Monthly Archives: October 2009

Taxing Health Insurance Plans

By Marc Seltzer; originally published on October 13, 2009, at care2.com

When is a tax a good idea?

NEVER!  (Say it cause it feels good.  Then get real and move on.)

One important proposal for lowering costs in health care is taxing higher-value health insurance plans.  The principle here is that currently the U.S. government is subsidizing high-level insurance plans purchased by employers.  Health insurance premiums are not taxable, while employers do have to pay tax, such as payroll/social security tax, on income paid to employees.  The employers thus provide additional compensation to their employees without paying full price.  This deduction encourages over-spending by employer and employee.  By comparison, individuals who purchase insurance cannot deduct their premiums or costs of health care from their income.

The thinking goes something like this:  An employer deciding to purchase insurance looks at an $8,000 plan and a $10,000 plan.  It realizes that the $10,000 is a deal because of the subsidy, and it knows its employees will value the plan and consider it as part of the reason to work there.  The employee then has incentive to use medical benefits more than on the lesser plan because the higher-cost plan has lower deductibles, coverage of alternative care and lower co-pays.

There is nothing wrong with an individual choosing to pay more for health insurance and then making use of more in benefits.  But if the U.S. government is subsidizing the plans, then the incentives are distorted.  When conservatives talk about what is wrong with taxation and government, their best argument is that government does not efficiently allocate resources because it distorts the market to redistribute wealth in wasteful ways.  This is a prime example.

If progressives want the government to distort the market in health care, it would make sense to provide help to those who can’t afford care, or to provide subsidies to promote certain types of care such as free annual physicals that could be valuable in improving health or lowering costs, through prevention for the public as a whole.  But there is no reason that the government should redistribute wealth to encourage high-end employer-provided insurance and use of such plans to the fullest.

The result of the system in place today is that working individuals with expensive plans are encouraged to get any and all recommended medical care.  Some procedures are covered 100%.  Some 90%, 80%, 75%. What’s the right formula, where people correctly balance the need for health care against the cost?

Take away the subsidy and find out.

In my own experience, I broke my leg badly, while covered by a great insurance plan.  Surgery was recommended and the $30,000 bill turned into only $1,500 in out-of-pocket expenses.  This is exactly what insurance is designed to protect against and it worked well for me.  This involved emergency hospitalization, which, though expensive, is often well covered by all types of plans.  However, in rehabilitation, I sought chiropractic, acupuncture and physical therapy and remember that my out-of-pocket expenses were remarkably low or non-existent.  My firm offered this plan to compete for employees in the marketplace, but the tax code also underwrote my plan.  Remember, under current law, the more an employer spends on health care plans, the more money it avoids paying tax on.

Current proposals are structured to tax plans on the part of the premiums that go above $8,000 per year and family plans on the premiums above $21,000 (For example, $10,000 in premiums for an individual would be taxed on the $2,000 above the exemption at a rate of 40% for a tax of $800.)  The tax would affect employers and individuals who purchase insurance equally and would likely have several impacts:

1.   It would lower the number of high-end plans, as employers and individuals sought to avoid the tax.  In that case, affected employees, who previously would have received higher-value insurance packages underwritten by the government subsidy, would have lower-value insurance with somewhat higher co-payments.  Shifting some additional burden to the insured in this way would lower national spending on health care, yet continue individual choices on where to spend and where to save.

2.   It would raise an estimated $200 billion dollars from tax revenue on plans that were higher end.  Thus, employers and individuals who continued to purchase high-value plans would pay a new tax on those plans.  This revenue would go to underwrite the efforts to subsidize insurance to those who cannot afford it.  $200 billion represents about 1/4 of the cost estimated to subsidize insurance over the period of ten years.

3.   For people at or below the limits, there would be little change in premium or co-payment prices.  Theoretically, the lower use of medical resources would lower the price of health care in the overall marketplace.  This would likely be countered by the increased use of medical services by individuals who will gain coverage through the new legislation.  However, if the new legislation did not contain this tax provision, prices would continue to rise from increased demand as more people with insurance sought health care services.

There are a number of different ways that health care costs can be lowered and different options for how to bring more people into the insurance marketplace.  The current proposal is but one piece of reform.  Taxing of high-cost health plans is bound to be controversial because Americans are allergic to all tax hikes.  However, this proposal removes a tax loophole that encourages overuse, or at least subsidized use, of the health care system.  Even without the use of the revenue to provide subsidies for those who cannot afford health care, this tax makes sense.

N.Y. Times has an excellent story with political background including issues for unions whose members have received high-level benefits in lieu of compensation.  A detailed Huffington Post piece discusses how the tax may impact middle class Americans and a Commentary blog suggests it will change the health care we have now, against Obama’s promises.  Be that as it may, a loop-hole is a loop-hole, and it creates distortion and waste among executives and union employees alike.

Senator Olympia Snowe, (R)-Maine, who announced today that she is supporting the Democrats’ Senate Finance Committee bill (the Baucus bill) being sent to the full Senate today, supports taxing insurance plans, although she aims to ensure that middle and lower income members of the public and those above age 55 do not bear the burden of the tax.

We all want an efficient government that does not encourage waste of resources.  Calling or writing your congressional representative to demand a tax on excess health care premium plans is the same as demanding the end of an egregious tax loophole.  Remember, the point of health care reform is to insure more Americans and strengthen the financial foundation of the nation.

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Obama Nobel Prize for Multilateralism

By Marc Seltzer; originally published on October 9, 2009, at care2.com

President Obama’s winning of the 2009 Nobel Peace Prize recognizes his multilateral emphasis in resolving international conflicts.  Critics, who wonder what he has done, are overlooking the importance of this cooperative approach to the rest of the world.

