But How Do You Pay For It?

Today the Speaker of the House vowed to bring a health care bill to the floor of the House by the end of July. The movement is all in the direction of a bill. The question, as always, is how this gets funded. Max Baucus has smartly asked for the health care industry bigwigs who vowed to cut costs by $2.5 trillion dollars over a decade to put it in writing, arguing to include in the bill enforcement of their otherwise voluntary effort. But ultimately, that money will not be available to policymakers as they seek to fund health care reform. They will need to find their own revenue streams. And that is a daunting task, as David Leonhardt explained today.

Providing health insurance to the roughly 50 million people without it will cost something like $120 billion a year. President Obama has proposed $60 billion or so in new revenue for this purpose — a “down payment,” his advisers say. But Congress seems set to reject about half of the down payment (a plan to limit high-income families’ tax deductions for charitable giving and other such things). That makes for the $90 billion health care hole.

And no one is quite sure how to fill it [...]

The experts at the round table — liberal and conservative — actually agreed to an impressive degree about the best way to fill the hole. They urged the senators to limit the tax deduction for employer-provided health insurance.

The deduction may seem a wonderful thing, but it isn’t. It benefits the wealthy more than anyone else. It encourages employers to overspend on health insurance, because $100 in untaxed medical benefits is more valuable to workers than $100 in taxed income. And, as Mr. Baucus said, the deduction has a certain Willie Sutton appeal for Congress: it’s where the money is.

The government forgoes $250 billion a year in taxes because of the deduction. Capping it, to apply only to reasonably priced health plans, would bring in enough money to fill most of the $90 billion hole.

As the article goes on to say, this was an approach then-Senator Obama excoriated John McCain for during the campaign. The difference is that McCain wanted to eliminate the employer deduction, not cap it; and he offered nothing in return, whereas Obama is offering expanded access and subsidies for anybody who can't afford insurance, as well as cost control and guaranteed issue and community rating and all the other elements of reform. So there is a difference, but "they want to tax your employer health benefits" will be a familiar refrain.

I've seen possibilities like taxing high-calorie sodas or alcohol or cigarettes as a kind of "health tax" to help pay for this. There's also the option of deficit spending to put it in place, passing off on the funding for future years, but that's probably a dead letter among the Blue Dogs. If you wrap those cost controls expected from the industry inside the legislation, the CBO might give you a better break on scoring, so that's another option.

Overall, I think the movement is in the right direction, but the cost hurdle could easily derail the whole thing. While I consider the public plan important, funding will ultimately be the make or break piece of the deal.