House Democrats are steadfastly opposed to the Senate's excise tax in the health insurance bill, despite Obama's support for it. But politics is certainly not the only reason to nix this tax. There are serious economists who question whether it would achieve the goal of curbing health costs or raising wages, the two prongs of the argument in support of it. There's also the problem of who it's actually going to hit:
Health analysts recently questioned the assumption that the tax would target only the most lavish insurance packages, nicknamed "Cadillac plans." The analysts, writing in the journal Health Affairs, found that some less-generous plans could be taxed because they are costly for other reasons. The location of an employer and the type of industry, for example, have as much to do with the cost of plans as the generosity of the benefits and the kind of plan. Smaller businesses, especially those with a preponderance of older workers, tend to have higher premiums, as do certain industries, including the health-care sector.
The Senate bill would phase in the tax more slowly in some higher-cost states and exempt a few industries that tend to have expensive plans, such as mining. But opponents say it is impossible to find a workable way of targeting the tax so it would spare people whose plans are not particularly generous.
"It's a very blunt instrument," said former labor secretary Robert Reich. "It makes far more sense on policy and political grounds to tax the top 1 percent rather than sweep in so many people that are paying more for health care, not because they are getting more health care but because they're older or working for small businesses."
And in terms of lowering costs? As long as the cost of care remains as high as it is in the U.S.--and the bill does little to force providers to bring down those costs--putting the burden of cost cutting on consumers isn't the most effective, or fair, way to slow spending.
Separately, several health-care experts question whether shifting people into lower-cost plans is the best way to slow spending. It is possible, they concede, that the tax could move more employees into HMOs known for more efficient spending. But many markets lack such options.
It is more likely that employers would lower the cost of plans by increasing deductibles and co-pays, which skeptics say would not necessarily bring down health-care costs. Most costs are incurred by a minority of chronically ill patients. And health care is not like other markets, where consumers can make their own judgments based on quality and price; instead, patients make most major health-care decisions based on what their doctors tell them, skeptics point out.
A Rand study from the 1970s found that higher co-pays and deductibles led patients to limit medically necessary care as much as wasteful care, possibly leading to more costly health-care needs later....
Opponents of the tax say the case for it assumes that the country's high health-care costs are the result of patients' overuse of care. But, they note, the country's usage of medical care is by many measures lower than in other developed countries; it is the price that is so much higher here.
"The biggest problem we have isn't that we're demanding so many services, but it's that the type of services we're providing are so expensive," said Thomas Rice, a UCLA health-care expert.
Finally, the Economic Policy Institute, among others, debunks the idea that the cost savings employers receive from cutting back high value plans will actually end up back in workers' pocket in wage increases.
Economic Policy Institute president Lawrence Mishel takes apart that argument in a short, new issue brief.
First, even though unions often lament that in negotiations they face uncomfortable choices between protecting insurance and raising wages, Mishel argues that health insurance cost increases haven’t been big enough to greatly suppress wage growth:
The share of health care in total wages (in nominal, non-inflation adjusted terms) grew from 7.2% in 1989 to 9.4% in 2007, suggesting that the expanded role of health costs could have reduced wage growth by 2.2% over this entire 18-year period, or 0.12% each year....Further, overall benefits’ (health care plus all other fringe benefits) share of total compensation has actually been stable for the last 20 years or so....Hence, the story of stagnant wages in the U.S. economy is not one of growing non-wage competition.
Second, wages grew in the late ‘90s because productivity was increasing rapidly, and tight labor markets combined with a higher minimum wage pushed up wages. In any case, health care expenditures grew about the same rate throughout the ‘90s. Virtually no job creation and weak union or other institutional elevations of wages, not much higher healthcare costs, accounted for low wage growth in the 2000s.
Third, over several decades, low-paid workers have lost the most ground–but they’re also least likely to have employer paid health insurance. And in the late 1990s, when low-paid workers made their biggest gains, it wasn’t a result of health cost containment. Most still didn’t have employer-provided insurance. Finally, Mishel writes, “the worst wage growth in the 2000s was for low- and middle-wage workers, the groups with the least health care coverage.”
The excise tax as currently written is, as Reich says, too blunt an instrument to effectively control costs. With the Senate bill's already discriminatory rating for older Americans, where they could pay as much as three times for a policy as younger workers, this tax could disproportionately hit them. It was a bad idea when McCain proposed it in the 2008 campaign, and the Obama campaign opposed it, and it's a bad idea now.