A July 15 Washington Post column that makes the case for taxing health benefits in order to pay for health care reform misses a critical point. High-priced health insurance is not necessarily high-quality health insurance. The Post column argues that requiring patients to pay a higher share of their health care costs will motivate them to consume health care more cautiously, and even refers to the most expensive health insurance policies as “gold-plated fringe benefits.”
But many of the people who pay the most for health insurance have benefits that are far from gold-plated. High premiums are found among small businesses, not because the plans are especially lavish, but because they have high administrative costs and include too few employees to constitute the broader risk pool that would qualify them for lower premiums. High premiums are found in companies with older workers because those workers are expected to have higher health care costs. The high price of these plans may not stem from any bells and whistles in their coverage but rather from a fundamental inequity in the way that insurance is currently priced.
The column, by Steven Pearlstein, goes on to claim that the current tax treatment of health insurance premiums has made us “cavalier not only about the price of health care, but the amount of it that we consume. The result: The cost of health insurance has risen nearly twice as fast as the cost of everything else.” Contrary to Pearlstein’s assertion, there is no evidence that this moral hazard, as it is called, is a primary driver of price increases in health care. In fact, the tax exclusion has been around for decades, even during periods of low health care inflation.
Taxing health benefits would result in an erosion of plan quality, an unwelcome change for people with high and rapidly-growing out-of-pocket burdens. A policy of taxing health benefits over a certain dollar amount would be a blunt instrument that could do great harm to the very people we should be striving to help. Reforms to the employer-sponsored health insurance market should be considered to address these adverse consequences.