Zasloff is too kind to Kling and Bush

Jonathan Zasloff writes

Arnold Kling of the Cato Institute, who has given President Bush's alleged health care plan an "A+," criticizes my criticisms.

I argued that the method of capping the deductibility of employer-based health coverage seemed like a lousy method of paying for tax credits for the uninsured (which are themselves a poor way to get people insured).

Who said anything about tax credits ? Bush proposed a tax deduction not a tax credit. Thus his proposal does nothing for the 50% of the uninsured who pay no federal income taxes

FACT — HSAs DO NOT OFFER MEANINGFUL SAVINGS FOR AMERICANS: “Low- and middle-income uninsured people will gain meager or no tax savings” from health savings accounts, according to a Commonwealth Fund study. Roughly 50 percent of uninsured adults pay no federal income taxes, meaning that “tax incentives for high-deductible health plans would have little impact on uninsured adults.” [Commonwealth Fund, April 2005]

The proposal

Tonight, I propose two new initiatives to help more Americans afford their own insurance. First, I propose a standard tax deduction for health insurance that will be like the standard tax deduction for dependents. Families with health insurance will pay no income or payroll taxes on $15,000 of their income. Single Americans with health insurance will pay no income or payroll taxes on $7,500 of their income. With this reform, more than 100 million men, women, and children who are now covered by employer-provided insurance will benefit from lower tax bills.

At the same time, this reform will level the playing field for those who do not get health insurance through their job. For Americans who now purchase health insurance on their own, my proposal would mean a substantial tax savings — $4,500 for a family of four making $60,000 a year. And for the millions of other Americans who have no health insurance at all, this deduction would help put a basic private health insurance plan within their reach. Changing the tax code is a vital and necessary step to making health care affordable for more Americans.

An increase in the standard deduction will do nothing for half of uninsured Americans. Nothing nada zero. Bush talks about uninsured families making $ 60,000 a year. How many of those are there ?

Taking money from employer based health insurance and funds for the uninsured to finance a tax credit would be terrible policy. The effects would include increased adverse selection as healthy people go for high deductible individual insurance leaving the elderly and sick to bankrupt health insurance providing firms. This is a feature not a bug. The plan gets an A+ from people who the the problem in the USA is that too many people have health insurance (not saying that Kling is or is not one of those people). Zasloff makes the point much better "In addition to setting up a system pushing group coverage to individual coverage, which is a recipe for disaster"

However, a deduction is vastly vastly worse than a credit. Remember Jonathan, the Bush administration is always worse than you think possible even if you work on the assumption that the Bush administration is worse than you think possible.

Then Kling and Zasloff debate efficiency "In addition to setting up a system pushing group coverage to individual coverage, which is a recipe for disaster, it makes less sense than trying to pay for the tax credits through efficiencies.

Kling dissents, arguing that "paying for something with efficiencies is nothing but a scoundrel's refuge for policymakers. It's like saying you're going to balance the budget by getting rid of waste, fraud, and abuse. Of all the criticisms one could make of the Bush health plan, this is the least persuasive.""

Zasloff points out the immense inefficiency of the US system in his reply. I think a little example would be more effective. Part of the Republican Medicare plan D bill was a provision to allow private firms to compete with the medicare administration. This is their idea of how to promote efficiency. However, there is one little $5,000,000,000 problem. Private firms can not compete with medicare if they are only paid the per patient cost of medicare. Thus they are paid more. The cost of this subsidy is about $5,000,000,000/year. Eliminating this provision of the Medicare plan D bill would be a nice way to start on reducing administrative costs of the US health care system.

Not hard. No smoke or mirrors. The inefficient change introduced by the Republicans can be easily eliminated. The costs are directly measurable. The increase in efficiency due to increased public sector provision is undeniable. The USA doesn't have to be like France. It can be just like it was in 2001.

Hard to doubt that shifting other patients from private insurance companies to the medicare administration would't provide further efficiency gains.


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