Stephen Parente’s Grand Bargain

Steve writes in politico his health policy grand bargain that he says would reduce spending by around $4 Trillion over 10 years and let both sides declare victory.

  • End the tax preference of employer paid insurance
  • Transition Medicare to defined contribution program for those under age 54
  • Block grant Medicaid
  • Adjust several aspects of the ACA (lessen subsidy triggers, end taxes imposed on device makers, etc.)

I wholeheartedly endorse his first suggestion. He correctly notes that while Republicans have long talked about reforming the tax treatment of employer paid insurance, the Democrats actually did it via the tax on high cost plans that is delayed until 2018 in the ACA. Ending or even capping the tax preference afforded to employer provided insurance and doing so earlier is easily the most consequential thing we could do to address health care costs in the private portion of the system. And it is a flexible policy that will improve the ability of the ACA framework to address costs that would also work as intended regardless of the direction that health reform takes. I wrote about doing so here and here and have done so bazillion times on the blog.

And my version of what the grand bargain would look like is here. Stepehen and I would likely quibble forever about many parts of what we have suggested as the middle ground ‘way forward’. But not about changing the tax treatment of employer paid health insurance. Here is what I wrote in March, 2010 just after the passage of the ACA:

The most bipartisan cost-control approach among health policy experts is ending, or limiting this subsidy. Democratic politicians are slower to convert, but I suspect some of the Republican support is strong because it is easy to be for something that seems impossible. The commission could help change that sense. [I was talking about the Fiscal Commission]

Capping or ending the tax exclusion would greatly improve the cost-saving potential of the newly passed reform. And such a policy is flexible, and would work well alongside any imaginable change (either to the right or left) to the framework enacted by the Senate bill.

update: Igor Volsky writes with a good point that it would probably be better to wait until 2014 to cap/end the tax preference for employer paid insurance when exchanges will exist to provide more insurance options.

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