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A First Look at the Latest Bush Administration Health Financing Proposals

From some of the professionals: Len Burman, Jason Furman, and Roberton Williams, "The President’s Health Insurance Proposal-—A First Look" (Washington DC: Tax Policy Center) http://www.urban.org/UploadedPDF/411412_firstlook.pdf

In some respects, the plan is very innovative and a step in the right direction.... The president’s plan effectively turns the tax subsidy for health insurance into a kind of voucher.... The proposal will almost certainly encourage some people who currently lack insurance, particularly middle-income families, to get it.... However... the subsidy will be more valuable for high-income people than for those with lower incomes who most need help. In fact, low-income households with no income tax liability would get virtually no help....

[T]he proposal would level the playing field between employer-sponsored insurance and insurance purchased in the individual market. The plan would lead some employers, especially small and medium- sized businesses, to stop offering health insurance to their employees, exacerbating a trend that is already well underway. Even if such employers increase wages by the amount of the firm’s previous contribution, this would fragment risk pooling and insurance, forcing some higher-risk people, especially those with low incomes, into the ranks of the uninsured....

The administration does propose to provide states with incentives to address the problems in the nongroup [individual] market, but those promises may not be backed by adequate funding to deal with the serious challenges facing those in the nongroup market. Moreover, the tax changes would go into effect regardless of whether or when states adopted the complementary changes to the nongroup market....

This brief paper summarizes the proposal based on information that we have available as of noon on January 23, 2007. (It will be updated if new information becomes available.)...

Greg Mankiw writes:

"a step in the right direction": That's how Leonard E. Burman, Jason Furman, and Roberton Williams describe the health care proposal that President Bush will propose in tonight's speech. So, yes, there is hope for bipartisanship.

I would have said that Burman, Furman, and Williams describe it as "in some respects... a step in the right direction." Let's give them the mike again:

The administration estimates that changes in the group and nongroup markets would, on net, reduce the number of uninsured by 5 million. Other models, such as that of MIT economist Jonathan Gruber, have generally assumed that substantially more employers would drop plans; those models would likely show only a small reduction—-or even an increase—-in the number of uninsured. In either case, the total effect masks an adverse change in the composition of the insured as the households that lose insurance tend to be poorer, sicker, or older and thus unable to purchase coverage in the individual market as it is now structured while the households that gain insurance tend to be richer, healthier, and younger.

The success of the proposal will depend critically on whether states come up with effective means of providing insurance for those with low incomes or health problems. The proposal’s details on this score are sketchy, but it appears to make no additional money available to aid pooling in the nongroup market—-it simply redistributes current subsidies....

Burman, Furman, and Williams would support the proposal if it were to be "substantially revised and expanded." The devil, as always in health care, is in the details.

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