In his majority opinion upholding Obamacare, Chief Justice John Roberts salvaged the notorious individual mandate that requires people to obtain insurance or pay a fine by effectively reclassifying the fine as a tax.
The decision baffled most observers. Conservatives were outraged that the ostensibly friendly chief justice had upheld the president’s healthcare law.
Liberals weren’t sure whether to cheer Roberts’s decision or rue the fact that the individual mandate now represented a massive middle-class tax hike in an election year, no less.
But by reframing health reform in tax terms, the chief justice unwittingly highlighted an important point that health reform and tax reform are inextricably linked.
Unfortunately, the individual mandate represents the wrong approach to both.
Granting individuals the same tax benefits that businesses enjoy when purchasing health insurance and empowering them to take control of their health benefits with tax-free savings for health expenditures would do far more to reduce costs and improve access to care.
It’s much less costly for American businesses to purchase health insurance than for individuals to do the same. That’s because employers can buy their employees coverage with pre-tax dollars. Workers don’t have to pay income tax on the value of their health benefits.
The value of this tax exclusion for the 160 million Americans with employer-sponsored coverage is huge some $260 billion a year.
Individuals who don’t get coverage through work, on the other hand, have to buy insurance with dollars that have already been taxed.
Lawmakers should equalize this tax discrepancy.
Doing so would bring a host of benefits. For starters, individuals would have a far easier time finding affordable policies on the open market. They would no longer have to rely on their employers for coverage and would therefore have the flexibility to pursue job opportunities that suit their skills rather than simply those that offer health benefits.
Indeed, for all its trillions in new spending, Obamacare fails to fix one of the biggest problems in American health care if you lose your job, you lose your health insurance.
Putting decisions about how to spend healthcare dollars in the hands of patients is also one of the best ways to tamp down the excessive costs of our current system.
Since 2001, employer-sponsored health-insurance premiums have risen 113 percent, according to the Kaiser Family Foundation. And while national health expenditures were at $256 billion in 1980, they soared to an astounding $2.6 trillion in 2010. This spending growth is putting enormous strain on the finances of the federal government, businesses, states, and individuals alike.
Leveling the tax treatment of health insurance would help arrest those unsustainable cost trends. Individuals have a far greater incentive than do employers to demand the biggest bang for their healthcare buck — and to avoid unnecessary or wasteful spending. Insurers would have to compete hard for their business and offer personalized products at affordable prices.
Such competition would yield lower prices throughout the healthcare sector.
Of course, health insurance represents just one part of the healthcare marketplace. To help lower costs elsewhere, lawmakers should expand the availability of tax-advantaged Health Savings Accounts, which allow individuals to save pre-tax money for routine health services.
HSAs empower individuals to take control of their health expenditures to shop around for the best deal when appropriate and to demand accountability and price transparency from health providers.
Right now, most Americans don’t know how much basic health services cost.
But if they were to pay for those services directly with HSA funds, they’d surely find out and demand better value for their dollars.
A study published last year by the RAND Corporation demonstrated that HSAs have a significant effect on costs. According to one of the study’s authors, economist Neeraj Sood, the accounts “produce overall health care cost savings and not simply a cost shift.”
A 2009 RAND study determined that ramping up the market share of HSAs to 50 percent from the current 13 percent would produce savings of $57 billion.
Obamacare stands today thanks to Congress’s power to tax. Hopefully, this fall’s election will produce a new Congress that will wield that power swiftly, replacing Obamacare with tax reforms that actually make our healthcare system more affordable and restore power to patients.