Sen. Josh Hawley (R-Missouri) thinks he has a new idea: no taxes on health care. He has proposed making all out-of-pocket health care expenses tax deductible, saying that would “help people immediately.” But would it?
Right now, there are already significant tax breaks on health care. The largest is the exemption of employer-sponsored health insurance from income taxes.
That exemption didn’t arise because the government wanted to help people pay for health care. It was an accident. During World War II, wages were capped by the government, but health benefits were not. Many employers, seeking to compensate their workers more, began offering health benefits to get around the price control. After the war, when the price control was removed, the practice was so widespread it stuck.
The employer-sponsored insurance tax exemption has the nasty side effect of linking workers to their employer’s decisions, reducing their choices in health insurance and limiting job mobility. It also interposes the employer between individuals and providers, weakening the incentives to control costs.
There’s a different health care tax policy that puts the individual in control: Health Savings Accounts. HSAs allow individuals to save for health care expenses tax-free. They can also invest the money to beat inflation. Some Republicans want to expand HSAs to allow them to be used for more things and make them available to more people.
Hawley’s proposal would be a clunkier way of replicating the good premise of HSAs. It would make filing taxes more complicated and not permit savings to accumulate as HSAs do.
Hawley frames his idea as being similar to President Donald Trump’s “no tax on tips” and “no tax on overtime” policies, but it is similar only in its wording. Tips and overtime pay are income. Health care costs are, well, costs. Even if Trump’s policies were wise, exempting some income from the income tax is different from saying someone should pay less income tax because they made certain expenses that year.
Roughly the bottom half of taxpayers already have no income tax liability with existing deductions and tax credits. Adding another deduction won’t save them any money.
The proposed tax deduction is also capped at $25,000 per individual. So, is the idea that if someone gets a little sick or injured, they’re entitled to lower income taxes, but if they get very sick or injured, they’re not?
If Hawley wants to look at tax problems in the health care space, he should check out “nonprofit” hospitals and health insurance companies. They operate as regular corporations and compete with regular corporations but pay no corporate taxes on more than $60 billion in profits annually.
And whenever Republicans want to clamp down on excessive government health care spending, whether it’s on the Medicaid “provider tax,” Obamacare’s Medicaid expansion or enhanced Obamacare premium subsidies, Hawley consistently lines up on the side of dumping more government money into health care. Billions and billions more dollars chasing a restricted supply of health care goods has only caused prices to rise, and will continue to do so.
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