Posted by
Saint Somebody on Monday, July 13, 2009 1:20:45 AM
July 11, 2009
This is a brief summary of the wisdomforrent two point health care reform plan I cobbled together this morning at the library. I am sure that Congress has a carefully researched and detailed strategic plan but every plan should face an alternative, so compare and contrast.
Health care should be purchased with pre-tax dollars. The alternative encourages taxpayers to seek the shelter of government subsidy for all of their health needs.
** Allow all qualified medical expenses to be deducted dollar for dollar from gross income whether you itemize or not. Medical expense payments would not be treated as income in the year they were paid. For instance, gross income of 44,000 with health care expenses of $13,000 reduces adjusted gross income to $31,000. From there, itemized or standard deductions further reduce this total to the taxable amount.
The paying consumer is not the problem. Ironically, while a taxpayer can usually take the Medicaid ride for free, there are negative tax consequences for some who purchase medical services directly.
The taxpayer who claims the standard deduction cannot further reduce his income by deducting out-of-pocket expenditures. If an individual has gross income of $44,000 and a standard deduction of $5700 with a personal exemption of $3650, the net taxable income is $34,650. If he has $5000 of out-of-pocket medical expenses and does not itemize, the net taxable amount remains $34,650. Under the wisdomforrent proposal the net taxable income would reduce to $29,650.
Even taxpayers who itemize are penalized as expenses that do not exceed .075 of adjusted gross income are excluded from the deduction and are thus taxable income. A taxpayer with adjusted gross income of $475,000 and deductible medical expenses totaling $225,000 is not permitted to itemize the first $35,500 of that amount. In effect, this individual not only pays the $225,000 in medical expenses but he also incurs tax on $35,500 of that amount (at a rate that President Obama wants to raise to almost 40 percent. In simple terms, he is given an opportunity to pay $225,000 in medical expenses with $239,000.
What is the benefit of this change? Government would forego some tax revenue at a rate of somewhere between 10 percent and forty percent. But, in many cases, they are already financing the total cost of the care out of the same pool of dollars. Is it preferable to pay for a $100.00 office visit, offset by $28.00 in tax revenue or to have the taxpayer pay for the office call and forego the tax collected? Under my plan, individuals will seek (and the market will provide) coverage specific to their needs. People needing only catastrophic risk coverage, or dental, prescription drug, long term care or major medical (hospitalzaton only) coverage will find more tailored products in the marketplace and purchase them with pre-tax dollars.
Why are these products not widely available today? There is a contracted pool of purchasers that limits the product alternatives. The individual consumer is concerned about the cost of the insurance, not the cost of the services. The public option will further contract the pool of buyers and further limit the products available. If all medical expenditures reduce taxable income, it is left to the consumer to choose how much insurance to buy and which providers to purchase from directly. The mix will be different for everyone and so will the remedies. Choice, without the trillions.
With deference to the medical savings account people, this is much simpler, both, to understand and to implement.
** Consumers of Medicaid skilled nursing services are presently faced with the nonsensical choice between paying either the total cost of a patient’s care or none of it. If your mother is admitted to a nursing home that would charge $6500 a month private pay and she cannot afford it, she may be admitted as a Medicaid client and the nursing home reimbursed at say $3700.00 a month. If you and your siblings were to approach the nursing home with an offer to contribute $3200 a month toward her care, your offer would be declined. Your only choice would be to pay the full $6500 or enter as a Medicaid client with the nursing home getting an under market-rate reimbursement $3700.
A nursing home might consider a financially vulnerable resident if they were able to negotiate a payment of perhaps $5200 a month consisting of a $3200 contribution from the family and $2000 from Medicaid. This kind of arrangement is precluded under the current rules. Usually the family allows the patient to qualify for Medicaid, the nursing home accepts lesser reimbursement and the government pays more for less care. The patient suffers.
Some public/ private partnership is called for. It will involve individual freedom and judgment and the government will hate that
I would make these two changes, wait eighteen months and assess the results. Then, I would make further revisions incrementally.