Health beat: In health care, an Rx for deficits?

  • Article by: DAVE HAGE , Star Tribune
  • Updated: January 3, 2013 - 7:43 PM

Relief over the new federal budget deal has turned to cynicism almost overnight, with many saying that Washington has merely kicked its problem down the road.

But Jonathan Gruber, a respected health economist from MIT, suggests there's a solution down that road -- if Congress is willing to tackle health policy for the second time in three years. His suggestion: Change the tax deduction that employers get for offering their workers health insurance.

Lawmakers have long considered it untouchable, for fear they would jeopardize a system that provides 60 percent of Americans with their health insurance. Along with the mortgage-interest deduction, it's one of the biggest and most popular federal tax breaks.

But Gruber says that most employers wouldn't drop the benefit simply because of a change in the tax code. In a recent essay published by the National Bureau of Economic Research, he estimates that only about 10 percent of people with employer-paid coverage would lose it if the deduction disappeared. Phase it in slowly, and the impact would be even less.

The revenue gains, however, would be eye-popping. Repealing that one deduction could raise more than $2 trillion over 10 years. That's twice the amount President Obama asked for in the recent deficit talks, three times what House Speaker John Boehner offered, and enough to stabilize the federal debt -- the holy grail of budget crusaders.

In theory, Republicans should like the plan: It closes a loophole rather than raising tax rates. Democrats should, too: The current system is highly regressive, meaning it favors high-income professionals over the working poor. Economists like it, as well: The tax break encourages employers to shift money from wages to fringe benefits and, as a result, may contribute to over-spending on health care.

A long shot? To be sure. But then, Gruber advised Mitt Romney on health reform in Massachusetts and Barack Obama in the White House -- and look what happened.

dave.hage@startribune.com

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