A New Proposal to Reform the Tax Treatment of Health Insurance

Prologue: For the better part of a decade, Prof. Alain Enthoven of the Stanford University Graduate School of Business has been at the forefront of a growing movement to infuse the delivery of medi-cal care with a structured form of price competition. Enthoven, an economist by academic training, has provided the intellectual life-blood to this movement, educating a cadre of students who increasingly are finding their way into positions of influence, and impacting on the thinking of policymakers like former House Ways and Means Chairman Al Ullman (D-Ore.), Sen. David Durenberger (R-Minn.), Rep. Richard A. Gephardt (D-Mo.), and former Rep. David Stockman (R-Mich.). Enthoven, who set out his beliefs in a book entitled Health Plan: The Only Practical Solution to the Soaring Cost of Medical Care , published in 1980, has been steadfast in his belief that the most appropriate remedy is not more bureaucratic controls imposed on, as he characterized it, “an inherently irrational system,” but rather fundamental reform of the financing and delivery system itself. As he explained in his book,”… we need to change from today's system dominated by cost-increasing incentives to a system in which providers are rewarded for finding ways to give better care at less cost. “ Enthoven believes that government s role in this regard is not reorganization of the health care system by direct controls —as advocated recently in a presidential campaign speech by Democrat Walter F Mondale—but changing the tax laws and Medicare and Medicaid laws that create the underlying incentives. Enthoven, a member of the Institute of Medicine of the National Academy of Sciences, was assistant secretary of defense under former Secretary Robert McNamara and has also served as president of Litton Medical Products.