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Attacking the excise tax -- and cost control

Bob Herbert's column today isn't so much a good argument against the excise tax as it is an example of why cost control will be virtually impossible, and thus national bankruptcy -- a real decrease in wages -- is a near-certainty.

Herbert argues that the excise tax will push people toward less expensive insurance premiums and begin to tax some portion of some health-care plans. Both are true. I'd say this is a good thing. He says it's a bad one. Distilled to its essentials, Herbert is arguing that, even at the high end, more expensive insurance policies are better insurance policies, and that the government should be subsidizing their purchase. Does that sound like a world in which we're going to control costs?

Cost control is based on precisely opposite premises, in fact. First, more insurance is not always better. Health-care outcomes in Canada and England -- both of which have strong pressures against overuse -- are not worse than those in America. More to the point, health outcomes in Kaiser Permanente, which is a managed-care organization, are not worse than those in Aetna's more expensive PPO plans.

That's not to say you don't get anything at all for the extra money: People don't like networks, and they don't like having to see their primary-care doctor before they can see a specialist, and they don't like deductibles and cost-sharing (though HMOs actually tend to have less of that than PPOs). But loose rules also encourage a lot of waste -- estimates run at about 15 to 30 cents of every dollar we spend. That waste won't be painless to cut out of the system, but it'll be less painful -- and less harmful -- than anything else.

Second, our system is built atop an insane tax preference for not only employer-purchased health-care insurance, but more employer-purchased health-care insurance. When we buy a TV with the wages our employers give us, or a meal with the paychecks we receive, that money is taxed. When our employer buys us health-care insurance, that money is not taxed.

That means a dollar in health-care benefits is "worth more" than a dollar in wages. I use quotation marks because I'm not sure that paying another dollar for health-care insurance actually buys people much of value above a certain level. But putting that aside, the government has given employers a $250 billion annual subsidy to purchase health-care insurance. That's a big subsidy. It's much more than the bill spends to provide subsidies to low-income people, for instance.

And the people who receive that subsidy like receiving it. But the unemployed don't get any of that money, nor do people whose employers don't offer them insurance. The tax preference is huge, regressive, and encourages more spending on health-care insurance. And beyond all that, it separates workers from the cost of their health-care insurance, which is one of the main drivers of our cost problems.

No one would build this system if they were starting from scratch. Indeed, we didn't even mean to build it: The tax treatment of health-care insurance was an accidental offspring of laws meant to protect against war profiteering during World War II. It survived the war for the same reason that it's difficult to push back now: It's a policy that's bad for the system as a whole but that a lot of individuals and actors (notably unions) think is good for them. So they protect it.

That's basically what you're seeing in Herbert's column. He doesn't really argue that the excise tax is bad policy. Instead, he argues that there will be losers. Workers who will see higher deductibles. Union members who will find a portion of their policies taxed. Notably, Herbert quotes two union leaders but not a single health-care expert.

That's not to say he's entirely wrong. There will be losers. In return, we'll make a start on bringing down systemwide health-care costs, and we'll have a strong stick forcing insurers to create more affordable policies, and we'll give employers a strong push to either shop around or, if they don't have the size to do that effectively, move into the exchanges.

There is no way to sharply cut costs in a fifth of the economy without there being losers. And those losers won't all be Goldman Sachs executives. They won't all be providers (indeed, if you cut provider costs too much, they stop accepting patients, and then the patients lose). There's really no way around it. Even single-payer would bring a lot of losers with it, taking people in Cadillac plans and downgrading them to the same Camry as everyone else.

That's not to say that the excise tax is a perfect policy. Henry Aaron is right that it should be adjusted for demographics. There's a legitimate argument over how much of the savings workers will receive in terms of wages (I side with most economists, who think they'll see quite a bit of it, particularly over the long run), though I'd note that the reason that question is so complicated is because of the employer-based market, and chipping away at that basic relationship is part of the point of the excise tax.