During the first decade of the 21st Century, President Bush rattled Europe with his willingness to take unilateral action and use force to achieve America’s international goals. The U.S. is more willing to go this route in part becauses it has not been scarred by international wars on its home soil.  The attacks on Pearl Harbor, New York and Washington D.C. were painful, but Europe lost far more than fifty million lives, many of them civilians, during World War II.

President Obama struck a chord with the Nobel committee and people of all nations when he spoke of working in cooperation with the international community.  With the benefit of hindsight, President Obama recognizes that problems such as Middle-East conflicts and totalitarian regimes are not so easily fixable by the United States, despite great diplomatic and military power.

It is worth noting that many European nations were still monarchies in the 20th century.  Even as those monarchies were replaced by democracies, Europe plunged into two destructive wars and needed help from the United States to free itself, first of Nazi aggression, and then of Soviet oppression.

In many ways immitating the U.S. and Canadian models, European nations have now solidly pursued a democratic vision and free markets, trade and immigration among member states.  These policies have led to prosperity, stability and increased international leadership.

Since the Second World War, Europe gradually built a stable community of nations using organizations such as European Union and NATO and determined, constructive, diplomatic efforts.  European nations have used negotiation to form a union.

The current U.S. concerns over nuclear proliferation, totalitarian regimes, and violent extreamists may or may not resolve through diplomatic efforts.  But President Obama’s multilateral approach is the best option for peaceful resolution of conflicts.  Finding common ground with China, Russia and the European Community can bring tremendous power to our efforts to diffuse dangers abroad.  There is no magic wand that guarantees peaceful solutions, but the President is both realistic and savvy about how to ally the greatest force against enemies of democracy and peace.

In this light, the Nobel prize is a high honor for Barack Obama, a recogotion of a new attitude in U.S. foreign policy, and a confirmation that there is great desire in the world for 21st century international cooperation.

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Irony of Obama’s Opposition

Marc Seltzer ⓒ 2009

By Marc Seltzer; originally published on October 5, 2009, at care2.com

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By my calculation, we elected in Barack Obama, a leader who is expert in reasoning.  He distinguished himself academically to get into Harvard law school, and there, he competed in talking and writing about law and society to become editor-in-chief of the Harvard Law Review.

He went on to teach others to learn, analyze and debate at the University of Chicago Law School, a critical-thinker’s heaven.

More recently, his presidential campaign included a vision of bringing more reasoning to governance:  Rules against conflicts of interest and restrictions on lobbying aimed to insulate decisionmaking-by-reasoning from special-interest influence.

And now, as President, Mr. Obama consistently speaks of solving problems by using “what works,” instead of employing ideological approaches.  This too is reasoning and judgment, rather than resort to theory without consideration for the facts on the ground.  It does not mean that the President will not consider free-market economics, on the one hand, or government intervention, on the other, but he looks for solutions that take into account the myriad of consequences, rather than simply going with a principle, results be damned.

What is ironic, although maybe karmicly inevitable, is that this king of reason is being confronted with logic’s nemesis:  emotion, belief and intentional deception.

Take, for example, Mr. Obama’s first acts as President.  The economy was diving into a deeper recession.  The financial industry was frozen.  The President supported a huge rescue program.

He was branded a socialist revolutionary — taking society in a new direction.  Honestly, what would have been truly radical would have been to do nothing.  What he did was big and risky but not radical.  Radical would have been allowing the chips to fall where they may. It would have been emotionally satisfying, and some would have preferred to risk economic depression, international bank failure, destruction of real estate, stock and who-knows-what other markets to bailouts.  Mr. Obama could have stood firm and said, “I am a man of principle, and being responsible means paying the price for your mistakes.”  Many a man-on-the-street was calling for this approach, but it would have had radical consequences.

And to health care.  President Obama says, let’s fix the system.  A liberal vision would be the single-payer model, successfully used in Canada (see first-hand “comments” to blog).  It cuts costs and delivers excellent universal health care.  It is tax-payer funded and not connected to employment.  But the President seeks no such leap of faith from the American people.  He simply wants to adjust the current system, to bend the cost curve so that public systems he inherited do not go bankrupt in ten years, and so that more people can afford health care.  He doesn’t have to do this.  Medicare will not go bankrupt on his watch, and any action taken to solve this problem will be unpopular in some circles as excess is taken out of the system.  But acting now, instead of waiting for a crisis, is prudent.  In truth, President Obama’s approach is again quite cautious.

Yet look at the arguments stacked against him:  “Citizenship,” “Socialism,” “Nazism,” “government takeover,” “revolutionary policies,” “health care for illegal aliens,” “death panels for grandma,” and “take back our country.”  Lively conspiracy theories, expressions of fear and its anger, and political taunts, but hardly addressable through reason.

Insecure times have brought anger and fear to the fore.  Humans project their dislikes onto suitable targets, whether reasonable or not.  If we do it to our relatives, colleagues and celebrities, we certainly do it to our presidents.

If President Obama were publicly casting blame on the Muslim fundamentalists or communists in our midst, or stoking up anger and fear of some enemy, he would channel the feelings bubbling up.  Instead, he is playing the technocrat, using logic to solve problems and avoiding the messy emotions spewed about.  In areas like climate change, health care and the economy, where real-world concerns need to be addressed, the work of the government is finally getting done.

But feelings of fear and anger may be unsatisfied and may exacerbate if the economy fails to improve quickly enough.  Is the President, who reasons so well, who almost never shows anger, able to deal with the unreasonable?

Is reason itself an antidote, or is this like the dark forces bringing Kryptonite to Superman?