[Congressional Record Volume 140, Number 94 (Tuesday, July 19, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: July 19, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                E X T E N S I O N   O F   R E M A R K S


         USING TAX REFORM TO CURE THE AILING HEALTH CARE SYSTEM

                                 ______


                        HON. MICHAEL A. ANDREWS

                                of texas

                    in the house of representatives

                         Tuesday, July 19, 1994

  Mr. ANDREWS of Texas. Mr. Speaker, we are on the brink of the most 
important legislative reform of the century. At the request of the 
President, Congress is close to passing a comprehensive health care 
reform package. This reform package has a number of complex and 
important goals. The two central goals of the package are to, first, 
extend to all Americans the right to obtain health care. And next, to 
take on the ever-increasing problem facing health care: sky-rocketing 
cost. The trick is to do both without destroying the highest quality 
medical care in the world.
  To achieve these goals, Congress is faced with some tough choices. 
After attempting to formulate a national health care plan under nearly 
10 different Presidents, we have come to the end of a long journey, 
only to be faced with yet a final divide in our path. While both of 
these paths seem to lead to the same outcome, they travel vastly 
different directions.
  Our two choices consist of the following: We can continue down the 
road of free competition that espouses the entrepreneurial American 
spirit, or we can reverse our history and institute a centralized, 
regulated system that builds in inefficiency and developmental 
stagnation. In every instance, in every country that has attempted to 
implement a centrally planned economy, the final outcome has been 
disaster. On the other hand, by depending on the free market system, 
our country has grown into the most powerful Nation in the world. Our 
innovation and technological development have continued to lead the 
world for decades, in every market segment.
  This is especially true of the health care industry. Our 
entrepreneurial spirit has led to the development of lifesaving drugs, 
procedures, and medical devices. In my home district of Houston, our 
medical center is one of the best in the world. The Texas Heart 
Institute is the world leader in heart surgery, and in the development 
of artificial heart research. In fact, a recent article in U.S. News 
and World Report ranked M.D. Anderson Hospital as one of the Nation's 
top hospitals. These advances would not be possible under a Government-
run, centrally planned system. I, for one, am not willing to threaten 
our current research and development programs and simply administer the 
current technology levels to our citizens. Why change the portion of 
our system that works?

  While the current health care system encourages technology and new 
innovative procedures, it also discourages thrifty application. The 
central cause of this inefficiency in the present system is the process 
we use to purchase our health care. For those that can afford to 
purchase health insurance, they usually do so through their employers. 
Many employers pay about 80 percent of the cost, while the employee 
pays the remaining 20 percent. A large number of employers cover the 
entire cost of their employees health insurance. Since the cost to the 
employee is slight, and since employees are sheltered from the true 
difference in cost among plans, they are encouraged to obtain as much 
coverage as possible. If employers and employees are willing to 
purchase the most expensive health plans, providers respond by raising 
their prices and offering cadillac health plans. Under this system, no 
one is fully aware of the cost of the plan. Employees are shielded, 
employers are shielded, and plans are free to increase prices. Thus, 
the cost of health care is much higher than it should be, since there 
are no rewards for providers to lower their prices.
  To create the proper incentive for employees and employers, the 
pricing of health plans should be adjusted to allow individuals to 
pocket the difference if they purchase low-cost plans, which would 
subsequently encourage providers to lower cost in order to keep their 
market share. Consumers who chose to pay more for health care coverage 
would expect better service for the added cost. Thus, consumers would 
have the incentive to join a health plan that effectively manages their 
costs, while those plans that were not efficient and performed poorly 
in providing services would lose customers and go out of business.
  One proposal by Senator Bradley corrects the incentive structure in 
the purchasing of health plans. Senator Bradley's plan imposes an 
excise tax on high-cost health insurance premiums. By applying this tax 
only to the high-cost plans, this proposal helps to achieve a balance 
in the incentive structure for purchasing health care. The current 
Internal Revenue Code rewards wealthy people who have higher marginal 
tax rates and more expensive benefits. By adopting an equalizing 
measure such as Senator Bradley's, we can reduce the cost of 
subsidizing the wealthy and save the Treasury billions each year. This 
savings could be used to help finance subsidies for poor people to help 
achieve the other goal of our health reform package: universal 
coverage.
  Therefore, by restructuring the pricing of health plans to encourage 
consumers to purchase more efficient plans, we can effectively reduce 
the costs of health care, while at the same time provide a subsidy for 
those who are unable to afford health care. This proposal is not a new 
suggestion; in fact, it has been under consideration for some time.
  The 1980 National Health Care Reform Act proposed by Representatives 
Gephardt and Stockman included a similar provision as a central 
component. Other proponents have included Senator Chafee, and 
Representatives Cooper and Grandy. We all recognize the perverse 
incentive structure embedded in the present Tax Code on our health care 
system, but we have failed to remedy the problem in previous reform 
efforts. For example, the current bill reported by the Committee on 
Ways and Means has provisions that call for employer defined 
contributions of 80 percent of three categories of different plans, 
thus subsidizing the high-cost category plan more than the low-cost 
categories. Under this arrangement, employees are rewarded with a 
larger employer contributions for choosing the more expensive plan. We 
must stop such inefficient decisionmaking.
  I encourage all Members to make the tough choices that will enable us 
to reform the health care system by providing universal coverage and 
correcting the incentive structure in the health care system. Let's 
keep the principles of market competition as a central component of our 
economy and our health care system.