But at some point, we need to start trying cost control. If the policy doesn't work, if it hits people too hard and falls on the wrong plans, well, little is easier to repair than an unpopular tax. But little is harder to do in the first place than cost control. Those who would kill this attempt should think really hard about what their counter-policy is, and who will lose from that policy, and why that is preferable, and whether it can actually pass, and where we're left if it doesn't, and who loses from that. Cost control has losers, unfortunately. Herbert's column is proof of that. But not controlling costs has the most losers of all.

By Ezra Klein  |  December 29, 2009; 1:43 PM ET
Categories:  Health Reform  
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Comments

The point is not that opponents of the excise tax are opposed to cost control. Employers have been the strongest proponents of cost control -- look at employer innovations like Leapfrog, purchasing coalitions, and the National Business Group on Health.

The Point is that employers have already cut benefits and put in "consumerism" to try to control costs and it does not work. That is because the cost driver is not a worker who says -- hmm, I need an MRI today. It's the doctor who sends the employee to a specialist and both doctors order an MRI, and then the specialist gets a ct scan. The employee is screaming in pain because he has a hernia. Maybe the first MRI wasn't necessary because it wasn't ordered by the specialist (who wants an MRI with a certain view recorded) but the employee cannot control that.

The control over costs is related to doctors who treat serious illnesses, not on the backs of employees who will now have a $2,000 deductible instead of a $1,000 one.

Employers have tried this failed theory already, which is why they are uniformly opposed to this idea -- not because they are opposed to cost control.

Posted by: kaylamom1 | December 29, 2009 1:59 PM | Report abuse

Why does cost control have to start with working patients--instead of starting with hospitals, insurers, and pharma?

Why does this bill have to be financed by working-class people, instead of the wealthy who have recently won a huge windfall with the Bush tax cuts?

Taxing these healthcare benefits--which in three years will hit 31 million Americans--is a very troubling proposal, and helps make the point that this healthcare reform bill has been biased towards industry and against patients and nurses from the outset.

Posted by: NationalNursesMovement | December 29, 2009 2:23 PM | Report abuse

You're right that the health care tax deduction for employer-sponsored plans is unfair, the employer-provided system is wasteful, and the excise tax might well produce cost control. The problem is that the Senate bill ignores (or prohibits)every other proven, and far more productive, cost control strategy while locking in and even expanding the employer-provided model. There's only one ox being gored here, and it belongs to union members.

Posted by: AlanSF | December 29, 2009 2:31 PM | Report abuse

Why can't the union negotiate a new contract, one with less health care and more wages or other benefits?

Posted by: ideallydc | December 29, 2009 2:38 PM | Report abuse

Can wait until we get Ezra's world where everyone has health insurance but the deductible is so high no one can afford health care anyway!

Posted by: endaround | December 29, 2009 2:46 PM | Report abuse

It's hugely frustrating that really big popular cost controls like allowing drug reimportation and establishing a robust national public option are completely off the table, while saving money by making ordinary working people pay more in copays and taxing their benefits is considered great stuff by "health-care experts."

Posted by: AuthorEditor | December 29, 2009 2:48 PM | Report abuse

"it is an example of why cost control will be virtually impossible, and thus national bankruptcy -- a real decrease in wages -- is a near-certainty."

Its a near-certainty if you rely solely on government-driven solutions for cost control. A voucher system, Wyden-Bennett, HSAs coupled with smarter high-deducitble health plans, etc.-- that's the future of REAL cost control. I'm heartened by your gradual shift towards appreciating the importance of consumerism in health care-- but you (and others) have a ways to go. As you say, a politically driven solution is a near certainty to a national bankruptcy-- that's been a macro-point of mine for years. The key is to couple the required regulation for health markets to be effective, with putting more decisions in the hands of consumers. There's simply not another way.

Posted by: wisewon | December 29, 2009 2:52 PM | Report abuse

With a single payer system, all of this nonsense about who the winners and losers are re: tax subsidies goes away.

Once we begin to treat health care like we treat social security and medicare, then the gross inequities and accompanying politics fall aside.

