Grassroot Perspective – April 28, 2003-Consumers at the Center; Modern Healthcare Looks at Consumerism; Three Ways to Make President Bush's Tax Plan Even Better

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“Dick Rowland Image”

”Shoots (News, Views and Quotes)”


– Consumers at the Center

Reuters’ Karen Pallarito reported on the recent annual meeting of the
Washington Business Group on Health (WBGH) by writing, “Consumers are
at the center of the latest equation for taming runaway healthcare
costs..” She says most workers are still sheltered from the
cost of their care “paying only nominal copayments for the services they
receive.” She quotes WBGH president Helen Darling as saying, “What
workers pay is still relatively small. and what the employers are paying
is very, very high,” roughly $10,000 to $13,000 for an employee with
family coverage. Ms. Darling adds, “This is an unsustainable business
model, which is why you see small employers dropping health benefits.” Ms. Darling urged employers to switch from a copayment model to coinsurance to “expose employees to the real cost of benefits.”

– Modern Healthcare Looks at Consumerism

“Modern Healthcare” includes a major article on consumer driven health
plans in its March 10 issue. Written by Laura Benko, the story is a
pretty comprehensive look at everything going on out there. She starts
with an anecdote about a Kentucky company, Logan Aluminum, that experienced a 23.7 percent increase in insurance costs in 2001, followed by another 8.5 percent in 2002. The company signed up with Aetna’s consumer driven program for its 1,000 workers. The company puts up a $400 HRA to cover part of the $1,000 deductible. The article says Logan is just part of a “fast-growing number of employers” who are exploring this approach. It cites Towers Perrin as saying 44 percent of large employers are now considering the approach, up from 13 percent last year.

The story goes on to describe the various approaches being tried out in
the market, with emphasis on HRA plans but also mentioning MSAs, FSAs,
Blue plans with tiered payment systems, and the Vivius and MyHealthBank
models which “allow employees to select benefits a la carte from an
online menu of coverage arrangements, and to balance deductibles,
premiums, and copayments to suit their personal needs.” The article
notes that physicians are largely supportive of the approach but
hospitals are not, fearing they will be stuck with bad debts. It mentions the results so far, especially from Humana which saw costs go up 4.9 percent when it expected increases of 19.2 percent, and Destiny whose 500 accounts are seeing increases of 12 percent while the rest of the area is getting 20 percent to 30 percent rate hikes. Destiny president Ken Linde says if you count the account funds that are rolling over, the real rate of increase is more like 7 percent.

”Roots (Food for Thought)”

– Three Ways to Make President Bush’s Tax Plan Even Better

By Lawrence H. Whitman

Executive Memorandum #856

President Bush has advanced two sound tax principles: (1) Government
should tax income only once; accordingly, policymakers should end double
taxation of dividends. (2) Because future tax rate reductions will not
help today’s economy as much as tax cuts now, provisions of the 2001 tax
cut scheduled for the future (particularly income-tax rate reductions)
should occur immediately. These two commonsense principles and resulting
policies would bolster the economy, lower unemployment, increase wages,
and boost the stock market. To improve the President’s proposal and
unleash an even stronger economy, Congress should apply these principles
to additional areas through the following policies.

End IRA income limits and age restrictions

The government prevents some people from investing in retirement
accounts (deductible IRAs and Roth IRAs) on the basis of how much income
they make. These limits are confusing, inconsistent, and economically
damaging. For example, single people making more than $50,000 may not
deduct traditional IRAs, and those making more than $110,000 may not use
Roth IRAs. These restrictions discourage use of retirement accounts and,
thus, depress investment, increase unemployment, and harm the economy.
Policymakers should allow everyone, regardless of income, to use
retirement accounts.

Current policy also forces people older than 70 to withdraw money from
(and pay taxes on) traditional retirement accounts such as non-Roth IRAs
and 401(k)s. This policy is unfair and harmful: It punishes seniors who
work and discourages others from doing so. Moreover, the government
should not tell seniors when to withdraw their own retirement money.
Ending this discriminatory age requirement would enhance freedom, help
seniors, and remove one government barrier to working, thus triggering a
stronger economy.

Some critics of the President’s proposal to eliminate the double
taxation of dividends mistakenly argue that it would not help
individuals using only retirement accounts. In fact, the policy would
increase general stock prices, benefiting all investors. Given their
desire to help retirement account investors, these critics should
support eliminating income limits and age restrictions for retirement
accounts. The change would benefit retirement account investors and
seniors and increase the use of retirement accounts, prompting more
investment and thereby spurring the economy.

