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There’s No Such Thing As Free Health Care Reform

July 23rd, 2009 . by economistmom

At Wednesday night’s press conference, the President did his best to “sell” the American people on the effort to reform health care–by downplaying the “effort” part.  He made the “gain” seem so easy and happy, and the “pain” seem, well, not very painful to anyone in particular–except maybe millionaires.  From the transcript (emphasis added):

In the past eight years, we saw the enactment of two tax cuts, primarily for the wealthiest Americans, and a Medicare prescription program — none of which were paid for.  And that’s partly why I inherited a $1.3 trillion deficit.

That will not happen with health insurance reform.  It will be paid for.  Already we’ve estimated that two-thirds of the cost of reform can be paid for by reallocating money that is simply being wasted in federal health care programs.  This includes over $100 billion of unwarranted subsidies that go to insurance companies as part of Medicare — subsidies that do nothing to improve care for our seniors.  And I’m pleased that Congress has already embraced these proposals.  While they’re currently working through proposals to finance the remaining costs, I continue to insist that health reform not be paid for on the backs of middle-class families

What I’ve said is that there may be a number of different ways to raise money.  I put forward what I thought was the best proposal, which was to limit the deductions, the itemized deductions, for the wealthiest Americans — people like myself could take the same percentage deduction that middle-class families do and that would raise sufficient funds for that final one-third.

Now, so far we haven’t seen any of the bills adopt that.  There are other ideas that are out there.  I continue to think my idea is the best one, but I’m not foreclosing some of these other ideas as the committees are working them through.  The one commitment that I’ve been clear about is I don’t want that final one-third of the cost of health care to be completely shouldered on the backs of middle-class families who are already struggling in a difficult economy.  And so if I see a proposal that is primarily funded through taxing middle-class families, I’m going to be opposed to that because I think there are better ideas to do it.

Now, there are — I have not yet seen what the Senate Finance Committee is producing.  They’ve got a number of ideas, but we haven’t seen a final draft.  The House suggested a surcharge on wealthy Americans, and my understanding, although I haven’t seen the final versions, is, is that there’s been talk about making that basically only apply to families whose joint income is a million dollars.

To me, that meets my principle that it’s not being shouldered by families who are already having a tough time, but what I want to do is to see what emerges from these committees, continuing to work to find more savings — because I actually think that it’s possible for us to fund even more of this process through identifying waste in the system, try to narrow as much as possible the new revenue that’s needed on the front end, and then see how we can piece this thing together in a way that’s acceptable to both Democrats and I hope some Republicans.

The President was pretty vague about how the health cost savings would be achieved and where the “waste” in the current health care system would be found and eliminated.  For that reason I think it’s unrealistic to stick to this pledge of deficit neutrality and count on the required amount of revenue being “narrowed.”  The President recognizes that raising that much revenue from a tax limited to the very richest households makes the new tax an “ugly” one (in the ways I described a couple days ago).  But I note that nothing the President said above rules out turning to two better-looking revenue options:  (i) capping the tax exclusion for employer-provided health benefits (as well explained in this Tax Policy Center brief); and/or (ii) letting all of the Bush tax cuts expire so that we stick with what’s written into current tax law.  Both are broader but still progressive ways of raising revenue, where most of the higher taxes will be paid by the highest-income households.

One Response to “There’s No Such Thing As Free Health Care Reform”

  1. comment number 1 by: murf

    And both are a drag on economic growth. Your prescription is good if you consider only health care in a vacuum. This, as Henry Hazlitt pointed out, is the great fallacy of much economic theory. It only looks at the immediate problem. Health care “solutions” that act as a drag on the economy will only lead to lousy health care for all as we toss out anchor after anchor into the economic waters and assume our ship will keep moving forward. It will not.