Did Ronald Reagan cause the Health Care crisis?

No, but his 1986 Tax Reform did make it worse.

I was reading a letter to the editor in Saturday’s Wall Street Journal, and the subject matter hit me like a lightning bolt. Ronald Reagan, patron saint of all things conservative, made the health care crisis worse. Here’s how.

A History of Medical Tax Incentives

All this changed in 1986 when Ronald Reagan orchestrated bipartisan tax reform. Individual medical expenses were no longer deductible until they reached 7.5% of gross income. Voila, individual incentives were virtually eliminated. In 1985, individual out-of-pocket expenses were still 22% of the total health-care market. After tax reform everyone was incentivized to move all medical expenses to health insurance. Out of pocket expenditures plunged and today are less than 10% of the market.

Ronald Reagan knew that his tax reform was not perfect. Individual interest payments were no longer tax deductible, but the home mortgage interest deduction remained. Personal tax deductibility of medical expenses was curtailed, but employer health insurance was still a tax-free benefit.

President Reagan was relying on future Congresses to fix these problems after the economic benefits of his tax reforms were manifested. Sadly, this never happened.

While one can say that it is generally a good idea to take “social engineering” out of the tax code, the fact is that maybe some social engineering isn’t a bad idea. The individual deductibility of not only EVERY DIME of health care expenditure, but also of any and all health insurance premiums, is one simple fix that would immediately start alleviating medical cost inflation.

Reagan was wrong, and plummeting of out of pocket expenses is proof of this. We do not insure our cars for flat tire’s, oil changes, and tune-ups. We also have hefty deductibles for scratches and dents.

First dollar coverage for health expenses is horrible policy for nations, states, and individuals. It’s that simple. Let us ration our own care.