Monday, January 29, 2007

I Undersold Myself By Half

In the last post, I suggested taxing insurance companies directly on their administrative costs, but realized there's another way to do this that may already have momentum behind it.

President Bush wants to phase out the deduction for health insurance to discourage "gold-plated" plans. Why not use the same method to discourage plans with bloated, inefficient bureaucracies. It may be hard to convince Americans that healthcare shouldn't be deductible, but why not require insurers to specify how much of premiums actually go to healthcare and how much goes to profits and administration.

People could still deduct the healthcare part, but would get no deduction for the overhead. Even having access to these percentages would help people and employers shop around (and probably lead them to government plans where available), but the tax change would further that effect. It may be more popular to levy the tax on the insurance companies, but in the end, the economic effect would be similar, except that using the income tax system would distribute the burdens more progressively. The revenue raised could be targetted at buying or subsidizing insurance for the uninsured directly or through an offsetting tax credit.

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