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Tuesday, June 03, 2008
The Health Care Entitlement That Must Not Be Named
 In a post over at inclusionist, Shawn Fremstad makes a crucial point about federal health care spending.
In fact, the 2nd biggest health care entitlement isn't Medicaid, it's the $200+ billion tax break for employer-sponsored health insurance. The health insurance tax break costs around $30 billion more than Medicaid and, if my recollection is correct, is increasing at a faster rate than either Medicaid or Medicare. It's also, unlike Medicare or Medicaid, a regressive tax subsidy that provides more benefits for the wealthy.
As much sweat and tears have been spilled by former Comptroller General David Walker and others pleading American lawmakers to — for the love of Pete — do something! about the coming "entitlement crisis," rare (if ever) is the tax expenditure subsidy for private health care considered part of the problem. This strikes me as a $168 bn oversight (I'm using the number in the Analytical Perspectives in President's FY 2009 budget [Ch. 19].).
But this oversight isn't limited to tax subsidies health insurance. No one seems aware of the other massive entitlement programs like the $100 billion housing subsidy that helps higher-income families buy homes (Filers earning more than $100,000 represent 11% of all filers, but they see 60% of the benefit.).
This general blind spot for tax breaks as subsidies has a deleterious effect on the What To Do About Entitlements conversation, because it disguises the scope of the impending health care crisis. The CBO projects that federal spending on Medicare and Medicaid will be 9 percent of GDP in 2035, causing heart palpitations for the budget-minded. Yet, in that same year all health care spending will capture 31 percent of GDP double today's rate.
Crafting policies aimed at reducing per-unit costs of health care would not only allow all Americans to access more and higher-quality health care, but it would also help avert the a doomsday debt scenario (AKA The Entitlement Crisis®). And as long as we neglect to consider the health insurance subsidy part of the federal health care system, this solution will remain obscured.
Posted by Craig Jennings
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