Employees currently pay no taxes on their health care benefits. This problematic quirk forces Americans to buy insurance through their employer or pay a tax penalty on individually purchased insurance policies. Employers tend to offer a highly constricted set of plans. Biasing the market toward employer coverage restricts individual choice and hides the true cost of insurance.

 

Leveling the playing field between the employer and individual insurance markets would be a good thing – if “leveling” merely meant balancing a repeal of the health care tax exclusion with a flat tax cut elsewhere.  But Democrats are only offering to raise taxes, in violation of Obama’s “pledge”.  Efficiency gained within the health care market will be squandered in the economy at large. Higher tax rates will reduce incentives to work, and new government spending will misallocate resources.

 

Nor are Democrats willing to allow individual insurance markets to benefit from reform. They favor a cap rather than a repeal of the tax exclusion – which would leave the market only slightly less skewed toward employer coverage. And many Democrats also propose employer mandates that would cement the current employer based system.

 

Health reformers dreaming of a more vigorous individual insurance markets should look for other ways to achieve their goal. Even if the roadblocks created by Democratic proposals were overcome, taxing health care benefits would remain broadly unpopular. Opponents range from staunch Democrat loyalists like the International Brotherhood of Teamsters to the business community – which would have to pay higher taxes on wages.

 

If free-market reformers rally behind a repeal of the exclusion, they risk hanging themselves with a huge new tax for no gain. Instead, they should work to extend tax exempt status to the individual insurance market. This could be achieved by expanding Health Savings Accounts (HSAs) as Cato’s Michael Cannon proposes. Alternatively, Sen. Jim DeMint’s Health Care Freedom Plan would create tax credits for individuals and families purchasing insurance outside their employers. These plans allow a more transparent, competitive individual insurance market to thrive without threatening vested interests or supplying funds for conflicting proposals. Sincere reformers should rally around these simple, effective measures.

So, basically their solution to high costs for health care is...more cost? Now, call me crazy, but wouldn't the better solution be to keep the employer provided insurance tax free, and also make the individually purchased health insurance a tax deduction? That way it would make individual plans cheaper and better able to compete with employer funded plans, thus giving people more choices and lowering costs for everyone. No, wait, that's silly, of course the solution to something being too expensive is to make it cost MORE. Guess that is why I am not in Congress, silly me.
>> TCH Tuesday, July 7, 2009 5:38 PM

Apparently Wallace is as crazy as me, and if I had bothered to read the last paragraph before posting my comment I would have known that sooner. Oh well, Congress doesn't read Bills before voting for them and I don't read blogs before posting on them, just following their lead.
>> TCH Tuesday, July 7, 2009 5:42 PM