Health Care for All, Just a (Big) Step Away
By Eduardo Porter
The New York Times
December 18, 2005
Next year, the federal government expects to provide about $130 billion for Americans to buy health insurance (through the tax break for employer-sponsored coverage).
Although subsidizing health insurance may seem a worthy effort, a positive contribution to the goal of universal coverage, it is among the most inefficient spending in the nation’s fiscal arsenal.
… if the objective is to expand health care coverage, a bolder option is available: focusing the bulk of the money on the bottom end of the income distribution.
Added to what is already spent on Medicaid, this financing would be roughly enough to make health insurance free for people earning up to three times the poverty level, and perhaps somewhat more, said Jonathan Gruber, an economics professor at the Massachusetts Institute of Technology who has studied the efficiency of alternative methods for financing health insurance.
To make insurance universal, two other things would be needed, Mr. Gruber said. As soon as the tax break was eliminated, company-provided health insurance would be likely to disappear, too. So some mechanism would be needed to pool groups of people and to avoid leaving higher-risk people to face enormous insurance costs. Such a mechanism would probably make health insurance affordable for all. And to make it universal, a mandate would be needed to make people buy it.
Tax Policy for Health Insurance
By Jonathan Gruber
National Bureau of Economic Research
Despite a $140 billion existing tax break for employer-provided health insurance, tax policy remains the tool of choice for many policy-makers in addressing the problem of the uninsured. In this paper, I use a microsimulation model to estimate the impact of various tax interventions to cover the uninsured, relative to an expansion of public insurance designed to accomplish the same goals. I contrast the efficiency of these policies along several dimensions, most notably the dollars of public spending per dollar of insurance value provided. I find that every tax policy is much less efficient than public insurance expansions: while public insurance costs the government only between $1.17 and $1.33 per dollar of insurance value provided, tax policies cost the government between $2.36 and $12.98 per dollar of insurance value provided. I also find that targeting is crucial for efficient tax policy; policies tightly targeted to the lowest income earners have a much higher efficiency than those available higher in the income distribution.
Comment: Professor Gruber has demonstrated that a tax-payer funded government insurance program would be a far more efficient use of public dollars than tax-payer funded tax credits for the purchase of either employer-sponsored or individual private insurance plans. Even targeted tax credits for private insurance are much less efficient than tax-funded public programs.
Those who insist that we should use policies supporting private insurance to expand coverage do recognize the inequities of their proposals. Realizing that low-income individuals cannot afford reasonable coverage, they have recommended tax credits that are specifically targeted to this sector. Without considering all of the other inefficiencies and inequities of private insurance, Dr. Gruber’s work should lead to the conclusion that private insurance approaches should be abandoned as being a terrible waste of public dollars.
It is true that a publicly-funded, universal insurance program would increase public spending, but the important difference is that it would provide greater insurance value by eliminating many of the inefficiencies and inequities of our fragmented public/private system, thereby improving overall efficiency.
Not only those on the right want to see an efficient system, and not only those on the left want to see an equitable system. It seems that equity and efficiency should provide us with a common ground for crafting reform.