Gephardt Goes Long on Health Care

Rep. Richard A. Gephardt (D-Mo.) on Wednesday proposed a generous new tax credit for employers that could provide health care for nearly all Americans, but possibly lock in large federal budget deficits for the foreseeable future.

The Democratic presidential contender, speaking to a union of health-care workers, unveiled a plan so sweeping it encompasses three distinct goals: expanding access to health care, stimulating the economy and providing aid to fiscally strapped cities and states.

Under the pressure of all those aims, the plan comes with a formidable price tag: Gephardt says it would cost nearly $700 billion just during its first three years. He proposed to pay for it primarily by repealing all the tax cuts that President Bush won in 2001-- and all the tax cuts that the administration now seeks.

“The economic stimulus created by this plan will pump billions of dollars into the economy -- creating jobs and helping far more working Americans than would ever be helped by the Bush tax cuts, and giving them the security of health care when they need it,” Gephardt told Local 1199 of the Service Employees International Union.

The idea is one of the most expansive initiatives proposed by any presidential candidate in years. It could invigorate Gephardt’s campaign by confronting what many consider his central problem in the Democratic race: the perception that he has been around too long to offer a compelling vision of the future.

But Gephardt faces the risk that the proposal will prove so large that it collapses under the weight of its substantial cost.

Among the other leading candidates for the Democratic nomination, only former Vermont Gov. Howard Dean has sketched out a plan for expanding access to health care. Dean’s proposal -- less detailed at this stage than Gephardt’s -- is focused on enlarging Medicaid, the joint state-federal program for the poor, and providing tax subsidies to small business.

“I hate to be hard on Dick Gephardt, but his plan is totally impractical,” Dean said. “It is much too expensive.... What we have to do is target our resources more carefully.”

Republicans and conservative groups attacked Gephardt’s call for repealing the $1.3-trillion tax cut Bush pushed through Congress in 2001 and whatever may pass this year of the additional $725 billion in tax reductions the president has proposed to stimulate the economy. (Lawmakers are debating a package of between $350 billion and $550 billion in cuts.)

Jim Dyke, a spokesman for the Republican National Committee, decried Gephardt’s proposal as “a big, expensive government program

Gephardt portrayed the plan as, in effect, a tax swap that would replace almost all of Bush’s tax cuts with a new tax break to subsidize health-care coverage through employers.

“Legislation repealing the Bush tax cuts and using the money to pay for universal access to health care will be the first bill that I’ll send to Congress as president,” he said.

The proposal’s core is a new federal tax credit that would reimburse employers who now provide health care for 60% of the cost of insuring their workers. That’s double the tax break employers now receive from the federal government to subsidize health care.

An analysis of the plan conducted for the Gephardt campaign by Emory University professor Kenneth E. Thorpe, a former health official in President Clinton’s administration, projected that the larger credit would save companies now providing health care about $110 billion a year in taxes.

Gephardt said corporations would use that cash to raise wages and invest in new plants and equipment, stimulating the economy more than Bush’s new tax-cut proposal.

Gephardt’s plan also would require that employers not now providing coverage offer insurance to their workers -- but those firms would not have to contribute any of their own money to the cost. Instead, he would provide a federal tax credit to cover 60% of the premiums, and allow employers to pass on the remaining 40% to their employees. He would offer limited subsidies to help low-income workers bear their share of those costs.

In addition, he would expand several public health-care programs, such as the Children’s Health Insurance Program.

Thorpe estimates that the proposal would provide coverage for about three-quarters of the 41.2 million Americans without health insurance. Thorpe projects that Gephardt’s plan wouldn’t achieve universal coverage -- since some workers offered care would likely refuse it because of cost concerns -- but it would come close, providing health insurance for 97% of Americans.

Finally, Gephardt’s plan would help state and local governments by providing them federal funds to cover 60% of the cost of health insurance for their employees. That would channel $172 billion in federal assistance to states and localities over three years.

