Our Unhealthy Tax Code

Democracy: A Journal of Ideas
Issue #1, Summer 2006


Our Unhealthy Tax Code
By Jason Furman

American health care is beset by a well-known litany of problems.If this were a government-run health care system, the voting public and policymakers would be up in arms. Yet, perhaps because health care is largely perceived as a private-sector concern, there is relative quiet: while voters tell pollsters that it is a top priority, there appears not to be comparable political pressure for serious reform or any fundamental change in the government's involvement, either in the provision or funding of health care.

This is in part because much of the federal government's involvement with the health care system is through the hidden backdoor of the tax code. An important principle for modern progressives is that when the government has to intervene in the marketplace, it should not prop up failure. Yet the federal government is, in fact, deeply involved in perpetuating the current "private" health care system and all its flaws, spending approximately $200 billion annually in subsidizing employer-provided insurance. It is the single biggest subsidy in our tax system, more than twice as costly as the mortgage interest deduction.

The only government programs that cost more are Social Security, national defense, and Medicare.The fact that the tax subsidy, which supports the employer-sponsored system, is better than nothing is a feeble excuse for resisting any changes to the status quo. This massive program of tax breaks is ineffective and regressive, wasting money on those who have health insurance while doing little for those who can barely afford it and nothing at all for those without it.A single-payer national health care system would, by definition, remedy the problem, but it is unlikely to happen any time soon, if ever at all. Beyond the political limitations, it is also an open question whether a single-payer system would be the most efficient way to provide quality health care for all Americans.

In the meantime, reforming health care will come down to a set of incremental changes that build on the current system. But that does not mean that change cannot be ambitious. As Massachusetts has shown, achieving a plan for universal health insurance coverage need not wait for the establishment of single-payer government insurance like Medicare or a national health care system like the United Kingdom's.