- The Washington Times - Thursday, December 13, 2001

House Ways and Means Chair Bill Thomas, California Republican, has proposed including as much as $10 billion to help laid-off workers keep health insurance coverage in the so-called economic stimulus package. He wants to provide "vouchers" so that workers who no longer get coverage from their employers will be able to afford to buy their own.

The proposal picks up on ideas that were endorsed by both President Bush and then-Vice President Gore during the 2000 campaign refundable tax credits for those who have to purchase their own health insurance coverage. The idea has also drawn support from Republicans and Democrats on Capitol Hill, including such self-styled "strange bedfellows" as Dick Armey, Texas Republican, and Pete Stark, California Democrat.

While the general idea is widely supported, there are many disagreements about the details how much should the credit be worth; should it be targeted only to the low-income workers; and should employers be prohibited from dropping their current coverage?

Another hesitancy about the idea has come from conservatives who are reluctant to create a new entitlement program, and don't like using the tax code to reward certain behaviors and punish others. They believe, correctly, that the economy works best when government is neutral on our economic activities.

Conservatives' concerns would be more understandable except for the fact that government tax policy is not currently neutral on health insurance, and we already have an enormous entitlement that applies to only one form of health insurance coverage.

Under current law, people who obtain health insurance through their employers enjoy an enormous benefit that is not available to the uninsured, nor to people who purchase their own coverage. Compensation in the form of health insurance benefits is not considered income and thus is free of all taxes state or federal, income or payroll. Government loses $140 billion each year in revenue because of this exclusion from taxes, 40 percent of the value of the benefits. Employer-sponsored health insurance (ESHI) is already the third-biggest entitlement program in the country, behind only Social Security and Medicare.

But this entitlement is available solely to those Americans who get ESHI. Those who purchase their own coverage and those without coverage at all get no tax advantage, except for a tax deduction for those expenses in excess of 7.5 percent of their gross income.

The United States government in effect provides a 40 percent subsidy for ESHI, and one that is tilted heavily in favor of people with higher incomes. This subsidy forces people to obtain coverage through their employers, rather than purchasing their own. It locks people into accepting whatever arrangement their employers have made, and discourages workers from changing jobs, starting businesses, or attending school. It especially disadvantages people who lose their jobs due to layoffs the moment they become unemployed they lose both their source of income and the generous health insurance subsidy provided by the government.

A tax credit would begin to level the playing field between ESHI and individual health insurance coverage. Americans would be able to make rational decisions about when to keep, and when to leave their jobs. They would not have to accept whatever hare-brained insurance program the boss came up with.

Such a credit should approximate the tax subsidy available for ESHI about $1,000 per person. Interestingly, this is about the same amount of money we as a society spend on providing health services to the uninsured. Economists have recently estimated that as many as 85 percent of the uninsured would become insured with a tax credit of that magnitude. And the whole thing could be done for roughly $30 billion a year, much of which we already spend on services to the uninsured.

Is it an entitlement? Yes. But it is not a new entitlement. Rather it is making the same entitlement available to everybody, whether you get your coverage on the job, or on your own. It actually reduces government's tendency to reward some behavior and punish others by being neutral between employer-sponsored and individual coverage. And it is a private-sector answer to a problem that the liberals hope to fix by expanding Medicaid.

If this isn't an idea that should appeal to conservatives, I don't know what is.

Greg Scandlen is senior fellow at the National Center for Policy Analysis.

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