The Excise Tax Wants to Make You Rich!

The Communications Workers of America just forwarded me this Harold Meyerson column that says that excise tax on expensive, or "Cadillac," health care plans "targets a lot of Chevy plans as well." Meyerson elaborates:

The Senate's tax would initially apply to all individual policies costing more than $8,000 a year, or $21,000 for a family. Those thresholds are to be indexed to the overall consumer price index (CPI) plus 1 percent. Problem is, medical costs and health insurance premiums increase a good deal more than the overall CPI. Since 2000, they have risen three to four times faster -- which means, more policies will be subject to the tax with each passing year. The congressional Joint Committee on Taxation has calculated that in 2013, when the reforms kick in, the tax will apply to 19 percent of individual plans and 14 percent of family plans, but that by 2019 it will sock 34 percent of individual plans and 31 percent of family plans.

Meyerson says "sock", but the actual language of the JCT report is "impact." That's a really important distinction. JCT doesn't expect the excise tax to actually apply one third of all plans, as Meyerson implies.* It estimates that 80 percent of the revenue raised by the proposal would come from income and payroll taxes on higher wages that result from employers switching to cheaper health care plans and moving the savings into higher wages. That's why its tethered to CPI rather than health inflation: To slowly extend the incentive for employers to buy cheaper care.

Meyerson is right that this will extend the tax beyond Cadillac plans. He's right that Americans might reject this tax creep, and unions especially will be peeved to know their hard fought benefits might come under attack. He's right that employers might switch to cheap plans and pocket the savings themselves. After all, if health care inflation has been so devastating, why haven't they done this already? Like so much with health care reform, we're living on assumptions. But let's at least be honest about the assumptions. The excise tax is designed to raise the vast majority of its money over time by encouraging your employer to pay you higher wages -- and taxing those wages to pay for reform.

*Re-reading Meyerson, I don't think I gave him enough credit. He introduces, then argues against, the assumption that the excise tax would move more compensation into wages. I think our main differences are of emphasis rather than understanding.