As surely as April showers bring May flowers, a robust national economy prompts lawmakers to conjure plans for universal health insurance. Sure enough, the Wall Street Journal reported recently that fourth quarter 2006 indicators were positive: GDP, consumer spending, productivity, new jobs, and exports were all up. Enter the universal coverage bandwagon. California’s Governor Arnold Schwarzenegger grabbed headlines with a plan to cover 6.5 million uninsured Californians via a 2% fee on physicians’ revenues, a 4% fee on hospitals, plus an employer tax. The Governator isn’t alone. Sages in Pennsylvania, Iowa, Kansas, Minnesota, New Mexico, and Washington, among others, have said that universal health care coverage for their states is attainable now.
Explore this issue:April 2007
The Federal Role
Many argue that universal coverage needs federal intervention to succeed. President Bush has proposed addressing the country’s biggest distortion in health care spending, employer-sponsored health insurance. According to the Office of Management and Budget, such coverage cost the federal government $124 billion in 2004. This tax break dwarfs the home mortgage and state and local property tax deductions.
Because employer-provided health insurance is tax deductible to employers and tax-free to employees, economists have long argued that gold standard plans encourage employees’ excessive consumption of health care resources while disregarding cost. If you’re not paying for it, why not use all you can?
The Bush plan addresses this perverse incentive by taxing employer health benefits as income. Setting the bar low, families could deduct $15,000 and individuals $7500 for health insurance, regardless of their policy’s source, cost below $15,000, and their employment status. Benefits exceeding $15,000 would be taxed. CNN estimates that an average family would save $1410; the average self-insured person would save $3250.
Extending one or more of the federal government’s health care entitlements to the uninsured is another popular reform strategy. (See sidebar for federal entitlements’ salient features.)
Proponents of universal coverage often suggest extending Medicaid because federal money already covers at least one-half of a state’s Medicaid budget; or the Federal Employees Health Benefits Program (FEHBP), because of its wide plan choices and managed competition.
The State Children’s Health Insurance Program (SCHIP), passed by Congress in 1997, is intriguing because raising eligibility, as a multiple of federal poverty level (FPL), is a viable mechanism for expanding coverage. The federal government sets FPL at $20,650 for a family of four. Sixteen states cover children in families with incomes above 200% FPL. New York wants to expand the family income threshold to $82,600, and California to $61,950.