Matt Yglesias is right to skewer a truly terrible idea from Sen. Tom Carper. Sen. Carper wants a health tax based on the rate of increase a health plan experiences over time, and Yglesias does a good job pointing out the flaws in this notion. But in mustering his arguments against the Carper plan, Yglesias repeats some common progressive misconceptions about the excise tax. You’ll find a number of them embedded in his closing paragraph:
:The existing excise tax idea is not perfect, but it’s pretty smart. It has a progressive distributive impact, it raises an adequate level of revenue, and it creates broad incentives for more efficient use of medical resources while not arbitrarily preventing people from choosing to put a larger share of their wealth into health care services if that’s what they really want.(emphases mine)
The characterization of the tax earlier in his piece is equally problematic: “The biggest objection mounted against Baucus’ excise tax is that it’s not egalitarian enough. Sure, most of the people who would pay it would be richer-than-average, but it would hit some middle class folks and not just the super-rich.”
Let’s start there: I am not aware of any evidence that shows that “most of the people who would pay it would be richer than average.” Granted, most of the people paying it already have health insurance, which eliminates a lot of lower-income people. But Yglesias seems to be implying that people who would be hit by the excise tax are “richer” than the average person who has health insurance. If he has evidence to back up that claim, I’d like to see it.
My suspicion – hopefully incorrect – is that Yglesias is merely repeating some liberal groupthink around this issue, which is based on the seemingly intuitive but ungrounded assumption that costly plans have much more generous benefits and are given exclusively to higher wage earners. Again: Show me the data. In fact I’ll show you mine, even if you don’t show me yours.
Let’s start with the fact that benefit plan “richness” only accounts for a fraction of a plan’s costs (3.7%), according to a recent paper in Health Affairs, while other factors make up the majority of the cost. Then let’s move to the Mercer study which found that one employee benefit plan in five (19%) would be affected by the excise tax in its first year (the CBO says that will happen in the third year – not much difference), and that most of employers (75%) would pass costs back to their employees in the form of increased copays and deductibles. (From Kaiser Health News)
(As an aside, I take exception to the loaded and repeated use of the word “rich” and its variants in his post – “most of the people … are richer than average,” “not just the super-rich,” “a larger share of their wealth,” etc. It feels manipulative. Very few of the people affected by this tax would be “rich” or “wealthy,” much less “super-rich,” even – especially – when discussing union plans. Benefit costs for the “super-rich” are a very tiny fraction of overall health costs in this country.)
The six experts who published two separate papers this week in Health Affairs all disagreed strongly with the conclusion that the tax would have “progressive distribute impact.” In fact, as we summarized earlier, after careful study they reached the opposite conclusion. In the first paper, the authors wrote that “without appropriate adjustments, a simple cap may exacerbate rather than ameliorate current inequities.” In the other, the authors concluded that “”(B)enefits deemed “excessive” due to their cost for many groups are likely to offer average (emphasis mine) protection from medical risk,” adding: “How serious could this inequity be? We do not know – but neither do advocates for the excise tax, who, when asked, agree that there are no good data on which plans cost how much and for what reasons.”
That leads us to the final error in the Yglesias piece: the assumption (shared by many progressive/liberal commentators) that the tax “creates broad incentives for more efficient use of medical resources.” Let me repeat: There is no evidence for that. What the tax really does is create incentives for less use of medical services, not more “efficient” use. That reduction in service is accomplished by increasing the cost of care for people who have health insurance today (despite the President’s promise that “if you like the insurance you have today you’ll be able to keep it.”)
We can always solve the health care cost problem in this country by reducing access to needed as well as unneeded services. (We’ll be addressing some of the myths about unneeded services soon.) If that’s the policy goal behind the tax, it is likely to be very successful. Otherwise, the tax’s backers are engaging in magical thinking: That a tax can somehow selectively pinpoint unnecessary care while leaving needed care intact.
The one thing the tax does do is, in Yglesias’ words, “raise an adequate level of revenue.” The House bill does the same thing by taxing those “super-rich” he writes about. What’s wrong with that approach?
Some may discount my criticisms by pointing out that I’m currently working to defeat the excise tax. If so, they will be confusing cause and effect. I’m working against the tax because I’ve designed benefit plans and analyzed health policy for years. These latest studies confirm our worst suspicions about its likely impact. This tax seems anything but “pretty smart,” and hopefully Yglesias and the tax’s other liberal supporters will reconsider their position in the days and weeks to come.