Ever since health care reform became a prominent political issue, the question of how to pay for it has plagued the debate.  There is no question that whatever reform is adopted, it isn’t going to be cheap.  Providing health insurance and real access to health care for nearly 50 million people who are currently uninsured isn’t a cheap proposal.  A couple of the ideas on the table right now are a tax on “sin foods” and a tax on “Cadillac health insurance plans.” I can see the former having some measure of success.  Yes, it’s a regressive tax, since junk food is more heavily consumed by lower income people.  But if a tax were to significantly raise the prices of these foods, would that still be the case?  If corner stores (where a lot of inner city people are forced to shop) carried fresh produce in addition to junk food, and the “sin food tax” made the junk food more expensive, perhaps the tax would discourage people from purchasing the junk food.  I’m sure that’s not what the snack food makers want, but it does make sense.  And it is a potential revenue stream.

But I can’t see any way that a tax on “Cadillac health insurance plans” wouldn’t end up just being passed on to the employees who are covered by the plans.  Yes, there are some CEOs who have health insurance plans that cost more than a lot of people earn in a year, but they are the exception, not the rule (and no, I have no problem with a tax imposed on a CEO’s $40,000+ health insurance policy).  But most people who have employer-sponsored health insurance don’t have a lot of choice in terms of what coverage they get.  They may have two or three options to choose from, and not a lot of explanation about what the various options entail.  Most people I talk to end up choosing based on how much they have to pay for the policy, or on how much they think they might be using health care in the coming year.  But after the initial selection, inertia often causes people to just stick with what they have.

And “Cadillac health insurance plans” are becoming somewhat rare.  Employers are constantly trying to lower company health care costs, which means that HSA qualified plans (nothing Cadillac about those) and other options with fewer bells and whistles are becoming the norm.  In the individual health insurance market, the change has been profound too.  Seven years ago, when Jay and I first got into the health insurance industry in Colorado, it was common to see $500 deductibles, $25 office visit copays, and prescription copays with no deductible.  Now a plan like that is as rare as a two-headed goat.  These days, clients call looking for $5000 deductible plans, are curious about HSA qualified plans, and are just generally trying to get a policy they can afford.  It might not be their ideal policy, but often their ideal either doesn’t exist anymore, or if it does, it’s too expensive.

I suppose a tax on individual health insurance plans that still have lots of bells and whistles could make sense.  People who are purchasing health insurance on their own do have lots of options from which they can choose, and if they still wanted to buy a “Cadillac plan” despite an addition tax, so be it.  But I think most of this legislation is aimed at employer-sponsored plans.  Employees don’t have hundreds of choices when it comes time to fill out their open-enrollment forms each year.  And an extra tax on these plans would almost certainly be passed along to the employees.  That might result in more employees opting to waive coverage, which would be counter-productive.

I agree that it’s unfair that two people can have vastly different health insurance coverage simply because of where they work.  But taxing the better health insurance plans could result in costs being pushed on to workers who may not be able to afford it, and who may opt to go without health insurance instead.  Especially for workers who only have one coverage option through their employer, a tax on this coverage simply because it’s expensive (which is often just a result of living in an area where health care is more expensive, and not due to fancy coverage at all) doesn’t seem fair.

If we’re going to tax expensive health insurance policies, we need to make sure that employees have lower-priced options available too, and are educated about the costs and benefits associated with each plan.