Friday, October 2, 2009

Paying for health care reform: Why it matters big time

As Bill Moyers said, health care reform is a means to social justice. Getting almost universal coverage and bringing down costs for working families is crucial not just because health care is a human right, but also because the middle class livelihood is becoming untenable for more and more families in America. The gap between the wealthy and everyone else has grown by leaps and bounds since the Reagan years. Reducing what working families pay for health care makes the middle class accessible to more people and makes it more secure for those already there.

Back in August, I laid out the three fundamental goals of health care reform that we need to keep our eye on. But there's also principles for going about health care reform that are important as well. Unlike the goals, these are more subjective and vary a lot from person to person. An example of a health reform principle: a lot of pundits from the center-left and the right have been crowing about increasing competition, a panacea for these free marketeers. Competition doesn't necessarily reduce costs or expand coverage (it actually expands them, but that's not my point here), so it doesn't have anything to do with the goals of reform, but it's how these people want to go about reform. The principles of reform are different from the goals in that they mostly deal with how to reach those goals.

One important principle for those of us who see health care as a means to social justice is paying for expanding health care coverage in a progressive way. This means that the funding for health care reform ensures that reform overall transfers wealth downward. Expanding coverage and lowering cost will benefit working families, but if we pay for that by taxing working families then it might not benefit them overall economically.

The mandate-and-subsidies approach that the Congressional Democrats have taken to health care reform won't reduce health costs very much as I've written earlier. Nothing will change for workers who get coverage from their employers, and the un-insured will have to pay more than they did before because of the individual mandate. As such, if Congress chooses to pay for the subsidies by taxing the middle class, it may actually increase overall costs for working class families. Given that the idea behind goal #2 of reform is to make health care less of a cost burden on working families, the principle of paying for reform progressively becomes elevated to a goal and a must under the mandate-and-subsidies approach.

House Democrats proposed to pay for their bill, HR 3200, by creating a surtax on the wealthy. This is the preferred approach. The wealthy have benefited so much from the Bush tax cut and our general economic policy of the last 30 years, so it's only just that they pay to cover the un-insured. The House has also discussed taxing sugary drinks as well. Although this is a regressive tax, I would find it acceptable if paired with a surtax on the wealthy because it would improve our nation's health and lower health care costs overall.

President Obama proposed to pay for reform by limiting tax deductions for the wealthy. This would also be a satisfactory approach because it would rely on funding coming from the rich, although it seems unlikely to be included in the final health care bill.

In the Senate only the Finance Committee has the jurisdiction over taxes. The bill currently in that committee, proposed by its chairman Max Baucus, would fund the subsidies by taxing so-called "Cadillac" health care benefits over a certain amount at 35%. The NY Times ran a great article today that this tax would hit middle class union workers who negotiated for better health benefits instead of higher wages, small businesses that typically have more expensive plans, and people who live in areas with high health care costs like California and Massachusetts, despite being designed to tax the benefits of the wealthy. The threshold is indexed to inflation, so over time most employer-based coverage would be hit by the tax. The Baucus bill would also place $88 billion in taxes on insurance companies, drug companies, labs, and device makers. As Maggie Mahar writes on her excellent blog, most people think these taxes will simply be passed on to consumers in higher premiums. On top of those taxes on working families, the bill would limit tax deductions for medical expenses. The committee amended that approach because it would hit the elderly very hard, but it still remains in the bill for everyone else, and it will mostly hit the middle class as well.

Unfortunately the Baucus bill seems to be the most likely to win over the conservative and moderate Democrats needed to pass any bill. So there's a decent chance that health care reform will be funded in large part on the backs of the working families that it's supposed to help.

Because Congress's approach does little to reduce overall health care costs, it has to be funded by taxes on the wealthy to truly benefit most Americans. Our progressive members of Congress need to stand firm against the Baucus bill and any other plan that would tax the middle class to pay for itself, especially if like the Baucus bill it does not contain a public option to hold down costs. It would be better to put off reform than make the middle class pay even more.

Note: How to pay for reform would be important in a single-payer bill as well, but it would be a principle instead of a goal. That's because single-payer would save so much in health care costs that even if we taxed everybody at a flat rate to pay for it, all working class families would be better off than they are now. Obviously those of us who want a more just society would want the tax to fund single-payer to be progressive, but it wouldn't be as necessary as with the mandate-and-subsidies approach.

HR 676 would pay for itself partially through flat payroll taxes on employees, but also a payroll tax on employers, a 1/3 of 1% stock transaction tax, a surtax on the wealthy, and closing corporate tax loopholes. It satisfies my principle and all 3 health reform goals, which is why Congressional leaders should push it instead any mandate-and-subsidies bill.