After the U.S. House of Representatives voted to pass the Senate health care bill Sunday night, President Obama argued that the vote represented “another stone firmly laid in the foundation of the American Dream.”
Ironically, the legislation does follow in the footsteps of history
—particularly the government’s increasing price interference within the health care market. As of 2007, public U.S. expenditures on health were 45.4% of health expenditures overall, reported the Organisation for Economic Co-operation and Development (OECD) in 2009. The same report showed that U.S. public expenditures were only 23.2% in 1960.
Unclear price signals in the health care sector have led to a market imbalance, argued M. Stanton Evans at Accuracy in Academia’s February authors night, during which he discussed AIA’s new textbook Voodoo Anyone? How To Understand Economics Without Really Trying.
The book, which was originally geared toward journalists, is meant to help average Americans understand economic concepts in health care, education, energy and other sectors. “The one thing that you need to understand, all of us need to understand, to solve some of these riddles is prices, the function of prices,” said Evans during the lecture.
He argued that the problem with health care in America is third-party payment, or indirect pricing of goods. In the current political environment, he said, the consumer is charged a very low price for his or her health care, and then the person supplying the product is rewarded with a “guaranteed profit.”
“Third party payment is what is driving the system,” argued Evans. “There are other problems too but that is, that’s the engine that drives the whole thing.”
Evans also criticized Congress and the President for using greater third-party payment as a solution to the nation’s health care woes. “The main thing that they’re all proposing, President Obama and the people in Congress-including some of maybe the people you work for, [I] won’t name any names-to deal with a problem created by third-party payment [is] we need more third-party payment!” said Evans.
Instead, Evans argued, the solution is to get consumers to pay for their health care consumption as directly as possible. However, unlike plans which would tax employer-provided insurance, he argued that instead lawmakers should allow employers to give their workers access to the same money as tax-free cash which could be placed into a flexible spending account primarily designed to pay for health care premiums but which could be used for other expenditures.
“Untax the cash and offer that cash-it’s the same money-it’s not [going to have] fiscal consequences with the government whatsoever,” he said. “It’s untaxed now, it’ll be untaxed then.”
The health reform bill, which the President signed on Tuesday, March 23, limits direct consumption of health costs through untaxed accounts such as health savings accounts and flexible spending accounts, the model for Evans’ suggestion.
According to Ryan J. Donmoyer with Bloomberg, provisions of the bill scale back tax preferences “associated with paying out-of-pocket medical expenses.” In other words, it decreases consumers’ incentive to purchase health care products without a third-party intermediary.
“The bill in 2011 places new restrictions on what can be purchased using special savings accounts funded with pre-tax dollars including health savings accounts,” writes Donmoyer. “Improper withdrawals from the accounts also would be hit with a new 20 percent tax.”
“And the legislation for the first time would place a $2,500 limit on what can be contributed to employer-sponsored flexible spending accounts, another type of account funded with pre-tax dollars that can be used to pay for medicines, co-payments, and other expenses.”
The bill also includes an individual mandate which would penalize Americans for not buying health insurance starting in 2014, according to Huma Khan with ABC News.
“If the Senate passes the ‘fixes’ that the House of Representatives has proposed, as it plans to, there will also be a new tax on high-cost insurance plans, called the ‘Cadillac tax,’ which employers will have to pay,” Khan writes. “Insurance plans with a premium of $10,200 for individuals and $27,500 for families would be subject to a 40 percent tax.”
According to Reuters, Republican attorneys general in 12 states “warned on Monday that lawsuits will be filed to stop the federal government’s healthcare reform bill from encroaching on states’ sovereignty.” Officials from 14 states have filed suit, reported CNN on Tuesday, March 23.
“So you have two classes of people in this country that need to be punished: people that have health insurance and people who don’t have health insurance,” said Evans at the authors night. “Why is this in any way unpopular? What is there about this that would be unpopular?” he later added.
The reconciliation bill, to which Khan refers, also contains provisions from the 2009 House-passed student-loan bill, which the Senate had not yet taken up. The language attached to the reconciliation bill does not include additional funding for early childhood education, as the House version had, but ends federal subsidies for private student loan providers and increases Pell grants, according to the majority’s House Committee on Education & Labor web page.
“Gridlock is the next best thing to having a Constitution,” argued Evans at the author’s night. That gridlock ended last weekend.