Jonathan Gruber Defends the "Tax" on Cadillac Health Plans

Mon, 28 Dec 2009 19:37:47 +0000

In The Washington Post today, Jonathan Gruber of MIT defends the provision in the Senate bill to lessen the tax advantages of health insurance plans with premiums of more than $8,500 for singles and $23,000 for families.  I mentioned in my post on the Senate bill that I was not a fan of the "Cadillac tax."  Gruber acknowledges but then ignores the main criticisms of this provision:

But there have been numerous criticisms of the Senate financing. Perhaps the strongest is that some insurance plans will be "unfairly" burdened. For example, firms with older employees may have higher insurance costs not because their plans are more generous but because the employees themselves are more expensive to insure. Thus, many claim that this is a tax not on excessively generous insurance plans but on those who happen to have high insurance costs.

But this argument misses an important point: The assessment proposed in the Senate is not a new tax; it is the elimination of an existing tax break that is provided to exactly these firms.

The argument does not miss that point.  It simply questions why the "Cadillac tax" raises the after-tax cost of health insurance for groups that are more expensive to insure along with groups that have chosen a more expensive way to structure their health insurance.

If the concern is inefficient and excessive use of health services, then why not go a bit further and disallow the exclusion of health insurance from taxable income for the cost of any plan beyond what it would cost to insure the group under a high-deductible, catastrophic health insurance plan?