Taxing Insurance Isn't the Answer
Letter to the Editor

Your editorial "Taxing Health Care" (May 29) pinpoints the true reason for Democrats' U-turn on taxes and health insurance, but it understates the full consequences of trading in one form of financing third-party payment for another, at the same level or higher. Yes, Capitol Hill Democrats would like to encourage longtime Republican backers of capping the tax exclusion for employer-sponsored insurance to come up with some of the money needed to finance an expansion of health insurance for everyone else. In other words, re-enlisting as "tax collectors for the welfare state," under Democratic management.

However, the current problem of how third-party payment overstimulates more spending on health care and raises both the price of services and insurance coverage won't be solved by redistributing some of the total amount of tax subsidies for health care from the open-ended tax exclusion to a tax credit and more Medicaid spending for the uninsured. Less than 13% of all health spending is spent out of pocket, and that share continues to drop each year.

It's the total current amount of this spending factor (encouraged and augmented by tax subsidies and public entitlement program transfers), as well as its future growth rate, that drives health spending at a faster growth rate than that of the underlying economy. Delivering the subsidy candy through a different chute of the same Washington-based, third-party vending machine will still leave us with a bloated health sector which crowds out other investments and encourages more care instead of better health.

This year's health "reform" unfortunately has been all about redistribution, with make-believe cost containment only providing thin camouflage.

Thomas P. Miller is a resident fellow at AEI.

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