Ways and Means hearing on health care reform examines consumer-driven solutions

How best to provide Americans with a more active role in the choice and control over their health insurance and health care was the common question addressed at a recent House Ways and Means Committee hearing on health care and taxes. The benefits and disadvantages of deductible employer-paid health care premiums and the need for consumerism to drive down costs were examined in particular.

In addition to sustaining the employer-sponsored health insurance market, Ways and Means Committee Chairman Kevin Brady, R-Tex., urged the committee to consider “expanding consumer-driven health care, a model that empowers consumers to unleash the forces of choice and competition to lower costs and increase quality.” Such consumer-driven plans include health savings accounts (HSAs) and flexible savings accounts, plans that Brady stated “Obamacare has limited.”

Employer tax exclusion. Brady, in his opening statement, said, “The employer exclusion is a contributing factor in our country’s stagnant wage growth.” In discussing the flaws in the current health care system and the principles of his health care tax reform proposals, Avik Roy, senior fellow at Manhattan Institute for Policy Research, testified that “the best way to expand health insurance choices for workers is to truly equalize the tax treatment of employer-purchased and individually-purchased coverage, through a cap on the employer tax exclusion that is gradually phased in over time.”
Joseph Antos of the American Enterprise Institute echoed Roy’s view, testifying that “capping the exclusion is a sensible compromise that would be both simpler and fairer than the current system, and could be accomplished without disrupting the way most people purchase health insurance.” Although the tax exclusion provides incentive for employers to provide health insurance for employees, it “encourages workers to buy generous insurance that offers lower cost-sharing but higher tax-free premiums,” according to Antos. He described this exchange as “inefficient and unfair,” and added that” many workers do not realize that their employer’s contribution to health insurance premium comes at the cost of lower cash wages.”

Roy and Antos both believe that capping the amount of the tax exclusion would be the easiest method of reform to initiate, as opposed to implementing tax credits, for example. In contrast, however, Steven Kreisberg, director of Research and Collective Bargain Services of the American Federation of State, County and Municipal Employees (AFSCME) testified as to AFSCME’s strong opposition of reforming the tax exclusion. “Eliminating or capping the tax exclusion would undermine employer-sponsored coverage by removing a key incentive that employers have for providing coverage.”

Antos added that the Cadillac tax that limits deductions for employer-paid health insurance, set to go into effect after 2019, will mostly affect low-wage workers and will further weaken the potential benefits of HSAs. “All contributions to HSAs count towards the threshold limits set by the law…and [health insurance] plans that exceed the thresholds will pay the tax, but that cost will be passed through to workers in higher premiums,” Antos said. “Ultimately, all employer health plans will exceed the [Patient Protection and Affordable Care Act] threshold.”

“This committee will continue to protect and expand opportunities for Americans who want to take control of their health care dollars,” Brady said. When asked the best way to encourage more consumerism, Roy replied, “The biggest thing you can do to encourage consumerism is to have the patient control health care dollars. All of these efforts are about making health care more affordable, and putting patients and workers in control of their health care dollars.”

Addressing both Roy and Antos and reflecting the divide by party lines, ranking member Sander Levin, D-Mich., said, “You say you want to give people control of their health care, essentially, what you want to do is replace employer-based health care….you talk out both sides of your mouth.”

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