What We Miss When We Talk About Taxing Health Insurance
Lori Montgomery and Ceci Connolly had a report this morning on the tussle over efforts to tax employer-provided health benefits. In it, they draw from Elise Gould's work at the Economic Policy Institute, which sought to show that workers with costlier-than-average benefits weren't fat cats and limousine users:
[R]esearch shows that those people tend not to be wealthy highfliers with gold-plated insurance plans, as advocates assert, but those who have to pay high premiums just for basic coverage -- the old, the sick, women of childbearing age and residents of high-cost urban areas. Elise Gould, director of health policy research at the liberal Economic Policy Institute, found that a similar cap suggested by a 2005 tax reform panel would have raised taxes mainly on workers with family coverage, many of them in smaller firms with high concentrations of older, female or unionized workers.
Gould's research showed that 32 percent of families making between $17,000 and $30,000 have health-care benefits above $11,500, which is where Gould assumed the exclusion would be capped. But 47 percent of workers making more than $46,000 had benefits above that cap. And though Gould didn't break the data down, I can almost guarantee you that that number would be much higher if you examined workers making more than $100,000. The cap is progressive, and sharply so.
Max Baucus, meanwhile, is only considering taxing benefits above $15,000. Which makes it significantly more progressive than the policy Gould is evaluating.
All that said, this sort of commentary misses a key wrinkle: The interactions between different aspects of health care policy. What Gould's research actually demonstrates is that the price of health insurance varies with demographic characteristics. As the article says, "the old, the sick, women of childbearing age and residents of high-cost urban areas" all pay more. But another key part of health care reform is the imposition of community rating on the insurance industry. Community rating would render it illegal for insurers to price discriminate based on the demographics of the applicant. In the draft bill released by the Senate's Health, Education, Labor, and Pensions Committee, for instance, "premium rates may not vary by health status-related factors, gender, class of business, claims experience." They can vary by age and geography, but the amount they can vary is actually capped.
Obviously, we'll need to make sure that the community rating in the final bill is sufficiently rigorous to make good on that promise. But the bottom line is that other policies in health reform will actually address the problem Gould is concerned about. Assuming community rating is in place, then the cost of health insurance will be more directly related to its generosity than to the history, gender, or age of the buyer. Capping the tax exclusion, in other words, makes even more sense in context of health reform than it does now.
(Photo credit: AP Photo/Pablo Martinez Monsivais)
June 15, 2009; 5:45 PM ET
Categories: Health Economics
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