Health Care for All, Just a (Big) Step Away

December 18, 2005
Economic View

By EDUARDO PORTER

"I don't think anybody would dispute the economics," Mr. Gruber said. "I think the dispute would be over the politics."

YOU may find it shameful that some 45 million Americans lack health insurance. Well, by reallocating money already devoted to health insurance, the government could go along way toward solving the problem. But you may not like the solution.Next year, the federal government expects to provide about $130 billion for Americans to buy health insurance. The amount is substantial: it is equivalent to about 11 percent of all federal income tax revenue and more than a fifth of federal spending on Medicare and Medicaid. And it is growing fast: the bill is expected to surpass $180 billion in 2010.

Although subsidizing health insurance may seem a worthy effort, a positive contribution to the goal of universal coverage, it is among the most inefficient spending in the nation's fiscal arsenal."If you had $150 billion to play with, you could come very close to universal coverage," said David Cutler, an economics professor at Harvard. One reason that we are 45 million people short of that goal is that the money isn't being spent on them.According to President Bush's advisory panel on tax reform, about half of the tax break for health insurance accrues to families making more than $75,000 a year. More than a quarter goes to families making over $100,000.

Still, the fiscal incentive isn't helping many of the people who need it most. A report by the Kaiser Family Foundation says two-thirds of the 45.5 million Americans who lacked health insurance in 2004 earned less than twice what the federal government defines as poverty. (For a family of four, the poverty line is about $19,300.) In four of every five cases, the uninsured made less than three times the poverty level.In addition to going to the wrong people, the subsidy as designed promotes wasteful medical spending, encouraging the wealthy to buy more insurance and to use more health services than they need, according to the president's tax panel. And it may bolster premiums across the board.

As part of a series of proposals to rejigger the tax code, the president's tax panel issued a report earlier this year that suggested capping the total that can be paid in pretax dollars at an amount equal to the average health insurance premium in the country: some $11,500 for a family.But if the objective is to expand health care coverage, a bolder option is available: focusing the bulk of the money on the bottom end of the income distribution.Added to what is already spent on Medicaid, this financing would be roughly enough to make health insurance free for people earning up to three times the poverty level, and perhaps somewhat more, said Jonathan Gruber, an economics professor at the Massachusetts Institute of Technology who has studied the efficiency of alternative methods for financing health insurance.

The government could give tightly focused tax credits so that lower-income people could buy health insurance on the market. And it could organize pools by, say, requiring insurers to charge the same for similar policies sold to people of the same age group who live in the same area.Regina E. Herzlinger, a professor of business administration at Harvard Business School, notes that the Swiss have such a system: privately provided health insurance priced by age and residence and subsidized at low incomes. This, she said, gives the Swiss top-notch health services, universal health insurance and a medical bill that tops out at 10 percent of the nation's output, compared with 15 percent in the United States.

SOME of these ideas are beginning to gain traction in America, too. Massachusetts is considering a law that would make health insurance mandatory. It would expand Medicaid to cover families in the state that make less than twice the poverty level and offer tax credits on a sliding scale up to four times the poverty line. It would also provide for creation of insurance pools for people who don't get coverage through employers.This health care revolution, however, is unlikely to catch on nationally anytime soon. For starters, losing the tax break on employer-provided health insurance would be tremendously disruptive for the millions of Americans who get their insurance through their jobs. Perhaps most important, it would force higher-income families to buy health care without the tax break; that idea is probably as politically suicidal as abolishing the mortgage tax deduction."I don't think anybody would dispute the economics," Mr. Gruber said. "I think the dispute would be over the politics."