Friday, March 19, 2010

No Escape from the Excise Tax

Jon Walker at FDL digs into the CBO's report on the reconciliation bill. His analysis finds that much of the reconciliation health-care bill's "savings" from 2020 to 2029 is predicated upon a massive tax increase through the excise tax on more expensive health-care plans:
To make it look like the excise tax will bring in a huge amount of money, they have indexed the tax to only the consumer price index instead of the CPI plus 1%. This is far below health care inflation even in countries with very slow rates of increase in health care cost. What this means is, each year, the excise tax will likely hit more and more people until it gets to a point where even very basic insurance packages would run afoul of the excise tax. Also, the subsidies that those on the exchange get will get smaller and smaller.
If that excise tax stays in place, it would represent a huge de facto tax increase on tens of millions of Americans. If it does not stay in place, much of the bill's purported savings disappear.

As Walker continues in his "math-magical" analysis, this tax could give employers much greater incentive not to provide health-insurance to their workers:

The problem is that the excise tax is a flat tax of 40% on the value of the entire insurance package. It is not even a set cap on the value the employer pays for. This 40% rate is higher than many Americans marginal tax rate. This means that it simply does not make sense for an employer to ever offer employees the choice of an insurance package that costs more than the new excise tax limit. This would make it effectively impossible for many people with employer-provided coverage to buy a quality insurance package, even if they were willing to pay more in premiums with post tax dollars. If you actually wanted a tax to remain intact for the next twenty years, this is not how you would design it.

Walker focuses on the political unsustainability of the tax, but one also might wonder if perhaps part of the strategy for this tax is to drive people away from employer-provided coverage, to make it unsustainable.

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