What does the Heritage Foundation have to say about the saving the American dream project released May 10, 2011? (Part 3)

“Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity,” Heritage Foundation, May 10, 2011 by  Stuart Butler, Ph.D. , Alison Acosta Fraser and William Beachis one of the finest papers I have ever read. Over the next few days I will post portions of this paper, and today are some of the conclusions of this study.

Health Care. Heritage’s plan makes important changes at all levels of
the health care system. The Heritage plan encourages consumer choice and
increased competition to reduce health care costs. Significantly, some of the
key Heritage reforms alter the price of health care, which will affect consumer
decisions. This demand side reform will reduce some health care spending by
encouraging consumers to make more efficient choices on plans and services,
thereby reducing health care outlays across the board. Some of the health care
proposals, such as the Medicare reforms, will also shift the cost curve of
health care.

The Heritage plan will also affect the supplier
side of health care providers. With increased competition, suppliers will be
encouraged to improve their business models and reduce their costs to consumers.
When highly regulated markets are more free and subject to competitive
pressures, costs can drop quickly and substantially. For example, the
deregulation of the airline industry reduced airfares by more than 20 percent in
only 20 years.[9]
Regulatory policy changes and increased competition have prompted sharp price
reductions in other industries, such as communications.

This fundamental downward shift in the cost curve of health care is
anticipated, but not modeled in this static analysis of the Heritage
plan. We expect the prices of certain health care goods and services to fall.
These effects will be included in the dynamic analyses, but our static
score modeling of the proposal, including the Medicare reforms, does not
model a scenario in which the change in prices would fundamentally change the
growth path of the cost curve. Instead, we model the price changes as a change
in the level of spending. Some of the price changes will likely spill
over into the non-Medicare market, but modeling those effects were outside the
scope of the analysis because the cost of the health care tax credit and
Medicaid are not tied to the price of health care.

Health Care for the Working-Age Population. The Heritage plan
fundamentally reforms the American health care system beginning with a critical
change in the tax treatment of health insurance. The plan replaces the current
tax exclusion for employer-sponsored health insurance with premium assistance
for most American households. This policy change eliminates the current inequity
in which only individuals with access to employer-sponsored insurance receive
favorable tax treatment and the additional inequity generated by the subsidies
in PPACA. This will reduce labor market distortions, such as “job lock,” and
remove the incentive created in the PPACA for individuals to stop working to
qualify for a generous subsidy for health insurance. The Heritage premium
support model will reduce the dominance of employers in selecting one or two
plans for their workers and allow individuals greater freedom to shop for an
insurance plan that will provide the best health care at the best value for
their families.

To best preserve public funds, the Heritage plan begins phasing out the tax
credit at $100,000 in income for a family and $50,000 for an individual. The tax
credit is completely phased out at $170,000 for a family and $90,000 for an
individual. The current Medicaid eligibility structure as well as the subsidy
cliff in the PPACA discourages people near the upper income limit from pursuing
better job opportunities for fear of losing Medicaid coverage for themselves or
their children. Importantly, the Heritage plan alleviates this disincentive for
upward mobility. The tax credit is also available to individuals well into the
middle class. For instance, individuals and families earning well over 400
percent of the federal poverty line (about $90,000 for a family of four), the
level at which the health insurance subsidies in PPACA phase out, will be
eligible for a tax credit.

Families with children and incomes below 200 percent of the federal poverty
line qualify for an additional subsidy under the plan. This subsidy can be used
to pay insurance premiums or other health-related expenses. The additional
subsidies phase out slowly to prevent effective marginal tax rates from being
too high for eligible low-income workers.

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