Repeal President Clinton’s 1993 tax increase on Social Security benefits
Before 1993, the government taxed only 50 percent of Social Security
benefits. The rationale for this policy was that workers already paid
income taxes on the 6.2 percent of their wages that went to Social
Security through payroll taxes (employers pay the rest) and that the
government should not tax this money again when people receive it as
Social Security benefits. However, in 1993 President Clinton signed a
law that abandoned this principle. The law stipulated that, while the
government would still tax 50 percent of Social Security benefits of
seniors earning between $25,000 and $34,000 ($32,000-$44,000 for married
couples), it would tax 85 percent of benefits of seniors earning over
$34,000 ($44,000 for married couples).

This policy double taxes Social Security benefits and punishes seniors
who work, discouraging many from doing so. Policymakers should repeal
this unfair double tax on Social Security benefits. This reform would
remove a layer of taxation, help senior citizens, lower one more
government obstacle to working, and improve the economy.

Make the entire 2001 tax cut effective immediately

Many of the tax reductions passed in 2001 will not take effect for
years. This situation postpones the benefits of lower rates and causes
economic inefficiency today. For example, under current law, the death
tax will decline until eliminated in 2010. Until then, the government
will impose high tax rates — over 40 percent — on the assets of the
deceased. Moreover, unless policymakers act, in 2011 the death tax will
return to higher rates. This situation demonstrates the need to make the
entire 2001 tax cut permanent. (See Heritage Foundation Backgrounder No.
1614, “Make the Tax Cuts Permanent and Fully Effective Now.”)

The delay in ending the death tax makes planning for it difficult and
forces small-business owners, farmers, and others to divert money from
constructive activities — expanding and hiring — into expensive planning
to deal with onerous taxes. Ending the death tax immediately would
liberate vast resources, helping workers, potential workers, and the
economy. It is immoral to tax people when they die, and it is wrong to
delay rectifying that injustice.

The 2001 tax legislation also increases the amount people may invest
annually in retirement accounts. For IRAs, the limit will increase from
$2,000 to $5,000. For 401(k)s and similar employer-sponsored accounts,
the limit will rise from $10,000 to $15,000. However, these increases
will not fully take effect until 2006 and 2008, respectively. The
government should not punish investment, and it is wrong to delay
correcting this problem. Immediately increasing the allowable limits in
retirement accounts would spur investment, strengthen the stock market,
help the economy, decrease unemployment, and increase wages.

The Federal Budget

Those who cite budget deficit concerns as a way to criticize the
President’s proposal and other pro-growth policies confuse cause and
effect. The budget does not drive the economy; the economy drives the
budget. The proper goal for policymakers should be a strong economy, not
greater government tax revenue. Indeed, a robust economy is the best way
to increase tax revenue. Moreover, policymakers should restrain runaway
government spending, because sound budget policy entails controlling
federal spending and enacting pro-growth tax rate reductions that
unleash a vibrant economy.

Furthermore, despite claims made by opponents of tax cuts, no credible
evidence supports the theory that government deficits noticeably
increase interest rates. Japan has large budget deficits and interest
rates near zero, and long-term interest rates in the United States have
fallen while the federal budget has gone from surpluses to deficits.
Allegations that deficits substantially increase interest rates are
clearly wrong.


President Bush has advanced two sensible principles: End double taxation
and accelerate future tax-rate reductions to go into effect today.
Congress should further the President’s plan by ending income limits and
age restrictions on retirement accounts, repealing the tax increase on
Social Security benefits, and making immediately effective the entire
2001 tax cut. The President has taken steps in the right direction. Now
Congress can make a very good plan even better.

-Lawrence H. Whitman was formerly the Director of the Thomas A. Roe
Institute for Economic Policy Studies at The Heritage Foundation.

Above article is quoted from the Heritage Foundation, Executive
Memorandum No. 856 February 3, 2003

”Evergreen (Today’s Quote)”

“The tragedy of America’s civil rights movement is that it has
substituted today’s government-backed racial favoritism in the
allocation of resources for yesterday’s legal and extra-legal
favoritism. In doing so, civil rights leaders fail to realize that
government allocation of resources produces the kind of conflict that
does not arise with market allocation of resources. Part of the reason
is that any government allocation of resources, including racial
preferential treatment, is a zero-sum game.” — Walter E. Williams

”’Edited by Richard O. Rowland, president of Grassroot Institute of Hawaii. He can be reached at (808) 487-4959 or by email at:”’ ”’For more information, see its Web site at:”’