Tax Credit Hides True Cost of Healthcare

Philip Betbeze, for HealthLeaders Media , October 15, 2010

A health insurance premium tax credit that is part of the Patient Protection and Affordable Care Act could assist more than 28.6 million Americans in purchasing healthcare coverage by the time it's implemented in 2014. Sounds great, doesn't it?

It's not. This is a bad idea.

Let me back up. This is a good idea with an extremely bad mechanism, tax credits, for achieving its stated goals: helping middle-income Americans afford healthcare coverage.

Here's why I hate the way it's being administered. In an industry that many claim is economically out of whack, overburdened by regulation, and  extraordinarily expensive, government is going to exacerbate the problem by hiding the true cost of healthcare through income tax credits.

Get this: the families being helped by this tax credit mechanism never actually see the money. The government and the (presumably private) health insurer take care of all the administration of the benefit.

That distorts behavior.

Before you argue that a lot of the rest of us are sheltered from the true cost of healthcare through our employer plans or through coverage under Medicare and Medicaid, yes, I agree. The way those plans are administered is a bad idea too. Sheltering people from the true costs of healthcare has played a large part in getting us to this crisis situation.

If we all had to pay for what it costs to insure us, I guarantee the rate of healthcare inflation wouldn't be double or triple the annual inflation rate for other goods and services. The value of the tax credits is expected to be about $110.1 billion during the first year. That's an amount equal to the GDP of Kyrgyzstan that will help hide the true cost of healthcare for many, if not most Americans with private health insurance.

Comments are moderated. Please be patient.

5 comments on "Tax Credit Hides True Cost of Healthcare"

Todd (10/19/2010 at 9:35 PM)
Chantico, more employer could self-fund if they would like. In fact, employers can self-fund all the way down to only 15 employees if they are willing to accept the risk and/or can obtain reinsurance. But as long as Medicare and Medicaid continue to underpay providers, employers and health plans will see large cost increases year over year.

Chantico Skky (10/18/2010 at 8:36 PM)
The article is spot-on, but we need to look at how people are "insured," as well. In addition to allowing the inter-state sale of health insurance, for employer-provided healthcare (assumed as a non-mandated benefit), all employers should be allowed to be self-funded (pooling the contributions to provide the security) and should use a TPA and rented MD network to pay its claims directly. Instead of paying monthly premiums to an insurer, the money is set up in an escrow-like account and claims are paid out as they occur. The insurance companies make untold millions by collecting premiums for those insured who rarely seek care. Being self-funded puts the private employer in the same boat with union trusts[INVALID] who are also self-insured, but at the cost of the employing corporation.

Corbett (10/15/2010 at 1:30 PM)
Let's take your idea one step further...if the goal is to stop the decades of double digit cost increases in the health care industry, let's increase the patient's share of financial responsibility for care. Start by augmenting Medicare's proportion of patient responsibility, scale it over the next ten years to gradually grow to 50 percent by the end of 2020. Other payors will follow suit. Then someday we could truly have an industry where people are encouraged to shop, forcing providers to be more cost conscious and quality focused.




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