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30 IRET Congressional Advisory 1 (1994)

handle is hein.taxfoundation/iretcgadv0029 and id is 1 raw text is: IET Conreional April 6, 1994 No. 30 CAPPING HEALTH CARE Having mistakenly agreed with the Clintons' assertion of a crisis in the nation's health care system, the Congress is having a devil of a time in fashioning reforms. The focus of the reform efforts is on health care financing. Clintons' premises, would-be reformers seem to be convinced hand, the existing financing system encourages excessive spending on health care and the use of too much of the nation's production resources in providing that care. On the other hand, the near-universal consensus is that far too many Americans do not have health insurance and presumably don't consume enough health care. Moreover, to the extent these uninsured people do consume health care, they do Relying on the Congressional that, on the one The real cure is not premium capping / the tax deductibil insuriance pr-ein employers to empi allowing the self- nonwvorking indiid the pr-emiums they health insuriance. not pay for it themselves but shift its cost to others, in the process driving up the price of health care services. Providing health insurance for those not now insured would surely increase the aggregate amount of spending and resource commitment for health care; to avert this undesirable development, something must be done, so it would appear, to make sure that everyone consumes less health care. Wittingly or not, health care finance reformers seem to be intent on a particularly pernicious form of wealth redistribution requiring the vast majority of Americans to receive substantially less health care in order to provide somewhat more of it to a relatively small group. Instead of identifying and rectifying the government policies and programs that impede efficient functioning of the health care market, Congressional policy makers have been concentrating on dreaming up new government interventions. Capturing the attention of legislators currently is the notion that capping the amount of premiums paid for health insurance is an essential element in any effective health care reform measure. At the extreme is the Clintons' plan that would, by fiat, set the per capita health insurance premium targets in each regional alliance. Variations in other reform plans to achieve this same goal would cap the tax benefits under the current tax treatment of employer-provided health insurance; either the employer's deduction of health to be found in insurance premiums would be usubject to some limit or the iinsured employees would be ily o f health required to include some or all illiis frm of the employer-paid oyees and in premiums in their taxable wmployed and incomes. utals to deduct would pay for A number of seemingly reasonable objectives are sought by capping health insurance premiums. Premium caps would require either cutting back on the health care services for which insurance benefits would be provided or, by hiking the insurance policies' deductibles and co-payments, increasing the amount of out-of-pocket payments by the insured person. In either case, the proposed limits on the premiums that might be paid or deducted for tax purposes would lead to lower total outlays for health care. This, presumably, would offset the additional costs resulting from extending coverage to those now uninsured. Institute for Research on the Economics of Taxation IRET is anon-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 e Fax 202-463-6199 0 Internet www. ret.org

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