President Bush trying not to be out compassioned by the Left has floated the following ideas,
Health and Human Services Secretary Mike Leavitt said Bush wants to spend more money to enroll children in government-funded health programs, give tax credits to individuals and companies that purchase insurance and build more community health centers.–link
I find these kinds of policies/programs highly annoying. All these things do is add new regulations, more bureaucrats, and in the end gets very little if nothing done. These kinds of policies are found all over the government with the poor, housing etc. Why not just use a voucher that decreases as income increases. The voucher would allow each family to shop for the best deal, and we wouldn’t have to bother with nearly as many regulations and far fewer bureaucrats.
And the tax credits will have an indeterminate effect on the number of people who have insurance. Further, research indicates that tax credits are a poor way to induce people to purchase insurance.
To reach this conclusion, the authors examine what happened to employee take-up decisions when tax subsidies were given to federal workers in the Federal Employee Health Benefits Program (FEHBP). Roughly one-half of all employees in the United States pay their insurance premiums with pre-tax dollars. But until 1994, virtually all of the federal employees insured through FEHBP paid their insurance premiums on a post-tax basis. Then, in 1994, employees of the postal service, representing roughly one-third of all federal workers, were given the right to pay their insurance premiums on a pre-tax basis. The remaining federal employees were given this right in October 2000. This saved them tax dollars, significantly reducing the cost of taking up insurance coverage; for a typical worker in Washington, DC, the cost of taking up health insurance fell by about $1000.
These changes provide Gruber and Washington with an excellent laboratory for learning about the impact of a sizeable reduction in the after-tax price of FEHBP insurance on the take-up of that insurance by federal employees. But they find that this sizeable reduction had essentially no impact on the rate of take-up of insurance by federal employees. Their central estimates suggest that for each 10 percent that health insurance premiums were tax subsidized, take-up went up by only 0.2 percent, a very small reaction. These results confirm other papers’ findings that employees are not very sensitive to health insurance contribution rates in their decision to take up health insurance coverage.
Moreover, Gruber and Washington find that subsidizing insurance coverage caused federal employees to choose more expensive health insurance plans, when they did choose coverage. This further raised the cost to the government of this intervention.
The authors conclude that “subsidizing employee premiums is unlikely to be a cost-effective avenue for increasing insurance coverage.” They estimate that these new tax subsidies cost the government roughly $700 million in revenues. And they have prompted only 11,000 to 20,000 new persons — a tiny percentage of the total number of federal employees — to take up the insurance coverage. So the revenue cost for each newly insured person was $31,000 to $83,000.
So we get a mish-mash of policies that will probably do nothing. A fairly simple voucher would probably be far more effective, but of course we can’t have something that might actually work. And avoucher would itself come with its own problems–e.g., it would have to be paid for with either higher taxes now, or deficits now and higher taxes in the future, and this would mean reduced incomes that would probably have the effect of reducing either the quality of insurance coverage for some and/or opting for no insurance. Still, it would seem to be the most straight forward manner of addressing the issue.
Hopefully the Post article is correct and the Bush Administration is just throwing these policies out there to look good, but not much will really happen.
