…Because it’s the closest thing we’ve got to reversing the tax-free treatment of employer-provided health benefits (granted through the income tax exclusion);
…which is the most immediate and surest route we have right now to “organically” dampen the growth in health costs (”bend the health cost curve”).
But don’t take my word for it; read what Paul Krugman has to say about it:
The argument for limiting the tax exclusion is that the tax break on health insurance encourages over-spending, so limiting it could help in the process of “bending the curve”. More generally, since we think the United States spends too much on health for not-so-good results, it makes sense where possible to pay for expanding coverage from the health sector itself. Both arguments are reasonable…
Even with the excise tax, premiums are likely to rise over time — just more slowly than they would have otherwise. So what we’re really asking is whether slowing the growth of premiums would reduce the squeeze rising health costs would otherwise have placed on wages. Surely the answer is yes…
A last general point: we really don’t know what it will take to rein in health costs, but that’s a reason to try every plausible idea that experts have proposed. Limiting tax deductibility is definitely one of those ideas.
Bottom line: the details of the excise tax should be fixed, but it’s on balance a good idea.
And Ezra Klein offers similar support (and like Krugman responds to particular criticisms against the excise tax), but adds some frank talk about what bending the health cost curve entails:
no one should be under the illusion that this tax will not cause some pain, or upset some voters, or assail the plans of some middle-class workers. It will. But it’s worth saying this very clearly: You cannot design a cost control that won’t. The health-care cost problem is not a problem of the rich and famous. It is not a problem that can be painlessly solved by limiting insurance company profits (much, much too small) or reducing payments to providers (which would mean long waits and less access). Everything has tradeoffs. Everything has losers.
Compared to what we’re going to have to do in the long run, the excise tax is small change. It won’t hurt many people. It won’t hurt folks badly. It has the chance to do some real good. And if it fails, it’s easy to repeal an unpopular tax. But if the hope is that someone will discover a cost control that no one dislikes and that produces no losers, it’s going to be a long while in coming. In the meantime, we need to start trying cost controls. Passing up this opportunity will only make the eventual reckoning worse.
That’s why the excise tax on high-end health insurance plans, which is in the Senate version of the health reform bill but not the House version, must not be compromised away. The House has nothing equivalently effective at cost control in their version to trade. Their alternative for a revenue offset, a millionaire surtax with a deepening (unindexed) reach over time (even in the optimistic case where that deepening reach is followed through on), would not even keep up with rising health costs, let alone control them.