Tax Credit Hides True Cost of Healthcare

Philip Betbeze, October 15, 2010

A health insurance premium tax credit that is part of the Patient Protection and Affordable Care Act could assist more than 28.6 million Americans in purchasing healthcare coverage by the time it's implemented in 2014. Sounds great, doesn't it?

It's not. This is a bad idea.

Let me back up. This is a good idea with an extremely bad mechanism, tax credits, for achieving its stated goals: helping middle-income Americans afford healthcare coverage.

Here's why I hate the way it's being administered. In an industry that many claim is economically out of whack, overburdened by regulation, and  extraordinarily expensive, government is going to exacerbate the problem by hiding the true cost of healthcare through income tax credits.

Get this: the families being helped by this tax credit mechanism never actually see the money. The government and the (presumably private) health insurer take care of all the administration of the benefit.

That distorts behavior.

Before you argue that a lot of the rest of us are sheltered from the true cost of healthcare through our employer plans or through coverage under Medicare and Medicaid, yes, I agree. The way those plans are administered is a bad idea too. Sheltering people from the true costs of healthcare has played a large part in getting us to this crisis situation.

If we all had to pay for what it costs to insure us, I guarantee the rate of healthcare inflation wouldn't be double or triple the annual inflation rate for other goods and services. The value of the tax credits is expected to be about $110.1 billion during the first year. That's an amount equal to the GDP of Kyrgyzstan that will help hide the true cost of healthcare for many, if not most Americans with private health insurance.

Philip Betbeze

Philip Betbeze is the senior leadership editor at HealthLeaders Media.

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