The House’s Healthcare Reform Bill: the Reform We Need?

A “universal coverage” bill to reform healthcare has emerged from House committees:

The Chairmen of the three Committees with jurisdiction over health policy in the U.S. House of Representatives introduced comprehensive health care reform legislation on July 14 that will reduce out-of-control costs, encourage competition among insurance plans to improve choices for patients, and expand access to quality, affordable health care for all Americans.

The America’s Affordable Health Choices Act is consistent with President Obama’s overall goals of building on what works within the current health care system by strengthening employer-provided care, while fixing what is broken. The bill will ensure that 97 percent of Americans will be covered by a health care plan that is both affordable and offers quality, standard benefits by 2019.

The House Committees on Education and Labor, Ways and Means, and Energy and Commerce have been working together in an unprecedented way as one committee to develop the proposal for health care reform.

The bill includes both individual and employer mandates and will apparently be funded through a combination of reductions in Medicare and Medicaid payments and a surtax on individuals with incomes of $280,000 or more and families with incomes of $350,000 or more.

By the Congressional Budget Office’s reckoning over ten years the bill would result in 37 million more people being insured than are now.

Editorials are already beginning to emerge in favor or opposed to the bill. The Washington Post is skeptical of the way that the new bill is funded:

THERE IS a serious case to be made that the U.S. income tax system should become more progressive. The average rate paid by the top 1 percent of households shrank from 33 percent in 1986 to about 23 percent in 2006. At the same time, the share of adjusted gross income claimed by that highest-earning sliver of American society doubled, from 11 percent to 22 percent. So, in principle, higher taxes for the well-heeled could make sense — as part of a broader rationalization of the unduly complex tax code.

But there is no case to be made for the House Democratic majority’s proposal to fund health-care legislation through an ad hoc income tax surcharge for top-earning households. The new surtax would hit individual households earning $350,000 and above. It would start at 1 percent, bumping up to 1.5 percent at $500,000 in income and to 5.4 percent at $1 million. The new levy would begin in 2011 and is supposed to raise $540 billion over 10 years, about half the projected cost of health-care reform. The rest of the money would come from reduced spending on Medicare and Medicaid — though the surtax for the lower two categories would jump by a percentage point each in 2013 unless the Office of Management and Budget determines that the rest of the bill has saved more than $150 billion.

The traditional argument against sharp increases in the marginal tax rates of a very narrow band of Americans is that it could distort their economic behavior — most likely by encouraging them to put more of their money into tax shelters as opposed to productive investments. This effect could be greatest in certain states, such as New York, where a higher federal rate would add to already substantial state income taxes. The deeper issue, though, is whether it is wise to pay for a far-reaching new federal social program by tapping a revenue source that would surely need to be tapped if and when Congress and the Obama administration get serious about the long-term federal deficit.

The Wall Street Journal is concerned that the bill would hurt small businesses:

WASHINGTON — House Democrats on Tuesday unveiled sweeping health-care legislation that would hit all but the smallest businesses with a penalty equal to 8% of payroll if they fail to provide health insurance to workers.

The House bill, which also would impose new taxes on the wealthy estimated to bring in more than $544 billion over a decade, came as lawmakers in the Senate raced against a self-imposed deadline of this week to introduce a bill in time for action this summer.

Senators face a tougher battle because they are striving for a bipartisan bill. Key senators are weighing a combination of several more-modest fund-raising provisions, including some new fees on health-care industries.

Under the House measure, employers with payrolls exceeding $400,000 a year would have to provide health insurance or pay the 8% penalty. Employers with payrolls between $250,000 and $400,000 a year would pay a smaller penalty, and those less than $250,000 would be exempt. Certain small firms would get tax credits to help buy coverage.

The relatively low thresholds for penalties triggered the sharpest criticism yet from employer groups, who said the burden on small business is too high and doesn’t do enough to help them expand insurance coverage.

I’ll link to additional editorial views as they appear.

Unless you believe that healthcare providers will take a paycut voluntarily, the 50% of the proposal paid for via cuts in Medicare and Medicaid may never materialize. The remaining 50%, paid for by tax increases on “the rich”, will have secondary effects. There will be less non-healthcare consumption, less saving, and less investment than there otherwise would. All of these are necessary if the economy is to recover but all are likely to be reduced by the imposition of a new tax.

In my own case the bill is likely to result in a little more inconvenience but not much else. I’m not one of “the rich”; I don’t use Medicare; I no longer have a payroll or employees. It may result in lengthening my already lengthy wait time to see my primary care physician. That’s about it.

Note that the bill won’t necessarily result in one more innoculation, one more set bone, or one more medical examination than is already being performed. It might change how these are distributed and who pays for them.

It’s not nearly enough and IMO the coming battle during which Democrats will almost certainly pass the bill through the House with few if any Republican votes followed by a similar display in the Senate will leave a bad taste in practically everyone’s mouth.

I continue to believe that healthcare reform is urgently needed and that a prudent reform would effect changes to both the supply and demand sides of the equation.

This isn’t that reform and it’s not what we need.