Journal Issue: Health Care Reform Volume 3 Number 2 Summer/Fall 1993
Financing constitutes a critical piece of any reform package designed to extend health insurance to the large uninsured population in the United States today. Resources for expanding coverage may come from new tax dollars or from new requirements on employers to provide coverage. Difficulty in raising new public monies or in mandating employer contributions will place constraints on the benefit package or dictate a longer phase-in period for universal coverage. Moreover, changes in who bears the burden of health care costs will occur as a result of these new financing mechanisms. The form of the financing package and the changes in coverage will help to determine the "winners" and "losers" in the health care reform process. Expanding insurance to low-income families who now lack access to care will redistribute resources to that segment of the population.
In this article, Marilyn Moon of The Urban Institute analyzes a number of financing options commonly proposed to pay for health care reform. She examines the potential impact of various taxes and considers the overall balance of taxes and benefits. In analyzing health care reform, it is crucial not only to look at new taxes and spending through the government sector, but also to consider the costs and benefits to society as a whole. This is particularly important in a system that relies on employer mandates to help pay for health insurance.
Burdens under the current health care system fall disproportionately on those least able to pay, that is, low-income families who are ineligible for Medicaid and whose employers do not offer or subsidize insurance coverage. Major reform options would probably improve upon that distribution of the burdens by providing subsidized insurance to those with low incomes. The burdens of providing these subsidies would vary depending upon the combination of new taxes, employer mandates, and individual contributions (and any reorganization of existing contributions) that a new system would require. Ideally, new burdens should be progressive—asking those most able to pay to contribute the most—should be identifiable as part of the health financing package, and should be able to grow rapidly enough to keep pace with the increasing costs of the program. But no single tax satisfies all the requirements of a reasonable financing mechanism. For example, "sin taxes" on alcohol and tobacco are popular, but they are not progressive and might not yield increasing revenues. The impact of a payroll tax, while somewhat more progressive, would fall most heavily on middle-income families. A requirement on firms to pay a mandated premium to insure their employees would be even more regressive.
Although research has shown that reform financed by an income tax would result in the greatest shift in burdens away from low- and moderate-income families, even the relatively regressive employer mandate would still be an improvement over the current system. Moreover, other intangible benefits of improved health over time are not factored into these calculations of costs and benefits. And these intangibles are likely to be particularly important in evaluating health programs for children.