The Money Problem, Cont'd
The more people I talk to and the more reporting I read, the more convinced I am that health-care reform still faces the money problem. The unions hate the excise tax because it increases the cost of their benefits. Senators from high-cost states hate the excise tax because it increases the cost of their benefits relative to those in lower-cost states. The Republicans are attacking the excise tax because, well, it seems like the thing to do. Liberals like Jay Rockefeller are attacking the excise tax because it hurts some workers you don't want to hurt. And yet, everyone agrees we actually need more money in order to increase subsidies.
You can reform the tax. But then you get less money from it. You're probably going to need to go back to the drawing board, at least a bit. So let's talk about that drawing board.
There are three main ways people are raising money, and they have different advantages and different advantages.
1) Inside the Health-Care System: This includes excise taxes on insurance, or caps on the employer tax deduction, or any new taxes or fees levied on Medicare. The upside of raising your money inside the health-care system is that it grows as fast as health-care costs, so you're not caught with insufficient revenues 10 years down the road. The problem is that most of the ways are unfair to a lot of people, as the health-care costs vary for reasons that have nothing to do with income (geography, for instance, or the relative danger of your workplace, or the relative age of your workplace). This makes the options unpopular.
2) Outside the Health-Care System: Tax the rich. Tax soda. Tax cigarettes, or alcohol, or itemized deductions. The upshot of this is that the taxes can be relatively popular, and you can be pretty sure about who you're taxing. You can also raise money in ways that make people healthier, by taxing soda, or if we were really ambitious, in ways that make the planet better off, by taxing gasoline. The downside is that the revenue you get from these taxes grow much less slowly than health-care costs, so you're fairly quickly in a situation where the money you're raising isn't covering your expenses.
3) Inside the Health-Care Bill: The point of health-care reform, at least in part, is that it saves money. Some estimates (pdf) see the modernization measures alone saving $2 trillion. The health-care industry has promised that it can achieve that on its own. And then there are the so-called game-changers: MedPAC and evidence-driven medicine and the public plan and all the rest. CBO is reticent about scoring this stuff, but you can attach it to a "fail safe" measure -- cuts or revenues that trigger in the event the savings don't materialize -- and CBO will score that. The upshot is that you can try to get savings without doing all sorts of brutal revenue moves. The downside is, well, I'm not sure.
Right now, the Senate Finance bill uses the first strategy: the excise tax is unpopular, but CBo gives it a good score because it raises more money than the bill costs, particularly in the long-term. The House bill uses the second strategy: the surtax on the rich is politically defensible, but deficits explode after the first 10 years. And the plan the president released uses the third strategy: it didn't name any specific revenue measures, but it promised automatic spending cuts if the bill didn't balance. My sense is we're going to end up with a mix of the three strategies, but I'd like to see Democrats throw as much as possible behind the second strategy.
September 18, 2009; 4:36 PM ET
Categories: Health Reform
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