Ron Wyden Likes George W. Bush’s Healthcare Proposal

Senator Ron Wyden (Democrat from Oregon), a Senator with a creative healthcare plan of his own, wants to compromise and combine his proposal with President Bush’s healthcare proposal. Michael Barone of U.S. News and World Report has the details…

Bush’s proposal in a nutshell is to end the preferential tax treatment for employer-provided health insurance….This decision has saddled us with a system in which health insurance has been tied to employment, with many perverse results. Healthcare is perceived as a free good, and consumers have no incentive to take costs into account….
The biggest beneficiaries of the current system are high earners with employer-provided insurance. The biggest losers in the current system are low earners without employer-provided insurance. Health insurance experts on the left, right, and center have long called for ending the tax code’s preference for employer-provided health insurance. But employers haven’t wanted to lose the deduction, and politicians have flinched at the prospect of taxing voters on something they have been getting tax free. Bush has found a way out, by equalizing the tax treatment of health insurance wherever it comes from….
[Senator Wyden] notes that we don’t have employer-provided auto insurance; we buy that out of after-tax earnings. He argues that people should be able to buy health insurance as members of Congress and federal employees do, from an array of choices offered by private insurers. He’s looking to make something of a political deal [with President Bush]. Republicans would get Bush’s standard deduction and a private insurance market in which consumers would have incentives to hold down costs. In return, Democrats would get universal coverage, with subsidies for low earners to pay for coverage. As John Goodman of the free market National Center for Policy Analysis points out, additional revenues from those with policies worth more than $15,000 could be used to subsidize low earners.
For conservatives and libertarians who may be turned off by the “universal coverage” part of the compromise, keep in mind that reasonable universal coverage schemes can be devised, if the goal is truly to provide insurance against major illnesses. It’s attempts by liberals, technocrats, and all-around demagogues to engineer a massive redistribution of wealth through the insurance system that creates problems, like big middle class tax increases that do nothing to improve the quality of care that taxpayers receive.
It’s not clear from Barone’s article exactly what universal coverage scheme that Senator Wyden envisions as part of a compromise, but if its based on his original plan, it will lean more towards a mandate that individuals buy some kinds of insurance from the existing system than it will towards a single payer, total government takeover of healthcare.
One other note: John Edwards, who is especially relevant to this debate for reasons I won’t expound upon, has positioned himself as the leading advocate for preserving the employer-based healthcare system.
Details on the Bush plan available here.
Details on the Wyden plan available here.
How would you mix and match?

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Roland
Roland
14 years ago

I would like to shed light on the issue, as cited in the article that “But employers haven’t wanted to lose the deduction.” As an employer, I pay nearly $320k for my employees’ health care. Sure I’m saving nearly $30k in my contribution of the payroll tax, but the alternatives being proposed nationally are far more threatening. Were I not providing health insurance to my entire workforce, I would save far more than that in admin costs and broker fees. Without Bush’s proposed deduction, the employees themselves would face a stiffer burden of anywhere from 15% to 35% on combined incremental income. Were a plan to be adopted such as in California, I may be subject to a 2% to 4% PR tax on ALL wages (as opposed to ~9% on the $320k above). With $3 million in wages, my new tax burden would exceed the amount saved by providing the insurance in the first place. Thus, the market would not allow a 1 to 1 upward shift in wage rates. And this is the cornerstone argument of any decoupling from employers. The only options that should be included in any hybrid “solution” are those that reduce government involvement and reduce regulations. The market will correct when government interferences are removed. Even in Massachusetts, there is discussion on removing the prescription coverage mandate for the new “universal” coverage. But talk of the need for universal coverage is another mandate that should be avoided. This is nothing more than a veiled argument to socialize the entire process. According to the Kaiser Foundation, around 5% of all claims go unpaid. While significant, it does not account for the routine double digit inflation of the industry. In fact, in order to participate in the Medicare system, health care providers are required to give… Read more »

Andrew
14 years ago

Roland, Great comment. I want to use your numbers to illustrate the interesting features of the Wyden plan and, because you have direct experience with the side of health insurance that’s invisible to most Americans, see what you think. The interesting part (to me, at least) is not the individual mandate, but the fact that it purportedly does return some market influences to the healthcare market. At least initially, the Wyden plan is very different from the California plan. In the first two years of Wyden, you (as the business owner) take the $320K you’re spending on employee health insurance and give it directly to your employees in cash that they can spend on individual insurance policies. Individuals get a tax deductions for money spent on insurance, similar to the Bush plan deductions. Now, you do lose the business deduction that Barone referred to. (This is different from the Bush plan, where businesses keep the deduction). I’m not sure if Wyden’s plan allows you to split the $320K between the salary bumps and the increased taxes, or if some mechanism is written into the law that forces owners to absorb the entire increased tax burden. I think this plan could work if, as you suggest, reforms allowing people to have the option of spending their healthcare “raises” on HSA’s and high-deductible health plans, even in mandate-heavy states like Rhode Island, are implemented at the same time the other changes proposed by Senator Wyden are passed. This may be where there is some room for compromise. Anything here you think you can work with? The major feature of the Wyden plan that I don’t like kicks in after year two. After year two, Wyden wants to administer everything through a payroll tax, instead of through paying people directly. Somehow, money plucked… Read more »

Roland
Roland
14 years ago

Andrew,
Feel free to use any of the numbers I put up. Most of them are off the cuff estimates, but I’d be happy to share actuals with you if you’d like. I’ll even sit down with you for an hour to thoroughly analyze the numbers.
I’m not sure that a simple reimbursement to the employees will quite do the trick, though mostly because of the PR tax kick in yr 2. That is quite literally an absolute showstopper for me. To be honest, in my review of Wyden’s plan after you cited it back in January, I stopped cold at the suggestion of the 2yr new tax.
Unfortunately, I think the tax is inevitable if the government (state or federal) takes it upon itself to provide universal coverage for its citizens. That’s why I have trouble with any of the proposals including that mandate.

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