The difficulty of cost control
MIT economist Jon Gruber talks up the excise tax:
[T]here have been numerous criticisms of the Senate financing. Perhaps the strongest is that some insurance plans will be "unfairly" burdened. For example, firms with older employees may have higher insurance costs not because their plans are more generous but because the employees themselves are more expensive to insure. Thus, many claim that this is a tax not on excessively generous insurance plans but on those who happen to have high insurance costs.
But this argument misses an important point: The assessment proposed in the Senate is not a new tax; it is the elimination of an existing tax break that is provided to exactly these firms. Under current law, if workers are paid in wages, they are taxed on those wages. But if they receive the same amount of compensation in the form of health insurance, they are not taxed. As a result, the tax code has for years provided a large subsidy to the most expensive health plans -- at a cost to the U.S. taxpayer of more than $250 billion a year. To put this in proportion, the cost of this tax subsidy to employer-sponsored insurance is more than twice what it will cost to provide universal health coverage to our citizens.
The excise tax on generous insurance plans would simply offset this bias for the most expensive health insurance plans -- and only on a partial basis.
The excise tax has been sold as a sort of populist corrective to lavish plans, and it may, in certain cases, play that role. But more generally, it is the beginning of redressing an insane tax quirk that's driving health-care costs upward, and that no doubt benefits some people of middle income. Henry Aaron's idea to "base the tax on high-cost plans not on each company’s actual cost, but on the cost of each company’s plan as applied to a population of standardized age distribution," makes a lot of sense, but even after modification, the tax will hit many who are not plutocrats, and they will be much more upset about the tax than any of its supporters will be happy about it.
Our health-care system is quite bad, but it's also got a lot of winners within it, and even more people who think they're winners. And cost control, even in the best-case scenarios, will hurt some of these people directly long before it helps everyone else indirectly. That's why it's going to be so difficult.
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