The progressive case for the excise tax
Art Levine has a good post on the AFL-CIO's opposition to taxing insurance benefits. He links to an ad they've released (pdf) that says, in bold letters, "IT IS JUST WRONG TO PUT THE BURDEN OF PAYING FOR HEALTH-CARE REFORM ON MIDDLE-CLASS FAMILIES."
Begin at the beginning: The burden of paying for health-care reform will not fall on middle-class families. The Senate Finance bill costs a shade under $900 billion over the first 10 years. The excise tax on high-value health-care insurance plans, which is the piece that concerns the AFL-CIO, will raise $201 billion over that time period, or 22 percent of the total cost. That tax, insofar as it is paid at all, will be paid by workers with employer-provided health-care plans that cost about $8,000 more than the national average. These are plans, in fact, that cost more than what the average member of Congress purchases. Most of the workers receiving these benefits are not helming middle-class families.
What we're talking about, in other words, is a limited surtax that pays for a small slice of health-care reform and mainly falls on high-income workers. It is not "putting the burden of paying for health-care reform on middle-class families."
The AFL-CIO, however, is undoubtedly right that relatively more middle-class families will be affected by this surtax than by a tax on income over $500,000 a year. If that was the comparison, than I too would support an income tax rather than an excise tax. But it's not. The excise tax, I'd argue, is actually more progressive than the income tax.
The reason is that, unlike the House's surtax on family income over $1,000,000, the excise tax on high-cost insurance plans is not simply a tax. It's also a policy. Economists believe, with substantial evidence, that it will restrain the growth in health-care costs by making employers less willing to pay the automatic increases that insurers pass down each year. That money, they believe, will be routed back into wages. This is not intuitive, but it is, again, heavily backed up by evidence.
Few forces in American life are as regressive as the rise in health-care costs. At the bottom of the income scale, the rising costs make it impossible for employers to offer insurance coverage and convince some employers to end their health benefit programs, throwing their workers into the ranks of the uninsured. Moving up, working-class folks see their wages stagnate and their premium payments increase.
This might all be fine if there was real evidence that expensive insurance products did a much better job of keeping people healthy than more affordable insurance products. But there's no evidence for that contention at all. Indeed, many experts are beginning to believe the opposite: Overly permissive insurance mixed with a system where doctors and hospitals make more money for prescribing more procedures mixed with a culture in which individuals think more medical treatment will do them good has led to overtreatment that probably does people a bit of harm and definitely hurts their paychecks.
There's a lot of good in this iteration of health-care reform, but there's not enough cost control. The delivery system reforms show some promise, as do initiatives such as comparative effectiveness review and health information technology. But those are a lot more speculative than a simple, blunt tax that makes employers think twice about signing off each year on huge increases in insurance premiums that come quietly out of worker's wages. The excise tax isn't as progressive as a tax on high incomes, but the excise tax as a policy is more progressive, because it attacks one of the most regressive economic forces in American life: the relentless rise in health-care costs and resulting stagnation in wages.
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