Understand Health Care and You Can Read Between the Lines
Editor’s note: The first part of the article, below, is likely correct — on 3% in 2013, however the escalators (CPI indexing of the threshold vs. actual medical inflation will catch a majority of plans within six years. Then Orszag’s assumptions will take over.
Orszag’s correct, the cadillac tax will create an incentive to design plans in such a way that they stay under the tax threshold. However, it does not follow that it will slow the growth of private health care costs UNLESS you narrowly define those costs as either the cost of the insurance premium or quantity (and perhaps quality) of the care received.
In the first instance, costs will be shifted to consumers and therefore costs will not show us as health insurance costs. However, it will reduce the disposable income of individuals as they spend more and more of their dollars on health care. Maybe having them make their own purchasing decisions is a good thing — with one caveat it is the prices of health care that are the real problem, it is too expensive for most individuals to afford and therefore they will be forced more often into bankruptcy or avoid care altogether.
And that brings me to the second point. Orszag is banking on the Dartmouth Atlas work that demonstrates that there is unwarranted variation in health care that wastes upwards of at least 30% of health care expenditures. However, that reliance also banks on individuals being able to discern for themselves where that waste is.
WSJournal Sees Contradictions In White House’s Healthcare Tax Message. In an editorial, the Wall Street Journal (12/18, subscription required) argues that White House officials are issuing contradictory messages regarding tax provisions of the healthcare bills before Congress. The Journal quotes the White House’s Jason Furman as saying in a blog entry that the “Cadillac tax” would “affect only a small portion of the very highest cost health plans — a total of 3% of premiums in 2013.” On the other hand, adds the Journal, White House budget director Peter Orszag has stated that the provision is key to controlling healthcare costs. Orszag is quoted as saying of the tax, “You’re creating an incentive for plans for employers to design their plans in such a way that they’re under that threshold. … You’re creating an incentive to slow the growth rate in private health costs.”
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