Kansas Health

Theory versus practice

[Jonathan Weisman, "Theoretically, Tax Reform Should Fly," The Washington Post, 3 December 2004.]

President Bush is outlining plans to do away with the tax breaks given to employers for providing health insurance. The move would put an end to a bias that undermines insurance availability for small employers and those seeking to insure themselves:

If you want to understand why the Bush administration is pondering eliminating the tax deduction for employer-provided health insurance, consider this year's Economic Report of the President. There, White House economists assert that the deduction unfairly subsidizes employees of some companies while encouraging overly generous health policies that focus on routine medical care.

"If automobile insurance were structured like the typical health policy, it would cover annual maintenance, tire replacement, and possibly even car washes," said the report, concluding that "health insurance markets can be improved . . . [to] focus on large expenditures that are truly the result of unforeseen circumstance" and "to provide a more standardized tax treatment of all health care markets."

The argument points to a certain truth about President Bush's free-market economic policies that Bush supporters say is unappreciated: In crafting a broad agenda for his second term, Bush is trying to adhere strictly to economic theory, perhaps even more so than during the Reagan administration's early battles over deregulation and taxes.

The article proceeds, somewhat disingenuously, to portray the situation as one of theory vs. real world experience. This of course largely ignores the fact that the theories in question are indeed based upon empirical data. The idea that "if you subsidize a certain type of behavior, more people will engage in it or will engage in it to a greater degree" is not merely the stuff of fantasy. A nice try on the part of The Washington Post to undermine the value of consumer-driven reforms, but destroying straw men rarely proves that convincing. The exciting part of the article is that these reforms may actually come to fruition.