Obama's Health Care Reform: More Health Care, Less Reform?

President Obama's health care proposal doesn't look too different from the Senate bill that still hasn't passed the House. As an overture to House Democrats, the plan increases subsidies for low-income families and delays the excise tax until 2018. In other words, the special deal for unions is now a special deal for everybody. Hooray for the delaying of pain, right?

Well, not exactly, if you -- like me -- were a huge fan of the excise tax as a crucial fulcrum of reform. As Jon Rauch put it succinctly, the policy that employer health benefits aren't taxed majorly distorts health care costs because it "subsidizes high-cost policies, hides the costs of those policies from employees, and denies employees the opportunity to shop around." The excise tax would have chipped away at that distortion. Now the date of chipping is eight years away -- a veritable light-year in Washington, where mid-terms turn every two years into a jousting match for pandering.

Anyway, I was feeling a little depressed about the new tax policy. So I called Henry Aaron, a senior fellow and health care expert at the Brookings Institution, to ask if I should still support the bill. In short, he said: yes. Here's our talk.



{To read more about the excise tax, check out my original defense of the Max Baucus health care plan. Also see my critique of liberals who fudge the reasons why the tax would reform health care costs.}

Why is the excise tax compromise in the bill?

I think the reason it's there is for political purposes. I think what was put out should be read as an instrument for trying to maintain or recapture the support of enough Democrats in the House and the Senate to modify the Senate bill through reconciliation and pass it in the house. My guess is that the administration wanted to make sure that organized labor was on board and this was discussed beforehand. Like most analysts, I think more would be better. Kicking in earlier and a lower ceiling. That said, this is better than nothing which is I'm afraid what we're risking if this effort.

Even if Obama gets reelected, by 2018 we'll be coming up on mid-term elections halfway into the first term of another president, in what's likely to be a very different Congress. That's a political eternity away. Is it likely that this excise tax will be gutted, again?

Anything is possible, even if it had a sooner or earlier effective date. It's going to depend on if there's a sufficient majority in Congress to sign a bill and end it. The presumption will be that it will go into effect. That's a different default position. But none of this is written into the Constitution. Congress can change things.

So will the excise tax "work"? Will it actually help to slow the growth of health costs?

I think it's part of a portfolio of initiatives that move int he right direction. It won't be revolutionary. There''s an old saying among economists. They got the sign right. I can't guess on the magnitude. I think we can say that the sign of the impact is in the right direction, but the magnitude of the impact remains to be seen. It's conceivable that the growth of health care spending could attenuate for reasons that have have nothing to do with this bill, so the indexing formula would bind even less. The principle would have been established that there should be a limit to the [employer provided health care] tax benefit. It's a desirable change.

What else is a part of that "portfolio of initiatives" that you think move health care spending in the right direction?

All those ideas in the senate. The innovation center. IMAC. {More here.}

Back to politics: Do you think this compromise will give health care reform a better shot at passing?

I'm presuming it wouldn't be there unless unions said they're on board. There are a number of members of the House on the left whose support for the bill has come into question. If organized labor comes behind the bill, they'll have an easier time.