Code Red: Two Economists Examine the U.S. Healthcare System

October 23, 2012

An Impossible Dream?

Filed under: Uncategorized — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 9:49 am

There is a healthy dose of liberal politics among health economists, which often leads to contentious policy debates. But on one policy issue, there is virtually unanimity. The preferential tax treatment of health insurance is regressive and inefficient. Indeed, many health economists from across the political spectrum put ending tax deductibility at the top of their list of recommendations for fixing the healthcare system (while also generating enough money to cover all of the uninsured and stabilize Medicare.)

Health economists also joke that any politician who proposed ending the tax deductibility of health insurance would be committing political suicide. Most of my colleagues believe it would be impossible to achieve. The resulting tax subsidy exceeds $300 billion annually, and most of it goes to the middle and upper middle class, large voting blocs that cannot be taken lightly. And this does not consider the millions of voters who work in the health sector and directly benefit from its bloated status. So it is remarkable that Mitt Romney seems to be proposing a change in the tax code that would eliminate, or at least severely limit, the tax deduction for health insurance. Of course he has only stated that he will limit or cap deductions without giving specifics. But aside from mortgage interest payments, there is nothing else he can limit or cap that is even worth mentioning. (And he dares not mention specifics because of that suicide thing.)

This may not be reason enough to vote for Romney, but it sure will weigh on my mind when I cast my vote. Eliminating the tax subsidy for health insurance – now that is change I would like to believe in.

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