Posted by: jc263field | December 29, 2009 2:55 PM | Report abuse

Two Points:

1.) In the past, you've written that taxing overly generous health insurance plans is a tactic workers should support as a way for them to obtian higher wages. You argue that when the Cadillac health insurance plans are taxed, the growth in health-insurace costs for the company will decrease; and it will also benefit workers, as it will allow employers to pay workers higher wages with money that would have gone earlier to health insurance. What labor/healthcare study are these assumptions based on? Given our current economic environment, who do you think American CEOs will pass savings on to workers? Or will cost savings go to shareholders and CEO compensation?

2.) Several years ago, I heard Henry Aaron describe a major driving factor in the rise of our health care costs: US federal research money. As long as obscure research is funded by Uncle Sam to find cures for rare diseases, this eventually leads to expensive drugs (paid for by taxpayers) being made available to the public. So, tens of millions of dollars in USG R&D leads to tens of bilions of dollars in expensive drugs and procedures down the road. By default, the USG is fanning the flames of escalating healthcare costs through federal research. No good deed goes unpunished, I guess. Do you agree? If so, are there provisions in the Senate and House bills to track the multiplier effect of USG funded medical research in stoking health costs?

Posted by: gregw571 | December 29, 2009 2:58 PM | Report abuse

Read Herbert's column-- which is a fairer one IMO than you described.

Whether people would prefer the excise tax vs. a move to Wyden-Bennett vs. status quo-- that was simply a debate that Obama was to scared to have with the public. You can claim that is would have been a political deal killer-- but Herbert's points is that the actual tax effects will be.

The excise tax is passing today because no one really understands the impact in 2015. There is an unrealistic hope that the tax will stick then, even though no one ever did the political heavy lifting in getting the American public to accepting it in the first place. That's the criticism, Ezra. The policy makes sense. So would several others. Obama chose to be dishonest about his choices to get something passed, but without acceptance, the actual excise tax is likely to be repealed right when the policy starts being meaningful. You writing a couple of posts or a Gruber op-ed doesn't change that.

Obama hid from the truth. I'd be willing to bet a fair amount that the excise tax is never implemented as designed. That's where the criticism of this being "paid for" is fair. That's just not the case factoring in the likely future politics.

Cost control starts with honest discussions with the public. Obama chose to lionize Goldman Sachs insurance plans and big insurance companies. That wasn't the truth.

Posted by: wisewon | December 29, 2009 2:59 PM | Report abuse

Lots of comments missing the point here. Can anyone who's against the excise tax explain why benefits should not be taxed as income while wages should? Can anyone explain a rationale why benefits purchased by an employer for its employees should not be taxed, but the wages used by an individual to purchase her own benefits should be?

The exemption of health insurance from taxation is just a stupid policy that favors inflation of health care costs. The excise tax starts to correct this problem in a progressive manner by keeping non-Cadillac tax-free but applying the normal taxes to Cadillac plans. The money to pay for healthcare has to come from somewhere, and this is by far the best place to get it from.

Posted by: etdean1 | December 29, 2009 3:05 PM | Report abuse

I'm curious as to why you didn't mention new technology as a cost driver in health care. I might have a great health plan that "costs" the government because it isn't taxed -- that doesn't mean I spend my free time hanging out in doctor's offices, labs and hospitals taking my "cadillac" plan for ride.

And the subsidy isn't a "cost" or "lost revenue" to the government. If the government was spending money, that's a cost. Only in Washington would money that doesn't belong to it in the first place be considered a cost. I understand that eliminating the exclusion and taxing employer-sponsored insuraance policies would generate revenue for the goverment. So make that point -- that the government could raise XX amount by taxing these health plans. Don't chartacterize it as a cost. It is no such thing.

Also -- your column this weekend on ending the filibuster was flawed. The D's have 60 votes. They just don't have the stones to strongarm their members. Do you think LBJ would have put with Nelson? Don't fault the rules (or a 40 vote GOP block) --fault Reid's weakness.

Posted by: NoVAHockey | December 29, 2009 3:06 PM | Report abuse

Ezra,

Thanks for all the hard work you've been doing on healthcare. I'd like to bring up two related issues about "cadillac" plans and Herbert's columnn.

