Ezra Klein argues that “if you rebuild health care financing around a single tax, you’d also have to rebuild health insurance offerings around what is, in effect, a single payer”:
Employer-based insurance, for instance, only exists because employers pay for it. If the government were paying for it through a VAT, then that insurance would no longer be attached to employers. That would be a good thing because employer-based insurance is a bad thing. But it would also mean individuals would “lose” their current insurance (even though it would be instantly and seamlessly replaced). Which is why we won’t have a VAT.
Back in 2003, the Center for American Progress proposed a universal plan that allowed Americans to keep their employer-based coverage, established a new health insurance exchange modeled on the FEHB, strengthened Medicaid, offered coverage subsidies and financed it all through a Value Added Tax (VAT). And as Len Burman notes, the tax has some advantages:
- It is the only plausible revenue source that would pay for universal access to health insurance without very tight targeting by income.
- A VAT combined with free health insurance is highly progressive
- A VAT that is earmarked to pay for health care would serve as a brake on health care spending because otherwise the VAT would tend to increase
- Announcing a future VAT would stimulate spending in the short term
- When fully phased in, a VAT would encourage savings (since it is untaxed by the VAT), which will boost long-term economic growth and provide a cushion against future recessions.
Personally, I’m not convinced by the above arguments, but it is clear that one can preserve the current employer based system and fund the expansion of coverage through some form of new revenue, whether it be a VAT of some other combination of taxes. (Preserving employer coverage would obviously require a smaller VAT and as Matt Yglesias points out, we’ll probably need some form of taxation to sustain the system in the long run.) I just hope that we don’t over-rely on taxation. The present system wasted a lot of dollars and improving its efficiency may be the only way to build sustainable reform.