Consumer Driven Health Care Turned Upside Down

I have to admit that I am most likely one of the few lifelong Democrats that sees the potential that consumer driven health plans have in becoming a major part of health care reform to achieve near-universal coverage in this country.  It is unpopular to say in progressive circles, but the majority of Americans will probably never accept a one-size-fits-all health insurance system that is funded primarily with tax revenue.  Unfortunately, the potential for consumer driven care is currently overshadowed by the perverse incentives for health insurance placed in our federal tax code. 
The most perverse incentive in our tax code pertains to the deductibility of health insurance premiums by employees.  Section 125 of the Internal Revenue Code allows employers to offer a salary reduction to employees in exchange for paying premiums with pre-tax dollars.  The problem with this is that it benefits high income earners much more than people that live paycheck to paycheck.  A taxpayer in the top tax bracket saves 35 cents for every dollar of salary reduction, but most workers save 15 cents or less due to the structure of our federal income tax code.  A similar flaw with deductibility occurs with employees funding Health Savings Accounts as well. 
Common sense says that this isn’t a logical way to structure things if your goal is to achieve universal health insurance coverage.  The cafeteria plans and Health Savings Accounts give the wealthiest Americans the largest tax break percentage wise even though they make the least sacrifice in proportion to purchase insurance.  Tax breaks for health insurance should be structured to assist taxpayers that make the greatest sacrifice financially to protect themselves and their families from catastrophic medical bills.
These are a few basic ideas that I have for reforming the tax code to create a more sensible tax policy:

1.  Replace salary reduction plans with a refundable tax credit between 15 to 25 percent depending on how much of the budget the federal government wants to devote to this purpose.  This would give most working Americans a greater incentive to purchase health insurance for themselves.  Wealthy taxpayers would still get a tax credit, but not a generous 35 percent credit for buying something they would have probably bought anyway.
2.  End the “use it or lose it” provision with Flexible Spending Accounts.  Employees should be permitted to roll over FSA balances to the next year if the balance is less than the annual maximum they are allowed to contribute on an annual basis. 
3.  Allow all small businesses and corporations to have the same flat refundable tax credit for paying their portion of insurance premiums as part of their benefits package to employees.  Why should a large company get a greater tax break percentage wise than a small sole proprietorship, partnership or corporation?
This is a very small part of reform that needs to happen in order for 95 percent or more of Americans to have access to affordable health insurance.  In a perfect world I would love to have one single payer system that I could pay a flat rate into that guaranteed me quality health care for life, but that isn’t going to happen in this country anytime soon.  That’s why I feel that a partially taxpayer financed system that protects against extreme financial loss is the most realistic option in our political enviornment. 
The suggestions above are for individuals that are primarily in the middle class and above economically.  There is still an important role for Medicaid, SCHIP, Medicare, etc. in our health care system.  We should expand these programs somewhat as well, but they cannot be the cornerstone of all health insurance reform.  Our bottom line won’t allow for it and the Republicans would fight us to the gates of hell if we even tried.

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4 Responses to Consumer Driven Health Care Turned Upside Down

  1. Matt says:

    Did you see the Bunk study stating 2/3 of doctors in America want National Health Care. The doctors who did this study also conducted one in 2002 and found that the majority of doctors did not want national health care, the problem with this is that the 2 question surveys drastically differ in there 2nd question. I found this article,  <a href=””>60% of Physicians Surveyed Oppose Switching to a National Health Care Plan</a>,  It’s worth a read.

  2. Consumer driven medicine is not necessarily at odds with a progressive agenda.  One nice side effect of it is people are more aware of how ridiculously expensive everything is instead of thinking it’s free because the insurance company will pay for it.How about this for consumer driven medicine–everyone receives a voucher from the government for a basic health plan (business pays into a general fund instead of paying for employees insurance) and individuals can then use it to purchase a plan that meets their own needs.  Let the employee, not employer pick–not that’s competition

  3. Jon Ethington says:

    The Country Doc:
    Thanks for taking the time to leave such a detailed comment.  I agree with most of what you say in principle about health insurance vouchers.
    Here is one problem with it though based on my personal experiences.  I am an Air Force veteran and while I was on active duty I received free health care through TRICARE.  The TRICARE system is probably the closest thing to single payer insurance in the United States based on the way that it functions.  If everyone can get a health insurance voucher to purchase insurance then what compels me to use the TRICARE system?  Using vouchers would give me more privacy than having my military commander butt into my private medical affairs.  Ironically, health insurance vouchers could reduce military readiness because a significant minority would opt out of the TRICARE system or possibly avoid military service altogether.

  4. Katie says:

    I think that the most important issue this year is health care and that it should be a much bigger part of the political discussion. I work for Boldmouth Inc. and have had the privilege of working for the Divided We Fail sponsored film competition at UCLA that is highlighting this issue. It is called Stolen Dreams and everyone, regardless of their political views, should check it out.
    The website is