Monday, January 18, 2010

The 'Cadillac' Compromise

Los Angeles Times article "The 'Cadillac' Compromise" (January 16th, 2010) argues that there is a benefit to taxing high-cost insurance plans. Specifically, that taxing these insurance plans helps put a "ceiling" on cost, by putting pressure from above.

And keeping a tax on high-end plans, even if it's delayed, will help temper the demand that's contributing to runaway healthcare costs.

This argument would almost be humorously farcical if it wasn't common. It is true that one can reduce healthcare costs by reducing quantity demanded (not demand, as the article states), and that one can reduce quantity demanded by increasing a tax. But this is true of many goods. The government could control runaway milk prices by demanding that no milk could be sold for more than five cents per gallon, but this would not benefit anyone. It would certainly reduce costs, to no-one's benefit and the detriment of many.

1 comment:

  1. Another aspect is that money paid to workers in the form of subsidized healthcare expenses is not subject to the income tax while the same money paid to workers as increased income would subsequently be taxed. In this sense the Obama policy of trying to tax high end insurance plans is really an attempt to increase taxes on workers. It is ironic that he would then be preferentially taxing his labor supporters.