The plan’s central feature, as Perry explained in today’s Wall Street Journal, is an optional flat tax of 20 percent, in which those opting for the flat tax will be able to deduct $12,500 for each household member, along with mortgage interest, charitable and state and local tax exemptions for families earning less than $500,000 a year. Of critical importance is that the flat tax will not exempt employer-sponsored health insurance.
As I’ve written many times, the employer tax exclusion for health insurance is American health care’s original sin: a $300 billion-a-year tax subsidy that is arguably the largest driver of runaway health spending in America. People who get insurance through their employers are that much further removed from shopping for less wasteful, more value-oriented health plans. In addition, the pre-existing conditions problem that sucks up so much ink in this country is entirely driven by the fact that people can’t take their insurance with them when they leave their jobs.
The Perry plan, in other words, will begin the much-needed transition of our health insurance market from an employer-sponsored one to an individually-purchased one. It is the most important market-oriented health reform that he could have proposed.
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