Healthcare

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The advance word is that the Bush administration, unable to get Congress to vote on Social Security individual investment accounts, is going to try to get congressional action on healthcare this year. The administration never came out for a specific Social Security plan, and it may not come out with a specific healthcare plan, either. But it might endorse something like the proposals put forward in the Wall Street Journal and in a short book by John Cogan and Daniel Kessler of the Hoover Institution and Glenn Hubbard, dean of the Columbia Business School and chairman of the Council of Economic Advisers in the first Bush term (subscribers only).

In the Journal they advance three specific proposals: (1) Make out-of-pocket healthcare expenses deductible for people with health insurance. (2) Allow insurers to sell health insurance nationwide, free of state coverage mandates. (3) Set caps on pain and suffering damages in medical malpractice cases. But their target is really broader: what they call "the most misguided U.S. healthcare policy — the exemption of employer-provided healthcare from income and payroll taxation." This tax exemption was established in World War II, when the reach of the federal income tax was expanded so as to include for the first time the great bulk of workers; wartime wage controls made it hard for employers to attract scarce labor, but the exemption allowed them to attract some by paying for health insurance. That means that health insurance tends to be tied to employment and that more than 80 percent of healthcare costs are paid by someone other than the person receiving care. Hence, Cogan, Hubbard, and Kessler say, a system that "is excessively costly and wasteful."

Their proposals are intended to move healthcare in a market direction. Their opponents on the left would like to move toward more government provision. Usually when there is such conflict the political marketplace produces inertia. But the rising percentage of national income accounted for by healthcare produces strong incentives for change. It seems unlikely that Congress will produce major healthcare legislation in 2006. But it's something worth keeping an eye on.