The President gave a speech before the American Medical Association today. He reiterated his Administration’s insistence that health care reform be paid for, with a combination of revenue increases and spending cuts:
[W]e can’t just raise revenues. We’re also going to have to make spending cuts, in part by examining inefficiencies in our current Medicare program. There are going to be robust debates about where these cuts should be made, and I welcome that debate.
But as a Washington Post article emphasizes, the AMA being an organization of physicians, they’re likely to oppose any spending cuts that might adversely affect the incomes of their membership:
In the early 1990s, the organization helped defeat President Bill Clinton’s massive health-care overhaul.
This time around, AMA leaders say they are trying to shape the legislation more to their liking. The physicians are pushing for coverage-for-all and a permanent fix to a Medicare payment formula that would slash reimbursements in January.
The President seems newly determined that the revenue offset be his proposed limit on itemized deductions for higher-income households. He said today that:
as part of the budget that was passed a few months ago, we put aside $635 billion over 10 years in what we’re calling a Health Reserve Fund. Over half of that amount — more than $300 billion — will come from raising revenue by doing things like modestly limiting the tax deductions the wealthiest Americans can take to the same level that it was at the end of the Reagan years…
even though the Washington Post story makes it clear that the proposal is still not going over well with Congress:
In recent days, Obama has revived a tax plan he first offered in February: limiting itemized deductions for the nation’s 3 million highest earners. Polls show that the idea is popular — it was Obama’s biggest applause line last week at an event in Wisconsin — and it would enable him to abide by a campaign pledge to pay for coverage for the uninsured with new taxes on the rich.
“He believes this is the most equitable way to do this,” said senior White House strategist David Axelrod. “It places the burden on people who can most afford it.”
But many Democrats, particularly in the Senate, have balked at the idea, saying they prefer a tax that has some hope of winning Republican support.
That tax proposal that is more likely to get bipartisan support is the one that limits the exclusion from taxes of employer-provided health insurance. Such a tax increase makes good economic sense–both from a fiscal responsibility standpoint and from a health economics one. Again from the Post:
Politics aside, the tax dwarfs all other current proposals as a potential cash cow. The tax-free treatment of employer-provided health insurance is the biggest loophole in the tax code and the second-largest federal health-care cost, after Medicare. Taxing half of all employer-sponsored premiums would generate nearly $1.2 trillion over the next decade, according to the nonpartisan Joint Committee on Taxation, compared with about $270 billion for new limits on itemized deductions for the rich.
Advocates say taxing benefits also makes good economic sense. The rewards of the current tax break fall heavily to the wealthy, and there is no similar tax break for workers who must buy insurance on their own. Many economists also dislike it because it encourages workers to take compensation in the form of health care instead of higher wages, pushing resources into the health system and increasing costs.
“Even in the absence of wanting the money, you’d want to do it,” said MIT economist Jonathan Gruber.
Of course, the “cash cow” aspect of the proposal to limit the tax exclusion probably scares as many (or more?) policymakers as it excites–just like the idea of an add-on value added tax to fund health care. But given the technical difficulty in figuring out how we might reduce health care costs, and the even greater political challenge of following through with the tough policy choices that actually cut costs–and given the Congressional Budget Office’s just-released estimate that expanding health coverage as proposed under the President’s health reform plan (as currently being considered in the Senate) would cost around $1 trillion over 10 years–it seems we could really use a really big “cash cow” to pay for health reform.