Why Liberals Should Be Honest about the Excise Tax

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No party holds a monopoly on misleading statements about health care reform, and and it's important to shine a light on such hoodwinking, even when it's from somebody on your own side. So I'm pleased that Ezra Klein calls out this John Kerry blog post for a proper thwacking. Kerry defends the embattled excise tax on expensive insurance plans in the Huffington Post, and he writes:

[The excise tax] will help control future health care costs without -- I repeat without -- directly taxing employees.

That is not -- I repeat, is not -- a very good or honest way to defend the excise tax.


The goal of the excise tax is not only to raise money, but also to discourage employers from buying expensive health care plans. The hope is that employers will switch to cheaper health insurance plans, and use the compensation left over to increase wages, which are taxed. In other words, Congress hopes -- and the CBO expects -- that employees will feel the impact of the excise tax in the form of cheaper insurance and higher wages. That's neither hard to explain nor frightening to admit. So why be coy and misleading?

Kerry also writes:

Fourth, the excise tax included in the Senate-passed health care bill will affect only a small portion of the very highest cost health plans -- a total of 3% of premiums in 2013.

Ezra's right to demur here, too. The excise tax is designed to extend its reach over the next decade because it's tied to overall inflation, rather than health care inflation, which is moving much faster. It could hit 20 percent of employer-provided premiums by 2020. Is that a bad thing? Some folks on the left like Daily Kos scoff at the tax "not being properly indexed" but I think the indexing is entirely proper. I want this tax to creep.

There are a lot of reasons why health care is so expensive in this country. The problem is that most of these reasons nobody wants to fix. We like our doctors to be well educated and well paid. We like our hospitals to brim with sparkling new technology. We like to receive the finest new medicine and procedures. But one reason we think we like all these things is we don't see what they cost. Employer-provided health care is taken out of our compensation. What we see are the remains -- our wages -- rather than the subtraction. Furthermore, as Ezra explains, a dollar in health benefits is worth more than a dollar in wages, because it's exempt from taxation. We can't expect to move away from rampant health care inflation if employers, who are the pivotal health insurance consumers, continue to treat health insurance as a tax haven for their workers compensation.

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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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