Journal Issue: Health Care Reform Volume 3 Number 2 Summer/Fall 1993
Proposals to reform health care in the United States raise controversial issues regarding how the system must evolve to control costs and to achieve universal access. None of these issues is more controversial than the critical question of financing. No one is quite sure whether support for a specific proposal will erode when higher taxes are discussed. Indeed, many current policy approaches to extending access are guided more by the practical desire to restrict the extent to which new government revenues are needed than by what constitutes an ideal system. Employer-based approaches, which require employers to subsidize the costs of insurance but do not treat these requirements as taxes, are popular largely because they avoid funneling all the costs of health care through the federal government.
One reason that designing a separate health care program for children appeals to policymakers is the incremental nature of such a reform. Partial expansion of insurance coverage is likely to be less disruptive and less expensive. Also, it is relatively easy to demonstrate that children represent a particularly desirable starting point for health care reform. In 1991, about 9.5 million children were not covered by health insurance, indicating the need for expanding coverage.1 Further, the payoff to providing primary and preventive care for children may be high; many believe that such expenditures represent an investment in the future.2
But the added cost of extending coverage to children must be paid, often with new taxes. Children lack health insurance primarily because they live in low-income families or in young working families where insurance is not offered or not heavily subsidized by employers. For such families, insurance costs may be viewed as too great a burden on the family's budget, so expanding coverage may require some type of government subsidy for low-income children.3 Thus, whether reform begins on a limited basis, covering only children, or in a more comprehensive way, financing issues will be critical in choosing among reform options.
In addition, an analysis that considers only the impact of taxes or other financing sources on families with children will fail to capture the equally important issue of who benefits from change. If the benefits of reform are spread across families of all incomes, the financing system will need to be crafted carefully so that low-income families experience real reductions in health care costs. The new distribution of costs will need to be compared with the current distribution to determine whether children and low-income families are truly helped by health care reform.
This paper looks at health care financing options and ways to evaluate them. It begins with a discussion about how to assess the costs both to society and to government of our current health care financing system. The expected government costs of providing care for children only and of undertaking broader health care reform are also examined. Based on the assumption that these costs translate into a need for new revenues—that is, that reform proposals will come with their own financing mechanisms rather than making the deficit worse—this paper next reviews criteria to be used in evaluating possible revenue sources and measures several financing options against these criteria. The paper concludes with a section that places the overall costs and benefits of health care reform in perspective.