Australia Mulls Healthcare Bank Accounts as a Tax Cut

How do you cut taxes, increase the national savings rate, and sock money away for an aging population’s growing health care needs? This idea was proposed in ON LINE Opinion today in Australia. [Note to reader, in Commonwealth countries the word “scheme” is used instead of “insurance,” although many Americans would likely agree that the word scheme is a better word than insurance.]

Here is the proposal, in Australia-speak:

“[Prime Minister] Kevin Rudd has the chance to do something as economically sensible and still keep his promise to deliver tax cuts. Here is what he could do – and he may have already thought of it.

“He could deliver the tax cuts as promised but at the same time he could ensure that the money is spent in a way that delivers long term benefits to each individual tax payer. For example, give the tax cuts back to taxpayers, but as money in a special healthcare bank account owned by the taxpayer. Money from such bank accounts could ONLY be spent on approved healthcare – for example, anything that is currently partially covered by Medicare. The money would remain in the account accruing interest until such time as it was required by the taxpayer (or his or her immediate family) for approved healthcare expenditure. A high percentage of people will not need to access the funds immediately and so spending will be delayed until later in life. Such a scheme would reduce the need for the safety net provision on health costs and it will satisfy the promise to deliver tax cuts now.

“Of course this solution is unfair on those who do not get tax cuts. An equity-conscious Rudd government could then choose to divert savings from the reduction in the cost of the gap safety net (arising as a result of the health bank accounts) to those who do not receive tax cuts.”

The key is that the money would be owned by the Australian taxpayer, it would be their money. This would be an excellent start, but limiting the use of their own money only to health care will drive over-spending on health care; because the only way that Australians could get the benefit of the money is to spend it on health care. So they will. Taxing the money spent on non-health care expenditures out of the accounts, along with a 10% penalty tax and penalty is a much better policy. This allows people to make an economic decision about where to spend their funds, while still tilting the spending towards saving the funds or spending on health care.

Ultimately, however, as Western nations face a growing health care bill for their public health systems — with an aging population compounding the problem — a method of giving personal responsibility to the population while using public funds, will have to be considered as a way to mitigate against annual spending increases that will break the budget.

Demand for any free service runs at least 30% higher than a service that must be paid for, and there is no evidence that the 30% over-consumption of the free service, in this case for health care, adds any health benefits to the population as a whole, as found by the RAND study, the largest, longest study of its kind.

Therefore, by giving the population cash that they own, and advantaging its use for health care via the tax code, but allowing them to spend it on non-health care needs if they pay taxes and a penalty, will make those with the cash think about whether their need for care falls in that 30% of artificial demand created by the service being free.

The resulting across-the-board reduction in demand then leaves the state health care system able to devote its finite resources to those patients with real health care needs, and prolongs the life of those resources since they are consumed at a slower rate.

Democratic and Republican Presidential Candidates Answer the AP Issue Survey

If you are running for President, your campaign will get many surveys asking you to outline your position on almost every issue imaginable, and as a result, most survey requests are ignored.

One survey request that cannot be ignored is the survey from the Associated Press.  Without further commentary, below are the responses from each candidate with regard to health care:

“HEALTH INSURANCE:

DEMOCRATS:

“Clinton: Mandatory universal coverage in first term. Tax credits for working families to make insurance more affordable — ensuring premiums do not exceed a percentage of income. Business would be required to offer insurance to employees or pay into a pool for people without it. Expand Medicare and federal employees’ health insurance plan to cover those without adequate workplace insurance. Raise taxes on wealthier families to help pay estimated cost of $110 billion a year. Also, raise taxes on a portion of “very generous” plans covering people making more than $250,000.

“Edwards: Mandatory universal coverage in first term by expanding system of federal health insurance and family tax credits, and by imposing requirements on employers, insurance companies and individuals. Increase taxes on wealthier families to pay for program’s cost of up to $120 billion a year.

“Obama: Mandatory coverage for children. Aim for universal coverage by requiring employers to share costs of insuring workers and by offering coverage similar to that in plan for federal employees. Says package would cost up to $65 billion a year after unspecified savings from making system more efficient. Raise taxes on wealthier families to pay the cost.

“Richardson: Tax breaks for businesses and for people who pay for their own coverage. Lower the eligibility age for Medicare to 55 and expand programs for poor and children. Package could cost up to $110 billion a year. Claims savings from expanded spending on preventive care would help achieve mandatory universal coverage without tax increases.

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“REPUBLICANS:

“Giuliani: Income tax deduction of $7,500 per taxpayer to defray insurance costs. Tax credit for poorer workers to supplement Medicaid and employer contributions as part of “market-driven” expansion of affordable coverage. Expanded use of health savings accounts. No mandate for universal coverage.

“Huckabee: Favors market solutions, state innovation. “We don’t need universal health care mandated by federal edict or funding through ever-higher taxes.” Spend more on prevention and research.

“McCain: $2,500 refundable tax credit for individuals, $5,000 for families, to make health insurance more affordable. No mandate for universal coverage. In gaining the tax credit, workers could not deduct the portion of their workplace health insurance paid by their employers.

“Romney: Incentives for states to expand affordable coverage. As governor, he signed health care law aimed at ensuring universal coverage through a mix of subsidies, sliding scale premiums and penalties for those who do not get insurance.

“Thompson: “Market-driven” expansion of affordable coverage, but no mandate.”