Tuesday, February 23, 2010

Financing Healthcare Reform

Today's Washington Post reports:
Obama's proposal takes the more modest Senate bill as his basic framework. But, in what is perhaps his proposal's most notable feature, he scales back the Senate bill's main revenue source, a tax on high-cost insurance that he has strongly supported. Instead, he would impose a new tax on the unearned income of the wealthy.
In my view, this is a step in the wrong direction. The tax on so-called Cadillac health plans made sense as a way to reduce the existing tax incentive toward excessively generous health insurance, which in turn encourages excessive use of healthcare. That reform is, apparently, now gone.  Instead, the current administration proposal is to increase the tax on capital income, reducing the incentive for saving and investment. 

In other words, the new proposal would do less to bend the curve of rising healthcare costs and more to impede long-run economic growth.  This change was probably made to attract more House Democrats.  It will likely make the plan even less attractive to congressional Republicans.

By the way, according to CBO director Doug Elmendorf, the new administration proposal has too few details for the CBO to provide cost estimates.  Perhaps more details will be available in the days to come.