Responding to Doubters of the Cadillac Tax

Here is Slate's very smart man Tim Noah on why the Senate health care bill's tax on expensive "Cadillac" insurance plans is a bad idea:

It's certainly true that the price and availability of insurance coverage has a significant effect on medical inflation. If insurers spend less, doctors and hospitals will spend less. But how much less? The prices that doctors and hospitals charge aren't determined only by private insurance. They're also determined by the availability of government money (which will increase substantially under health reform) and by what individuals feel compelled to pay out of their own pockets (which, in the case of serious illness, can be quite a lot). It's therefore easy to imagine the Cadillac tax squeezing patients between ever-lowering benefits and still-rising prices for medical care.

I'm not sure I follow.


Noah says that the prices that doctors and hospitals charge are determined by a combination of private insurance and government money. But government money already exerts a downward pressure on prices. Medicare reimbursement rates are so famously low that some doctors won't even accept Medicare patients. The government can pay hospitals up to 30 percent less than private insurers because of lower administrative costs. So government stinginess is already tying an anchor to medical inflation. A excise tax on Cadillac plans would tie another. Why is that a bad thing?

Well, Noah's right that could also mean fewer benefits, worse care, a popular uprising and, ultimately, the repeal of the tax. But as David Leonhardt explains today, fewer benefits doesn't necessarily mean worse care. From Richmond to Mayo to the Cleveland Clinic, there are many examples of excellent health services without abundant care. Peeling our health care system away from the mantle of More-Is-Always-Better is exactly the long-term goal of health care reform. The excise tax is not a perfect plan, but it pushes American health care away from something that is entirely unperfect and wholly unsustainable.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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