Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Thursday, January 26, 2006

Health Savings Accounts Once Again...

Peter Gosselin of the Lost Angeles Times writes about Health Savings Accounts. IMHO the Bush administration is excited about them because they are yet another excuse for a tax cut--and thus yet another excuse for destructive policies that make the chances of fiscal disaster in the long run higher.

Health Plan to Revive Debate - Los Angeles Times : President Bush is preparing to unveil a series of proposals intended to make the nation's healthcare system more efficient, but he is likely to revive a bitter debate... about how much of life's biggest risks Americans should bear on their own. Although many of the proposals... are ones the president has failed to get through Congress... new initiatives... additional tax breaks for the use of Health Savings Accounts, and making most out-of-pocket medical spending by individuals tax-deductible....

Just as with Bush's Social Security personal accounts proposal, the president would be seeking to persuade Americans to rely less on government-provided or employer-provided safety nets and more on themselves. He would also exhibit the kind of combativeness that has become a trademark of his time in Washington.... "The danger," Altman said, "is that this new arrangement could work out very well for some people, especially the young, the healthy and the affluent, but be very bad for the health system as a whole." The Health Savings Accounts, known as HSAs, are designed to encourage people to cover a substantial portion of their healthcare costs by opening tax-advantaged accounts from which they can pay routine medical expenses.... [T]he accounts will attract only the healthiest [and richest] Americans, leaving traditional employer-provided plans with people who have the highest health costs [and less wealth]....

Much of the president's recent thinking about healthcare appears to be influenced by former Reagan administration economist John F. Cogan, now at Stanford University, and former Bush chief economic advisor R. Glenn Hubbard....

Many analysts believe that the two big government [health] programs or something like them are needed because the elderly, poor and disabled who are covered by them have the most costly care -- and, especially in the case of Medicaid, are the least able to afford it. Hubbard said such problems can be handled by government subsidies.... Douglas Holtz-Eakin, a former Bush economic advisor and Republican-appointed director of the Congressional Budget Office, described the idea of tax deductions for people's out-of-pocket medical expenditures as "really bad tax policy." Holtz-Eakin, who is a fellow with the Council on Foreign Relations, warned that the deduction would tempt people to treat almost all of their spending as health-related and wreak havoc at the Internal Revenue Service. "I could make an argument that my running shoes are a health expense," he said. "They're preventive medicine."...

[I]f anything, people feel underinsured, and have little interest in adding to the financial risks they face. "The average American isn't interested in having more of his or her skin in the game," said Robert D. Reischauer, president of the Urban Institute, a centrist Washington think tank. "They already think they are paying plenty for healthcare and bearing enough of the risk as it is."... [M]any conservatives believe that the reason most Americans have too much employer-provided health insurance is that Washington lavishes too many tax breaks on companies to provide it. But instead of cutting back on the breaks offered employers, Bush proposes giving new breaks to individuals. In effect, he is leveling the tax playing field by raising the latter up, rather than cutting the former down. In an era of giant federal budget deficits, offering one set of tax breaks to counteract another might prove a hard sell.

Cogan and Hubbard acknowledged the problem but argued that proposals such as theirs were the only ones that could win congressional passage. "There's no question that the right answer is to repeal the tax exclusion for employer-provided health insurance," Hubbard said. "But there's no chance politically that that will happen."

I'd much rather have Glenn Hubbard and John Cogan talking about the necessity of tackling the budget deficit than proposing policies that make future budget deficits larger.

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