Tuesday, October 13, 2009

The Senate Finance “Cadillac” Health Insurance Excise Tax Collects Almost Five Times More Revenue in 2019 Than It Does in 2013

Critics of the Pricewaterhouse Coopers (PWC) report on the Senate Finance bill have been making the argument that the analysts are not giving credit for the changes in behavior the bill would create. In short, the notion that, for example, insurers would pass on billions in taxes on high cost health plans to customers is flawed because the Baucus bill would provide the incentive to lower the cost of these programs in the first place.

In fact, Obama Budget Director Peter Orszag made just that point in the Washington Post today, arguing that the market will respond by developing more affordable products.

"Almost every economist believes the effect of the "Cadillac" provision would be to reduce premiums over time by leading to more efficient insurance plans," he said.


Now look at page 15 of the Congressional Budget Office (CBO) PDF evaluating the Baucus Senate Finance bill. It says that in 2013 the feds would collect $10 billion in revenue from the “Cadillac” tax. In 2019, at the end of the ten-year projection, the CBO says the Baucus bill would collect $46 billion in taxes on "Cadillac" plans in just that one year!

The tax collected in the tenth year alone would be almost 25% of the total $201 billion the CBO says this tax would raise toward the overall cost of the Baucus Senate Finance health plan! It is almost five times more than was collected in 2013!

If you are one of those who thinks the PwC report is severely flawed because it does not give credit for the "Cadillac" tax changing behavior, I suggest you give Senator Baucus a call and tell him he is going to have to raise somebody else's taxes to pay for it all. Because right now he is taking credit for $201 billion of revenue from that "Cadillac" tax to pay for his bill—which is severely back-end loaded.

Since they are expecting most of the revenue from the "Cadillac" tax on health plans to hit in the last years it is hard to see how he or the CBO think this excise tax on high cost plans is going to change any behavior.

Yesterday's post on why the Baucus bill would devastate the insurance markets: The Senate Finance Health Bill Has No Clothes
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