Reagan.

It’s going to be a tough sell, of course.  The administration estimates that 20 percent of covered workers would face a higher tax burden, and those workers probably will object that their taxes would increase.  The fact that reducing government influence over people’s decisions is effectively a tax cut is a much harder point for most people to grasp.  Other opponents will scream that the proposal would destroy employer-based health insurance.  What those opponents actually mean, however, is that they don’t think workers should be free to choose where they purchase their health insurance.

I have criticisms of the proposal, too.  For example, I think we should do more to give workers ownership over the money that employers currently spend on health benefits.  (Mike Tanner and I lay out one way to do so in Healthy Competition: What’s Holding Back Health Care and How to Free It.)  Unless workers own those dollars, they might have to take a pay cut to exercise their new freedom to choose, which doesn’t seem like freedom at all.

Important details are still missing – details that will determine how helpful, complicated, and politically feasible the proposal will be.  I’ll withhold final judgment until I see the final product.  But at this point, it appears that President Bush is the only prominent politician who is taking health care reform seriously.