The excise tax and the limits of my expertise

One of the points still left up for debate is which tax will help pay for  health care reform.  The House version wants to use an income surtax on the wealthy.  The Senate version uses an excise tax on “Cadillac plans”.  Some argue that although the excise tax will hit more people not technically rich (which it likely true), but that it will also have a policy good of helping to contain costs.  Many economists agree with them.

Economics is not my expertise.  When the models get complicated and the methods become less clear, I have to trust those doing the work.

A recent paper in Health Affairs, though, disagrees, with the claims that “Cadillac plans” are excessive.  Here’s the abstract:

It’s often assumed that high-cost health insurance plans—sometimes called “Cadillac” plans—provide rich benefits to plan subscribers. Health reform provisions that treat these plans like luxuries may be misguided. Only 3.7 percent of variation in the cost of family coverage can be explained by benefit design (actuarial value). Benefit design plus plan type (HMO, PPO, POS, or high-deductible plans) explains 6.1 percent of this variation. Industry type and medical costs in the region also play a role. Most variation in premiums, however, remains largely unexplained.

If only 3.7% of the variation is because of too much coverage, than it would seem that much of the higher premiums are due to other factors, like regional medical costs or the industry providing coverage. Sometimes, the higher premiums can’t be explained.

If this is the case, then I’m not sure how people still envision the excise tax working to reduce costs without actually covering less.  Those plans aren’t excessive in terms of benefits, evidently.

I need a health care economist to provide a reasoned take on this peer-reviewed study and explain why it’s wrong, or how the excise tax will function in light of its findings.

I’m looking at you, Austin.

UPDATE: Edited for clarity.

UPDATE #2: Austin answers.  You all really should be reading his blog regularly.

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