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Ezra Klein likes the Max Baucus plan to tax "Cadillac coverage" in order to pay for health care reform.  That is, he likes the idea of taxing this sort of coverage in order to pay for health care reform, though he thinks that doing it through an excise tax on pricey policies is doing "a good thing in an inefficient way in order to say that we're taxing insurance companies rather than workers, even though the end result will be the same". 

Unfortunately for New Yorkers, their state already had the same idea.  Those excise taxes, enacted to cover New York's massive budget gap, have been passed along to consumers not as taxes, but as rate increases.  As a result, the New York Post reported a few months ago that virtually every health insurance plan offered in New York City busts the $21,000 cap for a family plan.  Most of them by quite a bit:

The average monthly premium for family health coverage has soared from $3,866 last April to $4,354 -- a 13 percent increase -- according to a Post analysis of new data from the state Insurance Department. . . .

Premiums for those who agree to stay in-network were less expensive, but still on the rise.

The average in-network family plan jumped from $2,624 to $2,966 last year -- or 13 percent.

Atlantis Health Plan's in-network plan provided the cheapest family coverage, at $2,267 a month.

At 35%, the new excise tax will add about $1,000 to the cost of the lowest priced plan, in an area already known for having some of the highest insurance costs in the nation.  For families receiving the average, the excise tax will tack on $11,000--or almost $1,000 a month--onto their premiums. 

New York City is probably the worst off, since it's a high cost area that already has guaranteed issue, community rating, and an absurdly generous benefits package thanks to Denny Rivera and a host of other powerful health care lobbying machines.  But other high cost states will have similar, smaller issues, especially near large metro areas, and for small businesses that have had what used to be euphemistically called "bad experience" when I was helping buy insurance for my employer a million years ago. 

Perhaps I'm wrong, but it seems to me that the unions will be hit particularly hard.  A lot of them provide health insurance for their workers through multi-employer plans that are already hemorrhaging money.  As I understand it, these tend to be subsidized by one or two big employers who can be hit up at contract time to help the weaker companies.  But UPS can't continue offering ever-greater subsidies to every other firm that employs teamsters forever, and so far, the Teamsters legislative efforts to rope Fedex in to help pay the bills haven't gone anywhere.  Given the souring public attitude on unions, they probably won't, either.   These plans offer generous coverage, coverage that the membership is hardly likely to vote to scale back in the face of an excise tax.

So while the excise tax sounds more politically palatable than the alternative, I'm suspicious that it's going to survive the inevitable attacks by the unions and the New York delegation.  Can Schumer really afford to vote to raise his constituents health care bills by hundreds of dollars a month?  Maybe he can . . . but it seems more likely that this gets quietly dropped along the way.


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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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