First, I think you're basically talking past Herbert's main point. His point is that we live in a real world where wages have been essentially flat for decades and where the massive productivity gains of the last 30 years have gone almost exclusively to the profit side rather than being shared with labor. At the same time, the tax is designed to grow much less than the anticipated rate of medical inflation so that a "cadillac" cost today will inexorably include an increasing number of "non cadillac" plans. Just like the AMT has done; it's moved from a tax on wealthy people to one on the middle and upper middle classes. Herbert feels strongly that working people will end up with less overall coverage, more out of pocket expenses and no comparable wage increase to compensate. Other than statistical and econometric models, can you point to any real world evidence he's wrong?

Secondly, can you please respond to Merrill Goozner's contention that the core assumptions underlying the idea of "cadillac" plans is wrong in almost every way:

[Here's a summary of his position - the whole pieces is at his blog: http://www.gooznews.com/node/3217 ]

As regular readers of this blog know, I consider it [the cadillac plan concept] ill-considered and unfair, a tax on people stuck in expensive plans because they belong to groups with older and sicker beneficiaries who use more health services; small groups generally; or who live in areas with expensive delivery systems. The idea that taxing those plans will somehow encourage people to reduce their utilization is wishful thinking that ignores who actually makes health care decisions -- doctors, hospitals, drug companies, and other providers.

Ezra, I'd very much like to hear your response to Goozner's analysis.


Posted by: jph4 | December 29, 2009 3:08 PM | Report abuse

Herbert's point - until the provider fees are controlled; do not take out these special doles to 'workers' and let these workers continue to get this bribe from State!

I wish Herbert was more serious about 'cost controls' than simply resisting this one right provision in the bill.

As like him, I will be affected too in future. But unless we have employees aware of what they get for their premiums; there is no market pressure to reduce the costs. Employers i.e. companies do not vote, but employees vote and hence people will contribute to the eventual tightening of bolts on provider costs. With today's structure; there is no way it is going to happen.

As and when provider controls are coming; that is a great. That may be the core cost control. But can we wait till then to continue the current pervert situation of 'tax deductions' for expensive medical plans?

At some point, there is simply an ideological resistance from folks like Herbert.

Posted by: umesh409 | December 29, 2009 3:08 PM | Report abuse

"He doesn't really argue that the excise tax is bad policy."

Read the column again Ezra, without your pro-tax bias. His final statement says "Those who believe this is a good idea should at least have the courage to be straight about it with the American people." Nowhere does he indicate that he is among those who think it is a good idea.

"The tax preference is huge, regressive, and encourages more spending on health-care insurance. And beyond all that, it separates workers from the cost of their health-care insurance, which is one of the main drivers of our cost problems."-

If you believe that, then you should not be advocating yet another layer of machination to protect those with employer-paid benefits from understanding the costs of their coverage.

If health benefits were declared as compensation with employer contributions above the alleged "cadillac" limit taxed, the cost of coverage would be transparent to everyone and the cost of additional care would be borne directly by those who want to consume it. At the same time, people who pay their own way would get the same exemption instead of paying for their own coverage with taxable dollars.

Posted by: Athena_news | December 29, 2009 3:22 PM | Report abuse

"The excise tax starts to correct this problem in a progressive manner by keeping non-Cadillac tax-free but applying the normal taxes to Cadillac plans."

The first step to a rational tax policy for health insurance is not to institute yet another convoluted tax but to make things more transparent. The excise tax does the exact opposite and continues the misguided policy of making employers responsible for levels of coverage rather than the actual consumer.

If you want to keep "non-Cadillac" plans tax free, that could be done quite straightforwardly by eliminating the corporate health insurance exemption and instituting a new individual tax exemption for health insurance for *everyone* (not just those whose bills are being paid for by someone else) up to whatever limit is considered "non-excessive". That would be an actual step toward getting everyone responsible for his/her insurance decisions.

Posted by: Athena_news | December 29, 2009 3:29 PM | Report abuse

Tax all the plans.

In reality though, we're not going to cut costs until we have plans that cut out high cost providers- or pass the costs onto customers if they choosing something other than the "best value". We need competition based on price among providers, insurance is just an insulating proxy for that.

The way we pay is SICK. We need something where the consumer costs reflect the costs of care so we can stop getting ripped off by overpriced providers.

