I'd like to address two comments on recent posts -- one by Michael and one by Jonah -- regarding the "tax" on "Cadillac" health plans.
As a matter of tax policy, I favor eliminating the exclusion of health insurance premiums from taxable income. So does Jon Gruber. I think economists can agree on this because of the reasons indicated in the original articles and comments -- it promotes spending on health care that may be wasteful. We could finance quite a lot of expansions in coverage with a chunk of the $200 - $250 billion in foregone tax revenue. We would also make the tax code more progressive in the process.
What I am criticizing in these posts is a proposal to selectively eliminate it for the most expensive health insurance plans without regard to whether the expense is due to the design of the plan or the expected health expenditures of the insured population based on their health status.
It is true that the income tax exclusion of the health insurance premiums does tend to favor those with high expected health expenditures, but the way to address that issue is through a comprehensive system of ex post risk adjustment for the premiums, as I discuss here and here with regard to the House and Senate bills.
Jonah also asks why I favor Medicaid-for-all rather than Medicare-for-all as the backstop to the individual mandate. There are a couple of reasons. First, Medicaid is the less generous of the two plans. I have no desire to see people leaving private insurance for government insurance in large quantities. That will happen less with Medicaid. Second, Medicare exists in a fiscal environment in which it runs large deficits as a matter of course -- no one has yet faced its true costs and paid for them. Medicaid is run at the state level, and although it receives federal funding, politicians have had to deal more straightforwardly with its cost growth.
Premium deductability
Some items should be excluded from certain taxes. Food in most places (not NC) is sales tax exempt. Health insurance should be in that same boat. Now, how big that boat is becomes the question. Do we exclude premiums from income? Or do we just exclude premiums from sales (and similar) taxes? Quite frankly, I don't care - as long as it is consistently handled.
I carry my own insurance for a couple of reasons. First, my previous employer disappeared courtesy of a hostile takeover. COBRA was not an option for those who lost their jobs, and though I was kept on by the company that took over, I was initially in fear of being a target of further reductions. Now, though, my insurance is better than the insurance offered by my employer, and that is even after my employer has made major efforts to be able to offer affordable quality insurance. I could even save money by switching to the insurance offered through work, sort of. I would save about $100/month, but that is only because my employer pays half - his costs would increase $200/month.
What I do not like, though, is the fact that if I jump onto my employer's plan, my premiums are magically tax-free. Because I choose to carry my own insurance, I must pay post-tax. I do not have a "Cadillac Plan" - simply decent insurance. Nor do I make so much money to place me in the wage range where the deductions on many items decrease.
Make the playing field even. And make it affordable to those who need help.
What is a "Cadillac" health plan and who cares?
Is it defined by what is covered (cosmetic plastic surgery, botox treatments?) or amount of coverage (lifetime max of $10 million vs. the usual $1 million) or low deductible or some combination of these factors?
RIght now I'm paying for COBRA coverage for my daughter (graduated from college last spring, couldn't find a job that provides health insurance, and has a pre-existing condition). The irony is that she's working for the same company that provides her COBRA coverage (her father works there, and she was cut off from his plan upon college graduation), but they hired her as a contract-type employee so they don't have to pay her benefits. People working next to her in the lab get healthcare coverage fully paid by the company but she does not (although her price does get the benefit of the group rate). She is also paid a lower wage.
I'm not complaining -- at least she has a job that covers her student loan -- but there has to be a better way. Without her continuing "parent subsidy" she'd be underwater/bankrupt right now. I don't think that's the way we want to treat young adults in our society, especially scientists (National Merit Scholar, Phi Beta Kappa from elite college, top departmental honor recipient). She has worked hard, way beyond other students in her elite class, to become a productive member of society, and this is what she gets in return -- low wages, no benefits, and constant fear of bankruptcy if something bad happens.
We need the public option or "Medicare for all". How can young adults, who now face the prospect of multiple layoffs/downsizings/job dislocations in their lifetimes, plan for a secure future without it?
Why are we screwing all the young people in this country?
Thanks for Responding
I would definitely like the “tax” better if it incorporated the risk adjustment measures proposed here, and in fact, I like that measure very much. But I am willing to accept a weaker proposal in order to start to address the tax problems of the current employer provided health insurance structure.
I am left wondering where we disagree though. Do we disagree on the magnitude of the benefit of the “Cadillac tax” in its current form, or do we disagree on the cost of disadvantaging those who hit the cut-off level for legitimate risk reasons. It is probably a combination of the two.
I appreciate your response very much though.