By Carl S. Milsted, Jr.

President Bush has finally come up with a truly good idea: a plan to restore the market for healthcare in this country, a plan that reduces moral hazards and the subsidies for wage slavery.

Alas, he waited until his own party lost its majority in both the House and Senate before putting forth the plan. So, is the plan dead on arrival? Will the Democrats hold out for a socialized healthcare system, giving us all the efficiency and performance of the public school system?

Message to Democrats: please don’t hold out. But do feel free to put your own imprint on the plan. You can make it more progressive, while making it simpler and more effective.

How?

Replace Bush’s $7500 tax deduction with a tax credit – say $2500. This is obviously simpler than a tax deduction. It is also more progressive, since the poor get just as much benefit as the rich.

I could hear some right-wingers whining as I wrote that last sentence, “Not another wealth transfer to the poor! We can’t afford to give every insured person a $2500 tax credit.” Indeed, such a tax credit would cost the IRS more money.

But it might not cost the government much more. It might even save money. What is lost as tax credit would be at least partially made up for in less welfare payments. If an uninsured well off person gets sick, there are many assets to tap before that person resorts to government aid. The government gains little by making sure such people have health insurance. On the other hand, if a low income person gets very sick, it isn’t long before that person is resorting to government aid or abusing the emergency room.

Why do we grant a tax break for the well off to buy health insurance, anyway? The well off have far more to lose if they get seriously ill without healthcare coverage. If you have nothing, you can simply declare bankruptcy and go on the dole. If you have home equity or money in your accounts, this is a major financial loss. Thus, we can expect the well off to buy at least catastrophic coverage even if there was no tax benefit.

But suppose the well off decided to self-insure. That would be better! We would have people shopping for major treatments using their own money. The market for serious care would improve greatly. If anything, it would be in society’s interest to penalize wealthy people for buying health insurance.

It’s the uninsured lower classes that gum up the system. They are the ones who cannot pay their bills when the bills get high, which drives up overall expenses for doctors and hospitals – and ultimately for paying customers. If we are going to use the tax code to encourage the buying of health insurance, we should target the lower classes as much as possible. A tax credit is a big step in this direction, and is simple to boot.

Carl Milsted is a senior editor for The Free Liberal.