July 18, 2011


A grand health bargain that cuts debt (Stephen T. Parente, July 17, 2011, Politico)

[J]ust three relatively simple changes could give the president and Republicans the $4 trillion of budget savings they need over the next 10 years, and far more beyond.

First, eliminate the tax exemption for employer-provided health insurance. This reduces revenues by more than $250 billion a year — 2.5 times more than the home mortgage deduction. It also creates a tax distortion by penalizing entrepreneurs in small businesses, who don’t have access to the same tax break.

The health insurance deduction was created in 1943 to offset a wage freeze during World War II. Newsflash: The war is over — move on. [...]

Second, make Medicare a defined contribution plan for everyone age 54 and younger today, and make the contribution equivalent to the Medicare expenditure baseline in 2022 (when it goes into effect). After that, the contribution should be pegged to general inflation plus half of the U.S. productivity rate in the three previous years. [...]

Finally, readjust four elements of Obama’s health reform law that fiscal conservatives who vote in 2012 care about. These are: First, cap the subsidy for health insurance at 300 percent of the federal poverty line rather than the current law’s 400 percent — nearly $90,000 for a family of four. Second, let states take their Medicaid transfers from the Treasury and make their own solutions within a fixed budget constraint. Third, eliminate the tax on medical device manufacturers — after aerospace, it’s the strongest U.S. technology export. Fourth, let unused balances in Health Savings Accounts be counted toward the minimum actuarial value of high deductible health insurance plans, so the fastest growing insurance product of the past decade can survive and thrive to insure even more. [...]

This health bargain is likely to yield a savings of $4 trillion over 10 years, extrapolating from existing Congressional Budget Office estimates, and more than twice that amount over 20 years. Because these policies are based on existing CBO estimates, legislation can be gift-wrapped and delivered to the president’s desk by the Aug. 2 deadline.

Posted by at July 18, 2011 5:36 AM

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