President Bush's health care proposal is the right way to go

From the Cato Institute web site comes the best analysis of the best part of the President's State of the Union address.

"Aside from energy, the major focus of Mr. Bush's domestic proposals was an effort to expand access to affordable health insurance, by creating a new tax benefit for those buying insurance on their own rather than through their employer," reports The New York Times. "The new benefit would be part of a sweeping change in the tax code under which employer-provided health insurance, which is how more than half of Americans get their coverage, would be treated as taxable income. For decades, those benefits have been exempt from income and payroll taxes."

Michael Cannon, the Cato Institute's director of health policy studies and co-author of Healthy Competition: What's Holding Back Health Care and How to Free It, comments on the President's healthcare proposal: "The President's health care proposal shows that he is way ahead of both Democrats and many in his own party when it comes to reforming health care. Though economists on the left and right have been screaming it for decades, few politicians understand that the unlimited tax exclusion for employer-sponsored health insurance does enormous damage to America's health care system. The President's proposal to limit that deduction, and to make it available to those without access to employment-based coverage for the first time, is nothing short of revolutionary."

In "A New Prescription for Health Care," Cannon writes: "The president's plan would encourage responsibility by limiting the amount of health insurance we can deduct from our taxes each year. The tax break for employer-provided health insurance is now unlimited, and workers can lower their taxes by demanding unnecessary coverage, which makes them less responsible as consumers." He concludes: "Bush's proposal will be controversial. Opponents will scream that it would destroy employer-based health insurance. What those opponents actually mean, however, is that they don't think workers should be free to choose where they purchase their health insurance."

In my Legal Ledger column this week, in connection with education, I made the distinction between doing different things and doing things differently – Bush’s proposal is a case of doing things differently. It attacks the fundamental cause of a bad outcome.

Unlike his energy and education proposals, Bush calls for no government health care mandates, no target objectives, and he lays out no utopian end game. The proposal simply removes the incentives that have created the system everyone deplores. It opens the door for creative solutions spurred by market forces.

Now, the Paul Krugmans of the world will come with the predictable lament that Bush’s proposal doesn’t address the problems of the uninsured very poor. He’s right; it doesn’t. But that shortcoming shouldn’t stand in the way of the opportunity to provide a choice-driven health care system matching risk to reward for the majority of Americans. The effectiveness of such a system enables us as a society to 1) identify the chronically uninsured as distinct from those people who today are uninsured because they are between jobs or choose not to be insured because of high costs and 2) then provide identifiable people that slip through the cracks with some form of government subsidy that targets their requirements rather than forcing a program on everyone that satisfies no one.

In an otherwise predictable speech, the health care proposal is not just a step, but a giant leap in the right direction.