The Bush health care reform (his words, not mine) package was supposed to be revenue neutral. Then, it was going to result in an increase in Federal tax revenue of half a trillion dollars over ten years. Now, it looks like the increase will be a third of a billion.
What gives and who cares and why should they?
If you just want the net, skip to the bottom. Policy geeks, revel in the detail below.
First, a quick review. Bush promoted his plan as a way to incent people to buy health insurance by giving them a tax break. Missing from his logic was the fact that essentially everyone with employer-sponsored health insurance already has that tax break. The rest of employment-aged folks either are too poor to afford insurance and too rich to get Medicaid, or buy it in the form of individual health insurance. The tax break was to help those folks who buy individual insurance coverage. Except that market is broken, dysfunctional, and does not provide coverage for anyone with a pre-existing condition.
So, Pres. Bush’s solution relies on an insurance mechanism that for many just does not exist.
Bush’s Treasury Dept. estimated the plan would be revenue neutral. That is, the tax break would be offset by increased taxes on health insurance premiums over $15,000 for families and $7,500 for individuals.
That estimate turned out to be, well, invalid; the next estimate by the Joint Committee on Taxation indicated that the Bush plan would raise tax revenue by a bit over $500 billion over ten years. (Tax increases are anathema to the conservative set, which may be why the original Treasury Dept. estimate was what it was.)
What gives?
The JCT revised its figures last week, reducing the tax increase to $333 billion. The revision is likely due in part to a difference in the projected rate of increase in health care premiums; if the trend rate pushes premiums above the $15,000/$7500 threshold sooner, more tax dollars come in, if the trend rate is lower, premiums stay under the threshold longer and tax revenues are lower as well.
Who cares?
Besides the Wall Street Journal’s editorial board, very few folks, because the Bush plan is DoA. Besides the President’s lack of political capital, the larger problem with the plan is it does nothing to address the core problem in health care – costs. It is tax policy writ large, not health care reform.
But, and it is a big but, the different revenue projections illustrate how tough it may be for policymakers to agree on the numbers.
The net.
It is highly likely that the health care reform program that is eventually adopted will have implications for employer and income taxes. The futzing around with the figures shows how fungible the tax income numbers are – we’re talking a difference of a half-trillion dollars between the President’s initial estimate and the JCT’s.
Cost and revenue projections are going to be critical to health care reform, almost as critical as consensus regarding those figures. The confusion about the revenue impact of the President’s plan demonstrates how tough it will be to gain that consensus.
