Gruber, the Excise Tax, and the Politics of Policy

A lot of well-meaning people and good ideas can get tarnished when they enter the realm of politics. Take Jon Gruber, who’s been in Krugman’s words, the “go-to guy on modeling reform” and a “top micro-modeling expert”. Due in small part to the fact that he didn’t disclose his contract with HHS to all people all the time, and in large part to bloggers at firedoglake he’s been accused of harboring conflicts of interest.

Sometimes a kerfuffle is just a kerfuffle and not worthy of a lot of worry. Again, Krugman:

The truth is that this is no big deal. Gruber’s grant is from HHS, not the West Wing; it’s basically the same kind of thing as, say, an epidemiologist receiving a grant from the National Institutes of Health. You wouldn’t ordinarily say that this tarnishes the epidemiologist’s credentials as an independent analyst on infectious diseases…

The only reasons you might see this differently would be if Gruber were either receiving a sweetheart deal, or seemed to have changed his views to accommodate his sponsors. Neither is remotely true.

Speaking of Gruber and small kerfuffles, he’s one of the several individuals called to task by Larry Mishel in his piece on the historical trends in health care costs and wages. But in Gruber’s case, I think this is making a mountain out of a molehill. Though Mishel has a narrow point I agree with, that wage changes aren’t entirely explained by those of health care costs, I don’t think Gruber’s words in his 28 December 2009 Washington Post Op-Ed explicitly contradict that point (though one could read his implication that way).

Moreover, the debate over the extent to which changes in wages can be related to premiums is silly, because we know the answer. In the long-run it is one-to-one. Workers pay the premiums even if employers appear to and even if those payments aren’t the main or only cause of wage changes over the last two decades. It misses the point of the excise (Cadillac plan) tax to in any way obscure or avoid that fact. So, in my view, it is the fact worth emphasizing: workers pay the premiums.

Workers will also pay the excise tax on premiums. That fact is receiving not one, but two levels of obfuscation in the policy debate. John Kerry is characterizing the excise tax as one that won’t harm workers because it is levied on insurers (h/t Ezra Klein). But insurers will bill their costs to employers who pay the premiums (at least in part). Employers will pass that cost along to employees, through–that’s right–lower wages. Workers pay the premiums.

Of course the whole point of the excise tax is to raise revenue in a way that also promotes efficiency in the health care system. It will certainly do the former but it is a very imprecise and flawed way to do the latter. It’s regressive relative to removing the premium tax exemption. In the form publicly proposed to date it makes no accommodation for geographic variation in health care costs or in the risk profile upon which the premium is based. Put simply, in implementation it’s a stinker (though that could be fixed) with its main redeeming quality its intent (which is good).

Nevertheless, it is being defended as a way to begin to remove the special status that employer-based health care premiums receive by the tax system. Again, this is a defensible and laudable goal but the excise tax would replace one flawed system for another. And I have to believe that the smart people defending it know all this. So why is it being defended so strongly? The only plausible answer I can come up with is that it is, somehow, good politics. Or, at least, it is less bad than alternative ways to raise revenue for health reform.

When good people (like Jon Gruber) and good ideas (like eliminating the special tax treatment of health care premiums) meet politics their intent and image can get distorted. It’s a sad fact that the surest way to stay pure is to stay away and to keep your good ideas quiet. But that doesn’t help anybody but yourself.

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