Hey Obama, There is Consensus on Health Care Reform!

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If you haven't been following the debate over health care reform closely, you might have missed something interesting. There is a consensus building over how to pay for health care reform. It doesn't appear in the Democrats' Senate health care reform plan. It doesn't appear in the Democrats' House health care reform plan. But you can find it almost everywhere else: from the editorial page of the Wall Street Journal to the front runners of the liberal blogosphere. What is it?


The idea is to tax employer-provided health care. Its advocates are diverse and numerous, enough to make for a truly memorable cocktail party: John McCain proposed it on the campaign trail; the Wall Street Journal Editorial Page just endorsed it; liberal bloggers Ezra Klein, Jonathan Cohn, Matthew Yglesias, and Conor Clarke have all endorsed it; Democratic Senators Max Baucus and Ron Wyden are digging it, and so are many Republican electeds in Washington.

So why isn't Obama calling up Chris Dodd every morning at 5:00AM to ask him if he's written this clause into the latest bill yet? The answer is short -- the unions hate it, and Sen. Harry Reid has ruled it out -- but to understand their antagonism, let's review what exactly it means to tax employer-provided health care.

If you want to buy health insurance for yourself, the money you spend is taxed. If your employer wants to buy you health insurance, the money he spends is not taxed. That's great because it makes employer-provided health care more affordable. It's not great because, as Klein explains: 1) It's regressive because it's a tax break for the employed, and big fat subsidy for large businesses that are big enough to provide expensive health care without being taxed for it; 2) Employees don't see what they're paying for, so it shields us from the true cost of health care inflation. Oh, and that exclusion amount to about $300 billion every year.

Three hundred billion dollars! For electeds looking to pay for health care reform, that number should look like an electrolyte-laden waterfall oasis at the end of a desert. Instead, Sen. Reid has put a big fat fence around it saying: "Stay the heck out." Why? It polls terribly (it is, after all, a tax) and the unions are dead-set against changes to their health benefits. The obvious solution therefore is to offer a compromise. We're not going to tax every last dollar of employer-provided health care -- we could cap the exclusion. In his interview with Fred Hiatt of the Washington Post, Obama sounded more open to the idea of enacting some minor tax on employer-based insurance.

In the meantime, we're in a bizarre place with health care reform where many Republicans and Democrats, liberals and conservatives are joining hands over a wonky piece of policy. Obama promised to bring people together. Now all he has to do is listen to them.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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