Blackadder’s Lair

The home of many a cunning plan

Obama vs. His Advisers on Health Care

Under the health care plan offered by Senator McCain, the tax deduction for employer provided health insurance would be dropped, and replaced with a $5000 tax credit for individuals. Writing for Forbes, Obama advisers Brad DeLong and David Cutler are unsurprisingly not fans of the McCain plan:

Republican presidential nominee John McCain believes that the central problem in health care is that people have too much insurance and, because of it, consume too much medical care. McCain seeks to reform the health care system by taxing and punishing businesses that offer employer-sponsored insurance. Once they are forced to drop coverage, he holds, their workers will find themselves in the non-group health insurance market, where they will buy less generous plans and go to the doctor less often. Modest tax credits would help some, but nowhere near all, of the uninsured afford coverage.

Not everyone, however, shares such a negative view of the plan’s major elements:

The most promising way to move forward in all three dimensions – coverage, cost, and long-run fiscal situation – is to replace the employer exclusion with a tax credit, a step that has been proposed many times before (e.g., Butler 1991 and Pauly and Hoff 2002). Firms would still be allowed to deduct the cost of their contributions to employee premiums, just as they can deduct wages and other expenses today for the purpose of calculating taxable income. But workers would now have to include employer contributions to health insurance in their earnings for the purpose of calculating taxes (precisely which taxes is discussed below). In exchange for, workers who purchased qualifying insurance would get a refundable tax credit. Qualifying insurance would be along the lines proposed by the President in his standard deduction for health insurance, including limits on out-of-pocket payments, coverage of a general range of medical care, and guaranteed renewability by the provider (Treasury 2008).

That was Jason Furman, Obama’s economic policy director. As the Wall Street Journal notes:

Mr. Furman used to portray the current system as regressive, inequitable and a subsidy for health plans that insulate consumers from the cost of their care, thus inflating health spending. When he was director of the Brooking Institution’s Hamilton Project, Mr. Furman outlined a health reform — again using tax credits — that took the “sensible approach” of “exposing individuals to the price of health care through greater cost sharing.”

When President Bush unveiled a health reform similar to Mr. McCain’s in 2007, Mr. Furman co-authored a Tax Policy Center paper that called it “innovative and a step in the right direction.”

Okay, so Obama’s top economic adviser favors some of the major elements of the McCain health plan. He’s got to be an anomaly, right? Well, not quite:

“Health insurance is not something that is made better by tying it to employment. As a result, essentially all economists believe that universal coverage should be done outside of employment.”

That passage comes from [David] Cutler’s 2004 book, “Your Money or Your Life,” which outlined a strategy for universal health care. Not surprisingly, Professor Cutler’s plan, like Mr. McCain’s, also applied subsidies such as “tax credits — people get a lower tax bill, or a refund from the government, to be used to purchase insurance.”

And here is a post from Brad DeLong’s blog, describing his ideal health plan. Like McCain, DeLong’s plan would contain “[n]o deduction for employer-paid health expenses.” DeLong would differ with McCain, however, in that instead of offering a tax credit, he would require 15% of a person’s income to go into an HSA (with another 5% going to the IRS as a tax increase), with government picking up the tab for medical expenses over that amount. As he explains it:

Why the 20%? Because I am very impressed by the use of technology to drive the cost reductions–which means the reductions in doctor and nurse time: the increases in the number of procedures that a given treatment unit can perform, and thus in the number of people whom we can, collectively, treat–in beneficial-but-optional areas like eye surgery and lenses. It does seem to matter that consumers are cost conscious and economize when they have financial skin in the game. This is the mother of all Health Savings Account proposals.

This isn’t the first time that Senator Obama’s campaign promises haven’t matched up with his adviser’s positions. One wonders, though, whether he has shifted his positions due to their advice nearly as much as they have shifted theirs in order to give it.

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November 3, 2008 - Posted by | Economics, Election, Health Care

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