Say "no" to the health care excise tax

by: Jay Stevens

Tue Dec 29, 2009 at 13:40:25 PM MST

Still, in the commentary I've read about the bill, I think most miss the central, and seriously flawed, premise of the tax, something that Herbert only touches on.

Herbert's against the tax because, as health care costs continue to rise (especially without any discernible cost controls present in the health care legislation), more and more health care policies will become taxable:

The tax would kick in on plans exceeding $23,000 annually for family coverage and $8,500 for individuals, starting in 2013. In the first year it would affect relatively few people in the middle class. But because of the steadily rising costs of health care in the U.S., more and more plans would reach the taxation threshold each year.

Within three years of its implementation, according to the Congressional Budget Office, the tax would apply to nearly 20 percent of all workers with employer-provided health coverage in the country, affecting some 31 million people. Within six years, according to Congress's Joint Committee on Taxation, the tax would reach a fifth of all households earning between $50,000 and $75,000 annually. Those families can hardly be considered very wealthy.

But, as Herbert notes, and as we say in the software biz, that's not bug, it's a feature.

Let tax proponent Jonathan Gruber explain:

The Senate assessment on high-cost insurance plans has much to recommend it, which is why it is almost universally favored by health policy experts. It would reduce the incentives for employers to provide excessively generous insurance, leading to more cost-conscious use of health care and, ultimately, lower spending. In other words, it "bends the curve."

In practice, of course, high deductibles and large out-of-pocket costs don't have that effect. In fact, they have the opposite effect. Fear of out-of-pocket expenses keeps consumers away from doctors until they develop serious medical conditions, which are costly to treat. That is, applying "moral hazard" to insurance plans actually drives costs up, not down. We know this because private insurers applied this line of reasoning into their policies for years now, and it hasn't worked.

Which makes sense if you think about it for, oh, two seconds. For one, people don't like going to the doctor. (That's one of the reasons married men have a longer life expectancy; they have someone to badger them to visit the doctor regularly.) Consumers don't need a disincentive to visit a health care provider.  

For another, prices and coverage are never mentioned during a doctor's visit. You usually find out your insurer doesn't cover a procedure days or weeks after the procedure, when the bill comes. Even if doctors were inclined to consider price during patient consultation, in too many areas the pricing structures are a crazy-quilt patchwork of pricing plans, making it nearly impossible for doctors to lay out the costs and alternatives to patients. So consumers don't have access to pricing information that would allow them to be the health-care version of the frugal shopper.

And, lastly, who considers cost when it comes to health? When a doctor recommends a treatment, who's going to oppose the doctor?

If anything, we should be encouraging consumers to have "Cadillac" insurance plans. It gives consumers the right incentives, to seek early treatment for injuries or illnesses during the early, affordable stages, and they pay more into the system, so there's a larger pool of money to cover the sick and ill.