Why Higher Taxes Will Improve Your Health

Jun 01, 2009

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This column is a collaboration between KHN and The New Republic . 

With Congress back in session, health care is at the top of the political agenda. And, already, you can hear the opponents of reform making a familiar argument: It will mean huge new taxes for you, even if you’re part of the middle class. Although they're exaggerating, conceptually they have a point: Health reform could mean slightly higher taxes for some middle-class people.

But that doesn’t mean you should object. Paying a little more in taxes can be worthwhile if it helps the government finance things you value, like better schools, a strong military or the financial peace of mind that Social Security gives us during retirement. And make no mistake: If you are middle class, a new health care system is something you should value.

Here’s why. Health care reform, designed properly, should do two things: It should guarantee that you have health insurance, no matter how much money you make and what illness you may have, so that you can get medical attention when you need it. It should also make health care itself less expensive, so that it stops taking so much money out of your wallet (not to mention the country’s).

In the long run, these two goals are neatly complementary. The reform plans under consideration would guarantee insurance by expanding the reach of public insurance plans (such as Medicaid) and giving people subsidies to help them pay for private insurance. That costs the government money. But the plans would also steer medical care away from unnecessary treatments while reducing costly administrative overhead. That saves the government money. It’s quite possible--many experts would say likely--that reform can pay for itself and, subsequently, deliver savings that will end up in the hands of everyday Americans.

But it will probably take years for those savings to show up. And until that happens, the government has to find some way of underwriting the expanded public programs and subsidies to people buying private insurance--in all, at least $1 trillion over the next decade, according to the best available estimates. Some of that money (at least half) will have to come from taxes. And, almost certainly, some of those taxes will have to come from the middle class--including, perhaps, people like you.

The reason is politics. While it’s possible to raise the necessary funds simply by sticking it to the rich--higher capital gains taxes would be the place to start--Congress seems disinclined to finance universal coverage that way exclusively. Instead, it’s also looking at measures that would affect the middle class.

One idea under discussion is to limit the tax break for more health insurance benefits, a move that would hit people--like older, unionized workers--whose employers give them blue-chip coverage. Another proposal would slap new taxes on tobacco, alcohol, or high-sugar food. Policy wonks like to call this a “twinkie tax.” (Another option would be a so-called Value Added Tax, which acts like a hidden consumption tax, but that’s apparently not under serious consideration.)

To be clear, with either the tax change on health benefits or the Twinkie Tax, the actual financial hit from new taxes would be pretty modest--most likely a few hundred dollars a year, and less than that for the less affluent. And, as a bonus, raising either of those taxes would help accomplish a worthy policy goal. Most economists agree that it’s a bad idea to subsidize overly generous health plans, since it encourages people to purchase more coverage--and, ultimately, consume more medical services--than they’d normally find worthwhile. And most public health experts, to say nothing of most wise parents, agree it’s a good idea to discourage smoking, excessive drinking, and the guzzling of soda pop.

But you don’t need such elaborate rationalizations to justify higher taxes for health care reform, because reform would give you something you don’t have: A guarantee of good health insurance. And while you may have insurance now—indeed, most Americans do—that doesn’t mean you can be sure that the insurance will be there tomorrow or that, if you get sick, it will pay for the medical care you need.

Right now 46 million Americans have no coverage. Tens of millions more have health insurance that doesn’t cover their expenses, saddling them with crushing medical expenses or forcing them to forgo care altogether. While the majority of these people are low-income, a substantial number are middle-class--among them, people who suddenly lose the job that was providing their coverage, develop an illness that falls into a coverage loopholes, and so forth. (In one recent survey of cancer patients and their families, a third of the respondents with household incomes over $75,000 said they were having trouble paying their medical bills.) It's virtually certain that the proportion of Americans without adequate insurance is going to keep going up, including ever more people who once thought of themselves as "securely covered." In other words, this could easily be you.

And reform wouldn’t simply give you security you don’t have. It’s also the only way to deliver those savings in the future. Among other things, it’s terribly difficult to reduce the cost of medical care in a system as fragmented as ours. When insurance companies don’t play by the same rules, when public and private carriers can shift costs back and forth to each other, when uninsured and underinsured people end up delaying care until they need expensive treatments in the emergency room--all of these things make it tough to make medical care more efficient. Reform, done properly, should at least mitigate these problems--if not quite eliminate them altogether--making possible significant savings down the road.

So health reform would give you income security and, years from now, leave you paying less for medical care than you otherwise would--all for a modest tax hike. That's not just worthwhile. That's a bargain.

Jonathan Cohn is a Senior Editor of The New Republic.