It is Cinderella's pumpkin carriage of health care reform. At first it seems great, but after a few years it turns into a useless gourd. Its massive cost savings are nothing more than accounting illusions.
The Wyden-Bennett bill would eliminate the tax exempt status of employer-provided health insurance benefits. It would replace this with a standard tax deduction to help buy insurance and additional subsidies for low income wage earners. This all sounds good, but here comes the rub.
Neither the tax deduction nor the subsidies to make buying health insurance affordable are indexed to the cost of health insurance. According to the CBO:
First, the amount of the new health insurance deduction would grow at the rate of general price inflation and thus would increase more slowly than the value of the current tax exclusion. Second, the minimum value of covered benefits that all participating health plans had to provide would initially be set at the level of the Blue Cross/Blue Shield standard option offered to Federal workers in 2011 (we assume that the system’s inaugural year would be 2012); but under your proposal that average value would from that point forward be indexed to growth in gross domestic product per capita rather than growth in health care costs. Because Federal premium subsidies would be based on the cost of providing that level of coverage, the cost of those subsidies would grow more slowly over time.There are several incredibly troubling problems with the bill. First, what qualifies as minimum health insurance is not based on a set of benefit requirements, it is based on a dollar amount which is indexed to the growth in the gross domestic product per capita.
Second, the government provided financial help for people to afford insurance will quickly become worthless. From 2000-2008 employer-provided health insurance “premium increases have been between 5 and 14 percent per year.” During that same time period the Consumer Price Index (CPI) increases by only between 1.6 and 3.8 percent per year. The cost of health insurance premiums is growing at twice the rate of CPI. The tax deduction to help people buy health insurance will therefore grow at half the rate of the cost of the insurance.
The subsidies to help low income Americans buy insurance would grow only at the rate of the gross domestic product per capita. From 1997-2007 the average annual growth rate was only 1.8 percent. So the subsidies would grow at a rate of only about 1/5 the rate of increase for health insurance.
At first the Healthy Americans Act would probably work well, but it would quickly fall apart moving forward. The cost of buying insurance would rapidly outpace the tax credits and subsidies provided by the government. Within a decade health insurance would quickly become unaffordable for millions of Americans. And within several years the minimum qualifications for health insurance benefits would cover almost nothing.
I don't believe that Congress would allow the tax deduction and subsidies to buy insurance to grow at a rate so much slower than the cost of insurance. Congress would probably eventually index them to the growth rate in health insurance (either permanently or on an annual basis). Of course if they do that, it will erase almost all of the Healthy Americans Act's much celebrated cost savings for the government. The Wyden-Bennett bill looks fiscally responsible but only by using accounting tricks that would eventually make health insurance prohibitively expensive to many Americans. The bill is only cheap because it does a terrible job of providing affordable health insurance in the long term.