Before you ration care, fix our tax system!
August 19, 2009
Martin Feldstein has an interesting article titled, “ObamaCare is all about rationing“. Today the federal government pays for half of all health care in the United States. Does that shock you? This translates into 6% of GDP. Ouch. The real problem is that by 2040, if Medicare and Medicaid costs continue on their current trajectory costs will rise to 15% of GDP (these are White House numbers).
Feldstien explains our current health tax laws lead us to buy the worst kind of insurance. He goes on,
“Under existing law, employer payments for health insurance are deductible by the employer but are not included in the taxable income of the employee. While an extra $100 paid to someone who earns $45,000 a year will provide only about $60 of after-tax spendable cash, the employer could instead use that $100 to pay $100 of health-insurance premiums for that same individual. It is therefore not surprising that employers and employees have opted for very generous health insurance with very low copayment rates. Since a typical 20% copayment rate means that an extra dollar of health services costs the patient only 20 cents at the time of care, patients and their doctors opt for excessive tests and other inappropriately expensive forms of care. The evidence on health-care demand implies that the current tax rules raise private health-care spending by as much as 35%.”
If we eliminated this tax rule we could bring market forces to bear on the health care market and cause consumers to be more cost-conscious. This is better than rationing as Feldstein explains, “individuals with different preferences about health and about risk could buy the care that best suits their preferences. While we all want better health, the different choices that people make about such things as smoking, weight and exercise show that there are substantial differences in the priority that different people attach to health.”
This is just another sensible solution to our current health care mess, a companion to my own proposal for health care reform.
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