Meeting all these goals could induce a form of sticker shock; Thorpe concluded that the plan would cost $214 billion in 2005 and $247 billion by 2007. He also said that because of rising health-care costs, the plan’s price tag could grow by about 7% to 7.5% a year. That would put the plan’s annual cost at about $300 billion by 2010.

Several aspects of the proposal could be attractive to Democrats, particularly its significant expansion of coverage for the uninsured. Many expect the idea to be especially popular among unions, because they could bargain to recapture in higher wages much of the corporate savings in health-care costs.

Many Democratic health-care experts also like the plan because it would reinforce the existing employer-based system, rather than encouraging individuals to purchase insurance on their own, as Bush and many Republicans prefer.

“The key to this is that it is strengthening and expanding the employer system, the value of which is its capacity to spread risk,” said Judith Feder, a former Clinton administration health official who now is dean of the Public Policy Institute at Georgetown University.

But the plan could expand the deficits forecast under the Bush economic plan because its annual cost would slightly exceed the combined price tag for the 2001 tax cuts and whatever additional cut may be enacted this year, according to Joint Committee on Taxation figures.

Also, Gephardt said Wednesday that after an initial repeal of the entire 2001 tax-cut package, he would seek to restore some of the law’s tax relief for married couples and parents, and exempt a larger number of estates from taxation.

Adding in those costs, Gephardt’s proposed financing for his plan “is likely to be short by tens of billions of dollars a year,” said Peter Orszag, a tax expert at the Washington-based Brookings Institution think tank.

In an interview after the speech, Gephardt argued that his plan could reduce the deficit by encouraging greater economic growth over time. But he acknowledged that it was unlikely to eliminate the huge federal shortfalls projected under Bush’s economic proposals.

“I do think this will provide less structural deficits” than the Bush blueprint, Gephardt said. “But I cannot argue to you this necessarily, at a predicted point in time, will create balance in the federal budget.”

Privately, aides to other Democratic campaigns charged that the plan was inefficient because it would spend so much money subsidizing firms already providing insurance. And some economists said it could accelerate the rise in health insurance costs because the increased federal subsidy would make employers less sensitive to such price hikes.

Gephardt said he’s eager to debate those arguments. And he called on his rivals to reveal their own ideas. “I challenge every candidate for president to offer a health-care plan that covers every American, stimulates the economy and creates jobs,” Gephardt said in his speech. “And I challenge them to tell us exactly how they’d pay for it.”

*

(BEGIN TEXT OF INFOBOX)

Employers’ tax credit for insurance

Highlights of the plan Rep. Richard A. Gephardt of Missouri, a candidate for the Democratic presidential nomination, offered Wednesday to expand health-care coverage and stimulate the economy.

* Tax Credits: Employers now providing health insurance to their workers would receive a federal tax credit to cover 60% of the cost, double the federal subsidy they now receive. These employers could not shift more of the remaining cost onto workers than they pay now.

Here’s how the plan would affect a company now paying 80% of health insurance costs and billing employees for 20%. With the current tax break, that company effectively pays 56% of the total cost, with Washington shouldering 24% and the employee 20%. Under Gephardt’s plan, the government share would double to 48%, with the company paying 32% and the employee 20%.

Employers not now providing coverage would have to offer health insurance, but they would not have to contribute to the cost. Washington would provide a tax credit to cover 60% of the premiums, leaving employees with the final 40%. Gephardt would offer further tax breaks to cover up to one-quarter of the costs for low-income workers.

* Public Program Expansions: Gephardt would try to capture the remaining uninsured by allowing workers 55 years of age and older to buy into Medicare, providing subsidies to help the unemployed purchase coverage through the federal COBRA program -- which allows workers who leave their jobs to retain health coverage for 18 months by paying the premiums themselves -- and providing coverage to the working-poor parents of children now eligible for the federal-state Children’s Health Insurance Program.

* State Aid: Gephardt would offer state and local governments $172 billion in aid over three years by reimbursing them for 60% of the cost of health insurance for their employees.

Source: Gephardt campaign

Los Angeles Times