For Setting National Economic Priorities, I have been suggesting consolidating means-tested programs into a single flexible benefit. One goal is to reduce marginal tax rates. Another advantage of this approach is that the first $2000 or so of the benefit can be directed toward purchasing catastrophic health insurance.
A third advantage of this approach is that it can untangle some of the overlaps between national and state/local programs. The basic principle would be that the Federal government, with a generic flex-benefit, would offer support based on means-testing. It could leave the assessment of special household needs to state and local governments as well as charities.
Special needs would include learning-disabled children, expensive medical illness, or high-cost housing.
We can imagine the Federal government paying households flex-benefit dollars based on a simple formula–perhaps $6000 per adult and $4000 per child, minus 25 percent of the household’s (taxable income plus value of employer-provided health insurance). Those of you who have been following these posts will notice that I keep playing with different values of the parameters. Those issues are still unsettled in my mind. It only recently occurred to me that fairness in distributing the universal benefit requires including employer-provided health insurance as income for purposes of phasing out the flex-dollar benefit.
By default, this money would go into a savings account. Households would not be allowed to withdraw from the savings account until they have purchased catastrophic health insurance.
State and local governments would be able to contribute to these accounts, based on their assessment of household needs. A household with a severely disabled child might receive $5000 per year from a state. A household in an area with expensive housing might receive $4000 a year from the local government. It would be up to state and local governments to decide whether to use this mechanism for distributing benefits or use something else.
We would abolish Medicaid. Instead, we would have the Federal government pay a fixed dollar amount to states that would go toward the cost of health care for the elderly and disabled that currently are covered by Medicaid.
We would abolish the Department of Housing and Urban Development. We would get rid of Federal mortgage subsidies and instead allow households to use money from their flex-benefit savings accounts to go toward down payments.
We would abolish the Department of Education. Instead, we would retain a research department, housed in the National Science Foundation, to evaluate educational effectiveness and to fund experimental pilot programs.