Thursday, October 1, 2009

Magic Bullets - Part I - Healthcare

What if there really are Magic Bullets?  "Experts" always say, with thoughtful pauses, "Well, of course this is a complex problem we have with (insert problem here) and there are of course no Magic Bullets, but I think with the right mix of policy changes...blah, blah, blah, etc. etc. etc."  You get the idea.  I reject that notion in many areas because I do believe in magic bullets and I can see them working throughout history.  Unfortunately, they can work both good magic and bad. 

Let's take for example the "black-magic" bullet that first caused our Healthcare mess; a freeze on wages during WWII which led companies to provide health insurance as a dodge around the wage freeze.  From that point on, there was an imbalance in the tax treatment between employer provided (tax deductable) and individually owned (fully taxed) health insurance.  In other words, that wage freeze caused a cascade of unintended consequences which has tragically led us to our current mess.  Today only about 5% of the population pays for their own health insurance leaving almost everyone in the US in a situation where someone else foots the bill.  No wonder healthcare is considered an entitlement! 

So what is the magic bullet fix?  Writing in the Wall  Street Journal a couple of  weeks ago, noted economist Martin Feldstein said  that (and I'm paraphrasing), virtually every economist he knows believes that tax changes are the key to bringing down costs.  After all, isn't this ultimately about cost?  If catastrophic insurance was affordable to everyone, everyone would buy it, right?  So the magic bullet is to make the tax changes which would re-establish an individual market for health insurance and once established, that would obviate a government takeover.  This could easily be done by giving individuals the same tax savings as employers and that would mean re-fundable tax credits for those who pay no income tax or are in low brackets.  The effect would be revenue neutral to the government and a true market would emerge for health insurance. 

So why not do it?  The answer is simple; this is not about fixing the problem but rather about political power and permanent electoral majorities forever for the entitlement class, which just happens to be another "black-magic" bullet.         

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