“I must say that the sources you cite have the most cockeyed notions of how the health insurance business works, mostly because of the common conservative philosophical fantasy about things like “competition” which ostensibly functions in the same simple way no matter what the circumstances… Now the advantages of employer provided healthcare benefits are two: the coverage costs are, in part, paid by the employer; and the coverage pool of payees is of significant size.”

No. Read the intervening paragraph that you quoted. The current system of employer-provided coverage exists, in its current form, because of the (regressive) health insurance tax exclusion. Capping this exclusion and making it a refundable tax credit would tend to lead to some combination of employers offering less comprehensive coverage or not offering coverage at all. You know who else agrees with that? The right-wing Barack Obama which is why he was against the policy. Yuval Levin, Ramesh Ponnuru and Obama disagree about whether a health care finance model that tends toward comprehensive prepayment is a good idea (see the link below.) They would agree that your discussion of the health insurance market is cracked.

Your discussion of the expanded child credit mostly just left me confused. So I count two so far.

“This type of subsidy functions exactly like any other “entitlement”, it is merely administered by the Treasury Department instead of Health and Human Services.”

That would be true of a child allowance (which has been suggested by conservatives like George Gilder), but the child tax credit reduces your tax liability. You don’t get more money for having more children. You still have to have a job. The personal income tax deduction is not an entitlement.

“it would do nothing to increase either your gross income or your net worth.”

It would only increase your net income which – come to think of it – might have some impact on your net worth (though that is not its purpose – which is to offset the costs of investing in raising children.) It would also improve work incentives among parents in the middle quartiles.

http://www.theatlantic.com/magazine/archive/2009/09/how-american-health-care-killed-my-father/307617/

Thus Messeurs Ponnuru & Levin:

“Unlike wages, employer-provided health benefits are untaxed, giving employees an incentive to get the most expensive coverage available through their jobs….Whether they get insurance from their employer or buy it themselves, workers would receive the same credit, creating an incentive to shop around for the cheapest coverage.”

Now the advantages of employer provided healthcare benefits are two: the coverage costs are, in part, paid by the employer; and the coverage pool of payees is of significant size. Thus the actual medical costs for anyone in the pool are largely paid for by the employer and the other members of the pool as a group.

What you as an individual pay is a small fraction of what the coverage actually costs per person, since the majority of the pool members will not consume medical services equal to that per person cost.

If you buy insurance on your own, there is no possible way that you could afford equivalent coverage. The coverage pool consists of you, and you alone; and the premiums are paid by you and you alone, instead of you and your employer.

Thus the notion of an “incentive to purchase the cheapest coverage” arising from a tax credit is ridiculous. From the vantage point of the payee, the “cheapest” coverage will always be the employer based coverage, even if the total cost of the policy to everybody together is the most expensive possible.

Under these circumstances true competition can only take place when different policies are offered to the employer, not when an individual tries to make a choice between what the employer offers and what he can purchase on his own. There is simply no way he can afford anything near the amount of coverage for the money of an employee group plan.

Thus an individual insurance tax credit would be an “incentive” for nothing. Anyone would certainly welcome it. But it would only function as a diferent form of government subsidy having no competitive impact one way or another on “health care costs”.

This is a paradigm of what I find to be the chronic conservative misunderstanding of how “competition” works in economic terms, and how “incentive” works in human terms.

Consider Mr. Stein’s “family friendly tax reform”. It consists largely of an expanded and simplified child care credit which is supposed to function as an “incentive” for a whole laundry list of social changes:

“The new child credit would accomplish several significant policy goals. First, it would offset the anti-parenting bias created by Social Security and Medicare. Second, the credit would help simplify the tax code by getting rid of other exemptions and credits that apply to ­children. Third, and very important for many families, it would end the bias against families with a stay-at-home parent now caused by the child-care credit (which applies only if both parents are working for pay). And finally, it would reduce effective marginal tax rates for many middle-class families.”

How is it supposed to do all this? It supports the cost of raising any child you might happen to decide to have, or happen to have had by accident. It doesn’t pay you anything more of consequence for having more children–it is merely another form of quite welcome government subsidy which helps a family to break even.

This is nothing in the least like an economic “incentive” for anything. The rural families of my grandparent’s day had a real economic incentive for big families: more farm labor in an age when agriculture itself was far more labor intensive. More children meant more production and a larger gross family income.

This type of subsidy functions exactly like any other “entitlement”, it is merely administered by the Treasury Department instead of Health and Human Services. Like virtually every entitlement these days, you have to make, or have made, some income to obtain it and, even under ideal conditions, it would do nothing to increase either your gross income or your net worth.

It merely offsets an economic liability which no one has to take on in the first place.

Some incentive.

So, if you are conservative, don’t try this at home until you have some liberal or progressive experience with creating and managing entitlements.