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.