BradleyCare: Two Steps Forward Six Steps Back

Commentary by John C Goodman

Congratulations to Bill Bradley. He is the first credible presidential candidate to call for abolishing Medicaid, a program historically plagued by waste, inefficiency, fraud and questionable quality of care. While the recent move of Medicaid toward managed care appears to have improved things, many low-income families face limited choices among the HMOs they are enrolled in. This means managed care can easily become a vehicle for rationed care. Bradley would end this problem by shifting money currently spent on Medicaid into tax credits for low-income workers, so they can purchase the same kind of private insurance available to everyone else.

In another commendable move, Bradley would attempt to level the playing field somewhat between employer-provided insurance and insurance purchased by people on their own. By excluding employer-provided health insurance premiums from employees' taxable income, government is effectively paying half the cost of insurance for many middle-income families. Most people who don't get insurance from an employer, however, must earn the income, pay the taxes and then purchase the insurance with what's left over. Bradley's solution, to give tax credits and tax deductions to people who purchase their own insurance, is a step in the right direction.

But after beginning with two good ideas, the Bradley plan gets progressively worse as the details unfold.

The first problem is higher penalties for working. Bradley would offer a refundable income tax credit of up to $5,000 per year for people with private insurance. Yet the credit would not be available to everyone. In contrast to universal tax credits proposed by Reps. Dick Armey (R-Texas) and Pete Stark (D-Calif.), Bradley would phase out his credit by the time families reach the middle-income range. Moreover, the phase-out method would sharply reduce the taxpayer's share of an extra dollar of wages for those who already face very high marginal tax rates because of the phase out of the Earned Income Tax Credit (EITC). For a family of four earning $25,000, the "tax" on each additional dollar earned would jump from a current 51 cents to 73 cents - leaving the worker with only 29 cents in take-home pay.

A second problem is that some families would be able to "triple dip" on tax subsidies. The Bradley plan actually has three different types of tax subsidies for private insurance, and allows many families to claim all three. To begin with, employer payments for health insurance continue to be excluded from the employee's taxable income. On top of that, employees can claim the tax credit just by providing proof of insurance, even though the employer was the actual purchaser. In addition, if the plan requires an employee contribution greater than the tax credit, Bradley would allow a deduction for the extra amount.

A third problem is the Bradley tax deduction, which encourages people to wastefully over-insure. Employers often give employees choices of health plans - some costing more than others. By making any employee payments for more expensive plans fully tax-deductible, Bradley would encourage high-priced choices, resulting in more generous health insurance and overconsumption of health care.

Partly because of these ill-conceived tax subsidies, a fourth problem is the waste of federal dollars. By his own calculations, Bradley estimates the plan will cost $65 billion a year and will insure an additional 30 million people (a reduction in the current number of uninsured of about two-thirds). This amounts to $2,200 for each newly insured person, or $8,800 for a family of four. Economist Martin Feldstein, however, puts the price tag at $110 billion in the first year alone. That equals $3,300 for each newly insured person, or more than $13,000 for a family of four. By either account that's a lot more than what health insurance should cost.

A fifth problem is a provision allowing everyone the right to buy into the Federal Employees Health Benefits Program. Health plans sold to federal employees must charge everyone the same premium and accept all applicants, regardless of health status. Therefore, seriously ill people who could not qualify for ordinary insurance would be able to sign up for the federal employee plan instead. That's great news for the uninsurable, but it may be bad news for federal employees. Unless more subsidy dollars are added, the high-cost newcomers will increase plan expenses -- leading to higher premiums and/or smaller benefits in the future.

Finally, Bradley's plan fails to do for the elderly what it does for the poor -- allow them access to the same kinds of insurance everyone else has. Instead, Bradley's plan moves in the wrong direction -- expanding an already defective Medicare program by adding a drug benefit.

Overall, Bradley's plan takes two steps forward and six steps back. The better solution: stop bickering with Al Gore over the fine print and go back to the drawing board.