Current tax laws Under current tax law, health insurance premiums are largely tax exempt if the insurance is provided through an employer. The share of the premium paid by the employer is not counted as income to workers and retirees under the federal income and Social Security payroll taxes. The employee’s share of the premium also can be tax-exempt in firms with flexible spending plans (such as Section 125 cafeteria plans). Out-of-pocket health spending in excess of 7.5 percent of adjusted gross income is tax-deductible for all individuals. Many employees have access to a reimbursement account under their employer’s flexible spending plan, through which out-of-pocket health costs can be paid in pretax dollars.

Cost to Government of subsidies to health insurance via the tax system = tax expenditures

Value to consumer of tax subsidy by family income level

Equity (lack thereof) of Tax Subsidy

Modifications of tax subsidy For some forms of medical care, tax subsidy is really a direct subsidy that reduces the price of care –Dental care –Eye care –Form of subsidy means that high income families receive the largest subsidies. Possible reform--Only cover a limited set of expenditures high risk Effective preventive

Modifications of tax subsidy -2 Regressive nature of subsidy –Set maximum on subsidy toward premium The President’s tax reform panel’s report submitted earlier this month suggested a cap of $5,000 for single coverage or $11,500 for family coverage. Average for family coverage: $9,950 ($829 per month) as of 2004; Average for single coverage: $3,695 ($308 per month) as of 2004 –Set uniform subsidy rate –Set uniform subsidy rate and make it refundable –Set uniform rate but with an income/asset test so it is reduced as income increases (income/asset test) –Combine income/asset test with refundable credit and set maximum premium that is eligible for subsidy

Statistical Discrimination as an explanation for disparity in care by race Basic idea: Physicians have a harder time understanding a symptom report from minority patients. Without intending to discriminate, a provider faced with noisier information for some patients may provide unequal care. –The less experience a provider has with minorities the greater the potential communication problem (also the reverse – more experience, better communication) –Poor communication tends to lead to poorer heath outcomes –Minorities anticipate lower benefits and so initiate care less often –Minorities continue care (comply) less frequently-psychotherapy as example. –With more uncertainty, providers tend to prescribe treatments known to benefit the average patient – less use of new treatments for minorities. Policy implications and suggestions

Other examples Understand determinants of health and interactions between health care and other determinants of health. –Extreme examples – same advice to a homeless person and a homeowner; to a person who is depressed and one who is not. Effectiveness of education compared to medical care or of smoking ordinances versus medical care treatment for smoking related diseases. (How to improve allocation of dollars toward health.) Training of health professionals to understand the need to pay attention to factors beyond health status and ways to influence health. Understand how offering of income conditioned all or nothing public health insurance contributes to increasing those without health insurance (the uninsured.)