Wednesday, October 14, 2009

More on the tax on high cost health insurance plans

An article in Monday's New York Times provides a thorough discussion of the potential effects of the tax on high premium plans.

A few interesting observations:

  1. If employers and employees look for cheaper plans to avoid paying premiums that are so high and the related tax, then employees could end up paying more for care and employees might get raises.  If the employees get raises, they will pay more income and payroll taxes.  It is important to recognize that the money they would get back to replace the high premium insurance plans would be taxed even though their benefits are not taxed now.  So, even if there is shopping for cheaper health insurance plans, the individuals may still end up paying more taxes.  In other words, don't think that avoiding taxes on health insurance will necessarily mean avoiding all new taxes.
  2. The article suggested that employees will blame employers rather than the government for the increased taxes or decreased benefits.  That shows an unintended consequence and the importance of using economic incentive studies to follow all the consequences of an action when doing an economic analysis and when just trying to figure out things in life in general.  This unintended consequence of a negative relationship between employers and employees would be a failure to trace all consequences.
So, two key points from the article (and there are others if you choose to look at the entire article) are that avoiding taxes on insurance does not necessarily mean avoiding all new taxes and that there may be important impacts on the perception of who is to blame that are misoplaced because of an inability to trace all consequences.


  1. Kevin,

    I think it's amazing that the suggestion employees will blame the employers is probably true. But only the action of the erroneous perception, the anger is obviously misfocused. And although the topic is healthcare, this also demonstrates who will ultimately be hurt by most progressive burdens in the form of taxation - the middle and poorer classes. The very individuals the current power structure claims to want to protect. The word "incentive" is not in their vocabulary.

  2. I have to agree with you, Tom. Very little of what we are seeing now (or have seen from either administration since the beginning of the financial crisis) has made much economic sense.