               [From the Washington Post, July 13, 1994]

                         Health Care Tax Reform

       One of the stronger provisions in the health care bill the 
     Senate Finance Committee approved earlier this month was an 
     amendment by Sen. Bill Bradley. The excise tax on high-cost 
     health insurance premiums is a blend of tax reform and health 
     care cost containment--an effort to use the one to achieve 
     the other.
       It would limit or counter a basic tax break that favors the 
     better-off and would use the money instead to help buy health 
     insurance for the poor. That's a good exchange, and the 
     measure would also have the virtue of discouraging people 
     from buying more care than they need by raising its price. 
     The proposal could be more sharply designed, as Mr. Bradley 
     himself would concede, but it points in the right direction. 
     Health care reform can only succeed if accompanied by cost 
     containment. If Congress decides to rely on competitive 
     forces instead of government controls to hold down costs, 
     this will make the competition keener. Who's not for that?
       Current tax law heavily subsidizes employer-paid health 
     insurance. Employees don't have to count the employer-paid 
     premiums as taxable income, even though the premiums are as 
     much a part of their compensation as their pay. Organized 
     labor particularly loves the exclusion, which it helped build 
     at the bargaining table into the third-largest federal health 
     care program, after Medicare and Medicaid. That's one of the 
     reasons there's little enthusiasm for attacking it; it's the 
     tax version of an entitlement. But it costs the Treasury more 
     than $50 billion in lost income tax a year, and at least in 
     its present form it's bad tax policy. As a matter of equity, 
     all forms of income ought to be equally taxed--as labor 
     itself has often been first to argue.
       The case for narrowing the exclusion is all the stronger 
     because, on average, the greater savings go to the better-
     off. They tend to have more generous insurance--more dollars 
     per household excluded from tax--and each dollar of exclusion 
     is worth more to them because they face higher tax rates. The 
     exclusion produces inequities within income classes as well. 
     Two households with similar incomes will pay different taxes 
     because one receives part of its income in the form of health 
     insurance premiums that are exempt from tax and the other 
     does not.
       The exclusion affects health care costs by making them even 
     more surreal. The employee is doubly cushioned against them 
     because the government joins the employer in paying them. Why 
     bother to economize in a case like that?
       Critics of the exclusion have urged that it be capped. At 
     tax time, any employer-paid premiums over a certain amount 
     would have to be counted as income. Taxpayers would be 
     reminded of the cost of their care and given an annual 
     incentive to control it. For political reasons, Sen. Bradley 
     chose not to attack the exclusion directly and raise the tax 
     of individuals. Rather, he would go at it obliquely and 
     impose the tax on insurance companies. That would muffle the 
     effect a little. But over time it would still likely make the 
     buyers of high-priced care more cost-conscious.
       Current federal policy blurs the cost of health insurance. 
     The higher the cost, the greater the blur. Mr. Bradley would 
     take a modest first step toward turning that around. Why not?

                          ____________________