Posted by: staticvars | December 29, 2009 3:32 PM | Report abuse

Ezra, another piece I would add to your argument is the direct raise people can get with the excise tax. How is it? Well, as Herbert argues, most people won't pay the tax. Instead, their companies will choose less generous policies. But these new policies cost less and employees can pick up the difference in wages.

Of course, everyone will question whether the savings will show up in wages. Economically, we know they do. And in reality I suspect a union will not have much trouble making it so.

Posted by: pedro_mn | December 29, 2009 3:41 PM | Report abuse

Read too fast. You have it.

"There's a legitimate argument over how much of the savings workers will receive in terms of wages (I side with most economists, who think they'll see quite a bit of it, particularly over the long run), though I'd note that the reason that question is so complicated is because of the employer-based market, and chipping away at that basic relationship is part of the point of the excise tax."

Posted by: pedro_mn | December 29, 2009 3:44 PM | Report abuse

Ezra's post illustrates where the argument goes if we abandon any attempt to either do single-payer or rein in the private market for health care, like all other major indutrialized countries do, which would allow us to get the same amount of health care at one-half to one-third per capita of what we're now paying. Once you abandon that proven cost-control approach, which would make health care affordable for everyone, and assume that the insurers and providers must be allowed their piece of the pie ad infinitum, then you inevitably turn to the rest of us and tell us that cost control has to be achieved by us.

Herbert's column objects to that because his primary emotional and political allegiances are to ordinary working class and middle class people, and he objects to cost control being ripped from the backs of people like that. Faced between a choice of achieving cost control by abandoning the private market for health care/tightly reining it in or telling the rest of us to suck it up, Ezra chooses the latter.

Who do you think is the genuine liberal here - Herbert or Ezra? One person's argument will serve the entrenched economic elites in this country very well, while the other's would raise questions of equity and fairness and class interests that Ezra either can't recognize or waves away. Pretty sickening for a guy like that to pose as any kind of liberal or progressive.

Posted by: redscott | December 29, 2009 3:45 PM | Report abuse

You wrote: "More to the point, health outcomes in Kaiser Permanente, which is a managed-care organization, are not worse than those in Aetna's more expensive PPO plans."

I did a search to find insurance premiums, and found that the Kaiser plans in the Bethesda MD area are actually more expensive than an Aetna PPO. The Aetna PPOs with a deductible of $10,000, $5,000, and $3,000 (HSA Compatible) are all cheaper than a Kaiser plan with a $4,000 deductible. Aetna doesn't even offer plans with deducitbles less than 3,000. Kaiser has plans with much lower deductibles that are much more expensive.

You cannot generalize about health care expenses, you need to talk to people who actually understnad the health care market, not ivory tower economists.

Posted by: kaylamom1 | December 29, 2009 3:51 PM | Report abuse

Ezra fails to mention that both Canada and England have public health care plans.
That's because it would ruin his argument.
FAIL.

Posted by: kmblue | December 29, 2009 3:59 PM | Report abuse

What I got from Herbert's column is that the entire basis for the claim of deficit reduction in the bill is a sham. The projected revenue from the excise tax is based on increased income taxes from employees who gets raises because of the money their employer saves on HC costs. Anybody who has spent more than 15 minutes in today's corporate environment knows that's never going to happen. Herbert's numbers are that only 18% comes directly from the tax. The other 82% is allegedly going to come from income taxes. It's a completely bogus number with no basis in fact.

Posted by: desperado1 | December 29, 2009 4:06 PM | Report abuse

I was glad Bob Herbert spoke up, and I'm glad to see the comments here generally opposed to this unfair tax increase. I wish our leaders would consider some of the many compromise proposals which don't punish the middle class.

kaylamom1--Kaiser isn't set up to provide low cost high deductible plans. They just offer it to compete. I guarantee you will get much more value from the slightly more expensive Kaiser plan. Become a member and you'll see.

redscott--Greg Sargent called Ezra a moderate Democrat and put him well to the right of Howard Dean. Anyone's free to call themselves progressive of course, but the proof is in the pudding.

