My response to Barry Carol’s comment on “If We Mandate Insurance Should Twenty-Somethings Pay Less?”

(To read my original post on whether 20-somethings should pay less, scroll down to Archives on the left-hand side of the page and click on “September 2007.” You will find my post about three-quarters of the way down the page)

Barry—

First, let me say that if we mandate insurance I very much doubt that it will cost $12,000 for a family of four. That number includes a private insurer’s profits and administrative costs (which can eat up as much as 20 percent of premiums) as well as a lot of waste in the form of redundant and unnecessary tests, over-priced drugs and devices and unproven treatments.  Politicians who talk about requiring everyone to buy insurance almost always stress that we have to rein in health care spending by refusing to pay exorbitant prices for drugs and devices (manufacturers need to give us the discounts that they give patients in other countries), and by rewarding efficient care—while penalizing providers who are less efficient. (For example, if a hospital has a very high rate of infections, the insurer might refuse to pay the cost of the extra treatment needed to treat the infection, forcing the hospital to absorb the cost. If this happened to often, the hospital administration would have to step down.)

Secondly, if we do mandate insurance, large employers would be required to continue to contribute as they do now, either by providing insurance for their employees or by contributing to a large fund to finance subsidies. So they would be paying a large chunk of the premiums for a family of four. In addition, any plan that calls for mandates also calls for subsidies for those who cannot afford to pay the full premium. For example, a median-income family earning $50,000 a year, before taxes, cannot afford to pay $8,000 a year for health insurance. That family would need a subsidy.

When it comes to how we might raise taxes to finance
subsidies, I don’t want to get into too much detail here; this isn’t a tax
blog. But let me just suggest that the tax might be a payroll tax, like the tax
that finances Medicare, with no cap on how much of a person’s income is taxed.
Someone who earns a million dollars would pay a health insurance tax on the
full million (after deductions).

This way, everyone could pay a much smaller percentage of
their income toward health care
subsidies.. You are right that this means that someone who is extremely wealthy
would pay much than a middle-class family. But as you probably know, today very
wealthy Americans pay much lower taxes than their counterparts in most European
countries– in large part because President Reagan gave the rich such a huge
tax break in the 1980s..  When he took office in 1981, the top marginal tax rate was at 70
percent;. when he left office in 1989, the top marginal rate was down to 28
percent. I have talked to very wealthy
people who still can’t believe that Reagan got away with what has been called
“the millionaire’s tax cut.”

In June Warren Buffett blasted a system that lets him pay less tax than his secretary. Speaking at a $4,600-a-seat fundraiser in New York, Buffett said: “The 400 of us [here] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.”

Mr Buffett went on to reveal that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent. If we are going to have universal health care (like every other developed country in the world) we cannot afford tax laws that widen the already-growing gap between the middle-class and the super-rich.

 

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