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Life Health > Health Insurance > Life Insurance Strategies

Senate Group Ponders Health Care Reforms

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With the debate over the increasing costs of healthcare continuing, the Senate Finance Committee Wednesday sought to determine whether the tax policy for health care is accomplishing what was intended.

Effectively, the question governing the proceedings was, “Are we getting our money’s worth?” according to committee chairman Charles Grassley, R-Iowa.

Until now, the default answer for Congress to the issue of health care tax policy has been tax subsidies, Grassley noted.

“Instead of charging down that path, however, we need to take a step back,” he said. “Too often here in Washington, people try to solve problems by throwing money at them.”

Grassley pointed out in 2005, federal expenditures due to health care tax policy equaled $177.6 billion, and health care tax incentives are expected to cost the government nearly $2 trillion over the next 10 years.

The most expensive single tax policy on health care is the exemption for employer provided health care, which costs the government more than $100 billion annually by itself, added Sen. Max Baucus, D-Mont., the ranking member of the committee.

“This committee has a responsibility to review the incentives in current law,” Baucus said. “We need to decide whether the benefits are worth the costs.”

Testifying at the hearing, former Treasury Secretary Paul O’Neill called on lawmakers to consider overhauling the system significantly.

“American health care policy is in desperate need of reframing and rethinking based on a return to first principles,” he said. “Fundamental tax reform, financial security for retirees and access to medical care for all Americans are not separate subjects. In the absence of coordinated policy and legislative action by this committee, there is no hope.”

Among O’Neill’s proposals was to require all Americans to purchase a minimum level of health coverage, with those with a higher income subsidizing lower-income individuals. Additionally, he advocated improving the performance of health care professionals.

Leonard Burman, senior fellow at the Urban Institute and codirector of the Tax Policy Center, suggested fixing what he called the “upside down” tax subsidy.

“Currently, the largest subsidies go to those who have a strong incentive to get health insurance, even absent a subsidy, while those for whom health insurance is unaffordable get little or nothing,” he said. “A better option would replace the tax exclusion with a refundable credit targeted at those earning less than the median income.”

The simplest proposal was offered by Robert Lane, chairman and chief executive officer of Deere & Company, who appeared as a representative of the Business Roundtable. To reduce the costs of health care, Lane suggested lawmakers increase the availability of products such as health savings accounts, flexible spending accounts and health reimbursement arrangements. These products decrease the overuse of healthcare services, he argued.

He called for increasing opportunities for individuals to use these products, and to allow FSA accounts to be used to help cover the HSA deductible. He also urged increasing the FSA contribution limit and allowing employers to vary the contribution amount to an FSA for different types of employees.


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