Posted by: bmull | December 29, 2009 4:19 PM | Report abuse

Pretty sure that the existence of public health care in Canada and England has nothing to do with the propriety of taxing the level of benefits of employer provided health insurance in excess of $23,000. But hey, I could be wrong.

Posted by: etdean1 | December 29, 2009 4:21 PM | Report abuse

I completely disagree with Ezra on this point. The Cadillac tax must go! The goal should be to move more and more people towards the so called Cadillac plans i.e., low deductibles and low premiums and complete coverage of medical needs. People should be encouraged to go to their primary care physician to take of problems early instead of waiting for it to get worse-which is what a tax on healthcare would do.

Ezra's argument hinges on the presumption that people love to just go to the doctor and get expensive care often. Most people want to get the best coverage for the money in case they are forced to avail of medical procedures. The only thing this excise tax would do is force people to pay more out of pocket while the insurance company just pockets the premiums without paying for even basic services since those would not be reached with a high deductible.

This would also be contrary to Obama's pledge that he would not raise taxes on the middle class during the campaign. I am with Bob Herbert on this one a 100%.

Posted by: ns3k | December 29, 2009 4:24 PM | Report abuse

There are many good arguments above against the excise tax (the first three posts are very much to the point). Additionally Ezra your reference to "most economists" supporting the excise tax is the weakest form of argument and a classic logical fallacy: appeal to authority. To make it worse the authority you appeal to is in serious disrepute. "Most economists" also failed to see an $8 trillion housing bubble in front of their noses. Now we're suppose to ignore our common sense and trust their analysis?

While I appreciate your support of UHC (a cause I've staunchly supported for years) your defense of almost every aspect of the dog's breakfast Senate bill is tiresome. If as a political judgment you believe it's as good as we'll get right now, and that it's better than nothing, fine. But defending almost every aspect of it makes it hard to take you seriously.

Posted by: alex50 | December 29, 2009 4:42 PM | Report abuse

Ezra,

Your argument in favor of the excise tax is ever-malleable and seemingly dishonest. You've continually argued that it is a necessary cost control because it captures the rising costs of medical expenses more effectively. But, in reality, the tax will be avoided and not capture the revenue.

Secondly, you've continued to argue that health care reduction will result in wage increases. Despite your insistence on the unanimity of the profession of economics (a claim I would not hang my hat on) no one believes this - save a few a wayward commenter here. It is simply not borne of reality, practice or experience and rather is the mere speculation of economic modeling. Anyone with either serious experience negotiating contracts or running a business - especially now or in the last 30 years - would disabuse you of such absurd claims.

But what is most dispiriting is your constant maneuvering to paint the opponents of the excise tax as naive or disingenuous. It is quite clear that your - and many other so-called policy people - are incredibly naive. Realistically, you have no real experience with such practices and, as an astute poster above points out, your core response is elementarily logically fallacious: appealing to authority. When that authority is the great "profession" of economics, mostly of the neoliberal and neoclassical variety, you're in trouble. History will expose this as a regressive sham. But generally, proponents of bad policy are unscathed if not rewarded. You will probably do well, but most others will not.

Posted by: ctown1 | December 29, 2009 6:36 PM | Report abuse

I just don't get the notion that wages will go up if health care costs go down. We have 10% unemployment and a massively deunionized economy. Why are all these economists so sure the corporations won't just keep the savings? That would be far more in line with both their incentives and their recent behavior.

Posted by: beckya57 | December 29, 2009 8:16 PM | Report abuse

Herbert most certainly does address the policy: Namely, that this is NOT cost control, nor will it produce the revenue estimated to cover the cost of the reform bill.

So this isn't a matter of workers having to struggle along on their flat wages. The government will also be caught short of anticipated revenue for this allegedly "revenue-neutral" plan.

Take the rich, like the House said. This is not cost control - it's a tactic to undermine unions. If you don't see that, Ezra, you're not as sharp as people seem to think.

Posted by: uberblonde1 | December 29, 2009 10:37 PM | Report abuse

What percentage of "Cadillac plans" are currently held by UAW retirees, or retirees in other industries?

How would increases in their deductibles and cuts in their benefits increase their wages?

Also, I'm assuming here that Cadillac Plans in high risk industries are exempted.

