McClaughry: Community rating

By John McClaughry

If there’s anything that is dear to the modern liberal, it’s the principle of progressive taxation – increasingly high tax rates on people as they rise up the income scale.

We’ve always done that with the income tax. In Vermont, we do it with the income sensitivity option to pay school property taxes and the circuit breaker for town property taxes.

Bernie Sanders has always wanted to levy the Medicare payroll tax on all income, instead of cutting the tax base off around the $128,000 level.

So, one would expect liberals to say, why don’t we require health insurance companies to charge premiums based on family income? People making $250,000 a year would pay maybe three times as much as a twenty something making $40,000 a year, for the same health care coverage?

But they don’t, and I figured out why. The first reason is that liberals haven’t really thought of it. But more importantly, some perceptive liberals must have figured out that since income rises with age, and older people have more need for health insurance, they would face very high premiums based on their incomes.

And they vote, so progressively higher premiums will be politically unpopular. The far better liberal idea is to throw old and young voters into the same rating pool, where the wealth transfer from low to high income doesn’t require any declaration of income.

That’s called community rating, or Robin Hood in Reverse.

John McClaughry is vice president of the Ethan Allen Institute.

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4 thoughts on “McClaughry: Community rating

  1. John –

    A couple of points.

    I find your pejorative use of the term “liberals’ in an otherwise appropriate argument to be nothing more than a divisive and offensive stereotype. Lots of liberals, moderates and conservatives are great people. Few problems, and fewer solutions, are black and white. Marginalize any of the groups and we are a weaker nation for it. Plenty of that emanating from Washington already; let’s try to keep the infection out of Vermont as much as we can.

    You are wrong about health insurance rates not being tied to income, at least when it comes to Medicare. My wife and I each pay about double for Medicare coverage as compared to retirees of lesser means. Further, retired folks in higher income brackets bear all or almost all of the annual Medicare cost increases.

  2. My sentence about Bernie and Medicare is not correct. The Medicare payroll tax is now levied on all income (with Bernie’s support, of course). The OASDI pension tax cuts off around $128,000 income (previously $110,000). My apologies.
    My point (to Mr. Lusk) is that community rating makes lower income (young, healthy) people subsidize higher income (older, sicker) people. I have opposed that since voting against it in the Senate in 1991. Liberals are unwilling to charge higher premiums to higher income (older) people, so they make lower income (younger) people supply the subsidy. They calculate that the younger people won’t figure it out, and are less likely to vote.

  3. Take away the attitude, and this reads like an endorsement of the idea it presumes to scorn.

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