Gephardt Boldly Tests the Waters of Universal Health Insurance

On Wednesday, Rep. Richard A. Gephardt (D-Mo.) is to unveil an idea that could make or break his presidential campaign.

Speaking in New York City, Gephardt will detail a plan that aims to invigorate the economy and provide health insurance to almost all the 41.2 million Americans without it.

It’s the most sweeping proposal to expand access to health care since President Clinton’s failed crusade in 1994. It’s also hugely expensive; to fund it, Gephardt will have to take the risk of challenging President Bush’s 2001 tax cut more fundamentally than any other Democratic contender.

No one else pursuing the party’s 2004 presidential nomination has yet proposed anything so ambitious on any issue. If Gephardt can sell his idea, it could jump-start his campaign. If he can’t defend it, it could sink him.

Although some details remain in flux, the idea is centered on a new federal subsidy to help all employers provide health insurance for their workers.

Today, employers who provide health insurance can deduct the cost of their premiums from their federal taxes. That deduction covers about 30% of their premium costs.

Gephardt would double that: He’s planning to propose a tax credit that would reimburse employers for 60% of their health insurance premiums. To protect workers, he would bar employers from forcing employees to pay more of the remaining cost than they pay now.

To see how this works, consider a firm that now pays 80% of the cost of health insurance (slightly more than the national average) and charges the remaining 20% to its workers. Remember that the existing tax deduction subsidizes that firm for about 30% of its contribution. So under current law, that typical firm now effectively pays 56% of the cost, with government picking up 24% and the employee the final 20%.

Under Gephardt’s plan, the government share would double to 48%, with the firm paying 32%, and the employee still contributing 20%. That’s a good deal for employers.

Firms that don’t insure their workers today would get an even better deal. They would have to offer insurance, but they would not be required to contribute any of their own money. For those firms, the tax credit would pay 60% of the total premium and employees would pay the rest. Gephardt would offer limited subsidies to help low-income workers cover that cost.

About 8 in 10 Americans without health insurance either work or live with someone who does. So, Gephardt figures that the new tax break would reach most of the uninsured. To capture the rest, he would let people 55 and older buy into Medicare, allow working-poor parents into the joint state-federal program that provides health care for their children and offer subsidies for unemployed workers to buy coverage.

Much about this plan will appeal to Democrats. Most importantly, analysts agree that it would significantly reduce the number of uninsured; it wouldn’t provide universal coverage, since some workers who are offered insurance (especially the young and healthy) will always refuse it. But Gephardt could get close to health care for all.

Second, it would expand access in a way that would reinforce the existing system of group coverage provided through employers. Bush and most other Republicans want to move health care toward a system where individuals are increasingly responsible for purchasing their own coverage (with subsidies from their employers or Washington.)

Democrats fear that will lead to exorbitant costs and inadequate coverage for all but the youngest and healthiest; they want to keep most Americans in large groups where the risk can be shared. Gephardt’s plan would do that by requiring employers to offer coverage, and then subsidizing them to do so.

Third, the plan could juice the economy and increase wages. Firms that now provide health insurance would save billions of dollars a year as Washington picked up more of the cost. Gephardt predicts companies would invest some of that money in new plants and equipment and pass along the rest to workers by raising salaries or reducing the employee share of health costs.

Finally, the plan could seem politically viable. It should be attractive to big companies (which would save the most) and big unions (which could recapture some of those savings for their members). Small business probably wouldn’t like it, but they might not fight it to the death so long as Gephardt exempted employers not now providing coverage from paying part of the tab.

So what’s not to like? The price of making the plan palatable to so many interests is that it is extremely expensive. Many outside experts think it would cost about $200 billion a year.

Gephardt would instantly save $80 billion a year by eliminating the existing tax deduction for health insurance premiums. But to cover the rest of the cost, he likely would have to propose eliminating all the tax rate cuts Bush won in 2001 -- almost certainly including those that benefit lower- and middle-income workers.

Even with such a dramatic step, the proposal doesn’t leave Gephardt much left to spend on anything else, such as education or deficit reduction. This is the one big bullet in his gun.

The plan costs so much largely because it requires Washington to shoulder a larger share of the cost for the employers now providing coverage. Critics will call it inefficient, because it spends so much money on people who already have insurance.

Gephardt could reduce his plan’s cost by targeting it more precisely at firms that don’t now provide insurance (perhaps by limiting it to smaller firms, fewer of which offer coverage). But that would reduce its appeal not only to large employers, but also to the unions that constitute his political base. It would also raise an equity question: Why should Washington subsidize firms that never provided insurance while ignoring those that did the right thing for years?

Like everything else in the complex world of health-care reform, these are questions without easy answers. Even a politician as skillful as Clinton nearly drowned in these waters. Gephardt is unfurling a bold sail this week, but he’s turning into dangerous seas.

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Ronald Brownstein’s column appears every Monday. See current and past Brownstein columns on The Times’ Web site at www.latimes.com/brownstein.