• High Cost Tax v. Cap Tax Exclusion

    My first post at the Incidental Economist suggests that reforming the tax treatment of employer paid insurance may be the only way that the current budget debate can address the biggest budget problem: health care costs.

    It is linked from my blog freeforall because I don’t have the kinks worked out of the new (for me) blogging software. I should be full speed tomorrow. I am thrilled to be joining the Incidental Economist.

    • Great addition to the team….

    • Wow! With everything going on here in Wisconsin, I totally missed the announcement. Superb!

    • I don’t see how making health insurance more expensive will help reduce health care costs.
      Making health insurance more expensive only makes health care more expensive. It doesn’t reduce health care costs.
      Is the idea to deprive people of health care? I guess that might reduce total costs but this is a particularly stupid approach since it doesn’t reduce any individual cost and will probably end up depriving people of necessary care as much as overpriced care.

    • @Mark Spohr
      It is the other way around; the main reason health insurance is expensive is because the use of health care is high (and expensive). The tax exclusion cap amounts are around the 80th percentile of premiums, so the tax or the cap puts some downward pressure on the highest fifth of insurance policies. Part of the reason I favor capping tax exclusion to the cadilllac tax is that it is better for low income folks who would be more vulnerable. Certainly if only needed care is cut out that is bad. We need to both reduce costs while improving quality/appropriateness; the post only addresses part of the story.

    • Don
      I am about to take another crack at your post on this subject; based on length and effort, appears answers are imminent.

      As an aside, as this subject gets discussed, reviewing this paper is also good anchoring for any debate on the utility of higher end plans, ie, who owns them (not rich folk), there generosity (not so), and who gets clipped once the tax bite starts.



    • Capping benefits is a blunt tool to reduce costs and is as likely to reduce necessary as well as unnecessary care (perhaps more reduction in necessary care).
      The problem with unnecessary care is not “consumer choice” it is physician / industry driven.
      If I had chest pain and went to the hospital I would meet a cardiologist who would recommend a stent backed by a hospital with an expensive cath suite and stent manufacturers selling ever more expensive stents. I am educated and would know that there have been four large high quality studies of stents which show absolutely no benefit from their use. However, if I tried to explain this to the doctor (as I am there in pain), I would be fighting a losing battle. Most consumers wouldn’t even try to reduce this wasteful (and possibly damaging) use of resources. All insurance (expensive and cheap) cover this procedure.
      There are similar issues with just about every expensive medical procedure, test and treatment. From chemotherapy (not much benefit in DALY for most people) to CAT scans (1 in 250 chance of cancer from a “routine” CAT scan) to prostate surgery (expensive DaVinci robots probably are worse than your average urologist who has done thousands of procedures).
      The point is that the decision about wasteful costs are driven by the medical industry and patients don’t have the information to make these decisions so they fact that they have a cheap or expensive policy only means they the will pay more or less out of pocket, it will not have any effect on costs.
      A very blunt hammer is only good for pounding down the good and the bad.

    • @Mark Spohr
      you are certainly right that in some circumstances no way someone will ‘shop’ or decide such as example you gave. My dad had a AAA at work and they took him to nearest hospital and whomever was there did the surgery. But, I think incentives do have some effect. If they didn’t then some sort of all payer rate setting would be about the only way to deal with costs. Some think that is the case.

    • @Don
      Thanks for your response. I agree that an all payer rate setting would help with costs. In addition, I think that some “responsible adult” also needs to flag inappropriate, wasteful and damaging medical services. I don’t think patients are in a position to make these decisions. If you cut their benefits, they are probably as likely to cut necessary effective care as wasteful, damaging care.
      Since you seem to think that patients can have a role in reducing costs, I was wondering if you could give a few examples where patients can make informed responsible decisions on use of medical services.

    • @Mark
      I think most of the choices work out in tradeoffs like pick lower premium for higher deductible which can make someone’s $2,000 use by $1,000 over the course of a year. An example would be my families prescription drug bill, which was cut in about half (Duke’s share) one year to the next due to changes in where you could get meds (basically cannot go to a local pharmacy without paying roughly triple now). But, this dropped Duke’s payout from ~$1,500 to ~$800. If someone gets very ill (like my dad with AAA) then you will run through any deductible in one day. But, small changes for the majority of folks who aren’t very sick can have some effect.


    • Don,
      I’m not sure I understand what you are saying… It appears that your example of Rx is where Duke found a lower cost pharmacy. I’m not sure how that relates to consumer decisions. I assume that the lower cost pharmacy was always available and it appears that now you are forced to use it… Duke is using it’s purchasing power to extract discounts. I don’t know if this is an example of consumers finding a cheaper alternative… it seems like the insurer finding the pharmacy and forcing you to use it.