Thursday, November 18, 2004

Sorry, I Overslept

As usual. I'm beginning to suspect that I have some vampire blood or something.

Anyway, a rumor has that the Bush administration plans to lower taxes on capital sources of income (interest income, for example). Workers don't get tax cuts, of course. To keep things revenue-neutral (meaning that they try to add as much extra to the tax revenues as this will take away) the administration is contemplating removing the tax-deductibility of employer-funded health insurance.

Naughty, naughty! Less taxes for those who don't work at all and less health insurance coverage for those who work. It's true that tying health insurance to working status was a very bad idea, but this is not the way to fix that problem.

Consider what happens if firms can no longer deduct their contributions to health insurance premia. The easiest way to think about this is to think what would happen if your mortgage interest payments on your house loan would no longer be tax-deductible: buying a house would be more expensive. The effect here is similar: providing health insurance becomes more expensive for firms, and fewer firms will bother to do it. This means more and more workers without health insurance at all! Bush's health care policy in action.

It's worth pointing out that earnings would probably have to rise if firms wish to have the same size of workforces as before the change, so things aren't quite as bad as they first look. But they are bad enough, for the extra earnings are not going to be enough to buy individual health insurance policies for the workers and their families. This is because group insurance (as offered by employers today) is much cheaper and more effective than individual policies. Many more consumers would end up uninsured.

Of course, that's what the conservatives ultimately want anyway. Then they can offer the desperate consumers their health care savings accounts as the only alternative.