Archive for the ‘Tax Policy’ Category

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I want to help the President and I need your thoughts.

Is President Obama about to follow the ignominious example of GB I, George Bush, The Elder?

Remember, “Read my lips.  No new taxes!”?

Remember, “John McCain will tax your benefits!”

Well BHO seems about to cave on his campaign pledge.

At least GB I could argue that the campaign promise was bad policy and the flip-flop was forced by economic realities.

Oh that BHO could make the same argument!

I have often railed against the taxation of benefits in this space.  I think it is bad politics, bad economics, and bad health policy. I am certainly not the only one.  Frankly, I think President Obama’s capitulation on this issue demonstrates profound political weakness and an astounding ignorance of health insurance.

A new idea.

But in the spirit of compromise, I want to offer a new idea.  It may not be the best suggestion for financing health care reform, but it builds on at least one stated goal of the tax my benefits people – containing costs.

But instead of penalizing people whose only control over costs is to use fewer services, my idea targets the folks who actually have some impact on the health care market – the insurance companies.

Tax the insurance companies

Wait, you say, we are already taxing insurance companies, and those just get passed along to consumers.  But alas, I say, let’s build on the “Cadillac” idea of an excise tax.  Tax the increase in the total cost of a Plan’s  book of business.  By imposing an excise tax on increases over a base level of costs, it could provide an incentive for insurance companies to manage their provider contracts and book of business costs.

This table illustrates how that would work.

The tax would be imposed on gross premiums and not on profits.  It would be payable just as any other cost of doing business, but would not be deductible as a business expense.  Space doesn’t permit me to dwell on the negatives of taxing benefits at the individual level.  I encourage you to click on the category “tax policy” to the right to see my earlier thoughts on this subject.

Taxing insurance companies achieves several objectives that taxing individuals does not.

As an employee benefits professional who has spent a career trying to “manage health care costs,”  I often find criticisms of insurance companies unjustified.  After all, they are only trying to do what we hire them to do.

An excise tax on total premiums could do what individual employers have failed to get their carriers to do – negotiate better prices with providers and manage utilization.  They are the only ones in the private market space who can do that.  Employers, despite many innovative efforts, have not succeeded.  And individuals are absolutely powerless.

Equally important, imposing the tax on a carrier’s (or a TPA’s) book of business, avoids the inequities inherent in smaller group pricing.  The myth of taxing “Cadillac” plans is that these are “rich” plans.  An employer’s cost is impacted first and foremost by the age and illness burden of its population, then by cost sharing and benefit provisions.

An excise tax on insurers and third party administrators (a phenomenon that BHO and Congress seem oblivious to)  is simpler, more equitable and is focused on entities that can actually impact the total cost of health care.

It would be payable even when the company otherwise made no profits.

Because it is focused on fewer entities, it would be less of an administrative burden on the system and easier to enforce.

The alternative – taxing individual plans – is an unforgivable political and policy blunder.

Your thoughts?