Is the Price Right?

With health care costs escalating four times faster than wages, it's no surprise that both ends of the political spectrum concur that affordable health care is an important goal. Here politicians' concerns mirror those of ordinary citizens. Health care costs continue to grow at a rate faster than the rest of the economy, and the financial burden on Americans continues to escalate. In 2003, almost one-fifth of American families were spending more than 10 percent of their disposable income on health care. The cumulative cost of premiums increased 91 percent from 2000 to 2007. And more than one-quarter of adults reported not obtaining treatment or prescription drugs because of cost. The system is broken and unaffordable.

There is broad agreement that we need affordable health care, but how to define and achieve affordability are less clear. Conservatives believe that affordability can be achieved with a flat tax credit given to individuals who purchase insurance on the private market. The most generous of such proposals would give a refundable credit of up to $2,500 for individuals and $5,000 for families. Conservatives claim that this would "level the playing field" and finally make health care affordable for all.

This concept, however, has several problems. The proposed tax credit is simply not enough money to make care affordable. The average family premium is $12,000, more than twice the amount covered by a tax credit. The credit appears even less adequate when the recipient lives in a high-cost market, with expensive basic necessities, health care, and insurance costs.

Low-income individuals and families would also suffer. They already allocate a much higher proportion of their income for health care costs. As such, a fixed tax credit, rather than one that rises as income falls, doesn't level the playing field.

Finally, any consideration of affordability must include the cost of both premiums and out-of-pocket expenditures. The two aspects go hand in hand, since lower premiums often result in higher out-of-pocket costs.

Policymakers have already agreed that future health care reforms must make health care more affordable. The remaining challenge is to define a truly "level playing field" and make health care affordable for all Americans.