Gale, William G., “Inoculate the Budget from Health Care Reform,”, 05/08/12

“The medium- and long-term deficits that will result from debt-financed health care spending will inexorably dampen economic performance. They will sap up capital, reduce our ability to grow, burden future generations with debt, and perhaps even influence the military and diplomatic stance of the country. We cannot, and indeed should not, wait for effective health care reform to rein in the budget deficit. Health reform is a process; it will take time to get it right as we learn about what works and what doesn’t. We won’t get it right on the first shot.

As we work to restrain health care cost growth, we must, at the same time, inoculate the future deficit from the inevitable failures of health reform.

We can do this by choosing a federal health care spending level and stipulating that any spending above that amount must be financed on a current basis with a tax. For example, if federal health care spending were allowed to grow at the rate of GDP plus 0.5 percent (a rate proposed by both President Obama and Rep. Ryan), any health spending in excess of that growth rate would be financed with tax revenues in the next year.

Suppose we used a value-added tax (VAT) to finance excessive health spending; using a VAT in this way would accomplish several goals and simultaneously mitigate general concerns about the VAT. Most importantly, the deficit could be controlled; the grinding economic effects of persistent long-term deficits could be avoided even before society resolves the economically difficult and politically treacherous questions raised by trends in health costs.

In addition, the proposal would link health care spending and the means to pay for such spending. When considering whether health spending should rise, voters would have an explicit choice between higher spending and higher taxes on the one hand or lower spending and lower taxes on the other.”

If Obamacare Is Overturned

The Supreme Court may decide that individual mandates for insurance purchases oversteps the authority of the federal government.  If Obamacare is overturned, there is a better alternative — single-payer in the shape of Dr. Zeke Emanuel’s plan for a dedicated VAT paying for vouchers to be used in an exchange. The VAT tax, dedicated to health insurance, would have precedent for the Supreme Court, e.g., the Social Security tax.

With a dedicated VAT tax, the citizenry would have a measure of health care costs vs. benefits that should work to restrain additional demands for more expensive tests and services. Corporations would be on an even footing in that the amount of medical insurance would no longer be a competitive benefit for employees.

Of great importance, the VAT burden would saddle imports equally with the burden of healthcare, and exports would not carry the burden. VAT is the border-adjustable tax for this era of globalization, i.e., added to imports and subtracted from exports. That is why it is used by all of our trading partners — to our competitive disadvantage.

Dr. Emanuel, Rahm’s brother, published a book detailing the plan, “Universal Healthcare Guaranteed.” Links to information about the Emanuel plan and VAT can be found at:

Medicare: Emanuel Healthcare VAT Bridges Ryan & Obama

On the editorial page, today’s NYTimes restates their opposition to potential future cost increases to Medicare recipients in Paul Ryan’s plan (“The Republican Medicare Reshuffle,” 04/15/11).  Paul Krugman, too, decries the notion that unlimited benefits may not be paid for indefinitely without substantial additional contributions by recipients (“Who’s Serious Now?“).  David Brooks in “Ultimate Spoiler Alert” endorses Ryan’s concept of using defined contributions, a de facto voucher system, for Medicare.

Dr. Ezekiel Emanuel, Director Bio-ethics at NIH has long proposed a plan which would bridge the divide.  He has called for healthcare vouchers to be used in an exchange and paid for by a dedicated value added tax.  This exchange should include Medicare as an option alongside private insurance, which would force the insurance companies to compete with the benchmark standard.  Paying for healthcare with the VAT would ensure that healthcare consumers were aware of the costs and would force them to consider what demanding more benefits would mean to their pocketbooks.

The Ryan plan covers everyone over 55, today with the same benefits that retirees now enjoy.  If, as OMB indicates it would cost another $7,000 per recipient in 2022, then the public could consider shouldering the increased burden via an increase in the VAT, which would be somewhat progressive since wealthier Americans consume disproportionately more than the  less advantaged.  And, those in the lowest brackets could be protected with Earned Income Tax Credits.

Corporations and labor should like this concept.  It would remove the direct corporate burden of healthcare costs.  VAT, subtracted from exports under GATT rules would make exports more competitive.  The VAT would assure that imports carried an equal burden as domestic production and make U.S. labor and business more competitive at home.

Isn’t that a plan that both the President and Paul Ryan could support?

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.