Use Healthcare to Sell the VAT, 01/09/11

David Brooks concludes that “Overall, there is a strong likelihood that the current health care law will face an existential threat over the next five years. Each party should be preparing contingency plans.” (David Brooks “Buckle Up for Round 2,” The New York Times, 01/07/11)

The issues: the legality of individual mandates, the short-fall in voluntary membership in high-risk pools for the unemployed, the dumping of the poor and the sick from corporate and union plans onto the public insurance exchanges, the diminished competition from consolidation of medical providers plus the restriction on starting new hospitals, the high level of public and physician hostility.

Republicans appear to favor a shift to defined contribution plans with vouchers. It may come as a shock to some of them, but such a plan was suggested by none other than Rahm Emanuel’s brother, Ezekiel Emanuel, a physician and former head of bio-ethics at NIH.

Dr. Emanuel recognized that the burden of healthcare was huge for business and growing. His basic premise was that since everyone wants universal healthcare, everyone should be willing to pay for it. The concept was to remove the direct burden of healthcare from businesses and shift it to the population via a dedicated VAT.

This value added tax would pay for vouchers in the insurance exchange, which could (optionally) include Medicare as one of the insurance options. Emanuel wisely did not want the concept to live or die on the single-payer option, but including the Medicare option would enable the concept of single-payer to prove itself in competition with private plans.

Dr. Emanuel reasoned that those at the lowest income level could be subsidized for their VAT consumption cost through the EITC.

How to sell the VAT? Make it your healthcare ticket. Relieve businesses and unions of the direct burden. Shift to the VAT the direct private medical insurance expense plus shift the Medicare/Medicaid tax from payroll taxes to the VAT. Medicare and Medicaid amount to $453 billion and $290 billion, respectively, i.e., amounting to virtually one-half the 1.42 trillion budget deficit in 2009. If taxes must go up to end the huge deficit shortfall, at least the public would realize there is a direct benefit in healthcare for their VAT expense.

Consumers will then know that if they demand more health benefits, their VAT will rise, and they should show their willingness to support an increase. Being aware of the VAT percentage might provide a measure of self-limiting increases to our medical system expenses.

And, the VAT will force imports to share an equal burden of our healthcare cost, and that would help business compete within our borders. Since our high healthcare costs will now be subtracted from exports, our goods and services will be more competitive abroad.