Clifford Asness has posted a revised and extended version of his thoughts on health care. I had commented on his original draft earlier here. The new version includes the following:
I do not think health care should be tax-free if provided by an employer. Being provided by employers in the US leads to over-consumption (as it's pre-tax and the marginal cost of service is lower to the consumer), and worse, does indeed help lead to the fractious less efficient organization of insurance (and the famous, and real, "portability" problem). I certainly agree that this structure raises costs, but if you have a simple problem like this, you fix it, you do not say "hey, let's try communism."
To extend that thought, how would you fix that simple problem? Repealing the tax-free status of the benefit would amount to a big tax increase on individuals and potentially also on employers. Such a tax increase doesn't seem like the sort of thing thaat Mr. Asness would be an advocate of. One possible outcome is that people would stop getting health insurance from their employers and start buying it as individuals. That might increase the ranks of those who choose not to purchase insurance at all. Congressional Republicans, including the McCain campaign, have touted a plan to give an individual tax credit for a certain amount of health insurance spending. That avoids the tax increase (mostly) while holding down spending, because at least in theory consumers will be reluctant to spend much over the amount of the credit on insurance. The downside of that as a political matter is that it makes a cost which for a lot of voters was hidden into one that is now visible. And as a philosophical and practical matter, it adds health insurance purchase to the seemingly endless lists of behaviors (retirement savings! home mortgage interest! student loan interest! hybrid vehicle purchase! energy-efficient window installation!) that are incentivized -- some would say micromanaged -- by the income tax code rather than being left to individual free choice. Other suggestions, anyone, for fixing this "simple" problem?
