Explaining the excise tax: part 2
Sigh. On the same day I publish my long explanation of the excise tax, the Center for Budget and Policy Priorities publishes their even longer explanation of the excise tax. You just can't win against these wonks.
But their report touches on something I meant to address in a follow-up anyway: The excise tax is controversial because it has losers, and some of them are sympathetic. No one sheds a tear for the Goldman Sachs executives who get $40,000 health-care plans. But though extremely high-cost health-care plans are concentrated among the wealthy, they're not limited to the wealthy. Workers in high-risk professions, or workers laboring in high-cost areas (insurance is more expensive in New York than in Montana), have pricier health-care plans. Older workers, or workers who have negotiated really good benefits, also have pricier health-care plans. And unions represent a lot of folks who fit some or all of these boxes.
For the tax's purposes, a high-cost health-care plan is a plan that costs more than $21,000. The average family health-care plan this year cost about $13,375. That's a huge difference. To get a sense of the disparity, the health-care plan chosen by the average member of Congress costs $13,446. So we're talking about plans that are more generous than what most members of Congress get. A recent Boston Globe article actually took a look at a $20,400 plan -- that is to say, a plan that's not quite generous enough to be taxed, but might be by 2013. Among other things, it included money for gym memberships, yoga and nutritional counseling. Surgeries were free, as were MRIs and X-rays and CT scans. Three months of prescription drugs tops out at $30. To avoid the tax, some of these perks would be curtailed.
That's not to attack individuals getting good health-care plans. But remember that the money paying for that plan isn't taxed, while the plan that an unemployed person purchases is taxed. The excise tax essentially repeals the tax subsidy for the highest levels of employer-provided health-care coverage -- a subsidy which is, on average, hugely regressive. And even with the excise tax, $21,000 will still be tax free for the employed, while none of that money will be tax-free for the unemployed.
But what of the workers whose demographics characteristics make their plans expensive? The Finance Committee made a couple of changes to the tax in order to minimize such collateral damage. Workers in high-risk professions or who are above 55 years old, for instance, don't see the tax start until their family's plan reaches $26,000. High-cost states have a three-year transitional period during which they need to get their costs under control, but that's not, in practice, very long.
The other important piece of the excise tax is that the threshold grows more slowly than health-care costs. That means that the affected plans eventually become less generous, at least if health-care spending doesn't slow. That'll make a lot of people very angry, as it will mean employers will begin moving them to something that looks more like the managed care of the '90s. Managed care is one of those weird policy experiments that worked perfectly -- costs came down, wages went up, and there's never been any evidence that health outcomes suffered -- but people utterly hated it.
Like many wonks, I think it's better for us to move toward managed care than to let the nation bankrupt itself over health care. But the choice won't look like that to people who think their employer pays for their health care (as opposed to folks who realize their potential wage increases are paying for their health care). That's why Harvard economist David Cutler says that "if we can't figure out how to make the cost savings work, the thing will blow up." But that's true for the subsidies, for Medicare and for the rest of the health-care system.
The end result is that either the excise tax -- alongside rest of health-care reform -- works in slowing cost growth and making sure most people don't face it, or it doesn't work and creates a backlash against itself. If the policy doesn't work, it won't survive.
October 20, 2009; 3:25 PM ET
Categories: Health Economics , Health Reform , Health Reform For Beginners
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