Blasts from the past: Cadillac and Dr. Bob

In A Tax on Cadillac Health Plans May Also Hit the Chevys, the New York Times examines the Baucus plan’s proposal to levy an excise tax on the most expensive health insurance policies. (I chuckled to see the term “Cadillac” tossed around by the Times and President Obama in this context –how quaint! Reminded me of the good old days of Cadillac Dog Food.) Anyway the article points out a couple of uncomfortable facts:

  • A tax on high-end benefits will quickly encompass the mainstream market, because health insurance premiums rise so quickly
  • A blanket tax will be inequitable, because some people have higher insurance costs for others

Considering that the provision is expected to raise ~$200 billion of the $800 billion price tag for the Baucus plan, why are people surprised that it will have a broad impact?

In the lower part of the article, Dartmouth business professor Robert G. Hansen is quoted saying,

It’s the worst kind of economic engineering… You end up with something that looks like the I.R.S. code.

I haven’t seen that name for a while but I recognize it as the same Dr. Bob that I used to work with at LEK more than 20 years ago, when he had a desk in the same “pod.” The LEK founder, Jim Lawrence liked having a brainy, academic guy around to keep the MBA types under control, and Dr. Bob fit the bill. He was particularly useful in making sure I was expressing the outputs of my conjoint analyses in a statistically valid manner.

Anyway, I think health insurance should be taxed just like other forms of income. It’s a modest but important cost control measure and ultimately will be more equitable. The challenge is managing the transition period, because it is indeed true that the tax will fall unevenly. Personally I would back load the impact, setting a higher initial bar so that fewer people are caught in the trap in the early years.

September 21, 2009

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