On 12/02/08, the Heritage Foundation released a document entitled, “Ensuring Access to Affordable Health Insurance—A Memo to President-Elect Obama,” written by Stuart Butler and Nina Owcharenko. It’s a serious document, and one which Heritage hopes will serve as a keynote for conservative action on health care reform over the next four years. Let’s take a look at what they have to say.
Heritage has a history of getting health care wrong. In 1994, they got Senator Don Nickles (R-OK) to sponsor a plan which was opposed by virtually every conservative organization. In 2007, they backed a plan which would result in a net income tax increase. Heritage is like the red kryptonite on “Superman” or the box of chocolates in “Forrest Gump”—you never know what you’re going to get, but there’s a high probability of something going wrong.
The Good: Heritage opposes a “public plan” designed by the government, and toward which all incentives would over time direct. This is rightly regarded as socialized medicine through the back door. Heritage also calls for auto-enrollment in health insurance plans, for similar reasons that conservatives have called for auto-enrollment in 401(k) plans. Finally, Heritage opposes a “Federal Health Board” (endorsed by HHS Secretary-designee and former South Dakota Senator Tom Daschle) which would become the politburo for American health care.
The Not-So-Good: The Heritage outline calls for a reform of the tax treatment of health insurance. The problem here isn’t that this is wrong, or a bad idea—the problem is that every single proposal (with the notable exception of President Bush’s “standard deduction” concept) to reform the tax treatment of health insurance has had the result of raising net income taxes. This is because 40% of households don’t have an income tax liability, and 10-15% of households don’t even owe payroll taxes. In order to get resources to these families, taxes are raised higher up the income ladder. In the aggregate, the refundable credits that do this wealth redistribution tends to raise overall net income taxes. This is a violation of the Taxpayer Protection Pledge which virtually every House and Senate Republican has signed.
The Heritage plan also calls for health plan portability, which is a great idea. However, it would create a new tax preference for health insurance obtained through an “exchange” (formerly known as a “connector,” and last seen failing miserably in Massachusetts). For a couple of decades now, Heritage has had a fetish for these “exchanges.” After the failed field test in Massachusetts, this infatuation should end.
Finally, Heritage calls for letting the states be the laboratories of health insurance reform. States could apply for waivers of laws and regulations in order to experiment on new and innovative health insurance reforms. This harkens back to the successful state experiments in welfare reform in the early 1990s, and is a good idea. The fly in the ointment is that the federal government would set the “broad goals” of the health system. This risks letting the Left rig the game and prevent the states from doing what they need to. If you tell someone to bake any pie they want to, but they must use pumpkin, you’re pretty much guaranteeing a pumpkin pie outcome.
The Ugly: There are two really ugly parts of the Heritage outline—bipartisanship and the Federal Employee Health Benefits Plan (FEHBP). Let’s take each separately.
When it comes to conservatives and health care, bipartisanship is to be avoided at all costs. Republicans don’t know health care. Those that think they do usually know just enough to get snookered by the likes of Ron Wyden and Max Baucus. There’s not a health care bill that would pass out of this Congress and be signed by this President-elect which would not be a complete disaster for free markets and liberty. In that environment, it’s incumbent on the Republican opposition to do just that—oppose. Calling for Republican fingerprints on an Obama-Daschle-Wyden health care bill is dangerously-naïve.
Also, like the “exchange/connector,” Heritage has long had a thing for the FEHBP. This is the menu of health insurance options that 1.8 million federal employees and their families choose from once a year. Heritage has (several times) in the past called for using the FEHBP as a model. Here, they reinforce that. The only problem is that the FEHBP stinks.
You can find the range of plans on OPM.gov. In the District of Columbia, family plans range in price from $7044 for Aetna’s HSA option to $15,249 for Aetna’s “High” option. On average, family plans cost $10,516. That’s right in line with the national average of $11,000 per family, and is overly-skewed by the number of high-deductible, low-premium plans available. In an Obama-Wyden-Daschle regime, these HSA-compatible plans would almost certainly go away. Furthermore, most people would probably sign up for something like the Carefirst option, which has a price tag of $12,150 and is 63% more expensive than it was in 2002.
The FEHBP, in short, is one of the most expensive health insurance plans in the country. It has “guaranteed issue,” which means a healthy person could wait until they get sick or pregnant to sign up. It has “community rating,” which means that the plans must charge a chain smoking obese man the same premium as a marathon-running vegetarian woman. “Children” are covered until age 22. The benefits package must be “comprehensive.” In short, it’s some of the most gold-plated health insurance available.
The FEHB is the exact opposite of where conservatives should be going on health care reform. Conservatives should not be for this at all. We—and Heritage—should instead argue in favor of consumer-driven health care that gives patients and doctors power, not governments and insurance companies. Health insurance should be like car insurance—used only in emergencies. All other times, patients should pay for routine care in a free market with price competition.
The above post was authored by Americans for Tax Reform (ATR) Tax Policy Director Ryan Ellis. Ryan can be reached at rellis@atr.org.
Tax reform of the health care subsidy is needed.
John E. Wednesday, December 10th at 3:23PM EST (link)As I understand it, Ellis is at least partially incorrect on the tax reform point, though I would welcome further input on this. The tax reform takes the health insurance tax deduction away from business and gives it to the individual. This is in principle tax revenue neutral for any employee with an employer provided health benefit, regardless of whether they currently owe any tax or not.
Additionally the tax reform caps the amount of the tax-free health deduction, so part of the tax subsidy that currently goes to employees with high end health plans can be redistributed to those who currently receive no subsidy. This too provides an avenue to make the reform tax-revenue neutral while increasing health care coverage rates. And what is being redistributed here is not income but the government subsidy. That simply makes the tax code more fair and provides incentives, both appropriate from a conservatives point of view.
