Smarter Tax Treatment of Health Insurance

In August of 1994, with the prospects of health reform all but vanishing, Sen. Robert Bennett (R-UT) stood on the Senate floor and asked three fair questions: Why have we talked so much about insurance and health care instead of better health? Why have we not adequately explored what role markets can and cannot play in health care reform? And why do we fail to recognize that when employers or governments spend money on health care it is not their money, but our money?

The Healthy Americans Act is the first legislative proposal to answer these questions. Now, almost 13 years later, Sens. Wyden and Bennett have introduced the first bipartisan, comprehensive health care reform proposal since the Clinton-era reforms. The core of their proposal not only restructures the tax system to end the current regressive treatment of health insurance, but also provides revenue to help insure all Americans. By putting more money in the hands of the consumer, rather than the employer, these tax code changes would increase efficiency, portability, and access within the health care system.

At this New America event, cosponsored with the Heritage Foundation, Sens. Wyden and Bennett discussed the Healthy Americans Act and their commitment to utilizing private sector forces while covering all Americans. Sen. Bennett discussed how the current health care system distorts market forces. He emphasized that severing the link between employers and health care will realign market incentives as employees, rather than employers, will be empowered to act as the consumer and choose a health plan tailored to their individual needs. Sen. Wyden highlighted the need to cover absolutely everyone, as people who are uninsured shift their costs to people who are insured.

The current health care income tax exclusion subsidizes the top two-thirds of the income scale; the Healthy Americans Act would reverse that regressive subsidy by subsidizing the bottom two-thirds. New America Health Policy Director, Len Nichols discussed tax reform as the key to affordable health system reform -- it allows us to capture money within the existing system and redirect it towards subsidies for low income individuals. The Healthy Americans Act takes this concept a step further by creating a marketplace that would work for everyone, and requiring (with subsidies for the low-income) everyone to obtain health insurance. Stuart Butler, Vice President, of Domestic and Economic Policy Studies at the Heritage Foundation, applauded Sens. Wyden and Bennett for their bipartisan effort, and emphasized that correcting the perverse incentives created by the current tax code should be the central focus in the health care reform debate.

Participants

• The Hon. Robert Bennett (R-UT)
  United States Senate
  
  
• The Hon. Ron Wyden (D-OR)
  United States Senate
  
  
• Stuart Butler, Ph.D.
  Vice President, Domestic and Economic Policy Studies
  The Heritage Foundation
  
  
• Len Nichols, Ph.D.
  Director, Health Policy Program
  New America Foundation

Related Links

• Text of Sen. Bennett's Aug. 13, 1994, Remarks on the Senate Floor
  
  
• Policy Proposal: A Sustainable Health System for All Americans
  Len Nichols, July 2007
  Part of New America's Next Social Contract Initiative