Seems like a pretty convoluted funding formula. The House funding mechanism makes a lot more sense. Tax the super rich and be done with it.

Posted by: JPRS | December 30, 2009 12:18 AM | Report abuse

Wages will almost certainly NOT go up in general if healthcare costs go down. A study up on the Kaiser Health News website indicates that only 16% of employers would increase wages in exchange for reducing health insurance costs: http://www.kaiserhealthnews.org/Stories/2009/December/02/~/media/D8E9E662C4B64AB9B1C8E64984EF49B0. ashx

"About the survey
In early November, Mercer surveyed 465 employer health plan sponsors to find out how they might respond to such a tax on their health plans. Respondents included roughly equal numbers of small employers (fewer than 500 employees), mid-sized employers (500-4,999) employers and large employers (5,000 or more employees).

One argument that some have made in favor of the excise tax is that employers cutting benefits would return the savings to employees in the form of higher wages. However, less than a fifth of respondents (16 percent) say they would convert their cost savings into higher pay."

This was referenced in a long-ish post "The Cadillac-Turned-Chevy Wage Increase Myth" by Marcy Wheeler (emptywheel) over at FireDogLake: http://emptywheel.firedoglake.com/2009/12/17/the-cadillac-turned-chevy-salary-increase-myth/

Academic economists severely underestimate how much large companies irrationally hate spending money on employees, and how utterly profit-obsessed they've become. But everyone on the comment boards here seems to understand it pretty well.

Posted by: tmo77 | December 30, 2009 12:39 AM | Report abuse

People who have to buy their own health insurance do so with 100% after-tax money.

Its a matter of simple fairness that people who get health benefits from an employer should also pay taxes. In the case of this bill, they are only taxing a small slice of the most generous benefits.

The whining from unions and others is selfish and ridiculous.

Posted by: HuckFinn | December 30, 2009 12:57 AM | Report abuse

Being on vacation, I have done a lot of reading on the health care plan, most of it from plan proponents like Ezra Klein. Frankly, the more I read, the more I move from "the best we can get," to "kill this now."

The fundamental retention of market-driven healthcare delivery is the fatal flaw of our system, and it is reinforced by this bill, and particularly by the "Cadillac tax." There are solid arguments against it above. However, among the most convincing is that patients do not drive health care costs. Providers and suppliers do. Until we have mechanisms to control them, we are plugging a leaky boat with Kleenex.

Posted by: lEG2 | December 30, 2009 10:18 AM | Report abuse

We have a Kaiser policy and it is not a stretch to imagine that the premium will be in the Cadillac area by the time this all comes to pass.

So it's not going to be just on people who can pick the best doctors in the country. That said, we believe Kaiser has a good system, but this tax is going to extend down into the regular guy area pretty quickly.

Posted by: RedBird27 | December 30, 2009 3:28 PM | Report abuse

My basic HMO plan for an individual (I'm self-employed) is already high above the rate suggested as a "Cadillac" plan, and will be 1/3 of my current income. So will I be subsidized and then taxed? How is it good for the economy or my business if all my spare cash goes for health insurance instead of being spent on goods and services or investment in my business?

Posted by: elysefdes | December 31, 2009 10:47 AM | Report abuse

Ezra makes a completely mistaken assumption: he accepts at face value that higher out of pocket costs will control costs. He then cites the UK and Canada to say that less utilization does not lead to bad health. Of course he fails to consider that patient out of pocket costs in both the UK and Canada are a fraction of what they are (now) in the US. Moreover, the US patient (on average) has significantly higher out of pocket costs than patients in the rest of the developed economies. So, there is no factual basis to conclude that higher out of pocket costs lead to greater cost control (less utilization at the margins is not the same as cost control). On the other hand, there is a factual basis to assert that higher out-of-pocket costs lead to HIGHER overall expenditures (based on international comparative experience).

The real answer, of course, is that out of pocket spending has a negligible imapct on cost control. The excise tax is a tax policy, not a health care policy and efforts to portray the tax as an effective component of health care reform are intellectually dishonest - which was Herbert's point.

Posted by: dcinsider1 | January 1, 2010 12:01 PM | Report abuse

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