Friday, July 16, 2004

Healthcare Debate: Krugman Weighs In

Krugman in today's NYT argues that Kerry's healthcare plan is better than Bush's healthcare plan.

Many Americans fear the loss of health insurance. Last week I described John Kerry's health plan. What's the Bush administration's plan?

First, it offers a tax credit for low- and middle-income families who don't have health coverage through employers. That credit helps them purchase health insurance. The credit would be $3,000 for a family of four with an income of $25,000; for an income of $40,000, it would fall to $1,714. Last year the average premium for families of four covered by employers was more than $9,000.

A study by the Kaiser Family Foundation estimates that the tax credit would reduce the number of uninsured, 44 million people in 2002, by 1.8 million. So it wouldn't help a great majority of families unable to afford insurance. For comparison, an independent assessment of the Kerry plan by Kenneth Thorpe of Emory University says that it would reduce the number of uninsured by 26.7 million.

The other main component of the Bush plan involves "health savings accounts." The prescription drug bill the Bush administration pushed through Congress last year had a number of provisions unrelated to Medicare. One of them allowed people who purchase insurance policies with high deductibles, generally at least $2,000 per family, to shelter income from taxes by setting up special accounts for medical expenses. This year, the administration proposed making the premiums linked to these accounts fully tax-deductible.

Although the 2005 budget presents that new deduction under the heading "Helping the uninsured," health savings accounts don't seem to have much to do with the needs of the families likely to find themselves without health insurance. For one thing, such families need more protection than a plan with a $2,000 deductible provides. Furthermore, the tax advantages of health savings accounts would be small for those families most at risk of losing health insurance, who are overwhelmingly in low tax brackets.

But for people whose income puts them in high tax brackets, these accounts are a very good deal; making the premiums deductible turns them into a great deal. In other words, health savings accounts will offer the already affluent, who don't have problems getting health insurance, yet another tax shelter. Meanwhile, health savings accounts, in the view of many experts, will actually increase the number of uninsured.

This perverse effect shouldn't be too surprising: unless they are carefully designed, medical policies often have side consequences that worsen the problems they supposedly address. For example, the Congressional Budget Office estimates that one-third of the retirees who now have drug coverage through their former employers will lose that coverage as a result of the Bush prescription drug bill and will be forced to accept inferior coverage from Medicare.

In the case of health savings accounts, the key side consequence is a reduced incentive for companies to insure their workers. When companies provide group health insurance, healthier employees implicitly subsidize their sicker colleagues. They're willing to do this largely because the employer's contributions to health insurance are a tax-free form of compensation, but only if the same plan is offered to all employees.

Tax-free health savings accounts and premiums would provide healthier and wealthier employees an incentive to opt out, accepting higher paychecks instead, and would lead to higher insurance premiums for those who remain in traditional plans. This would cause some companies to stop providing health insurance, or raise employee contributions to a level some workers can't afford.

I agree that Kerry's healthcare plan is better than Bush's healthcare plan. The problem is that Kerry's healthcare plan still won't work - it's just that it has less wrong with it.
The difference couldn't be starker. Mr. Kerry offers a health care plan that would extend coverage to most of those now uninsured, paid for by rolling back tax cuts for those with incomes over $200,000. President Bush offers a tax credit that would extend coverage to fewer than 5 percent of the uninsured, plus a new tax break for the affluent that would actually increase the number of uninsured. As I said last week, I don't see how Mr. Bush can win this debate.

Paul Krugman is an economist and not a political operative. So he can be excused for making the incredibly naive response of believing that in the public discourse and market of ideas that the "best idea" must prevail. History is replete with data that suggests otherwise if anything, that there's an anti-correlation between goodness of ideas and political implementation.

However Krugman is an economist and so he should know better about two things. First Kerry's plan also faces the problem of potentially private coverage declining as people are dropped or benefits cut back even as government coverage is expanded. Yet this is ignored by Krugman. What is less forgivable is that he implies that the healthcare plan could be paid for by rolling back the tax cuts on those earning over $200,000 per year. Unless Krugman is asserting that rolling back those tax cuts will put the Federal budget in the black even after the healthcare plan is taken into account, then he should know darn well that nothing is really getting paid for.

As long as we're borrowing money what would really happen is that we would stop borrowing money to give people bigger tax returns at the end of the year and instead borrow money to give other people medical insurance coverage. Now maybe that really is preferable a use of borrowed money, but it's still going to run smack right into our debt problem and continue making it worse. In the long term, people will be fighting over peanuts while the whole structure threatens to collapse underneath them.

Frankly what I'm in favor of is rolling back all the tax cuts and not spending any of it on increased health care coverage. This may not be a popular solution but it is one that might help save our country before it's too late. But whoops there we go again. We note that the better the idea, the less popular it will generally be. So there goes Krugman's argument that Kerry's plan must prevail in the public domain.


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