Personally, I’d like to be better informed on what a health exchange is and its pros and cons.
the FEHBP does not stink
emgbane Wednesday, December 10th at 6:07PM EST (link)I certainly don’t find anything objectionable in Heritage’s Memo to President-elect Obama. It seems a broad view of health care reform. Since Democrats are in the drivers seat, these suggestions seem very reasonable.
What is wrong with consumers choosing their health insurance company? Of course there should be no public plan, or Federal Health Board.
Refundable tax credits should be used to purchase health insurance. The opt out will allow those who do not want to use health insurance to go into the marketplace as you suggest, but it will allow those who prefer HMO’s to have that option.
States should certainly be free to act we all know that high tax nanny states will treat health care differently then states that favor more limited government.
Why oppose bipartisanship? Republican ideas will certainly improve any government health plan. If Republicans cannot improve the plan they should try to kill the plan, but they should not act like Democrats and just obstruct for the sake of obstructing. Any broad reform to our Health Care system should have the support of both parties to be effective.
Right now as many people lose their jobs in this recession, they will also lose their health insurance. Any reform of Health Care must including separating health care from employment. This is going to be an environment where people will be looking to government for answers. Republican need to be providing realistic answers. I’m glad Heritage has offered some realistic suggestions.
Response to Heritage's Response
Brian M. Johnson Friday, December 12th at 6:48PM EST (link)Heritage original response here http://www.redstate.com/nina_owcharenko/2008/12/12/holding-obama-accountable-on-health-care/
Nina:
Thanks for the thoughtful response on this. I think this is a very healthy debate we should be having on this. Conservatives don’t talk enough about health care.
I like your list method (I use it a bunch myself), so I will keep to that order:
1. Tax treatment. You are correct that Heritage agreed to alter the refundable credit plan in 2007 after it was clear that conservative opposition to the older, tax-increasing version doomed that one. Until that time, Heritage never espoused the principle you state here; namely, that the refundable aspects of a credit should not be paid for with tax increases somewhere else. If Heritage continues to hold the very new position you state here (that reforming the tax treatment of health insurance should never result in a net, aggregate income tax increase), we’re in 100 percent agreement.
2. Portability. If you read my original post, it’s clear that I’m criticizing the new tax benefit for health insurance purchased through an exchange. I never said you would limit the benefit to those purchasing through the exchange. So, this one is just a misunderstanding.
3. Federalism. There’s a balance here. I remember with welfare reform, there was always a debate between a “clean” block grant and one with parameters. The concern I have is that if Democrat politicians in Washington are the ones setting the parameters, they will contain things like benefit mandates, coverage mandates, deductible limits, etc. The parameters could easily doom the reform.
4. FEHBP. Glad to see we (now) agree that community rating is a bad idea. I’m all for choice and competition, but the FEHBP does so in a connector/exchange/sandbox. When the government sets up the sandbox (as we saw in MA), price controls and mandates soon follow. Pursuing an FEHBP model is letting the tail (the exchange) wag the dog (choice and competition).
As far as the lower cost trends, what about the fact that DC’s Carefirst plan has grown 60% in the last six years? Shouldn’t the standard be a bit higher than that?
5. Bipartisanship. The Nickles bill was a mixed bag, to say the least. It’s S. 1743 for those who might want to look it up, and was introduced in 1993. It did create medical savings accounts, cap medical torts, do some incremental changes to Medicare and Medicaid, long-term care insurance incentives, and the principle of reform of the tax treatment of health insurance, on the good side. Now for the bad:
-It contained “guaranteed issue,” which most conservatives now oppose (this provision means that people can wait until they are sick to sign up for health insurance).
-Without seeing a revenue score, this bill probably was a net income tax increase (since it created a refundable income tax credit and paid for it by repealing the employer exclusion of health insurance). Heritage’s assertion that the refundable aspects of a credit must be paid for with spending cuts is, indeed, a new one.
-The bill has a form of community rating, which you now say Heritage opposes. S. 1743 would allow premium variation based only on age, sex, geography, and participation in a wellness program. Notably absent from that list is “health status.”
-It has restrictions on plan design that look very much like the restrictions imposed by the FEHBP. In particular, the out-of-pocket max is a bit onerous (10% of AGI or $5000, whichever is greater)
-There’s an employer mandate–employers must facilitate health insurance coverage or pay a tax (”pay-or-play”). This tax could reach as much as $18,250 per year/per employee. Employers are dictated that they must increase wages by the amount that they are relieved of premium payments.
In short, the Nickles bill is an example of Heritage health policy gone wrong. It has too much in there that’s bad. As a final piece of legislation out of a conference committee, it would still be bad. But as the opening salvo of the right? It’s not good.
And I didn’t get the history wrong. Back in 1994, thirty-seven conservative leaders signed a letter opposing the Nickles bill. These signatories included Cato president Ed Crane, Eagle Forum’s Phyllis Schlafly, Paul Weyrich, and (my boss) ATR’s Grover Norquist. Shortly thereafter, Nickles withdrew his support for his own bill. Reports at the time were that Nickles believed the Heritage draft to be a conservative consensus on health reform, and was disappointed to find that this was very much not the case after getting this joint letter. It was most assuredly not a “bulwark” against Clintoncare, by all accounts I’ve heard outside of Heritage.
Once again, it’s my position that Heritage would be better off walking away from an FEHBP/connector plan. I’m glad to see that Heritage has come around on community rating and opposition to an overall tax hike, but that’s relatively-new.
I’d be interested to see where Heritage is today on some of the other bad aspects of the Heritage/Nickles bill: guaranteed issue, an employer mandate, pay-or-play, and the plan design limits.
Brian M Johnson